<PAGE>
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:
[ ] 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
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>
SHONEY'S, INC.(R) LOGO
1727 ELM HILL PIKE
NASHVILLE, TENNESSEE 37210
- ------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD TUESDAY, MARCH 23, 1999
- ------------------------------------------------------------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Annual Meeting") of Shoney's, Inc. will be held in the Fifth Floor Auditorium
of the First American Center, 300 Union Street, Nashville, Tennessee 37237, on
Tuesday, March 23, 1999, at 9:00 a.m. Central Standard Time for the following
purposes:
(1) To elect a Board of eight directors to serve until the
2000 annual meeting of shareholders or until their respective
successors shall have been duly elected and qualified; and
(2) To transact such other business as may properly come
before the meeting.
Only shareholders of record at the close of business on January 20, 1999
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, Jr.
F.E. McDaniel, Jr.
Secretary and General Counsel
Nashville, Tennessee
February 26, 1999
<PAGE>
PROXY STATEMENT
----------------------
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MARCH 23, 1999
------------------------------------------
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 1999 annual meeting of shareholders of the Company (the
"Annual Meeting") to be held in the Fifth Floor Auditorium of the First
American Center, 300 Union Street, Nashville, Tennessee 37237, on Tuesday,
March 23, 1999, at 9:00 a.m. Central 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 26, 1999.
The Board has fixed the close of business on January 20, 1999 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, 49,439,030
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 2000 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 are 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 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 the Annual Meeting, or (iii)
attending the Annual Meeting and voting in person (although attendance at the
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<PAGE>
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., 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 twelve directors, the exact number to be set by the
Board. The current Board consists of nine members. Effective as of the date
of the Annual Meeting, the Board has fixed the number of directors at eight.
One current director, C. Stephen Lynn, is not standing for re-election to the
Board.
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 2000 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 -- 54
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. 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."
JEFFRY F. SCHOENBAUM Age -- 51
Private Investor Director since 1996
Mr. Schoenbaum is a private investor and since 1987 has served as Vice President
of Nurad Investments, an investment holding company. 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 -- 52
Chairman of the Board Director since 1997
Shoney's, Inc.
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<PAGE>
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 and became
Chairman of the Board effective January 1, 1999.
WILLIAM A. SCHWARTZ Age -- 60
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.
CARROLL D. SHANKS Age -- 71
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.
FELKER W. WARD, JR. Age -- 65
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 -- 50
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 -- 57
President and Chief Operating Officer Director since 1998
Synovus Financial Corp.
Mr. Yancey served as Vice Chairman of Synovus Financial Corp., a financial
services company, from March 1992 until February 1998, at which time he became
President and Chief Operating Officer. He also has served as a director since
1978.
-3-
<PAGE>
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the fiscal year ended October 25, 1998 (the "1998 Fiscal Year"), the
Board held four regular and eight special meetings. During the 1998 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.
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.
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 three times during the 1998 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 six times during the 1998 Fiscal Year.
The Human Resources and Compensation Committee (the "HRC Committee")
presently is composed of three directors: Shanks (Chairperson), 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 1998 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 three directors:
Wilson (Chairperson), Jeffry Schoenbaum, and Shanks. 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 1998 Fiscal Year.
The Nominating Committee presently is composed of three directors: Raymond
Schoenbaum (Chairperson), 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 1998 Fiscal Year.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSED NOMINEES
TO THE BOARD.
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<PAGE>
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 1998 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 1998 Fiscal Year.
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)............................. 4,249,302 8.6%
2 International Plaza, Suite 510
Nashville, TN 37217
Betty J. Schoenbaum(2)..................... 3,394,480 6.9%
5541 Gulf of Mexico Drive
Longboat Key, FL 34228
Dimensional Fund Advisors, Inc.(3)......... 3,107,024 6.3%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Loomis, Sayles & Company, L.P.(4).......... 6,161,009 11.1%
One Financial Center
Boston, MA 02111
</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. and Raymond D. Schoenbaum.
(3) Dimensional Fund Advisors, Inc. ("DFA") is a registered investment
advisor. DFA has sole voting power and sole dispositive power with respect
to all 3,107,024 Shares. The information regarding Shares beneficially
owned is based upon the Schedule 13G filed by DFA with the SEC on February
11, 1999.
(4) Loomis, Sayles & Company. L.P. ("LSC") is a registered investment
advisor. LSC's beneficial ownership is based upon its ownership of
securities that are convertible into Shares. LSC has sole voting power
with respect to 4,881,406 Shares and shared voting power with respect to
975,829 Shares. LSC has shared dispositive power with respect to all
6,161,009 Shares. The information regarding Shares beneficially owned is
based upon the Schedule 13G filed by LSC with the SEC on February 10,
1999.
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<PAGE>
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 1998 Fiscal Year (these
officers being 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 49,439,030 Shares issued and outstanding as of the
Record Date.
<TABLE>
<CAPTION>
SHARES PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS
- ------------------------------------ ------------------ --------
<S> <C> <C>
James W. Arnett, Jr..................... 46,560(2) *
J. Michael Bodnar....................... 625,733 1.3%
Haney A. Long, Jr....................... 108,294 *
C. Stephen Lynn......................... 656,071 1.3%
Jeffry F. Schoenbaum.................... 584,192(3) 1.2%
Raymond D. Schoenbaum................... 898,468(4) 1.8%
William A. Schwartz..................... 1,000 *
Carroll D. Shanks....................... 2,200 *
Robert A. Speck......................... 39,211 *
Ronald E. Walker........................ 106,848(5) *
Felker W. Ward, Jr...................... 1,000 *
William M. Wilson....................... 11,000 *
James D. Yancey......................... 41,000 *
All current directors and executive
officers as a group (25 persons)...... 3,374,687 6.7%
</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: James W. Arnett, Jr. (4,000); J.
Michael Bodnar (249,998); Haney A. Long, Jr. (65,680); C. Stephen Lynn
(400,000); Jeffry F. Schoenbaum (2,000); William A. Schwartz (1,000);
Carroll D. Shanks (1,000); Robert A. Speck (28,000); Ronald E. Walker
(42,000); Felker W. Ward, Jr (1,000); William M. Wilson (1,000); James D.
Yancey (1,000); current directors and executive officers as a group
(948,112). 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) 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.
(4) Includes 290,900 Shares held in a trust for the benefit of Mr. Schoenbaum,
10,267 Shares owned by Mr. Schoenbaum's wife, 42,982 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.
(5) Includes 150 Shares held by Mr. Walker as custodian for his daughter.
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<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by the
Company during the three fiscal years ended October 25, 1998 to the Named
Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- -----------------------
OTHER ALL
ANNUAL RESTRICTED SECURITIES OTHER
NAME AND COMPENSA STOCK UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS($) TION($)(1) AWARDS($) OPTIONS(#) SATION($)
- ------------------ ---- --------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Michael Bodnar 1998 452,567 300,000 -- -- 1,000,000 49,887 (2)
President and Chief
Executive Officer
Ronald E. Walker 1998 185,600 207,520 -- -- 122,500 3,934 (3)
President and Chief 1997 153,969 49,896 -- -- -- 4,505
Operating Officer - 1996 135,955 64,800 -- -- 225,000 4,648
Captain D's
Haney A. Long, Jr.
President and Chief 1998 196,538 172,800 -- -- 102,500 7,488 (4)
Operating Officer - 1997 188,462 47,500 -- -- 25,000 53,259
Distribution and 1996 24,904 35,000 -- -- 71,914 53,985
Manufacturing
James W. Arnett, Jr.(5)1998 238,078 2,400 -- -- 45,000 --
Senior Vice 1997 179,814 50,000 -- -- -- 1,729
President - 1996 70,865 -- -- -- 200,000 1,941
Shoney's Restaurants
Robert A. Speck
Senior Vice 1998 192,444 44,816 50,000 1,347 (6)
President - 1997 186,537 33,023 -- -- -- --
Strategic Planing 1996 157,962 -- -- -- 280,000 --
C. Stephen Lynn(7)
Chairman, Chief 1998 546,154 -- 52,594(8) 93,500(9) -- 298,435 (10)
Executive Officer 1997 500,000 -- 45,246(8) 80,438(9) 250,000 35,000
and President 1996 491,747 -- 94,708(8) 167,063(9) 1,250,000 42,092
- ----------------
(1) As to "Other Annual Compensation", although executive officers receive perquisites and other personal
benefits (e.g., Company furnished automobiles), the aggregate amount of such perquisites or other
personal benefits does not exceed the lesser of: (a) $50,000; or (b) 10% of the annual salary and bonus
for any of the persons listed in the Summary Compensation Table.
(2) Mr. Bodnar was elected as the Company's CEO on November 12, 1997 when Mr. Lynn resigned as the Company's
President and CEO. Mr. Bodnar's employment agreement is described below under "Employment
Agreements." The amount set forth in "All Other Compensation" represents certain expenses incurred by
Mr. Bodnar in connection with his relocation ($37,594), a tax equalization bonus relative to certain
taxable relocation benefits ($8,727) and certain legal expenses incurred by Mr. Bodnar in connection
with the negotiation of his employment agreement for which he was reimbursed by the Company ($3,566).
(3) 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.
(4) Represents certain expenses incurred by Mr. Long in connection with his relocation ($5,596) and the
Company's matching contribution to Mr. Long's account under the Company's 401(k) plan ($1,892).
(5) Mr. Arnett resigned from the Company effective November 9, 1998.
(6) Represents the Company's matching contribution to Mr. Speck's account under the Company's Supplemental
Executive Retirement Plan.
(7) Mr. Lynn resigned as President and Chief Executive Officer effective November 12, 1997. Mr. Lynn
continued to serve as Chairman of the Board through December 1998. See "-- Employment Contracts."
(8) Represents tax equalization bonus paid with respect to the receipt of restricted Shares in each of the
years indicated. See Note (9).
(9) Represents the value of 17,000 Shares received by Mr. Lynn pursuant to his employment agreement, with a
fair market value on the date of distribution in 1998 of $93,500 ($5.50 per share); in 1997 of $80,438
($4.875 per share); and in 1996 of $167,063 ($10.125 per share). See Note (8). At October 25, 1998, Mr.
Lynn held an aggregate of 50,000 restricted Shares with a fair market value of $106,250.
(10) Represents expenses for office, secretarial and related expenses paid on
Mr. Lynn's behalf following his resignation as President and Chief Executive Officer ($248,852) and life
insurance premiums paid on Mr. Lynn's behalf pursuant to his employment agreement ($49,583).
</TABLE>
-7-
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information concerning stock options granted to the Named
Executive Officers during the 1998 Fiscal Year:
<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO EXERCISE STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES OR BASE FOR OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION --------------------------
NAME GRANTED YEAR ($/SHARE)(1) DATE 5% ($) 10% ($)
- ---- ---------- ---------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mr. Arnett 20,000 0.47% $ 3.13 01/15/03 $ 39,306 $ 99,609
25,000 0.59% $ 5.00 02/24/08 $ 50,888 $ 118,590
Mr. Bodnar 500,000 11.85% $ 4.69 11/12/07 $ 954,142 $ 2,223,556
166,667 3.95% $ 5.40 11/12/07 $ 199,298 $ 622,436
166,667 3.95% $ 6.50 11/12/07 $ 15,964 $ 439,103
166,666 3.95% $ 7.75 11/12/07 $ - $ 230,768
Mr. Long 2,500 0.06% $ 3.13 01/15/03 $ 4,913 $ 12,451
100,000 2.37% $ 5.00 02/24/08 $ 203,550 $ 474,359
Mr. Speck 25,000 0.59% $ 3.13 01/15/03 $ 49,132 $ 124,511
25,000 0.59% $ 5.00 02/24/08 $ 50,888 $ 118,590
Mr. Walker 22,500 0.53% $ 3.13 01/15/03 $ 44,219 $ 112,060
100,000 2.37% $ 5.00 02/24/08 $ 203,550 $ 474,359
- ----------------
(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. The options that expire on January 15, 2003 vest (become exercisable) at a cumulative rate
of 20% per year for four years and in full after four years and eight months. The remaining options vest
at a cumulative rate of 20% per year and in full after five years.
</TABLE>
AGGREGATED FISCAL YEAR-END OPTION VALUES
Shown below is information with respect to unexercised options to purchase
Shares held by such officers as of the end of the 1998 Fiscal Year. During the
1998 Fiscal Year, none of the Named Executive Officer exercised options to
purchase Shares pursuant to the Company's stock option plans.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS HELD AT
OCTOBER 25, 1998
----------------------------
NAME EXERCISABLE UNEXERCISABLE
- ------ ----------- -------------
<S> <C> <C>
Mr. Arnett 0 45,000
Mr. Bodnar 0 1,000,000
Mr. Long 45,180 117,500
Mr. Lynn 300,000 1,450,000
Mr. Speck 12,000 68,000
Mr. Walker 17,500 132,500
</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. In addition, as of the end of the 1998 Fiscal Year, no Named
Executive Officer held an option that had any value at that time.
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. Pursuant to the
Company's Share Compensation Arrangement for Non-Employee Directors, at least 35
percent, or at an individual director's election, up to 100 percent of a
director's quarterly fees, is to be paid in Shares, rather than cash.
-8-
<PAGE>
In addition, each non-employee director participates in the Shoney's, Inc.
Directors' Stock Option Plan (the "Directors' Plan"). Non-employee directors
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 1998 Fiscal Year, there were six
participants under the Directors' Plan who held options covering an aggregate
of 30,000 Shares at exercise prices ranging from $3.19 to $9.50 per Share.
During the 1998 Fiscal Year, there were no exercises of options granted under
the Directors' Plan.
EMPLOYMENT CONTRACTS
The Company has employment agreements with Messrs. Lynn and Bodnar. 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 provided for Mr. Lynn to 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 provides that all options held by Mr. Lynn will vest on April 30, 1999
and that he will be entitled to exercise such options within 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.
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; however, pursuant to his employment agreement, he
received 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
-9-
<PAGE>
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.
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 Messrs. Long, Speck
and Walker that provide for the payment of two times their respective 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, the agreements provide that
these officers 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
19 other officers of the Company.
REPORT ON REPRICING OF OPTIONS
On December 29, 1997, the HRC Committee approved a program to reprice
certain "performance based" stock options that had been granted to certain of
the Named Executive Officers. This followed the HRC Committee's approval of
the repricing of options covering 940,772 Shares for all other employees. The
option repricing was proposed by management and approved by the HRC Committee
because the vast majority of the outstanding options were of little or no value,
which was causing a negative effect upon employee motivation and retention.
The option repricing modified the terms of certain options held by the
executive officers of the Company. With respect to options for one million
Shares, 90% were cancelled and 10% were reissued and/or reset at an exercise
price of $3.125 (the market price at the time of repricing). The reissued
options had terms of five years and vested at a cumulative rate of 20% per year
for four years and in
-10-
<PAGE>
full after four years and eight months. With respect to the effects of the
option repricing upon the Company's executive officers, see "10-Year Option
Repricings" below.
The foregoing report has been furnished by the members of the HRC
Committee:
Carroll D. Shanks (Chairperson)
Felker W. Ward, Jr.
James D. Yancey
10-YEAR OPTION REPRICINGS
Shown below is information with respect to repricing of options held by any
executive officer during the last 10 completed fiscal years.
<TABLE>
<CAPTION>
LENGTH OF
MARKET PRICE EXERCISE ORIGINAL TERM
NUMBER OF STOCK AT PRICE REMAINING
OF OPTIONS TIME OF AT TIME OF NEW AT DATE
REPRICED REPRICING OR REPRICING OR EXERCISE OF REPRICING
NAME DATE OR AMENDED(1) AMENDMENT AMENDMENT PRICE OR AMENDMENT
- ------ ------- ---------- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Arnett(2) 1/15/98 20,000 shares $3.125 $9.625 $3.125 6 yrs 3 mos
Mr. Long 1/15/98 2,500 shares $3.125 $9.625 $3.125 5 yrs 10 mos
Mr. Speck 1/15/98 25,000 shares $3.125 $9.625 $3.125 5 yrs 8 mos
Mr. Walker 1/15/98 22,500 shares $3.125 $9.625 $3.125 5 yrs 8 mos
F. E. McDaniel 1/15/98 5,000 shares $3.125 $9.625 $3.125 5 yrs 10 mos
General Counsel 8/26/93 3,000 shares $20.625 $25.75 $20.625 3 yrs 7 mos
and Secretary
Betty J. Marshall 1/15/98 2,500 shares $3.125 $9.625 $3.125 5 yrs 10 mos
Senior Vice President -
Corporate Communications
and Community Relations
David Jordan(2) 1/15/98 17,500 shares $3.125 $9.625 $3.125 5 yrs 8 mos
Senior Vice President -
Business Development
Gregory A. Hayes(2) 1/15/98 5,000 shares $3.125 $9.625 $3.125 5 yrs 10 mos
Chief Financial Officer
H. Benny Ball(2) 8/26/93 3,000 shares $20.625 $25.75 $20.625 3 yrs 7 mos
Robert Cooper(2) 8/26/93 2,500 shares $20.625 $25.75 $20.625 3 yrs 7 mos
James M. Grout(2) 8/26/93 4,500 shares $20.625 $25.75 $20.625 3 yrs 7 mos
Kevin Henderson(2) 8/26/93 2,500 shares $20.625 $25.75 $20.625 3 yrs 7 mos
V. Michael Payne 8/26/93 3,000 shares $20.625 $25.75 $20.625 3 yrs 7 mos
Charles R Porter(2) 8/26/93 4,500 shares $20.625 $25.75 $20.625 3 yrs 7 mos
John Rieber(2) 8/26/93 3,000 shares $20.625 $25.75 $20.625 3 yrs 7 mos
Michael J. Rose, Jr.(2) 8/26/93 4,000 shares $20.625 $25.75 $20.625 3 yrs 7 mos
Daniel E. Staudt 8/26/93 4,500 shares $20.625 $25.75 $20.625 3 yrs 7 mos
Charles Vaughn(2) 8/26/93 3,000 shares $20.625 $25.75 $20.625 3 yrs 7 mos
8/26/93 3,500 shares $20.625 $25.25 $20.625 4 yrs 7 mos
- --------------
(1) As indicated in the report on repricing of options, when options were repriced during the 1998 Fiscal
Year, the employee was required to surrender 90% of the Shares subject to the option, with the new
option being issued for 10% of the Shares previously under option. As a result, the executive
officers surrendered options for 900,000 Shares as follows: Mr. Arnett (180,000 Shares); Mr. Long (22,500
Shares); Mr. Speck (225,000 Shares); Mr. Walker (202,500 Shares); Mr. McDaniel (45,000 Shares); Ms.
Marshall (22,500 Shares); Mr. Jordan (157,500 Shares); Mr. Hayes (45,000 Shares).
(2) These executive officers were no longer employed by the Company as of
the end of the 1998 Fiscal Year.
</TABLE>
-11-
<PAGE>
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 1998 Fiscal Year.
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 outside the restaurant industry.
The Company engages, as necessary, independent compensation consultants 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 HRC Committee strives to maintain the
Company's compensation levels consistent with survey-derived medians, and the
Company's executive compensation programs, plans, and awards 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,
relate to value creation for Company shareholders, and provide competitive
rewards to employees for outstanding contributions to overall Company
performance and success.
In association with the Company's strategic focus, the HRC Committee has
adopted the following goals in its selection and design of executive
compensation programs:
- Set 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 incentive compensation with the Company's key values of food
quality, excellent restaurant operations, growth in same-store sales
and corporate profitability.
-12-
<PAGE>
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 the HRC Committee strives to
maintain 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 1998 Fiscal
Year, base salary increases for the Named Executive Officers were as follows:
Mr. Bodnar received no base salary increase during 1998; Mr. Walker received an
increase of $41,600 (26.2%); Mr. Long received an increase of $9,500 (5%); and
Mr. Arnett received an increase of $50,000 (26.3%); Mr. Speck received a lump
sum payment in the amount of $3,774 (2%) with no increase to base salary.
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 same-store sales and corporate
profit. 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.
Target award opportunities under the 1998 plan ranged from zero to 100% of
base salary, depending on job level, responsibility, and accountability. The
1998 plan provided for pay-outs less than the target amount and for maximum
awards of 150% of base salary.
The 1998 plan aligned incentive bonuses with performance improvements
through the establishment of target award opportunities for Company and business
unit performance. The HRC Committee and the Company have determined that
improvement in EBITDA (earnings before interest, taxes, depreciation, and
amortization) is the appropriate value driver for performance measurement and
one that translates into earnings per share growth.
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 1998 Fiscal Year bonus
payment amounts. These individual performance objectives generally constitute
twenty to fifty percent of the total award opportunity available to the senior
executive group, and are specifically linked to excellence in operations,
profit, integrity, respect for others, and accomplishing agreed-upon individual
objectives.
Pursuant to Mr. Bodnar's employment contract, a minimum bonus of $300,000
was paid to him for the 1998 Fiscal Year. In accordance with the terms of the
1998 Plan, the other Named Executive Officers were paid annual incentive amounts
as follows: Mr. Walker, $207,520; Mr. Long, $172,800; Mr. Arnett, $2,400; Mr.
Speck, $44,816.
The target incentive payments to the Named Executive Officers for the 1998
Fiscal Year were $914,350, while the actual incentive payments were $727,536.
Messrs. Walker, Long, Arnett and Speck received aggregate annual incentive
payments for the 1997 fiscal year of $188,298, compared to aggregate annual
incentive payments in the 1998 Fiscal Year for these same four individuals of
$427,536.
All bonus pay-outs for FY98 were made 65% in cash and 35% in Shares.
-13-
<PAGE>
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.
During the 1998 Fiscal Year, options for 2,833,038 Shares were granted to
36 officers (including options for 1,320,000 Shares granted to the Named
Executive Officers). Generally, option exercise prices are set at 100% of fair
market value on the date of grant, options vest at 20% per year and the options
expire after 10 years. Stock options granted to Mr. Bodnar, described in greater
detail below, were granted at or above market value and vest at 25% per year.
CHIEF EXECUTIVE OFFICER COMPENSATION
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 those 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. In FY98 Mr. Bodnar was also
eligible for an incentive award based on the achievement of financial
performance targets in the Company's business plan. No additional bonus, other
than the minimum bonus provided by his employment agreement contract, was paid
to Mr. Bodnar during 1998.
Mr. Bodnar will receive a total of 120,000 restricted Shares to be
distributed in increments of 40,000 Shares each 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 options 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:
Carroll D. Shanks (Chairperson)
Felker W. Ward, Jr.
James D. Yancey
-14-
<PAGE>
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>
Measurement Period S&P S&P
(Fiscal Year Covered) SHONEY'S, INC. 500 RESTAURANTS
<S> <C> <C> <C>
1993 100 100 100
1994 65.22 104.18 97.43
1995 43.48 130.74 138.26
1996 33.15 161.51 146.78
1997 21.47 220.80 156.73
1998 9.24 254.71 212.59
</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 1993. 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 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 1993 is as of the last trading
day of October.
CERTAIN TRANSACTIONS
During the 1998 Fiscal Year, except as disclosed under "Executive
Compensation," and except as set forth below, the Company's executive officers,
directors and director nominees did not have significant business relations with
the Company requiring disclosure under applicable SEC regulations and no such
transactions are anticipated during fiscal year 1999.
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-
-15-
<PAGE>
year period. During the 1998 Fiscal Year, the Company paid SSI aggregate rent
of $72,126. The Company considers this lease to be comparable in terms to other
leases with unaffiliated third parties.
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 up to two additional five-year periods. During
the 1998 Fiscal Year, the Company paid PAB Realty aggregate rent of $70,800. The
Company considers this lease to be comparable in terms to other leases with
unaffiliated third parties.
Stephen C. Sanders, an executive officer of the Company, indirectly
operates three franchised Shoney's restaurants. When Mr. Sanders was employed
by the Company in 1998, his retention of these franchises was reviewed and
approved by the Audit Committee. The restaurants are operated pursuant to the
Company's standard franchise agreements that would be entered into with
unaffiliated third parties. In addition, these units purchase goods and
equipment from the Company. The prices charged and the terms given on these
purchases are the same as given to other unaffiliated franchisees. During the
1998 Fiscal Year, Mr. Sanders' restaurants paid royalties to the Company in the
amount of $161,493 and made purchases from the Company in the amount of
$1,649,274. It is anticipated that such payments and purchases will continue
throughout the terms of the franchise agreements which expire (with the option
of the franchisee to renew for an additional 20-year term) in 2008, 2014 and
2015 respectively.
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 2000 ANNUAL MEETING
To be considered for inclusion in the Company's proxy materials relating to
the 2000 annual meeting of shareholders, such proposals must be submitted by
eligible shareholders who have complied with the relevant regulations of the SEC
and must be received no later than October 28, 1999. In addition, if the Company
is not notified of a shareholder proposal by January 11, 2000, then the proxies
held by management of the Company may provide the discretion to vote against
such shareholder proposal, even though such proposal is not discussed in the
proxy materials sent in connection with the 2000 annual meeting of
shareholders. Shareholder proposals should be mailed to F.E. McDaniel, Jr.,
Secretary and General Counsel, Shoney's, Inc., 1727 Elm Hill Pike, Nashville,
Tennessee 37210.
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<PAGE>
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 25, 1998, together with financial statements and schedules, as filed
with the SEC. Requests should be mailed to F.E. McDaniel, Jr., Secretary and
General Counsel, Shoney's, Inc., 1727 Elm Hill Pike, Nashville, Tennessee 37210.
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<PAGE>
APPENDIX A
PROXY SHONEY'S, INC. PROXY
ANNUAL MEETING OF SHAREHOLDERS, MARCH 23, 1999
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints J. Michael Bodnar and David L. Gilbert, 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 March 23, 1999, at 9:00 a.m. Central Standard Time in the Fifth Floor
Auditorium of the First American Center, 300 Union Street, Nashville, Tennessee
37237, 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.
(CONTINUED ON REVERSE SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
(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; J.F. Schoenbaum; R.D. Schoenbaum; W.A. Schwartz;
C.D. Shanks; F.W. Ward, Jr.; W.M. Wilson; and J.D. Yancey.
(2) 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:_________________, 1999
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.
