<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 2, 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 September 11, 1998 there were 48,694,865 shares of Shoney's, Inc.
$1 par value common stock outstanding.
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<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
SHONEY'S, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
August 2, October 26,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,413,132 $ 11,851,223
Notes and accounts receivable, less allowance
for doubtful accounts of $1,429,000 in 1998
and $1,596,000 in 1997 11,365,268 11,611,369
Inventories 35,597,063 38,382,843
Other current assets 2,908,504 4,840,539
Deferred income taxes 11,578,191 38,835,385
Net assets held for disposal 30,068,536 28,021,259
------------- -------------
Total current assets 109,930,694 133,542,618
Property, plant and equipment, at cost 747,282,256 790,076,204
Less accumulated depreciation and amortization (370,819,555) (343,645,369)
------------- -------------
Net property, plant and equipment 376,462,701 446,430,835
Other assets:
Goodwill (net of accumulated amortization of
$5,200,000 in 1998 and $3,230,000 in 1997) 30,638,168 47,803,815
Deferred charges and other intangible assets 11,561,456 5,889,044
Other assets 5,452,160 11,022,447
------------- -------------
Total other assets 47,651,784 64,715,306
------------- -------------
$ 534,045,179 $ 644,688,759
============= =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 35,947,922 $ 34,156,943
Federal and state income taxes 112,319
Other accrued liabilities 117,829,914 110,501,665
Reserve for litigation settlement due within one year 372,961 16,010,297
Debt and capital lease obligations
due within one year 13,170,255 10,997,069
------------- -------------
Total current liabilities 167,321,052 171,778,293
Long-term senior debt and
capital lease obligations 295,087,156 314,802,187
Zero coupon subordinated convertible debentures 110,463,371 103,612,284
Subordinated convertible debentures, net of bond discount of $3,419,000
in 1998 and $3,939,000 in 1997 48,144,269 47,624,146
Reserve for litigation settlement 243,678 294,672
Deferred income and other liabilities 20,213,245 18,922,137
Shareholders' deficit:
Common stock, $1 par value: authorized
200,000,000; issued 48,694,865 in 1998
48,568,109 in 1997 48,694,865 48,568,109
Additional paid-in capital 137,211,495 136,861,158
Accumulated deficit (293,333,952) (197,774,227)
------------- -------------
Total shareholders' deficit (107,427,592) (12,344,960)
------------- -------------
$ 534,045,179 $ 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>
Forty Weeks Ended
August 2, August 3,
1998 1997
------------- -------------
<S> <C> <C>
Revenues
Net sales $ 876,236,404 $ 934,227,876
Franchise fees 11,321,652 11,573,374
Other income 9,964,922 7,106,545
------------- -------------
897,522,978 952,907,795
Costs and expenses
Cost of sales 807,394,511 844,603,044
General and administrative expenses 66,543,889 61,543,570
Impairment write down of long-lived assets 48,403,158 17,612,067
Interest expense 37,649,007 34,972,805
------------- -------------
Total costs and expenses 959,990,565 958,731,486
------------- -------------
Loss before income taxes and extraordinary charge (62,467,587) (5,823,691)
Provision for (benefit from) income taxes 31,677,000 (6,114,000)
------------- -------------
Income (loss) before extraordinary charge (94,144,587) 290,309
Extraordinary charge on early extinguishment of debt,
net of income taxes of $806,000 (1,415,138)
------------- -------------
Net income (loss) $ (95,559,725) $ 290,309
============= =============
Earnings per common share
Basic
Net income (loss) before extraordinary charge $ (1.93) $ 0.01
Extraordinary charge for the early extinguishment of debt (0.03)
------------- -------------
Net income (loss) $ (1.96) $ 0.01
============= =============
Diluted:
Net income (loss) before extraordinary charge $ (1.93) $ 0.01
Extraordinary charge for the early extinguishment of debt (0.03)
------------- -------------
Net income (loss) $ (1.96) $ 0.01
============= =============
Weighted average shares outstanding
Basic 48,656,930 48,531,790
Diluted 48,656,930 48,567,993
Common shares outstanding 48,694,865 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
August 2, August 3,
1998 1997
------------- -------------
<S> <C> <C>
Revenues
Net sales $ 268,156,465 $ 288,036,321
Franchise fees 3,440,376 3,546,231
Other income 5,689,661 2,626,199
------------- -------------
277,286,502 294,208,751
Costs and expenses
Cost of sales 246,076,588 258,043,190
General and administrative expenses 19,604,973 18,276,209
Impairment write down of long-lived assets 45,809,676
Interest expense 10,977,144 10,405,702
------------- -------------
Total costs and expenses 322,468,381 286,725,101
------------- -------------
Income (loss) before income taxes (45,181,879) 7,483,650
Provision for (benefit from) income taxes 37,951,000 (1,283,000)
------------- -------------
Net income (loss) $ (83,132,879) $ 8,766,650
============= =============
Earnings per common share
Basic:
Net income (loss) $ (1.71) $ 0.18
Diluted:
Net income (loss) $ (1.71) $ 0.18
Weighted average shares outstanding
Basic 48,694,364 48,568,109
Diluted 48,694,364 48,596,429
Common shares outstanding 48,694,865 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>
Forty Weeks Ended
August 2, August 3,
1998 1997
------------ -------------
<S> <C> <C>
Operating activities
Net income (loss) $ (95,559,725) $ 290,309
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 37,191,126 41,528,403
Amortization of deferred charges and other
non-cash charges 10,874,211 9,964,369
Impairment write down of long-lived assets 48,403,158 17,612,067
Tax valuation adjustment 51,313,000
Changes in operating assets and liabilities (4,349,611) (14,818,751)
------------- -------------
Net cash provided by operating activities 47,872,159 54,576,397
Investing activities
Cash required for property, plant and equipment (23,042,278) (33,884,102)
Proceeds from disposal of property, plant and equipment 23,472,357 26,244,638
Cash provided by (required for) other assets 1,447,011 (442,654)
------------- -------------
Net cash provided (used) by investing activities 1,877,090 (8,082,118)
Financing activities
Payments on long-term debt and
capital lease obligations (315,338,728) (25,790,078)
Proceeds from long-term debt 300,533,143
Net proceeds from short-term borrowings (452,000)
Payments on litigation settlement (15,688,330) (16,962,554)
Cash required for debt issue costs (12,732,920) (604,450)
Proceeds from exercise of employee stock options 39,495 155,717
------------- -------------
Net cash used by financing activities (43,187,340) (43,653,365)
------------- -------------
Change in cash and cash equivalents $ 6,561,909 $ 2,840,914
============= =============
</TABLE>
5
<PAGE> 6
SHONEY'S, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
August 2, 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 forty week periods ended August 2, 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 1997.
SFAS 121 requires companies to evaluate the recoverability of long-lived assets
on an individual restaurant or specific facility basis. Where a determination is
made that the carrying value is not recoverable, the assets are written down to
their estimated fair value. The Company considers fair value to either be the
value of the real estate associated with the respective facility or the
discounted value of the cash flows associated with the facility's operations.
Asset impairment charges are recorded in the Consolidated Condensed Statement of
Operations under the caption titled "Impairment write down of long-lived
assets". 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 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 in
the first quarter of 1997 was $17.6 million. 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's initial asset impairment analysis did not include any
of the restaurants acquired from TPI Enterprises, Inc. ("TPI") in 1996. 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 charge of $36.4 million was the
result of additional analysis by management and a full years operating results
from the restaurants acquired from TPI. During the first quarter of 1998 the
Company recorded an additional impairment charge 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.
Based on the continued decline in operating performance of the Company's
restaurant operations, particularly the Shoney's Restaurants division, the
Company completed an asset impairment analysis during the third quarter of 1998.
As a result of this analysis, the Company recorded an asset impairment charge of
$45.8 million during the third quarter of 1998. Approximately $42.9 of the third
quarter 1998 asset impairment charge related to assets held and used in the
Company's operations and approximately $2.9 million related to assets held for
disposal.
6
<PAGE> 7
At August 2, 1998, the carrying value of the 96 properties to be disposed of was
$30.1 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. Exit
costs associated with the accrual of remaining leasehold obligations, net of
anticipated sublease rental income, are included in the Consolidated Condensed
Statement of Operations under the "Cost of Sales" caption. The Company recorded
approximately $3.1 million and $5.8 million in exit costs for the third quarter
and first three quarters of 1998, respectively, associated with the accrual of
the remaining leasehold obligations on restaurants closed (or to be closed)
during 1998.
Through the third quarter of 1998, the Company has closed 42 restaurants and
management currently plans to close an additional 35 restaurants during the
fourth quarter of 1998. These restaurants had revenues of $38.9 million and
$56.7 million and operating losses of $5.9 million and $5.0 million for the
first three quarters of 1998 and 1997 respectively.
NOTE 3 - EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standard No.128 "Earnings
per Share" ("SFAS 128") at the beginning of the first quarter of 1998. SFAS 128
supersedes Accounting Principles Board Opinion No. 15 "Earnings per Share" ("APB
15") 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 August 2, 1998 Forty weeks ended August 2, 1998
----------------------------------------------------------------------------------------------------
Shares Per Share Shares Per Share
Loss (numerator) (denominator) Amount Loss (numerator) (denominator) Amount
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Loss before
extraordinary charge(1) $ (83,132,879) 48,694,364 $ (1.71) $ (94,144,587) 48,656,930 $ (1.93)
EFFECT OF DILUTIVE
SECURITIES
Stock Options (2)
Convertible
Debentures
DILUTED EPS
Loss before $ (83,132,879) 48,694,364 $ (1.71) $ (94,144,587) 48,656,930 $ (1.93)
extraordinary charge
(1)(3)
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
Twelve weeks ended August 3, 1998 Forty weeks ended August 3, 1998
----------------------------------------------------------------------------------------------------
Shares Per Share Shares Per Share
Loss (numerator) (denominator) Amount Loss (numerator) (denominator) Amount
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Net Income $ 8,766,650 48,568,109 $ 0.18 $ 290,309 48,531,790 $ 0.01
EFFECT OF
DILUTIVE
SECURITIES
Stock Options (2) 28,320 36,203
Convertible -- --
Debentures
DILUTED EPS
Net Income $ 8,766,650 48,596,429 $ 0.18 $ 290,309 48,567,993 $ 0.01
</TABLE>
(1) - The forty weeks ended August 2, 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 forty
weeks ended August 2, 1998 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
As of August 2, 1998, the Company had outstanding 6,703,161 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 August 2, 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 forty weeks ended August 2, 1998, the effect of considering
these potentially dilutive securities would have been anti-dilutive.
NOTE 4 - INCOME TAXES
Income taxes for the forty week periods ended August 2, 1998 and August 3, 1997
were provided based on the Company's estimate of its effective tax rates of
31.6% and 36.3%, respectively for the entire 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. Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109") requires
a valuation allowance be established for deferred tax assets that are not
expected to be realized based on certain criteria provided by SFAS 109. The
Company considered these criteria in connection with the asset impairment
charges recorded in the third quarter of 1998 (See Note 2) and, accordingly,
increased the deferred tax asset valuation allowance by $51.3 million. The
Company believes it is more likely than not that the remaining deferred tax
assets will be realized through the carryback of existing deductible temporary
differences to prior years' taxable income. During the third quarter of 1997,
excess tax liabilities totaling $26.5 million related to a fiscal 1993
transaction were reversed. Approximately $22.5 million of the reduction in
deferred tax liability was credited to additional paid-in capital since the
related deferred tax liability arose from an equity transaction. The remaining
$4.0 million, which represented accrued interest, was reversed as a reduction to
income tax expense.
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<PAGE> 9
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 August 2,
1998, the amounts available under the Line of Credit were reduced by letters
of credit of approximately $17.8 million resulting in available credit under
the facility of approximately $57.2 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 August 2,
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. On
August 28, 1998, the Company entered into another hedge agreement covering an
additional $20.0 million of its' senior debt. The agreement will not take
effect until October of 1998. The $20.0 million hedge agreement fixes the
interest rate on the covered amount of debt at 5.5% plus the applicable
margin. At August 2, 1998 the interest rates on the term notes were 8.5% for
Term A Note and 9.1% for Term B Note . Based on the Company's financial
leverage covenant ratio as of the end of the second quarter of 1998, the
interest rate margin on the term notes and Line of Credit increased .25%
effective June 24, 1998.
Debt and obligations under capital leases at August 2, 1998 and October 26, 1997
consisted of the following:
<TABLE>
<CAPTION>
August 2, 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 84,452,726
Senior debt - Term B Note 186,828,960
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 110,463,371 103,612,284
Subordinated convertible debentures 48,144,269 47,624,146
Industrial revenue bonds 10,915,000 13,820,417
Notes payable to others 5,385,404 6,579,771
------------ ------------
446,189,730 452,044,141
Obligations under capital leases 20,675,321 24,991,545
------------ ------------
466,865,051 477,035,686
Less amounts due within one year 13,170,255 10,997,069
------------ ------------
Amounts due after one year $453,694,796 $466,038,617
============ ============
</TABLE>
9
<PAGE> 10
The Company's senior 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 August 2,1998, the Company
was in compliance with all of its debt covenants. Management anticipates being
in compliance with its financial covenants in the fourth quarter of 1998 and
fiscal 1999. However, should operating trends, particularly in the Shoney's
Restaurant concept, vary from those forecasted or if anticipated levels of asset
sales are not met by the Company, management could be forced to seek additional
modifications to the Company's credit agreements.
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 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, 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. The parties agreed to toll the issuance of
notice and the running of the statute of
10
<PAGE> 11
limitations for 91 days, which expired on July 27, 1998. Notice was issued to
potential class members on or about July 28, 1998 and persons desiring to opt in
to the case are required to return their consents by September 25, 1998.
Subsequent to the issuance of notice, 129 individuals have filed consents to
join the litigation, and the Company anticipates that additional consents will
be filed before September 25, 1998.
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. The Company's opposition to the issuance of
notice to putative class members was filed on September 4, 1998.
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's acts resulted in a
tolling of the statute of limitations. In Belcher II, Edelen, and Baum,
discovery is in a preliminary stage. Discovery is in a more advanced stage in
Belcher I.
On or about April 7, 1998, the plaintiffs filed a motion for partial summary
judgment in Belcher I. The plaintiffs moved for a summary judgment 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. The Company filed a motion in response to plaintiffs' 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 required that the Company respond to the motion by
October 19, 1998 and will hear oral argument on the motion on October 30, 1998.
The Court has also ordered that any trial will commence on February 16, 1999.
On or about July 10, 1998, the plaintiffs in Belcher II filed a motion to amend
their complaint to add state law class action allegations of fraud, breach of
contract, conversion, and civil conspiracy; add the Company's Senior Vice
President and Controller and certain unnamed individuals as defendants; and
include a prayer for $100 million in punitive damages. On August 14, 1998, the
Company filed an opposition to the motion, and the Court heard oral argument on
August 27, 1998. The motion is presently pending.
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 condensed 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.
11
<PAGE> 12
On August 5, 1997, a plaintiff claiming to be 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)". On August 24, 1998, the Company filed a Motion to
Dismiss or, in the Alternative, for Summary Judgment as to the plaintiffs'
claims. The motion is pending.
Management believes it has substantial defenses to the class action claims
plaintiff is seeking to assert in Griffin and intends to 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.
On December 20, 1996, a jury in Wyandotte County, Kansas returned a verdict
against the Company in the case of "Wilkinson v. Shoney's, Inc." for $458,000 on
a malicious prosecution and a wrongful discharge claim which was based on the
Company's unsuccessful challenge to plaintiff's application for unemployment
benefits after he was terminated. The jury also found the Company liable for
punitive damages on the malicious prosecution claim in an amount to be set by
the trial court. Although the trial court judge stated that she did not find
sufficient evidence to support punitive damages, the trial judge overruled the
Company's motion for judgment as a matter of law and set punitive damages in the
amount of $800,000. The Company has appealed the total judgment of approximately
$1.3 million and management believes it has substantial defenses to the claims
made. Accordingly, no provision for any potential liability has been made in the
consolidated condensed financial statements.
In addition to the litigation described in the preceding paragraphs, the Company
is a party to other legal proceedings incidental to its business. In the opinion
of management, 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.
NOTE 8 - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No.130 "Reporting Comprehensive Income." ("SFAS
130"). SFAS 130 requires that
12
<PAGE> 13
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 "Disclosures about Segments of an
Enterprise and Related Information." ("SFAS 131"). 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, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." ("SOP 98-1"). 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. Management does
not anticipate that the adoption of SOP 98-1 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.
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This Statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Earlier adoption is permitted. Management does not anticipate that the adoption
of SFAS 133 will have a material effect on the Company's results of operations
or financial position.
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<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial condition. The discussion
should be read in conjunction with the consolidated condensed financial
statements and notes thereto. The third quarter and first three quarters of
fiscal 1998 and 1997 covered periods of twelve and forty weeks, respectively.
All references are to fiscal years unless otherwise noted. The forward-looking
statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") relating to certain matters, which
reflect management's best judgment based on factors currently known, involve
risks and uncertainties, including the ability of management to implement
successfully its strategy for improving Shoney's Restaurants performance, the
ability to effect asset sales consistent with the projected proceeds and timing
expectations, the results of pending litigation, 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 third quarter of 1998 declined to $277.3 million, or 6% as
compared to revenues of $294.2 million in the third quarter of 1997. For the
first three quarters of 1998, revenues decreased 6% to $897.5 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 ended Forty weeks ended
August 2, 1998 August 2, 1998
---------------------------------------------
<S> <C> <C>
Restaurant revenue $ (17.1) $ (49.6)
Distribution and manufacturing and other sales (2.8) (8.4)
Franchise fees (0.1) (0.3)
Other sales 3.1 2.9
=============================================
$ (16.9) $ (55.4)
=============================================
</TABLE>
The decline in revenues during the third quarter and the first three 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 third quarter of 1997, the Company has closed 58 under-performing
restaurants. The table below presents comparable store sales for Company-owned
restaurants for the third quarter and first three quarters of 1998 by restaurant
concept:
14
<PAGE> 15
<TABLE>
<CAPTION>
Third Quarter
----------------------------------------------
Aggregate
Comparable Change
Store Sales by (adjusted for
Concept Menu Price price increases)
----------------------------------------------
<S> <C> <C> <C>
Shoney's Restaurants (6.0)% 3.5% (9.5)%
Captain D's 7.0% 3.0% 4.0%
Fifth Quarter (8.8)% 3.5% (12.3)%
Pargo's (5.5)% 1.7% (7.2)%
----------------------------------------------
All Concepts (2.4)% 3.3% (5.7)%
----------------------------------------------
<CAPTION>
First Three Quarters
----------------------------------------------
Aggregate
Comparable Change
Store Sales by (adjusted for
Concept Menu Price price increases)
----------------------------------------------
<S> <C> <C> <C>
Shoney's Restaurants (4.6)% 1.1% (5.7)%
Captain D's 5.8% 2.3% 3.5%
Fifth Quarter (6.9)% 1.0% (7.9)%
Pargo's (5.9)% 0.7% (6.6)%
----------------------------------------------
All Concepts (1.7)% 1.5% (3.2)%
----------------------------------------------
</TABLE>
As reflected in the table above, the Company's Shoney's Restaurants continue to
experience negative 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
has allocated 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.
During 1998, the Company has been testing a revised menu ("Test Menu"). The Test
Menu is currently in approximately 60 Shoney's Restaurants. This Test Menu
differs from the Company's regular menu primarily due to its a la carte pricing
for side items (e.g. french fries and onion rings) and the soup, salad and fruit
bar. Management believes that there has been some degree of resistance from the
price sensitive portion of the Company's current customer base directly related
to this feature of the Test Menu. Since implementation of the Test Menu,
management has conducted extensive customer research and has revised the Test
Menu in certain markets. The Company currently has numerous versions of this
Test Menu in the 60 restaurants mentioned above. Management currently plans to
have a new menu, which could contain some features from the Test Menu in most
Company-owned Shoney's Restaurants by the end of the first quarter of 1999.
The Company has introduced an enhanced version of its breakfast bar featuring a
new 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 implemented in
most of the Company-owned Shoney's Restaurants and results for the third quarter
show an increase in comparable store sales for the breakfast daypart.
15
<PAGE> 16
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 third quarter and first three quarters of 1998. Management attributes
the comparable store sales gains during the first three quarters of the year to
increased marketing during Lent and a successful catfish and shrimp promotion
during and after Lent. Captain D's has realized a higher average guest check and
higher customer traffic during 1998. Management attributes a portion of these
increases to the success of Captain D's Coastal Classics menu which features
more upscale seafood items (e.g. broiled salmon, orange roughy, catfish, and
fried oysters) at prices higher than the Captain D's traditional average guest
check.
The following table summarizes the change in number of restaurants operated by
the Company and its franchisees during the first three quarters of 1998 and
1997:
<TABLE>
<CAPTION>
The forty weeks ended
August 2, 1998 August 3, 1997
------------------------------------------
<S> <C> <C>
Company-owned restaurants opened(1) 0 11
Company-owned restaurants closed (42) (70)
Franchised restaurants opened 13 8
Franchised restaurants closed (24) (27)
------------------------------------------
(53) (78)
------------------------------------------
</TABLE>
(1) The first three quarters of 1997 included 5 units acquired from franchisees.
Distribution and manufacturing revenues declined $2.8 million during the third
quarter of 1998 compared to the third quarter of 1997 and declined $8.4 million
for the first three 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.
Franchise revenues declined approximately $106,000 during the third quarter of
1998 and approximately $252,000 for the first three 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 increased approximately $3.1 million during the third quarter of
1998 and approximately $2.9 million for the first three quarters of 1998 as
compared to the same periods in 1997. The increase in other income during the
third quarter and the first three quarters of 1998 was due principally to
increased net gains on asset sales. The principal components of other income for
the third quarter of 1998 were net gains on asset sales of $4.7 million and
other revenue (consisting principally of fee income from insurance subsidiaries,
$594,000). For the first three quarters of 1998
16
<PAGE> 17
the principal components of other income were net gains on asset sales of $6.7
million and other revenue (consisting principally of fee income from insurance
subsidiaries, $1.7 million).
COSTS AND EXPENSES
Costs of sales declined during the third quarter and first three quarters of
1998 compared to the same periods in 1997 principally as a result of a decline
in the number of restaurants and comparable restaurant sales. Cost of sales as
a percentage of revenues increased for the third quarter of 1998 to 88.7%
compared to 87.7% for the same quarter of 1997. Cost of sales as a percentage
of revenues was 90.0% for the first three quarters of 1998 compared to 88.6%
for the same period in 1997. Food and supplies costs as a percentage of total
revenues declined 1.8% and .7%, respectively, to 37.0% and 38.2%, respectively,
for the third quarter and first three quarters of 1998. Food and supplies
costs at the restaurant level, as a percentage of restaurant revenues, were
lower than prior period levels due mainly to menu price increases instituted at
the Company's Shoney's and Captain D's restaurants. The decline in food and
supplies costs as a percentage of total revenues can also be attributed to
lower distribution and manufacturing revenues as compared to total revenues in
the third quarter and first three 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 third
quarter and first three 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. This increase in staffing in the Shoney's
Restaurants is expected to continue for the remainder of the fiscal year. The
Company expects to continue to experience increased labor costs in all of its
restaurant concepts. Restaurant labor as a percentage of revenues was 27.0% for
the third quarter of 1998, up 1.1% as compared to the third quarter of 1997.
For the first three quarters of 1998, restaurant labor as a percentage of
revenues was 26.8%, up .8% as compared to the same period in 1997.
Operating expenses as a percentage of revenues increased 1.7% to 24.7% for the
third quarter of 1998 and increased 1.3% to 25.0% for the first three quarters
of 1998, as compared to the same periods in 1997. The increase in operating
expenses was due principally to higher rent expense due to the accrual of $3.1
and $5.8 million in exit costs for the third quarter and first three quarters,
respectively, associated with the closure (or planned closure) of leased
restaurants and properties during the first three quarters of 1998. Also
included in operating expenses for the third quarter and first three quarters
of 1998 is a write off of advertising merchandise of $1.3 million with no
comparable amount in either prior year period.
General and administrative expenses increased $1.3 million and $5.0 million in
the third quarter and first three quarters of 1998, respectively. General and
administrative expenses as a percentage of revenues increased from 6.2% in the
third quarter of 1997 to 7.1% in the third quarter of 1998 and from 6.5% for
the first three quarters of 1997 to 7.4% for the first three quarters of 1998.
The increase in general and administrative expenses was principally due to
increases in salary and related expenses. 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 three quarters of 1998, which totaled $2.7 million. Salary and related
expenses have also increased due to the addition of a layer of multi-unit
management in the Shoney's Restaurants division during 1998.
Interest expense for the third quarter of 1998 increased $571,000, or 5% during
the third quarter, and $2.7 million or 8% for the first three 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
17
<PAGE> 18
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 assets, including 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 $45.8 million during the third
quarter of 1998 with no amounts in the third quarter of 1997. For the first
three quarters of 1998, the Company has recorded $48.4 million in asset
impairment charges compared to $17.6 million for the first three quarters of
1997. SFAS 121 requires companies to evaluate the recoverability of long-lived
assets on an individual restaurant basis. Where a determination is made that
the carrying value is not recoverable, the assets are written down to their
estimated fair value. Since the adoption of SFAS 121 in the first quarter of
1997, the Company has recorded $102.4 million in asset impairment charges. The
third quarter asset impairment charge was primarily the result of continued
declines in comparable store sales and operating margins in the Company's
Shoney's Restaurants, which account for $40.2 million of the third quarter
asset impairment charge. If the Company's Shoney's Restaurants continue to
experience declines in comparable store sales and operating margins, the
Company could incur future asset impairment charges.
The provision for income taxes for the third quarter of 1998 was $37.9 million,
compared to a benefit from income taxes of $(1.3) million for the third quarter
1997. During the third quarter of 1998, the Company recorded a deferred tax
asset valuation adjustment of $51.3 million. The deferred tax asset valuation
adjustment is in accordance with SFAS 109, which requires that a deferred tax
asset valuation allowance be established if certain criteria are not met. The
Company considered these criteria in connection with the asset impairment
charges recorded in the third quarter and, accordingly, increased the deferred
tax asset valuation allowance. During the third quarter of 1997, excess tax
liabilities totaling $26.5 million related to a fiscal 1993 transaction were
reversed. Approximately $22.5 million of the reduction in deferred tax
liability was credited to additional paid-in capital since the related deferred
tax liability arose from an equity transaction. The remaining $4.0 million,
which represented accrued interest, was reversed as a reduction to income tax
expense.
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 three quarters of 1998, cash provided by
operating activities was $47.9 million, a decrease of $6.7 million as compared
to the first three 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 provided by investing activities during the first three quarters of 1998
totaled $1.9 million as compared to cash used by investing activities of $8.1
million in the same period for 1997. The decline in cash required for investing
activities results principally from a reduction in cash required for property,
plant and equipment. For the first three quarters of 1998, cash provided from
the proceeds from the disposal of property, plant and equipment was $23.5
million, as a $2.7 million decrease from amounts provided during the first
three quarters of 1997.
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<PAGE> 19
The Company balances its capital spending plan throughout the year based on
operating results and may from time to time decrease capital spending 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 credit agreement. The
Company does not plan to build new restaurants during 1998 and will invest its
capital in improvements to existing operations. Capital expenditures totaled
$23.0 million for the first three quarters of 1998 and the Company expects to
spend approximately $9.0 to $12.0 million for the fourth quarter of 1998 for
capital expenditures.
Since the beginning of 1997, the Company has closed 117 under performing
restaurants. These properties, as well as real estate from prior restaurant
closings, 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 senior debt. The Company currently plans to close
an additional 35 restaurants (33 Shoney's Restaurants and two Fifth Quarter
restaurants) during the fourth quarter of 1998 and has entered into a contract
to sell 11 other operating Shoney's Restaurants. The transaction to sell the
eleven operating Shoney's restaurants (and one closed unit) is expected to close
during the fourth quarter. The Company continually evaluates the operating
performance of its restaurants and may, in the future, close or dispose of
additional restaurants.
During the first three quarters of 1998, the Company's cash used by financing
activities was $43.2 million compared with cash used by financing activities of
$43.7 million for the same period in 1997. Significant financing activities for
the first three 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, $11.7 million was used to fund debt issue
costs on the new debt facility, and $7.8 million was used for additional working
capital. The Company also funded debt issue costs of $0.9 million during the
third quarter of 1998 associated with covenant modifications made to its senior
credit facility obtained in the third quarter. Additionally, payments on long
term debt and capital lease obligations were $34.9 million. The Company has
prepaid its payments on its senior debt facility through the first quarter of
1999. The Company also made payments of $15.7 million on its litigation
settlement, which represented the Company's final material payments under the
settlement. Significant financing activities during the first three quarters of
1997 included payments on long-term debt and capital lease obligations of $25.8
million and payments on the Company's litigation settlement of $17.0 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 $84.5 million and $186.8 million outstanding under Term A Note
and Term B Note, respectively, and had no amounts outstanding under the Line of
Credit at August 2, 1998. The Company has not borrowed amounts under the Line
of Credit since the first quarter of 1998. The amounts available under the Line
of Credit are reduced by letters of credit of approximately $17.8 million
resulting in available credit under the facility of approximately $57.2 million
at August 2, 1998. At August 2, 1998, the Company had cash and cash equivalents
of approximately $18.4 million.
The Company's senior debt agreements require satisfaction of certain financial
as well as other affirmative and negative covenants which were to become more
restrictive in the fourth quarter of 1998 and during 1999. During the third
quarter of 1998, management 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
19
<PAGE> 20
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. Based on current operating results, forecasted operating
trends and anticipated levels of asset sales, management believes that the
Company will be in compliance with its financial covenants during the fourth
quarter of 1998 and during fiscal 1999. However, should operating trends,
particularly in the Shoney's Restaurant concept, vary from those forecasted or
if anticipated levels of asset sales are not met by the Company, the Company
may not be in compliance with the modified financial covenants and management
could be forced to seek additional modifications to the Company's credit
agreements. The Company was in compliance with its financial covenants at the
end of the third quarter.
As more fully discussed in Note 6 to the consolidated condensed financial
statements, 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 two additional actions
that were filed in April and May 1998 and which seek class action status.
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 designed to ensure its
systems are fully Year 2000 compliant. Management believes that the Company has
identified 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.
20
<PAGE> 21
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 10 through 12
of this Quarterly Report on Form 10-Q.
ITEM 6-EXHIBITS AND REPORTS ON FORM 8-K
(a) In accordance with the provisions of Item 601 of Regulation S-K, the
following have been furnished as Exhibits to this quarterly report on Form 10-Q:
10.1 Employment Agreement dated as of August 3, 1998, between the Company and
Stephen C. Sanders
10.2 Amendment No. 1 dated as of June 16, 1998 to $375,000,000 Credit
Agreement among Shoney's, Inc., as Borrower, NationsBank, N.A., as
Administrative Agent for the lenders, NationsBanc Montgomery Securities,
Inc., as Syndication Agent, and various other financial institutions now
or hereafter parties thereto.
27 Financial Data Schedule (For SEC Use Only)
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: September 16, 1998 By: /s/ V. Michael Payne
----------------------------------
V. Michael Payne
Senior Vice President and Controller,
Principal Financial and Chief
Accounting Officer
22
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of this 3rd day
of August, 1998, between SHONEY's, INC., a Tennessee corporation, whose
principal place of business is located at 1727 Elm Hill Pike, Nashville,
Tennessee ("Employer"), and STEPHEN C. SANDERS, a resident of Madison, Tennessee
("Employee").
1. TERM OF EMPLOYMENT.
1.1 EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts employment with Employer, for the Employment Term (as hereinafter
defined).
1.2 EMPLOYMENT TERM. The term of this Agreement and the Employment
Term shall commence on August 3, 1998, and terminate on August 2, 2001, unless
sooner terminated as herein provided or extended by a subsequent amendment or
extension of this Agreement executed by both parties hereto.
2. DUTIES OF EMPLOYEE.
2.1 GENERAL DUTIES. Employee is hereby employed as the President and
Chief Operating Officer of Shoney's Restaurants (the "Business Unit") with such
duties and responsibilities as the Chief Executive Officer of Employer or
Employer's Board of Directors shall designate, which shall be those duties and
responsibilities customarily prescribed for persons in the position of Employee.
Employee shall do and perform all services, acts, or things necessary or
advisable to manage and conduct the business of Employer, subject always to the
policies set forth by Employer's Board of Directors, in accordance with any and
all governing rules and regulations of regulatory agencies.
2.2 DEVOTION OF ENTIRE TIME TO EMPLOYER'S BUSINESS. Employee will
devote his entire productive time, ability, and attention during normal business
hours to the business of Employer during the Employment Term. Employee shall
not, directly or indirectly, render any services of a business, commercial, or
professional nature to any other person or organization, whether for
compensation or otherwise, without the prior written consent of Employer's Board
of Directors; provided, however, that the foregoing shall not preclude
reasonable participation as a member in community, civic, or similar
organizations, or the pursuit of personal investments that neither interfere nor
conflict with his normal business activities for Employer; provided, further,
that Employer acknowledges and agrees that Employee has an ownership interest in
the food service
1
<PAGE> 2
businesses identified on Exhibit A attached hereto and that he will retain such
interests during the Employment Term.
3. COMPENSATION AND BENEFITS OF EMPLOYER.
3.1 SALARY. As compensation for his services hereunder, Employee
shall receive a base salary (the "Base Salary"), which shall be payable in
accordance with the general payroll practices of Employer, and which during the
period from August 3, 1998 through December 31, 1999 shall be in an annual
amount (prorated as appropriate) of $300,000. During the remaining term of this
Agreement, Base Salary shall be in an amount determined by the Human Resources
and Compensation Committee of Employer's Board of Directors (the "Committee");
provided the Committee shall not decrease Employee's Base Salary for any period
within the Employment Term below $300,000 per annum.
3.2 BONUSES. Employee shall be eligible for an annual bonus in an
amount equal to the Base Salary using performance criteria established by the
Board of Directors pursuant to the Shoney's, Inc. Annual Incentive Plan, as
amended from time to time. Up to fifty percent (50%) of the annual bonus may be
earned upon the achievement of the Business Unit objectives and up to fifty
percent (50%) may be earned upon the achievement of Employee's personal
performance objectives (objectives that are within the job description and
agreed to by Employee and the Chief Executive Officer of Employer). The Business
Unit objectives and personal performance objectives shall be established
annually and at all times are subject to review and approval of Employer's
Committee and/or the Board of Directors. Bonuses may be paid in cash or
Employer's $1.00 par value common stock.
3.3 RESTRICTED STOCK.
3.3.1 SHARES. Subject to all of the conditions (including,
without limitation, the time of vesting and right to receive) and restrictions
set forth in this Section 3.3.1, Employer hereby grants to Employee an award of
75,000 shares (the "Restricted Shares") of Employer's $1.00 par value common
stock (the "Shares"). The Restricted Shares shall become vested in, and shall be
distributed to, Employee in three (3) installments on each of the dates set
forth below (each of which shall be referred to as a "Distribution Date," with
the three (3) dates being collectively referred to as the "Distribution Dates")
in the following respective amounts:
<TABLE>
<CAPTION>
DISTRIBUTION DATE NUMBER OF SHARES
----------------- ----------------
<S> <C>
August 2, 1999 25,000
August 2, 2000 25,000
August 2, 2001 25,000
------
Total 75,000
------
</TABLE>
2
<PAGE> 3
Immediately following each Distribution Date, Employer shall promptly cause its
transfer agent to issue a certificate to Employee evidencing the Restricted
Shares that became distributable. The issuance of any stock certificate to
Employee shall be subject to any applicable federal, state, or local tax
withholding requirements. If, prior to a Distribution Date, Employee's
employment is terminated, all rights of Employee in any Restricted Shares
awarded under this Section 3.3.1 that, as of the date of such termination, have
not become distributable to Employee shall thereupon immediately terminate and
become forfeited; provided, however, that if Employee's employment is terminated
pursuant to Section 4.1.1, Employee shall receive a pro-rata (based upon the
number of days worked by the Employee since the later of (i) the date of this
Agreement or (ii) the Distribution Date prior to the date of termination)
distribution of the Restricted Shares that would have otherwise become
distributable to him on the next succeeding Distribution Date.
Employee shall not have any rights as a shareholder with respect to any
Restricted Shares until the issuance of a stock certificate evidencing the
Restricted Shares. The number of Restricted Shares awarded Employee under this
Section 3.3.1 shall be proportionately adjusted to reflect any stock dividend,
stock split or share combination of the Shares or any recapitalization of
Employer occurring prior to a Distribution Date. Except as provided in the
preceding sentence, no adjustment shall be made on the issuance of a stock
certificate to Employee as to any dividends or other rights for which the record
date occurred prior to a Distribution Date. The right of Employee to receive the
Restricted Shares shall not be assignable or transferable otherwise than by will
or the laws of descent and distribution.
Upon receipt of Restricted Shares at a time when there is not in effect
under the Securities Act of 1933, as amended (the "Securities Act"), a current
registration statement relating to the Restricted Shares, Employee shall
represent and warrant in writing to Employer that the Restricted Shares are
being acquired for investment and not with a view to the distribution thereof
and shall agree to the placement of a legend on the certificate or certificates
representing the Restricted Shares evidencing the restrictions on transfer under
the Securities Act and the issuance of stop-transfer instructions by Employer to
its transfer agent with respect thereto.
No Restricted Shares shall be issued hereunder unless and until the
then applicable requirements of the Securities Act, the Tennessee Business
Corporation Act, the Tennessee Securities Act of 1980, as any of the same may be
amended, the rules and regulations of the Securities and Exchange Commission and
any other regulatory agencies and laws having jurisdiction over or applicability
to Employer, and the rules and regulations of any securities exchange on which
the Shares may be listed, shall have been fully compiled with and satisfied.
Employer shall use its best efforts to cause all such requirements to be
promptly and completely satisfied. If, in the opinion of its counsel, the
issuance of any Shares hereunder shall not be lawful for any reason, including
the inability of Employer to obtain approval from any regulatory body having
jurisdiction or authority
3
<PAGE> 4
deemed by such counsel to be necessary for such issuance, then Employer shall
not be obligated to issue any such Restricted Shares, but, in such event, shall
be obligated to provide Employee with cash or non-cash consideration having
equivalent after tax value which is acceptable to Employee in the exercise of
Employee's reasonable discretion.
3.3.2 CASH COMPONENT. Upon the issuance of a certificate for any
Restricted Shares pursuant to Section 3.3.1, Employee shall be paid a cash bonus
by Employer which shall be in addition to any other bonus or bonuses provided
herein. The bonus payable pursuant to the preceding sentence shall be determined
by subtracting the Restricted Share Value (as defined below) from the Restricted
Share Gross Up (as defined below). "Restricted Share Value" shall mean the fair
market value of any Restricted Shares on the date that they become distributable
to Employee. "Restricted Share Gross Up" shall mean an amount equal to the
result derived by dividing: (a) the Restricted Share Value by (b) the Tax Factor
(as defined below). "Tax Factor" shall mean the greater of: (i) sixty-four
percent (64%); or (ii) the difference between one hundred percent (100%) and the
highest marginal individual income tax rate set forth in the Internal Revenue
Code of 1986, as amended, in the year in which Employee receives the portion of
the Restricted Shares with respect to which this bonus is being calculated.
3.4 OPTIONS TO PURCHASE STOCK. Employee shall be granted, on the date
hereof, options to purchase 200,000 Shares with an exercise price equal to the
closing price of the Shares on the date hereof. Employee shall be granted, on
August 2, 1999, options to purchase an additional 200,000 Shares with an
exercise price equal to the greater of (1) the closing price of the Shares on
the grant date (August 2, 1999) or (2) the closing price of the Shares on the
date of this Agreement plus twenty percent (20%).
Of the options granted pursuant to this Section 3.4, twenty percent
(20%) shall vest, on a cumulative basis, on each anniversary of each respective
grant and all such options that shall have vested shall be exercisable for a
period of 10 years from the date of grant. Except as the terms of such options
as set forth in this Section 3.4 may be inconsistent therewith, the terms and
conditions applicable to the options to be granted pursuant to this Section 3.4
shall otherwise be those contained in the Shoney's, Inc. 1981 Stock Option Plan,
as amended, the terms and conditions of which are incorporated herein by this
reference.
3.5 LONG TERM INCENTIVE PLAN. Employee shall be eligible to
participate in the Shoney's, Inc. Executive Long Term Incentive Plan ("LTIP")
contingent upon the plan's approval by the Shoney's, Inc. Board of Directors,
the Human Resources and Compensation Committee and the Company's shareholders.
3.6 MEDICAL BENEFITS. Employer shall provide Employee with medical
and dental insurance (which Employer may self insure) benefits in accordance
with the established
4
<PAGE> 5
benefit policies of Employer are subject to any required premium contributions
for coverages elected by Employee.
3.7 DISABILITY INSURANCE BENEFITS. Employer shall provide Employee
with disability insurance benefits in accordance with the established benefit
policies of Employer that provide disability insurance benefits to Employee in
an amount equal to fifty percent (50%) of base salary plus annual bonus target.
3.8 LIFE INSURANCE. During the Employment Term, Employer shall
provide Employee, subject to satisfactory results of a physical examination,
with a renewable term life insurance policy in the amount of one million dollars
($1,000,000). The life insurance policy shall be owned by Employee and Employee
shall be entitled to designate the beneficiary thereof. In addition, Employee
shall be entitled to life insurance as provided pursuant to the Company's
benefit plans.
3.9 EXPENSES. Employer shall reimburse Employee for all reasonable
and necessary business expenses of Employee incurred in the conduct of his
duties hereunder. Employee shall comply with all applicable policies of Employer
with respect to documentation and approval of such expenses.
3.10 VACATIONS. Employee shall be entitled to an annual paid vacation
commensurate with Employer's established vacation policy for executive officers.
The timing of paid vacations shall be scheduled in a reasonable manner by
Employee.
3.11 OTHER BENEFIT PROGRAMS. Employee shall be entitled to
participate in all employee benefit, bonus, and similar programs, including,
without limitation, programs of insurance, deferred compensation arrangements,
and all other benefits made available by Employer to senior management
personnel. During the Employment Term, so long as any additional benefit is made
available to senior management personnel of Employer, such benefit shall be
provided to Employee.
3.12 LEGAL FEES, TAX PLANNING AND RETURNS AND FINANCIAL PLANNING.
Employer shall reimburse Employee for his reasonable legal expenses not in
excess of $5,000 in connection with the negotiation of this Agreement, and shall
provide annually to Employee an allowance for the preparation of his tax returns
and for tax and financial planning services in accordance with the established
policy of Employer.
4. TERMINATION OF EMPLOYMENT; SEVERANCE.
5
<PAGE> 6
4.1 BY EMPLOYER.
4.1.1 TERMINATION WITHOUT CAUSE. Employer's Chief Executive
Officer or the Board of Directors may terminate Employee's employment, with or
without cause, at any time by giving written notice of such termination to
Employee, such termination of employment to be effective on a date specified in
such notice; provided, however, that in the event of such a termination without
cause, Employee shall be entitled to receive severance benefits in an amount
equal to the greater of (1) Employee's base pay as of the termination date for
the remainder of the term of employment or (2) severance benefits as provided
under the Shoney's, Inc. severance policy.
4.1.2 TERMINATION FOR CAUSE. If Employee is terminated for cause,
Employer shall have no further obligation whatsoever to Employee hereunder (with
the exception of the obligation to pay Employee's Base Salary through the date
of termination of employment), and Employee's participation in all benefit
programs shall cease as of the date of termination. For purposes of this
Agreement, "cause" shall mean any one of the following:
(i) Employee's willful failure to carry-out any material lawful
duties assigned by Employer's Board of Directors which duties
are commensurate with those of similarly situated employees;
(ii) breach of fiduciary duty to Employer (or any of Employer's
subsidiaries) involving personal profit by Employee;
(iii) conviction of Employee for any crime involving the Employer's
business, or of a felony; or of any other crime resulting in
his imprisonment;
(iv) intentional breach by Employee of any material provision of
this Agreement;
(vi) unsatisfactory performance by Employee of the duties
designated for Employee by Employer's Chief Executive Officer
or Board of Directors, if such unsatisfactory performance is a
result of alcohol or drug abuse by Employee; or
(vii) violation of Employer's policies.
4.2 TERMINATION BY EMPLOYEE. Employee may terminate his
employment with Employer at any time without further obligation whatsoever by
either party hereunder (with the exception of Employer's obligation to pay
Employee's Base Salary through the date of termination of employment and except
for the obligations and covenants of Employee pursuant
6
<PAGE> 7
to Sections 5.1, 5.2 and 5.3, which shall survive termination as specified
therein) by giving not less than sixty (60) days' prior written notice of such
termination to Employer.
4.3 EFFECT OF TERMINATION ON STOCK OPTIONS. In the event of any
termination of this Agreement and the Employment Term pursuant to Section 4.1.2
or Section 4.2, all stock options held by Employee that are vested prior to the
effective date of the termination shall be exercisable in accordance with their
terms, and all stock options held by Employee that are not vested prior to the
effective date of the termination shall lapse and be void. All stock options
granted to Employee shall provide (through amendment or otherwise) that, in the
event of any termination of Employee's employment pursuant to Section 4.1.1,
then, in addition to any other rights of Employee hereunder, all such options
shall become fully vested and shall be exercisable in accordance with their
respective terms upon such a termination for ninety (90) days immediately
following the date of termination.
5. COVENANT NOT TO COMPETE; NON-DISCLOSURE; NON-SOLICITATION.
5.1 COVENANT NOT TO COMPETE. Employee acknowledges that
Employer's business is built upon the confidence of its customers, suppliers,
employees, and the general public, and that Employee will acquire confidential
knowledge that should not be divulged or used for his own benefit. Employee,
subject to the provisions of Section 2.2, covenants and agrees that during the
term hereof, he will not, without the prior written consent of Employer, engage
in, own, manage, operate, control, or participate in any food service business,
except to the extent provided on Exhibit A attached hereto.
Employee understands and acknowledges that his violation of this
covenant not to compete is a material provision of this Agreement and would
cause irreparable harm to Employer.
5.2 NON-DISCLOSURE OF INFORMATION. Employee recognizes and
acknowledges that, as a result of his employment by Employer, he will become
familiar with and acquire knowledge of confidential information and certain
trade secrets that are valuable, special, and unique assets of Employer.
Employee agrees that any such confidential information and trade secrets are the
property of Employer. Therefore, Employee agrees that, for and during the entire
Employment Term, any such confidential information and trade secrets shall be
considered to be proprietary to Employer and kept as the private records of
Employer and will not be divulged to any firm, individual, or institution except
pursuant to and within the course and scope of Employee's employment hereunder.
Further, upon termination of Employee's employment, the Employment Term and/or
this Agreement for any reason whatsoever, Employee agrees that he
7
<PAGE> 8
will, for a period of three (3) years after such date, continue to treat as
private and proprietary to Employer any such confidential information and trade
secrets and will not, for a period of three (3) years after such date, release
any such confidential information and trade secrets to any person, firm, or
institution, or use them to the detriment of Employer. The parties agree that
nothing in this Agreement shall be construed as prohibiting Employer from
pursuing any remedies available to it for any breach or threatened breach of
this Section 5.2, including, without limitation, the recovery of damages from
Employee or any person or entity acting in concert with Employee.
5.3 NON-SOLICITATION. Employee recognizes and acknowledges that,
as a result of his employment by Employer, he will become familiar with and
acquire knowledge of confidential information and certain other information
regarding employees of Employer. Therefore, Employee agrees that, during the
term hereof, and for a period of two (2) years from the date of termination of
Employee's employment, the Employment Term and/or this Agreement, whichever is
later, Employee shall not encourage, solicit or otherwise attempt to persuade
any person in the employment of Employer to end his/her employment with
Employer. The parties agree that nothing in this Agreement shall be construed as
prohibiting Employer from pursuing any remedies available to it for any breach
or threatened breach of this Section 5.3, including, without limitation, the
recovery of damages from Employee or any person or entity acting in concert with
Employee. Employer shall receive injunctive relief without the necessity of
posting bond or other security, such bond or other security being hereby waived
by Employee.
6. DEATH OR DISABILITY OF EMPLOYEE.
6.1 DEATH OF EMPLOYEE. In the event Employee dies during the
Employment Term, this Agreement and the Employment Term shall terminate upon
Employee's death. Employee's estate shall be entitled only to any Base Salary
earned but not paid plus any bonus accrued by Employer for Employee through the
date of death, plus an amount equal to the Base Salary and bonus paid or payable
on Employee's behalf for the twelve months of employment immediately prior to
the month in which Employee's death occurred. Such payment shall be paid in lump
sum to Employee's estate within ninety (90) days after Employee's death.
6.2 DISABILITY OF EMPLOYEE. Employer has disability insurance
insuring its officers, and Employee is included under such disability insurance.
In the event of the Disability (as hereinafter defined) of Employee, this
Agreement and the Employment Term shall terminate. Upon a termination resulting
from the Disability of Employee, Employee shall be entitled to receive (i) any
Base Salary earned but not paid through the date that Employee becomes eligible
for disability payments under such disability insurance, and (ii) an amount
equal to the Base
8
<PAGE> 9
Salary and bonus received by Employee in the last twelve months of employment
immediately prior to the month in which such Disability of Employee occurs which
amount shall be payable, at the option of Employee, in a lump sum payment or in
equal installments paid in accordance with the general payroll policies of
Employer over a period not to exceed three (3) years from the effective date of
termination due to the Disability of Employee; provided, however, that Employee
shall not be entitled to any payments under this Section 6.2 in the event this
Agreement is terminated pursuant to Section 4.1.2 regardless of whether the
"cause" for which this Agreement is terminated pursuant to Section 4.1.2 also
may constitute a Disability. For purposes of this Agreement, a "Disability" of
Employee shall occur if (i) Employee suffers any mental or physical condition
that, as determined pursuant to the terms of the Shoney's, Inc. Group Long Term
Disability Plan, materially impairs Employee's ability to perform the essential
functions of his duties hereunder and (ii) thereafter, Employee, within fifteen
(15) days after Employee receives written notice from Employer requesting that
Employee resume his duties hereunder, is unable or refuses to do so.
7. GENERAL PROVISIONS.
7.1 INDEMNIFICATION. Employer shall indemnify and hold
harmless Employee to the maximum extent permitted by Tennessee law with respect
to all claims, demands, actions, proceedings, investigations, damages, costs,
and expenses (including without limitation reasonable attorneys' fees) by reason
of the fact that he is or was a director or officer of Employer or any of its
subsidiaries. Further, Employer shall, to the maximum extent permitted by
Tennessee law, pay any and all expenses (including without limitation reasonable
attorneys' fees and disbursements, court costs and expert witness fees) incurred
by Employee in defending any claim, demand, action, proceeding or investigation
arising by reason of the fact that Employee is or was an officer or director of
Employer or any of its subsidiaries. In the event it is necessary for the
Employer or its shareholders to take any action in order for Employee to receive
the maximum benefit of this provision, the Employer will make a good faith
effort to take such action and to secure the approval of its shareholders, in
the event such approval is required.
7.2 NO MITIGATION. Except as expressly provided to the
contrary herein, Employee shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by Employee as a result of
employment by another employer after Employee's termination or resignation.
9
<PAGE> 10
7.3 NOTICES. Any notices to be given hereunder by either party
to the other may be effected by personal delivery in writing or by mail,
registered or certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to the parties at the addresses appearing in the
introductory paragraph of this Agreement (to the attention of the Secretary in
the case of notices to Employer), but each party may change such address by
written notice in accordance with this Section 7.3. Notices delivered personally
shall be deemed communicated at the time of actual receipt; mailed notices shall
be deemed communicated as of the third day following deposit in the United
States Mail.
7.4 ENTIRE AGREEMENT. This Agreement supersedes any and all
other agreements, either oral or in writing, between the parties hereto with
respect to the employment of Employee by Employer and contains all of the
covenants and agreements between the parties with respect to such employment in
any manner whatsoever. Each party to this Agreement acknowledges that no
representations, inducements, promises, or agreements, orally or otherwise, have
been made by any party, or anyone acting on behalf of any party, which are not
embodied herein and that no other agreement shall be valid or binding unless in
writing and signed by the party against whom enforcement of such agreement is
sought. Any modification of this Agreement will be effective only if it is in
writing signed by the party against whom enforcement of such modification is
sought.
7.5 PARTIAL INVALIDITY. If any provision in this Agreement is
held by a court of competent jurisdiction to be invalid, void, or unenforceable,
the remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
7.6 LAW GOVERNING AGREEMENT. This Agreement shall be governed
by and construed in accordance with the laws of the State of Tennessee.
7.7 WAIVER OF JURY TRIAL. Employer and Employee hereby
expressly waive any right to a trial by jury in any action or proceeding to
enforce or defend any rights under this Agreement, and agree that any such
action or proceeding shall be tried before a court and not a jury. Employee and
Employer hereby agree that any action or proceeding to enforce any claim arising
out of this Agreement shall be brought and maintained in any state or federal
court having subject matter jurisdiction and located in Nashville, Tennessee.
Employee irrevocably waives, to the fullest extent permitted by law, any
objection that he may have or hereafter have to the laying of the venue of any
such action or proceeding brought in any court located in Nashville, Tennessee,
and any claim that any such action or proceeding brought in such a court has
been brought in an inconvenient forum.
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<PAGE> 11
7.8 MISCELLANEOUS. Failure or delay of either party to insist
upon compliance with any provision hereof will not operate as and is not to be
construed to be a waiver or amendment of the provision or the right of the
aggrieved party to insist upon compliance with such provision or to take
remedial steps to recover damages or other relief for noncompliance. Any express
waiver of any provision of this Agreement will not operate and is not to be
construed as a waiver of any subsequent breach, irrespective of whether
occurring under similar or dissimilar circumstances. Employee acknowledges and
represents that the services to be rendered by him are unique and personal.
Accordingly, Employee may not assign any of his rights or delegate any of his
duties or obligations under this Agreement. The rights and obligations of
Employer under this Agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of Employer.
[THIS SPACE LEFT BLANK INTENTIONALLY]
11
<PAGE> 12
IN WITNESS WHEREOF, Employee has hereunto affixed his hand and Employer
has caused this Agreement to be executed by its duly authorized officer as of
the day and year first above written.
EMPLOYEE: EMPLOYER:
--------- ---------
/s/ Stephen C. Sanders
------------------------- SHONEY's, INC.
Stephen C. Sanders
By: /s/ F. E. McDaniel, Jr.
-------------------------------------
Name: F. E. McDaniel, Jr.
Title: Chief Administrative Officer
12
<PAGE> 1
EXHIBIT 10.2
AMENDMENT NO. 1
Dated as of June 16, 1998
To the banks, financial institutions
and other institutional lenders
(collectively, the "Lender Parties") party
to the Credit Agreement referred to
below, NationsBank.N.A., as
administrative agent (the "Administrative
Agent") for the Lender Parties, and
NationsBanc Montgomery Securities, Inc.,
as syndication agent for the Lender Parties
Ladies and Gentlemen:
We refer to the Credit Agreement dated as of November 28, 1997
(the "Credit Agreement") among Shoney's, Inc. (the "Borrower") and you.
Capitalized terms not otherwise defined in this Amendment No. 1 have the same
meanings as specified in the Credit Agreement.
It is hereby agreed by you and the Borrower as follows:
The Credit Agreement is, effective as of the date of this
Amendment No. 1, hereby amended as follows:
(a) Section 1.01 of the Credit Agreement is hereby amended by
adding the following definitions in the correct alphabetical order:
" 'Approved Fund' means, with respect to any Lender that is a
fund that invests in bank loans, any other fund that invests
in bank loans and is advised or managed by the same investment
advisor as such Lender or by an Affiliate of such investment
advisor."
" 'Captain D's Lease Program' means a program entered into by
the Borrower and its Subsidiaries for the expansion of the
Captain D's system."
<PAGE> 2
2
" 'New Distribution Facility' means the new distribution
facility to be operated by the Borrower and located in the
southeastern United States."
(b) Section 5.02(b)(iv)(C) of the Credit Agreement is hereby
amended in full to read as follows:
"(C)(i) Capitalized Leases (other than those
permitted by subclauses (ii) and (iii) of this clause
(C) and those permitted by clause (E) below) not to
exceed in the aggregate $15,000,000 at any time
outstanding, (ii) Capitalized Leases in connection
with the Captain D's Lease Program not to exceed in
the aggregate $5,000,000 in any Fiscal Year plus, in
any Fiscal Year ending in 1999 or thereafter, an
amount up to $5,000,000 equal to the excess (if any)
of the amount of Capitalized Leases permitted to be
incurred in the immediately preceding Fiscal Year in
connection with the Captain D's Lease Program over
the aggregate amount of Capitalized Leases in
connection with the Captain D's Lease Program
actually incurred in the immediately preceding Fiscal
Year, (iii) Capitalized Leases in connection with the
New Distribution Facility not to exceed $5,000,000 at
any time outstanding and (iv) in the case of
Capitalized Leases to which any Subsidiary of the
Borrower is a party, Debt of the Borrower of the type
described in clause (i) of the definition of "Debt"
guaranteeing the Obligations of such Subsidiary under
the Capitalized Leases permitted under this clause
(C),"
(c) Section 5.02(e) of the Credit Agreement is hereby amended
by (i) deleting the figure "$10,000,000" in clause (iv) thereof and
replacing such figure with the figure "$100,000,000" and (ii) amending
in full clause (viii) thereof to read as follows:
"(viii) the sale of Insurex Agency, Inc. and Insurex
Benefits Administrators, Inc. and any tradenames or
trademarks related thereto, provided that at least
30% of the total consideration for any such sale
shall be in cash,".
(d) Section 5.02(f) of the Credit Agreement is hereby amended
by (i) deleting the word "and" at the end of clause (vii) thereof, (ii)
replacing the period at the end of clause (viii) thereof with "; and"
and (iii) adding a new clause (ix) at the end thereof that reads as
follows:
"(ix) Investments constituting non-cash proceeds of
asset sales to the extent permitted by Section
5.02(e)(viii)."
<PAGE> 3
3
(e) Section 5.02(p) of the Credit Agreement is hereby amended
by adding to the end thereof the following:
"; provided, however, that the foregoing calculation
of Capital Expenditures made by the Borrower and its
Subsidiaries in any Fiscal Year shall exclude (i) any
Capital Expenditures made in such Fiscal Year in
connection with the Captain D's Lease Program and
(ii) any Capital Expenditures made in such Fiscal
Year in connection with the New Distribution
Facility."
(f) Section 5.02(o) of the Credit Agreement is hereby amended
by adding to the end thereof the following:
"and except for futures contracts relating to the
purchase by the Borrower and its Subsidiaries of up
to 80% of the diesel fuel needs for any Fiscal Year
for Commissary Operations, Inc."
(g) Section 5.04(a) of the Credit Agreement is hereby amended
by deleting the ratio in the chart therein for February 14, 1999 and
replacing such ratio with the ratio "2.50:1".
(h) Section 5.04(c) of the Credit Agreement is hereby amended
by deleting the ratios in the chart for October 25, 1998 and February
14, 1999 and replacing each such ratio with the ratio "5.50:1".
(i) Section 5.04(d) of the Credit Agreement is hereby amended
by deleting the final proviso therein and replacing such proviso with
the following:
"; provided further that for purposes of calculating
the fixed charge coverage ratio for each of the
fiscal quarters other than year end fiscal quarters,
the Capital Expenditure component of such ratio shall
not exceed $35,000,000".
(j) Section 8.07(a) of the Credit Agreement is hereby amended
by adding immediately after the first reference in clause (ii) thereof
to "Lender" the phrase ", an Affiliate of any Lender or an Approved
Fund of any Lender".
This Amendment No. 1 shall become effective as of the date
first above written when, and only when the Administrative Agent shall have
received counterparts of this Amendment No. 1 executed by the Borrower and the
Required Lenders or, as to any of the Lenders, advice satisfactory to the
Administrative Agent that such Lender has executed this Amendment No. 1, and the
consent attached hereto executed by each other Loan Party. This Amendment No. 1
is subject to the provisions of Section 8.01 of the Credit Agreement.
<PAGE> 4
4
On and after the effectiveness of this Amendment No. 1, each
reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or
words of like import referring to the Credit Agreement, and each reference in
the Notes and each other of the other Loan Documents to "the Credit Agreement",
"thereunder", "thereof" or words of like import referring to the Credit
Agreement, shall mean and be a reference to the Credit Agreement, as amended by
this Amendment No. 1.
The Credit Agreement, the Notes and each of the other Loan
Documents, as specifically amended by this Amendment No. 1, are and shall
continue to be in full force and effect and are hereby in all respects ratified
and confirmed. Without limiting the generality of the foregoing, the Collateral
Documents and all of the Collateral described therein do and shall continue to
secure the payment of all Obligations of the Loan Parties under the Loan
Documents, in each case as amended by this Amendment No. 1. The execution,
delivery and effectiveness of this Amendment No. 1 shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
any Lender or the Administrative Agent under any of the Loan Documents, nor
constitute a waiver of any provision of any of the Loan Documents.
If you agree to the terms and provisions hereof, please
evidence such agreement by executing and returning at least two counterparts of
this Amendment No. 1 to Maura E. O'Sullivan at Shearman & Sterling, 599
Lexington Avenue, New York, NY 10022 (Telecopier No. (212) 848-7179).
This Amendment No. 1 may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of a signature page to this Amendment No. 1 by telecopier shall be
effective as delivery of a manually executed counterpart of this Amendment No.
1.
This Amendment No. 1 shall be governed by, and construed in
accordance with, the laws of the State of New York.
Very truly yours,
SHONEY'S, INC.
By /s/ Lloyd W. Baldridge, Jr.
-----------------------------------
Title: Vice President and Treasurer
<PAGE> 5
5
AGREED AS OF THE DATE FIRST ABOVE WRITTEN:
NATIONSBANK, N.A.
as Administrative Agent, as Lender
and as Issuing Bank
By /s/ Richard Parkhurst
--------------------------------
Title: Senior Vice President
GENERAL ELECTRIC CAPITAL
CORPORATION
By /s/ J.K. Williams
--------------------------------
Title:
PRIME INCOME TRUST
By /s/ Sheila A. Finnerty
--------------------------------
Title: Vice President
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By /s/ John M. Johnson
--------------------------------
Title: Authorized Signatory
ML CLO XII PILGRIM AMERICA
(CAYMAN) LTD.
By /s/ Howard Tiffen
--------------------------------
Title: Senior Vice President
<PAGE> 6
6
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW Advisors (Bermuda), Ltd.
By /s/ Mark L. Gold
-------------------------------
Title: Managing Director
By: TCW Investment Management
Company, as Investment Advisor
By /s/ Jonathan R. Insull
--------------------------------
Title: Vice President
FREMONT FINANCIAL CORPORATION
By /s/ Cheri L. Rittman
--------------------------------
Title: Vice President
CRESCENT/MACH I
PARTNERS, L.P.,
By: TCW Asset Management
Company, as Investment Manager
By /s/ Jonathan R. Insull
--------------------------------
Title: Vice President
VAN KAMPEN AMERICAN
CAPITAL PRIME
RATE INCOME TRUST
By /s/ Jeffrey W. Maillet
--------------------------------
Title: Senior Vice President
& Director
FIRST AMERICAN NATIONAL BANK
By /s/ Russell S. Rogers
--------------------------------
Title: Senior Vice President
<PAGE> 7
7
THE LONG-TERM CREDIT
BANK OF JAPAN, LTD.
By /s/ A. Haruyama
--------------------------------
Title: Head of Southeast Region
SENIOR HIGH INCOME PORTFOLIO, INC.
By /s/ John M. Johnson
--------------------------------
Title: Authorized Signatory
CAPTIVA II FINANCE LTD.
By /s/ John H. Cullinane
--------------------------------
Title: Director
AERIES FINANCE LTD.
By /s/ Andrew Wignall
--------------------------------
Title: Director
<PAGE> 8
8
SENIOR DEBT PORTFOLIO
By: Boston Management and Research
as Investment Advisors
By /s/ Scott H. Page
--------------------------------
Title: Vice President
STRATA FUNDING LTD.
By /s/ John H. Cullinane
--------------------------------
Title: Director
ML CBO IV (CAYMAN) LTD.
By: Protective Asset Management
Company, as Collateral Manager
By /s/ Mark K. Okada
--------------------------------
Title: Executive Vice President
CYPRESSTREE INVESTMENT PARTNERS I, LTD.
By: CypressTree Investment Management Company, Inc.
By /s/ Catherine C. McDermott
--------------------------------
Title: Portfolio Manager
CERES FINANCE LTD.
By /s/ John H. Cullinane
--------------------------------
Title: Director
HELLER FINANCIAL, INC.
By /s/ David West
--------------------------------
Title:
<PAGE> 9
9
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By /s/ Perry Vovoutes
--------------------------------
Title: Senior Vice President
DEUTSCHE FINANCIAL SERVICES
CORPORATION
By /s/ Pamela D. Petrick
--------------------------------
Title: Vice President
GREEN TREE FINANCIAL SERVICING
CORPORATION
By_________________________________
Title: Senior Vice President
& General Manager
THE TORONTO DOMINION BANK
By /s/ Duncan M. Robertson
--------------------------------
Title: Director
<PAGE> 10
10
BALANCED HIGH-YIELD FUND I LTD., as Assignee
By: BHF-BANK AKTIENGESELLSCHAFT
acting through its New York Branch,
as attorney-in-fact
By /s/ John Sykes Hans-Jurgen Scholz
----------------------------------------------
Title: Vice President AVP
<PAGE> 11
11
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/ Neil Brisson
--------------------------------
Title: Director
<PAGE> 12
CONSENT
Dated as of June 16, 1998
Each of the undersigned as a Loan Party under the Loan Documents
relating to the Credit Agreement referred to in the foregoing Amendment No. 1,
hereby consents to such Amendment No. 1 and hereby confirms and agrees that (a)
notwithstanding the effectiveness of such Amendment No. 1, each Loan Document to
which such Loan Party is a party is, and shall continue to be, in full force and
effect and is hereby ratified and confirmed in all respects, except that, on and
after the effectiveness of such Amendment No. 1, each reference to the "Credit
Agreement", "thereunder", "thereof" or words of like import shall mean and be a
reference to the Credit Agreement, as amended by such Amendment No. 1, and (b)
the Collateral Documents to which such Loan Party is a party and all of the
Collateral described therein do, and shall continue to, secure the payment of
all of the Secured Obligations (in each case, as defined therein).
TPI RESTAURANTS, INC.
By /s/ Lloyd W. Baldridge, Jr.
---------------------------------
Title: Vice President, Treasurer
and Assistant Secretary
TPI PROPERTIES, INC.
By /s/ Lloyd W. Baldridge, Jr.
---------------------------------
Title: Vice President, Treasurer
and Assistant Secretary
SHN PROPERTIES, LLC
By: Corporate Benefit Services,
Incorporated of Nashville, its
Managing Member
By /s/ Lloyd W. Baldridge, Jr.
---------------------------------
Title: Vice President, Treasurer
and Assistant Secretary
By /s/ F. E. McDaniel, Jr.
---------------------------------
Title: Secretary
<PAGE> 13
2
SHONEY'S OF MICHIGAN, INC.
By /s/ Lloyd W. Baldridge, Jr.
---------------------------------
Title: Vice President, Treasurer
and Assistant Secretary
COMMISSARY OPERATIONS, INC.
By /s/ Lloyd W. Baldridge, Jr.
---------------------------------
Title: Vice President, Treasurer
and Assistant Secretary
PARGO'S OF FREDERICK, INC.
By /s/ Lloyd W. Baldridge, Jr.
---------------------------------
Title: Vice President, Treasurer
and Assistant Secretary
SHONEY'S EQUIPMENT CORPORATION
By /s/ Lloyd W. Baldridge, Jr.
---------------------------------
Title: Vice President, Treasurer
and Assistant Secretary
CORPORATE BENEFIT SERVICES,
INCORPORATED OF NASHVILLE
By /s/ Lloyd W. Baldridge, Jr.
---------------------------------
Title: Vice President, Treasurer
and Assistant Secretary
PARGO'S OF YORK, INC.
By /s/ Lloyd W. Baldridge, Jr.
---------------------------------
Title: Vice President, Treasurer
and Assistant Secretary
<PAGE> 14
3
SHONEY'S INVESTMENTS, INC.
By /s/ Lloyd W. Baldridge, Jr.
---------------------------------
Title: Vice President, Treasurer
and Assistant Secretary
TPI ENTERTAINMENT, INC.
By /s/ Lloyd W. Baldridge, Jr.
---------------------------------
Title: Vice President, Treasurer
and Assistant Secretary
TPI TRANSPORTATION, INC.
By /s/ Lloyd W. Baldridge, Jr.
---------------------------------
Title: Vice President, Treasurer
and Assistant Secretary
TPI COMMISSARY, INC.
By /s/ Lloyd W. Baldridge, Jr.
---------------------------------
Title: Vice President, Treasurer
and Assistant Secretary
INSUREX AGENCY, INC.
By /s/ Lloyd W. Baldridge, Jr.
---------------------------------
Title: Vice President, Treasurer
and Assistant Secretary
INSUREX BENEFITS
ADMINISTRATORS, INC.
By /s/ Lloyd W. Baldridge, Jr.
---------------------------------
Title: Vice President, Treasurer
and Assistant Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SHONEY'S, INC. FOR THE PERIOD ENDED AUGUST 2, 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> AUG-2-1998
<CASH> 18,413,132
<SECURITIES> 0
<RECEIVABLES> 12,793,823
<ALLOWANCES> 1,428,555
<INVENTORY> 35,597,063
<CURRENT-ASSETS> 109,930,694
<PP&E> 747,282,256
<DEPRECIATION> 370,819,555
<TOTAL-ASSETS> 534,045,179
<CURRENT-LIABILITIES> 167,321,052
<BONDS> 453,694,796
0
0
<COMMON> 48,694,865
<OTHER-SE> (156,122,457)
<TOTAL-LIABILITY-AND-EQUITY> 534,045,179
<SALES> 876,236,404
<TOTAL-REVENUES> 897,522,978
<CGS> 807,394,511
<TOTAL-COSTS> 959,990,565
<OTHER-EXPENSES> 114,947,047
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,649,007
<INCOME-PRETAX> (62,467,587)
<INCOME-TAX> 31,677,000
<INCOME-CONTINUING> (94,144,587)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,415,138)
<CHANGES> 0
<NET-INCOME> (95,559,725)
<EPS-PRIMARY> (1.96)
<EPS-DILUTED> (1.96)
</TABLE>
