<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Shoney's, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
SHONEY'S INC.(R) LOGO
1727 ELM HILL PIKE
NASHVILLE, TENNESSEE 37210
------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD THURSDAY, APRIL 2, 1998
------------------------------------------------------------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the "Annual
Meeting") of Shoney's, Inc. will be held at the Atlanta Marriott Marquis, 265
Peachtree Center Avenue, Atlanta, Georgia, on Thursday, April 2, 1998, at 2:00
p.m. Eastern Standard Time for the following purposes:
(1) To elect a Board of nine directors to serve until the 1999 annual
meeting of shareholders or until their respective successors shall have
been duly elected and qualified;
(2) To consider and act upon a proposal to authorize and approve the
1998 Stock Plan as set forth and described in the attached proxy statement;
and
(3) To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on January 30, 1998
will be entitled to vote at the Annual Meeting.
All shareholders are cordially invited to attend the Annual Meeting. TO
ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE COMPLETE AND PROMPTLY
MAIL YOUR PROXY IN THE RETURN ENVELOPE PROVIDED. This will not prevent you from
voting in person, should you so desire, but will help to secure a quorum and
avoid added solicitation costs. Your proxy may be revoked at any time before it
is voted.
By Order of the Board of Directors,
/s/ F.E. MCDANIEL
F.E. McDANIEL, JR.
Chief Administrative Officer,
Secretary and General Counsel
Nashville, Tennessee
February 19, 1998
<PAGE> 3
PROXY STATEMENT
---------------------
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 2, 1998
------------------------------------------
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Directors (the "Board") of Shoney's, Inc., a
Tennessee corporation (the "Company," which, unless otherwise indicated,
includes all corporate predecessors and subsidiaries of the Company), from
holders of the Company's shares of $1.00 par value common stock (the "Shares")
to be voted at the 1998 annual meeting of shareholders of the Company (the
"Annual Meeting") to be held at the Atlanta Marriott Marquis, 265 Peachtree
Center Avenue, Atlanta, Georgia, on Thursday, April 2, 1998, at 2:00 p.m.
Eastern Standard Time, and at any adjournments or postponements thereof. The
first date on which this Proxy Statement and form of proxy with respect thereto
are being sent or given to shareholders is on or about February 19, 1998.
The Board has fixed the close of business on January 30, 1998 as the record
date (the "Record Date") for the determination of shareholders entitled to
notice of and to vote at the Annual Meeting. On the Record Date, 48,673,365
Shares were outstanding. Each shareholder is entitled to one vote per Share held
of record on the Record Date. Cumulative voting is not permitted.
The holders of a majority of the Shares present in person or by properly
executed proxies are required to constitute a quorum to transact business at the
Annual Meeting. All Shares represented at the Annual Meeting by properly
executed proxies received prior to or at the Annual Meeting and not properly
revoked will be voted at the Annual Meeting in accordance with the instructions
indicated in such proxies. In voting by proxy in regard to the election of
directors to serve until the 1999 annual meeting of shareholders or until their
respective successors are duly elected and qualified, shareholders may vote in
favor of all nominees, withhold their votes as to all nominees, or withhold
their votes as to specific nominees. If no instructions are indicated, such
proxies will be voted FOR the election of all nominees as directors. The
directors shall be elected by a plurality of the votes cast by the holders of
Shares entitled to vote at the Annual Meeting if a quorum is present. The 1998
Stock Plan (the "Stock Plan") will be approved if the votes cast in favor of the
Stock Plan exceed the votes cast against it. If no instructions are indicated,
such proxies will be voted FOR the approval of the Stock Plan. The Board does
not know of any matters, other than the matters described in the Notice of
Annual Meeting attached to this Proxy Statement, that will come before the
Annual Meeting.
No specific provisions of the Tennessee Business Corporation Act, the
Company's Charter or the Company's Bylaws address the issue of abstentions or
broker non-votes. Abstentions and broker non-votes will be treated as Shares
that are present and entitled to vote for purposes of determining whether a
quorum is present, but will not be counted as votes either in favor of or
against a particular proposal. If a broker or nominee holding Shares in "street"
name indicates on the proxy that it does not have discretionary authority to
vote on a particular matter, those Shares will not be voted with respect to that
matter and will be disregarded for the purpose of determining the total number
of votes cast with respect to a proposal.
If a quorum is not present at the time the Annual Meeting is convened, or
if for any other reason the Company believes that additional time should be
allowed for the solicitation of proxies, the Company may adjourn or postpone the
Annual Meeting with or without a vote of the shareholders. If the Company
proposes to adjourn the Annual Meeting by a vote of the shareholders, the
persons named in the enclosed proxy card will vote all Shares for which they
have voting authority in favor of such adjournment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of the Company, at or before the Annual Meeting, a written
notice of revocation bearing a date later than the date of the proxy, (ii) duly
executing a subsequent proxy relating to the same Shares and delivering it to
the Secretary of the Company at or before
<PAGE> 4
the Annual Meeting, or (iii) attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not in and of itself constitute
revocation of a proxy). Any written notice revoking a proxy should be sent to:
Shoney's, Inc., 1727 Elm Hill Pike, Nashville, Tennessee 37210, Attention: F.E.
McDaniel, Jr., Chief Administrative Officer, Secretary and General Counsel.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement, and, if given or made,
such information or representation should not be relied upon as having been
authorized by the Company. This Proxy Statement does not constitute the
solicitation of a proxy in any jurisdiction from any person to whom it is
unlawful to make such proxy solicitation in such jurisdiction. The delivery of
this Proxy Statement shall not, under any circumstances, imply that there has
not been any change in the information set forth herein since the date of this
Proxy Statement.
PROPOSAL 1. ELECTION OF DIRECTORS
The Company's Bylaws provide that the Board shall consist of not less than
seven and not more than 12 directors, the exact number to be set by the Board.
The current Board consists of 11 members. Effective as of the date of the Annual
Meeting, the Board has fixed the number of directors at nine. Two current
directors, Carole F. Hoover and Cal Turner, Jr., are not standing for
re-election to the Board. The Nominating Committee has been active during the
past year in filling vacancies on the Board, including the appointment of Felker
W. Ward, Jr. and James D. Yancey in January 1998. The Nominating Committee and
the Board intend to seek an additional director or directors to serve on the
Board and, if suitable candidates are identified, may appoint additional
directors to the Board prior to the 1999 annual meeting of shareholders.
It is intended that proxies received in response to this solicitation will
be voted in favor of the election of each of the nominees to be directors of the
Company until the 1999 annual meeting of shareholders or until their successors
are elected and qualified, unless authority to vote is withheld. If for any
reason any such nominee is not a candidate when the election occurs, which event
is not anticipated, it is the intention of the persons named in the enclosed
proxy card to vote for the remaining nominees named thereon and to vote in
accordance with their best judgment for any substitute nominees that are named.
If a proxy is executed in such manner as not to withhold authority to vote
for the election of directors, then the persons named in the enclosed proxy card
will vote such proxy for the election of the nominees listed below, reserving,
however, full discretion to cast votes for other persons if any nominee is
unable or unwilling to serve. Each person nominated for election has agreed to
serve if elected, and management has no reason to believe that any nominee will
be unavailable.
NOMINEES FOR THE BOARD
Each nominee's principal occupation, age, and period of service as a
director of the Company are set forth below. All of the nominees are presently
serving on the Board.
J. MICHAEL BODNAR Age -- 53
President and Chief Executive Officer Director since 1997
Shoney's, Inc.
Mr. Bodnar was named President and Chief Executive Officer of the Company in
November 1997. Mr. Bodnar was elected to the Board of Directors in August 1997
pursuant to the Settlement Agreement entered into between the Company and
Raymond D. Schoenbaum and Betty J. Schoenbaum (the "Schoenbaums"). See "Certain
Transactions." Mr. Bodnar has served as President of Bodnar Investment Group,
Inc., a real estate investment company focusing primarily on the restaurant
industry, since 1984. From January 1986 through May 1996, Mr. Bodnar served as
President of Triangle Management Group, Inc., a restaurant management company.
See "Executive Compensation -- Employment Contracts."
2
<PAGE> 5
C. STEPHEN LYNN Age -- 50
Chairman of the Board Director since 1995
Shoney's, Inc.
Mr. Lynn was elected Chairman of the Board in April 1995. Mr. Lynn served as
Chief Executive Officer of the Company from April 1995 through November 1997 and
as President from January 1996 through November 1997. Mr. Lynn served as Chief
Executive Officer and as a director of Sonic Corp. from November 1983 through
April 1995. He also served as Chairman of the Board of Sonic Corp. from April
1986 to April 1995. See "Executive Compensation -- Employment Contracts."
JEFFRY F. SCHOENBAUM Age -- 50
Private Investor Director since 1996
Mr. Schoenbaum is a private investor and serves as Vice President of Nurad
Investments, Inc., which was formed in 1987 to manage the historic redevelopment
of commercial properties in Sarasota and Tampa, Florida. From 1992 through 1994,
he served as Vice President of Bay Area Capital, Inc., a provider of working
capital financing. He also serves as a member of the board of directors of the
Schoenbaum Family Foundation. Jeffry F. Schoenbaum is the brother of Raymond D.
Schoenbaum.
RAYMOND D. SCHOENBAUM Age -- 51
President Director since 1997
Schoenbaum Limited
Since April 1995, Mr. Schoenbaum has been President of Schoenbaum Limited, a
restaurant management company. Mr. Schoenbaum has also served since March 1996
as the President and Chief Executive Officer of Just Having Fun Restaurants,
Inc., a restaurant company currently developing a new restaurant concept in
Atlanta, Georgia. From June 1984 to March 1995, he served as the Chairman of the
Board of Innovative Restaurant Concepts, Inc., a restaurant management company
which owned and operated Rio Bravo, Ray's on the River, and Green Hills Grille
restaurants. Mr. Schoenbaum sold this company to Applebee's International, Inc.
in March 1995. Mr. Schoenbaum was a member of the board of directors of
Applebee's International, Inc. from March 1995 to August 1997. He also serves as
a member of the board of directors of the Schoenbaum Family Foundation. Mr.
Schoenbaum was elected to the Board of Directors in August 1997 pursuant to the
Settlement Agreement between the Company and the Schoenbaums. See "Certain
Transactions." Raymond D. Schoenbaum is the brother of Jeffry F. Schoenbaum.
WILLIAM A. SCHWARTZ Age -- 59
President and Chief Executive Officer Director since 1997
FMB Enterprises, Inc.
Mr. Schwartz is President and Chief Executive Officer of FMB Enterprises, Inc.,
which he founded in 1988. FMB Enterprises, Inc. is a general partner in Capital
Cable, L.P., which owns and operates several cable television systems and
manages a large portfolio of investments. Since 1990, Mr. Schwartz has been
involved in the ownership and operation of television stations, serving as Chief
Executive Officer of Cannell Communications, L.P. from February 1990 to December
1995 and as Chief Executive Officer of First Media Television, L.P. from January
1995 through November 1997. From September 1985 to December 1987, Mr. Schwartz
was President and Chief Operating Officer of Cox Enterprises, Inc., a large
diversified media company. Mr. Schwartz was elected to the Board of Directors in
August 1997 pursuant to the Settlement Agreement between the Company and the
Schoenbaums. See "Certain Transactions."
CARROLL D. SHANKS Age -- 70
Retired Vice Chairman Director since 1997
American General Life & Accident Insurance Company
Mr. Shanks retired in December 1992 as Vice Chairman of American General Life &
Accident Insurance Company. Mr. Shanks serves as a member of the board of
directors of NationsBank of Tennessee, a subsidiary of NationsBank, N.A., and on
the boards of numerous non-profit organizations.
3
<PAGE> 6
FELKER W. WARD, JR. Age -- 64
Chairman of the Board and Director since 1998
Chief Executive Officer
Pinnacle Investment Advisors, Inc.
Mr. Ward has served as Chairman of the Board and Chief Executive Officer of
Pinnacle Investment Advisors, Inc., an investment advisor, since its formation
in April 1994. From December 1992 to July 1996, Mr. Ward also served as Chairman
of Ward Bradford & Co., L.P., a financial services company. Since 1979, Mr. Ward
has served as the President and Vice Chairman of Concessions International,
Inc., an owner and operator of food, beverage, gift and duty-free shops in
airports.
WILLIAM M. WILSON Age -- 49
President Director since 1997
Cherokee Equity Corporation
Mr. Wilson, since 1984, has served as President of Cherokee Equity Corporation,
an investment holding company. Since 1979, Mr. Wilson has also served as
President of Cherokee Properties, Inc., a real estate investment company.
JAMES D. YANCEY Age -- 56
Vice Chairman and President Director since 1998
Synovus Financial Corp.
Mr. Yancey has served as Vice Chairman of Synovus Financial Corp., a financial
services company, since March 1992, as President since February 1990, and as a
director since 1978.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the fiscal year ended October 26, 1997 (the "1997 Fiscal Year"), the
Board held four regular and 14 special meetings and a special committee of the
Board (the "Special Committee"), constituted in connection with the proxy
contest during the summer of 1997, held seven meetings. During the 1997 Fiscal
Year, each incumbent director attended at least 75% of the aggregate of the
total number of meetings of the Board and the total number of meetings held by
all committees on which the individual director served (during the period he or
she served as a director), except Mr. Schwartz who attended 50% (1 of 2) of such
meetings.
The Board has standing Executive, Audit, Human Resources and Compensation,
Franchise Relations, and Nominating committees that assist it in discharging its
responsibilities. These committees, their members, and functions are discussed
below. Following the Annual Meeting, the Board intends to reconstitute certain
of the committees to replace Ms. Hoover and Mr. Turner.
The Executive Committee presently is composed of five directors: Bodnar
(Chairperson), Raymond Schoenbaum, Schwartz, Ward, and Yancey. Between meetings
of the Board, the Executive Committee may exercise all of the powers of the
Board except that it may not: (1) authorize dividends except pursuant to a
formula preapproved by the Board; (2) submit matters to a vote of shareholders;
(3) fill vacancies on the Board or any of its committees; (4) amend the
Company's Charter or adopt, amend, or repeal its Bylaws; (5) authorize a plan of
merger; (6) authorize or approve acquisitions of Shares except pursuant to a
formula preapproved by the Board; or (7) authorize or approve the issuance or
sale of Shares. The Executive Committee met one time during the 1997 Fiscal
Year.
The Audit Committee presently is composed of four directors: Schwartz
(Chairperson), Jeffry Schoenbaum, Wilson, and Yancey. Responsibilities of this
committee include engagement of independent auditors, review of audit fees,
supervision of matters relating to the Company's internal and external audit
functions, review and setting of internal policies and procedures regarding
audits, accounting and other financial controls, and review of related party
transactions. The Audit Committee met three times during the 1997 Fiscal Year.
4
<PAGE> 7
The Human Resources and Compensation Committee (the "HRC Committee")
presently is composed of four directors: Hoover (Chairperson), Shanks, Ward, and
Yancey. Responsibilities of this committee include review and oversight of the
Company's personnel policies, monitoring the Company's results under affirmative
action plans adopted by the Company and general oversight of the Company's
personnel and/or human resources functions. Responsibilities of this committee
also include approval of remuneration arrangements for executive officers of the
Company, review of compensation plans relating to executive officers and
directors, including grants of stock options and other benefits under the
Company's compensation plans, and general review of the Company's employee
compensation policies. The HRC Committee met eight times during the 1997 Fiscal
Year. No member of the HRC Committee has been an employee of the Company at any
time and no member has any relationship with either the Company or the Company's
officers requiring disclosure under applicable regulations of the Securities and
Exchange Commission (the "SEC").
The Franchise Relations Committee presently is composed of four directors:
Turner (Chairperson), Jeffry Schoenbaum, Shanks, and Wilson. Responsibilities of
this committee include keeping the Board apprised of the concerns and
suggestions of the Company's franchisees and acting as an issue resolution
committee to mediate disputes between franchisees and between franchisees and
the Company. The Franchise Relations Committee met one time during the 1997
Fiscal Year.
The Nominating Committee presently is composed of four directors: Raymond
Schoenbaum (Chairperson), Hoover, Schwartz, and Ward. The Nominating Committee
considers and recommends nominees for director for consideration by the Board.
Although the Nominating Committee does not solicit suggestions for nominees for
the Board, suggestions for nominees by security holders accompanied by
biographical data will be considered if submitted to the Company's Secretary in
accordance with the Company's Bylaws. The Nominating Committee met four times
during the 1997 Fiscal Year.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSED NOMINEES
TO THE BOARD.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
executive officers, and any persons holding more than ten percent of the Shares
are required to report their ownership of the Shares and any changes in that
ownership to the SEC and the New York Stock Exchange (the "NYSE"). These persons
also are required by SEC regulations to furnish the Company with copies of these
reports. Specific due dates for these reports have been established and the
Company is required to report in this Proxy Statement any failure to file by
these dates during the 1997 Fiscal Year. Based solely on a review of the reports
furnished to the Company or written representations from the Company's directors
and executive officers, the Company believes that all of these filing
requirements were satisfied by the Company's directors, executive officers, and
ten percent holders during the 1997 Fiscal Year, with the exception of James W.
Arnett, Jr., the Company's Senior Vice President -- Shoney's Restaurants, who
failed to timely file one report reflecting a single transaction.
5
<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning persons,
other than officers and directors, who, as of the Record Date, are known to
management to be the beneficial owners of more than 5% of the Shares. The
Company has no other class of equity securities outstanding.
<TABLE>
<CAPTION>
SHARES PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
- ------------------------------------ ------------------ --------
<S> <C> <C>
R.L. Danner(1)............................................. 4,249,303 8.7%
2 International Plaza, Suite 510
Nashville, TN 37217
Betty J. Schoenbaum(2)..................................... 3,394,480 7.0%
5541 Gulf of Mexico Drive
Longboat Key, Florida 34228
Dimensional Fund Advisors, Inc.(3)......................... 2,994,224 6.2%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
</TABLE>
- ---------------
(1) Includes 83,068 Shares owned by Mr. Danner's wife and 7,101 Shares held in
trust for Mr. Danner's son, over which Mr. Danner's wife has sole voting and
dispositive power. The information regarding Shares beneficially owned is
based upon the Schedule 13D filed by Mr. Danner with the SEC on April 17,
1997.
(2) Includes 2,703,388 Shares held in Schoenbaum Ventures Limited Partnership;
200,000 Shares held in the Alex Schoenbaum Charitable Trust; 35,750 Shares
held by the Schoenbaum Family Foundation; and 395,342 Shares held in a
revocable living trust, controlled by Ms. Schoenbaum. Ms. Schoenbaum has
sole voting and dispositive power with respect to the Shares held in
Schoenbaum Ventures Limited Partnership and shared voting and dispositive
power with respect to the Shares held by the Alex Schoenbaum Charitable
Trust, the Schoenbaum Family Foundation, and the revocable living trust. Ms.
Schoenbaum is the mother of Jeffry F. Schoenbaum and Raymond D. Schoenbaum.
(3) Dimensional Fund Advisors, Inc. ("DFA") is a registered investment advisor.
DFA has sole voting power with respect to 1,997,662 Shares and sole
dispositive power with respect to 2,994,224 Shares. The information
regarding Shares beneficially owned is based upon the Schedule 13G filed by
DFA with the SEC on February 11, 1998.
6
<PAGE> 9
The following table sets forth the number of Shares held beneficially,
directly, or indirectly, as of the Record Date, by all directors and nominees
for director, the Company's Chief Executive Officer and the Company's four most
highly compensated executive officers other than the Chief Executive Officer who
were serving as executive officers at the end of the 1997 Fiscal Year (these
five officers are hereinafter referred to as the "Named Executive Officers"),
and by all current directors and executive officers as a group, together with
the percentage of the outstanding Shares which such ownership represents. Unless
otherwise indicated, beneficial ownership consists of sole voting and
dispositive power based on 48,673,365 Shares issued and outstanding as of the
Record Date.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED(1) OF CLASS
- ------------------------ ------------ --------
<S> <C> <C>
James W. Arnett, Jr......................................... 61,076(2) *
W. Craig Barber(3).......................................... 9,359 *
J. Michael Bodnar........................................... 55,000 *
Carole F. Hoover............................................ 2,400 *
Robert M. Langford.......................................... 30,000 *
Haney A. Long, Jr........................................... 40,721 *
C. Stephen Lynn............................................. 489,071 1.0%
Jeffry F. Schoenbaum........................................ 583,192(4) 1.2%
Raymond D. Schoenbaum....................................... 515,624(5) 1.1%
William A. Schwartz......................................... 20,000 *
Carroll D. Shanks........................................... 1,200 *
Cal Turner, Jr.............................................. 29,000 *
Felker W. Ward, Jr.......................................... -- *
William M. Wilson........................................... 10,000 *
James D. Yancey............................................. 5,000 *
All current directors and executive officers as a group (23
persons).................................................. 1,915,339 3.9%
</TABLE>
- ---------------
* Less than one percent.
(1) Includes Shares subject to options to purchase Shares which are exercisable
or become exercisable within 60 days of the date hereof, and are held by the
following persons: Carole F. Hoover (2,000); Robert M. Langford (30,000);
Haney A. Long, Jr. (40,180); C. Stephen Lynn (250,000); Jeffry F. Schoenbaum
(1,000); Cal Turner, Jr. (4,000); current directors and executive officers
as a group (413,680). Such Shares are deemed to be outstanding for the
purpose of computing the percentage of outstanding Shares owned by such
person, but are not deemed to be outstanding for the purpose of computing
the percentage owned by any other person.
(2) Includes 2,338 Shares held by Mr. Arnett's wife and 2,038 Shares held by Mr.
Arnett's wife as custodian for their daughter.
(3) Mr. Barber resigned as Senior Executive Vice President, Chief Administrative
Officer and Chief Financial Officer effective November 10, 1997. See
"Executive Compensation -- Severance Agreement."
(4) Includes 17,340 Shares held by Chase Manhattan Bank as custodian for Mr.
Schoenbaum's children, 2,953 Shares held by Mr. Schoenbaum's wife, and
432,902 Shares held in a trust for the benefit of Mr. Schoenbaum. Also
includes 35,750 Shares owned by the Schoenbaum Family Foundation, of which
Mr. Schoenbaum is a director. Mr. Schoenbaum disclaims beneficial ownership
of the Shares owned by the Schoenbaum Family Foundation.
(5) Includes 200,000 Shares held in a trust for the benefit of Mr. Schoenbaum,
10,267 Shares owned by Mr. Schoenbaum's wife, 1,038 Shares held by Mr.
Schoenbaum as custodian for Mr. Schoenbaum's son, and an aggregate of 7,569
Shares held in trusts for the benefit of Mr. Schoenbaum's sons. Also
includes 35,750 Shares owned by the Schoenbaum Family Foundation, of which
Mr. Schoenbaum is a director. Mr. Schoenbaum disclaims beneficial ownership
of the Shares owned by the Schoenbaum Family Foundation.
7
<PAGE> 10
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by the
Company during the three fiscal years ended October 26, 1997 to the Named
Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- -----------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS($) OPTIONS COMPENSATION($)
- --------------------------- ---- --------- -------- --------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
C. Stephen Lynn(1)
Chairman, Chief 1997 500,000 -- 45,246(2) 80,438(3) 250,000 35,000(4)
Executive Officer 1996 491,747 -- 94,708(2) 167,063(5) 1,250,000 42,092(6)
and President........... 1995 226,122(7) 300,000 -- -- 250,000 262,879(8)
Robert M. Langford
Senior Executive
Vice President and 1997 288,900 25,279 -- -- 150,000 --
Chief Operating 1996 247,100 40,000 -- -- 250,000 --
Officer................. 1995 9,367(9) 50,000 -- -- 75,000 --
W. Craig Barber(10)
Senior Executive
Vice President, Chief
Administrative 1997 288,900 -- -- -- 100,000 4,505(11)
Officer and Chief 1996 253,462 -- -- -- 300,000 11,532(12)
Financial Officer....... 1995 239,061 90,000 2,000(13) -- 150,000 4,755(11)
Haney A. Long, Jr.
Division President --
Distribution and 1997 188,462 47,500 -- -- 25,000 53,259(14)
Manufacturing........... 1996 24,904(15) 35,000 -- -- 71,914 53,985(16)
James W. Arnett, Jr.(17) 1997 179,814 50,000 -- -- 200,000 1,729(11)
Senior Vice President -- 1996 70,865 -- -- -- -- 1,941(11)
Shoney's Restaurants.... 1995 316,707 -- -- -- -- 9,149(11)
</TABLE>
- ---------------
(1) Mr. Lynn resigned as President and Chief Executive Officer effective
November 12, 1997. Mr. Lynn continues to serve as Chairman of the Board.
See "-- Employment Contracts."
(2) Represents tax equalization bonus paid with respect to the receipt of
16,500 restricted Shares. See Notes (3) and (5).
(3) Represents the value of 16,500 Shares granted pursuant to Mr. Lynn's
employment agreement, with a fair market value of $80,438 ($4.875 per
share) on the date of distribution. See Note (2). At October 26, 1997, Mr.
Lynn held an aggregate of 33,000 restricted Shares with a fair market value
of $162,938.
(4) Represents insurance premiums paid on Mr. Lynn's behalf pursuant to his
employment agreement.
(5) Represents the value of 16,500 Shares granted pursuant to Mr. Lynn's
employment agreement, with a fair market value of $167,063 ($10.125 per
share) on the date of distribution. See Note (2).
(6) Represents certain moving and storage expenses in connection with his
relocation ($7,092) and insurance premiums ($35,000) paid on Mr. Lynn's
behalf pursuant to his employment agreement.
(7) Mr. Lynn commenced employment with the Company in April 1995.
(8) Represents the following: certain expenses incurred by Mr. Lynn in
connection with his relocation ($94,764); real estate commissions and
closing costs in connection with the sale of Mr. Lynn's former residences
($133,115); and insurance premiums paid on Mr. Lynn's behalf pursuant to
his employment agreement ($35,000).
(9) Mr. Langford commenced employment with the Company in October 1995.
(10) Mr. Barber resigned as Senior Executive Vice President, Chief
Administrative Officer and Chief Financial Officer effective November 10,
1997. See "-- Severance Agreement."
(11) Represents amounts paid pursuant to the Company's restaurant group
ownership plans established in prior years, in which partnerships composed
of employees have acquired up to a 30% interest in groups of restaurants.
(12) Represents $4,648 paid pursuant to the Company's restaurant group ownership
plans (see Note (11)) and $6,884 accrued, but not paid, to provide for
possible future payments under a salary continuation plan that covers
certain present and former employees of the Company.
(13) Represents matching contributions by the Company under the Company's
Supplemental Executive Retirement Plan.
(14) Represents closing costs in connection with the purchase of Mr. Long's
residence ($19,149) and certain moving and storage expenses in connection
with his relocation ($34,110).
(15) Mr. Long commenced employment with the Company in September 1996.
(16) Represents real estate commissions in connection with the sale of Mr.
Long's former residence.
(17) Mr. Arnett served as President and Chief Operating Officer of the Company
until January 1995. Amounts shown as salary for Mr. Arnett in 1995
represent salary and severance payments and amounts shown in 1996 represent
severance payments. Mr. Arnett recommenced employment with the Company in
November 1996.
8
<PAGE> 11
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information concerning stock options granted to the Named
Executive Officers during the 1997 Fiscal Year:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK PRICE
SECURITIES GRANTED TO EXERCISE APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES OR BASE TERM
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------------
NAME GRANTED YEAR ($/SHARE)(1) DATE 5% ($) 10% ($)
---- ---------- ---------- ------------ ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Mr. Lynn........... 125,000(2) 11.60 7.38 11/01/06 579,762 1,469,231
Mr. Lynn........... 75,000(2) 6.96 16.75 11/01/06 -- 178,414
Mr. Lynn........... 50,000(2) 4.64 18.50 11/01/06 -- 31,443
Mr. Barber......... 100,000(3) 9.28 9.63 10/28/03 110,414 523,397
Mr. Langford....... 150,000(4) 13.92 9.63 10/28/03 165,621 785,095
Mr. Arnett......... 200,000(4)(5) 18.56 9.63 03/17/04 -- 121,153
Mr. Long........... 25,000(4)(5) 2.32 9.63 10/28/03 27,604 130,849
</TABLE>
- ---------------
(1) The exercise price of the options granted is at least 100% of the fair
market value of the Shares on the date of grant.
(2) The options vest in five equal annual installments beginning November 1,
1997; provided, however, that such options may become fully vested under
certain circumstances following the termination of Mr. Lynn's employment
with the Company pursuant to the terms of his amended and restated
employment agreement. See " -- Employment Contracts."
(3) These options were terminated upon Mr. Barber's resignation as Senior
Executive Vice President, Chief Administrative Officer and Chief Financial
Officer in November 1997. See " -- Severance Agreement."
(4) The options vest based upon a target rate of increase in the market value of
the Shares. The options fully vest on the sixth anniversary of the date of
grant. See "Human Resources and Compensation Committee Report -- Long-Term
Incentives."
(5) Subsequent to the end of the 1997 Fiscal Year, Messrs. Arnett and Long
exchanged these options on a ten-for-one basis for options to purchase
Shares at an exercise price of $3.125 per share with a five-year term,
vesting ratably over five years.
AGGREGATED FISCAL YEAR-END OPTION VALUES
Shown below is information with respect to unexercised options to purchase
Shares held by the Named Executive Officers as of the end of the 1997 Fiscal
Year. None of the unexercised options held by the Named Executive Officers at
the end of the 1997 Fiscal Year were in-the-money.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS HELD AT
OCTOBER 26, 1997
----------------------------
NAME EXERCISABLE UNEXERCISABLE
- ---- ----------- -------------
<S> <C> <C>
Mr. Lynn.................................................... 150,000 1,600,000
Mr. Barber.................................................. 81,000 491,500
Mr. Langford................................................ 30,000 445,000
Mr. Arnett.................................................. -- 200,000
Mr. Long.................................................... 36,897 48,283
</TABLE>
The Company has never awarded stock appreciation rights to any employee,
has no long-term incentive plans, as that term is defined in SEC regulations,
and has no defined benefit or actuarial plans covering any employees of the
Company.
COMPENSATION OF DIRECTORS
Directors who are also officers of the Company do not receive additional
compensation for service on the Board. Directors who are not also officers of
the Company receive a quarterly retainer of $4,000 in addition to $1,000 plus
expenses for each Board or committee meeting they attend. In addition, each
non-employee director participates in the Shoney's, Inc. Directors' Stock Option
Plan (the "Directors' Plan"). Each non-employee director serving in such
capacity on June 7, 1990, the date the Board adopted the Directors' Plan,
received an option for 5,000 Shares. Non-employee directors initially elected to
the Board subsequent to the
9
<PAGE> 12
adoption of the Directors' Plan receive an option for 5,000 Shares upon their
election to the Board. Non-employee directors, upon the fifth anniversary of the
grant of their most recent option under the Directors' Plan, are awarded an
additional option for 5,000 Shares. As of the end of the 1997 Fiscal Year, there
were nine participants under the Directors' Plan who held options covering an
aggregate of 45,000 Shares at exercise prices ranging from $5.06 to $23.38 per
Share. During the 1997 Fiscal Year, there were no exercises of options granted
under the Directors' Plan.
During November 1997, the Company paid a fee of $10,000 to each of Dennis
C. Bottorff and B. Franklin Skinner (former directors of the Company who
resigned from the Board in September 1997 and December 1997, respectively) and
to Ms. Hoover. The fees paid to Messrs. Bottorff and Skinner and Ms. Hoover were
paid as compensation for services rendered to the Company in their capacities as
chairpersons of the Audit Committee, the Special Committee, and the HRC
Committee, respectively, in connection with the proxy contest during the 1997
Fiscal Year and the transition of the Company's new management team. See
"Certain Transactions." The Company paid Raymond Schoenbaum a fee of $10,000 in
November 1997 in connection with his assistance in conducting a strategic review
of the Company's operations.
EMPLOYMENT CONTRACTS
The Company has employment agreements with each of Messrs. Lynn, Bodnar,
and Langford. In connection with the commencement of his employment with the
Company, Mr. Lynn and the Company entered into an employment agreement in April
1995. At the time of Mr. Lynn's resignation as President and Chief Executive
Officer of the Company in November 1997, Mr. Lynn and the Company amended and
restated the employment agreement to provide for Mr. Lynn's continuing
employment as Chairman of the Board. The amended and restated agreement provides
that Mr. Lynn will serve as Chairman of the Board of the Company until December
31, 1998 (the "Initial Term"). The agreement provides that Mr. Lynn will receive
an annual salary of $550,000 during the Initial Term and will receive severance
payments aggregating $183,333 during the period from January 1, 1999 through
April 30, 1999. The agreement also provides for Mr. Lynn to receive 50,000
restricted Shares as follows: 16,500 Shares on each of April 11, 1996 and April
11, 1997, and 17,000 Shares on April 11, 1998. On these dates, Mr. Lynn is paid
a tax equalization bonus based on the value of the Shares received.
In the event Mr. Lynn is terminated during the Initial Term without Cause,
he will be entitled to continue to receive amounts payable for salary during the
balance of the Initial Term and for severance following the conclusion of the
Initial Term. If Mr. Lynn terminates his employment with the Company or is
terminated by the Company for Cause during the Initial Term, Mr. Lynn will not
be entitled to any additional payments under the Agreement, but will be entitled
to exercise his then currently exercisable stock options in accordance with
their respective terms. For purposes of the agreement, Cause is defined as (i)
personal dishonesty; (ii) willful misconduct; (iii) breach of fiduciary duty to
the Company involving personal profit; (iv) conviction of any felony or crime
involving moral turpitude; (v) material intentional breach of any provision of
the agreement; or (vi) unsatisfactory performance of Mr. Lynn's duties as a
result of alcohol or drug abuse. In the event Mr. Lynn's employment is
terminated during the Initial Term without Cause or is not terminated during the
Initial Term, all stock options then held by Mr. Lynn will vest on April 30,
1999 and Mr. Lynn shall be entitled to exercise such options in accordance with
their respective terms for a period of 90 days thereafter.
Mr. Bodnar's employment agreement provides for a term expiring on December
31, 2000. In the event a Change in Control occurs during the term of Mr.
Bodnar's agreement, the employment term will be automatically extended for two
additional years. For purposes of the agreement, a Change in Control is deemed
to occur if (i) any person acquires more than 50% of the Company's outstanding
voting securities; (ii) all or substantially all of the assets of the Company
are sold; (iii) the Company's shareholders approve a plan of liquidation or
dissolution; or (iv) individuals who at the beginning of the term constitute the
members of the Board of Directors cease for any reason other than at the request
or with the concurrence of Mr. Bodnar to constitute a majority thereof unless
the election, or the nomination for election by the Company's shareholders, of
each new director was approved by a vote of at least a majority of the directors
then still in office who were directors at the beginning of the term of the
agreement.
10
<PAGE> 13
Mr. Bodnar's agreement provides for a base salary of $500,000 per year
through December 31, 1998. During the remainder of the term of the agreement,
Mr. Bodnar's base salary will be determined by the HRC Committee; provided that
the HRC Committee may not decrease Mr. Bodnar's base salary below $500,000 per
year. Bonuses for Mr. Bodnar are based upon a plan to be agreed upon by Mr.
Bodnar and the Company; provided, however, that Mr. Bodnar will receive a
minimum bonus of $300,000 during the 1998 fiscal year.
The agreement also provides that Mr. Bodnar will receive 40,000 restricted
Shares on each of December 31, 1998, 1999, and 2000. On each such date, Mr.
Bodnar is paid a tax equalization bonus based on the value of the Shares
received. Mr. Bodnar's employment agreement also grants him options to purchase
an aggregate of 1,000,000 Shares as follows: 500,000 Shares at an exercise price
of $4.69 per Share; 166,667 Shares at an exercise price of $5.40 per Share;
166,667 Shares at an exercise price of $6.50 per Share; and 166,666 Shares at an
exercise price of $7.75 per Share. The agreement also provides that the Company
will pay certain expenses incurred in connection with his relocation to
Nashville.
In the event the Company terminates Mr. Bodnar's employment without Cause,
Mr. Bodnar will be entitled to receive severance pay equal to the greater of (i)
an amount equal to the base salary and bonus paid or accrued on Mr. Bodnar's
behalf for the 12 months immediately prior to the month in which the termination
took place or (ii) the amount due Mr. Bodnar for base salary during the balance
of the current employment term, including any extension thereof resulting from
the occurrence of a Change in Control. In addition, Mr. Bodnar will be entitled
to a formula bonus as set forth in the agreement based upon the Company's most
recently completed 12 month period. If the Company terminates Mr. Bodnar's
employment without Cause, all stock options then held by Mr. Bodnar will become
fully vested and exercisable in accordance with their respective terms for a
minimum of 90 days thereafter, and his benefits under the Company's benefit
plans will continue until the earlier of the expiration of the term of the
agreement or such time as Mr. Bodnar is covered or permitted to be covered by
benefit plans of another company.
In the event Mr. Bodnar resigns other than within 90 days of a Change in
Control or is terminated for Cause, Mr. Bodnar is entitled to no severance
payments under his employment agreement and all stock options that are not
vested prior to the effective date of the termination shall lapse and be void.
Cause for termination includes (i) willful failure to carry out any material
lawful duties assigned to Mr. Bodnar by the Board which duties are commensurate
with those of similarly situated employees; (ii) breach of fiduciary duty
involving personal profit; (iii) conviction of any felony, any crime involving
the Company's business, or any crime resulting in imprisonment; (iv) intentional
breach of any material provision of the employment agreement; or (v)
unsatisfactory performance by Mr. Bodnar of his duties as a result of alcohol or
drug abuse. In addition to the two-year extension of his employment term in the
event of a Change in Control, Mr. Bodnar, at his option, may terminate his
employment within 90 days after such Change in Control, in which case he will
receive the greater of (i) an amount equal to two times the base salary and
bonus paid or accrued on Mr. Bodnar's behalf during the 12 months immediately
prior to the month in which the termination took place or (ii) the amount due as
base salary during the balance of his employment term. In the event of such a
termination, all stock options then held by Mr. Bodnar will become fully vested
and exercisable in accordance with their terms, and his benefits under the
Company's benefit plans will continue until the earlier of the expiration of the
term of the agreement or such time as Mr. Bodnar is covered or permitted to be
covered by benefit plans of another company.
Mr. Langford's employment agreement provides for a term expiring on October
27, 1999. In the event a Change in Control occurs during the term of Mr.
Langford's agreement, the employment term will be automatically extended for two
additional years. For purposes of Mr. Langford's agreement, a Change in Control
is deemed to occur if (i) any person acquires 50% or more of the Company's
outstanding voting securities; (ii) all or substantially all of the assets of
the Company are sold; (iii) the Company's shareholders approve a plan of
liquidation or dissolution; or (iv) individuals who at the beginning of the term
constitute the members of the Board of Directors cease for any reason to
constitute a majority thereof unless the election, or the nomination for
election by the Company's shareholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the term of the employment agreement.
11
<PAGE> 14
Mr. Langford's agreement provides for a base salary of $288,900, with
increases to be in the sole discretion of the Board. Mr. Langford is eligible
for an annual bonus as established by the Board of Directors through the annual
bonus plan.
In the event the Company terminates Mr. Langford's employment without
Cause, Mr. Langford will be entitled to receive severance pay equal to the
greater of (i) an amount equal to the base salary and bonus paid or accrued on
Mr. Langford's behalf for the fiscal year of the Company immediately prior to
the fiscal year in which the termination took place or (ii) the amount due to
Mr. Langford for base salary and target bonus during the balance of the
employment term, including any extension thereof resulting from the occurrence
of a Change in Control. In addition, termination without Cause entitles Mr.
Langford to be paid a cash amount equal to the unrealized gain that he has in
any unvested stock options, other than performance-based options, and provides
that all benefits under the Company's benefit plans will continue until the
earlier of the expiration of the term of the agreement, such time as Mr.
Langford is covered or permitted to be covered by benefit plans of another
company, or such time as the Company no longer provides such benefits to
individuals holding the position of Executive Vice President, Division
President, or above.
In the event Mr. Langford resigns, other than within 90 days of a Change in
Control, or is terminated for Cause, Mr. Langford is entitled to no severance
payments under his employment agreement and all stock options that are not
vested prior to the effective date of the termination shall lapse and be void.
Cause for termination includes (i) personal dishonesty; (ii) willful misconduct;
(iii) breach of fiduciary duty involving personal profit; (iv) conviction of any
felony or any crime involving moral turpitude; (v) material intentional breach
of any provision of his employment agreement; or (vi) unsatisfactory performance
by Mr. Langford of his duties as a result of alcohol or drug abuse. In addition
to the two-year extension of his employment term in the event of a Change in
Control, Mr. Langford, at his option, may terminate his employment within 90
days after such Change in Control, in which case he will receive the greater of
(i) an amount equal to two times the base salary and bonus paid or accrued on
Mr. Langford's behalf during the fiscal year immediately prior to the fiscal
year in which the termination took place or (ii) the amount due as base salary
during the balance of his employment term. In the event of such a termination,
Mr. Langford shall be entitled to be paid a cash amount equal to the unrealized
gain that he has in any unvested stock options, other than performance-based
options, and his benefits under the Company's benefit plans will continue until
the earlier of the expiration of the term of the agreement, such time as Mr.
Langford is covered or permitted to be covered by benefit plans of another
company, or such time as the Company no longer provides such benefits to
individuals holding the position of Executive Vice President, Division
President, or above. In the event of any termination of his employment within 12
months following a Change in Control, Mr. Langford's performance-based options
would vest in accordance with a formula based on the extent to which the fair
market value of the Shares at the time of such termination exceeds $9.625.
Each employment agreement terminates upon the death or disability of the
employee and the employee is entitled to certain benefits in the event of a
termination resulting from disability. Each employment agreement also contains a
covenant by the employee not to disclose any confidential information or trade
secrets of the Company and provides that, in the event of the termination of the
employee for cause or the resignation of the employee, the employee may not
compete with the Company within the United States for one year.
MANAGEMENT RETENTION AGREEMENTS
The Company has management retention agreements with each of Messrs. Arnett
and Long that provide for the payment of two times their base salary in the
event of termination without good cause or resignation for a "good reason" (as
defined in the agreement) within a one-year period following a Change in Control
of the Company. In addition, each of Messrs. Arnett and Long will continue to be
covered by the Company's welfare plans for a period of one year (the "Coverage
Period") following termination of employment as specified above and, for
purposes of the Company's incentive plans, shall be deemed to be an employee of
the Company during the Coverage Period and shall be given service credit for the
Coverage Period. The Company has entered into similar management retention
agreements providing for the payment of either one or two times such officer's
base salary (based upon such officer's duties) with 20 other officers of the
Company.
12
<PAGE> 15
SEVERANCE AGREEMENT
Effective as of November 10, 1997, Mr. Barber resigned as Senior Executive
Vice President, Chief Administrative Officer and Chief Financial Officer of the
Company. Pursuant to the terms of the Severance Agreement between Mr. Barber and
the Company, the Company will pay Mr. Barber $566,688 in equal weekly payments
of $5,555.77 using the Company's regular payroll periods and will pay Mr. Barber
$288,900 on each of January 5, 1999 and January 5, 2000. The severance agreement
also provides for the continuation, at the Company's expense, of Mr. Barber's
life, medical, and disability insurance benefits until the earlier of (i) such
time as Mr. Barber is covered or permitted to be covered by benefit plans of
another company, (ii) such time as the Company no longer provides such benefits
to individuals holding the position of Executive Vice President, Division
President, or above, or (iii) October 27, 1999.
HUMAN RESOURCES AND COMPENSATION COMMITTEE REPORT
INTRODUCTION
The Company's approach to compensation seeks to link individual job
performance and support of improved restaurant operations with achievement of
strategic business objectives and creation of shareholder value. A critical
component of this philosophy is the creation of an aggressive
pay-for-performance environment that provides exceptional pay for exceptional
performance. This report serves to provide relevant compensation information for
the 1997 Fiscal Year and to communicate the compensation programs and designs
that have been implemented by the Company for 1998.
COMPENSATION METHODOLOGY
The compensation program for Company officers is designed and administered
by the HRC Committee. In establishing the Company's executive compensation
program, the HRC Committee takes into account current market data and
compensation trends for comparable companies and gauges achievement of
corporate, business unit, and individual performance objectives. Periodically,
the HRC Committee reviews the overall effectiveness of the program in measuring
and rewarding desired performance results in accordance with the Company's
short-term and long-term strategic goals and initiatives. Among the companies
for which compensation information was considered were the companies included in
the S&P Restaurants-500 Stock Index. See "Shareholder Return Performance Graph."
The selected peer group used for compensation analyses differs from the S&P
Restaurants-500 Stock Index used for the Shareholder Return Performance Graph,
however, because the HRC Committee's intent is to identify companies that have
innovative, leading-edge practices in delivering superior compensation for
superior performance. Thus, whereas there is some overlap between the two peer
groups, the compensation peer group is broader, representing firms both within
and beyond the restaurant industry.
During the 1997 Fiscal Year, as part of its ongoing evaluation of
compensation levels and structure, the Company engaged an independent
compensation consultant to assist management and the HRC Committee in assessing
and evaluating the compensation of the Company's officers and the overall
structure of its compensation plans. In general, the Company's pay levels are
consistent with survey-derived medians, and the Company's executive compensation
programs, plans, and awards are within conventional industry standards of
reasonableness and competitive necessity.
COMPENSATION PHILOSOPHY
In addition to attracting and retaining highly skilled management
employees, the HRC Committee believes that effective compensation programs
support the Company's strategic goals, promote the Company's operating culture,
strongly relate to value creation for Company shareholders, and provide
competitive rewards to employees for outstanding contributions to overall
Company performance and success.
13
<PAGE> 16
In association with the Company's strategic focus, the HRC Committee has
adopted the following key principles in guiding its selection and design of
executive compensation programs:
- Target base pay at the 50th percentile of the industry marketplace
- Link incentive compensation to achievement of specific short-term and
long-term business objectives
- Leverage the compensation mix by emphasizing performance-based
variable pay
- Align management and shareholder interests through the use of
equity-based pay
- Reward long-term, sustainable performance improvements
- Align rewards with the Company's key values of food quality, excellent
restaurant operations and revenue growth
COMPENSATION DELIVERY
The Company's executive compensation program includes three components:
base salary, annual incentives, and long-term incentives. Each component is
designed to fulfill a specific purpose within the total compensation mix while
supporting the overall compensation philosophy of the HRC Committee and the
Company.
Base Salary
Executive officers receive base salaries that are typically within a range
of fifteen percent above or below the position's median base pay compared to the
peer group used for compensation analysis. Many factors are included in
determining base pay, such as the responsibilities of the officer, the scope of
the position, length of service with the Company, and the Company's ability to
pay an appropriate and competitive salary. Executives are eligible for periodic
increases in their base pay as a result of individual performance or changes in
their duties and responsibilities.
The Company's near-term objective is to have base salary account for
one-quarter to one-third of an executive's total direct compensation potential
(base salary plus annual incentives plus long-term incentives). During the 1997
Fiscal Year, base salary increases for the Named Executive Officers were as
follows: Mr. Lynn received no base salary increase during 1997, however,
pursuant to his April 1995 employment agreement, Mr. Lynn was entitled to a
$50,000 (10%) salary increase on May 1, 1997, which he elected to defer until
October 27, 1997 with the approval of the HRC Committee; Mr. Barber received an
increase of $33,900 (13%); Mr. Langford received an increase of $41,800 (17%);
Mr. Long received on increase of $5,000 (3%); and Mr. Arnett, who recommenced
employment with the Company on November 25, 1996, received an increase of
$15,000 (9%) on January 20, 1997 at the time he was elected Senior Vice
President -- Shoney's Restaurants.
Annual Incentives
The Company's annual incentive plan for executive officers is designed to
further motivate and reward behaviors that contribute to the achievement of
business objectives while emphasizing growth in revenues. At the beginning of
each year, specific performance goals are established for the Company, business
units, and individual employees. These goals are weighted based upon the
executive's responsibilities and ability to impact performance. Generally, some
minimum level of financial performance must be achieved for an executive to
qualify for any incentive bonus payment under the annual incentive plan.
Target award opportunities under the 1997 plan ranged from fifteen percent
of base salary to one-hundred percent of base salary based on job level,
responsibility, and accountability. The senior executive group and business unit
leaders had target incentive opportunities equal to one-hundred percent of their
base salary for 1997.
14
<PAGE> 17
The 1997 plan aligned incentive bonuses with performance improvements
through the establishment of target award opportunities that represent "stretch"
goals for Company and business unit performance. The HRC Committee and the
Company have determined that appropriate value drivers for performance
measurement will include one or more of the following objective measures:
earnings per share growth, same store sales growth, total shareholder return,
and/or improvement in EBITDA (earnings before interest, taxes, depreciation, and
amortization).
Additionally, individual performance criteria based upon a judgmental
assessment of the achievement of individual performance objectives was
considered by the HRC Committee in determining the 1997 Fiscal Year bonus
payment amounts. These individual performance objectives generally constitute
thirty-five to fifty percent of the total award opportunity available to the
senior executive group, and are specifically linked to excellence in operations,
profit, integrity, and respect for others.
The Company's earnings per share objective was not achieved for the 1997
Fiscal Year. In consideration of the Company's overall financial performance,
Mr. Lynn and Mr. Barber received no annual incentive payments. Mr. Langford, Mr.
Long and Mr. Arnett each achieved all or a portion of the individual performance
objectives outlined for them. Mr. Bodnar recommended that Mr. Langford be paid a
discretionary annual incentive of $25,279 and that Mr. Long be paid a
discretionary annual incentive of $47,500. This recommendation was approved by
the HRC Committee. Mr. Arnett was paid an annual incentive of $50,000 pursuant
to an agreement between Mr. Arnett and the Company entered into at the time of
his employment.
The target incentive payments to the Named Executive Officers for the 1997
Fiscal Year were $1,362,800, while the actual incentive payments were $122,779.
Messrs. Langford and Long received aggregate annual incentive payments for the
1996 fiscal year of $75,000, compared to aggregate annual incentive payments in
the 1997 Fiscal Year for these same two individuals of $72,779.
Long-Term Incentives
The Company has utilized stock options and stock awards to motivate and
reward performance that achieves the Company's long-term business objectives.
The HRC Committee believes that stock options have been and remain an excellent
vehicle for providing long-term financial incentives for management. Because the
option exercise price for employees is equal to or greater than the fair market
value of the Shares on the date of grant, employees recognize a gain only if the
value of the Shares increases. Thus, employees with stock options are rewarded
for their efforts that improve shareholder value. In this way, the financial
interests of management are aligned with those of the Company's shareholders.
During the 1997 Fiscal Year, options for 915,000 Shares were granted to 11
officers (including options for 725,000 Shares granted to the Named Executive
Officers). The options granted to the Named Executive Officers included
performance-based options for 250,000 Shares. The performance-based options have
a term of seven years and will vest within four years from the date of grant if
the fair market value of the Shares increases by a targeted compound annual
growth rate of 20% over the four-year period. In addition, 25% of the options
will vest within four years from the date of grant if the fair market value of
the Shares increases by a four-year compounded growth rate of 15% per year.
CHIEF EXECUTIVE OFFICER COMPENSATION
C. Stephen Lynn was elected Chairman and Chief Executive Officer effective
May 1, 1995. Pursuant to his employment contract, Mr. Lynn received a base
salary of $450,000 and a guaranteed bonus of $300,000 for the 1995 fiscal year.
Under the terms of his employment contract, Mr. Lynn received an increase in
base salary of $50,000 (11%) effective May 1, 1996. Mr. Lynn's employment
contract also provided for an increase in base salary of $50,000 effective May
1, 1997, however, Mr. Lynn requested that such increase be deferred until the
beginning of the 1998 fiscal year. The HRC Committee approved Mr. Lynn's
request.
Mr. Lynn's participation in the annual and long-term incentive plans
offered by the Company are governed by the same considerations addressed above
for other officers. Mr. Lynn's target annual incentive opportunity for 1997 was
100% of his base salary. During the 1997 Fiscal Year, no incentive bonus was
15
<PAGE> 18
awarded to Mr. Lynn. Pursuant to the terms of Mr. Lynn's employment contract, on
November 1, 1996, Mr. Lynn received a non-qualified stock option to purchase
250,000 Shares and on April 11, 1997, he received 16,500 restricted Shares and a
cash bonus of $45,246 representing the taxes due on the income related to the
award of such restricted Shares. Mr. Lynn resigned as President and Chief
Executive Officer of the Company effective November 12, 1997. See "Executive
Compensation -- Employment Contracts."
On November 12, 1997, J. Michael Bodnar was named President and Chief
Executive Officer of the Company. In connection with the engagement of Mr.
Bodnar as the Company's President and Chief Executive Officer, the HRC Committee
entered into negotiations with Mr. Bodnar regarding the terms of his employment.
As a result of these negotiations, Mr. Bodnar's annual base salary was set at
$500,000 and he was guaranteed a minimum bonus of $300,000 for the 1998 fiscal
year. The HRC Committee considered the minimum bonus award in 1998 necessary to
attract a highly qualified chief executive officer. Mr. Bodnar is also eligible
for an incentive award based on the achievement of financial performance targets
in the Company's current business plan.
Mr. Bodnar will receive a total of 120,000 restricted Shares which will be
distributed in increments of 40,000 Shares on December 31, 1998, 1999, and 2000.
Mr. Bodnar will also receive a cash bonus for the amount of taxes arising from
the restricted Share award with each such distribution of restricted Shares. The
HRC Committee also granted Mr. Bodnar an option to purchase 1,000,000 Shares as
follows: 500,000 Shares at an exercise price of $4.69 per share (the fair market
value of the Shares on the date of grant); 166,667 Shares at an exercise price
of $5.40 per share; 166,667 Shares at an exercise price of $6.50 per share; and
166,666 Shares at an exercise price of $7.75 per share. This stock option design
places a significant portion of Mr. Bodnar's total compensation at risk and
links his compensation to the achievement of strategic business objectives and
the creation of shareholder value. See "Executive Compensation -- Employment
Contracts."
DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the tax deduction for compensation paid to the Company's Chief
Executive Officer and four other most highly paid executive officers to $1.0
million, unless certain requirements are met. One of the requirements is that
compensation over the $1.0 million limit must be "performance-based." Grants of
stock options under the Company's stock incentive plans and payments of target
incentive payments should be considered "performance-based."
The HRC Committee intends for all compensation paid to the Company's
executives to be fully deductible under federal tax laws, and intends to take
such steps as are necessary to ensure continuing deductibility.
The foregoing report has been furnished by the members of the HRC
Committee:
Carole F. Hoover (Chairperson)
Carroll D. Shanks
Felker W. Ward, Jr.
James D. Yancey
16
<PAGE> 19
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the return(1)
on the Shares with the Standard & Poor's 500 Stock Index and the Standard &
Poor's Restaurants-500 Stock Index for the last five years.(2)
<TABLE>
<CAPTION>
S&P
Measurement Period RESTAURANTS-
(Fiscal Year Covered) SHONEY'S, INC. 500 S&P 500
<S> <C> <C> <C>
1992 100 100 100
1993 120.26 125.44 116.16
1994 78.43 122.22 121.02
1995 52.29 173.44 151.86
1996 39.87 184.12 187.61
1997 25.82 196.61 256.48
</TABLE>
- ---------------
(1) Return is measured by dividing (i) the sum of (A) the cumulative amount of
dividends for the measurement period, assuming dividend reinvestment, and
(B) the difference between the Share price at the end and beginning of the
measurement period; by (ii) the Share price at the beginning of the
measurement period. The measurement period in the graph set forth above
begins on the last trading day of October 1992. The closing price on that
date is the base amount, with cumulative returns for each subsequent
twelve-month period measured as a change from that base. The cumulative
return for each twelve-month period is calculated in relation to the base
amount as of the last trading day of the Company's fiscal year.
(2) The Company's fiscal year ends on the last Sunday in October. The Standard &
Poor's Restaurants-500 Stock Index for 1992 and 1993, however, was only
available as of the last trading day of each calendar month. Therefore, the
performance data used by the Company in the graph for the Standard & Poor's
Restaurants-500 Stock Index for 1992 and 1993 is as of the last trading day
of October.
17
<PAGE> 20
PROPOSAL 2. APPROVAL OF THE 1998 STOCK PLAN
The following is a summary of the 1998 Stock Plan. This summary is
qualified in its entirety by the actual terms of the 1998 Stock Plan, which is
attached hereto as Appendix A and incorporated herein by reference.
DESCRIPTION OF THE PLAN
The Company believes that an important element of employee compensation is
stock-based compensation. Such compensation advances the interests of the
Company by encouraging and providing for the acquisition of equity interests in
the Company by employees thereby providing substantial motivation for superior
performance. In fiscal 1998, the HRC Committee intends that any bonuses payable
to certain of the Company's employees (as determined by the HRC Committee) will
be paid in a mixture of cash and Shares. If the Stock Plan is approved by
shareholders, the HRC Committee intends to pay the equity portion of any such
bonuses with Shares authorized under the Stock Plan. The Board adopted the Stock
Plan on February 9, 1998, subject to shareholder approval, and has recommended
its submission to the Company's shareholders.
At the Company's 1997 annual meeting of shareholders, the shareholders
approved a Stock Bonus Policy for Senior Executives (the "Bonus Policy")
pursuant to which any bonus payable to certain of the Company's senior executive
group (defined as Senior Vice President level and above) would be paid half in
cash and half in Shares for a three-year period. The Company reserved an
aggregate of 1,000,000 Shares for issuance pursuant to the Bonus Policy.
Following a change in the Company's senior management during the 1997 Fiscal
Year, the Company's management team and the Board have determined that it is in
the best interest of the Company and its shareholders to increase the number of
employees eligible to receive bonuses paid in Shares and to give the HRC
Committee and the Board authority to grant employees and non-employee directors
of the Company other equity-based awards in lieu of cash compensation. The
Company believes that the payment of equity-based compensation in lieu of cash
compensation links employees' and directors' compensation to the overall
performance of the Company and provides greater incentive for such persons to
create value for shareholders. If the Stock Plan is approved by shareholders,
the Bonus Policy will be terminated and no awards will be made pursuant to the
Bonus Policy.
Under the Stock Plan, the HRC Committee has the authority to grant to
employees and the Board has the authority to grant to non-employee directors of
the Company restricted Shares and/or other stock-based awards. Pursuant to the
Stock Plan, 2,000,000 Shares have been reserved and, upon shareholder approval,
will be available for issuance, which may include authorized and unissued Shares
or treasury Shares.
The maximum number of Shares for which awards may be made under the Stock
Plan to any officer of the Company or other person whose compensation may be
subject to the limitations on deductibility under Section 162(m) of the Code is
200,000 during any single year. As of the date hereof, no awards have been made
under the Stock Plan. The Stock Plan will terminate on, and no award may be
granted later than, the tenth anniversary of the date of adoption of the Stock
Plan.
Restricted Share awards may be granted alone, in addition to, or in tandem
with, other awards under the Stock Plan or cash awards made outside the Stock
Plan. The provisions attendant to a grant of restricted Shares may vary from
participant to participant. In making an award of restricted Shares, the HRC
Committee or the Board, as the case may be, will determine the periods during
which the restricted Shares are subject to forfeiture and may provide such other
awards designed to guarantee a minimum value for such Shares. The HRC Committee
or the Board may also impose such other conditions and restrictions on the
restricted Shares as it deems appropriate, including the satisfaction of one or
more of the following performance criteria: (i) pretax income or after-tax
income; (ii) operating cash flow; (iii) operating profit; (iv) return on equity,
assets, capital, or investment; (v) earnings or book value per Share; (vi) sales
or revenues; (vii) operating expenses; (viii) Share price appreciation; and (ix)
implementation, management, or completion of critical projects or processes (the
"Performance Goals"). The Performance Goals may include a threshold level of
performance below which no payment will be made (or will occur), and a maximum
level of performance above which no additional payment will be made (or at which
full vesting will occur). Each of the Performance Goals will be determined, to
the extent applicable, in accordance with generally accepted
18
<PAGE> 21
accounting principles and will be subject to certification by the HRC Committee;
provided, that the HRC Committee or the Board, as applicable, will have the
authority to make equitable adjustments to the Performance Goals in recognition
of unusual or non-recurring events affecting the Company. The HRC Committee or
the Board may provide that such restrictions will lapse with respect to
specified percentages of the awarded restricted Shares on successive future
dates. During the restriction period, the participant may not sell, transfer,
pledge, or assign the restricted Shares but will be entitled to vote the
restricted Shares and to receive, at the election of the HRC Committee or the
Board, cash or deferred dividends.
Participants may also receive other types of awards that are valued, as a
whole or in part, by reference to or otherwise based on the Shares. These awards
may be granted alone, in addition to, or in tandem with, restricted Shares, or
cash awards outside of the Stock Plan. Awards will be made upon such terms and
conditions as the HRC Committee or the Board may determine.
If there is a Change in Control or a potential Change in Control of the
Company, the restrictions and deferral limitations applicable to restricted
Shares and other stock-based awards may lapse and such Shares and awards will be
deemed fully vested. For purposes of the Stock Plan, a Change of Control is
defined generally to include (i) any person or entity, other than the Company or
a wholly-owned subsidiary of the Company, becoming the beneficial owner of the
Company's securities having 50% or more of the combined voting power of the then
outstanding securities that may be cast for the election of directors; (ii) in
connection with a cash tender, exchange offer, merger or other business
combination, sale of assets or contested election, less than a majority of the
combined voting power of the then outstanding securities of the Company or any
successor entity entitled to vote generally in the election of directors of the
Company or such other entity after such transaction are held in the aggregate by
the holders of the Company's securities entitled to vote generally in the
election of directors of the Company immediately prior to such transaction; and
(iii) during any period of two consecutive years, individuals who at the
beginning of any such period constitute the Board ceasing to constitute at least
a majority thereof, unless the election of each director first elected during
such period was approved by a vote of at least two-thirds of the directors of
the Company then still in office who were directors of the Company at the
beginning of any such period. Restricted Shares and other stock-based awards,
will, unless otherwise determined by the HRC Committee or the Board in its sole
discretion, be cashed out on the basis of the Change in Control Price (as
defined in the Stock Plan and as described below). The Change in Control Price
will be the highest price paid for a Share in any transaction reported on the
NYSE or paid or offered to be paid in any bona fide transaction relating to a
Change in Control or Potential Change in Control at any time during the
immediately preceding 60-day period, as determined by the HRC Committee or the
Board.
The Board may amend, alter, or discontinue the Stock Plan, provided that no
amendment may be made which would impair the rights of a participant under an
award made under the Stock Plan without the participant's consent. No award may
be granted pursuant to the Stock Plan on or after the tenth anniversary of the
effective date of the plan.
Because awards under the Stock Plan are at the discretion of the HRC
Committee and the Board, the benefits that will be awarded under the Stock Plan
are not currently determinable. As of February 12, 1998, the market value of a
Share based on the closing price for the Shares on the NYSE was $3.50.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the Federal income tax aspects of
awards made under the Stock Plan based upon the federal income tax laws in
effect on the date hereof. This summary is not intended to be exhaustive and
does not describe state or local tax consequences.
Restricted Stock. A participant receiving restricted Shares generally will
recognize ordinary income in the amount of the fair market value of the
restricted Shares at the time the Shares are no longer subject to forfeiture,
less the consideration paid for the Shares. However, a participant may elect,
under Section 83(b) of the Code within 30 days of the grant of the Shares, to
recognize taxable ordinary income on the date of grant equal to the excess of
the fair market value of the restricted Shares (determined without regard to the
19
<PAGE> 22
restrictions) over the purchase price of the restricted Shares. Thereafter, if
the Shares are forfeited, the participant will be entitled to a deduction,
refund, or loss, for tax purposes only, in an amount equal to the purchase price
of the forfeited Shares regardless of whether he or she made a Section 83(b)
election. With respect to the sale of Shares after the forfeiture period has
expired, the holding period to determine whether the participant has long-term,
mid-term or short-term capital gain or loss generally begins when the
restriction period expires and the tax basis for such Shares will generally be
based on the fair market value of such Shares on such date. However, if the
participant makes an election under Section 83(b), the holding period will
commence on the date of grant, the tax basis will be equal to the fair market
value of the Shares on such date (determined without regard to restrictions),
and the Company generally will be entitled to a deduction equal to the amount
that is taxable as ordinary income to the participant in the year that such
income is taxable.
Dividends and Dividend Equivalents. Dividends paid on restricted Shares
generally will be treated as compensation that is taxable as ordinary income to
the participant, and will be deductible by the Company. If, however, the
participant makes a Section 83(b) election, the dividends will be taxable as
ordinary income to the participant but will not be deductible by the Company.
Other Stock-Based Awards. The Federal income tax treatment of other
stock-based awards will depend on the nature of any such award and the
restrictions applicable to such award. Such an award may, depending on the
conditions applicable to the award, be taxable as an award of restricted Shares
or in a manner not described herein.
The Stock Plan is not intended to be a "qualified plan" under Section
401(a) of the Code.
The Stock Plan will be approved and adopted if the votes cast in favor of
the Stock Plan exceed the votes cast against it. Abstentions and broker
non-votes will not be considered in the vote.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE 1998 STOCK PLAN.
CERTAIN TRANSACTIONS
In June 1997, the Schoenbaums initiated a proxy contest to replace the
Board. In August 1997, the Company and the Schoenbaums entered into a settlement
agreement (the "Settlement Agreement") ending the proxy contest. Under the terms
of the Settlement Agreement, Raymond Schoenbaum and Messrs. Bodnar and Schwartz
were added to the Board. The Company and the Schoenbaums also agreed that the
new directors would be nominated for election to the Board by the Company at the
Annual Meeting. The Settlement Agreement also provided that Raymond Schoenbaum
be added to three committees of the Board: the Executive Committee, the
Nominating Committee, and a newly formed Operations Committee (which was
dissolved in connection with the termination of the Settlement Agreement). In
addition, the Settlement Agreement required that at least one of Raymond
Schoenbaum or a nominee from the Schoenbaums' slate of nominees would be
appointed to serve on each other committee of the Board. The Settlement
Agreement also provided that the Company would reimburse the Schoenbaums $2.5
million for professional fees and other expenses associated with the proxy
contest. The Company and the Schoenbaums terminated the Settlement Agreement
effective as of January 8, 1998.
The Company leases real estate for the operation of one of its Shoney's
restaurants in Charlotte, North Carolina from SSI, a joint venture, of which Mr.
Bodnar is a 12.5% owner. The lease provides for annual rental of $60,000, plus
additional rent equal to 6.0% of the restaurant's gross sales over $1.0 million.
The lease expires on October 31, 2002, with the option by the Company to extend
the term of the lease for an additional five-year period. During the 1997 Fiscal
Year, the Company paid SSI aggregate rent of $71,186.
The Company leases real estate for the operation of its Texarkana, Arkansas
Shoney's restaurant from PAB Realty, of which Mr. Bodnar is a 50% owner. The
lease provides for annual rental of $70,800, plus additional rent equal to 5.5%
of the restaurant's gross sales over a level determined in accordance with the
lease. The lease expires on April 30, 2007, with the option by the Company to
extend the term of the lease for
20
<PAGE> 23
up to two additional five-year periods. During the 1997 Fiscal Year, the Company
paid PAB Realty aggregate rent of $80,635.
The Company leases real estate for the operation of one of its Captain D's
restaurants in Memphis, Tennessee from BICO Associates, Ltd., of which Mr.
Bodnar is a 16.7% owner. The lease provides for annual rental of $22,366, plus
additional rent equal to 5.5% of the restaurant's gross sales over a level
determined in accordance with the lease. The lease expires on May 31, 1998.
During the 1997 Fiscal Year, the Company paid BICO Associates, Ltd. aggregate
rent of $47,785.
The Company leases real estate for the operation of one of its Captain D's
restaurants in Jacksonville, Florida from Mr. Wilson. The lease provides for
annual rental of $25,176, plus additional rent equal to 6.0% of the restaurant's
gross sales over $419,608. The lease expires on August 31, 2000, with the option
by the Company to extend the term of the lease for up to three additional
five-year periods. During the 1997 Fiscal Year, the Company paid Mr. Wilson
aggregate rent of $37,423.
INDEPENDENT AUDITORS
Ernst & Young LLP has served as the Company's independent auditors since
1970. The Board normally engages independent auditors for the year at its March
meeting. For that reason, at this time, no independent auditors have been
engaged for the current fiscal year. It is expected, however, that Ernst & Young
LLP will be retained as the Company's independent auditors for the current
fiscal year.
Representatives of Ernst & Young LLP have been requested to attend the
Annual Meeting. Such representatives will have the opportunity to make a
statement if they so desire and are expected to be available to respond to
appropriate questions.
PROXY SOLICITATION
Proxies are being solicited by and on behalf of the Board. All expenses of
this solicitation, including the cost of preparing and mailing this Proxy
Statement, will be borne by the Company. In addition to solicitation by use of
the mails, proxies may be solicited by directors, officers, and employees of the
Company in person or by telephone, telegram or other means of communication.
Such directors, officers, and employees will not be additionally compensated,
but may be reimbursed for out-of-pocket expenses in connection with such
solicitation. Arrangements will also be made with custodians, nominees, and
fiduciaries for forwarding of proxy solicitation material to beneficial owners
of Shares held of record by such persons, and the Company may reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith.
SHAREHOLDER PROPOSALS FOR 1999 PROXY MATERIALS
The Board will make provision for presentation of proposals by shareholders
at the 1999 annual meeting of shareholders provided such proposals are submitted
by eligible shareholders who have complied with the relevant regulations of the
SEC. In order for any such proposals to be included in the proxy materials for
consideration at the 1999 annual meeting, the proposals should be mailed to F.E.
McDaniel, Jr., Chief Administrative Officer, Secretary and General Counsel,
Shoney's, Inc., 1727 Elm Hill Pike, Nashville, Tennessee 37210, and must be
received no later than October 23, 1998.
21
<PAGE> 24
OTHER BUSINESS
The management of the Company is not aware of any other matters to be
brought before the Annual Meeting. However, if any other matters are properly
brought before the Annual Meeting, the persons named in the enclosed form of
proxy will have discretionary authority to vote all proxies with respect to such
matters in accordance with their best judgment.
Upon the written request of any record holder or beneficial owner of the
Shares entitled to vote at the Annual Meeting, the Company, without charge, will
provide a copy of its Annual Report on Form 10-K for the fiscal year ended
October 26, 1997, together with financial statements and schedules, as filed
with the SEC. Requests should be mailed to F.E. McDaniel, Jr., Chief
Administrative Officer, Secretary and General Counsel, Shoney's, Inc., 1727 Elm
Hill Pike, Nashville, Tennessee 37210.
22
<PAGE> 25
APPENDIX A
SHONEY'S, INC.
1998 STOCK PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the Shoney's, Inc. 1998 Stock Plan (the "Plan") is to enable
Shoney's, Inc. (the "Company") to attract, retain, and reward key employees of
the Company and its Subsidiaries and Affiliates, and directors who are not also
employees of the Company, and to strengthen the mutuality of interests between
such key employees and directors and the shareholders of the Company by awarding
such key employees and directors stock incentives and/or other equity interests
or equity-based incentives in the Company. The provisions of the Plan are
intended to satisfy the requirements of Section 16(b) of the Exchange Act, and
shall be interpreted in a manner consistent with the requirements thereof, as
now or hereafter construed, interpreted, and applied by regulations, rulings,
and cases. The Plan is also designed so that awards granted hereunder intended
to comply with the requirements for "performance based" compensation under
Section 162(m) of the Code may comply with such requirements. The creation of
the Plan shall not diminish or prejudice other compensation programs approved
from time to time by the Board.
For purposes of the Plan, the following terms shall be defined as set forth
below:
A. "Affiliate" means any entity other than the Company and its
Subsidiaries that is designated by the Board as a participating employer
under the Plan, provided that the Company directly or indirectly owns at
least 20% of the combined voting power of all classes of stock of such
entity or at least 20% of the ownership interests in such entity.
B. "Board" means the Board of Directors of the Company.
C. "Change in Control" has the meaning provided in Section 7(b) of the
Plan.
D. "Change in Control Price" has the meaning provided in Section 7(d)
of the Plan.
E. "Common Stock" means the Company's common stock, par value $1.00
per share.
F. "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
G. "Committee" means the Committee referred to in Section 2 of the
Plan.
H. "Company" means Shoney's, Inc., a corporation organized under the
laws of the State of Tennessee, or any successor corporation.
I. "Disability" means disability as determined under the Company's
Group Long-Term Disability Insurance Plan.
J. "Early Retirement" means retirement, for purposes of this Plan with
the express consent of the Company at or before the time of such
retirement, from active employment with the Company and any Subsidiary or
Affiliate prior to age 65, in accordance with any applicable early
retirement policy of the Company then in effect or as may be approved by
the Committee.
K. "Effective Date" has the meaning provided in Section 11 of the
Plan.
L. "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.
M. "Fair Market Value" means with respect to the Common Stock, as of
any given date or dates, unless otherwise determined by the Committee in
good faith, the reported closing price of a share of Common Stock on The
New York Stock Exchange (the "NYSE") or such other market or exchange as is
the principal trading market for the Common Stock, or, if no such sale of a
share of Common Stock is
A-1
<PAGE> 26
reported on the NYSE or other exchange or principal trading market on such
date, the fair market value of a share of Common Stock as determined by the
Committee in good faith.
N. "Non-Employee Director" means a member of the Board who is a
Non-Employee Director within the meaning of Rule 16b-3(b)(3) promulgated
under the Exchange Act and an outside director within the meaning of
Treasury Regulation Sec. 162-27(e)(3) promulgated under the Code.
O. "Normal Retirement" means retirement from active employment with
the Company and any Subsidiary or Affiliate on or after age 65.
P. "Other Stock-Based Award" means an award under Section 6 below that
is valued in whole or in part by reference to, or is otherwise based on,
the Common Stock.
Q. "Outside Director" means a member of the Board who is not an
officer or employee of the Company or any Subsidiary or Affiliate of the
Company.
R. "Plan" means this Shoney's, Inc. 1998 Stock Plan, as amended from
time to time.
S. "Performance Goals" means performance goals based on one or more of
the following criteria: (i) pre-tax income or after-tax income; (ii)
operating cash flow; (iii) operating profit; (iv) return on equity, assets,
capital, or investment; (v) earnings or book value per share; (vi) sales or
revenues; (vii) operating expenses; (viii) Common Stock price appreciation;
and (ix) implementation, management, or completion of critical projects or
processes. Where applicable, the Performance Goals may be expressed in
terms of attaining a specified level of the particular criteria or the
attainment of a percentage increase or decrease in the particular criteria,
and may be applied to one or more of the Company or any Subsidiary, or a
division or strategic business unit of the Company, or may be applied to
the performance of the Company relative to a market index, a group of other
companies, or a combination thereof, all as determined by the Committee.
The Performance Goals may include a threshold level of performance below
which no payment will be made (or no vesting will occur), levels of
performance at which specified payments will be made (or specified vesting
will occur), and a maximum level of performance above which no additional
payment will be made (or at which full vesting will occur). Each of the
foregoing Performance Goals shall be determined, to the extent applicable,
in accordance with generally accepted accounting principles and shall be
subject to certification by the Committee; provided, that the Committee or
the Board, as applicable, shall have the authority to make equitable
adjustments to the Performance Goals in recognition of unusual or
non-recurring events affecting the Company or any Subsidiary or the
financial statements of the Company or any Subsidiary, in response to
changes in applicable laws or regulations, or to account for items of gain,
loss, or expense determined to be extraordinary or unusual in nature or
infrequent in occurrence or related to the disposal of a segment of
business or related to a change in accounting principles.
T. "Restricted Stock" means an award of shares of Common Stock that is
subject to restrictions under Section 5 of the Plan.
U. "Restriction Period" has the meaning provided in Section 5 of the
Plan.
V. "Retirement" means Normal or Early Retirement.
W. "Section 162(m) Maximum" has the meaning provided in Section 3(a)
hereof.
X. "Subsidiary" means any company (other than the Company) in an
unbroken chain of companies beginning with the Company if each of the
companies (other than the last company in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other companies in the chain.
A-2
<PAGE> 27
SECTION 2. ADMINISTRATION.
The Plan shall be administered by a Committee of not less than two
Non-Employee Directors, who shall be appointed by the Board and who shall serve
at the pleasure of the Board. The functions of the Committee specified in the
Plan may be exercised by an existing Committee of the Board composed exclusively
of Non-Employee Directors. The initial Committee shall be the Human Resources
and Compensation Committee of the Board. In the event there are not at least two
Non-Employee Directors on the Board, the Plan shall be administered by the Board
and all references herein to the Committee shall refer to the Board.
The Committee shall have authority to grant, pursuant to the terms of the
Plan, to officers, other employees, and Outside Directors eligible under Section
4: (i) Restricted Stock and/or (ii) Other Stock-Based Awards; provided, however,
that the power to grant and establish the terms and conditions of awards to
Outside Directors under the Plan shall be reserved to the Board.
In particular, the Committee, or the Board, as the case may be, shall have
the authority, consistent with the terms of the Plan:
(a) to select the officers, key employees, and Outside Directors of
the Company and its Subsidiaries and Affiliates to whom Restricted Stock
and/or Other Stock-Based Awards may from time to time be granted hereunder;
(b) to determine whether and to what extent Restricted Stock and/or
Other Stock-Based Awards, or any combination thereof, are to be granted
hereunder to one or more eligible persons;
(c) to determine the number of shares to be covered by each such award
granted hereunder;
(d) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or any
vesting acceleration or waiver of forfeiture restrictions regarding any
award and/or the shares of Common Stock relating thereto, based in each
case on such factors as the Committee or the Board, as applicable, shall
determine, in its sole discretion); and to amend or waive any such terms
and conditions to the extent permitted by Section 8 hereof;
(e) to determine whether, to what extent, and under what circumstances
shares of Common Stock and other amounts payable with respect to an award
under this Plan shall be deferred either automatically or at the election
of the participant (including providing for and determining the amount (if
any) of any deemed earnings on any deferred amount during any deferral
period);
(f) to determine the terms, conditions, and restrictions of any
Performance Goals and the number of shares of Restricted Stock or other
awards subject thereto;
(g) to determine whether to require payment of tax withholding
requirements in shares of Common Stock subject to the award; and
(h) to impose any holding period required to satisfy Section 16 under
the Exchange Act.
The Committee shall have the authority to adopt, alter, and repeal such
rules, guidelines, and practices governing the Plan as it shall, from time to
time, deem advisable; to interpret the terms and provisions of the Plan and any
award issued under the Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Plan; and, except as expressly set
forth herein or otherwise required by law, all decisions made by the Committee
pursuant to the provisions of the Plan shall be made in the Committee's sole
discretion and shall be final and binding on all persons, including the Company
and Plan participants.
SECTION 3. SHARES OF COMMON STOCK SUBJECT TO PLAN.
(a) As of the Effective Date, the aggregate number of shares of Common
Stock that may be issued under the Plan shall be 2,000,000 shares. The shares of
Common Stock issuable under the Plan may consist, in whole or in part, of
authorized and unissued shares or treasury shares. No officer of the Company or
other person whose compensation may be subject to the limitations on
deductibility under Section 162(m) of the
A-3
<PAGE> 28
Code shall be eligible to receive awards pursuant to this Plan relating to in
excess of 200,000 shares of Common Stock in any fiscal year (the "Section 162(m)
Maximum").
(b) If any shares of Common Stock that are subject to any Restricted Stock
or Other Stock-Based Award granted hereunder are forfeited prior to the payment
of any dividends, if applicable, with respect to such shares of Common Stock, or
any such award otherwise terminates without a payment being made to the
participant in the form of Common Stock, such shares shall again be available
for distribution in connection with future awards under the Plan.
(c) In the event of any merger, reorganization, consolidation,
recapitalization, extraordinary cash dividend, stock dividend, stock split, or
other change in corporate structure affecting the Common Stock, an appropriate
substitution or adjustment shall be made in the maximum number of shares that
may be awarded under the Plan, in the Section 162(m) Maximum, and in the number
of shares subject to other outstanding awards granted under the Plan as may be
determined to be appropriate by the Committee, in its sole discretion, provided
that the number of shares subject to any award shall always be a whole number.
SECTION 4. ELIGIBILITY.
Officers and other key employees of the Company and its Subsidiaries and
Affiliates who are responsible for or contribute to the management, growth
and/or profitability of the business of the Company and/or its Subsidiaries and
Affiliates and Outside Directors are eligible to be granted awards under the
Plan.
SECTION 5. RESTRICTED STOCK.
(a) Administration. Shares of Restricted Stock may be issued either alone,
in addition to, or in tandem with other awards granted under the Plan and/or
cash awards made outside the Plan. The Committee or the Board, as the case may
be, shall determine the eligible persons to whom, and the time or times at
which, grants of Restricted Stock will be made, the number of shares of
Restricted Stock to be awarded to any person, the price (if any) to be paid by
the recipient of Restricted Stock (subject to Section 5(b)), the time or times
within which such awards may be subject to forfeiture, and the other terms,
restrictions, and conditions of the awards in addition to those set forth in
Section 5(c). The Committee or the Board may condition the grant of Restricted
Stock upon the attainment of specified Performance Goals or such other factors
as the Committee or the Board may determine, in its sole discretion. The
provisions of Restricted Stock awards need not be the same with respect to each
recipient.
(b) Awards and Certificates. The prospective recipient of a Restricted
Stock award shall not have any rights with respect to such award, unless and
until such recipient has executed an agreement evidencing the award and has
delivered a fully executed copy thereof to the Company, and has otherwise
complied with the applicable terms and conditions of such award:
(i) The purchase price for shares of Restricted Stock shall be
established by the Committee or the Board, as applicable, and may be zero.
(ii) Awards of Restricted Stock must be accepted within a period of 60
days (or such shorter period as the Committee or the Board may specify at
grant) after the award date, by executing a Restricted Stock Award
Agreement and paying whatever price (if any) is required under Section
5(b)(i).
(iii) Each participant receiving a Restricted Stock award shall be
issued a stock certificate in respect of such shares of Restricted Stock.
Such certificate shall be registered in the name of such participant (or a
transferee permitted by Section 10(h) hereof), and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such award.
(iv) The Committee or the Board, as the case may be, may require that
the stock certificates evidencing such shares be held in custody by the
Company until the restrictions thereon shall have lapsed, and that, as a
condition of any Restricted Stock award, the participant shall have
delivered a stock power, endorsed in blank, relating to the shares of
Common Stock covered by such award.
A-4
<PAGE> 29
(c) Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to this Section 5 shall be subject to the following restrictions and
conditions:
(i) In accordance with the provisions of this Plan and the award
agreement, during a period set by the Committee or the Board, as the case
may be, commencing with the date of such award (the "Restriction Period"),
the participant shall not be permitted to sell, transfer, pledge, assign,
or otherwise encumber shares of Restricted Stock awarded under the Plan.
Within these limits, the Committee or the Board, as applicable, in its sole
discretion, may provide for the lapse of such restrictions in installments
and may accelerate or waive such restrictions, in whole or in part, based
on service, the attainment of Performance Goals, or such other factors or
criteria as the Committee or the Board may determine in its sole
discretion.
(ii) Except as provided in this paragraph (ii) and Section 5(c)(i),
the participant shall have, with respect to the shares of Restricted Stock,
all of the rights of a shareholder of the Company, including the right to
vote the shares, and the right to receive any cash dividends. The Committee
or the Board, as applicable, in its sole discretion, as determined at the
time of award, may permit or require the payment of cash dividends to be
deferred and, if the Committee or the Board so determines, reinvested,
subject to Section 10(e), in additional Restricted Stock to the extent
shares are available under Section 3, or otherwise reinvested. Pursuant to
Section 3 above, stock dividends issued with respect to Restricted Stock
shall be treated as additional shares of Restricted Stock that are subject
to the same restrictions and other terms and conditions that apply to the
shares with respect to which such dividends are issued. If the Committee or
the Board, as the case may be, so determines, the award agreement may also
impose restrictions on the right to vote and the right to receive
dividends.
(iii) Subject to the applicable provisions of the award agreement and
this Section 5, upon termination of a participant's employment with the
Company and any Subsidiary or Affiliate for any reason during the
Restriction Period, all shares still subject to restriction will vest, or
be forfeited, in accordance with the terms and conditions established by
the Committee at or after grant.
(iv) If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such Restriction Period,
certificates for an appropriate number of unrestricted shares shall be
delivered to the participant (or a transferee permitted by Section 10(h)
hereof) promptly.
(d) Minimum Value Provisions. In order to better ensure that award
payments actually reflect the performance of the Company and service of the
participant, the Committee or the Board, as applicable, may provide, in its sole
discretion, for a tandem performance-based or other award designed to guarantee
a minimum value, payable in cash or Common Stock to the recipient of a
restricted stock award, subject to such performance, future service, deferral,
and other terms and conditions as may be specified by the Committee or the
Board.
SECTION 6. OTHER STOCK-BASED AWARDS.
(a) Administration. Other Stock-Based Awards, including, without
limitation, performance shares and Common Stock awards valued by reference to
earnings per share or Subsidiary performance, may be granted either alone, in
addition to, or in tandem with Restricted Stock granted under the Plan and cash
awards made outside of the Plan. Subject to the provisions of the Plan, the
Committee or the Board, as the case may be, shall have authority to determine
the persons to whom and the time or times at which such awards shall be made,
the number of shares of Common Stock to be awarded pursuant to such awards, and
all other conditions of the awards. The Committee or the Board may also provide
for the grant of Common Stock upon the completion of a specified performance
period. The provisions of Other Stock-Based Awards need not be the same with
respect to each recipient.
(b) Terms and Conditions. Other Stock-Based Awards made pursuant to this
Section 6 shall be subject to the following terms and conditions:
(i) Shares subject to awards under this Section 6 and the award
agreement referred to in Section 6(b)(v) below, may not be sold, assigned,
transferred, pledged, or otherwise encumbered prior to
A-5
<PAGE> 30
the date on which the shares are issued, or, if later, the date on which
any applicable restriction, performance, or deferral period lapses.
(ii) Subject to the provisions of this Plan and the award agreement
and unless otherwise determined by the Committee or the Board at grant, the
recipient of an award under this Section 6 shall be entitled to receive,
currently or on a deferred basis, interest or dividends or interest or
dividend equivalents with respect to the number of shares covered by the
award, as determined at the time of the award by the Committee or the
Board, as the case may be, in its sole discretion, and the Committee or the
Board may provide that such amounts (if any) shall be deemed to have been
reinvested in additional shares of Common Stock or otherwise reinvested.
(iii) Any award under Section 6 and any shares of Common Stock covered
by any such award shall vest or be forfeited to the extent so provided in
the award agreement, as determined by the Committee or the Board, as
applicable, in its sole discretion.
(iv) In the event of the participant's Retirement, Disability, or
death, or in cases of special circumstances, the Committee may, in its sole
discretion, waive in whole or in part any or all of the remaining
limitations imposed hereunder (if any) with respect to any or all of an
award under this Section 6.
(v) Each award under this Section 6 shall be confirmed by, and subject
to the terms of, an agreement or other instrument by the Company and the
participant.
(vi) Common Stock (including securities convertible into Common Stock)
issued on a bonus basis under this Section 6 may be issued for no cash
consideration. Common Stock (including securities convertible into Common
Stock) purchased pursuant to a purchase right awarded under this Section 6
shall be priced at least 85% of the Fair Market Value of the Common Stock
on the date of grant.
SECTION 7. CHANGE IN CONTROL PROVISIONS.
(a) Impact of Event. In the event of:
(1) a "Change in Control" as defined in Section 7(b); or
(2) a "Potential Change in Control" as defined in Section 7(c), but only if
and to the extent so determined by the Committee or the Board at or after grant
(subject to any right of approval expressly reserved by the Committee or the
Board at the time of such determination),
(i) Subject to the limitations set forth below in this Section 7(a),
the restrictions applicable to any Restricted Stock and Other Stock-Based
Awards, in each case to the extent not already vested under the Plan, shall
lapse and such shares and awards shall be deemed fully vested.
(ii) Subject to the limitations set forth below in this Section 7(a),
the value of all outstanding Restricted Stock and Other Stock-Based Awards,
in each case to the extent vested, shall, unless otherwise determined by
the Board or by the Committee in its sole discretion prior to any Change in
Control, be cashed out on the basis of the "Change in Control Price" as
defined in Section 7(d) as of the date such Change in Control or such
Potential Change in Control is determined to have occurred or such other
date as the Board or Committee may determine prior to the Change in
Control.
(iii) The Board or the Committee may impose additional conditions on
the acceleration or valuation of any award in the award agreement.
(b) Definition of Change in Control. For purposes of Section 7(a), a
"Change in Control" means the happening of any of the following:
(i) any person or entity, including a "group" as defined in Section
13(d)(3) of the Exchange Act, other than the Company or a wholly-owned
subsidiary thereof or any employee benefit plan of the Company or any of
its Subsidiaries, becomes the beneficial owner of the Company's securities
having 50% or more of the combined voting power of the then outstanding
securities of the Company that may
A-6
<PAGE> 31
be cast for the election of directors of the Company (other than as a
result of an issuance of securities initiated by the Company in the
ordinary course of business); or
(ii) as the result of, or in connection with, any cash tender or
exchange offer, merger, or other business combination, sales of assets or
contested election, or any combination of the foregoing transactions, less
than a majority of the combined voting power of the then outstanding
securities of the Company or any successor Company or entity entitled to
vote generally in the election of the directors of the Company or such
other company or entity after such transaction are held in the aggregate by
the holders of the Company's securities entitled to vote generally in the
election of directors of the Company immediately prior to such transaction;
or
(iii) during any period of two consecutive years, individuals who at
the beginning of any such period constitute the Board cease for any reason
to constitute at least a majority thereof, unless the election, or the
nomination for election by the Company's shareholders, of each director of
the Company first elected during such period was approved by a vote of at
least two-thirds of the directors of the Company then still in office who
were directors of the Company at the beginning of any such period.
(c) Definition of Potential Change in Control. For purposes of Section
7(a), a "Potential Change in Control" means the happening of any one of the
following:
(i) the approval by shareholders of an agreement by the Company, the
consummation of which would result in a Change in Control of the Company as
defined in Section 7(b); or
(ii) the acquisition of beneficial ownership, directly or indirectly,
by any entity, person or group (other than the Company or a Subsidiary or
any Company employee benefit plan (including any trustee of such plan
acting as such trustee)) of securities of the Company representing 50% or
more of the combined voting power of the Company's outstanding securities
and the adoption by the Committee or the Board of a resolution to the
effect that a Potential Change in Control of the Company has occurred for
purposes of this Plan.
(d) Change in Control Price. For purposes of this Section 7, "Change in
Control Price" means the highest price per share of Common Stock paid in any
transaction reported on the NYSE or such other exchange or market as is the
principal trading market for the Common Stock, or paid or offered in any bona
fide transaction related to a Potential or actual Change in Control of the
Company at any time during the 60 day period immediately preceding the
occurrence of the Change in Control (or, where applicable, the occurrence of the
Potential Change in Control event), in each case as determined by the Committee
or the Board.
SECTION 8. AMENDMENTS AND TERMINATION.
The Board may at any time amend, alter, or discontinue the Plan without
shareholder approval to the fullest extent permitted by the Exchange Act and the
Code; provided, however, that no amendment, alteration, or discontinuation shall
be made which would impair the rights of a participant under a Restricted Stock
or Other Stock-Based Award theretofore granted, without the participant's
consent.
The Committee or the Board, as the case may be, may amend the terms of any
award theretofore granted, prospectively or retroactively, but, subject to
Section 3 above, no such amendment shall impair the rights of any holder without
the holder's consent. Solely for purposes of computing the Section 162(m)
Maximum, if any awards previously granted to a participant are canceled and new
awards having a lower exercise price or other more favorable terms for the
participant are substituted in their place, both the initial awards and the
replacement awards will be deemed to be outstanding (although the canceled
awards will not be exercisable or deemed outstanding for any other purposes).
SECTION 9. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant by the Company, nothing contained herein shall give
A-7
<PAGE> 32
any such participant any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Common Stock or payments in lieu of or with respect to
awards hereunder; provided, however, that, unless the Committee otherwise
determines with the consent of the affected participant, the existence of such
trusts or other arrangements is consistent with the "unfunded" status of the
Plan.
SECTION 10. GENERAL PROVISIONS.
(a) The Committee may require each person purchasing shares pursuant to an
award under the Plan to represent to and agree with the Company in writing that
the participant is acquiring the shares without a view to distribution thereof.
The certificates for such shares may include any legend which the Committee
deems appropriate to reflect any restrictions on transfer. All certificates for
shares of Common Stock or other securities delivered under the Plan shall be
subject to such stop-transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations, and other requirements of the
Commission, any stock exchange upon which the Common Stock is then listed, and
any applicable Federal or state securities law, and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to shareholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases.
(c) The adoption of the Plan shall not confer upon any employee of the
Company or any Subsidiary or Affiliate any right to continued employment with
the Company or a Subsidiary or Affiliate, as the case may be, nor shall it
interfere in any way with the right of the Company or a Subsidiary or Affiliate
to terminate the employment of any of its employees at any time.
(d) No later than the date as of which an amount first becomes includible
in the gross income of the participant for Federal income tax purposes with
respect to any award under the Plan, the participant shall pay to the Company,
or make arrangements satisfactory to the Committee regarding the payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to such amount. The Committee may require withholding obligations to be
settled with Common Stock, including Common Stock that is part of the award that
gives rise to the withholding requirement. The obligations of the Company under
the Plan shall be conditional on such payment or arrangements and the Company
and its Subsidiaries or Affiliates shall, to the extent permitted by law, have
the right to deduct any such taxes from any payment of any kind otherwise due to
the participant.
(e) The actual or deemed reinvestment of dividends or dividend equivalents
in additional Restricted Stock (or other types of Plan awards) at the time of
any dividend payment shall only be permissible if sufficient shares of Common
Stock are available under Section 3 for such reinvestment (taking into account
other awards then outstanding under the Plan).
(f) The Plan and all awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Tennessee.
(g) The members of the Committee and the Board shall not be liable to any
employee or other person with respect to any determination made hereunder in a
manner that is not inconsistent with their legal obligations as members of the
Board. In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee shall be
indemnified by the Company against the reasonable expenses, including attorneys'
fees actually and necessarily incurred in connection with the defense of any
action, suit, or proceeding, or in connection with any appeal therefrom, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan, and against all amounts
paid by them in settlement thereof (provided such settlement is approved by
independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit, or proceeding, except in
relation to matters as to which it shall be adjudged
A-8
<PAGE> 33
in such action, suit, or proceeding that such Committee member is liable for
negligence or misconduct in the performance of his or her duties; provided that
within 60 days after institution of any such action, suit, or proceeding, the
Committee member shall in writing offer the Company the opportunity, at its own
expense, to handle and defend the same.
(h) In addition to any other restrictions on transfer that may be
applicable under the terms of this Plan or the applicable award agreement, no
Restricted Stock award or Other Stock-Based Award or other right issued under
this Plan is transferable by the participant without the prior written consent
of the Committee other than transfers by will or by the laws of descent and
distribution. The designation of a beneficiary will not constitute a transfer.
(i) The Committee may, at or after grant, condition the receipt of any
payment in respect of any award or the transfer of any shares subject to an
award on the satisfaction of a six-month holding period, if such holding period
is required for compliance with Section 16 under the Exchange Act.
SECTION 11. EFFECTIVE DATE OF PLAN.
The Plan shall be effective as of the date of approval of the Plan by a
majority of the votes cast by the holders of the Company's Common Stock.
SECTION 12. TERM OF PLAN.
No Restricted Stock award or Other Stock-Based Award shall be granted
pursuant to the Plan on or after the tenth anniversary of the Effective Date of
the Plan, but awards granted prior to such tenth anniversary may be extended
beyond that date.
A-9
<PAGE> 34
APPENDIX B
PROXY SHONEY'S, INC. PROXY
ANNUAL MEETING OF SHAREHOLDERS, APRIL 2, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints J. Michael Bodnar and F.E. McDaniel, Jr.,
or either of them, as proxies with power of substitution to vote all shares of
the undersigned at the annual meeting of the shareholders of Shoney's, Inc. to
be held on April 2, 1998, at 2:00 p.m. Eastern Standard Time at the Atlanta
Marriott Marquis, 265 Peachtree Center Avenue, Atlanta, Georgia, and at any
adjournments or postponements thereof, in accordance with the directions given
on the reverse side.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTIONS
ARE GIVEN, THE SHARES WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES FOR
DIRECTOR AND FOR THE 1998 STOCK PLAN.
(1) ELECTION OF DIRECTORS.
<TABLE>
<S> <C> <C>
[ ] FOR ALL [ ] WITHHOLD AS TO ALL [ ] FOR ALL EXCEPT
</TABLE>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
CHECK THE BOX TO VOTE "FOR ALL EXCEPT" AND STRIKE A LINE
THROUGH THE NOMINEE'S NAME WITH RESPECT TO WHOM YOU CHOOSE
TO WITHHOLD AUTHORITY.)
J.M. Bodnar; C. S. Lynn; J.F. Schoenbaum; R.D. Schoenbaum; W.A. Schwartz;
C.D. Shanks; F.W. Ward, Jr.; W.M. Wilson; and J.D. Yancey.
(CONTINUED ON REVERSE SIDE)
(CONTINUED FROM OTHER SIDE)
(2) To approve the adoption of the 1998 Stock Plan.
[ ] FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY (ABSTAIN)
(3) In their discretion, on such other matters as may properly come before
the meeting.
PLEASE SIGN AND DATE BELOW AND RETURN PROMPTLY
-----------------------------
Signature
-----------------------------
Signature (if held jointly)
Dated:_________________, 1998
SIGNATURE OF SHAREHOLDER(S) SHOULD CORRESPOND EXACTLY WITH THE NAME PRINTED
HEREON. JOINT OWNERS SHOULD EACH SIGN PERSONALLY. EXECUTORS, ADMINISTRATORS,
TRUSTEES, ETC., SHOULD GIVE FULL TITLE AND AUTHORITY.
