<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996)
For the fiscal year ended December 29, 1996
Commission file number 0-18629
O'CHARLEY'S INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 62-1192475
---------------------------- ----------------------
(State of other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
jurisdiction)
3038 Sidco Drive
Nashville, Tennessee 37204
---------------------------- ----------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (615) 256-8500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, no
par value
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant on March 14, 1997 was approximately $83,895,045. For
purposes of this calculation, shares held by non-affiliates excludes only those
shares beneficially owned by officers, directors and shareholders beneficially
owning 10% or more of the outstanding Common Stock. The market value
calculation was determined using the closing sale price of the registrant's
common stock on March 14, 1997 ($13.00) as reported on The Nasdaq Stock
Market's National Market.
Shares of common stock, no par value, outstanding on March 14, 1997,
were 7,872,146.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Documents from which portions are
Part of Form 10-K incorporated by reference
- -------------------- ---------------------------------
<S> <C>
Part III Proxy Statement relating to Company's Annual Meeting of Shareholders
to be held May 8, 1997
</TABLE>
<PAGE> 2
O'CHARLEY'S INC.
PART I
ITEM 1. BUSINESS
O'Charley's Inc. (the "Company") operates and franchises casual
dining, full service restaurants under the O'Charley's name. The Company's
strategy is to compete in both the casual adult and family dining market
segments by featuring:
o a broad menu selection, including prime rib, steaks, poultry,
fresh seafood, salads, sandwiches and pasta, that is intended
to appeal to a wide range of consumer tastes;
o an emphasis on customer service that results from a
comprehensive training program and close supervision of
restaurant operations;
o moderate, value-oriented menu pricing that is designed to
attract customers of various income levels; and
o high food quality that is consistently maintained through the
operation of a centralized commissary that purchases,
processes and distributes most food products used in the
restaurants.
At December 29, 1996, the Company operated 69 O'Charley's restaurants
in Alabama, Florida, Georgia, Indiana, Kentucky, Mississippi, North Carolina,
Ohio, South Carolina, and Tennessee, and had one franchised O'Charley's
restaurant in South Carolina. The Company plans to expand in the near term
primarily through the development of additional Company-owned restaurants,
clustered in or near its existing markets and in selected metropolitan areas in
the South and Midwest. Twelve to fourteen additional O'Charley's restaurants
are expected to open during 1997.
O'CHARLEY'S RESTAURANTS
Each O'Charley's is a full service restaurant that offers a high
quality dining experience in a relaxed environment at moderate prices. The
restaurants are open seven days a week, generally from 11:00 a.m. to 1:00 a.m.
Restaurant Design. The prototypical O'Charley's restaurant is a free
standing brick building containing approximately 6,500 square feet and seating
for approximately 210 customers. The typical restaurant ambiance is open,
casual and well lighted. The decor features color prints, warm woods, polished
brass, exposed brick and neon accents. Black and white photographs of local
history, people, places and events add nostalgia and give the restaurants a
neighborhood feeling. Each restaurant has a bar seating approximately 50
additional customers. The prototypical restaurant kitchen is designed to
facilitate fast, efficient food preparation. The kitchen design permits the
Company to be flexible in the types of food items which can be prepared and to
adapt to changing customer tastes and preferences. A typical restaurant
location has 100 to 120 available parking spaces.
Menu Offerings. O'Charley's restaurants offer a varied menu of
approximately 45 items including appetizers, soups, salads, poultry, prime rib,
steaks, fresh seafood, sandwiches, burgers and desserts. In addition, the
restaurants offer a weekend brunch and a children's menu. Most menu food items
are prepared on the
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premises using fresh ingredients according to original recipes. The Company's
slogan is "quality creates demand"; therefore, the Company places special
emphasis on both excellent food and attentive customer service. In 1996, the
average check per customer, including beverages, was approximately $10.30.
Sales of alcoholic beverages constituted approximately 13% of restaurant sales
in 1996. The menu is moderately priced with programs such as "Express Lunch"
and "Kids Eat Free" reinforcing the Company's value oriented philosophy. The
Company is continually developing new menu items which are test-marketed before
appearing on the regular menu.
OPERATIONS
Restaurant Management. The Company believes that each O'Charley's
restaurant requires an effective management team in order to ensure high
quality food and attentive service. Each restaurant has six to seven
management personnel (a general manager, two assistant managers, two kitchen
managers and a dining room manager) and approximately 95 full and part-time
employees. The Company employs area supervisors who have full responsibility
for the operating performance of three to four restaurants. The Company also
employs four regional directors, who supervise those restaurants in the
particular regions which they oversee. They also are responsible for the
development of new restaurants in their regions.
In order to maintain control over the quality of its restaurant
operations, the Company emphasizes the careful selection and training of all
restaurant employees and has a detailed restaurant inspection system. The
restaurant management recruiting and training program begins with an evaluation
and screening program. In addition to multiple interviews, and background and
experience verification, the Company conducts a testing procedure designed to
identify those applicants who are best suited to manage the Company's
restaurant operations. Once hired, management trainees are required to
complete an eleven-week training program, which encompasses all phases of
restaurant operations. This program allows new managers the opportunity to
become familiar with all the responsibilities required at an individual
restaurant, and with the Company's operations, management objectives, controls,
and evaluation criteria before assuming restaurant management responsibility.
As an incentive for restaurant managers to improve sales and
operational efficiency, the Company has adopted a monthly incentive
compensation plan. Pursuant to this plan, a manager may earn a bonus, payable
during each four-week accounting period, based on a percentage of the sales of
the restaurant for which he has responsibility, provided certain costs (food,
supplies and store-level labor) are within budget. In addition, the Company
has implemented a "3 Point Plan" to give managers a greater opportunity to
participate in the growth of the Company. Pursuant to the "3 Point Plan",
managers receive a quarterly bonus in addition to their base salary based upon
a certain percentage of restaurant profit, and long-term stock options tied to
the performance of the Company as a whole. The area supervisors and regional
directors also participate in incentive based cash bonus and stock option plans
which are based on achieving certain targeted levels of profit pertaining to
Company and individually tailored goals. The Company's managerial turnover rate
was approximately 48% in 1996.
Commissary Operations. The Company operates its own commissary in
Nashville through which it purchases most of its food products and restaurant
supplies. Management believes that its commissary enhances its restaurant
operations by maintaining consistent food quality and controlling costs. The
commissary also simplifies the managers' purchasing duties, allowing greater
concentration on restaurant operations. The commissary produces salad
dressings and fresh breads and operates a United States Department of
Agriculture ("USDA") approved meat processing plant. Those food products and
restaurant supplies are distributed to O'Charley's restaurants (both
Company-owned and franchised) by Company-operated trucks. O'Charley's
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establishes food and other product quality standards, and the commissary then
negotiates directly with food manufacturers and other suppliers to obtain the
lowest possible prices at the required quality. The Company also utilizes
select long-term contracts on certain items to avoid short-term food cost
fluctuations. Certain perishable food and beverage items are purchased locally
by the Company's restaurants.
In addition to servicing Company-owned and franchised restaurants, the
Company's commissary also sells food products and restaurant supplies to
certain other customers. Management believes that the Company's commissary has
adequate capacity to service the Company's expanded operations for the
foreseeable future.
Quality, Costs, and Inventory Controls. Product quality and cost are
controlled centrally by the Company, allowing restaurant management to closely
monitor day to day restaurant operations. The Company uses customer
evaluations, which are available to diners in the restaurants, as a means of
monitoring customer satisfaction, and the Company employs a "mystery shopper"
program to independently monitor quality control. Additionally, costs are
reviewed regularly by management to determine if any material variances in food
costs or operating expenses have occurred. The Company's computer system
provides restaurant operations information which is analyzed by management to
monitor sales mix and costs. This system is also used in the development of
budget analyses, planning and inventory control.
Marketing. The Company has an ongoing advertising and marketing plan
for the development of television, radio, and newspaper advertising and also
uses point of sale and local store marketing. The Company expended
approximately 2.4% of its 1996 restaurant sales on advertising. The Company's
franchisee contributed 1.0% of its gross sales in 1996 to an advertising
production fund.
COMPANY RESTAURANT EXPANSION
The Company plans to grow primarily through the development of
additional Company-owned restaurants, which will be clustered in existing
markets and in selected metropolitan markets in the South and Midwest in an
effort to enhance supervisory, marketing and distribution efficiencies. Based
upon the Company's experience, management believes that clustering its
restaurants will not result in a material decrease in sales at existing
restaurants.
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During 1996, 12 new Company-owned restaurants were opened in the
following markets:
<TABLE>
<CAPTION>
MONTH LOCATION
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<S> <C>
January Indianapolis, Indiana
February Springdale, Ohio
February Cleveland, Tennessee
March Birmingham, Alabama
April Raleigh, North Carolina
May Lawrenceville, Georgia
June Cordova, Tennessee
July Indianapolis, Indiana
August Cincinnati, Ohio
September Hattiesburg, Mississippi
October Birmingham, Alabama
November Owensboro, Kentucky
</TABLE>
In connection with the Company's expansion, management performs
extensive reviews of various available sites, gathering appropriate cost,
demographic and traffic data. The Company utilizes an in-house
construction/real estate department to develop architectural and engineering
plans and to oversee new construction.
In the Company's existing markets, capital investment for a new
restaurant on purchased premises averages approximately $1,950,000 and on
leased premises averages approximately $1,350,000. Of this capital investment,
building, site and other expenses average $900,000, land costs average
$600,000, and equipment costs average $450,000. Additionally, pre-opening
expenses average approximately $150,000. Whenever possible, management prefers
to own rather than lease restaurants.
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RESTAURANT LOCATIONS
The following table shows the location and status as of December 29,
1996 of the 77 O'Charley's restaurants which are opened or under development.
<TABLE>
<S> <C> <C> <C>
EXISTING COMPANY-OWNED RESTAURANTS
----------------------------------
Alabama South Carolina
Birmingham . . . . . . . . . . . . . . 4 Anderson . . . . . . . . . . . . . . . 1
Huntsville . . . . . . . . . . . . . . 1 Tennessee
Mobile . . . . . . . . . . . . . . . . 1 Chattanooga . . . . . . . . . . . . . 2
Montgomery . . . . . . . . . . . . . . 1 Clarksville . . . . . . . . . . . . . 2
Oxford . . . . . . . . . . . . . . . . 1 Cleveland . . . . . . . . . . . . . . 1
Tuscaloosa . . . . . . . . . . . . . . 1 Cookeville . . . . . . . . . . . . . . 1
Florida Cordova . . . . . . . . . . . . . . . 1
Pensacola . . . . . . . . . . . . . . 1 Farragut . . . . . . . . . . . . . . . 1
Georgia Gatlinburg . . . . . . . . . . . . . . 1
Atlanta . . . . . . . . . . . . . . . 3 Jackson . . . . . . . . . . . . . . . 1
Dalton . . . . . . . . . . . . . . . . 1 Johnson City . . . . . . . . . . . . . 1
Lawrenceville . . . . . . . . . . . . 1 Knoxville . . . . . . . . . . . . . . 3
Woodstock . . . . . . . . . . . . . . 1 Memphis . . . . . . . . . . . . . . . 2
Indiana Murfreesboro . . . . . . . . . . . . . 1
Clarksville . . . . . . . . . . . . . 1 Nashville . . . . . . . . . . . . . . 7
Evansville . . . . . . . . . . . . . . 1 Pigeon Forge . . . . . . . . . . . . . 1
Indianapolis . . . . . . . . . . . . . 3 --
Kentucky
Bowling Green . . . . . . . . . . . . 1 Total . . . . . . . . . . . . . . . . . . . . . 69
Florence . . . . . . . . . . . . . . . 1 ==
Lexington . . . . . . . . . . . . . . 2
Louisville . . . . . . . . . . . . . . 4 EXISTING FRANCHISED RESTAURANTS
Owensboro . . . . . . . . . . . . . . 1 -------------------------------
Paducah . . . . . . . . . . . . . . . 1
Richmond . . . . . . . . . . . . . . . 1
Mississippi
Biloxi . . . . . . . . . . . . . . . . 1 South Carolina
Hattiesburg . . . . . . . . . . . . . 1 Greenville . . . . . . . . . . . . . . 1
North Carolina --
Cary . . . . . . . . . . . . . . . . . 1
Raleigh . . . . . . . . . . . . . . . 2 Total . . . . . . . . . . . . . . . . . . . . . 1
Winston Salem . . . . . . . . . . . . 1 ==
Ohio
Cincinnati . . . . . . . . . . . . . . 4
Springdale . . . . . . . . . . . . . . 1
</TABLE>
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UNDER DEVELOPMENT
<TABLE>
<S> <C> <C>
ALABAMA
Decatur . . . . . . . . . . . . . . . . . . . . . . . . . . 1
GEORGIA
Gainesville . . . . . . . . . . . . . . . . . . . . . . . . 1
Conyers . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INDIANA
Indianapolis . . . . . . . . . . . . . . . . . . . . . . . 2
KENTUCKY
Elizabethtown . . . . . . . . . . . . . . . . . . . . . . . 1
TENNESSEE
Lebanon . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
=
</TABLE>
FRANCHISED RESTAURANTS
During 1996, the Company had one franchisee which owned one
O'Charley's restaurant in South Carolina. The Company's franchisee is
unaffiliated with the Company. The Company's expansion plans do not include
the solicitation of new franchisees.
The Company's franchised restaurant is operated pursuant to a
franchise agreement that provides for royalties of 2% of gross sales, marketing
contributions of up to 1% of gross sales, and a 20 year term. In addition, the
franchisee paid an initial fee to receive the franchise. The Company also
retains the right to terminate the franchise agreement for a variety of
reasons, including the franchisee's significant and willful understatement of
gross receipts, failure to pay fees, material misrepresentation on an
application for a franchise, or material breach or default under the franchise
agreement, including failure to maintain Company operating standards. South
Carolina law limits the ability of a franchisor to terminate or refuse to renew
a franchise. The Company has the right to audit and receive certain monthly
and annual financial and other information from its franchisee.
The Company's training program for its franchisee is similar to its
training program for management trainees in Company-owned restaurants. See
"Business--Operations." In order to ensure uniform quality standards, the
Company requires its franchisee to comply with Company specifications as to
space, design and decor, menu items, principal food ingredients and day-to-day
operations, as set forth in the Company's operations manual. The Company's
management generally visits the franchise location an average of once a month.
The Company's current franchisee purchases food from the Company's commissary,
but is under no contractual obligation to do so.
SERVICE MARKS
The Company has registered the name "O'Charley's" and its logo as a
service mark with the United States Patent and Trademark Office. The Company
is aware of names and marks similar to the service marks of the Company used by
third parties in certain limited geographical areas. Such third party use may
prevent the Company from licensing the use of its service marks for restaurants
in such areas. Except for these limited
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geographical areas, the Company is not aware of any infringing uses that could
materially affect its business. The Company intends to protect its service
mark by appropriate legal action whenever necessary.
GOVERNMENT REGULATION
The Company is subject to various federal, state, and local laws
affecting its business. Each of the Company's restaurants is subject to
licensing and regulation by a number of governmental authorities, which may
include alcoholic beverage control, health, safety, sanitation, building, and
fire agencies in the state or municipality in which the restaurant is located.
In addition, most municipalities in which the Company's restaurants are located
require local business licenses. The Company's commissary is licensed and
subject to regulation by the USDA. Difficulties in obtaining or failures to
obtain the required licenses or approvals could delay or prevent the
development of a new restaurant in a particular area. The Company is also
subject to federal and state environmental regulations, but they have not had a
material effect on the Company's operations to date.
Approximately 13% of the Company's restaurant sales is attributable to
the sale of alcoholic beverages. Each restaurant has appropriate licenses from
regulatory authorities allowing it to sell liquor, beer and wine, and in some
states or localities to provide service for extended hours and on Sunday. Each
restaurant has food service licenses from local health authorities, and similar
licenses would be required for each new restaurant. The failure of a
restaurant to obtain or retain liquor or food service licenses could adversely
affect, or in an extreme case, terminate its operations. However, each
restaurant is operated in accordance with standardized procedures designed to
assure compliance with all applicable codes and regulations. The Company is
subject in most states in which it operates restaurants to "dram-shop" statutes
or judicial interpretations, which generally provide a person injured by an
intoxicated person the right to recover damages from an establishment which
wrongfully served alcoholic beverages to such person. The Company carries
liquor liability coverage as part of its existing comprehensive general
liability insurance.
The Company is also subject to federal and a substantial number of
state laws regulating the offer and sale of franchises. Such laws impose
registration and disclosure requirements on franchisors in the offer and sale
of franchises. These laws also apply substantive standards to the relationship
between franchisor and franchisee and limit the ability of a franchisor to
terminate or refuse to renew a franchise.
The Federal Americans With Disabilities Act (the "Act") prohibits
discrimination on the basis of disability in public accommodations and
employment. The Act became effective as to public accommodations in January
1992 and as to employment in July 1992. The Company currently designs its
restaurants to be accessible to the disabled and believes that it is in
substantial compliance with all current applicable regulations relating to
restaurant accommodations for the disabled. The Company intends to comply with
future regulations relating to accommodating the needs of the disabled, and the
Company does not currently anticipate that such compliance will require the
Company to expend substantial funds.
The development and construction of additional restaurants will be
subject to compliance with applicable zoning, land use and environmental
regulations. The Company's restaurant operations are also subject to federal
and state minimum wage laws and other laws governing such matters as working
conditions, citizenship requirements, overtime and tip credits. There are
currently proposals in Congress which would result in an increase in the
minimum wage. The Company pays competitive wages to its hourly employees,
which are generally higher than the existing minimum wage. In the event a
proposal is adopted which materially increases
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the applicable minimum wage, such an increase would result in an increase in
the Company's payroll and benefits expense.
EMPLOYEES
At December 31, 1996, the Company employed approximately 5,800
persons, 100 of whom were home office management and staff personnel, 135 of
whom were commissary personnel and the remainder were restaurant personnel. A
substantial number of the Company's restaurant personnel are employed on a
part-time basis. None of the Company's employees are covered by a collective
bargaining agreement. The Company considers its employee relations to be good.
COMPETITION
The restaurant industry is intensely competitive with respect to
price, service, location, and food quality, and there are many well-established
competitors with substantially greater financial and other resources than the
Company. Such competitors include a large number of national and regional
restaurant chains. Some of the Company's competitors have been in existence
for a substantially longer period than the Company and may be better
established in the markets where the Company's restaurants are or may be
located. The restaurant business is often affected by changes in consumer
tastes, national, regional or local economic conditions, demographic trends,
traffic patterns, and the type, number and location of competing restaurants.
In addition, factors such as inflation, increased food, labor and benefits
costs and the lack of experienced management and hourly employees may adversely
affect the restaurant industry in general and the Company's restaurants in
particular.
RISK FACTORS
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company is including the
following cautionary statements identifying important factors that could cause
the Company's actual results to differ materially from those projected in
forward-looking statements made by, or on behalf of, the Company.
Expansion Risks. The Company's continued growth depends on its
ability to locate and open new restaurants and to operate such restaurants
profitably. Some of the Company's new restaurants may by opened in geographic
markets in which the Company has limited or no previous operating experience.
The Company's ability to expand the number of its restaurants will depend on a
number of factors, including the selection and availability of quality
restaurant sites, the negotiation of acceptable lease or purchase terms, the
securing of required governmental permits and approvals, the adequate
supervision of construction, the hiring, training and retaining of skilled
management and other personnel, the availability of adequate financing and
other factors, many of which are beyond the control of the Company. The hiring
and retention of management and other personnel may be difficult given the low
unemployment rates in the areas in which the Company operates. There can be no
assurance that the Company will be successful in opening the number of
restaurants anticipated in a timely manner. Furthermore, there can be no
assurance that the Company's new restaurants will generate revenues or profit
margins consistent with those of the Company's existing restaurants.
Geographic Concentration. The Company's existing restaurants are
located predominantly in the Southeastern United States with 25 of the 69
O'Charley's restaurants located in Tennessee. The Company's plans
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include significant further expansion in the Southeast. As a result, the
Company is particularly susceptible to events affecting the economics of states
in the Southeast, particularly Tennessee, as well as other geographic regions
in which the Company locates restaurants.
Changes in Food and Other Costs. The profitability of the Company is
significantly dependent on its ability to anticipate and react to changes in
food, labor, employee benefits and similar costs over which the Company has
little control. The Company is subject to the risk of possible shortages or
interruptions in supply caused by adverse weather or other conditions which
could adversely affect the availability and cost of such items. While in the
past management has been able to anticipate and react to changing costs through
its purchasing practices or menu price adjustments without a material adverse
effect on profitability, there can be no assurance that it will be able to do
so in the future.
Competition. Competition in the restaurant industry is intense.
O'Charley's restaurants compete with other full-service, casual dining
restaurants primarily on the basis of price, service, location and food
quality. The Company also competes with other restaurant operators and retail
establishments for quality sites for the construction of its restaurants. Many
of the Company's competitors are well established and have substantially
greater financial, marketing and other resources than the Company. See "--
Competition."
EXECUTIVE OFFICERS
Officers of the Company are elected by the Board of Directors and
serve at the pleasure of the Board of Directors. There are no family
relationships among any officers. The following table sets forth certain
information regarding the executive officers of the Company.
<TABLE>
<CAPTION>
Officer
Name Age Since Position
- ---- --- ------- --------
<S> <C> <C> <C>
Gregory L. Burns 42 1983 President, Chief Executive Officer, and Chairman of the Board
of Directors
Steven J. Hislop 37 1988 Executive Vice President and Chief Operating Officer
A. Chad Fitzhugh 36 1987 Chief Financial Officer, Secretary, and
Treasurer
William E. Hall, Jr. 42 1997 Vice President - Operations
David W. Hill 41 1997 Controller and Assistant Secretary
</TABLE>
The following is a brief summary of the business experience of each of
the executive officers of the Company.
Gregory L. Burns has served as Chairman of the Board and Chief
Executive Officer of the Company since February 1994, and as President of the
Company since September 1996. Mr. Burns, a director of the Company since 1990,
served as Chief Financial Officer of the Company from October 1983 to September
1996,
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as Executive Vice President and Secretary of the Company from October 1983 to
May 1993, and as President of the Company from May 1993 to February 1994. Mr.
Burns is a certified public accountant.
Steven J. Hislop has been Executive Vice President and Chief Operating
Officer of the Company since March 1997. Mr. Hislop served as Senior Vice
President - Operations from June 1993 to March 1997, and as Vice President -
Operations from June 1990 to June 1993.
A. Chad Fitzhugh has served as Chief Financial Officer since September
10, 1996, as Secretary of the Company since May 1993, and as Treasurer since
April 1990. He served as Controller from 1987 until September 10, 1996. Mr.
Fitzhugh is a certified public accountant.
William E. Hall, Jr. has served as Vice President - Operations since
March 1997. Mr. Hall served as a Regional Director of the Company from July
1992 to March 1997, and as an Area Supervisor of the Company from May 1991 to
July 1992.
David W. Hill has served as Controller and Assistant Secretary of the
Company since March 1997. Prior to March 1997, Mr. Hill served as Assistant
Controller of the Company for over six years.
ITEM 2. PROPERTIES
Of the 69 Company-operated restaurants, 37 are owned by the Company in
fee simple while the remainder are leased. Seven of the leased locations are
owned by partnerships whose partners are affiliated with the Company.
Restaurant lease expirations range from 1997 to 2019, with the majority of the
leases providing for an option to renew for additional terms ranging from 5 to
20 years. All of the Company's leases provide for a specified annual rental,
and some leases call for additional rental based on sales volume at the
particular location over specified minimum levels. Generally, the leases are
net leases which require the Company to pay the cost of insurance and taxes.
The Company's executive offices and its commissary are located in Nashville,
Tennessee in approximately 130,000 square feet of office and warehouse space
under a lease which expires in March 2002. The Company has an option to extend
the lease for two additional five-year terms. The Company has an option to
purchase the property at various times during the lease term.
ITEM 3. LEGAL PROCEEDINGS
On February 15, 1994, a purported class action suit was filed in the
United States District Court in the Western District of Tennessee against the
Company, Mr. Burns, David K. Wachtel, Jr., and Charles F. McWhorter (Messrs.
Wachtel and McWhorter are former directors and executive officers of the
Company). The suit was later transferred to the United States District Court
for the Middle District of Tennessee. The suit alleged racially
discriminatory job selection, termination and work environment practices in
violation of federal law. The suit sought actual, compensatory and punitive
damages in an unspecified amount. The court approved a consent decree
approving the definitive settlement of the suit on December 18, 1996. The
settlement agreement created a settlement pool of $4.8 million for the benefit
of the class members and reserved $700,000 for claims administration and fees,
and included $2.0 million for the attorneys representing the class and an
additional $1.0 million for legal and other expenses related to the settlement.
Less than 30% of the estimated pool of class members submitted claims against
the settlement fund. Therefore, an adjustment of approximately $2.3 million
was made to the settlement fund in December 1996.
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The Company is also involved in litigation and proceedings in the
ordinary course of its business. The Company does not believe the outcome of
any such litigation will have a material adverse effect upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matters were submitted to a vote of the shareholders during the
fourth quarter ended December 29, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock trades on The Nasdaq Stock Market's
National Market under the symbol "CHUX." As of March 14, 1997, there were
approximately 610 shareholders of record. The following table shows quarterly
high and low prices for the common stock for 1996, 1995 and 1994, as reported
by Nasdaq.
<TABLE>
<CAPTION>
1996 High Low
---- ---
<S> <C> <C>
First Quarter . . . . . . . . . . . . . . . . . . . . . . 14 3/4 10 1/2
Second Quarter . . . . . . . . . . . . . . . . . . . . . 15 1/2 10 1/2
Third Quarter . . . . . . . . . . . . . . . . . . . . . . 12 1/2 9 3/4
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . 13 1/8 9 1/2
1995 High Low
---- ---
First Quarter . . . . . . . . . . . . . . . . . . . . . . 14 3/4 9 3/4
Second Quarter . . . . . . . . . . . . . . . . . . . . . 14 1/8 11
Third Quarter . . . . . . . . . . . . . . . . . . . . . . 17 3/4 13
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . 15 11
</TABLE>
The Company has never paid a dividend on its common stock. The
Company presently intends to retain its earnings to finance the growth and
development of its business and does not expect to pay any cash dividends in
the foreseeable future.
On January 5, 1996, the Company issued an aggregate of 666,666 shares
of Common Stock to the shareholders of Shoex, Inc., a franchisee of the Company
("Shoex"), in connection with the merger of Shoex with and into the Company.
The shares were issued without registration in reliance on the exemption
contained in Section 4(2) of the Securities Act and the rules and regulations
promulgated thereunder.
12
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth the selected financial data for each of
the years in the five-year period ended December 29, 1996. Each fiscal year has
been restated to reflect the combined operations of the Company and Shoex as
their merger was accounted for as a pooling-of-interests.
<TABLE>
<CAPTION>
December 29, December 31, December 25, December 26, December 27,
(In Thousands, Except Per Share Data) 1996 1995 1994 1993 1992
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year Ended
RESULTS OF OPERATIONS
Revenues $164,530 $147,557 $122,697 $95,586 $82,542
Restaurant Operating Margin 29,320 25,016 19,904 14,416 12,193
Advertising, General and
Administrative Expenses 9,370 8,187 7,717 5,894 5,116
Depreciation and Amortization 8,141 6,164 4,711 3,437 3,479
Litigation 6,200 1,000 -- -- --
Income From Operations 6,838 11,138 8,051 5,582 4,067
Asset Revaluation 5,110 -- -- -- --
Earnings (Loss) Before
Income Taxes (1,944) 16,662 7,465 5,085 3,514
Income Tax Expense (Benefit) 1 (797) 6,071 2,492 1,867 1,277
Net Earnings (Loss) 1 (1,147) 10,591 4,973 3,218 2,237
------------------------------------------------------------------
PER SHARE DATA
Net Earnings (Loss) 1 $ (0.14) $1.26 $0.61 $0.42 $0.31
Weighted Average Common
Shares Outstanding 8,390 8,438 8,137 7,689 7,279
-----------------------------------------------------------------
At Year End
FINANCIAL POSITION
Cash $1,616 $2,576 $1,727 $1,180 $1,049
Working Capital (10,864) (7,344) (3,050) (3,327) (1,946)
Property and Equipment, net 103,281 81,512 64,609 50,219 37,247
Total Assets 117,159 93,351 76,082 57,971 43,831
Long-Term Debt 29,822 11,990 15,140 8,987 3,904
Capitalized Lease Obligations 11,797 9,272 5,744 4,697 3,651
Shareholders' Equity 50,926 51,787 40,804 33,204 27,897
------------------------------------------------------------------
</TABLE>
1 The income tax expense, net earnings and per share data for fiscal years
1995, 1994, 1993 and 1992 represent pro forma amounts (see Note 2 and Note 10
in Notes to Financial Statements).
See notes to financial statements.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following table highlights the operating results for fiscal years 1996,
1995 and 1994 as a percentage of total revenues unless otherwise indicated.
Fiscal years 1996 and 1994 are comprised of 52 weeks while 1995 is comprised of
53 weeks. Each fiscal year has been restated to reflect the combined operations
of the Company and Shoex, Inc., as the merger was accounted for as a
pooling-of-interests.
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------
<S> <C> <C> <C>
REVENUES:
Restaurant sales 98.6% 93.6% 91.4%
Commissary sales 1.4% 6.4% 8.6%
------------------------------
100.0% 100.0% 100.0%
COSTS AND EXPENSES:
Cost of restaurant sales: 1
Cost of food, beverage and supplies 35.9% 36.7% 36.9%
Payroll and benefits 30.9% 30.1% 30.0%
Restaurant operating costs 15.1% 15.1% 15.4%
------------------------------
81.9% 81.9% 82.3%
------------------------------
Restaurant operating margin 18.1% 18.1% 17.7%
Cost of commissary sales 2 95.2% 95.3% 94.8%
Advertising, general and administrative expenses 5.7% 5.5% 6.3%
Depreciation and amortization 4.9% 4.2% 3.8%
Asset revaluation 3.1% -- --
OTHER (INCOME) EXPENSE:
Interest expense, net 1.6% 1.3% 1.1%
Litigation 3.8% .7% --
Other, net 0.0% (5.7%) (0.6%)
EARNINGS (LOSS) BEFORE INCOME TAXES (1.2%) 11.3% 6.1%
INCOME TAX EXPENSE (BENEFIT) 3 (.5%) 4.1% 2.0%
NET EARNINGS (LOSS) 3 (.7%) 7.2% 4.1%
------------------------------
</TABLE>
1 As a percentage of restaurant sales.
2 As a percentage of commissary sales.
3 The income tax expense and net earnings for 1995 and 1994 represent pro forma
amounts.
14
<PAGE> 15
RESULTS OF OPERATIONS
The following discussion includes certain forward-looking statements. Actual
results could differ materially from those reflected by the forward-looking
statements and a number of factors may affect future results, liquidity and
capital resources. These factors include increased food, labor and employee
benefit costs, the availability of experienced management and hourly employees,
the Company's ability to locate and open new restaurants and to operate such
restaurants profitably and the intense competition in the restaurant
industry. Although the company believes it has the business strategy and
resources needed for improved operations, future revenue and margin trends
cannot be reliably predicted and may cause the Company to adjust the strategy
during fiscal 1997.
REVENUES. Total revenues in 1996 increased $17.0 million, or 11.5%, due to an
increase in restaurant sales of $24.1 million, or 17.5%, partially offset by a
decrease in commissary sales of $7.2 million, or 76.0%. Contributing to the
increase in restaurant sales were 12 new restaurants which were opened in 1996
and an increase in same store sales of 1.1%. Same store sales includes all
restaurants opened for the entire period under comparison but excludes the six
Shoex stores acquired on January 5, 1996. The following table presents the
number of restaurants in operation for each of the respective years:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------
<S> <C> <C> <C>
Beginning number of Company restaurants 55 44 38
Newly opened during the year 12 11 6
Restaurants acquired from Franchisee 6 -- --
Restaurants closed during the year (4) -- --
----------------------------
Ending number of Company restaurants 69 55 44
----------------------------
</TABLE>
Additionally, restaurant sales were positively affected by higher average unit
volumes of newly opened units. In 1996, the Company experienced an increase in
its average check due primarily to a menu price increase of 1.5% taken in the
fourth quarter of 1995. The Company introduced a new menu in September 1996
which increased the average check by approximately $0.20. This average check
increase was accomplished by redesigning and adding certain menu items. The
increase in restaurant sales was lessened as compared to 1995 due to fiscal
1996 being comprised of 52 weeks versus 53 weeks in 1995 and by the closing of
four units in the third quarter of 1996. Restaurant sales were significantly
impacted during January and February of 1996 due to unusually severe winter
storms in the Company's markets. The percentage of liquor sales to total sales
continued to decrease in 1996 to approximately 13.5% reflecting industry
trends.
The decrease in commissary sales in 1996 is the result of discontinuing sales
to Logan's Roadhouse Restaurants and to certain unaffiliated restaurants.
Following its initial public offering, Logan's ceased purchasing products from
the commissary in October 1995. The effect on net earnings from the decrease in
commissary sales was immaterial. The commissary's primary focus is on providing
consistent food quality and service to the O'Charley's restaurants while using
its purchasing expertise and volume to obtain the lowest possible price. The
commissary supplements its efforts with outside sales of certain products which
are primarily being manufactured or distributed to the O'Charley's stores.
Total revenue in 1995 increased $24.9 million, or 20.3%, due to an increase in
restaurant sales of $25.9 million, or 23.1%, partially offset by a decrease in
commissary sales of $1.1 million, or 10.1%. The increase in restaurant sales in
1995 was the result of opening 11 new restaurants, an increase in same store
sales of 3.2% and an additional week of operations in fiscal 1995. The increase
in same store sales was primarily the result of an increase in customer counts
partially offset by a slight decrease in the overall check average. In 1995,
the percentage of liquor sales to total sales decreased to 14.4% reflecting
industry trends. The decrease in commissary sales in 1995 is primarily the
result of discontinuing sales to certain unaffiliated restaurants. The decrease
in commissary sales was partially offset by increased sales to Logan's.
15
<PAGE> 16
RESTAURANT OPERATING MARGIN, defined as restaurant sales less cost of
restaurant sales, increased $4.3 million, or 17.2%, in 1996 over 1995. The
overall increase is attributable to the increase in restaurant sales and a
decrease in the percentage cost of food, beverage and supplies partially offset
by an increase in the percentage costs of payroll and benefits. Restaurant
operating margin, as a percentage of restaurant sales, was 18.1% in 1996 and in
1995.
COST OF FOOD, BEVERAGE AND SUPPLIES as a percentage of restaurant sales
decreased .8% in 1996 to 35.9%. The decrease is primarily related to an overall
decrease in food costs due to cost reductions in certain high volume food
commodities and to the increased purchasing power and operating efficiencies of
the Company's commissary. The Company experienced lower overall produce cost in
1996 due primarily to lower lettuce and potato costs. Additionally, the
Company's overall poultry and red meat costs were lower in 1996. Other overall
wholesale costs increased slightly in 1996 but did not have a significant
impact on food and beverage cost. The new menu introduced in the fourth quarter
of 1996 slightly lowered the overall food cost percentage.
The percentage cost of food, beverage and supplies decreased .2% in 1995 as
compared to 1994. The improvement is primarily attributable to the increased
purchasing power and operating efficiencies of the Company's commissary.
PAYROLL AND BENEFITS as a percentage of restaurant sales increased .8% in 1996
primarily due to higher hourly wage rates, increased bonuses and increases in
employee benefit costs including vacation expense and health insurance. In
addition, an increase in the federal minimum wage rate to $4.75 from $4.25 on
October 1, 1996, had a slight negative impact on labor cost. These increases
were partially offset by a reduction in workers compensation expense. As a
result of increased competition and the low unemployment rates in the markets
in which O'Charley's restaurants are located, the Company continued to increase
wages and benefits in order to attract and retain management and hourly
coworkers. This trend is expected to continue in 1997. Additionally, the
federal minimum wage rate will increase another $0.50 per hour on October 1,
1997, which will have a slight impact on payroll costs.
In 1995, payroll and benefits as a percentage of restaurant sales increased .1%
as compared to fiscal 1994. Actual base salaries, hourly wage rates and
employee benefit costs increased in 1995 which were partially offset by lower
workers compensation costs, slightly lower bonus expense and economies achieved
from overall higher sales volumes.
RESTAURANT OPERATING COSTS, which consist primarily of supervisory cost and
direct restaurant operating cost including utilities, rent, repairs,
maintenance, outside services and insurance, remained at 15.1% of restaurant
sales in 1996. The Company continued to achieve a lower restaurant operating
cost percentage from allocating certain supervisory and overhead costs over a
greater number of stores. Additionally, rent expense as a percentage of
restaurant sales was lower as the Company continued to purchase most of its
restaurant sites. The above-mentioned decreases were offset by increases in
certain operating costs including utilities, outside services and taxes.
In 1995, the percentage restaurant operating cost decreased .3% to 15.1%
primarily as a result of the economies achieved through the improvement in same
store sales and gains in overall restaurant sales volume. Additionally, the
Company achieved a lower restaurant operating cost percentage from allocating
certain supervisory and overhead costs over a greater number of stores.
COST OF COMMISSARY SALES as a percentage of commissary sales decreased .1% in
1996 as compared to 1995 and increased .5% in 1995 as compared to 1994. The
commissary's primary purpose is to service the O'Charley's restaurants. The
majority of its sales and related cost of sales are eliminated in the
consolidation of the Company's financial results. Therefore, any increased
efficiencies, as well as direct wholesale price increases and decreases are,
for the most part, reflected in the cost of food, beverage and supplies.
ADVERTISING, GENERAL AND ADMINISTRATIVE EXPENSES as a percentage of total
revenues increased .2% to 5.7% in 1996. The Company increased the amount of
advertising expenditures in 1996, particularly during the fourth quarter as the
new menu was introduced in conjunction with a new radio and television
advertising campaign. Additionally, the Company incurred higher salary and
related payroll costs due to the hiring of additional management personnel in
16
<PAGE> 17
the areas of information services, advertising and real estate. These increases
were partially offset by a decrease in executive officers' bonus compensation
which is based in part on a formula of increased profits. Certain other cost
percentages decreased as a result of spreading certain general and
administrative expenses over a greater volume of total revenues. The Company
currently expects to increase the amount of advertising expenditures in 1997 as
a percentage of total revenues.
In 1995, advertising, general and administrative expenses as a percentage of
total revenues decreased .8% from 1994. This decrease was primarily the result
of spreading certain general and administrative expenses over a greater volume
of total revenue, and from a decrease in the percentage cost of advertising
expenditures.
DEPRECIATION AND AMORTIZATION EXPENSE as a percentage of total revenues
increased .7% in 1996 and .4% in 1995. Preopening amortization expense has
increased each of the last two years due to the increased number of new stores
open for less than one year. In 1996, the Company incurred additional capital
expenditures for several major restaurant remodels, computer equipment and
technological upgrades which increased the amount of depreciation expense. Due
to the expected increase in new store openings in 1997, depreciation and
amortization expense, as a percentage of total revenues, is likely to increase.
ASSET REVALUATION in 1996 represents charges for assets impaired under
Statement of Financial Accounting Standard No. 121 (FAS 121). Losses at
certain restaurant units prompted an evaluation of net realizable value of
certain assets in accordance with FAS 121. The $5.1 million expense represents
the difference between fair value and net book value for certain identifiable
assets. See Note 3 of Notes to Financial Statements.
INTEREST EXPENSE, net increased $668,000, or 34.8%, in 1996 and increased
$630,000, or 48.8%, in 1995. The increased amount of interest expense is
directly related to the increase in borrowings under the Company's line of
credit facility and increased borrowings under capitalized lease obligations.
This increase was partially offset by an overall interest rate reduction in
1996 as compared to 1995. Interest expense in 1997 is expected to continue to
increase due to expected borrowings needed to fund new restaurant sites.
LITIGATION EXPENSE in 1996 and 1995 represents charges related to a class
action lawsuit alleging racial discrimination. The Company will continue to
pay legal fees and other costs related to the lawsuit in 1997 with no
anticipated additional charges to the statement of earnings as management
believes any additional payments are adequately reserved for on the Company's
balance sheet. See Liquidity and Capital Resources and Note 9 of Notes to
Financial Statements.
OTHER INCOME, NET decreased significantly in 1996 from 1995 due to the sale of
the Company's interest in Logan's Partnership in 1995. During the first three
quarters of 1995 and in fiscal 1994, the Company recorded its equity earnings
of Logan's and net rental income and guarantee fees related to its ownership of
the five Logan's restaurant sites in other income, net. In July 1995, Logan's
completed an initial public offering and the Company sold substantially all of
its interest in Logan's and recorded a gain of approximately $7.4 million.
Consequently, the Company no longer receives any income from Logan's except
that in the first quarter of 1996, the Company sold its remaining 7,000 shares
of Logan's common stock. Also, in the first quarter of 1996, the Company
expensed approximately $290,000 in acquisition costs associated with the Shoex
merger.
INCOME TAXES as a percentage of pretax earnings (loss) were (41.0%), 36.4% and
33.4% in 1996, 1995 and 1994, respectively. The income tax rate benefit in 1996
was higher than the expected rate of 36% due to the amount of the Federal
Insurance Contribution Act (FICA) tip credits in relation to a lower taxable
income. Taxable income was lower due to the tax deductibility of certain
litigation and FAS 121 expenses. The income tax rate in 1995 increased
primarily due to the reduction in targeted job tax credits (TJTC) and an
increase in the Company's federal income tax rate. The TJTC program was
discontinued at the beginning of 1995. Beginning in October 1996, the Work
Opportunity Tax Credit (WOTC) program was started which replaced the expired
TJTC program. The WOTC
17
<PAGE> 18
program is similar to the TJTC program in that companies receive federal tax
credits for hiring certain qualified disadvantaged workers. The Company is in
the process of implementing the new program, and the amount of tax credits and
the effect on the income tax rate in 1997 is unknown.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Company expended approximately $33.7 million in capital
expenditures for new stores and improvements to existing facilities.
Additionally, the Company capitalized approximately $2.2 million in preopening
costs and made $3.6 million in principal reductions in its long-term debt and
capitalized lease obligations. These cash outlays were funded primarily by
$12.9 million in cash generated from operations (prior to the additions to
preopening cost), borrowings of $18.5 million under the Company's unsecured
line of credit facility and borrowings under capitalized lease obligations of
$5.9 million.
On November 22, 1996, the Company entered into an amended and restated
revolving credit agreement which increased the amount of credit available under
its unsecured line of credit facility to $70 million from $30 million and
extended its term for an additional three years to November 30, 1999. The
revolving credit agreement requires monthly interest payments at a floating
rate based on the bank's prime rate plus or minus a certain percentage spread
or the LIBOR rate plus a certain percentage spread. The interest rate spread on
the restructured facility may vary and will be recalculated quarterly based on
certain financial ratios achieved by the Company. The new facility includes a
provision to extend the maturity annually by one year beginning on the first
anniversary of the facility. At December 29, 1996, $29 million was outstanding
under the facility compared with $10.5 million at December 31, 1995. The
increase in borrowings is primarily attributable to the expenditures incurred
for new stores and remodeling costs. At December 29, 1996, the Company was in
compliance with the financial and other covenants as outlined in the credit
agreement.
The Company opened 12 new restaurants in 1996. As of December 29, 1996, the
Company had six additional restaurants under construction of which five are
expected to open in the first quarter of 1997. For fiscal 1997, the Company
expects to open between 12 and 14 new company-owned restaurants. Management
estimates that the Company will spend approximately $34 million in capital
expenditures in 1997. Actual capital expenditures in 1997 may increase based on
a number of factors, including the timing of additional purchases of future
restaurant sites. The Company intends to continue to finance the furniture,
fixtures and equipment for its new stores with capitalized lease obligations.
The Company believes that available cash, cash generated from operations and
borrowings under its available credit facility and capital lease obligations
will be sufficient to finance its operations and expected growth through 1997.
As of the beginning of 1995, the Company owned 20% of Logan's Partnership (the
"Partnership") pursuant to the Logan's Partnership Agreement (the "Agreement").
Under the Agreement, the Company had the option to purchase the remaining 80%
interest in the Partnership at a 25% discount from its then appraised value.
The Agreement was amended and the Company agreed to forego its purchase option
in the event the Partnership consummated a "qualifying initial public offering"
(as defined in the amended Agreement), and at such time, the Company's
percentage interest in the Partnership would increase depending on the timing
of any such qualifying offering. During the third quarter of 1995, Logan's
Roadhouse, Inc. (LRI) was formed, and the Company's interest in the Partnership
was transferred to LRI in exchange for a 31.1% interest (as determined under
the amended Agreement) in LRI which occurred upon a qualifying initial public
offering. The LRI initial public offering became effective on July 26, 1995, at
which time the Company sold substantially all of its shares (628,995 shares)
and received net proceeds from the sale of approximately $7.9 million. In
connection with the offering, the Partnership purchased all the Logan's
restaurant properties owned by the Company at their appraised fair market value
of approximately $6.1 million. The total proceeds from the offering of $14.0
million netted cash of approximately $10.7 million after federal and state
taxes. As a result of the initial public offering, the Company earned and
reported a one-time gain in the third quarter of 1995 of $0.55 per share.
Proceeds from the offering were used to reduce long-term debt.
18
<PAGE> 19
On January 5, 1996, the shareholders of the Company approved an Agreement and
Plan of Merger, dated October 9, 1995, to acquire Shoex, Inc., a franchisee of
the Company which owned and operated six O'Charley's restaurants in Alabama.
The transaction is accounted for as a pooling-of-interests. The Company
exchanged 666,666 shares of Company stock valued at approximately $9.5 million.
The Company assumed approximately $1.9 million in net obligations of Shoex,
Inc. (defined as long-term debt, capitalized lease obligations and working
capital deficit). Under the terms of the agreement, O'Charley's acquired the
six restaurants and regained the rights to develop other O'Charley's
restaurants in Alabama, Mississippi and specific locations in Florida and
Georgia. The accompanying financial statements reflect the transactions and
balances of Shoex since the transaction was accounted for as a
pooling-of-interests. The Company recorded acquisition charges of approximately
$290,000 in the first quarter of 1996 as a result of this merger. The Company
now has one remaining franchisee which operates one franchised O'Charley's. The
Company has full territorial rights to develop its restaurants in all markets.
During the fourth quarter of 1996, a consent decree approving the definitive
settlement agreement of a two-year old class action lawsuit alleging racial
discrimination against the Company was approved by the U.S. District Court. The
class action lawsuit was originally filed on February 15, 1994, against the
Company and certain of its executive officers and directors alleging racially
discriminatory job selection, termination and work environment practices in
violation of federal law. The settlement agreement created a settlement pool of
$4.8 million for the benefit of present and past African-American employees of
O'Charley's (the "Class") whose claims arose on or after March 31, 1992 and
reserved $700,000 for claims administration and fees, and included $2.0 million
for the attorneys representing the Class. The total settlement amount of $7.5
million plus an additional $1.0 million for legal and other expenses related to
the settlement was recorded in the second quarter of 1996. In the fourth
quarter of 1996, a $2.3 million adjustment to the original $7.5 million accrual
was recorded as income as a result of the relatively low number of claims
submitted by members of the announced plaintiff class. After recalculating the
actual level of participation, the total settlement amount at December 29,
1996, is approximately $5.2 million of which approximately $750,000 will be
paid through the issuance of Company stock and the remainder of $4.5 million
will be paid in cash of which approximately $1.4 million was paid in 1996. The
additional cash outlay of approximately $3.1 million is expected to be paid in
the first quarter of 1997 and will be funded by additional borrowings under the
Company's $70 million credit facility. See Note 9 of Notes to Financial
Statements.
The Company implemented FAS 121 in 1996 and recorded a $5.1 million charge
relating to the impairment of certain assets. The write down of these assets
did not have an impact on cash. The Company closed four underperforming stores
in 1996 whereby the excess of fair market value over net realizable value for
these units were included in the FAS 121 write down. The effect of closing
these stores will have a positive effect on earnings and cash. Two of the four
restaurant sites and buildings were later sold. See Note 3 of Notes to
Financial Statements for additional details.
The Company does not believe that inflation has had a material effect on net
earnings during the past several years. The Company generally has been able to
increase menu prices or modify its operating procedures to substantially offset
increases in operating costs.
19
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS PAGE
- ----------------------------- ----
<S> <C>
Independent Auditors' Report 21
Balance Sheets of O'Charley's Inc. as of December 29, 1996
and December 31, 1995 22
Statements of Operations of O'Charley's Inc. for the years ended
December 29, 1996, December 31, 1995, and December 25, 1994 23
Statements of Shareholders' Equity of O'Charley's Inc. for the
years ended December 29, 1996, December 31, 1995,
and December 25, 1994 24
Statements of Cash Flows of O'Charley's Inc. for the years ended
December 29, 1996, December 31, 1995, and December 25, 1994 25
Notes to Financial Statements 26
</TABLE>
20
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
O'Charley's Inc.
Nashville, Tennessee:
We have audited the balance sheets of O'Charley's Inc. as of December 29, 1996,
and December 31, 1995, and the related statements of operations, shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 29, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statement referred to above present fairly, in
all material respects, the financial position of O'Charley's Inc. as of
December 29, 1996, and December 31, 1995, and the results of its operations and
its cash flows for each of the years in the three-year period ended December
29, 1996, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Nashville, Tennessee
February 6, 1997
21
<PAGE> 22
BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, December 31,
(Dollars in Thousands) 1996 1995
-----------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 1,616 $ 2,576
Accounts receivable, less allowance for doubtful
accounts of $58 in 1996 and $92 in 1995 1,546 1,244
Due from related parties -- 108
Inventories 4,505 3,780
Preopening costs 1,097 1,045
Deferred income taxes 2,334 839
Other current assets 1,357 971
----------------------------
Total current assets 12,455 10,563
PROPERTY AND EQUIPMENT, NET 103,281 81,512
OTHER ASSETS 1,423 1,276
$117,159 $93,351
-----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,022 $ 4,423
Accrued payroll and related expenses 3,365 3,435
Accrued expenses 9,162 4,650
Federal, state and local taxes 2,461 2,606
Current portion of long-term debt and capitalized leases 3,309 2,793
----------------------------
Total current liabilities 23,319 17,907
DEFERRED INCOME TAXES 1,295 2,395
LONG-TERM DEBT 29,822 11,990
CAPITALIZED LEASE OBLIGATIONS 11,797 9,272
SHAREHOLDERS' EQUITY:
Common stock--No par value; authorized, 50,000,000
shares; issued and outstanding, 7,854,369 in 1996 and
7,770,964 in 1995 29,592 28,991
Additional paid-in capital 652 967
Retained earnings 20,682 21,829
-----------------------------
Total shareholders' equity 50,926 51,787
-----------------------------
$117,159 $93,351
-----------------------------
</TABLE>
See notes to financial statements.
22
<PAGE> 23
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------
December 29, December 31, December 25,
(In Thousands, Except Per Share Data) 1996 1995 1994
----------------------------------------------
<S> <C> <C> <C>
REVENUES:
Restaurant sales $162,235 $138,098 $112,183
Commissary sales 2,264 9,429 10,483
Franchise revenue 31 30 31
------------------------------------------
164,530 147,557 122,697
COSTS AND EXPENSES:
Cost of restaurant sales:
Cost of food, beverage and supplies 58,184 50,687 41,356
Payroll and benefits 50,227 41,511 33,641
Restaurant operating costs 24,504 20,884 17,282
Cost of commissary sales 2,156 8,986 9,939
Advertising, general and administrative expenses 9,370 8,187 7,717
Depreciation and amortization 8,141 6,164 4,711
Asset revaluation 5,110 -- --
------------------------------------------
157,692 136,419 114,646
------------------------------------------
INCOME FROM OPERATIONS 6,838 11,138 8,051
OTHER (INCOME) EXPENSE:
Interest expense, net 2,588 1,920 1,290
Litigation 6,200 1,000 --
Other, net (6) (8,444) (704)
------------------------------------------
8,782 (5,524) 586
------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES (1,944) 16,662 7,465
INCOME TAX EXPENSE (BENEFIT) (797) 5,785 2,236
------------------------------------------
NET EARNINGS (LOSS) $(1,147) $10,877 $5,229
------------------------------------------
PRO FORMA DATA:
Earnings before income taxes as reported $16,662 $7,465
Pro forma income tax expense 6,071 2,492
------------------------
Pro forma net earnings $10,591 $4,973
------------------------
EARNINGS (LOSS) PER COMMON SHARE 1 $(0.14) $1.26 $0.61
------------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,390 8,438 8,137
------------------------------------------
</TABLE>
1 Earnings per common share for 1995 and 1994 represent pro forma amounts (see
Note 2 in Notes to Financial Statements).
See notes to financial statements.
23
<PAGE> 24
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
----------------- Paid-in Retained
(In Thousands) Shares Amount Capital Earnings Total
---------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 26, 1993, as originally reported 6,545 $25,656 $0 $7,300 $32,956
Adjustment to reflect the merger with
Shoex, Inc. on January 5, 1996 667 -- 248 -- 248
---------------------------------------------------------
Balance, December 26, 1993, as adjusted 7,212 25,656 248 7,300 33,204
1994 Net earnings -- -- 768 4,461 5,229
Cash distribution to Shoex, Inc. shareholders -- -- (440) -- (440)
Exercise of employee stock options including
tax benefits 468 2,629 -- -- 2,629
Shares issued under CHUX Ownership Plan 19 182 -- -- 182
---------------------------------------------------------
Balance, December 25, 1994 7,699 28,467 576 11,761 40,804
1995 Net earnings -- -- 809 10,068 10,877
Cash distribution to Shoex, Inc. shareholders -- -- (418) -- (418)
Exercise of employee stock options including
tax benefits 55 320 -- -- 320
Shares issued under CHUX Ownership Plan 17 204 -- -- 204
---------------------------------------------------------
Balance, December 31, 1995 7,771 28,991 967 21,829 51,787
1996 Net loss -- -- -- (1,147) (1,147)
Cash distribution to Shoex, Inc. shareholders -- -- (315) -- (315)
Exercise of employee stock options including
tax benefits 65 446 -- -- 446
Shares issued under CHUX Ownership Plan 18 155 -- -- 155
---------------------------------------------------------
Balance, December 29, 1996 7,854 $29,592 $652 $20,682 $50,926
---------------------------------------------------------
</TABLE>
See notes to financial statements.
24
<PAGE> 25
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------
December 29, December 31, December 25,
(In Thousands) 1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $(1,147) $10,877 $5,229
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 5,982 4,875 3,876
Amortization of preopening costs 2,159 1,289 835
Deferred income taxes (2,595) 936 (216)
Gain on sale of assets (157) (7,448) --
Asset revaluation 5,110 -- --
Changes in assets and liabilities:
Accounts receivable (302) (84) (464)
Due from related parties 108 281 (172)
Inventories (725) 699 (1,446)
Additions to preopening costs (2,211) (1,970) (794)
Other current assets (386) (120) (356)
Accounts payable 599 981 705
Accrued payroll and other accrued expenses 4,297 2,241 2,041
---------------------------------------
Net cash provided by operating activities 10,732 12,557 9,238
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (27,744) (20,439) (15,364)
Proceeds from sale of property and equipment 1,341 6,100 48
Proceeds from sale of unconsolidated partnership -- 7,894 --
Other, net (516) (85) (360)
---------------------------------------
Net cash used by investing activities (26,919) (6,530) (15,676)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 18,503 6,000 13,300
Payments on long-term debt and capitalized
lease obligations (3,563) (11,284) (8,943)
Distribution to shareholders of acquired entity (315) (418) (440)
Exercise of employee incentive stock options 602 524 2,811
---------------------------------------
Net cash provided (used) by financing activities 15,227 (5,178) 6,728
---------------------------------------
(Decrease) Increase in Cash (960) 849 290
Cash at Beginning of the Period 2,576 1,727 1,437
---------------------------------------
Cash at End of the Period $1,616 $2,576 $1,727
---------------------------------------
</TABLE>
See notes to financial statements
25
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
O'CHARLEY'S INC. (the "Company") owns, operates and franchises 70 (at December
29, 1996) full-service restaurant facilities in various cities in 10
southeastern and midwestern states under the trade name of "O'Charley's." The
financial statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated. The Company's fiscal year ends on the last Sunday in December.
While fiscal year 1995 was comprised of 53 weeks, fiscal years 1996 and 1994
were comprised of 52 weeks.
FINANCIAL STATEMENTS and these accompanying notes have been restated to reflect
the combined operations of the Company and Shoex, Inc., a merger accounted for
as a pooling-of-interests (see also Note 2).
INVENTORIES are valued at the lower of cost (first-in, first-out method) or
market and consist primarily of food, beverages and supplies.
PREOPENING COSTS represent costs incurred prior to a restaurant opening. These
costs are capitalized and amortized over a 12-month period commencing the date
the restaurant opens.
PROPERTY AND EQUIPMENT are stated at cost and depreciated on a straight-line
method over the following estimated useful lives: buildings and
improvements--30 years; furniture, fixtures and equipment--3 to 10 years.
Leasehold improvements are amortized over the lesser of the asset's estimated
useful life or the lease term. Equipment under capitalized leases is amortized
to its expected value to the Company at the end of the lease term. Property
leased to others includes land, buildings and improvements which are
depreciated over the Company's standard estimated useful lives for these
assets. Gains or losses are recognized upon the disposal of property and
equipment, and the asset and related accumulated depreciation and amortization
are removed from the accounts. Maintenance, repairs and betterments which do
not enhance the value of or increase the life of the assets are charged to
costs and expenses as incurred.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, which is included in
other assets, is amortized over 20 years using the straight-line method. The
Company periodically reviews the value of these assets to assess recoverability
and impairment, and impairment would be recognized in the statement of
operations if a permanent impairment was determined to have occurred.
ADVERTISING COSTS. The Company generally expenses advertising costs as incurred
except for certain creative and development production costs which are
amortized over its expected period of future benefits.
DEFERRED REVENUE, which is included in accrued expenses, includes deferred gift
certificate revenue. The Company records a deferred liability at the time
certificates are sold at an amount equal to the anticipated redemption value.
The deferred liability is reduced when gift certificates are redeemed; and
accordingly, at that time, the Company records restaurant sales.
INCOME TAXES are accounted for in accordance with the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax basis.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the statement
of earnings in the period that includes the enactment date.
STOCK OPTION PLAN. Prior to January 1, 1996, the Company accounted for its
stock option plans in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, the compensation expense would be recorded on
the date of grant only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the
26
<PAGE> 27
Company adopted Statement of Financial Accounting Standards No. 123(FAS 123),
Accounting for Stock-based Compensation, which permits entities to recognize as
expense over the vesting period the fair value of all stock-based awards on the
date of the grant. Alternatively, FAS 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net earnings
and pro forma earnings per share disclosures for employee stock option grants
made in 1995 and future years as if the fair-value-based method defined in FAS
123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of FAS 123.
FRANCHISE REVENUES. Initial franchise fees are recognized when all material
services have been substantially performed by the Company and the restaurant
has opened for business. Franchise royalties, which are based on a percentage
of monthly sales, are recognized as income on the accrual basis. Costs
associated with franchise operations are expensed as incurred.
PER SHARE DATA has been computed on the basis of the weighted average number of
shares outstanding, including common stock equivalents, which consist of stock
options. In determining the number of dilutive common stock equivalents, the
Company includes average common shares attributable to dilutive stock options
using the treasury stock method. Fully diluted earnings per share is not
presented since it approximates earnings per common share.
USE OF ESTIMATES. Management of the Company has made certain estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company has adopted Statement of
Financial Accounting Standards No. 107, Disclosures about Fair Value of
Financial Instruments (FAS 107), which requires disclosure of the fair values
of most on-and-off balance sheet financial instruments for which it is
practicable to estimate that value. The scope of FAS 107 excludes certain
financial instruments such as trade receivables and payables when the carrying
value approximates the fair value, employee benefit obligations, lease
contracts, and all nonfinancial instruments such as land, buildings, and
equipment. The fair values of the financial instruments are estimates based
upon current market conditions and quoted market prices for the same or similar
instruments as of December 29, 1996. Book value approximates fair value for
substantially all of the Company's assets and liabilities which fall under the
scope of FAS 107.
IMPAIRMENT OF LONG-LIVED ASSETS. The Company has adopted Statement of Financial
Accounting Standards No. 121 (FAS 121), Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This statement
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. All assets that
management determined to be permanently impaired have been written down to fair
value.
CERTAIN RECLASSIFICATIONS have been made to the accompanying financial
statements for the previous fiscal years to conform to the 1996 presentation.
2. BUSINESS ACQUISITION
On January 5, 1996, the shareholders of the Company approved an Agreement and
Plan of Merger, dated October 9, 1995, to merge with Shoex, Inc. (Shoex), a
franchisee of the Company which owned and operated six O'Charley's restaurants
in Alabama. The transaction is accounted for as a pooling-of-interests. The
Company exchanged 666,666 shares of Company stock valued at approximately $9.5
million. The Company assumed approximately $1.9 million in net obligations of
Shoex, Inc. (defined as long-term debt, capitalized lease obligations and
working capital deficit). As a result of the merger, O'Charley's owns the six
restaurants and the rights to develop other O'Charley's restaurants in Alabama,
Mississippi and specific locations in Florida and Georgia. All comparative
financial statements presented reflect the combined results of the Company and
Shoex for all periods presented.
27
<PAGE> 28
Revenues, net earnings and changes in shareholders' equity of the separate
companies for the periods preceding the acquisition were as follows:
<TABLE>
<CAPTION>
Changes in
Net Shareholders'
(In Thousands) Revenues Earnings Equity
------------------------------------------
<S> <C> <C> <C>
Fiscal year ended December 31, 1995:
O'Charley's, as previously reported $136,605 $10,068 --
Shoex 14,827 809 $(440)
Pro forma adjustments (3,875) (286) --
-----------------------------------------
Combined $147,557 $10,591 $(440)
-----------------------------------------
Fiscal year ended December 25, 1994
O'Charley's, as previously reported $112,128 $4,461 --
Shoex 13,986 768 $(418)
Pro forma adjustments (3,417) (256) --
-----------------------------------------
Combined $122,697 $4,973 $(418)
-----------------------------------------
</TABLE>
3. ASSET REVALUATION
Operating losses at certain restaurant units prompted an evaluation of net
realizable value of certain assets in accordance with FAS 121. Accordingly,
the Company recorded a $5,110,000 charge to earnings for assets impaired under
FAS 121. This amount represents the difference between fair value and net book
value for certain identifiable assets consisting primarily of buildings,
improvements and equipment. The fair value for these assets was determined
using several evaluation techniques including the present value of estimated
expected future cash flows, quoted market prices and prices for similar assets.
The $5,110,000 charge is comprised of the following impaired restaurant assets:
(1)Assets to be disposed of: $536,000 for two restaurant units which were
closed in the third quarter of 1996 and were later sold in 1996 and $1,967,000
for two units which were closed in the third quarter of 1996 and are expected
to be disposed of in 1997 having a carrying value on December 29, 1996 of
$1,747,000; (2)Assets to be held: $445,000 primarily for restaurant computer
equipment and $2,162,000 for five restaurant units expected to remain open or
be relocated. The 1996 results of operations for the four units closed include
revenues of $4,293,000 and costs and expenses of $4,865,000.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 29, 1996, and December 31, 1995, consist of
the following:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995
------------------------------
<S> <C> <C>
Land and improvements $26,500 $20,524
Buildings and improvements 36,680 26,582
Furniture, fixtures and equipment 26,365 20,195
Leasehold improvements 20,154 18,332
Equipment under capitalized leases 19,066 15,990
Property leased to others 1,032 951
------------------------------
129,797 102,574
Less accumulated depreciation and amortization (26,516) (21,062)
------------------------------
$103,281 $81,512
------------------------------
</TABLE>
28
<PAGE> 29
5. OTHER ASSETS
Other assets at December 29, 1996, and December 31, 1995, consist of the
following:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995
---------------------------
<S> <C> <C>
Excess of cost over fair value of net assets acquired,
net of accumulated amortization of $83 in 1996
and $144 in 1995 $239 $490
Prepaid expenses 647 469
Trade notes receivable 537 317
---------------------------
$1,423 $1,276
---------------------------
</TABLE>
6. ACCRUED EXPENSES
Accrued expenses at December 29, 1996, and December 31, 1995, include the
following:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995
---------------------------
<S> <C> <C>
Deferred revenue-gift certificates $1,151 $807
Workers' compensation expenses 1,325 1,363
Accrued litigation 4,627 605
Other accrued expenses 2,059 1,875
---------------------------
$9,162 $4,650
---------------------------
</TABLE>
7. LONG-TERM DEBT
Long-term debt at December 29, 1996, and December 31, 1995, consists of the
following:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995
----------------------------
<S> <C> <C>
$70 million revolving line of credit $29,000 $10,500
Secured mortgage notes payable 251 845
Installment notes payable 722 972
----------------------------
29,973 12,317
Less current maturities (151) (327)
----------------------------
$29,822 $11,990
----------------------------
</TABLE>
On November 22, 1996, the Company entered into an amended and restated
revolving credit agreement (the "Credit Agreement") which increased its
unsecured line of credit facility to $70 million from $30 million. The Credit
Agreement requires monthly interest payments at a floating rate based on the
bank's prime rate plus or minus a certain percentage spread or the LIBOR rate
plus a certain percentage spread. The interest rate spread on the restructured
facility is based on certain financial ratios achieved by the Company and is
recomputed quarterly. At December 29, 1996, the $29,000,000 outstanding balance
carried interest rates from 6.84% (LIBOR rate plus 1.25%) to 7.75% (prime minus
.5%). The new credit facility includes a provision to extend its November 30,
1999, maturity annually by one year beginning on the first anniversary of the
facility. The Credit Agreement also requires the Company to meet certain
financial and other covenants. During fiscal 1996, the Company was in
compliance with all covenants.
29
<PAGE> 30
The secured mortgage note payable at December 29, 1996, bears interest at 10.6%
and is payable in monthly installments, including interest, through June 2010.
This debt is collateralized by land and buildings having a depreciated cost of
approximately $979,000 at December 29, 1996.
The installment notes payable at December 29, 1996, bear interest at 9.1% and
are payable in monthly installments, including interest, through October 2002.
Debt of $624,000 is secured by an airplane with a depreciated cost of
approximately $605,000 at December 29, 1996. The remaining debt of $98,000,
issued in connection with the 1993 merger of Burbet Foods, Inc. is unsecured.
The annual maturities of long-term debt as of December 29, 1996, are:
$151,000-1997; $143,000-1998; $29,113,000-1999; $124,000-2000; $135,000-2001;
and $307,000 thereafter.
8. LEASE COMMITMENTS
The Company has various leases for certain restaurant land and buildings under
operating lease agreements. Under these leases, the Company pays taxes,
insurance and maintenance costs in addition to the lease payments. Certain
leases also provide for additional contingent rentals based on a percentage of
sales in excess of a minimum rent. The Company leases certain equipment and
fixtures under capital lease agreements having lease terms from five to seven
years. The Company expects to exercise its options under these agreements to
purchase the equipment in accordance with the provisions of the lease
agreements.
As of December 29, 1996, approximately $19,066,000 cost less $4,014,000
accumulated amortization of the Company's property and equipment is under
capitalized lease obligations. Interest rates on capitalized lease obligations
range from 6.6% to 10.5%. Future minimum lease payments at December 29, 1996,
are as follows:
<TABLE>
<CAPTION>
Capitalized
Equipment Operating
(In Thousands) Leases Leases
-------------------------------
<S> <C> <C>
1997 $ 4,188 $ 3,746
1998 4,203 3,749
1999 3,523 3,714
2000 3,508 3,523
2001 2,049 3,474
Thereafter 300 31,267
----------------------------
Total minimum rentals 17,771 $49,473
-------
Less amount representing interest (2,816)
-------
Net minimum lease payments 14,955
Less current maturities (3,158)
-------
Capitalized lease obligations $11,797
-------
</TABLE>
Rent expense for the fiscal years ending in December for operating leases is as
follows:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Minimum rentals $3,100 $3,525 $3,105
Contingent rentals 417 428 314
----------------------------------------
$3,517 $3,953 $3,419
----------------------------------------
</TABLE>
30
<PAGE> 31
9. COMMITMENTS AND CONTINGENCIES
On February 15, 1994, a class action suit was filed in the United States
Federal District Court against the Company and certain of the Company's
executive officers and directors. The suit alleged racially discriminatory
practices by the defendant parties in violation of federal law. During the
fourth quarter of 1996, the Court approved a consent decree which approved a
definitive settlement agreement. The settlement agreement provided for a
settlement pool of $4.8 million for the benefit of present and past
African-American employees of O'Charley's (the "Class") whose claims arose on
or after March 31, 1992, reserved $700,000 for claims administration and fees,
and included $2.0 million for the attorneys representing the Class. Based on
the relatively low number of class members electing to participate in the
settlement, the original $7.5 million total settlement amount has been reduced
to approximately $5.2 million. As of December 29, 1996, the Company has paid
approximately $1.4 million towards the total settlement. Estimated amounts to
be paid in 1997 include approximately $3.1 million in cash and approximately
$750,000 in Company stock. The Company believes there are adequate reserves
recorded for the anticipated future payments of the lawsuit settlement.
The Company is involved in other legal actions incidental to its business. In
the opinion of management, the ultimate disposition of these matters will not
have a material adverse effect on the Company's operating results or financial
position.
10. INCOME TAXES
The total income tax expense (benefit) for the fiscal years ending in December
is allocated as follows:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
Earnings $(797) $5,785 $2,236
Shareholders' equity, tax benefit derived from
non-statutory stock options exercised (200) (77) (1,100)
--------------------------------------------
$ (997) $5,708 $1,136
--------------------------------------------
</TABLE>
Effective January 5, 1996, the Company merged with Shoex, Inc. which is
accounted for as a pooling-of-interests. Shoex, Inc. was an S Corporation
whereby its income was taxable at the shareholder level. Had Shoex been subject
to income taxes, additional income tax expense of $286,000 and $256,000 in 1995
and 1994, respectively, would have been recorded. The pro forma data presented
on the face of the statements of operations reflect these amounts.
Income tax expense (benefit) related to earnings for the fiscal years ending in
December consists of:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Current $1,798 $4,849 $2,452
Deferred (2,595) 936 (216)
----------------------------------------
$ (797) $5,785 $2,236
----------------------------------------
</TABLE>
31
<PAGE> 32
Income tax expense (benefit) attributable to earnings differs from the amounts
computed by applying the applicable U.S. federal income tax rate to pretax
earnings from operations as a result of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------
<S> <C> <C> <C>
Federal statutory rate (34.0%) 35.0% 34.0%
Increase (decrease) in taxes due to:
State income taxes, net of federal tax benefit (1.8) 3.9 3.9
Utilization of tax credits (21.3) (2.8) (5.1)
Adjustment to deferred tax assets and liabilities for
change in tax status of Shoex 12.1 -- --
Earnings attributable to S Corporation -- (1.7) (3.4)
Other (primarily goodwill amortization) 4.0 .3 .6
----------------------------------------
(41.0%) 34.7% 30.0%
----------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at each of the
respective fiscal year ends are as follows:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995
-----------------------
<S> <C> <C>
Deferred tax assets:
Accrued expenses, principally due to accruals for workers'
compensation, employee health and retirement benefits $1,161 $833
Accrued litigation 1,827 182
Other 27 141
-----------------------
Total gross deferred tax assets 3,015 1,156
Deferred tax liabilities:
Property and equipment, principally due to differences in
depreciation and capitalized lease amortization 1,468 2,203
Preopening cost, due to cost in excess of amortization 428 403
Other 80 106
------------------------
Total gross deferred tax liabilities 1,976 2,712
------------------------
Net deferred tax liability (asset) $(1,039) $1,556
------------------------
</TABLE>
The net deferred tax liability (asset) at December 29, 1996, and December 31,
1995, are recorded as follows:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995
------------------------
<S> <C> <C>
Deferred income taxes, long-term liability $1,295 $2,395
Deferred income taxes, current asset (2,334) (839)
------------------------
$(1,039) $1,556
------------------------
</TABLE>
Statement 109 requires an evaluation of the deferred tax asset components and
recognition of a valuation allowance if it is determined that more likely than
not all or some portion of the deferred asset will not be realized. Based on
the Company's history of annual increases in taxable income and management's
projections of future taxable income, the Company estimates, it is more likely
than not all of the deferred assets will be realized; thus, no valuation
allowance is recorded.
32
<PAGE> 33
11. SHAREHOLDERS' EQUITY
The Company's charter authorizes 100,000 shares of preferred stock of which the
Board of Directors may, without shareholder approval, issue with voting or
conversion rights upon the occurrence of certain events. At December 29, 1996,
no preferred shares had been issued.
12. STOCK OPTION AND PURCHASE PLANS
The Company has four incentive stock option plans: the 1985 Stock Option Plan,
the 1989 Consultant Stock Program, the 1990 Employee Stock Plan and the 1991
Stock Option Plan for Outside Directors. Options under these plans include
both statutory and nonstatutory stock options and are issued to officers, key
employees, nonemployee directors and consultants of the Company. The Company
has reserved 3,737,500 shares of common stock for these plans under which the
options are granted at 100% of the fair market value of common stock on the
date of the grant, expire 10 years from the date of the grant and are
exercisable at various times as previously determined by the Board of
Directors. The Company accounts for these plans under the direction of APB
Opinion No. 25, and accordingly, no compensation cost has been recognized.
If compensation cost for these plans had been determined consistent with FAS
Statement No. 123, the Company's net earnings and earnings per share would have
been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1996 1995
-----------------------------
<S> <C> <C> <C>
Net Earnings (Loss): As reported (pro forma in 1995) $(1,147,000) $10,590,000
Pro forma, as adjusted under FAS 123 (1,493,000) 10,303,000
Earnings (Loss) per
Common Share: As reported (pro forma in 1995) $(0.14) $1.26
Pro forma, as adjusted under FAS 123 (0.18) 1.22
</TABLE>
Because the Statement 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
A summary of stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Number of Weighted-Average
Shares Exercise Price
------------------------------------
<S> <C> <C>
Balance at December 25, 1994 1,618,225 $7.16
Granted 457,475 11.75
Exercised (69,741) 4.91
Forfeited (54,790) 8.97
-------------------------------
Balance at December 31, 1995 1,951,169 8.22
Granted 195,250 12.36
Exercised (65,670) 3.91
Forfeited (241,140) 10.15
-------------------------------
Balance at December 29, 1996 1,839,609 $8.53
-------------------------------
</TABLE>
33
<PAGE> 34
The following table summarizes information about stock options outstanding at
December 29, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------------------------------
Number Weighted-Avg. Number
Outstanding Remaining Weighted-Avg. Exercisable Weighted-Avg.
Exercise Price at 12/29/96 Contractual Life Exercise Price at 12/29/96 Exercise Price
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2.00 to 03.50 188,851 3.3 years $2.81 165,301 $2.85
$4.17 to 06.83 221,900 5.4 5.19 167,825 5.09
$8.41 to 11.67 1,180,703 7.2 9.25 453,767 8.89
$12.00 to 14.37 248,155 8.9 12.49 40,587 12.71
- ----------------------------------------------------------------------------------------------------------
$2.00 to 14.37 1,839,609 6.8 $8.53 827,480 $7.10
- ----------------------------------------------------------------------------------------------------------
</TABLE>
At December 29, 1996, and December 31, 1995, the number of options exercisable
was 827,480 and 781,000, respectively, and the weighted-average exercise price
of those options was $7.10 and $6.37, respectively.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: risk-free interest rate of 6.7%;
expected life of 7.4 years; expected volatility of 41.6%.
The Company has established the CHUX Ownership Plan for the purpose of
providing an opportunity for eligible employees of the Company to become
shareholders in O'Charley's. The Company has reserved 450,000 common shares
for this plan. The CHUX Ownership Plan is intended to be an employee stock
purchase plan which qualifies for favorable federal income tax treatment under
Section 423 of the Internal Revenue Code. The Plan allows participants to
purchase common stock at 85% of fair market value, which is issued at the end
of each Plan year. Contributions of up to 15% of base salary are made by each
participant through payroll deductions. The Plan year begins October 1. As of
December 29, 1996, 54,000 shares have been issued under this Plan.
13. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) salary reduction and profit-sharing plan called the
CHUX Savings Plan. Under the Plan, employees, including Shoex employees, can
make contributions up to 15% of their annual compensation. The Company
contributes annually to the Plan an amount equal to 40% of employee
contributions, subject to certain limitations. Additional contributions are
made at the discretion of the Board of Directors. Company contributions vest at
the rate of 20% each year beginning after the employee's initial year of
employment. Company contributions were approximately $84,000 in 1996, $77,000
in 1995 and $65,000 in 1994.
14. RELATED-PARTY TRANSACTIONS
As discussed in the Business Acquisition footnote, the Company merged with
Shoex, Inc. on January 5, 1996. An officer and a director of the Company each
had an interest in Shoex and, accordingly, received their respective pro rata
share of the Company's Common Stock which was issued to the shareholders of
Shoex. Previous to the merger, the Company's commissary sold food products and
supplies to Shoex, and the Company also received a fee for providing accounting
and administrative services. The merger with Shoex is accounted for as a
pooling-of-interests; therefore, all related-party transactions previously
reported have been eliminated through the restatement of the financial
statements.
An officer of the Company, a principal shareholder, and certain directors own a
certain percentage of partnerships which have lease agreements with the Company
for eight of its restaurant facilities. The leases expire at various times
through 2012, with options to renew for a term of 10 years. The lease
agreements grant the Company an option to purchase the properties at fair
market value at any time during the term of the lease.
34
<PAGE> 35
On July 26, 1995, the Company sold substantially all of its interest in Logan's
Partnership (Logan's) upon Logan's initial public offering. An officer and a
director of the Company, at that time, had an ownership interest in Logan's.
The Company received $7.9 million net proceeds from the sale of its Logan's
shares. In addition, Logan's Partnership purchased all five of the Logan's
restaurant properties owned by the Company at their appraised fair market value
of approximately $6.1 million. As a result of the transactions, the Company
reported a one-time gain (included in other income, net) of approximately $7.4
million in 1995 or $0.55 per share. During the time of the Company's ownership
in Logan's, the Company owned certain land, building and improvements and
leased certain property which was leased or subleased to Logan's Partnership.
Each of the leases was treated as an operating lease and provided for
additional contingent rentals based on a percentage of sales in excess of
minimum rent. Additionally, the Company guaranteed a line of credit and
equipment leases on behalf of Logan's Partnership, sold products from the
Company's commissary and provided accounting and administrative services to the
Partnership for a fee. Previously, the Company's commissary sold products to
other restaurant entities controlled by a director of the Company and certain
of its officers.
In the opinion of management and the Company's Board of Directors, all
related-party transactions, including terms and amounts, are comparable to
those which could be obtained from unaffiliated third parties.
The aforementioned related-party transactions are reflected in the financial
statements as follows:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
------------------------------------
<S> <C> <C> <C>
BALANCE SHEETS
Current Assets:
Due from related parties -- $108 $388
Property and equipment, net (property leased to others) -- -- 4,630
Other Assets:
Investment in unconsolidated partnership -- -- 283
STATEMENTS OF EARNINGS
Revenues:
Commissary sales -- 6,463 4,075
Costs and Expenses:
Restaurant operating costs:
Rent expense 843 843 859
Contingent rentals 293 256 219
Depreciation and amortization (property leased to others) -- 69 57
Other (Income) Expense:
Interest income (guarantee fee) -- (54) (15)
Other, net:
Accounting and administrative fees -- (56) (68)
Net rental income -- (534) (396)
Equity earnings in Partnership -- (273) (328)
Gain on sale of assets -- (7,448) --
STATEMENTS OF CASH FLOWS
Cash Flows From Investing Activities:
Additions to property and equipment -- -- (3,285)
Proceeds from sale of property and equipment -- 6,100 --
Proceeds from sale of unconsolidated partnership -- 7,894 --
</TABLE>
35
<PAGE> 36
15. STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information is as follows:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
--------------------------------------
<S> <C> <C> <C>
Cash paid for interest $3,074 $2,158 $1,300
Additions to capitalized lease obligations 5,922 6,242 2,938
Income taxes paid 1,979 4,508 1,404
</TABLE>
16. SELECTED QUARTERLY DATA (UNAUDITED)
Summarized quarterly financial data for 1996 and 1995 is shown below:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In Thousands, Except Per Share Data) (16 weeks) (12 weeks) (12 weeks) (12 weeks)
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 29, 1996
Net revenues $47,079 $38,485 $39,295 $39,671
Income (loss) from operations 3,258 (2,425) 2,852 3,153
Net earnings (loss) 1,569 (7,483) 1,497 3,270
Earnings (loss) per common share .19 (.89) .18 .39
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In Thousands, Except Per Share Data) (16 weeks) (12 weeks) (12 weeks) (13 weeks)
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995 1
Net revenues $41,858 $33,676 $34,091 $37,932
Income from operations 3,120 2,520 2,449 3,049
Net earnings 1,242 1,493 6,050 1,805
Earnings per common share .15 .18 .72 .21
</TABLE>
1 The income tax expense and net earnings for 1995 represent pro forma amounts
(see Notes 2 and 10).
36
<PAGE> 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Proxy Statement issued in connection with the shareholders meeting
to be held on May 8, 1997, to be filed with the Securities and Exchange
Commission pursuant to Rule 14a-6(b), contains under the caption "Election of
Directors" information required by Item 10 of Form 10-K as to directors of the
Company and is incorporated herein by reference. Pursuant to General
Instruction G(3), certain information concerning executive officers of the
Company is included in Part I of this Form 10-K, under the caption "Executive
Officers."
ITEM 11. EXECUTIVE COMPENSATION.
The Proxy Statement issued in connection with the shareholders meeting
to be held on May 8, 1997, to be filed with the Securities and Exchange
Commission pursuant to Rule 14a-6(b), contains under the caption "Executive
Compensation" information required by Item 11 of Form 10-K and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The Proxy Statement issued in connection with the shareholders meeting
to be held on May 8, 1997, to be filed with the Securities and Exchange
Commission pursuant to Rule 14a-6(b), contains under the captions "Security
Ownership of Certain Beneficial Owners" and "Election of Directors" information
required by Item 12 of Form 10-K and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Proxy Statement issued in connection with the shareholders meeting
to be held on May 8, 1997, to be filed with the Securities and Exchange
Commission pursuant to Rule 14a-6(b), contains under the caption "Certain
Transactions" information required by Item 13 of Form 10-K and is incorporated
herein by reference.
37
<PAGE> 38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) 1. Financial Statements: See Item 8.
2. Financial Statement Schedules
Not Applicable
3. Management Contracts and Compensatory Plans and Arrangements
- O'Charley's Inc. 1985 Stock Option Plan (included as
Exhibit 10.11)
- O'Charley's Inc. 1990 Employee Stock Plan (included
as Exhibit 10.12)
- First Amendment to O'Charley's Inc. 1990 Employee
Stock Plan (included as Exhibit 10.13)
- Second Amendment to O'Charley's Inc. 1990 Employee
Stock Plan (included as Exhibit 10.14)
- O'Charley's 1991 Stock Option Plan for Outside
Directors, as amended (included as Exhibit 10.15)
- CHUX Ownership Plan (included as Exhibit 10.16)
- Severance Agreement and General Release, dated
September 9, 1996, by and between O'Charley's Inc.
and Charles F. McWhorter (included as Exhibit 10.20)
- Severance Compensation Agreement, dated September 16,
1996, by and between O'Charley's Inc. and Gregory L.
Burns (included as Exhibit 10.21)
4. Exhibits:
Exhibit
Number Description
- ------- -----------
2 ---- Amended and Restated Agreement and Plan of Merger
dated as of November 16, 1995 by and between
O'Charley's Inc. and Shoex, Inc. (incorporated by
reference to Exhibit 2 of the Company's Current
Report on Form 8-K dated January 5, 1996)
3.1 ---- Restated Charter of the Company (incorporated by
reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-1, Registration No.
33-35170)
3.2 ---- Amended and Restated Bylaws of the Company
(incorporated by reference to Exhibit 3.2 of the
Company's Annual Report on Form 10-K for the year
ended December 30, 1990)
4.1 ---- See Exhibits 3.1 and 3.2 for provisions of the
Restated Charter and the Amended and Restated Bylaws
defining the rights of holders of the Common Stock
of the Company.
4.2 ---- Form of Stock Certificate for the Common Stock of the
Company (incorporated by reference to Exhibit 4.1
of the Company's Registration Statement on Form S-1,
Registration No. 33-35170).
10.1 ---- Lease dated May 1, 1987 between CWF Associates and
CWF Corporation and all amendments thereto for 2895
Richmond Road, Lexington, KY 40509 (incorporated by
38
<PAGE> 39
reference to Exhibit 10.1 of the Company's
Registration Statement on Form S-1, Registration No.
33-35170)
10.2 ---- Lease Agreement and Option to Purchase dated May 1,
1987 between CWF Associates and O'Charley's Inc. for
equipment located at 2895 Richmond Road, Lexington,
KY (incorporated by reference to Exhibit 10.2 of the
Company's Registration Statement on Form S-1,
Registration No. 33-35170)
10.3 ---- Lease dated August 15, 1987 between CWF Associates
and O'Charley's Inc. and all amendments thereto for
improvements located at 17 White Bridge Road,
Nashville, TN (incorporated by reference to Exhibit
10.3 of the Company's Registration Statement on Form
S-1, Registration No. 33-35170)
10.4 ---- Lease Agreement and Option to Purchase dated August
15, 1987 between CWF Associates and O'Charley's Inc.
for equipment located at 17 White Bridge Road,
Nashville, TN (incorporated by reference to Exhibit
10.4 of the Company's Registration Statement on Form
S-1, Registration No. 33-35170)
10.5 ---- Lease dated October 25, 1985 between Two Mile
Partners and CWF Corporation and all amendments
thereto for 912 Two Mile Parkway, Goodlettsville, TN
(incorporated by reference to Exhibit 10.5 of the
Company's Registration Statement on Form S-1,
Registration No. 33-35170)
10.6 ---- Lease dated December 30, 1985 between Two Mile
Partners and CWF Corporation for 644 N. Riverside
Dr., Clarksville, TN (incorporated by reference to
Exhibit 10.6 of the Company's Registration Statement
on Form S-1, Registration No. 33-35170)
10.7 ---- Lease dated September 9, 1985 between Two Mile
Partners and CWF Corporation for 1720 U.S. 31-W
Bypass Building, Bowling Green, KY (incorporated by
reference to Exhibit 10.7 of the Company's
Registration Statement on Form S-1, Registration No.
33-35170)
10.8 ---- Lease dated December 26, 1986 between Two Mile
Partners and CWF Corporation for 1006 Memorial Blvd.,
Murfreesboro, TN (incorporated by reference to
Exhibit 10.8 of the Company's Registration Statement
on Form S-1, Registration No. 33-35170)
10.9 ---- Area Development Agreement dated July 9, 1987,
between O'Charley's Inc. and O'Charley's of the
Carolinas, Inc. (incorporated by reference to Exhibit
10.18 of the Company's Registration Statement on Form
S-1, Registration No. 33-35170)
10.10 ---- License Agreement dated July 9, 1987, between
O'Charley's Inc. and O'Charley's of the Carolinas,
Inc. (incorporated by reference to Exhibit 10.19 of
the Company's Registration Statement on Form S-1,
Registration No. 33-35170)
10.11 ---- O'Charley's Inc. 1985 Stock Option Plan (incorporated
by reference to Exhibit 10.27 of the Company's
Registration Statement on Form S-1, Registration No.
33-35170)
39
<PAGE> 40
10.12 ---- O'Charley's Inc. 1990 Employee Stock Plan
(incorporated by reference to Exhibit 10.26 of the
Company's Registration Statement on Form S-1,
Registration No. 33-35170)
10.13 ---- First Amendment to O'Charley's Inc. 1990 Employee
Stock Plan (incorporated by reference to Exhibit
10.24 of the Company's Annual Report on Form 10-K for
the year ended December 29, 1991)
10.14 ---- Second Amendment to O'Charley's Inc. 1990 Employee
Stock Plan (incorporated by reference to Exhibit
10.23 of the Company's Annual Report on Form 10-K for
the year ended December 26, 1993)
10.15 ---- O'Charley's Inc. 1991 Stock Option Plan for Outside
Directors, As Amended (incorporated by reference to
Exhibit 10.25 of the Company's Annual Report on Form
10-K for the year ended December 27, 1992)
10.16 ---- CHUX Ownership Plan (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the
quarter ended October 3, 1993)
10.17 ---- Lease Agreement dated as of December 30, 1990 between
Two Mile Partners, II and O'Charley's Inc.
(incorporated by reference to Exhibit 10.26 of the
Company's Annual Report on Form 10-K for the year
ended December 30, 1990)
10.18 ---- Amended and Restated Revolving Credit Agreement,
dated as of November 22, 1996, among O'Charley's Inc.
and Mercantile Bank of St. Louis National
Association, Bank One, Dayton, N.A., NationsBank of
Tennessee, N.A., as Co-Agent, and First American
National Bank, as Agent
10.19 ---- Registration Rights Agreement dated as of January 5,
1996 by and among O'Charley's Inc., R. Wayne
Browning, Gregory L. Burns, Mike Martin and David K.
Wachtel, Jr. (incorporated by reference to Exhibit
10.36 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1995)
10.20 ---- Severance Agreement and General Release, dated
September 9, 1996, by and between O'Charley's Inc.
and Charles F. McWhorter
10.21 ---- Severance Compensation Agreement, dated September 16,
1996, by and between O'Charley's Inc. and Gregory L.
Burns
11 ---- Statement re computation of earnings per common share
23.1 ---- Consent of KPMG Peat Marwick, LLP
27 ---- Financial Data Schedule (for SEC use only)
(b) During the quarter ended December 29, 1996, the Company filed no reports on
Form 8-K.
40
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Nashville,
State of Tennessee.
O'CHARLEY'S INC.
Date: March 28, 1997 By: /s/ Gregory L. Burns
---------------------------------
Gregory L. Burns
President, Chief Executive
Officer, and Chairman of
the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------------- ----------------------------------- ---------------
<S> <C> <C>
/s/ Gregory L. Burns President, Chief Executive Officer, March 28, 1997
- ------------------------------------- and Chairman of the Board
(Gregory L. Burns)
/s/ A. Chad Fitzhugh Chief Financial Officer, Secretary, March 28, 1997
- ------------------------------------- and Treasurer
(A. Chad Fitzhugh)
/s/ John W. Stokes, Jr. Director March 28, 1997
- -------------------------------------
(John W. Stokes, Jr.)
/s/ Richard Reiss, Jr. Director March 28, 1997
- -------------------------------------
(Richard Reiss, Jr.)
/s/ G. Nicholas Spiva Director March 28, 1997
- -------------------------------------
(G. Nicholas Spiva)
/s/ H. Steve Tidwell Director March 28, 1997
- -------------------------------------
(H. Steve Tidwell)
/s/ C. Warren Neel Director March 28, 1997
- -------------------------------------
(C. Warren Neel)
/s/ Samuel H. Howard Director March 28, 1997
- -------------------------------------
(Samuel H. Howard)
/s/ Shirley A. Zeitlin Director March 28, 1997
- -------------------------------------
(Shirley A. Zeitlin)
</TABLE>
41
<PAGE> 42
Index to Exhibits
Exhibit
Number Description
- ------- -----------
2 ---- Amended and Restated Agreement and Plan of Merger
dated as of November 16, 1995 by and between
O'Charley's Inc. and Shoex, Inc. (incorporated by
reference to Exhibit 2 of the Company's Current
Report on Form 8-K dated January 5, 1996)
3.1 ---- Restated Charter of the Company (incorporated by
reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-1, Registration No.
33-35170)
3.2 ---- Amended and Restated Bylaws of the Company
(incorporated by reference to Exhibit 3.2 of the
Company's Annual Report on Form 10-K for the year
ended December 30, 1990)
4.1 ---- See Exhibits 3.1 and 3.2 for provisions of the
Restated Charter and the Amended and Restated Bylaws
defining the rights of holders of the Common Stock
of the Company.
4.2 ---- Form of Stock Certificate for the Common Stock of the
Company (incorporated by reference to Exhibit 4.1
of the Company's Registration Statement on Form S-1,
Registration No. 33-35170).
10.1 ---- Lease dated May 1, 1987 between CWF Associates and
CWF Corporation and all amendments thereto for 2895
Richmond Road, Lexington, KY 40509 (incorporated by
<PAGE> 43
reference to Exhibit 10.1 of the Company's
Registration Statement on Form S-1, Registration No.
33-35170)
10.2 ---- Lease Agreement and Option to Purchase dated May 1,
1987 between CWF Associates and O'Charley's Inc. for
equipment located at 2895 Richmond Road, Lexington,
KY (incorporated by reference to Exhibit 10.2 of the
Company's Registration Statement on Form S-1,
Registration No. 33-35170)
10.3 ---- Lease dated August 15, 1987 between CWF Associates
and O'Charley's Inc. and all amendments thereto for
improvements located at 17 White Bridge Road,
Nashville, TN (incorporated by reference to Exhibit
10.3 of the Company's Registration Statement on Form
S-1, Registration No. 33-35170)
10.4 ---- Lease Agreement and Option to Purchase dated August
15, 1987 between CWF Associates and O'Charley's Inc.
for equipment located at 17 White Bridge Road,
Nashville, TN (incorporated by reference to Exhibit
10.4 of the Company's Registration Statement on Form
S-1, Registration No. 33-35170)
10.5 ---- Lease dated October 25, 1985 between Two Mile
Partners and CWF Corporation and all amendments
thereto for 912 Two Mile Parkway, Goodlettsville, TN
(incorporated by reference to Exhibit 10.5 of the
Company's Registration Statement on Form S-1,
Registration No. 33-35170)
10.6 ---- Lease dated December 30, 1985 between Two Mile
Partners and CWF Corporation for 644 N. Riverside
Dr., Clarksville, TN (incorporated by reference to
Exhibit 10.6 of the Company's Registration Statement
on Form S-1, Registration No. 33-35170)
10.7 ---- Lease dated September 9, 1985 between Two Mile
Partners and CWF Corporation for 1720 U.S. 31-W
Bypass Building, Bowling Green, KY (incorporated by
reference to Exhibit 10.7 of the Company's
Registration Statement on Form S-1, Registration No.
33-35170)
10.8 ---- Lease dated December 26, 1986 between Two Mile
Partners and CWF Corporation for 1006 Memorial Blvd.,
Murfreesboro, TN (incorporated by reference to
Exhibit 10.8 of the Company's Registration Statement
on Form S-1, Registration No. 33-35170)
10.9 ---- Area Development Agreement dated July 9, 1987,
between O'Charley's Inc. and O'Charley's of the
Carolinas, Inc. (incorporated by reference to Exhibit
10.18 of the Company's Registration Statement on Form
S-1, Registration No. 33-35170)
10.10 ---- License Agreement dated July 9, 1987, between
O'Charley's Inc. and O'Charley's of the Carolinas,
Inc. (incorporated by reference to Exhibit 10.19 of
the Company's Registration Statement on Form S-1,
Registration No. 33-35170)
10.11 ---- O'Charley's Inc. 1985 Stock Option Plan (incorporated
by reference to Exhibit 10.27 of the Company's
Registration Statement on Form S-1, Registration No.
33-35170)
<PAGE> 44
10.12 ---- O'Charley's Inc. 1990 Employee Stock Plan
(incorporated by reference to Exhibit 10.26 of the
Company's Registration Statement on Form S-1,
Registration No. 33-35170)
10.13 ---- First Amendment to O'Charley's Inc. 1990 Employee
Stock Plan (incorporated by reference to Exhibit
10.24 of the Company's Annual Report on Form 10-K for
the year ended December 29, 1991)
10.14 ---- Second Amendment to O'Charley's Inc. 1990 Employee
Stock Plan (incorporated by reference to Exhibit
10.23 of the Company's Annual Report on Form 10-K for
the year ended December 26, 1993)
10.15 ---- O'Charley's Inc. 1991 Stock Option Plan for Outside
Directors, As Amended (incorporated by reference to
Exhibit 10.25 of the Company's Annual Report on Form
10-K for the year ended December 27, 1992)
10.16 ---- CHUX Ownership Plan (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the
quarter ended October 3, 1993)
10.17 ---- Lease Agreement dated as of December 30, 1990 between
Two Mile Partners, II and O'Charley's Inc.
(incorporated by reference to Exhibit 10.26 of the
Company's Annual Report on Form 10-K for the year
ended December 30, 1990)
10.18 ---- Amended and Restated Revolving Credit Agreement,
dated as of November 22, 1996, among O'Charley's Inc.
and Mercantile Bank of St. Louis National
Association, Bank One, Dayton, N.A., NationsBank of
Tennessee, N.A., as Co-Agent, and First American
National Bank, as Agent
10.19 ---- Registration Rights Agreement dated as of January 5,
1996 by and among O'Charley's Inc., R. Wayne
Browning, Gregory L. Burns, Mike Martin and David K.
Wachtel, Jr. (incorporated by reference to Exhibit
10.36 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1995)
10.20 ---- Severance Agreement and General Release, dated
September 9, 1996, by and between O'Charley's Inc.
and Charles F. McWhorter
10.21 ---- Severance Compensation Agreement, dated September 16,
1996, by and between O'Charley's Inc. and Gregory L.
Burns
11 ---- Statement re computation of earnings per common share
23.1 ---- Consent of KPMG Peat Marwick, LLP
27 ---- Financial Data Schedule (for SEC use only)
<PAGE> 1
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
DATED AS OF NOVMBER 22, 1996
AMONG
O'CHARLEY'S INC.
AND
MERCANTILE BANK OF ST. LOUIS NATIONAL ASSOCIATION,
BANK ONE, DAYTON, N.A.,
NATIONSBANK OF TENNESSEE, N.A., AS CO-AGENT
AND
FIRST AMERICAN NATIONAL BANK,
AS AGENT
<PAGE> 2
O'CHARLEY'S INC.
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
DATED AS OF NOVEMBER, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Paragraph Number Page
- ---------------- ----
<S> <C> <C>
I. DEFINITIONS 1
II. THE LOAN 8
2.1 The Commitments 8
2.2 Disbursement of the Loans 9
2.3 Upfront Fee 10
2.4 Commitment Fee 11
2.5 The Agent's Fee 11
2.6 Reduction of Commitment 11
2.7 Interest Rate and Payments of Interest 11
2.8 Payments to the Agent 12
2.9 Extension of Loan Termination Date 13
2.10 Alternate Rate of Interest 13
2.11 Change in Circumstances 13
2.12 Change in Legality 15
2.13 Letters of Credit 15
III. CONDITIONS PRECEDENT 16
3.1 Documents Required for the Closing 16
3.2 Conditions Precedent for Subsequent Disbursements 17
3.3 Legal Matters 17
IV. REPRESENTATIONS AND WARRANTIES 17
4.1 Original 17
4.2 Survival 20
V. THE BORROWER'S COVENANTS 20
5.1 Affirmative Covenants 21
5.2 Negative Covenants 24
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
VI. DEFAULT 26
6.1 Events of Default 26
6.2 Acceleration 28
6.3 Remedies 28
VII. THE AGENT 28
7.1 Authorization 28
7.2 Standard of Care 29
7.3 No Waiver of Rights 29
7.4 Payments 30
7.5 Indemnification 30
7.6 Exculpation 30
7.7 Credit Investigation 30
7.8 Resignation 31
7.9 Proration of Payments 31
7.10 No Liability for Errors 31
7.11 Offset 32
VIII. MISCELLANEOUS 32
8.1 Construction 32
8.2 Further Assurance 32
8.3 Enforcement and Waiver by the Banks 32
8.4 Expenses of the Agent 33
8.5 Notices 33
8.6 Waiver and Release 34
8.7 Indemnification 34
8.8 Assignment/Participations 34
8.9 Applicable Laws 35
8.10 Binding Effect, Assignment and Entire Agreement 35
8.11 Severability 35
8.12 Counterparts 35
8.13 Seal 35
8.14 Venue 35
8.15 Waiver of Jury Trial 36
</TABLE>
<PAGE> 4
LIST OF SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
Schedule I Table for Calculation of Interest Rates and Commitment Fees
Exhibit A Permitted Liens
Exhibit B List of Fee Owned Restaurants
Exhibit C Subordinated Indebtedness
Exhibit D Form Note
Exhibit E State(s) of Incorporation of Subsidiaries
Exhibit F States in which Borrower and Subsidiaries are Qualified to Transact Business
Exhibit G Stock Ownership
Exhibit H Changes in Name, Principal Office, etc.
Exhibit I Addresses of Offices of Borrower and Subsidiary
Exhibit J Pending Litigation
Exhibit K Compliance with Laws
Exhibit L Existing Indebtedness
Exhibit M Leased Restaurant Facilities
Exhibit N Existing Investments
Exhibit O Insider Loans
Exhibit P Existing Sale/Leaseback Transactions
Exhibit Q Affiliated Transactions
Exhibit R Taylor Litigation Settlement Agreement
</TABLE>
<PAGE> 5
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
THIS AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made and
entered into as of this ____ day of ____________, 1996, by and among
O'Charley's Inc. (the "Borrower"), each of the undersigned Banks, NationsBank
of Tennessee, N.A., individually and as Co-Agent, and First American National
Bank (the "Agent"), individually and as Agent for the Banks.
W I T N E S S E T H:
WHEREAS, pursuant to the terms of a Revolving Credit Agreement
dated as of April 21, 1994 (the "Original Loan Agreement"), by and between the
Agent and the Banks (as defined therein), the Banks agreed to loan to the
Borrower amounts not exceed $30,000,000, on a revolving loan basis; and,
WHEREAS, Borrower has requested that the Agent and the Banks (as
defined in this Amended and Restated Revolving Credit Agreement) increase the
amount of the Loans available to the Borrower from $30,000,000 to $70,000,000,
and the Agent and the Banks have agreed to such increase, subject to execution
by Borrower, the Agent and the Banks of this Amended and Restated Revolving
Credit Agreement,
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and obligations herein contained, and each intending to be legally
bound hereby, the parties hereto hereby agree to amend and restate the Original
Loan Agreement as follows:
SECTION 1. DEFINITIONS
As used herein:
"ACCOUNTS", "CHATTEL PAPER", "CONTRACTS", "CONTRACT RIGHTS",
"DOCUMENTS", "EQUIPMENT", "FIXTURES", "GENERAL INTANGIBLES", "GOODS",
"INSTRUMENTS" and "INVENTORY" shall have the same respective meanings as are
given to those terms in the UCC.
"ADJUSTED DEBT TO CAPITALIZATION RATIO" means the Borrower's Funded
Debt plus eight (8) times the applicable Operating Lease Expense divided by
Funded Debt plus Net Worth plus eight (8) times the applicable Operating Lease
Expense.
"AFFILIATES" means as to any Person (a) any Person which,
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with such Person, or (b) any Person
who is a director or executive officer (i) of such Person, (ii) of any
Subsidiary of such Person or (iii) of any Person described in clause (a) above.
For purposes of this definition, "control" of a Person shall mean the power,
direct or indirect, (i) to vote or direct the voting of more than ten percent
(10%) of the outstanding shares of voting stock of such Person, or (ii) to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise. In no event shall any of the
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<PAGE> 6
Banks be deemed to be Affiliates of the Borrower.
"AGENT" means First American National Bank in its capacity as agent
for the Banks pursuant to Section 7 hereof, and not in its individual capacity
as a Bank, and any successor Agent appointed pursuant to Section 7.
"AGREEMENT" means this Amended and Restated Revolving Credit
Agreement, as it may be amended, restated, renewed or extended from time to
time.
"APPLICABLE INDEX MARGIN" means the applicable Index Margin
calculated in accordance with the table set forth in Schedule I to this
Agreement.
"APPLICABLE LIBOR MARGIN" means the applicable LIBOR Margin
calculated in accordance with the table set forth in Schedule I to this
Agreement.
"BANK" means each Bank listed on the signature pages of this
Agreement and their respective successors and assigns, including the Agent and
Co-Agent in each entity's individual capacity as a Bank, and "BANKS" means all
of such Banks collectively.
"BORROWING NOTICE" means the Borrowing Notice delivered by Borrower
in accordance with Paragraph 2.2 of this Agreement.
"BUSINESS DAY" means any day on which the state banks and national
banking associations in Nashville, Tennessee are open for the conduct of
ordinary business.
"CLOSING" means the valid execution and delivery of the Notes and
Loan Documents to the Agent, or as the Banks otherwise direct.
"CO-AGENT" means NationsBank of Tennessee, N.A.
"COMMITMENT" means the respective obligation of each Bank, which is
several and not joint, to extend credit to the Borrower as set forth in
Paragraph 2.1 of this Agreement.
"COMMITMENT PERCENTAGE" means each Bank's respective percentage of
the Total Commitments as set forth in Paragraph 2.1 of this Agreement.
"CURRENT LIABILITIES" means, at any time, all liabilities that, in
accordance with generally-accepted accounting principles, consistently applied,
should be classified as current liabilities on the balance sheet of the
Borrower.
"DEFAULT RATE" means the rate which is the lesser of (i) the rate
which is three percent (3%) per annum in excess of the applicable interest rate
payable on the Loans, or (ii) the Maximum Rate.
"EBITDA" means net earnings before interest expense, taxes,
depreciation, and amortization
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<PAGE> 7
expense, less any extraordinary income generated from nonrecurring events or
from events not directly related to restaurant operations. All calculations of
EBITDA which include data from the Borrower's second fiscal quarter shall add
to the calculation of EBITDA, $13,610,000.00, as representative of the
nonrecurring FASB 121 charge and the cost of litigation in such quarter.
"ENVIRONMENTAL LAWS" means the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA) and the Superfund Amendments
and Reauthorization Act (SARA); the Resource Conversation and Recovery Act
(RCRA); the Emergency Planning and Community Right to Know Act; the Clean Water
Act (Federal Water Pollution Control Act); the Safe Drinking Water Act; the
Clean Air Act; the Surface Mining Control and Reclamation Act; the Coastal Zone
Management Act; the Noise Control Act; the Occupational Safety and Health Act;
the Toxic Substances Control Act (TSCA); the Federal Insecticide, Fungicide and
Rodenticide Act (FIFRA); any so-called "Superfund" or "Superlien" law; or any
other federal, state or local statute, law, ordinance, code, rule regulation,
order, decree or other requirements of any governmental body regulating,
relating to or imposing liability or standards of conduct concerning any
Hazardous Materials or toxic or dangerous chemical, waste, substance or
material.
"EURODOLLAR INTEREST PERIOD" means, with respect to a Eurodollar
Loan, a period of 1, 2, 3, or 6 months commencing on a Business Day selected by
Borrower and designated in the Borrowing Notice, pursuant to Paragraph 2.2 of
this Agreement. Such Eurodollar Interest Period shall end on the day in the
last calendar month of such period chosen by Borrower which corresponds
numerically to the beginning day of such Eurodollar Interest Period, provided,
however, that if there is no such numerically corresponding day in such month,
such Eurodollar Interest Period shall end on the last Business Day of such
month. If the Eurodollar Interest Period would otherwise end on a day which is
not a Business Day, such Eurodollar Interest Period shall end on the next
succeeding Business Day, provided, however, that if said next succeeding
Business Day falls in a new month, such Eurodollar Interest Period shall end on
the immediately preceding Business Day. Borrower may not elect any Eurodollar
Interest Period that ends later than the Loan Termination Date. Interest shall
accrue from and including the first day of a Eurodollar Interest Period to, but
excluding the last day of such Eurodollar Interest Period.
"EURODOLLAR LIABILITIES" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"EURODOLLAR LOAN" means any Loan which bears interest based on the
LIBOR Rate.
"EURODOLLAR RATE RESERVE PERCENTAGE" means the reserve percentage
applicable during any Eurodollar Interest Period (or if more than one such
percentage shall be so applicable, the daily average of such percentages for
those days in such Eurodollar Interest Period during which any such percentage
shall be so applicable) under regulations issued from time to time by the Board
of Governors of the Federal Reserve System (or any successor) for determining
the maximum reserve requirements (including, without limitation, any emergency,
supplemental, or other marginal reserve requirement) for any Bank with respect
to liabilities or assets consisting of or including Eurodollar Liabilities
having a term equal to such Eurodollar Interest Period.
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<PAGE> 8
"EVENT OF DEFAULT" has the meaning set forth in Paragraph 6.1.
"FINANCIAL STATEMENTS" means the balance sheet of the Borrower
dated as of July 14, 1996, and the statements of income and retained earnings
of the Borrower for the years or months ended on such date.
"FIXED CHARGES COVERAGE RATIO" means Borrower's EBITDA plus Rental
Expense divided by Rental Expense plus Proforma CMLTD plus interest expense.
"FLOATING RATE LOAN" means any Loan which bears interest based on
the Index Rate.
"FUNDED DEBT" means all indebtedness for money borrowed, purchase
money mortgages, capitalized leases, conditional sales contracts and similar
title retention debt instruments, including any current maturities of such
indebtedness. This calculation shall include all Funded Debt of other entities
or persons which has been guaranteed by the Borrower, or which is supported by
a letter of credit issued for the account of the Borrower. All outstanding
standby letters of credit issued for the account of the Borrower shall be
excluded in the Funded Debt definition. Funded Debt shall exclude those
letters of credit providing credit enhancement for obligations already counted
in the Funded Debt definition.
"FUNDED DEBT TO EBITDA RATIO" means Borrower's Funded Debt divided
by EBITDA.
"GAAP" means generally accepted accounting principles, consistently
applied.
"HAZARDOUS MATERIALS" means any hazardous, toxic or dangerous
chemical, substance, waste or material defined as such in any of the
Environmental Laws.
"INDEBTEDNESS" means, as to the Borrower or any Subsidiary, all
items of indebtedness, obligation or liability, whether matured or unmatured,
liquidated or unliquidated, direct or contingent, joint or several, including
without limitation:
(A) All indebtedness guaranteed, directly or indirectly, in any
manner, or endorsed (other than for collection or deposit in the ordinary
course of business) or discounted with recourse;
(B) All indebtedness in effect guaranteed, directly or indirectly,
through agreements, contingent or otherwise: (1) to purchase such
indebtedness; or (2) to purchase, sell or lease (as lessee or lessor) property,
products, materials or supplies or to purchase or sell services, primarily for
the purpose of enabling the debtor to make payment of such indebtedness or to
assure the owner of the indebtedness against loss; or (3) to supply funds to or
in any other manner invest in the debtor;
(C) All indebtedness secured by (or for which the holder of such
indebtedness has a right, contingent or otherwise, to be secured by) any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance upon property owned or acquired subject thereto, whether or not the
liabilities secured thereby have been assumed; and
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<PAGE> 9
(D) All indebtedness incurred as the lessee of goods or services
under leases that, in accordance with GAAP, should not be reflected on the
Borrower's or any Subsidiary's balance sheet.
"INDEX RATE" means the reference or base rate established by the
Agent from time to time as the Index Rate for the Agent.
"LAWS" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs or decrees of any government or political subdivision or
agency thereof, or any court or similar entity established by any thereof.
"LIBOR RATE" means, with respect to any Eurodollar Loan, the
interest rate per annum (rounded upward, if necessary, to the next higher 1/100
of 1%), at which dollar deposits approximately equal in the principal amount to
the applicable Eurodollar Loan and with a maturity comparable to the applicable
Eurodollar Interest Period are offered to first class banks in immediately
available funds in the London Interbank Market for U.S. Dollar Deposits at
approximately 12:00 Noon, Nashville time, two (2) Business Days prior to the
commencement of the applicable Eurodollar Interest Period, to be effective on
the date of commencement of the applicable Eurodollar Interest Period, as
determined by Agent, pursuant to the TELERATE reporting system.
"LOAN" means any funds which any Bank has advanced or will advance
to the Borrower on a revolving basis pursuant to its Commitment, and shall
include advances in the form of letters of credit issued in accordance with the
terms of this Agreement, and "LOANS" means all such advances by all Banks up to
the aggregate amount of Seventy Million and 00/100 Dollars ($70,000,000.00).
"LOAN DOCUMENTS" means this Agreement, the Notes, and any other
document executed or delivered by or on behalf of the Borrower or any
Subsidiary evidencing or securing the Obligations.
"LOAN TERMINATION DATE" means the earlier of (i) the occurrence of
an Event of Default which is not waived by the Agent in accordance with the
terms of this Agreement, or (ii) November 30, 1999 (or such later date as may
be agreed to by the Banks pursuant to Paragraph 2.9 of this Agreement).
"LONG-TERM DEBT" means that portion of Total Liabilities (including
capitalized leases) which constitute obligations for borrowed money and which
are not classified as Current Liabilities in accordance with generally-accepted
accounting principles consistently applied.
"MAJORITY BANKS" means Banks holding at least sixty-six and
two-thirds percent (66 2/3%) of the then aggregate unpaid principal amounts of
the Notes held by the Banks, or if no such principal amounts are outstanding,
Banks having at least sixty-six and two-thirds percent (66 2/3%) of the Total
Commitments. For purposes of determining the Majority Banks, $47,000,000 shall
be deemed to be 66 2/3% of the Total Commitments.
"MAXIMUM RATE" means the maximum rate of interest permitted to be
charged by Agent under applicable laws in effect from time to time.
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<PAGE> 10
"NET WORTH" means the sum of Stockholders' Equity, preferred stock,
debt convertible to capital stock of Borrower which is fully subordinated to
the satisfaction of Agent, plus minority interests.
"NOTE" means a promissory note substantially in the form of EXHIBIT
D attached hereto, duly executed and delivered to the Agent by Borrower and
payable to the order of a Bank in the amount of its Commitment, including any
amendment, modification, renewal, extension, or replacement thereof, and
"NOTES" means the Note of each of the Banks collectively.
"OBLIGATIONS" means the obligation of the Borrower:
(A) To pay the principal of and interest on the Notes in
accordance with the terms thereof and to satisfy all of its other liabilities
to the Banks hereunder, including, without limitation, obligations evidenced by
applications for letters of credit and other documents or instruments executed
by Borrower in connection with the issuance of letters of credit, whether now
existing or hereafter incurred, matured or unmatured, direct or contingent,
joint or severally, including any extensions, modifications, and renewals
thereof and substitutions therefore;
(B) To repay to the Banks all amounts advanced by the Banks
hereunder or otherwise on behalf of the Borrower; and
(C) To reimburse the Agent, on demand, for all of the Agent's
reasonable expenses and costs, including the reasonable fees and expenses of
its counsel, in connection with the enforcement of this Agreement and the
documents required hereunder, including, without limitation, any proceeding
brought or threatened to enforce payment of any of the Obligations referred to
in the foregoing paragraphs (A) and (B); and
(D) To reimburse Agent for all legal costs and expenses incurred
in connection with the preparation of this Agreement and the other Loan
Documents and the consummation of the Loan transaction.
"OPERATING LEASE EXPENSE" means the minimum future operating lease
payment as designated in the Borrower's audited financial statements for the
fiscal year applicable in the following sequences: for the compliance
certificate due to the Agent in March (fiscal year end) and for the
certificates due in May, August and November (fiscal quarter ends), the
appropriate minimum future operating lease payment amount shall be the one
designated in the most recent audited financial statements for the specific
year in which the certificate is due. (Example: Listed in the 1995 annual
report, the future minimum operating lease payment for 1996 is $3,174,000.
This figure will be used for all the compliance certificates due to the Banks
in 1996 covering 12/31/95, 4/21/96, 7/14/96 and 10/6/96.)
"PERMITTED LIENS" means:
(A) Liens described on EXHIBIT A hereof;
(B) Liens for taxes, assessments, or similar charges, incurred in
the ordinary course of
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<PAGE> 11
business that are not yet delinquent;
(C) Pledges or deposits made in the ordinary course of business to
secure payment of workmen's compensation, or to participate in any fund in
connection with workmen's compensation, unemployment insurance, old-age
pensions or other social security programs;
(D) Liens of mechanics, materialmen, warehousemen, carriers, or
other like liens, securing obligations incurred in the ordinary course of
business that are not yet due and payable;
(E) Good faith pledges or deposits made in the ordinary course of
business to secure performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases, not in excess of ten percent (10%) of
the aggregate amount due thereunder;
(F) Encumbrances consisting of zoning restrictions, easements or
other similar use restrictions relating to the use of the Real Property that
exist as of the date hereof, and any such encumbrances that arise after the
date hereof that do not materially impair the use of the Real Property by the
Borrower or any Subsidiary in the operations of its business, and that are not
violated in any material respect by existing or proposed structures or land
use; and
(G) Liens in favor of the Banks and/or Agent, or otherwise
permitted by the Majority Banks under Section 5.2(B).
"PERSON" means any individual, corporation, partnership,
association, joint-stock company, estate, trust, unincorporated organization,
joint venture, court or government or political subdivision or agency thereof.
"PROFORMA CMLTD" means proforma current maturities of Long Term
Debt compiled in accordance with GAAP for the four (4) fiscal quarters
immediately following the specified period.
"REAL PROPERTY" means the fee owned O'Charley's Restaurants listed
on EXHIBIT B attached hereto and made a part hereof, together with all future
fee owned O'Charley's Restaurants developed by the Borrower during the term of
this Agreement.
"RECORDS" means correspondence, memoranda, tapes, books, discs,
paper, magnetic storage and other documents or information of any type, whether
expressed in ordinary or machine language.
"RENTAL EXPENSE" means actual rental expenses paid on all operating
leases for the specified period.
"STOCKHOLDERS' EQUITY" means, at any time, the aggregate of the
Subordinated Indebtedness plus the sum of the following accounts set forth in a
consolidated balance sheet of the Borrower and its Subsidiaries, prepared in
accordance with GAAP: (A) the par or stated value of all outstanding capital
stock; (B) capital surplus; and (C) retained earnings.
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<PAGE> 12
"SUBORDINATED INDEBTEDNESS" means all Indebtedness incurred at any
time by the Borrower or any Subsidiary, the repayment of which is fully
subordinated to the Loans in form and manner satisfactory to the Banks. All
existing Subordinated Indebtedness is described in EXHIBIT C attached hereto.
"SUBSIDIARY" means any corporation of which more than fifty percent
(50%) of the outstanding voting securities shall, at the time of determination,
be owned directly, or indirectly through one or more intermediaries, by the
Borrower.
"TOTAL COMMITMENTS" means the aggregate of the several Commitments
of the Banks in the principal amount of up to Seventy Million and 00/100
Dollars ($70,000,000.00), as set forth in Section 2 of this Agreement,
including the aggregate of the several Commitments as they may be reduced from
time to time.
"TOTAL LIABILITIES" means all Indebtedness that, in accordance with
GAAP, should be classified as liabilities on a consolidated balance sheet of
the Borrower and its Subsidiaries.
"UCC" means the Uniform Commercial Code as in effect on the date
hereof in the State of Tennessee, as it may be amended from time to time;
provided that if by reason of mandatory provisions of law, the perfection or
the effect of perfection or non-perfection of a security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than Tennessee, "UCC" means the Uniform Commercial Code as
in effect in such other jurisdiction for purposes of the provisions hereof
relating to such perfection or effect of perfection or non- perfection.
SECTION 2. THE LOAN
2.1 THE COMMITMENTS.
(A) The Borrower, the Agent and the Banks hereby agree
that the terms of the Original Loan Agreement are hereby terminated and
replaced with the terms and conditions set forth in this Agreement. Subject to
the terms and conditions of and relying on the representations, warranties and
covenants contained in this Agreement, for a period ending on the Loan
Termination Date, each Bank agrees to fund severally but not jointly to the
Borrower up to the amount set out below opposite their names, which for all of
the Banks shall be the aggregate maximum principal amount of up to Seventy
Million and 00/100 Dollars ($70,000,000.00). The maximum Commitment of each of
the Banks and its respective percentage of the Total Commitments (the
"Commitment Percentage" of each Bank) are as follows:
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<PAGE> 13
<TABLE>
<CAPTION>
COMMITMENT
BANK COMMITMENT AMOUNT PERCENTAGE
---- ----------------- ----------
<S> <C> <C>
First American National Bank $20,000,000.00 28.57%
NationsBank of Tennessee, N.A. $20,000,000.00 28.57%
Mercantile Bank of St. Louis
National Association $15,000,000.00 21.43%
Bank One, Dayton, N.A. $15,000,000.00 21.43%
</TABLE>
(B) The Loans shall be evidenced by (i) the
$20,000,000.00 Note of Borrower to First American National Bank, (ii) the
$20,000,000.00 Note of Borrower to NationsBank of Tennessee, N.A., (iii) the
$15,000,000.00 Note of Borrower to Mercantile Bank of St. Louis National
Association, and (iv) the $15,000,000.00 Note of Borrower to Bank One Dayton,
N.A., which Notes are substantially in the form set forth in EXHIBIT D attached
hereto, with each Note payable in accordance with its terms. The Borrower may
obtain Loans, repay without penalty or premium (except that Eurodollar Loans
may only be prepaid at the end of the applicable Eurodollar Interest Period)
and reborrow hereunder, from the date of this Agreement until the Loan
Termination Date either the full amount of the Total Commitments, or any lesser
sum which is (a) in the minimum amount of One Hundred Thousand and 00/100
Dollars ($100,000.00) and in integral multiples of $100,000.00 if in excess
thereof for Floating Rate Loans, and (b) in the minimum amount of Five Hundred
Thousand and 00/100 Dollars ($500,000.00) and in integral multiples of
$500,000.00 if in excess thereof for Eurodollar Loans. Each of the Loans
hereunder shall be made by each Bank ratably in accordance with the ratio that
its respective Commitment Percentage bears to the amount of such Loan.
(C) The Loans made hereunder may be either Eurodollar
Loans, Floating Rate Loans, or a combination thereof.
2.2 DISBURSEMENT OF THE LOANS.
(A) The Borrower shall give the Agent irrevocable notice
(a "Borrowing Notice") not later than 10:00 a.m. Nashville time on the day of
disbursement of Loans (other than Eurodollar Loans), or 1:00 p.m. Nashville
time three (3) Business Days prior to any requested disbursement of a
Eurodollar Loan. Each Borrowing Notice shall be written and may be made by
telecopier, telex or cable in addition to the means set forth for giving notice
in Paragraph 8.5. Each Borrowing Notice shall specify the requested date of
such requested disbursement, the aggregate amount of such disbursement, the
type of Loan (Floating Rate Loan or Eurodollar Loan), and if a Eurodollar Loan,
the designated Eurodollar Interest Period. Not later than noon Nashville time
on each disbursement date, and subject to the terms and conditions hereof, each
Bank shall make available to the Agent at Agent's address specified hereafter
such Bank's ratable portion of such Loan in accordance with its respective
Commitment Percentage in funds immediately available in Nashville. The Agent
will credit the proceeds of the Loans to the Borrower's deposit account with
the Agent on the same Business Day on which the Agent receives the proceeds of
each Bank's advances. Each such Borrowing Notice shall obligate the Borrower
to accept the disbursement of the Loans requested thereby.
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<PAGE> 14
(B) The Borrower shall have the right at any time, on
prior irrevocable written or telefaxed notice to the Agent, to convert any
Floating Rate Loan into a Eurodollar Loan, to convert a Eurodollar Loan into a
Floating Rate Loan, or to continue any Eurodollar Loan for a subsequent
Eurodollar Interest Period (specifying in each case the Eurodollar Interest
Period to be applicable thereto), subject in each case to the following:
(1) The irrevocable notice to convert a Loan to a
Eurodollar Loan, or to continue a Eurodollar Loan, must be received by Agent
not later than 1:00 p.m., Nashville time, three (3) days prior to the requested
conversion date;
(2) No Eurodollar Loan shall be converted or
prepaid at any time other than at the end of the Eurodollar Interest Period
applicable thereto;
(3) Each conversion shall be effected by applying
the proceeds of the new Eurodollar or Floating Rate Loan, as the case may be,
to the Loan (or portion thereof) being converted;
(4) The number of Eurodollar Loans outstanding at
any one time shall not exceed eight (8).
Each notice pursuant to this subparagraph shall be irrevocable and
shall refer to this Agreement and specify (i) the identity and principal amount
of the particular Loan that the Borrower requests to be converted or continued,
(ii) if such notice requests conversion, the date of conversion (which shall be
a Business Day), and (iii) if a Loan is to be converted to a Eurodollar Loan,
or a Eurodollar Loan is to be continued, the Eurodollar Interest Period with
respect thereto. In the event that the Borrower shall not give notice to
continue any Eurodollar Loan for a subsequent period, such Loan (unless repaid)
shall automatically be converted into a Floating Rate Loan. If the Borrower
shall fail to specify in the Borrowing Notice the type of borrowing, or, in the
case of a Eurodollar Loan, the applicable Eurodollar Interest Period, the
Borrower will be deemed to have requested a Floating Rate Loan. If Agent
reasonably believes that any failure by Borrower to specify the type of
borrowing or the applicable Eurodollar Interest Period shall have resulted from
failure of communications equipment or clerical error, then prior to funding
any such borrowing, the Agent shall use reasonable efforts to obtain
confirmation from Borrower of the contents of such Borrowing Notice; however,
in the absence of confirmation by Borrower, which specifies the type of
borrowing and the applicable Eurodollar Interest Period, the Borrower will be
deemed to have requested a Floating Rate Loan. Notwithstanding anything to the
contrary contained above, if an Event of Default shall have occurred and be
continuing, no Eurodollar Loan may be continued, and no Floating Rate Loan may
be converted into a Eurodollar Loan.
(C) The failure of any Bank to make any advances
hereunder pursuant to its Commitment upon Agent's receipt of a proper Borrowing
Notice shall not relieve any other Bank of its obligation, if any, hereunder to
make its advances pursuant to its Commitment and such Borrowing Notice.
However, no Bank shall be responsible for any other Bank's failure or refusal
to make any advances pursuant to such other Bank's Commitment and such
Borrowing Notice.
2.3 UPFRONT FEE. A fee equal to .10% of the Total Commitments
has been paid by the
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<PAGE> 15
Borrower to the Agent, for the account of the Banks, such fee to be shared by
the Banks, ratably based on the amount of each Bank's Commitment.
2.4 COMMITMENT FEE. From and after the date hereof, until the
Loan Termination Date, the Borrower shall pay to the Agent for the account of
the Banks a commitment fee based on the average daily undisbursed amount of the
Total Commitments during each quarter-annual period or portion thereof and
calculated in accordance with the Table attached to this Agreement as Schedule
I. For purposes of calculating the Commitment Fee, standby letters of credit
issued by the Banks for the account of Borrower under this Agreement shall be
deemed to be a disbursement under the Loan. The Commitment Fee shall be payable
quarterly, in arrears, on the first Business Day following each fiscal quarter
end, the first such payment being due on December 30, 1996. Any accrued and
unpaid Commitment Fee shall be paid on the Loan Termination Date.
2.5 THE AGENT'S FEE. The Borrower shall pay an annual Agent's
Fee to the Agent, in accordance with a Letter Agreement dated September 26,
1996, between the Borrower and the Agent, the terms of which are incorporated
herein by reference.
2.6 REDUCTION OF COMMITMENT. The Borrower shall have the
right to reduce the amount of the Total Commitments, at any time and from time
to time, in any integral multiple of $1,000,000.00, which reduction shall
reduce each Bank's Commitment pro rata in accordance with its Commitment
Percentage. Contemporaneously with each such reduction, the Borrower shall
repay to the Agent for the account of each Bank in accordance with its
respective Commitment Percentage the amounts, if any, by which the then
outstanding principal balance of each Note exceeds each Commitment as so
reduced. After each such reduction: (i) the next Commitment Fee due in
accordance with Paragraph 2.4 shall be calculated taking into account the date
on which the Total Commitments are so reduced; and (ii) the Total Commitments
may not be increased without the written consent of the Banks.
2.7 INTEREST RATE AND PAYMENTS OF INTEREST.
(A) Interest shall be charged and paid on Loans as
follows:
(1) For a Floating Rate Loan, at a floating rate
per annum equal to the Index Rate plus (or minus) the Applicable Index Margin
as reflected in Schedule I to this Agreement, said rate to change
contemporaneously with any change in the Index Rate and to change quarterly to
reflect changes in the Applicable Index Margin in accordance with the Table
attached hereto as Schedule I.
(2) For a Eurodollar Loan, at a rate per annum
equal to the LIBOR Rate plus the Applicable LIBOR Margin in accordance with the
Table attached hereto as Schedule I.
(3) The Borrower shall pay to the Banks, if and
so long as any Banks shall be required under regulations of the Board of
Governors of the Federal Reserve System, to maintain reserves with respect to
liabilities or assets consisting of or including Eurodollar Liabilities,
additional interest on the unpaid principal amount of each Eurodollar Loan,
from the date of such advance until such principal amount is paid in full, at
an interest rate per annum equal at all times to the remainder obtained
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<PAGE> 16
by subtracting (i) the LIBOR Rate plus the Applicable LIBOR Margin for the
Eurodollar Interest Period from (ii) the rate obtained by dividing the LIBOR
Rate plus the Applicable LIBOR Margin by a percentage equal to 100% minus the
Eurodollar Rate Reserve Percentage for such Eurodollar Interest Period, payable
on each date on which interest is payable. Such additional interest shall be
determined by each Bank, which shall so notify Borrower thereof.
(4) The interest for Floating Rate Loans and
Eurodollar Loans shall be computed on the basis of a 360-day year, counting the
actual number of days elapsed, and shall be due and payable without notice (i)
monthly in arrears on the first day of each consecutive month commencing
December 1, 1996, in the case of Floating Rate Loans, and (ii) at the end of
the applicable Eurodollar Interest Period for each Eurodollar Loan.
(5) Notwithstanding the foregoing, upon the
occurrence and continuation of an Event of Default, interest may be charged at
the Default Rate set forth in the Notes, if the Majority Banks have so elected,
but regardless of whether the Majority Banks have elected to exercise any other
remedies under Section 6 hereof, including without limitation acceleration of
the maturity of the outstanding principal of the Notes. All such interest
shall be paid at the time of and as a condition precedent to the curing of any
such default to the extent any right to cure is given.
(B) If, at any time, the interest rate payable under the
Notes shall be deemed by any competent court of law, governmental agency or
tribunal to exceed the maximum rate of interest permitted by any applicable
Laws, for such time as such interest rate would be deemed excessive, its
application shall be suspended and there shall be charged instead the maximum
rate of interest permissible under such Laws.
2.8 PAYMENTS TO THE AGENT.
(A) The Agent shall send the Borrower statements of all
amounts due hereunder, which statements shall be considered correct and
conclusively binding on the Borrower unless the Borrower notifies the Agent to
the contrary within ten (10) days of its receipt of any statement which it
deems to be incorrect. All sums payable to the Banks hereunder shall be paid
directly to the Agent for the account of each Bank in immediately available
funds prior to 12:00 noon, Nashville time, on the date when such sums are due
and payable. Any amounts received by the Agent prior to 12:00 noon Nashville
time on any Business Day shall be deemed to have been received by all Banks on
such Business Day, and any amounts received by Agent after such time shall be
deemed to have been received by all Banks on the next Business Day.
(B) Each payment made to the Agent on the Notes or for
other sums or fees due hereunder for the account of the Banks shall be properly
remitted by the Agent to each Bank, pro rata in accordance with the outstanding
unpaid principal amount of the Notes held by each Bank, no later than 2:00 p.m.
Nashville time on the date on which Agent receives such payment.
(C) Borrower shall give Agent two (2) Business Days
notice of payments of principal and/or interest other than interest payments on
a regularly scheduled payment date set forth in
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<PAGE> 17
the Notes. Principal payment amounts shall be in a minimum amount of
$100,000.00 for Floating Rate Loans and $500,000.00 for Eurodollar Loans.
2.9 EXTENSION OF LOAN TERMINATION DATE. Provided no Default
exists under this Agreement, and provided Borrower has not instructed Agent, in
writing, to the contrary, on or before the date which is sixty (60) days prior
to the anniversary date of this Agreement (beginning with the first anniversary
date), the Agent shall submit a written request to the Banks, requesting the
Banks' approval to extend the Loan Termination Date for one (1) year. Subject
to the approval of all of the Banks to such extension of the Loan Termination
Date, the Loan Termination Date shall be extended for one (1) year, and the
Agent shall so notify the Borrower in writing of such extension. To the extent
the Agent has not notified the Borrower, in writing, within sixty (60) days
following the anniversary date of this Agreement (beginning with the first
anniversary date), that the Loan Termination Date has been extended, the
request of the Agent to extend the Loan Termination Date, as provided for in
this Paragraph 2.9, shall be deemed to be denied.
2.10 ALTERNATE RATE OF INTEREST.
(A) In the event, and on such occasion, that on the date
of commencement of any Eurodollar Interest Period for a Eurodollar Loan, any
Bank shall have reasonably determined:
(1) That dollar deposits in the amount of the
requested principal amount of such Eurodollar Loan are not generally available
to first-class banks in the London Interbank Market;
(2) That the rate at which such dollar deposits
are being offered will not adequately and fairly reflect the cost to such Bank
of making or maintaining such Eurodollar Loan during such Eurodollar Interest
Period; or
(3) That reasonable means do not exist for
ascertaining the LIBOR Rate generally, such Bank shall, as soon as practicable
thereafter, given written or telephonic notice of such determination to the
Borrower. In the event of any such determination, any request by the Borrower
for a Eurodollar Loan pursuant to Paragraph 2.2 shall, until the circumstances
giving rise to such notice no longer exist, be deemed to be a request for a
Floating Rate Loan. Each determination by the Banks hereunder shall be
conclusive absent manifest error.
2.11 CHANGE IN CIRCUMSTANCES.
(A) Notwithstanding any other provision herein, if after
the date of this Agreement any change in applicable Laws or regulations or in
the interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof (whether or not
having the force of law) shall change the basis of taxation of payments to a
Bank under any Eurodollar Loan made by a Bank or any other fees or amounts
payable hereunder (other than taxes imposed on the overall net income of a Bank
by the country in which a Bank is located, or by the jurisdiction in which a
Bank has its principal office, or by any political subdivision or taxing
authority therein), or shall impose, modify, or deem applicable any reserve
requirement, special deposit, insurance charge (including FDIC
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<PAGE> 18
insurance on Eurodollar deposits) or similar requirements against assets of,
deposits with or for the account of, or credit extended by, such Bank or shall
impose on such Bank or the London Interbank Market any other condition
affecting this Agreement or Eurodollar Loans made by such Bank, and the result
of any of the foregoing shall be to increase the cost to the Bank of making or
maintaining its Eurodollar Loan or to reduce the amount of any sum received or
receivable by such Bank for any of its Eurodollar Loans hereunder (whether of
principal, interest or otherwise) by an amount reasonably deemed by the Bank to
be material, then the Borrower will pay to such Bank such additional amount or
amounts as will reasonably compensate such Bank for such additional costs.
(B) If either:
(1) The introduction of, or any change in, or in
the interpretation of, any United States or foreign law, rule or regulation; or
(2) Compliance with any directive, guidelines or
request from any central bank or other United States or foreign governmental
authority (whether or not having the force of law) promulgated or made after
the date hereof (but excluding, however, any law, rule, regulation,
interpretation, directive, guideline or request contemplated by or resulting
from the report dated July, 1988, entitled "International Convergence of
Capital Measurement and Capital Standards" issued by the Basic Committee on
Banking Regulations and Supervisory Practices), affects or would affect the
amount of capital required or expected to be maintained by any Bank (or any
lending office of any Bank) or any corporation directly or indirectly owning or
controlling any Bank (or any lending office of any Bank) based upon the
existence of this Agreement, and such Bank shall have determined that such
introduction, change or compliance has or would have the effect of reducing the
rate of return on such Bank's capital or on the capital of such owning or
controlling corporation as a consequence of its obligations hereunder
(including its Commitment) to a level below that which such Bank or such owning
or controlling corporation could have achieved but for such introduction,
change or compliance (after taking into account that such Bank's policies or
the policies of such owning or controlling corporation, as the case may be,
regarding capital adequacy) by an amount deemed by such Bank (in its sole
discretion) to be material, then the Borrower will pay to such Bank such
additional amount or amounts as will compensate the Bank for such reduction
attributable to making, funding and maintaining its Commitment and Loans
hereunder.
(C) A certificate of any Bank setting forth such amount
or amounts as shall be necessary to compensate such Bank (or its participating
banks or other entities pursuant to this Agreement), as specified in paragraph
(A) or (B) above, as the case may be, shall be delivered to the Borrower and
shall be conclusive absent manifest error; provided, however, that the Borrower
shall be responsible for compliance herewith and the payment of increased costs
only to the extent:
(1) Any change in Laws giving rise to increased
costs occurs after the date of this Agreement, and such change or actions are
generally applicable to financial institutions similarly situated to the Banks;
and
(2) Such costs arise or accrue after the day that
is one hundred eighty (180)
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<PAGE> 19
Business Days after the date on which such Bank provides the Borrower with
written notice specifying the change or event giving rise to such increased
costs.
Subject to the foregoing, the Borrower shall pay the affected Bank the amount
shown as due on any such certificate within ten (10) days after its receipt of
such certificate.
(D) The protection of this Paragraph 2.11 shall be
available to the Banks regardless of any possible contention of invalidity or
inapplicability of the law, regulation or condition that shall have been
imposed.
2.12 CHANGE IN LEGALITY.
(A) Notwithstanding anything to the contrary herein
contained, if any change in any law or regulation or in interpretation thereof
by any governmental authority charged with the administration or interpretation
thereof shall make it unlawful for any Bank to make or maintain any Eurodollar
Loan or to give effect to its obligations to make Eurodollar Loans as
contemplated hereby, then, by written notice to the Borrower, such Bank may:
(1) Declare that Eurodollar Loans will not
thereafter be made by such Bank hereunder, whereupon the Borrower shall be
prohibited from requesting Eurodollar Loans from the Banks hereunder unless
such declaration is subsequently withdrawn; and
(2) Require that all outstanding Eurodollar Loans
made by it be converted to Floating Rate Loans, in which event (a) all such
Eurodollar Loans shall be automatically converted to Floating Rate Loans as of
the effective date of such notice as provided in paragraph (B) below, and (b)
all payments and prepayments of principal that would otherwise have been
applied to repay the converted Eurodollar Loans shall instead be applied to
repay the Floating Rate Loans resulting from the conversion of such Eurodollar
Loans.
(B) For purposes of this Paragraph 2.12, a notice to the
Borrower by any Bank, pursuant to (A) above, shall be effective, if lawful, on
the last day of the then current Eurodollar Interest Period; in all other
cases, such notice shall be effective on the date of receipt by the Borrower.
2.13 LETTERS OF CREDIT. In connection with standby letters of
credit issued for the account of the Borrower, the Borrower agrees to execute
such letter of credit applications and other documents and instruments as Agent
reasonably deems necessary in connection with the issuance of such letters of
credit. The expiration date for each letter of credit issued hereunder shall
not exceed the earlier of (i) one (1) year from the date the letter of credit
is issued, or (ii) November 30, 1999 (or the maturity date of the Credit
Facility, if such date has been extended). As reasonable compensation to the
Banks for reserving the funds necessary to issue letters of credit to the
Borrower, the Borrower shall pay to the Agent for the benefit of the Banks a
letter of credit fee equal to one percent (1%) of the face amount of each
letter of credit issued under this Agreement. Such letter of credit fee shall
be due and payable at the time the letter of credit is issued. The aggregate
amount of all standby letters of credit as may be outstanding from time to time
under this Agreement shall not exceed $2,000,000.
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<PAGE> 20
SECTION 3. CONDITIONS PRECEDENT
The obligation of the Banks to fund the Loans hereunder is subject
to the following conditions precedent:
3.1 DOCUMENTS REQUIRED FOR THE CLOSING. The Borrower shall
have delivered to the Agent prior to the initial disbursement of the Loans the
following:
(A) The Notes executed by the Borrower;
(B) This Agreement executed by the Borrower;
(C) A copy of resolutions of the Borrower's board of
directors, certified by the corporate secretary of Borrower as of the date of
Closing, authorizing the execution, delivery and performance of this Agreement,
the Notes, the other Loan Documents, and each other document to be delivered
pursuant hereto;
(D) A copy, certified as of the most recent date
practicable, by the Secretary of State of Tennessee, of the Borrower's and each
Subsidiary's certificate of incorporation, together with a certificate dated
the date of the Closing of the Borrower's corporate secretary to the effect
that such certificates of incorporation have not been amended since the date of
the aforesaid Secretary of State certifications;
(E) A copy of the Borrower's by-laws certified by
Borrower's secretary as of the date of the Closing;
(F) A certificate dated as of the date of the Closing of
the Borrower's corporate secretary as to the incumbency and signatures of the
officers of the Borrower executing this Agreement, the Notes, the other Loan
Documents, and each other document to be delivered pursuant hereto;
(G) Within thirty (30) days of the Closing,
certificates, as of the most recent dates practicable, of the aforesaid
Secretary of State, the Secretary of State of each state in which the Borrower
is qualified as a foreign corporation and of the department of revenue or
taxation of each of the foregoing states as to the good standing of the
Borrower;
(H) A written opinion of Bass, Berry & Sims, PLC, the
Borrower's counsel, dated the date of the Closing and addressed individually to
each Bank, in form reasonably satisfactory to the Banks.
(I) A certificate, dated as of the date of the Closing,
signed by the chief executive officer, chief financial officer or
secretary/treasurer of the Borrower (in his or her corporate capacity) and to
the effect that:
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<PAGE> 21
(1) The representations and warranties set forth
within Paragraph 4.1 are true as of the date of the Closing;
(2) No Event of Default hereunder, and no event
which, with the giving of notice or passage of time or both, would become such
an Event of Default, has occurred as of such date;
(J) Copies of all documents evidencing the terms and
conditions of any debt specified as Subordinated Indebtedness on EXHIBIT C, all
of which shall be in form and substance satisfactory to Banks;
(K) Payment of the remaining balance of the Upfront Fee,
together with the initial Agent's Fee, together with all other reasonable costs
and expenses incurred by Agent in connection with the Loan, including, without
limitation, reasonable attorney's fees. The Banks acknowledge that Borrower
shall be responsible only for fees and expenses of counsel engaged by Agent in
connection with the Loan. Any additional legal fees or expenses incurred by
the other Banks shall be paid by such Banks.
3.2 CONDITIONS PRECEDENT FOR SUBSEQUENT DISBURSEMENTS. The
obligation of the Banks to fund Loans hereunder is subject to the fulfillment
of each of the following conditions:
(A) The Agent shall have received the notices required
by Section 2.2 of this Agreement with respect to any Loan.
(B) All the representations and warranties of the
Borrower under this Agreement shall be true and correct, in substantially all
respects at the time of such Loan.
(C) No Event of Default shall have occurred and be
continuing, and no event has occurred and is continuing that, with the giving
of notice or passage of time or both, would be an Event of Default; and
(D) No material adverse change shall have occurred in
the financial condition of Borrower and its Subsidiaries taken as a whole,
since the date of the most recent Financial Statements delivered to Agent.
3.3 LEGAL MATTERS. At the time of the Closing and thereafter,
all legal matters incidental to the Loans shall be satisfactory to Sherrard &
Roe, PLC, counsel to the Agent.
SECTION 4. REPRESENTATIONS AND WARRANTIES
4.1 ORIGINAL. To induce the Banks to enter into this
Agreement, the Borrower and each Subsidiary jointly and severally represent and
warrant to each Bank as follows:
(A) The Borrower is a corporation duly organized,
validly existing and in good
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<PAGE> 22
standing under the Laws of the State of Tennessee; each Subsidiary is a
corporation duly organized, validly existing and in good standing under the
Laws of its state of incorporation, all as set forth in EXHIBIT E; the Borrower
and each Subsidiary have the lawful power to own their properties and to engage
in the business they conduct, and each is duly qualified and in good standing
as a foreign corporation in the jurisdictions wherein the nature of the
business transacted by it or property owned by it makes such qualification
necessary; the states in which the Borrower and each Subsidiary are qualified
to do business are set forth in EXHIBIT F; the percentage of the Borrower's
ownership of the outstanding stock of each Subsidiary is as listed in EXHIBIT
G; neither the Borrower nor any Subsidiary has changed its name, been the
surviving corporation in a merger, acquired any business, or changed its
principal executive office since April 21, 1994, except as set forth in EXHIBIT
H; and the addresses of all places of business of the Borrower and each
Subsidiary are as set forth in EXHIBIT I;
(B) Neither the Borrower nor any Subsidiary is in
material default with respect to any of its existing Indebtedness, and the
making and performance of this Agreement, the Notes and the other Loan
Documents will not (immediately; or with the passage of time or the giving of
notice, or both):
(1) Violate the charter or bylaw provisions of
the Borrower or any Subsidiary, or violate any Laws or result in a default
under any contract, agreement, or instrument to which the Borrower or any
Subsidiary is a party or by which the Borrower or any Subsidiary or its
property is bound; or
(2) Result in the creation or imposition of any
security interest in, or lien or encumbrance upon, any of the assets of the
Borrower or any Subsidiary;
(C) The Borrower and each Subsidiary have the power and
authority to enter into and perform this Agreement, the Notes and the other
Loan Documents, as applicable, and to incur the Obligations herein and therein
provided for, and have taken all corporate action necessary to authorize the
execution, delivery, and performance of this Agreement, the Notes and the other
Loan Documents;
(D) This Agreement and the other Loan Documents are, and
the Notes when delivered will be, valid, binding, and enforceable in accordance
with their respective terms;
(E) Except as disclosed in EXHIBIT J hereto, there is no
pending or, to Borrower's knowledge, threatened order, notice, claim,
litigation, proceeding or investigation against or affecting the Borrower or
any Subsidiary, whether or not covered by insurance, that would involve the
payment by Borrower or any Subsidiary of Fifty Thousand Dollars ($50,000.00)
or more if adversely determined (upon request by the Agent, the Borrower shall
provide the Agent with copies of all pleadings and other documents filed in any
of the matters disclosed in EXHIBIT J);
(F) The Borrower and its Subsidiaries have good and
marketable title to all of their respective assets, including without
limitation the Real Property, and the Real Property is subject to no security
interest, encumbrance or lien, or the claims of any other Person except for
Permitted Liens;
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<PAGE> 23
(G) The Financial Statements, including any schedules
and notes pertaining thereto, have been prepared in accordance with GAAP, and
fully and fairly present in all material respects the financial condition of
the Borrower and its Subsidiaries at the dates thereof and the results of
operations for the periods covered thereby, and there have been no material
adverse changes in the financial condition or business of the Borrower and its
Subsidiaries taken as a whole from July 14, 1996, to the date hereof;
(H) Since July 14, 1996, the Borrower and its
Subsidiaries had no material Indebtedness of any nature, including, but without
limitation, liabilities for taxes and any interest or penalties relating
thereto, except to the extent reflected (in a footnote or otherwise) and
reserved against in the Financial Statements dated July 14, 1996, or as
disclosed in or permitted by this Agreement; the Borrower does not know, and
has no knowledge of any basis for the assertion against it or any Subsidiary,
of any material Indebtedness of any nature not fully reflected and reserved
against in the Financial Statements;
(I) Except as otherwise permitted herein, the Borrower
and its Subsidiaries have filed all federal, state and local tax returns and
other reports they are required by Laws to file prior to the date hereof and
which are material to the conduct of their respective businesses, have paid or
caused to be paid all taxes, assessments and other governmental charges that
are due and payable prior to the date hereof, and have made adequate provision
for the payment of such taxes, assessments or other charges accruing but not
yet payable; the Borrower has no knowledge of any deficiency or additional
assessment in a materially important amount in connection with any taxes,
assessments or charges not provided for on its books;
(J) Except as otherwise disclosed in EXHIBIT K hereto,
or except to the extent that the failure to comply would not materially
interfere with the conduct of the business of the Borrower and its Subsidiaries
taken as a whole, the Borrower and its Subsidiaries have complied, in all
material respects, with all applicable Laws with respect to: (1) any
restrictions, specifications, or other requirement pertaining to products that
the Borrower or any Subsidiary sells or to the services each performs; (2) the
conduct of their respective businesses; (3) the use, maintenance, and operation
of the Real Property and the personal properties owned or leased by them, in
the conduct of their respective businesses; and (4) health, safety, worker's
compensation, and equal employment opportunity;
(K) The Borrower and its Subsidiaries and their
respective assets and operations are in compliance in all material respects
with all Environmental Laws, and the Borrower and its Subsidiaries will comply,
in all material respects, with all such Environmental Laws and regulations
which may be imposed in the future; all facilities and properties of the
Borrower and its Subsidiaries are and will be on the date of Closing, in all
material respects, in a clean and healthful condition, free of asbestos and of
all contamination by Hazardous Materials and other potentially harmful chemical
or physical conditions, including, without limitation, any contamination of the
air, soil, groundwater or surface waters associated with such facilities and
properties; there are no storage tanks (whether above or below ground) located
in or on such facilities and properties; no Hazardous Materials intended for
use or generated at any such facilities or properties have been or are used,
stored treated or disposed of in violation of applicable Laws and regulations;
all Hazardous Material which have been removed, released
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<PAGE> 24
or emitted from any of such facilities or properties were and are documented,
transported and disposed of in compliance in all material respects with all
applicable Laws and regulations; and neither the Borrower nor any Subsidiary is
a defendant in any administrative or judicial action alleging liability under
the Comprehensive Environmental Response, Compensation and Liability Act, as
amended ("CERCLA"), or any other Environmental Law, nor has the Borrower or any
Subsidiary received a notice that it is a potentially responsible party under
CERCLA, similar state Laws, or any other Environmental Law;
(L) No representation or warranty by the Borrower or any
Subsidiary contained herein or in any Exhibit furnished by the Borrower or any
Subsidiary pursuant to this Agreement contains any untrue statement of material
fact or omits to state a material fact necessary to make such representation or
warranty not misleading in light of the circumstances under which it was made;
(M) Each consent, approval or authorization of, or
filing, registration or qualification with, any Person required to be obtained
or effected by the Borrower or any Subsidiary in connection with the execution
and delivery of the Loan Documents or the undertaking or performance of any
obligation thereunder has been duly obtained or effected;
(N) All existing Indebtedness of the Borrower or any
Subsidiary: (1) for money borrowed; or (2) under any security agreement,
mortgage, or agreement covering the lease of real or personal property by the
Borrower or any Subsidiary as lessee, is described in EXHIBIT L;
(O) All lease agreements for restaurant facilities
operated by Borrower are described on EXHIBIT M hereto;
(P) Neither the Borrower nor any Subsidiary has made any
agreement or has taken any action which may cause anyone to become entitled to
a commission or finder's fee as a result of the making of the Loans;
(Q) All Defined Benefit Pension Plans, as defined in the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of the
Borrower and each Subsidiary meet, as of the date hereof, the minimum funding
standards of Section 302 of ERISA, and no Reportable Event or Prohibited
Transaction, as defined in ERISA, has occurred with respect to any such Plan.
4.2 SURVIVAL. All of the representations and warranties set
forth in Paragraph 4.1 shall survive until all Obligations are satisfied in
full.
SECTION 5. THE BORROWER'S COVENANTS
The Borrower does hereby covenant and agree with each Bank that, so
long as any of the Obligations remain unsatisfied, it will comply, and it will
cause its Subsidiaries to comply, with the following covenants:
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<PAGE> 25
5.1 AFFIRMATIVE COVENANTS.
(A) The Borrower will use the proceeds of the Loans only
for general working capital needs and to provide interim financing for
acquisition and development of O'Charley's Restaurant facilities. Loan
proceeds will not be used for any purpose other than as specifically permitted
by this Paragraph 5.1(A), without first obtaining the consent of the Majority
Banks.
(B) The Borrower will furnish the Agent:
(1) Within forty-five (45) days after the close
of each quarter-annual accounting period in each fiscal year of Borrower: (a)
quarterly 10-Q financial statements; and (b) income statement and balance sheet
of the Borrower for such quarter-annual period. All financial statements shall
be in reasonable detail, subject to year-end audit adjustments and certified
by the Borrower's president or principal financial officer to have been
prepared in accordance with GAAP, except for any inconsistencies explained in
such certificate;
(2) Within ninety (90) days after the close of
each fiscal year of Borrower: (a) annual audited financial statements of the
Borrower as of the end of such fiscal year--all in reasonable detail, including
all supporting schedules, notes and comments, and (b) an annual forecast
prepared by Borrower including a balance sheet, income statement and statement
of cash flows, to be in form and to contain reasonable detail satisfactory to
the Banks. The annual statements shall be audited by an independent certified
public accountant selected by the Borrower and reasonably acceptable to the
Agent, and certified by such accountants to have been prepared in accordance
with GAAP, except for any inconsistencies explained in such certificate. The
Banks, shall have the right, from time to time, to discuss the Borrower's
affairs directly with the Borrower's independent certified public accountants
after notice to the Borrower and opportunity of the Borrower to be present at
any such discussions. So long as Borrower is not in default, the Banks agree
to coordinate discussions with the Borrower's accountants so as to minimize the
additional expense incurred;
(3) Contemporaneously with each quarter annual
and fiscal year-end financial report required by the foregoing paragraphs (1)
and (2), a certificate of the chief executive officer, chief financial officer
or secretary/treasurer of the Borrower (in his or her corporate capacity)
stating that: (i) such officer has individually reviewed the provisions of
this Agreement and is knowledgeable of the activities of the Borrower and its
Subsidiaries during such year or quarter-annual period, as the case may be; and
(ii) to the best of such officer's knowledge, the Borrower has observed and
performed, in all material respects, each undertaking contained in this
Agreement and is not in default in the observance or performance of any of
the provisions hereof or, if the Borrower shall be so in default, specifying
all such defaults and events of which he or she may have knowledge. Such
certificate shall further set forth the calculations of the financial ratios
and covenants set forth in Paragraph 5.1(F), including without limitation any
antecedent calculations and the source of any information that was used in such
calculations;
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<PAGE> 26
(4) Promptly after the sending or making
available or filing of the same, copies of all reports, proxy statements,
annual reports, and financial statements that the Borrower sends or makes
available to its stockholders generally and all registration statements and
reports that the Borrower files with the Securities and Exchange Commission or
any successor Person; and
(5) Immediately upon receipt of the same by
Borrower or any Subsidiary, copies of all management letters and any other
reports which are submitted to the Borrower or any of its Subsidiaries by its
independent accountants in connection with any annual or interim audit of the
Records of the Borrower or its Subsidiaries by such accountants.
Agent shall promptly forward to the Banks copies of all items delivered to
Agent under this Paragraph (B).
(C) The Borrower and its Subsidiaries will maintain
their respective Inventory, Equipment, Real Property and other properties in as
good condition and repair as exist on this date (normal wear and tear
excepted), and will pay and discharge or cause to be paid and discharged prior
to delinquency, the cost of repairs to or maintenance of the same, and will pay
or cause to be paid all rental or mortgage payments prior to delinquency on
such Equipment.
(D) The Borrower and its Subsidiaries will maintain, or
cause to be maintained, public liability insurance and fire and extended
coverage insurance on all assets owned by them, all in such form and amounts as
are consistent with industry practices and with such insurers as may be
reasonably satisfactory to the Banks. The Borrower will furnish to the Agent
such evidence of insurance as the Banks may require.
(E) The Borrower and its Subsidiaries will pay or cause
to be paid prior to delinquency, all taxes, assessments and charges or levies
imposed upon them or on any of their property or which any of them is required
to withhold or pay over, except where contested in good faith by appropriate
proceedings with adequate security therefor having been set aside in a manner
satisfactory to the Agent. The Borrower and each Subsidiary shall pay or cause
to be paid all such taxes, assessments, charges or levies forthwith whenever
foreclosure on any lien that attaches (or security therefor) appears imminent.
(F) The Borrower will maintain:
(1) a Fixed Charge Coverage Ratio of greater than
1.90 to 1, calculated quarterly on a rolling four (4) quarter basis.
(2) an Adjusted Debt to Capitalization Ratio of
less than or equal to 68% at all times.
(3) a Funded Debt to EBITDA Ratio of less than
3.25 to 1, calculated quarterly with EBITDA computed on a rolling four (4)
quarter basis.
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All financial covenants shall be tested on a consolidated basis and calculated
in accordance with generally-accepted accounting principles, consistently
applied, except as otherwise noted.
(G) The Borrower and its Subsidiaries will, when
requested to do so, make available any of their Records for inspection by duly
authorized representatives of the Agent, and will furnish the Agent (for the
benefit of the Banks) any information regarding their business affairs and
financial condition within a reasonable time after written request therefor.
Notwithstanding the foregoing, so long as Borrower is not in default hereunder,
inspections of Borrower's Records shall be limited to once per calendar year
and any costs incurred in connection with such inspection shall be borne by the
Banks.
(H) The Borrower and its Subsidiaries, on a consolidated
basis, will take all steps reasonably necessary to preserve their corporate
existence, good standing, and franchise (where failure to do so would have a
material adverse effect on the financial condition of the Borrower and its
Subsidiaries taken as a whole), and will comply, in all material respects, with
all present and future Laws applicable to them in the operation of their
respective businesses and all material agreements to which they are subject,
including without limitation qualification by Borrower or any Subsidiary in any
jurisdiction where qualification is required by their respective businesses.
(I) The Borrower and its Subsidiaries will give
immediate notice to the Agent of: (1) any litigation or proceeding in which
any of them is a party if an adverse decision herein would require them to pay
more than One Hundred Fifty Thousand Dollars ($150,000.00) or deliver assets
the value of which exceeds such sum (if such claim is not fully covered by
insurance subject to approved deductibles); and (2) the institution of any
other suit or proceeding involving any of them that might materially and
adversely affect their operations, financial condition, property, or business
operations considered on a consolidated basis.
(J) The Borrower and its Subsidiaries will pay when due
(or within applicable grace periods) all Indebtedness due any Person, which is
material to Borrower's business operations, except when the amount thereof is
being contested in good faith by appropriate proceedings or actions and with
adequate security therefor being set aside in a manner satisfactory to the
Banks.
(K) The Borrower and its Subsidiaries will notify the
Agent immediately if any of them becomes aware of the occurrence of any Event
of Default or of any fact, condition or event that only with the giving of
notice or passage of time or both, would become an Event of Default, or of the
failure of the Borrower or any Subsidiary to observe any of their respective
undertakings hereunder in any material respect.
(L) The Borrower and its Subsidiaries will notify the
Agent thirty (30) days in advance of any change in the location of any of their
places of business or of the establishment of any new, or the discontinuance of
any existing, place of business.
(M) The Borrower and its Subsidiaries will: (1) fund
all their Defined Benefit Pension Plans in accordance with no less than the
minimum finding standards of section 302 of ERISA and Section 412 of the
Internal Revenue Code: (2) furnish the Agent, promptly after filing of the
same,
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with copies of all reports or other statements filed with the United States
Department of Labor or the Internal Revenue Service with respect to all
such Plans; and (3) promptly advise the Agent of the occurrence of any
"reportable event" or "prohibited transaction" with respect to any such Plan.
5.2 NEGATIVE COVENANTS.
(A) Neither the Borrower nor any Subsidiary will change
its name, or enter into any merger, consolidation, or reorganization in which
the Borrower or such Subsidiary is not the surviving entity.
(B) Neither the Borrower nor any Subsidiary will (i)
sell, transfer, lease or otherwise dispose of all or (except in the ordinary
course of business) any material part of its assets, including, without
limitation, the Real Property; provided, however, Borrower and its Subsidiaries
may in the ordinary course of business sell or dispose of obsolete Equipment or
Inventory, or may replace damaged or worn Equipment with Equipment of similar
value and use, or (ii) mortgage, pledge, grant or permit to exist a security
interest in or lien upon any of the Real Property, now owned or hereafter
acquired, except for Permitted Liens. Notwithstanding the foregoing, so long
as Borrower owns at least twenty-five (25) unencumbered O'Charley's Restaurant
facilities, and Borrower is otherwise in material compliance with the terms of
this Agreement, and no Event of Default has occurred and is continuing, and no
condition or event exists or occurs that, with the giving of notice or the
passage of time, or both, would become an Event of Default, Borrower may
request, on a case-by-case basis, the Agent to release specific Real Property
from the provisions of this Paragraph 5.2(B). The release of the Real Property
assets shall require the consent of the Majority Banks, provided that such
consent shall not be unreasonably withheld or delayed. To the extent the Agent
releases Real Property for purposes of permitting the Borrower to obtain
permanent financing or to sell such Real Property, unless the Agent, with the
consent of the Majority Bank agrees otherwise, Borrower agrees that the net
proceeds resulting from such permanent financing or sale received by the
Borrower or any Subsidiary shall be applied to the balance due under the Loan.
Such payment shall not result in a reduction of the Total Commitments.
(C) Neither the Borrower nor any Subsidiary will become
liable, directly or indirectly, as guarantor or otherwise, for any obligation
of any other Person, except, provided no Default exists or would result from
Borrower or any Subsidiary incurring liability for the following liabilities:
(i) the endorsement of commercial paper for deposit or collection in the
ordinary course of business, (ii) the Indebtedness described in EXHIBIT L,
(iii) Equipment leases and purchase money financing for Equipment entered into
in the ordinary course of business, (iv) obligations to vendors and other trade
payables incurred in the ordinary course of business which are paid in
accordance with the customary terms provided to the Borrower (or such
obligations or trade payables which are being contested in good faith for which
adequate security has been reserved in a manner satisfactory to the Banks), (v)
Indebtedness incurred in connection with the release by the Majority Banks of
specific properties from the provisions of Section 5.2(B) hereof, and (vi)
other Indebtedness incurred in the ordinary course of business, which,
including the Indebtedness described under Section 5.2(D)(vii), does not, at
any time, exceed $15,000,000.00 in the aggregate, provided the documents or
instruments evidencing such Indebtedness contain terms and conditions
reasonably acceptable to the Agent (with the consent of the Majority Banks),
which consent shall not be unreasonably withheld).
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<PAGE> 29
(D) Neither the Borrower nor any Subsidiary will incur,
create, assume, or permit to exist any Indebtedness except: (i) the Loans; (ii)
the Indebtedness described in EXHIBIT L; and, provided no Default exists or
would result from Borrower or any Subsidiary incurring the following
Indebtedness, (iii) Equipment leases, and purchase money financing for
Equipment entered into in the ordinary course of business; (iv) obligations to
vendors and other trade payables incurred in the ordinary course of business
which are paid in accordance with the customary terms provided to the Borrower
(or such obligations or trade payables which are being contested in good faith
for which adequate security has been reserved in a manner satisfactory to the
Banks); (v) contingent Indebtedness permitted by paragraph 5.2(C); (vi)
Indebtedness incurred in connection with the release by the Majority Banks of
specific properties from the provisions of Section 5.2(B) hereof, and (vii)
other Indebtedness incurred in the ordinary course of business, which,
including the Indebtedness described in Section 5.2(C)(vi) does not exceed
$15,000,000.00 in the aggregate, provided the documents or instruments
evidencing such Indebtedness contain terms and conditions reasonably acceptable
to the Agent (with the consent of the Majority Banks), which consent shall not
be unreasonably withheld).
(E) Except for the existing matters disclosed in EXHIBIT
N, neither the Borrower nor any Subsidiary will make any investment in or make
any loan in the nature of any investment to any Person, without the prior
written consent of the Agent (with consent of the Majority Banks), which
consent shall not be unreasonably withheld.
(F) Except as described in EXHIBIT O, neither the
Borrower nor any Subsidiary will make any loan or advance to any officer,
shareholder, director or employee of the Borrower or any Subsidiary, except for
temporary advances in the ordinary course of business.
(G) Neither the Borrower nor any Subsidiary will prepay
any Subordinated Indebtedness, except in accordance with its terms.
(H) Neither the Borrower nor any Subsidiary will enter
into any sale-leaseback transaction, except: (i) the transactions described in
EXHIBIT P; (ii) such sale-leaseback transactions as shall be consented to by
the Agent (with the consent of the Majority Banks), which consent shall not be
unreasonably withheld, provided (i) the proceeds of any sale-leaseback
transaction are applied to the outstanding principal balance of the Loans, and
(ii) the Borrower shall, at all times, own at least twenty-five (25)
unencumbered O'Charley's Restaurant facilities.
(I) Neither the Borrower nor any Subsidiary will acquire
any stock in, or all or substantially all of the assets of, any Person, without
the prior written consent of the Agent (with consent of the Majority Banks),
which consent shall not be unreasonably withheld.
(J) Neither the Borrower nor any Subsidiary will furnish
the Agent or any Bank any certificate or other document that will contain any
untrue statement of material fact or that will omit to state a material fact
necessary to make it not misleading in light of the circumstances under which
it was furnished.
(K) Neither the Borrower nor any Subsidiary will
directly or indirectly apply any
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<PAGE> 30
part of the proceeds of the Loans to the purchasing or carrying of any "margin
stock" within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System, or any regulation, interpretations or ruling thereunder.
(L) Except as described in EXHIBIT Q, Borrower will not,
and will not permit any of its Subsidiaries to, directly or indirectly, enter
into or permit to exist any transaction (including without limitation the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate (other than any Subsidiary which is wholly owned by
Borrower) on terms that are less favorable to the Borrower or its Subsidiaries
than those that would be obtainable at the time from any Person who is not an
Affiliate.
(M) Neither Borrower nor any Subsidiary will materially
alter its current business operations, or engage in a new business venture
which is not reasonably compatible with the Borrower's current business
operations.
(N) Borrower will not permit a change in Borrower's
senior management, except to the extent an individual member of senior
management is replaced with an individual with substantially equivalent
expertise with the consent of the Majority Banks, which consent shall not be
unreasonably withheld. For purposes of this Agreement, senior management shall
mean Gregory L. Burns and Steve Hislop.
(O) Borrower will not declare or pay cash dividends or
other similar distributions without the prior written consent of the Agent
(with the consent of the Majority Banks).
(P) Borrower will not purchase, redeem or retire in
excess of $2,000,000 of Borrower's outstanding capital stock, without the prior
written consent of the Agent (with the consent of the Majority Banks).
SECTION 6. DEFAULT
6.1 EVENTS OF DEFAULT. The occurrence of any one or more of
the following events shall constitute an "Event of Default" hereunder:
(A) The Borrower shall fail to pay when due any
installment of principal or interest or fee payable hereunder.
(B) The Borrower shall fail to achieve any of the
financial covenants contained in Paragraph 5.1(F).
(C) The Borrower or any Subsidiary shall fail to observe
or perform any obligation or covenant to be observed or performed by any of
them, jointly or severally, under any of the Loan Documents; provided, however,
if such failure is not related to the payment of money or the breach of
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a financial covenant contained in Paragraph 5.1(F), Borrower shall have twenty
(20) days to cure such failure before the Majority Banks and/or Agent exercise
the rights and remedies hereunder, with such twenty (20) day period commencing
after: (1) notice of such failure from the Agent or Banks; or (2) the Agent is
notified of such failure or should have been so notified pursuant to the
provisions of Paragraph 5.1(M), which ever is earlier.
(D) Any financial statement, representation, warranty or
certificate made or furnished by the Borrower or any Subsidiary to the Agent or
any Bank in connection with this Agreement or the Loans, or as inducement to
the Banks to enter into this agreement, shall be false, incorrect, or
incomplete in any material respect when made.
(E) The Borrower or any Subsidiary shall admit its
inability to pay its debts as they mature, or shall make an assignment for the
benefit of its or any of its creditors.
(F) Proceedings in bankruptcy, or for reorganization or
the Borrower or any Subsidiary, or for the readjustment of any of their
respective debts, under the United States Bankruptcy Code, as amended, or any
part thereof, or under any other Laws, whether state or federal, for the relief
of debtors, now or hereafter existing, shall be commenced by the Borrower or
any subsidiary, or shall be commenced against the Borrower or any Subsidiary,
and which, in the case of an involuntary petition, are not dismissed within
sixty (60) days from the date of the filing.
(G) A receiver or trustee shall be appointed for the
Borrower or any Subsidiary or for any substantial part of their respective
assets, or any proceedings shall be instituted for the dissolution or the full
or partial liquidation of the Borrower or any Subsidiary, or the Borrower or
any Subsidiary shall discontinue business or materially change the nature of
its business.
(H) The Borrower or any Subsidiary shall (i) suffer a
final judgment (which is not covered by insurance subject to approved
deductibles) requiring payment of money (including costs and expenses)
aggregating in excess of $500,000, which judgment is not discharged within a
period of thirty (30) days unless, pending further proceedings, execution has
been effectively stayed pending appeal, to the satisfaction of the Agent, or
(ii) suffer a final judgment or judgments (which are not covered by insurance
subject to approved deductibles), requiring payment of money (including costs
and expenses) in an aggregate amount in excess of $2,000,000.
(I) The Borrower or any Subsidiary shall pay, in
satisfaction of a final non-appealable judgment or in connection with the
settlement or compromise of litigation against the Borrower or any Subsidiary
(excluding (i) payment of approved deductibles, or insurance proceeds paid, in
connection with a judgment or settlement of litigation which is covered by
insurance, and (ii) payment of obligations or liabilities incurred in
connection with the Settlement Agreement entered into by Borrower in connection
with the settlement of the litigation styled Taylor, et al. v. O'Charley's
Inc., a copy of which is attached hereto as EXHIBIT R), or in connection with
an appeal bond or other security required in connection with the appeal of a
final judgment against the Borrower or any Subsidiary, an aggregate amount in
excess of $750,000 in any fiscal year.
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<PAGE> 32
(J) A judgment creditor or other lien creditor of the
Borrower or any Subsidiary shall obtain possession of any of the Real Property
by any means, including, but without limitation, levy, distraint, replevin or
self-help.
(K) Borrower or any Subsidiary shall default in any
other Indebtedness for borrowed money (including capitalized leases, but
excluding the Obligations), directly or indirectly, whether matured or
unmatured, which (i) is in excess of $2,500,000.00 and results in the
acceleration of such Indebtedness, or (ii) consists of obligations owed to two
(2) different Persons and which results in the acceleration of such
obligations.
(L) A lien or other encumbrance shall be filed against
the Real Property, or any portion thereof, in violation of Paragraph 5.2(B)
hereof, excluding: (i) Permitted Liens; and (ii) judgment liens permitted by
Section 6.1(H) hereof.
(M) The occurrence of any liability, or the reasonable
threat of such liability, under Borrower's employee benefit plans, which
results in a material adverse effect on the financial condition or business
operations of the Borrower or any Subsidiary.
6.2 ACCELERATION. Upon the occurrence of any of such Events
of Default, the Majority Banks may, at their option, immediately terminate the
obligation to make any further advances under the respective Commitments and/or
declare the principal and interest accrued on the Notes and all other
Obligations to be immediately due and payable, whereupon the same shall become
forthwith due and payable, without presentment, demand, protest, or any notice
of any kind except as set forth above; provided, that in the case of the Events
of Default specified in clause (F), (G) or (H) above with respect to Borrower,
without any notice to Borrower or any act by Agent or the Bank's the
Commitments shall thereupon terminate and the Notes and all other Obligations
shall become immediately due and payable without presentment, demand, protest
or other notice of any kind, all of which are waived by the Borrower. In
addition, and regardless of whether the Notes have been accelerated, the
Majority Banks may upon the occurrence of any Event of Default elect to charge
interest at the Default Rate set forth in the Notes.
6.3 REMEDIES. After any acceleration, as provided for in
Paragraph 6.2, the Banks shall have, in addition to the rights and remedies
given it by the Loan Documents, all those allowed by all applicable Laws.
SECTION 7. THE AGENT
Except as provided in Paragraph 7.8 below, this Section VII is
between and among the Agent and the Banks only. Neither the Borrower nor any
other creditor of the Borrower shall have any rights under this section,
whether as a third party beneficiary or otherwise.
7.1 AUTHORIZATION. With respect to all funds advanced
hereunder or under the Notes,
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First American National Bank, NationsBank of Tennessee, N.A., Mercantile Bank
of St. Louis National Association and Bank One, Dayton, N.A., shall be
obligated to advance $20,000,000.00; $20,000,000.00; $15,000,000.00, and
$15,000,000.00, respectively, and each such Bank shall own a corresponding
undivided interest in this Agreement. Each Bank authorizes the Agent to act on
behalf of such Bank or holder to the extent provided herein or in any document
or instrument delivered hereunder or in connection herewith and signed by such
Bank, and to take such other action as may be reasonably incidental thereto.
The Agent shall be considered as acting solely in an administrative and
ministerial capacity, not as trustee or other fiduciary of the Banks. The
Agent shall not be construed as having any agency or fiduciary relationship
with the Borrower. The Agent shall not have any duties or obligations to the
Banks other than those expressly provided for herein. The Agent shall not be
required to exercise any discretion or take any action, but shall be fully
protected in so acting or in refraining from acting, upon the instructions of
the Majority Banks (except as otherwise provided in Paragraph 8.3, for matters
which require the consent of all Banks), and such instructions shall be binding
upon all Banks and holders of the Notes, and the Agent shall not be liable to
any party hereto for any consequence of any such action or refraining from
action. Notwithstanding any instructions of the Majority Banks, the Agent
shall not be required to take any action that exposes the Agent to personal
liability or that is contrary to any loan document or applicable law.
7.2 STANDARD OF CARE. Neither the Agent nor any of its
officers, directors, agents, employees or representatives shall be liable for
any action taken or omitted to be taken by it or any of them under or in
connection with this Agreement, except for its or their own gross negligence or
willful misconduct. Without limitation of the generality of the foregoing, the
Agent: (a) may treat the payee of any Notes as the holder thereof and as a Bank
hereunder until the Agent receives written notice of the assignment or transfer
thereof signed by such payee and in form satisfactory to the Agent (which
notice shall be binding on all parties hereto); (b) may consult with legal
counsel (including counsel for the Borrower), independent public accountants
and other experts and advisories selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants, experts or other advisors; (c) makes no
warranty or representation to any Bank and shall not be responsible to any Bank
for any statements, warranties or representations made in or in connection with
this Agreement or for any failure or delay in performance by the Borrower or
any Bank under this Agreement; (d) shall not have any duty to ascertain or to
inquire as to the performance or observance of any of the terms, covenants or
conditions of this Agreement; (e) shall not be responsible to any Bank for the
due execution, legality, validity, enforceability, perfection, collectability,
genuineness, sufficiency or value of this Agreement, the Notes, or any other
instrument of document furnished pursuant thereto or for the accuracy or
completeness of any credit or other information provided to the Banks; (f)
shall incur no liability under or in respect of this Agreement by action upon
any notice, consent, certificate or other instrument or writing (which may be
by telecopier, telegram, cable or telex) believed by it to be genuine and
signed or sent by the proper party or parties; and (g) shall incur no liability
for relying upon any matters of fact that might reasonable be expected to be
within the knowledge of the Borrower, upon a certificate or other writing
signed by Borrower, or upon telephone communications with Borrower which are
reasonably believed to be true and valid.
7.3 NO WAIVER OF RIGHTS. With respect to the Notes, the Agent
shall have the same rights and powers hereunder as any other Bank and may
exercise the same as though it were not the
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Agent, and the Agent may accept deposits from, and generally engage in any kind
of business with, the Borrower.
7.4 PAYMENTS. The Agent shall use its best efforts to deliver
to each Bank on the same day as received by Agent in immediately available
funds such Bank's pro rata share of all payments received by the Agent for the
benefit of the Banks, but in the event Agent is unable to deliver such payments
to any Bank on the same day of receipt, Agent agrees to pay such Bank interest
on the payment for each day the Agent is unable to deliver the payments after
the date of its receipt based on the overnight federal funds rate of interest.
Any payment due for any reason under this Agreement that is required to be made
on a date on which the Agent is not open for business shall be extended until
the next day on which the Agent is open for the transaction of business.
7.5 INDEMNIFICATION. The Agent shall not be required to do
any act hereunder or under any other document or instrument delivered hereunder
or in connection herewith or take any action toward the execution or
enforcement of the agency hereby created, or to prosecute or defend any suit in
respect of this Agreement or the Notes or to advance funds hereunder upon the
failure by any Bank to fund its pro rata share of the Commitment hereunder,
unless ratably indemnified to its satisfaction (to the extent not reimbursed by
Borrower) by the holders of the Notes against loss, cost, liability and expense
(including reasonable fees and out-of-pocket expenses of counsel), claim,
demand, action, loss or liability (except such as result from Agent's gross
negligence or willful misconduct) that Agent may suffer or incur in connection
with this Agreement or any action taken or omitted by Agent hereunder. Each
Bank agrees to reimburse the Agent promptly upon demand for such Bank's pro
rata share of any expenses referred to in Paragraph 8.4 incurred by the Agent
to the extent that the Agent is not reimbursed for such expenses by the
Borrower.
7.6 EXCULPATION. Neither Agent nor any of its directors,
officers, employees or agents shall be liable for any action taken or not taken
by it in connection herewith (a) with the consent or at the request of the
Banks or Majority Banks, as appropriate, or (b) in the absence of its own gross
negligence or willful misconduct. Neither Agent nor any of its directors,
officers, employees or agents shall (i) be responsible for any recitals,
representations or warranties contained in, or for the execution, validity,
genuineness, effectiveness or enforceability of this Agreement, any Note or any
other instrument or document delivered hereunder or in connection herewith, or
(ii) be under any duty to inquire into or pass upon any of the foregoing
matters, or to make any inquiry concerning the performance by Borrower or any
other obligor of its obligations.
7.7 CREDIT INVESTIGATION. Each Bank acknowledges that it has
made such inquiries and taken such care on its own behalf as would have been
the case had the Commitment been granted and the Loan made directly by such
Bank to the Borrower. Each Bank agrees and acknowledges that the Agent makes
no representations or warranties about the creditworthiness or the Borrower or
any other party to this Agreement or with respect to the legality, validity,
sufficiency or enforceability of this Agreement, the Notes or the value of any
security therefor and that each Bank has not entered into this Agreement in
reliance upon any action, statement, representation, or warranty of any other
Bank or Agent. Each Bank agrees that it will, independently and without
reliance upon the Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to
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<PAGE> 35
make its own credit decisions in taking or not taking action under this
Agreement. Neither the Agent nor any other Bank shall have any obligation
whatsoever to make any such credit analysis or decisions for a Bank or to
provide any credit or other information with respect to the Borrower now or in
the future in the possession of the Agent or such other Bank, except that the
Agent shall promptly forward to the Banks a copy of any notice received by the
Agent from the Borrower of the occurrence of an Event of default hereunder and
copies of all material documents delivered to it by the Borrower pursuant to
the terms hereof.
7.8 RESIGNATION. The Agent may resign at any time as the
Agent under this Agreement by giving written notice thereof to the Banks and
the Borrower, which resignation shall be effective upon a successor Agent's
acceptance of its appointment. Upon any such resignation, the Majority Banks
shall have the right to appoint a successor Agent hereunder, which successor
Agent shall also be reasonably acceptable to the Borrower so long as there is
no Event of Default in existence hereunder. If no such successor Agent shall
have been so appointed by the Majority Banks, or Borrower shall have reasonably
rejected such appointment, within thirty (30) days after the retiring Agent's
giving of notice of resignation, then the retiring agent may, on behalf of the
Banks, appoint a successor Agent, which shall be a commercial bank organized
under the laws of the United States of America or of any State thereof having
assets of at least One Hundred Million and No/100 Dollars ($100,000,000.00) and
which shall be reasonably acceptable to the Borrower. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Agent's resignation as an Agent hereunder, the provisions of this Section VII
shall insure to its benefit as to any actions taken or omitted to be taken by
it while it was an Agent under the Loan Documents.
7.9 PRORATION OF PAYMENTS. Except as may be provided in other
sections of this Agreement, all funds received by Banks, or any of them, shall
be allocated pro rata among all banks in proportion to their respective
Commitment Percentages as set forth in Paragraph 2.1 hereof. If any Bank or
other holder of any Notes shall obtain any payment or other recovery (whether
voluntary, involuntary, by application of offset or otherwise) on account of
principal of or interest on the Notes then held by it in excess of its pro rata
share of payments and other recoveries obtained by all Banks or other holders
on account of principal of and interest on the Notes then held by them, such
Bank or other holder shall purchase from the other Banks or holders such
participation in the Note held by them as shall be necessary to cause such
purchasing Bank or other holder to share the excess payment or other recovery
ratably with each of them; provided, however, if all or any portion of the
excess payment or other recovery is thereafter recovered from such purchasing
holder, the purchase shall be rescinded and the purchase price restored to the
extent of such recovery, but without interest. Notwithstanding the foregoing,
except as set forth in paragraph 7.11 hereof, no Bank shall have any obligation
to account for or share any amount, property or profit of any kind received by
it for its own account arising out of a banking or other relationship with the
Borrower apart from the obligations under the Loan Documents.
7.10 NO LIABILITY FOR ERRORS. The Agent shall not be liable
for any error in computing the amounts payable to any Bank in respect of any
amounts due to the Banks hereunder or in making payment of such amounts. In
the event of an error in computing any amount payable to any Bank or in
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<PAGE> 36
the making of a payment, the Agent, the Borrower and such Bank shall, forthwith
upon discovery of such error, make such adjustment as shall be required to
correct such error, including the payment of interest on any amounts that were
incorrectly paid or not paid from the date paid or of the date due to the date
returned or paid, all as the case may be, at the average daily rate for the
overnight sale of federal funds by the Agent in effect for such period.
7.11 OFFSET. In addition to and not in limitation of all
rights of offset that any Bank or other holder of any Note may have under
applicable Laws, each Bank or other holder of a Note shall, upon the occurrence
of any Event of Default described in this Agreement or in the Note in question,
have the right to appropriate and apply to the payment of such Notes any and
all balances, credits, deposits, accounts or moneys of the Borrower then or
thereafter with such Bank or other holder; provided, however, all funds
received as a result of such offsets shall be applied pro rata among the Banks
in proportion to their respective Commitment Percentages as set forth in
Paragraph 2.1 hereof. Each Bank agrees to notify the other Banks immediately
upon the exercise by it of this right of offset.
SECTION 8. MISCELLANEOUS
8.1 CONSTRUCTION. The provisions of this Agreement shall be
in addition to those of any guaranty, pledge or security agreement, note or
other evidence of liability held by the Banks, all of which shall be construed
as complementary to each other. Nothing herein contained shall prevent the
Banks from enforcing any or all other notes, guaranties, pledge or security
agreements in accordance with their respective terms.
8.2 FURTHER ASSURANCE. From time to time, the Borrower will
execute and deliver to the Banks such additional documents and will provide
such additional information as the Banks may reasonably require to carry out
the terms of this Agreement and be informed of the Borrower's operations,
business and condition.
8.3 ENFORCEMENT AND WAIVER BY THE BANKS. The Majority Banks
shall have the sole and exclusive right to administer, amend, waive or modify
the Loan Documents, and are hereby empowered to act for the Banks with regard
to the aggregate Commitments and the documentation thereof; provided, however,
it shall take an affirmative vote of all the Banks to (i) increase any of the
several Commitments; (ii) decrease any of the interest rates on the Loan; (iii)
amend the payment dates for the Loans or extend the Loan Termination Date on
the Loans; (iv) approve prepayments of the Subordinated Indebtedness; (v) amend
the definition of Majority Banks; and (vi) amend Paragraph 5.2(B) or this
Paragraph 8.3. The Banks shall have the right at all times to enforce the
provisions of the Loan Documents in strict accordance with the terms thereof,
notwithstanding any conduct or custom on the part of the Banks and/or Agent in
refraining from so doing at any time or times. The failure of the Banks at any
time or times to enforce their rights under such provisions, strictly in
accordance with the same, shall not be construed as having created a custom in
any way or manner contrary to specific provisions of the Loan Documents or as
having in any way or manner modified or waived as same. All rights and
remedies of the Banks are cumulative and concurrent and the exercise of one
right or remedy shall not
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<PAGE> 37
be deemed a waiver or release of any other right or remedy.
8.4 EXPENSES OF THE AGENT. The Borrower will, on demand,
reimburse the Agent for all expenses, including the reasonable fees and
expenses of legal counsel for the Agent, incurred by the Agent in connection
with the preparation, administration, amendment, modification, or enforcement
of the Loan Documents and the collection or attempted collection of the Notes.
8.5 NOTICES. Any notices or consents required or permitted by
this Agreement shall be in writing and shall be deemed delivered when delivered
in person, or when sent by certified mail, postage prepaid, return receipt
requested or by overnight courier service, to the address as follows, unless
such address is changed by written notice hereunder:
(A) If to the Borrower:
O'Charley's Inc.
P.O. Box 291809
Nashville, TN 37229
Attn: Chad Fitzhugh, Chief Financial Officer
cc: J. Page Davidson
Felix Dowsley, Esquire
Bass, Berry & Sims, PLC
First American Center
Nashville, TN 37229
(B) If to the Agent:
First American National Bank
First American Center
Nashville, TN 37237-0202
Attn: Ludolf H. Roell, Sr. Vice President
cc: Kim A. Brown, Esquire
Sherrard & Roe, PLC
424 Church Street, Suite 2000
Nashville, TN 37219
(C) If to Co-Agent:
NationsBank of Tennessee, N.A.
One NationsBank Plaza
414 Union Street
Nashville, TN 37239
Attn: William Diehl
-33-
<PAGE> 38
(D) If to the Banks:
Mercantile Bank of St. Louis National Association
Mercantile Plaza, Tram 12-3
St. Louis, MO 63166
Attn: Don Adam, Vice President
Bank One Dayton, N.A.
Kettering Tower
P.O. Box 1103
Dayton, OH 45401
Attn: Glenn T. Campbell, Vice President
8.6 WAIVER AND RELEASE. To the maximum extent permitted by
applicable Laws, the Borrower and each Subsidiary:
(A) Waive: (1) protest of all commercial paper at any
time held by the Banks on which the Borrower or any Subsidiary is in any way
liable; and (2) notice and opportunity to be heard, after acceleration in the
manner provided in Paragraph 7.2, before exercise by the Banks of the remedies
of self-help, set-off, or of other summary procedures permitted by any
applicable Laws or by an agreements with the Borrower or any Subsidiary, and,
except where required hereby or by any applicable Laws, notice of any other
action taken by the Banks; and
(B) Release the Banks and their officers, directors,
attorneys, employees, and agents from all claims for loss or damage caused by
any act or omission on the part of any of them except willful misconduct or
gross negligence.
8.7 INDEMNIFICATION. Borrower and each Subsidiary hereby
indemnify and hold the Banks and their officers, directors, attorneys,
employees and agents free and harmless from and against any and all actions,
causes of action, suits, losses, liabilities and damages, and expenses in
connection therewith, including without limitation counsel fees and
disbursements, incurred by the Banks or any of them as a result of, or arising
out of, or relating to the execution, delivery, performance or enforcement of
the Loan Documents or any instrument contemplated therein, except for any
Bank's gross negligence or willful misconduct. If and to the extent that the
foregoing undertaking may be unenforceable for any reason, Borrower and each
Subsidiary hereby agree to make the maximum contribution to the payment and
satisfaction of such liabilities and costs permitted under applicable Laws.
8.8 ASSIGNMENT/PARTICIPATIONS. Each Bank may, with the prior
written consent of the Borrower (which may be unreasonably withheld) and the
Agent, assign to one or more eligible assignees all or a portion of its
interests, rights and obligations under this Agreement (including, without
limitation, all or a portion of the Advances at the time owing to it and the
Notes held by it); PROVIDED, HOWEVER, that (a) each such assignment shall be of
a constant, and not a varying, percentage of all the assigning Bank's rights
and obligations under this Agreement, (b) the Commitment Percentage of the
assigning Bank subject to each such assignment (determined as of the date the
Assignment and Acceptance with
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<PAGE> 39
respect to such assignment is delivered to the Agent) shall in no event be
less than $5,000,000 and must be in multiples of $1,000,000, and (c) the
parties to each such assignment shall execute and deliver to the Agent, for its
acceptance, an Assignment and Acceptance, together with any Note or Notes
subject to such assignment. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five Business Days after the
execution thereof, (i) the assignee thereunder shall be a party hereto and, to
the extent provided in such Assignment and Acceptance, have the rights and
obligations of a Bank hereunder, and (ii) the assigning Bank thereunder shall,
to the extent provided in such assignment, be released from its obligations
under this Agreement.
Notwithstanding any other provision of this Agreement, the Borrower
understands that any Bank may at any time enter into participation agreements
with one or more participating banks whereby such Bank will allocate certain
percentages of its Commitment to such bank or banks. The Borrower acknowledges
that, for the convenience of all parties, this Agreement is being entered into
with the Banks only and that Borrower's obligations hereunder are undertaken
for the benefit of, and as an inducement to, any such participating bank as
well as the Banks, and the Borrower hereby grants to each participating bank,
to the extent of its participation in the Commitment, the right to set off
deposit accounts maintained by the Borrower with such bank, provided that such
participating banks shall not become "Banks" hereunder, or be entitled to
directly exercise any of the rights or remedies of the Banks hereunder.
8.9 APPLICABLE LAWS. The Laws of the State of Tennessee shall
govern the construction of this Agreement and the rights and remedies of the
parties hereto.
8.10 BINDING EFFECT, ASSIGNMENT AND ENTIRE AGREEMENT. This
Agreement shall inure to the benefit of, and shall be binding upon, the
respective successors and permitted assigns of the parties hereto. The
Borrower has no right to assign any of its rights or obligations hereunder
without the prior written consent of the Banks. This Agreement and the
documents executed and delivered pursuant hereto constitute the entire
agreement between the parties, and supersede all prior agreements and
understandings among the parties hereto. This Agreement may be amended only by
a writing signed on behalf of each party.
8.11 SEVERABILITY. If any provision of this Agreement shall
be held invalid under any applicable Laws, such invalidity shall not effect any
other provision of this Agreement that can be given effect without the invalid
provision, and, to this end, the provisions hereof are severable.
8.12 COUNTERPARTS. This Agreement may be executed by the
parties independently in any number of counterparts, all of which together
shall constitute but one and the same instrument which is valid and effective
as if all parties had executed the same counterpart.
8.13 SEAL. This Agreement is intended to take effect as an
instrument under seal.
8.14 VENUE. The Borrower and the Subsidiaries hereby
irrevocably consent to the jurisdiction of the United States District Court for
the Middle District of Tennessee and of all Tennessee state courts sitting in
Davidson County, Tennessee, for the purpose of any litigation to which the
Agent
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<PAGE> 40
or any other Bank may be a party and which concerns this Agreement of the
transactions contemplated herein. It is further agreed that venue for any such
action shall lie exclusively with courts sitting in Davidson County, Tennessee,
unless the Agent agrees to the contrary in writing.
8.15 WAIVER OF JURY TRIAL. THE BORROWER AND EACH SUBSIDIARY
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE (TO THE EXTENT PERMITTED
BY APPLICABLE LAWS) ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE
ARISING UNDER, RELATING TO, OR CONNECTED WITH THIS AGREEMENT, THE COLLATERAL OR
ANY OTHER AGREEMENT, INSTRUMENT OR DOCUMENT CONTEMPLATED HEREBY DELIVERED IN
CONNECTION HEREWITH AND AGREE THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A
JUDGE SITTING WITHOUT A JURY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
BANKS' ENTERING INTO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
AGENT BORROWER
FIRST AMERICAN NATIONAL O'CHARLEY'S INC., a Tennessee
BANK, a national banking corporation
association
BY: /s/ BY: /s/
------------------------------- -------------------------------------
TITLE: SVP TITLE: President
---------------------------- ----------------------------------
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<PAGE> 41
SIGNATURE PAGE FOR NATIONSBANK OF TENNESSEE, N.A.
FOR THE AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
DATED , 1996
NATIONSBANK OF TENNESSEE, N.A.
BY:__________________________________
TITLE:_______________________________
"CO-AGENT"
<PAGE> 42
SIGNATURE PAGE FOR MERCANTILE BANK OF ST. LOUIS NATIONAL ASSOCIATION
FOR THE AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
DATED , 1996
MERCANTILE BANK OF ST. LOUIS
NATIONAL ASSOCIATION
BY:__________________________________
TITLE:_______________________________
<PAGE> 43
SIGNATURE PAGE FOR BANK ONE DAYTON, N.A.
FOR THE REVOLVING CREDIT AGREEMENT
DATED , 1996
BANK ONE DAYTON, N.A.
BY:__________________________________
TITLE:_______________________________
<PAGE> 44
SIGNATURE PAGE FOR FIRST AMERICAN NATIONAL BANK
FOR THE AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
DATED , 1996
FIRST AMERICAN NATIONAL BANK
BY:__________________________________
TITLE:_______________________________
<PAGE> 45
SCHEDULE I
Table for Calculation of Interest
Rates and Commitment Fees
<TABLE>
<CAPTION>
Adjusted Debt to Adjusted Debt to Adjusted Debt to
---------------- ---------------- ----------------
Capitalization Ratio Capitalization Ratio Capitalization Ratio
-------------------- -------------------- --------------------
Funded Debt to EBITDA Below 52% Between 52% and
--------------------- --------- ----------------
Ratio 64% (including 52%) 64% and above
----- ------------------- -------------
<S> <C> <C> <C>
Below 2.00. L + 1.000% L + 1.125% L + 1.375%
I - 0.500% I - 0.500% I + 0.000%
Commitment Fee: 0.10% Commitment Fee: 0.10% Commitment Fee: 0.20%
Between 2.00 and 2.55 L + 1.125% L + 1.250% L + 1.625%
(including 2.00). I - 0.500% I - 0.500% I + 0.000%
Commitment Fee: 0.15% Commitment Fee: 0.15% Commitment Fee: 0.25%
Between 2.55 and 3.00 L + 1.250% L + 1.375% L + 2.000%
(including 2.55). I + 0.000% I + 0.000% I + 0.250%
Commitment Fee: 0.20% Commitment Fee: 0.20% Commitment Fee: 0.30%
3.00 and above. L + 1.750% L + 2.000% L + 2.250%
I + 0.000% I + 0.250% I + 0.500%
Commitment Fee: 0.25% Commitment Fee: 0.30% Commitment Fee: 0.35%
</TABLE>
I. Interest Rate Margins
The applicable Index Margin and the applicable LIBOR Margin is indicated
in each block opposite "I" for Index Rate and "L" for LIBOR Rate. The "+" or
"-" indicates whether the applicable margin is added to or subtracted from the
Index Rate or LIBOR Rate, as the case may be. The applicable Index Margin
shall adjust three (3) days subsequent to the Agent's receipt of the Borrower's
compliance certificate confirming the Borrower's financial ratios for the
preceding quarter. The applicable LIBOR Margin shall adjust at the end of each
applicable Eurodollar Interest Period but, in no event, earlier than five (5)
days after the receipt by the Agent of the Borrower's compliance certificate
confirming the Borrower's financial ratios for the preceding quarter.
II. Commitment Fees
The applicable Commitment Fee is indicated in each block. The applicable
Commitment Fee shall adjust quarterly to reflect changes in the Funded Debt to
EBITDA Ratio and the Adjusted Debt to Capitalization Ratios effective as of the
first day of the fiscal quarter immediately following the period covered by the
quarterly compliance certificate submitted to Bank in accordance with this
Agreement.
<PAGE> 1
SEVERANCE AGREEMENT AND GENERAL RELEASE
In consideration for the payments and additional benefits to be paid by
O'Charley's Inc., a Tennessee corporation (the "Company"), Charles F. McWhorter
("Employee") hereby releases the Company and its affiliates and all of its
officers, directors, employees, agents, attorneys and stockholders from all
claims or causes of action based on facts which are known by him or of which he
has been made aware, arising in the course of his employment or resulting from
the termination of his employment. This means that he cannot and will not file
any claim, charge, or lawsuit on the basis of any such claim or cause of action
for the purpose of obtaining any monetary award above and beyond the amounts
provided for in this Severance Agreement and General Release ("Agreement"),
reinstatement of his employment or for any equitable relief.
Notwithstanding the foregoing, Employee acknowledges that this general
release includes, but is not limited to, all claims arising under federal, state
or local laws prohibiting employment discrimination and all claims growing out
of any legal restrictions on the Company's right to terminate its employees,
specifically including all claims of employment discrimination based on race,
color, religion, sex, and national origin, as provided under Title VII of the
Civil Rights Act of 1964, as amended, all claims of discrimination based on age,
as provided under the Age Discrimination in Employment Act of 1967, as amended,
all claims under the Employee Retirement Income Security Act (ERISA) and all
claims of employment discrimination under the Americans with Disabilities Act
(ADA) as well as claims under state law.
In consideration of the agreements and covenants by Employee hereunder, the
Company hereby releases Employee from all claims or causes of action arising in
the course of his employment other than claims or causes of action based on
criminal conduct.
Employee intends this Agreement to be binding upon himself, his estate,
heirs and assignees. The Company intends this Agreement to be binding upon it,
its successors and assignees. Employee understands and agrees that if he
breaches this Agreement in any material respect or if he files any claim or
lawsuit against the Company on the basis of a released claim, all payments and
benefits provided herein shall cease, and Employee or his estate shall be
required to reimburse the Company for all payments and benefits Employee
received under this Agreement prior to such time.
In consideration of the foregoing, the Company and Employee hereby agree
and covenant as follows:
1. Employee hereby resigns from employment with the Company effective
September 3, 1996.
2. The Company will make severance payments to Employee for the period
ended December 29, 1996 as follows:
<PAGE> 2
(a) Employee shall continue to receive his salary at the same rate as
currently in effect through December 29, 1996;
(b) Employee shall receive such bonus as Employee would have been
entitled to receive for the year ended December 29, 1996 pursuant to the
bonus formula contained in the 1996 Executive Officers' Bonus Plan (the
"Bonus Plan"); and
(c) Employee shall continue to receive his present automobile
allowance through December 29, 1996.
All such severance payments will be subject to state and federal tax
withholding.
3. Through December 29, 1996, the Company will continue to provide group
medical insurance to Employee on the same basis as the Company then makes such
insurance available to regular full-time employees of the Company, and will pay
for such coverage on Employee's behalf. Following December 29, 1996, Employee
shall be eligible for such coverage at Employee's expense for the period and to
the extent provided under COBRA.
4. Pursuant to the terms of the 1990 Employee Stock Plan and the Senior
Management Stock Option Program (collectively, the "Option Plans"), Employee
currently has the following options to purchase the Company's Common Stock which
have vested in the amounts indicated:
<TABLE>
<CAPTION>
NUMBER OF SHARES
DATE OF GRANT NUMBER OF SHARES EXERCISE PRICE VESTED
------------- ---------------- -------------- ----------------
<S> <C> <C> <C>
5/17/91 21,000 $ 3.08 21,000
2/27/92 7,500 $ 4.17 6,000
2/01/93 7,500 $ 6.33 4,500
10/24/93 150,000 $ 8.42 60,600
1/30/95 60,000 $11.50 9,240
</TABLE>
The Company hereby agrees that each of the foregoing options may be exercised as
to shares vested thereunder at any time during the remaining term of such
option. All shares not vested as of the effective date of this Agreement are
forfeited; provided, that with respect to the October 24, 1993 and January 30,
1995 options, Employee shall be deemed to have vested with respect to such
number of additional shares based on the vesting criteria set forth in the
Senior Management Stock Option Program for the year ended December 29, 1996.
2
<PAGE> 3
5. As Employee will no longer serve as an employee of the Company, the
Company will not make any further contributions for Employee's benefit to the
Company's SERP or 401(k) plans following the effective date of this Agreement.
The Company will pay to Employee promptly following December 29, 1996, however,
such amounts as the Company would have contributed to such plans for such
period.
6. The Company will promptly reimburse Employee for any accountable
business expenses incurred by Employee prior to the date of this Agreement.
7. Any vacation benefits earned by Employee as of the effective date of
this Agreement will be deemed completely paid as part of the severance, and no
further vacation, sick time, personal time or other paid time off will accrue
during the severance period.
8. Neither the Company nor Employee shall make any disparaging statements
about the other (including, in the case of the Company, its officers, directors,
employees, accountants, attorneys or other representatives), except that this
provision does not limit or restrict the Company or its representatives or the
Employee from answering questions or testifying truthfully if subpoenaed by a
court of competent jurisdiction or governmental agency.
9. Notwithstanding the general release contained herein, Employee shall
continue to be entitled to indemnification in the defense of any proceeding by a
third party to which he is a party because he was an officer or director of the
Company to the extent and in the manner required by the Tennessee Business
Corporation Act, the Company's Amended and Restated Charter and Bylaws.
Employee has carefully read and fully understands all the provisions of
this Agreement, specifically including the general release of claims included
herein. Employee further acknowledges that this Agreement together with (i) the
Bonus Plan, (ii) the Option Plans and option agreements issued to Employee
thereunder, (iii) the documents which comprise the medical group insurance
coverage and (iv) the Company's Amended and Restated Charter and Bylaws, set
forth the entire agreement between the Company and Employee. In addition,
Employee acknowledges that he has been given a period of at least twenty-one
(21) days to consider this Agreement and that he is advised that he has the
right to consult with an attorney of his choice during this period. Finally,
Employee acknowledges that, in considering whether to sign this Agreement, he
has not relied upon any representation or statement by anyone, either written or
oral, not set forth in this document and that he has not been threatened or
coerced into signing this Agreement by any official of the Company and that he
has read, understood and fully and voluntarily accepts the terms of this
Agreement.
EFFECTIVE DATE: Employee understands that this Agreement may be revoked by
Employee at any time during the seven (7) day period after he has signed it.
This Agreement shall not become effective until after the revocation period has
expired and no payment will be made until such period has expired.
3
<PAGE> 4
DATED THIS 9th day of September, 1996.
O'CHARLEY'S INC.
By: /s/ Gregory L. Burns 9/9/96
------------------------------- ---------------------------
Title: Chief Executive Officer Date
/s/ Charles F. McWhorter 9/9/96
------------------------------ ---------------------------
Charles F. McWhorter Date
4
<PAGE> 1
SEVERANCE COMPENSATION AGREEMENT dated as of September 16, 1996, between
O'Charley's Inc., a Tennessee corporation (the "Company"), and Gregory L. Burns
(the "Executive").
The Company's Board of Directors has determined that it is appropriate to
reinforce and encourage the continued attention and dedication of certain
members of the Company's senior management, including the Executive, to their
assigned duties without distraction in potentially disturbing circumstances
arising from the possibility of a change in control of the Company.
This Agreement sets forth the severance compensation which the Company
agrees it will pay to the Executive if the Executive's employment with the
Company terminates under one of the circumstances described herein following a
Change In Control of the Company (as defined herein).
1. TERM. This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earliest of (i) three years from the date hereof if a Change in Control of the
Company has not occurred within such three-year period; (ii) the termination of
the Executive's employment with the Company based on death, Disability (as
defined in Section 3(b)), Retirement (as defined in Section 3(c)) or Cause (as
defined in Section 3(d)) or by the Executive other than for Good Reason (as
defined in Section 3(e)); and (iii) eighteen months from the date of a Change in
Control of the Company if the Executive has not terminated his employment for
Good Reason as of such time.
2. CHANGE IN CONTROL. No compensation shall be payable under this Agreement
unless and until (a) there shall have been a Change in Control of the Company,
while the Executive is still an employee of the Company and (b) the Executive's
employment by the Company thereafter shall have been terminated in accordance
with Section 3. For purposes of this Agreement, 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 Securities Exchange Act of 1934, other than the Company, a
wholly-owned subsidiary thereof, any employee benefit plan of the Company
or any of its Subsidiaries becomes the beneficial owner of the Company's
securities having 30% or more of the combined voting power of the then
outstanding securities of the Company that may 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, sale 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 corporation or entity entitled
to vote generally in the election of the directors of the Company or such
other corporation 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
<PAGE> 2
(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.
3. TERMINATION FOLLOWING CHANGE IN CONTROL. (a) If a Change in Control of
the Company shall have occurred while the Executive is still an employee of the
Company, the Executive shall be entitled to the compensation provided in Section
4 upon the subsequent termination of the Executive's employment with the Company
by the Executive or by the Company unless such termination is as a result of (i)
the Executive's death; (ii) the Executive's Disability (as defined in Section
(3)(b) below); (iii) the Executive's Retirement (as defined in Section 3(c)
below); (iv) the Executive's termination by the Company for Cause (as defined in
Section 3(d) below); or (v) the Executive's decision to terminate employment
other than for Good Reason (as defined in Section 3(e) below).
(b) DISABILITY. If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from his duties
with the Company on a full-time basis for six months and within 30 days after
written notice of termination is thereafter given by the Company the Executive
shall not have returned to the full-time performance of the Executive's duties,
the Company may terminate this Agreement for "Disability."
(c) RETIREMENT. The term "Retirement" as used in this Agreement shall mean
termination by the Company or the Executive of the Executive's employment based
on the Executive's having reached age 65 or such other age as shall have been
fixed in any arrangement established with the Executive's consent with respect
to the Executive.
(d) CAUSE. The Company may terminate the Executive's employment for Cause.
For purposes of this Agreement only, the Company shall have "Cause" to terminate
the Executive's employment hereunder only on the basis of fraud,
misappropriation or embezzlement on the part of the Executive. Notwithstanding
the foregoing, the Executive shall not be deemed to have been terminated for
Cause unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the membership of the Company's Board of Directors (excluding
the Executive) at a meeting of the Board called and held for the purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board), finding
that in the good faith opinion of the Board the Executive was guilty of conduct
set forth in the second sentence of this Section 3(d) and specifying the
particulars thereof in detail.
(e) GOOD REASON. The Executive may terminate the Executive's employment for
Good Reason at any time during the term of this Agreement. For purposes of this
Agreement "Good Reason" shall mean any of the following (without the Executive's
express written consent):
2
<PAGE> 3
(i) the assignment to the Executive by the Company of duties
inconsistent with the Executive's position, duties, responsibilities and
status with the Company immediately prior to a Change in Control of the
Company, or a change in the Executive's titles or offices as in effect
immediately prior to a Change in Control of the Company, or any removal of
the Executive from or any failure to reelect the Executive to any of such
positions, except in connection with the termination of his employment for
Disability, Retirement or Cause or as a result of the Executive's death or
by the Executive other than for Good Reason;
(ii) a reduction by the Company in the Executive's base salary as in
effect on the date hereof or as the same may be increased from time to time
during the term of this Agreement;
(iii) a relocation of the Company's principal executive offices to a
location outside of Nashville, Tennessee, or the Executive's relocation to
any place other than the location at which the Executive performed the
Executive's duties prior to a Change in Control of the Company, except for
required travel by the Executive on the Company's business to an extent
substantially consistent with the Executive s business travel obligations
at the time of a Change in Control of the Company;
(iv) any material breach by the Company of any provision of this
Agreement;
(v) any failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company; or
(vi) any purported termination of the Executive's employment which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f), and for purposes of this Agreement, no such
purported termination shall be effective.
(f) NOTICE OF TERMINATION. Any termination by the Company pursuant to
Section 3(b), 3(c) or 3(d) shall be communicated by a Notice of Termination. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) DATE OF TERMINATION. "Date of Termination" shall mean (a) if this
Agreement is terminated by the Company for Disability, 30 days after Notice of
Termination is given to the Executive (provided that the Executive shall not
have returned to the performance of the Executive's duties on a full-time basis
during such 30-day period) or (b) if the Executive's
3
<PAGE> 4
employment is terminated by the Company for any other reason, the date on which
a Notice of Termination is given.
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT. (a) If the
Company shall terminate the Executive's employment following a Change in Control
other than pursuant to Section 3(b), 3(c) or 3(d) or if the Executive shall
terminate his employment following a Change in Control for Good Reason, then the
Company shall pay to the Executive as severance pay in a lump sum, in cash, on
the fifth day following the Date of Termination, an amount equal to the sum of
(i) three times the average of the aggregate annual salary paid to the Executive
by the Company during the three calendar years preceding the Change in Control
of the Company and (ii) three times the highest bonus compensation paid to the
Executive for any of the three calendar years preceding the Change in Control of
the Company; provided, however, that if the lump sum severance payment under
this Section 4, either alone or together with other payments which the Executive
has the right to receive from the Company, would constitute a "parachute
payment" (as defined in Section 28OG of the Internal Revenue Code of 1986, as
amended (the "Code")), such lump sum severance payment shall be reduced to the
largest amount as will result in no portion of the lump sum severance payment
under this Section 4 being subject to the excise tax imposed by Section 4999 of
the Code.
(b) In addition to the lump sum payment provided in Section 4(a), if the
Company shall terminate the Executive's employment following a Change in Control
other than pursuant to Section 3(b), 3(c) or 3(d) or if the Executive shall
terminate his employment following a Change in Control for Good Reason, then the
Company shall provide to the Executive health insurance equivalent to that
provided to the Executive immediately prior to termination for a period of two
years following the Date of Termination.
5. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS. (a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer after the Date of Termination, or
otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any benefit plan, incentive plan or stock
option plan, employment agreement or other contract, plan or arrangement.
6. SUCCESSOR TO THE COMPANY. (a) The Company will require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to the Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
4
<PAGE> 5
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place. Any
failure of the Company to obtain such agreement prior to the effectiveness of
any such succession or assignment shall be a material breach of this Agreement
and shall entitle the Executive to terminate the Executive's employment for Good
Reason. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor or assign to its business and/or assets
as aforesaid which executes and delivers the agreement provided for in this
Section 6 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law. If at any time during the term of this
Agreement the Executive is employed by any corporation a majority of the voting
securities of which is then owned by the Company, "Company" as used in Sections
3, 4, 11 and 12 hereof shall in addition include such employer. In such event,
the Company agrees that it shall pay or shall cause such employer to pay any
amounts owed to the Executive pursuant to Section 4 hereof.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee, or other designee or, if
there be no such designee, to the Executive's estate.
7. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
O'Charley's Inc.
3038 Sidco Drive
Nashville, Tennessee 37204
Attention: President
If to the Executive:
Gregory L. Burns
3038 Sidco Drive
Nashville, Tennessee 37204
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
5
<PAGE> 6
8. MISCELLANEOUS. No provisions of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of Tennessee.
9. VALIDITY. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
10. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
11. LEGAL FEES AND EXPENSES. The Company shall pay all legal fees and
expenses which the Executive may incur as a result of the Company's contesting
the validity, enforceability or the Executive's interpretation of, or
determinations under, this Agreement.
12. CONFIDENTIALITY. The Executive shall retain in confidence any and all
confidential information known to the Executive concerning the Company and its
business so long as such information is not otherwise publicly disclosed. The
provisions of this Section 12 are not intended to restrict the ability of the
Executive following termination of employment for any reason to engage in any
business which is, directly or indirectly, competitive with the business
conducted by the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
O'CHARLEY'S INC.
By: /s/ A. Chad Fitzhugh
------------------------------
Name: A. Chad Fitzhugh
Title: Chief Financial Officer
/s/ Gregory L. Burns
-----------------------------------
Gregory L. Burns
6
<PAGE> 1
O'CHARLEY'S INC.
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------
December 29, December 31, December 25,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net earnings (loss) as reported (1,147) 10,877 5,229
Adjustments:
Pro forma income tax expense(1) -- (286) (256)
------------ ------------ ------------
Net earnings (pro forma for 1995 and 1994) (1,147) 10,591 4,973
============ ============ ============
Weighted average shares outstanding 8,390 8,438 8,137
============ ============ ============
Earnings per common share (pro forma for 1995 and 1994) $ (0.14) $ 1.26 $ 0.61
============ ============ ============
</TABLE>
(1) Pro forma income tax adjustment to reflect additional income tax expense
had Shoex, Inc. been subject to income taxes.
<PAGE> 1
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
O'Charley's Inc.:
We consent to incorporation by reference in the registration statements (No.
33-69934, No. 33-39869, No. 33-39872, No. 33-51258, No. 33-51316, and No.
33-51338 on Form S-8) of O'Charley's Inc. of our report dated February 6, 1997,
relating to the balance sheets of O'Charley's Inc. as of December 29, 1996 and
December 31, 1995, and the related statements of operations, shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 29, 1996, which report appears in the December 29, 1996 annual report
on Form 10-K of O'Charley's Inc.
KPMG PEAT MARWICK LLP
Nashville, Tennessee
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF O'CHARLEY'S INC. FOR THE YEAR ENDED DECEMBER 29, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED IN O'CHARLEY'S INC'S ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 1,616
<SECURITIES> 0
<RECEIVABLES> 1,604
<ALLOWANCES> 58
<INVENTORY> 4,505
<CURRENT-ASSETS> 12,455
<PP&E> 129,797
<DEPRECIATION> 26,516
<TOTAL-ASSETS> 117,159
<CURRENT-LIABILITIES> 23,319
<BONDS> 44,928
0
0
<COMMON> 29,592
<OTHER-SE> 21,334
<TOTAL-LIABILITY-AND-EQUITY> 117,159
<SALES> 164,499
<TOTAL-REVENUES> 164,530
<CGS> 135,071
<TOTAL-COSTS> 135,071
<OTHER-EXPENSES> 13,251
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,588
<INCOME-PRETAX> (1,944)
<INCOME-TAX> (797)
<INCOME-CONTINUING> (1,147)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,147)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
