<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1997
REGISTRATION NO. 333-33585
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
O'CHARLEY'S INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C>
TENNESSEE
(State or other jurisdiction of 62-1192475
incorporation or organization) (I.R.S. employer identification number)
</TABLE>
3038 SIDCO DRIVE, NASHVILLE, TENNESSEE 37204
(615) 256-8500
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
GREGORY L. BURNS
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD
3038 SIDCO DRIVE, NASHVILLE, TENNESSEE 37204
(615) 256-8500
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies of communications to:
<TABLE>
<C> <C>
GLENN W. STURM
JAMES WALKER IV
J. PAGE DAVIDSON NELSON MULLINS RILEY & SCARBOROUGH, L.L.P.
BASS, BERRY & SIMS PLC FIRST UNION PLAZA
FIRST AMERICAN CENTER 999 PEACHTREE STREET, N.E.
NASHVILLE, TENNESSEE 37238 ATLANTA, GEORGIA 30309
(615) 742-6200 (404) 817-6000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ---------------------------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------------------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 25, 1997
PROSPECTUS
2,000,000 SHARES
O'CHARLEY'S LOGO
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by
O'Charley's Inc. (the "Company"). The Common Stock is traded on The Nasdaq Stock
Market's National Market (the "Nasdaq National Market") under the symbol "CHUX."
On September 24, 1997, the last reported sale price for the Common Stock on the
Nasdaq National Market was $16.50 per share. See "Price Range of Common Stock
and Dividend Policy."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===============================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $ $ $
- ---------------------------------------------------------------------------------------------------------------
Total(3)......................... $ $ $
===============================================================================================================
</TABLE>
(1) The Company and certain shareholders of the Company (the "Selling
Shareholders") have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $400,000 payable by the Company.
(3) The Company and the Selling Shareholders have granted the Underwriters a
30-day over-allotment option to purchase up to 221,000 and 79,000 additional
shares of Common Stock, respectively, on the same terms and conditions as
set forth above. If all such shares are purchased by the Underwriters, the
total Price to Public will be $ , the total Underwriting Discount
will be $ , the total Proceeds to Company will be $ and
the total Proceeds to Selling Shareholders will be $ . See
"Principal and Selling Shareholders" and "Underwriting."
---------------------
The shares of Common Stock are offered, subject to receipt and acceptance
by the several Underwriters, to prior sale and to the Underwriters' right to
reject any order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that certificates for the shares of Common Stock
will be available for delivery on or about , 1997.
---------------------
J.C. BRADFORD & CO.
MONTGOMERY SECURITIES
MORGAN KEEGAN & COMPANY, INC.
, 1997
<PAGE> 3
Omitted Graphic and Image Material
The following graphic and image material is omitted from the form of
the prospectus filed electronically:
Inside Front Cover:
1. A map of certain states in the Southeastern and Midwestern United
States depicting the location of the Company's existing O'Charley's restaurants
and restaurants under construction.
Inside Front Cover Fold-out:
1. A picture of a Company server displaying one of the Company's
appetizers.
2. A picture of the interior of an O'Charley's restaurant.
3. A picture of the exterior of an O'Charley's restaurant.
4. A picture of the auditorium at the Company's training facility.
5. A picture of one of the Company's tractor-trailers.
6. A picture of the exterior of an O'Charley's restaurant.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
(including the Notes thereto) appearing elsewhere in this Prospectus or
incorporated by reference herein. All references in this Prospectus to shares
and per share data have been adjusted to reflect a three-for-two stock split
effective August 8, 1994. Unless otherwise indicated, the information in this
Prospectus does not give effect to the exercise of the Underwriters'
over-allotment option. See "Underwriting." As used herein, references to
particular years refer to the Company's fiscal year ended on the last Sunday in
December of such year.
THE COMPANY
O'Charley's Inc. (the "Company") owns and operates 79 O'Charley's
restaurants in ten Southeastern and Midwestern states and franchises one
O'Charley's restaurant in South Carolina. O'Charley's are full service, casual
dining restaurants which appeal to traditional casual dining customers as well
as value-oriented customers by offering high quality food at moderate prices
with outstanding customer service. The Company's restaurants are open seven days
a week, and most offer full bar service.
The Company believes that it continues to successfully refine the
O'Charley's concept to respond to changing customer tastes and preferences as
evidenced by five consecutive years of annual increases in same store sales
averaging 3.6% per year. During 1996, the Company's senior management undertook
a comprehensive evaluation of the O'Charley's concept and its market position.
As a result, the Company implemented a strategic plan designed to reinforce the
Company's dedication to increasing profitability and providing the best possible
dining experience to its customers. This plan included changes in senior
management, a redesigned menu, an increase in the resources devoted to
advertising and marketing, a new advertising campaign, an enhanced bonus and
incentive compensation plan for the Company's restaurant managers and further
refinements in the Company's restaurant prototype. The Company believes that
these initiatives have had a positive impact on the Company's results of
operations. For the first half of 1997, same store sales increased 4.1% over the
first half of 1996, total revenues increased 20.4% over the first half of 1996
and restaurant operating margin improved to 20.0% from 17.6% in the first half
of 1996.
O'Charley's restaurants offer a varied menu of distinctive American fare
made from original recipes. The Company's menu features approximately 45 items,
including prime rib, steaks, chicken, seafood, made-from-scratch soups, entree
salads, sandwiches, pastas and an assortment of appetizers and desserts. All
specialty entrees are prepared using aged beef and fresh chicken and seafood,
are cooked to order and are served with a choice of soup or salad, fresh yeast
rolls and a side item. Most items are prepared on premises using fresh
ingredients. To maintain freshness and quality, the Company operates its own
commissary at which it ages and cuts its beef and prepares the yeast rolls and
salad dressings served in its restaurants. The Company believes its menu offers
a compelling value to the traditional casual dining customer while remaining
competitive with restaurants targeting value-oriented customers. Lunch items
range from $4.99 to $7.99, and dinner entrees range from $6.99 to $16.99. For
the first half of 1997, the average check per customer, including beverages, was
$8.20 for lunch and $11.80 for dinner.
The Company seeks to create a casual, neighborhood atmosphere in its
restaurants. The interior of the Company's prototype restaurant is open, casual
and well lighted and features an exposed kitchen, warm woods, polished brass and
brick and neon accents. Hand-painted murals depicting local history, people,
places and events tailor the decor of many of the restaurants to the local
community. The prototypical O'Charley's restaurant is a freestanding brick
building containing approximately 6,500 square feet and seating for
approximately 260 customers, including approximately 50 bar seats. The Company
remodels its restaurants on average every three to five years to reflect
refinements in the Company's prototype restaurant and changes in customer
tastes. The Company remodeled 16 restaurants in 1996 and 12 restaurants in the
first half of 1997 and plans to remodel an additional 14 restaurants during the
remainder of 1997 and in 1998.
The Company has opened ten new restaurants to date in 1997 and intends to
open three additional restaurants during the remainder of 1997 and 14 to 16 new
restaurants in 1998. The cost to construct new
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<PAGE> 5
restaurants in 1997 ranged from approximately $1.7 million to $2.2 million,
including land, building and equipment. The Company intends to continue
developing new Company-owned restaurants in its target markets, primarily in the
Southeast and Midwest. The Company's target markets include both metropolitan
markets and smaller markets near metropolitan markets where the Company has a
significant presence. The Company generally clusters its restaurants in
metropolitan markets to enhance supervisory, marketing and distribution
efficiencies. Smaller markets in which the Company locates its restaurants
typically have fewer competing casual dining restaurants. In addition, due to
their proximity to the Company's metropolitan markets, these smaller markets
benefit from the Company's marketing efforts in the metropolitan markets and may
be easily served by the Company's commissary and efficiently supervised. The
Company analyzes a variety of factors in the site selection process for new
restaurants, including local market demographics, site visibility and
accessibility and proximity to retail, office and entertainment centers or other
areas that management believes are significant sources of potential customers at
both lunch and dinner.
The principal executive offices and commissary operations of the Company
are located at 3038 Sidco Drive, Nashville, Tennessee 37204, and its telephone
number is (615) 256-8500.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 2,000,000 shares
Common Stock to be outstanding after the
offering................................... 9,916,687 shares(1)
Use of proceeds.............................. To repay amounts outstanding under the
Company's revolving credit facility. See "Use
of Proceeds."
Nasdaq National Market symbol................ CHUX
</TABLE>
- ---------------
(1) Excludes 1,897,014 shares of Common Stock issuable upon the exercise of
stock options granted under the Company's stock option plans.
4
<PAGE> 6
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND RESTAURANT OPERATING DATA)
<TABLE>
<CAPTION>
28 WEEKS ENDED(2)
FISCAL YEARS(1) -------------------
------------------------------ JULY 14, JULY 13,
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Restaurant sales............................... $112,183 $138,098 $162,235 $84,306 $101,655
Commissary sales............................... 10,483 9,429 2,264 1,241 1,375
Franchise revenue.............................. 31 30 31 17 16
-------- -------- -------- ------- --------
122,697 147,557 164,530 85,564 103,046
Costs and expenses:
Cost of restaurant sales:
Cost of food, beverage and supplies.......... 41,356 50,687 58,184 30,242 35,247
Payroll and benefits......................... 33,641 41,511 50,227 26,217 31,361
Restaurant operating costs................... 17,282 20,884 24,504 12,950 14,748
Cost of commissary sales....................... 9,939 8,986 2,156 1,181 1,289
Advertising, general and administrative
expenses..................................... 7,717 8,187 9,370 4,802 6,739
Depreciation and amortization.................. 4,711 6,164 8,141 4,229 5,161
Asset revaluation(3)........................... -- -- 5,110 5,110 --
-------- -------- -------- ------- --------
114,646 136,419 157,692 84,731 94,545
-------- -------- -------- ------- --------
Income from operations........................... 8,051 11,138 6,838 833 8,501
Other (income) expense:
Interest expense, net.......................... 1,290 1,920 2,588 1,340 1,971
Litigation(4).................................. -- 1,000 6,200 8,500 --
Other, net(5).................................. (704) (8,444) (6) 92 (147)
-------- -------- -------- ------- --------
586 (5,524) 8,782 9,932 1,824
-------- -------- -------- ------- --------
Earnings (loss) before income taxes.............. 7,465 16,662 (1,944) (9,099) 6,677
Income tax expense (benefit)(6).................. 2,492 6,071 (797) (3,185) 2,404
-------- -------- -------- ------- --------
Net earnings (loss)(6)........................... $ 4,973 $ 10,591 $ (1,147) $(5,914) $ 4,273
======== ======== ======== ======= ========
Earnings (loss) per common share(6)(7)........... $ 0.61 $ 1.26 $ (0.15) $ (0.76) $ 0.51
======== ======== ======== ======= ========
Weighted average common shares outstanding(7).... 8,137 8,438 7,802 7,779 8,417
RESTAURANT OPERATING DATA:
Average weekly sales per restaurant(8)........... $ 45,682 $ 47,057 $ 47,277 $46,663 $ 49,482
Same store sales increase (decrease)(9).......... 3.6% 3.3% 0.4% (0.1)% 4.1%
Restaurant operating margin(10).................. 17.7% 18.1% 18.1% 17.6% 20.0%
Company-owned restaurants open at end of
period......................................... 50 61 69 69 78
</TABLE>
<TABLE>
<CAPTION>
JULY 13, 1997
-----------------------
AS
ACTUAL ADJUSTED(11)
-------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................. $(11,966) $(11,966)
Total assets.............................................. 134,372 134,372
Long-term debt and capitalized lease obligations, less
current portion......................................... 51,188 20,518
Total shareholders' equity................................ 55,301 85,971
</TABLE>
- ---------------
(1) For accounting purposes, the Company has adopted a 52/53 week fiscal year
ending on the last Sunday in December. Fiscal year 1995 consisted of 53
weeks of operations, while all other years consisted of 52 weeks. On
January 5, 1996, Shoex, Inc., a franchisee of the Company ("Shoex"), merged
with the Company in a transaction accounted for as a pooling-of-interests.
The Company's financial and operating data have been restated to reflect
the combined operations of the Company and Shoex. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Note 2 of Notes to the
Company's financial statements.
5
<PAGE> 7
(2) For accounting purposes, the first quarter consists of 16 weeks, and the
second, third and fourth quarters each consist of 12 weeks.
(3) Amount reflects a non-cash charge incurred in 1996 pursuant to the
provisions of Statement of Financial Accounting Standards ("FAS") 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." See Note 3 of Notes to the Company's financial
statements.
(4) Represents amounts reserved for litigation expenses and the settlement of
litigation against the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Business -- Litigation" and Note 9 of Notes to the Company's
financial statements.
(5) Includes a gain in 1995 of approximately $7.4 million on the sale of the
Company's ownership interest in Logan's Roadhouse, Inc. ("Logan's") and the
sale of five restaurant properties to Logan's. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources" and Note 14 of Notes to the Company's financial
statements.
(6) Prior to merging with the Company, Shoex operated as an S Corporation and
was not subject to corporate income taxes. Pro forma adjustments have been
made to income tax expense (benefit) and net earnings (loss) to give effect
to federal and state income taxes as though Shoex had been subject to
corporate income taxes for 1994 and 1995. See Note 10 of Notes to the
Company's financial statements.
(7) Loss per common share and weighted average common shares outstanding for
1996 and the 28 weeks ended July 14, 1996 have been restated to exclude
common share equivalents from the computations of loss per common share and
weighted average common shares outstanding because the inclusion of such
common share equivalents was anti-dilutive.
(8) Calculated by dividing total sales of all restaurants open during the
period by the aggregate number of weeks all restaurants were open during
such period.
(9) Refers to the sales of only those restaurants open for each of the periods
being compared.
(10) Reflects restaurant sales less cost of restaurant sales, expressed as a
percentage of restaurant sales.
(11) Adjusted to reflect the sale by the Company of the 2,000,000 shares of
Common Stock offered hereby at an assumed offering price of $16.50 per
share and application of the estimated net proceeds therefrom. See "Use of
Proceeds."
6
<PAGE> 8
RISK FACTORS
In addition to the other information contained elsewhere in this
Prospectus, prospective investors should consider carefully the factors listed
below in evaluating an investment in the Common Stock offered hereby.
EXPANSION RISKS
The Company has opened ten new restaurants to date in 1997 and intends to
open three additional restaurants during the remainder of 1997. Additionally,
the Company intends to open 14 to 16 additional restaurants in 1998. The
Company's continued growth depends on its ability to locate acceptable sites,
open new restaurants and operate such restaurants profitably. The Company's
growth strategy includes opening new restaurants 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 certain
areas in which the Company operates. There can be no assurance that the Company
will be successful in opening new restaurants in accordance with the Company's
proposed schedule. 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 or that the new restaurants will operate
profitably. See "Business -- Growth Strategy."
GEOGRAPHIC CONCENTRATION
The Company's existing restaurants are located predominantly in the
Southeastern and Midwestern United States, with 27 of the 79 Company-owned
O'Charley's restaurants located in Tennessee. The Company's plans include
further expansion in the Southeast and Midwest. As a result, the Company's
business, financial or operating results may be materially adversely affected by
economic, weather or business conditions in the Southeast and Midwest, as well
as other geographic regions in which the Company locates restaurants. See
"Business -- Properties."
INCREASES IN OPERATING COSTS
The profitability of the Company is significantly dependent on its ability
to anticipate and react to changes in the prices of food, commodities, labor,
employee benefits and similar items. Many restaurant commodities are subject to
seasonal fluctuations in prices as a result of weather, changes in demand and
other factors. Most of the factors affecting costs are beyond the control of the
Company. There can be no assurance that the Company will be able to anticipate
and react to changing costs through its purchasing practices or menu price
adjustments without a material adverse effect on the Company's business,
financial condition or operating results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
LABOR COST AND AVAILABILITY
The Company competes with other restaurants for experienced management
personnel and hourly employees. Given the low unemployment rates in certain
areas in which the Company operates, the hiring and retention of qualified
management and other personnel may be difficult. The Company may be forced to
enhance its wage and benefits package in order to attract qualified management
and other personnel. No assurance can be given that the Company's labor costs
will not increase or that, if they do increase, they can be absorbed by the
Company or offset by menu price adjustments. Any failure by the Company to
attract and retain qualified management and other personnel, control its labor
costs or offset any increased labor costs through menu price adjustments could
have a material adverse effect on the Company's business, financial condition
and operating results. See "Business -- Restaurant Operations."
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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 Company's
restaurants located in larger cities and metropolitan areas generally face more
intense competition than restaurants located in smaller markets. Historically,
the restaurant business has been affected by changes in consumer tastes and by
national, regional or local economic conditions and demographic trends. The
performance of individual restaurants may be affected by factors such as traffic
patterns and the type, number and location of competing restaurants. The Company
also competes with other restaurants and retail establishments for quality
sites. See "Business -- Competition."
DEPENDENCE ON SENIOR MANAGEMENT
The development of the Company's business has been and will continue to be
highly dependent upon the Company's President and Chief Executive Officer,
Gregory L. Burns, its Executive Vice President and Chief Operating Officer,
Steven J. Hislop, and its Chief Financial Officer, A. Chad Fitzhugh. None of the
Company's executive officers has an employment agreement with the Company, and
the Company does not have key employee life insurance covering any of its
executive officers. The loss of the services of any one of these executive
officers could have a material adverse effect upon the Company's business,
financial condition or operating results. See "Management."
GOVERNMENT REGULATION
The restaurant business is subject to extensive state and local government
regulation, including regulations relating to the sale of food and alcoholic
beverages. The Company's commissary is licensed and subject to regulation by the
United States Department of Agriculture (the "USDA"). The failure to obtain or
retain food and liquor licenses or to comply with applicable regulations would
adversely affect the Company's operations. Restaurant operating costs are also
affected by changes in the minimum hourly wage, unemployment tax rates and sales
taxes. Additionally, laws and regulations governing access for the disabled and
similar matters over which the Company has no control may increase restaurant
operating costs. In particular, the Federal Americans With Disabilities Act (the
"Disabilities Act") prohibits discrimination on the basis of disability in
public accommodations and employment. The Company 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. No assurance can be given, however, that the scope of the
Disabilities Act will not change in the future such that the Company will be
required to make material changes or improvements to new and existing
restaurants. See "Business -- Government Regulation."
VOLATILITY OF MARKET PRICE
From time to time after this offering, there may be significant volatility
in the market price of the Common Stock. The Company believes that the current
market price of its Common Stock reflects expectations that the Company will be
able to continue to operate its existing restaurants profitably and to develop
new restaurants at a significant rate and operate them profitably. If the
Company is unable to operate its restaurants as profitably and develop
restaurants at a pace that reflects the expectations of the market, investors
could sell shares of the Common Stock at or after the time that it becomes
apparent that such expectations may not be realized, resulting in a decrease in
the market price of the Common Stock.
In addition to the operating results of the Company, changes in earnings
estimates by analysts, changes in general conditions in the economy or the
financial markets or other developments affecting the Company or its industry
could cause the market price of the Common Stock to fluctuate substantially. In
recent years the stock market has experienced extreme price and volume
fluctuations. This volatility has had a significant
8
<PAGE> 10
effect on the market prices of securities issued by many companies for reasons
unrelated to their operating performance. See "Price Range of Common Stock and
Dividend Policy."
RISKS ASSOCIATED WITH FORWARD LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which are intended to be covered by the safe
harbors created thereby. Those statements include, but may not be limited to,
all statements regarding the intent, belief and expectations of the Company and
its management such as statements concerning the Company's future profitability
and its operating and growth strategy. Investors are cautioned that all
forward-looking statements involve risks and uncertainties including, without
limitation, the factors set forth under the caption "Risk Factors" in this
Prospectus. Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this Prospectus will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
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<PAGE> 11
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock trades on the Nasdaq National Market under the
symbol "CHUX." The following table sets forth the range of the high and low
sales prices for the Common Stock for the periods indicated, as reported by the
Nasdaq National Market.
<TABLE>
<CAPTION>
FISCAL 1995 HIGH LOW
- ----------- ------ ------
<S> <C> <C>
First Quarter............................................. $14.75 $ 9.75
Second Quarter............................................ 14.13 11.00
Third Quarter............................................. 17.75 13.00
Fourth Quarter............................................ 15.00 11.00
FISCAL 1996
First Quarter............................................. 14.75 10.50
Second Quarter............................................ 15.50 10.50
Third Quarter............................................. 12.50 9.75
Fourth Quarter............................................ 13.50 9.50
FISCAL 1997
First Quarter............................................. 14.38 11.88
Second Quarter............................................ 18.38 12.63
Third Quarter (through September 24, 1997)................ 18.38 14.75
</TABLE>
On September 24, 1997, the last reported sale price of the Common Stock on
the Nasdaq National Market was $16.50 per share. The Company estimates that as
of September 23, 1997, there were approximately 550 shareholders of record of
the Common Stock.
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 anticipate paying any cash dividends in the
foreseeable future. Presently, the Company's revolving credit facility (the
"Revolver") prohibits the payment of cash dividends on the Common Stock without
the consent of the participating banks.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby by the Company are estimated to be approximately $30.7 million ($34.1
million if the Underwriters' over-allotment option is exercised in full), after
deduction of the underwriting discount and estimated offering expenses payable
by the Company based upon an assumed offering price of $16.50 per share.
The Company intends to use the entire net proceeds to repay amounts
outstanding under the Revolver. The Revolver provides for a maximum borrowing
capacity of $70.0 million. The indebtedness to be repaid under the Revolver was
incurred primarily for the development of new restaurants and the renovation of
existing O'Charley's restaurants. Amounts outstanding under the Revolver bear
interest at a variable rate at the Company's option equal to either the lender's
index rate or LIBOR, plus a variable spread. At July 13, 1997, approximately
$37.4 million of indebtedness was outstanding under the Revolver and bore
interest at a weighted average interest rate of 7.0%. The final maturity date of
the Revolver is November 30, 1999. The Revolver includes a provision to extend
the maturity annually by one year, at the participating banks' option, beginning
on the first anniversary of the Revolver (November 22, 1997). Following the
offering and the application of the net proceeds as set forth herein, the
Company anticipates that approximately $63.3 million will be available for
borrowing under the Revolver to fund capital expenditures for the construction
of new O'Charley's restaurants, improvements at existing restaurants, the
acquisition of related equipment and general corporate purposes.
10
<PAGE> 12
CAPITALIZATION
The following table sets forth the current portion of long-term debt and
capitalized lease obligations and capitalization of the Company as of July 13,
1997, and as adjusted to give effect to the sale of the 2,000,000 shares of
Common Stock offered hereby by the Company at an assumed offering price of
$16.50 per share, and the application of the estimated net proceeds therefrom as
described in "Use of Proceeds."
<TABLE>
<CAPTION>
JULY 13, 1997
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt and capitalized lease
obligations............................................... $ 4,052 $ 4,052
======== ========
Long-term debt and capitalized lease obligations, less
current portion........................................... $ 51,188 $ 20,518
Shareholders' equity:
Preferred Stock, 100,000 shares authorized; no shares
outstanding............................................ -- --
Common Stock, no par value, 50,000,000 shares authorized;
7,885,581 shares issued and outstanding; 9,885,581
shares
issued and outstanding, as adjusted(1)................. 29,694 60,364
Additional paid-in capital................................ 652 652
Retained earnings......................................... 24,955 24,955
-------- --------
Total shareholders' equity........................ 55,301 85,971
-------- --------
Total capitalization......................... $106,489 $106,489
======== ========
</TABLE>
- ---------------
(1) Excludes 1,865,929 shares of Common Stock issuable upon the exercise of
stock options granted under the Company's stock option plans.
11
<PAGE> 13
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected financial data of the Company as of
and for each of the fiscal years in the five-year period ended December 29,
1996, and for the 28 weeks ended July 14, 1996 and July 13, 1997. The statement
of operations data for 1992 and 1993 and for the 28 weeks ended July 14, 1996
and July 13, 1997, and the balance sheet data as of the end of 1992, 1993 and
1994, and as of July 14, 1996 and July 13, 1997, are derived from unaudited
financial statements which, in the opinion of management, include all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of the Company's financial condition and results of operations.
Operating results for the 28 weeks ended July 13, 1997 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 28, 1997. The following data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements and the Notes thereto
appearing elsewhere herein.
<TABLE>
<CAPTION>
28 WEEKS
ENDED(2)
FISCAL YEARS(1) -------------------
-------------------------------------------------- JULY 14, JULY 13,
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Restaurant sales.............................. $75,267 $87,762 $112,183 $138,098 $162,235 $84,306 $101,655
Commissary sales.............................. 7,194 7,705 10,483 9,429 2,264 1,241 1,375
Franchise revenue............................. 81 119 31 30 31 17 16
------- ------- -------- -------- -------- -------- --------
82,542 95,586 122,697 147,557 164,530 85,564 103,046
Costs and expenses:
Cost of restaurant sales:
Cost of food, beverage and supplies......... 27,837 32,451 41,356 50,687 58,184 30,242 35,247
Payroll and benefits........................ 22,762 26,635 33,641 41,511 50,227 26,217 31,361
Restaurant operating costs.................. 12,475 14,260 17,282 20,884 24,504 12,950 14,748
Cost of commissary sales...................... 6,806 7,327 9,939 8,986 2,156 1,181 1,289
Advertising, general and administrative
expenses.................................... 5,116 5,894 7,717 8,187 9,370 4,802 6,739
Depreciation and amortization................. 3,479 3,437 4,711 6,164 8,141 4,229 5,161
Asset revaluation(3).......................... -- -- -- -- 5,110 5,110 --
------- ------- -------- -------- -------- -------- --------
78,475 90,004 114,646 136,419 157,692 84,731 94,545
------- ------- -------- -------- -------- -------- --------
Income from operations.......................... 4,067 5,582 8,051 11,138 6,838 833 8,501
Other (income) expense:
Interest expense, net......................... 701 793 1,290 1,920 2,588 1,340 1,971
Litigation(4)................................. -- -- -- 1,000 6,200 8,500 --
Other, net(5)................................. (148) (296) (704) (8,444) (6) 92 (147)
------- ------- -------- -------- -------- -------- --------
553 497 586 (5,524) 8,782 9,932 1,824
------- ------- -------- -------- -------- -------- --------
Earnings (loss) before income taxes............. 3,514 5,085 7,465 16,662 (1,944) (9,099) 6,677
Income tax expense (benefit) (6)................ 1,277 1,867 2,492 6,071 (797) (3,185) 2,404
------- ------- -------- -------- -------- -------- --------
Net earnings (loss) (6)......................... $ 2,237 $ 3,218 $ 4,973 $ 10,591 $ (1,147) $ (5,914) $ 4,273
======= ======= ======== ======== ======== ======== ========
Earnings (loss) per common share (6)(7)......... $ 0.31 $ 0.42 $ 0.61 $ 1.26 $ (0.15) $ (0.76) $ 0.51
======= ======= ======== ======== ======== ======== ========
Weighted average common shares outstanding
(7)........................................... 7,279 7,689 8,137 8,438 7,802 7,779 8,417
BALANCE SHEET DATA:
Working capital (deficit)....................... $(1,946) $(3,327) $ (3,050) $ (7,344) $(10,864) $(10,818) $(11,966)
Total assets.................................... 43,831 57,971 76,082 93,351 117,159 105,833 134,372
Long-term debt and capitalized lease
obligations,
less current portion.......................... 7,555 13,684 20,884 21,262 41,619 35,098 51,188
Total shareholders' equity...................... 27,897 33,204 40,804 51,787 50,926 45,530 55,301
</TABLE>
- ---------------
(1) For accounting purposes, the Company has adopted a 52/53 week fiscal year
ending on the last Sunday in December. Fiscal year 1995 consisted of 53
weeks of operations, while all other years consisted of 52 weeks. The
Company's financial and operating data have been restated to reflect the
combined operations of the Company and Shoex. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources" and Note 2 of Notes to the Company's financial
statements.
(2) For accounting purposes, the first quarter consists of 16 weeks, and the
second, third and fourth quarters each consist of 12 weeks.
12
<PAGE> 14
(3) Amount reflects a non-cash charge incurred in 1996 pursuant to the
provisions of FAS 121. See Note 3 of Notes to the Company's financial
statements.
(4) Represents amounts reserved for litigation expenses and the settlement of
litigation against the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Business -- Litigation" and Note 9 of Notes to the Company's
financial statements.
(5) Includes a gain of approximately $7.4 million on the sale of the Company's
ownership interest in Logan's and the sale of five restaurant properties to
Logan's. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" and Note 14 of
Notes to the Company's financial statements.
(6) Prior to merging with the Company, Shoex operated as an S Corporation and
was not subject to corporate income taxes. Pro forma adjustments have been
made to income tax expense (benefit) and net earnings (loss) to give effect
to federal and state income taxes as though Shoex had been subject to
corporate income taxes for 1994 and 1995. See Note 10 of Notes to the
Company's financial statements.
(7) Loss per common share and weighted average common shares outstanding for
1996 and the 28 weeks ended July 14, 1996 have been restated to exclude
common share equivalents from the computations of loss per common share and
weighted average common shares outstanding because the inclusion of such
common share equivalents was anti-dilutive.
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company currently owns and operates 79 O'Charley's restaurants in
Alabama, Florida, Georgia, Indiana, Kentucky, Mississippi, North Carolina, Ohio,
South Carolina and Tennessee and franchises one O'Charley's restaurant in South
Carolina. The Company was founded in 1983 as a franchisee of an unrelated
concept. In May 1984, the Company acquired the original O'Charley's restaurant
in Nashville, Tennessee and shortly thereafter terminated its franchise
relationship. From 1984 to the Company's initial public offering in July 1990
(the "IPO"), the Company grew to 20 Company-owned O'Charley's restaurants and
eight franchised O'Charley's restaurants.
Since the IPO, the Company has grown through the development of new
restaurants and the acquisition of seven O'Charley's restaurants from its
franchisees, including its merger in January 1996 with Shoex, a franchisee of
the Company which operated six O'Charley's restaurants in Alabama. The following
table reflects the growth in the number of Company-owned restaurants for the
periods presented.
<TABLE>
<CAPTION>
FISCAL YEARS
-------------------- 28 WEEKS ENDED
RESTAURANTS 1994 1995 1996 JULY 13, 1997
- ----------- ---- ---- ---- --------------
<S> <C> <C> <C> <C>
In operation, beginning of period................. 38 44 55 69
Restaurants opened................................ 6 11 12 9
Restaurants acquired from franchisee.............. -- -- 6 --
Restaurants closed................................ -- -- (4) --
-- -- -- --
In operation, end of period....................... 44 55 69 78
== == == ==
</TABLE>
Revenues consist of restaurant sales and to a lesser extent commissary
sales and franchise revenue. Restaurant sales includes food and beverage sales
and are net of applicable state and city sales taxes. Commissary sales
represents sales to outside parties. Prior to October 1995, commissary sales
consisted primarily of sales of food products and other supplies to third-party
restaurant companies. Since October 1995, commissary sales have consisted
primarily of sales of O'Charley's label food items, primarily salad dressings,
to retail grocery chains, mass merchandisers and wholesale clubs. Consistent
with industry trends, liquor sales as a percentage of restaurant sales has
decreased in the first half of 1997 and each of 1996 and 1995.
Cost of food, beverage and supplies primarily consists of the costs of
beef, poultry, seafood, produce and alcoholic and non-alcoholic beverages.
Various factors beyond the Company's control, including adverse weather, cause
periodic fluctuations in food costs. Generally, these temporary increases are
absorbed by the Company and are not passed on to customers; however, management
may adjust menu prices to compensate for increased costs of a more permanent
nature.
Payroll and benefits includes restaurant management salaries and bonuses,
hourly wages for unit level employees, payroll taxes, workers' compensation,
various health, life and dental insurance programs, vacation expense and sick
pay. The federal minimum wage rate increased $0.50 per hour on September 1,
1997, which is expected to have a slight impact on payroll costs in the third
and fourth quarters of 1997.
Restaurant operating costs includes occupancy and other expenses at the
restaurant level, except property and equipment depreciation and amortization,
which are primarily fixed in nature and generally do not vary with unit sales
volume. Rent, supervisory salaries, bonuses and expenses, management training
salaries, property insurance, property taxes, utilities, repairs and
maintenance, outside services and credit card fees account for the major
expenses in this category.
Depreciation and amortization primarily includes depreciation on property
and equipment calculated on a straight-line basis over an estimated useful life
and amortization of preopening costs for new restaurants, which includes costs
of hiring and training the initial staff and certain other costs. Preopening
costs are amortized over a 12-month period commencing on the date the restaurant
opens. As of July 13, 1997, the amount of preopening costs, net of amortization,
on the Company's balance sheet was $1.3 million. Depreciation and amortization
as a percentage of total revenues may increase as the number of new store
openings increases.
14
<PAGE> 16
Advertising, general and administrative expenses includes all advertising
and corporate and administrative functions that support the existing restaurant
base and provide the infrastructure for future growth. Advertising, executive
management and support staff salaries, bonuses and related expenses, data
processing, legal and accounting expenses and office expenses account for the
major expenses in this category.
A $5.1 million charge relating to the revaluation of certain assets was
recorded in 1996 pursuant to the provisions of FAS 121. See "-- Liquidity and
Capital Resources" and Note 3 of Notes to the Company's financial statements.
The following section should be read in conjunction with "Summary Financial
and Operating Data," "Selected Financial Data" and the Company's financial
statements and the related Notes thereto included elsewhere herein.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to total
revenues, except as otherwise indicated, of certain statement of operations data
for the periods indicated.
<TABLE>
<CAPTION>
28 WEEKS ENDED
FISCAL YEARS --------------------
----------------------- JULY 14, JULY 13,
1994 1995 1996 1996 1997
----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Restaurant sales........................................ 91.4% 93.6% 98.6% 98.5% 98.7%
Commissary sales........................................ 8.6 6.4 1.4 1.5 1.3
----- ----- ----- ----- -----
100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Cost of restaurant sales(1):
Cost of food, beverage and supplies................... 36.9 36.7 35.9 35.9 34.7
Payroll and benefits.................................. 30.0 30.1 30.9 31.1 30.8
Restaurant operating costs............................ 15.4 15.1 15.1 15.4 14.5
----- ----- ----- ----- -----
82.3 81.9 81.9 82.4 80.0
----- ----- ----- ----- -----
Restaurant operating margin(2).......................... 17.7 18.1 18.1 17.6 20.0
Cost of commissary sales(3)............................. 94.8 95.3 95.2 95.2 93.7
Advertising, general and administrative expenses........ 6.3 5.5 5.7 5.6 6.5
Depreciation and amortization........................... 3.8 4.2 4.9 4.9 5.0
Asset revaluation....................................... -- -- 3.1 6.0 --
----- ----- ----- ----- -----
Income from operations.................................... 6.6 7.5 4.2 1.0 8.2
Other (income) expense:
Interest expense, net................................... 1.1 1.3 1.6 1.6 1.9
Litigation.............................................. -- 0.7 3.8 9.9 --
Other, net.............................................. (0.6) (5.7) -- 0.1 (0.1)
----- ----- ----- ----- -----
Earnings (loss) before income taxes....................... 6.1 11.3 (1.2) (10.6) 6.4
Income tax expense (benefit)(4)........................... 2.0 4.1 (0.5) (3.7) 2.3
----- ----- ----- ----- -----
Net earnings (loss)(4).................................... 4.1% 7.2% (0.7)% (6.9)% 4.1%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) As a percentage of restaurant sales.
(2) Reflects restaurant sales less cost of restaurant sales, expressed as a
percentage of restaurant sales.
(3) As a percentage of commissary sales.
(4) Prior to merging with the Company, Shoex operated as an S Corporation and
was not subject to corporate income taxes. Pro forma adjustments have been
made to income tax expense (benefit) and net earnings (loss) to give effect
to federal and state income taxes as though Shoex had been subject to
corporate income taxes for 1994 and 1995. See Note 10 of Notes to the
Company's financial statements.
15
<PAGE> 17
Twenty-Eight Weeks Ended July 13, 1997 Compared to the Twenty-Eight Weeks
Ended July 14, 1996
Total revenues in the first half of 1997 increased $17.4 million, or 20.4%,
to $103.0 million from $85.6 million in the comparable period in the prior year.
This increase was primarily attributable to the addition of nine restaurants in
the first half of 1997 and an increase in same store sales of 4.1%. The increase
in same store sales resulted from an increase in customer counts partially
offset by a slight decrease in check average. The increase in customer counts
resulted from the introduction of a redesigned menu and a new advertising
campaign in the fourth quarter of 1996 and milder weather in the Company's
markets during the first half of 1997 as compared to the first half of 1996. The
decrease in check average resulted from the introduction of certain lower priced
seasonal promotions in the first half of 1997, partially offset by a menu price
increase of approximately 1.4% instituted in the last six weeks of the first
quarter of 1997. Liquor sales as a percentage of restaurant sales decreased to
12.1% in the first half of 1997 reflecting industry trends.
Cost of food, beverage and supplies as a percentage of restaurant sales
decreased to 34.7% in the first half of 1997 from 35.9% for the comparable
period in 1996. This decrease was primarily attributable to cost reductions in
certain high volume food commodities, increased operating efficiencies of the
Company's commissary and overall lower produce costs due primarily to lower
potato costs.
Payroll and benefits as a percentage of restaurant sales decreased to 30.8%
for the first half of 1997 from 31.1% for the comparable period in 1996.
Increases in restaurant management bonus expense, wage rates and vacation
expense were offset by certain employee benefit cost reductions, including
workers' compensation, health insurance and economies achieved from overall
higher sales volume. The increase in bonus expense resulted from higher bonuses
earned by restaurant management upon the improvement in restaurant level profits
in 1997.
Restaurant operating costs as a percentage of restaurant sales decreased to
14.5% in the first half of 1997 from 15.4% in the comparable period in 1996.
This decrease was primarily attributable to the allocation of certain
supervisory and overhead costs over a greater number of restaurants and higher
average unit sales. Since January 1996, the Company has generally opened new
stores in existing geographical markets which has contributed to a slower growth
rate in certain expenses, particularly supervisory costs. Additionally, rent
expense as a percentage of restaurant sales was lower as the Company continued
to purchase most of its restaurant sites.
Restaurant operating margin as a percentage of restaurant sales increased
to 20.0% in the first half of 1997 from 17.6% in the comparable period in 1996.
Advertising, general and administrative expenses as a percentage of total
revenues increased to 6.5% in the first half of 1997 from 5.6% in the comparable
period in 1996. This increase was primarily the result of an increase in
advertising expenditures and bonus expense for corporate management. The Company
introduced a television and radio advertising campaign in the fourth quarter of
1996 in conjunction with the introduction of a redesigned menu. These
advertising expenses, which increased to 2.8% of restaurant sales in the first
half of 1997 as compared to approximately 2.3% in 1996, are expected to continue
at these percentage levels for the remainder of 1997. Bonus expense increased
primarily as a result of an increase in corporate management bonus compensation
which is based in part on a formula that rewards increased profits.
Depreciation and amortization as a percentage of total revenues increased
to 5.0% in the first half of 1997 from 4.9% in the comparable period in 1996.
Interest expense, net increased $631,000, or 47.1%, to $2.0 million in the
first half of 1997 from $1.3 million in the comparable period in 1996. This
increase in interest expense was primarily the result of increased borrowings
under the Revolver and capitalized lease obligations to fund the Company's
growth.
Other, net was net income of $147,000 in the first half of 1997 as compared
to net expense of $92,000 in the comparable period in 1996.
Income tax expense (benefit) as a percentage of earnings (loss) before
income taxes for the first half of 1997 was 36.0% as compared to 35.0% in the
comparable period in 1996.
16
<PAGE> 18
Fiscal Year Ended December 29, 1996 Compared to the Fiscal Year Ended December
31, 1995
Total revenues in 1996 increased $17.0 million, or 11.5%, to $164.5 million
from $147.5 million in 1995 as a result of 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%. This increase in restaurant sales was primarily
attributable to the addition of 12 new restaurants in 1996 and an increase in
same store sales of 0.4%. Additionally, restaurant sales were positively
affected by higher average unit volumes at newly opened units. In 1996, the
Company's average check increased approximately $0.30 primarily as a result of a
menu price increase of 1.5% taken in the fourth quarter of 1995 and a redesigned
menu (introduced in 1996) which included several higher priced menu items. The
increase in restaurant sales in 1996 was partially offset by an additional week
of operations in 1995, which was a 53-week year, and by the closing of four
units in the third quarter of 1996. Restaurant sales were significantly impacted
during January and February of 1996 by unusually severe winter storms in the
Company's markets. Liquor sales as a percentage of restaurant sales decreased to
13.3% in 1996 reflecting industry trends.
Cost of food, beverage and supplies as a percentage of restaurant sales
decreased to 35.9% in 1996 from 36.7% in 1995. This decrease was primarily
related to an overall decrease in food costs as a result of 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 primarily as a result of lower lettuce and
potato costs. Additionally, the Company's overall poultry and beef 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 redesigned menu
introduced in the fourth quarter of 1996 slightly lowered the overall food cost
percentage.
Payroll and benefits as a percentage of restaurant sales increased to 30.9%
in 1996 from 30.1% in 1995 primarily as a result of higher hourly wage rates,
increased bonuses and 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, resulted in a slight increase in 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.
Restaurant operating costs as a percentage of restaurant sales were
unchanged in 1996 as compared to 1995. Supervisory and overhead costs decreased
as a percentage of restaurant sales as a result of allocating such 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. These decreases were offset by increases in certain operating
costs including utilities, outside services and taxes.
Restaurant operating margin as a percentage of restaurant sales was 18.1%
in both 1996 and 1995.
Advertising, general and administrative expenses as a percentage of total
revenues increased to 5.7% in 1996 from 5.5% in 1995. The Company increased
advertising expenditures in 1996, particularly during the fourth quarter as the
redesigned menu was introduced in conjunction with a new radio and television
advertising campaign. Additionally, the Company incurred higher salary and
related payroll costs as a result of the hiring of additional management
personnel in 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 that rewards increased profits.
Certain other cost percentages decreased as a result of spreading certain
general and administrative expenses over increased total revenues.
Depreciation and amortization as a percentage of total revenues increased
to 4.9% in 1996 from 4.2% in 1995. Amortization of preopening expenses increased
as a result of a greater 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.
Asset revaluation in 1996 represents charges for assets impaired under FAS
121. Losses at certain restaurant units prompted an evaluation of net realizable
value of certain assets in accordance with FAS 121.
17
<PAGE> 19
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 the Company's
financial statements.
Income from operations decreased $4.3 million, or 38.6%, to $6.8 million in
1996 from $11.1 million in 1995. Excluding the $5.1 million charge for assets
impaired under FAS 121, income from operations in 1996 would have been $11.9
million, an increase of $810,000 over 1995. Income from operations as a
percentage of total revenues, excluding the effects of the charge for assets
impaired, would have decreased to 7.3% in 1996 from 7.5% in 1995.
Interest expense, net increased $668,000, or 34.8%, to $2.6 million in 1996
from $1.9 million in 1995. The increased amount of interest expense was directly
related to the increase in borrowings under the Revolver and increased
borrowings under capitalized lease obligations. This increase was partially
offset by a reduction in the average interest rate paid by the Company in 1996.
Litigation in 1996 and 1995 represents charges related to a class action
lawsuit alleging racial discrimination. See "-- Liquidity and Capital
Resources."
Other, net decreased significantly in 1996 from 1995 as a result of the
sale of the Company's interest in Logan's in 1995. 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.
Income tax expense (benefit) as a percentage of earnings (loss) before
income taxes was (41.0%) in 1996 as compared to 36.4% in 1995. The income tax
benefit in 1996 was higher than the statutory rate of 36.0% because of the
amount of the Federal Insurance Contribution Act tip credits in relation to a
lower taxable income. Taxable income was lower as a result of the tax
deductibility of certain litigation and FAS 121 expenses. Beginning in October
1996, the Work Opportunity Tax Credit ("WOTC") program was started which
replaced the Targeted Job Tax Credits ("TJTC") program which was discontinued at
the beginning of 1995. The WOTC program is similar to the TJTC program in that
companies receive federal tax credits for hiring certain qualified disadvantaged
workers.
Fiscal Year Ended December 31, 1995 Compared to the Fiscal Year Ended December
25, 1994
Total revenues in 1995 increased $24.8 million, or 20.3%, to $147.5 million
from $122.7 million in 1994 as a result of 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 3.3% 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. Liquor sales as a percentage of
restaurant sales decreased to 14.5% in 1995 from 15.9% in 1994 reflecting
industry trends. The decrease in commissary sales in 1995 was primarily the
result of discontinuing sales to certain unaffiliated restaurants, partially
offset by increased sales to Logan's.
Cost of food, beverage and supplies as a percentage of restaurant sales
decreased to 36.7% in 1995 from 36.9% in 1994. The improvement was 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 to 30.1%
in 1995 from 30.0% in 1994. An increase in base salaries, hourly wage rates and
employee benefit costs in 1995 was partially offset by lower workers'
compensation costs, slightly lower bonus expense and economies achieved from
overall higher sales volumes.
Restaurant operating costs as a percentage of restaurant sales decreased to
15.1% in 1995 from 15.4% in 1994 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.
Restaurant operating margin as a percentage of restaurant sales increased
to 18.1% in 1995 from 17.7% in 1994.
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<PAGE> 20
Advertising, general and administrative expenses as a percentage of total
revenues decreased to 5.5% in 1995 from 6.3% in 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 as a percentage of total revenue increased to
4.2% in 1995 from 3.8% in 1994. Amortization of preopening expenses increased as
a result of an increase in the number of new stores open for less than one year.
Interest expense, net increased $630,000, or 48.8%, to $1.9 million in 1995
from $1.3 million in 1994. The increased amount of interest expense was directly
related to the increase in borrowings under the Revolver and increased
borrowings under capitalized lease obligations.
Litigation in 1995 represents charges related to a class action lawsuit
alleging racial discrimination. See "-- Liquidity and Capital Resources."
Other, net increased significantly in 1995 as a result of the sale of the
Company's interest in Logan's in 1995. During the first three quarters of 1995
and in 1994, the Company received equity earnings from Logan's and net rental
income and guarantee fees related to its ownership of five Logan's restaurant
sites.
Income tax expense as a percentage of earnings before income taxes was
36.4% in 1995 as compared to 33.4% in 1994. The income tax rate in 1995
increased primarily as a result of the discontinuance of the TJTC program and an
increase in the Company's federal income tax rate.
IMPACT OF INFLATION
The impact of inflation on the cost of food, labor, equipment, land and
construction costs could affect the Company's operations. A majority of the
Company's employees are paid hourly rates related to federal and state minimum
wage laws. As a result of increased competition and the low unemployment rates
in the markets in which the Company's restaurants are located, the Company has
continued to increase wages and benefits in order to attract and retain
management personnel and hourly coworkers. In addition, most of the Company's
leases require the Company to pay taxes, insurance, maintenance, repairs and
utility costs, and these costs are subject to inflationary pressures. The
Company may attempt to offset the effect of inflation through periodic menu
price increases, economies of scale in purchasing and cost controls and
efficiencies at existing restaurants.
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<PAGE> 21
QUARTERLY FINANCIAL AND RESTAURANT OPERATING DATA
The following is a summary of certain unaudited quarterly results of
operations for each of the last three fiscal years and the first half of 1997.
For accounting purposes, the first quarter consists of 16 weeks and the second,
third and fourth quarters each consist of 12 weeks (13 weeks in the fourth
quarter of 1995 because it was a 53-week year):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED DECEMBER 25, 1994:
Revenues................................................ $35,295 $28,106 $29,664 $29,632 $122,697
Income from operations.................................. 2,339 1,860 1,919 1,933 8,051
Pro forma net earnings(1)............................... 1,402 1,082 1,172 1,317 4,973
Pro forma earnings per common share(1).................. $ 0.18 $ 0.13 $ 0.14 $ 0.16 $ 0.61
Restaurants in operation, end of quarter................ 47 47 49 50 50
FISCAL YEAR ENDED DECEMBER 31, 1995:
Revenues................................................ $41,858 $33,676 $34,091 $37,932 $147,557
Income from operations.................................. 3,120 2,520 2,449 3,049 11,138
Pro forma net earnings(1)............................... 1,242 1,493 6,050 1,805 10,591
Pro forma earnings per common share(1).................. $ 0.15 $ 0.18 $ 0.72 $ 0.21 $ 1.26
Restaurants in operation, end of quarter................ 53 56 58 61 61
FISCAL YEAR ENDED DECEMBER 29, 1996:
Revenues................................................ $47,079 $38,485 $39,295 $39,671 $164,530
Income (loss) from operations........................... 3,258 (2,425) 2,852 3,153 6,838
Net earnings (loss)..................................... 1,569 (7,483) 1,497 3,270 (1,147)
Earnings (loss) per common share(2)..................... $ 0.19 $ (0.96) $ 0.18 $ 0.39 $ (0.15)
Restaurants in operation, end of quarter................ 66 69 68 69 69
FISCAL YEAR ENDING DECEMBER 28, 1997:
Revenues................................................ $56,635 $46,411
Income from operations.................................. 4,500 4,001
Net earnings............................................ 2,262 2,011
Earnings per common share............................... $ 0.27 $ 0.24
Restaurants in operation, end of quarter................ 75 78
</TABLE>
- ---------------
(1) Prior to merging with the Company, Shoex operated as an S Corporation and
was not subject to corporate income taxes. Pro forma adjustments have been
made to income tax expense and net earnings to give effect to federal and
state income taxes as though Shoex had been subject to corporate income
taxes for 1994 and 1995. See Note 10 of Notes to the Company's financial
statements.
(2) Loss per common share for 1996 and the second quarter of 1996 have been
restated to exclude common share equivalents from the computation of loss
per common share because the inclusion of such common share equivalents was
anti-dilutive.
Management believes that there is a small degree of seasonality to the
Company's business, with average weekly sales being slightly lower in the winter
months. However, because the Company's first fiscal quarter consists of 16
weeks, the effect of such seasonality is not necessarily reflected in the
Company's quarterly financial results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital needs arise from the development of new
restaurants and the maintenance and improvement of existing restaurants.
Historically, the Company's primary sources for working capital have been cash
provided from operations, bank indebtedness and capitalized lease obligations.
During the first half of 1997, the Company expended approximately $20.1 million
in capital for the development of nine new restaurants, improvements to existing
restaurants, the construction of the Company's training center and for new
equipment and additional warehouse space at the Company's commissary (including
$3.9 million of equipment financed under capital lease arrangements).
Additionally, the Company repaid $2.0 million in principal on its capitalized
lease obligations and long-term debt and incurred $1.5 million in preopening
costs. These capital outlays were funded primarily by borrowings of $8.4 million
under
20
<PAGE> 22
the Revolver, borrowings of approximately $3.9 million under capitalized lease
obligations, $8.7 million in cash provided by operating activities and
approximately $1.0 million in proceeds from the sale of certain assets.
During 1996, the Company expended approximately $33.7 million in capital
for the development of 12 new stores and improvements to existing facilities
(including $5.9 million of equipment financed under capital lease arrangements).
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 capital outlays were funded primarily by
$10.7 million in cash provided by operating activities, borrowings of $18.5
million under the Revolver and borrowings of $5.9 million under capitalized
lease obligations.
As of July 13, 1997, the Company had four additional restaurants under
construction, all of which are expected to open during the remainder of 1997.
The Company expects to open 14 to 16 new Company-owned restaurants in 1998.
Management estimates that the Company will make approximately $14.0 million in
capital expenditures during the remainder of 1997 and approximately $39.0
million in 1998. Actual capital expenditures may increase based on a number of
factors, including the timing of additional purchases of future restaurant
sites. The Company intends to continue financing the furniture, fixtures and
equipment for its new stores with capitalized lease obligations.
As of July 13, 1997, $37.4 million of indebtedness was outstanding under
the Revolver and bore interest at a weighted average rate of 7.0%. The Revolver
provides for a maximum borrowing capacity of $70.0 million and matures on
November 30, 1999. The Revolver includes a provision to extend the maturity
annually by one year, at the participating banks' option, beginning on the first
anniversary of the Revolver (November 22, 1997). The Revolver imposes
restrictions on the Company with respect to the maintenance of certain financial
ratios, the incurrence of indebtedness, the sale of assets, mergers and the
payment of dividends.
Management believes that following the application of the net proceeds of
this offering, available cash, cash generated from operations and borrowings
under the Revolver and capitalized lease obligations will be sufficient to
finance its operations and expected growth through 1999.
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 first quarter of 1995,
Logan's was formed, and the Company's interest in the Partnership was
transferred to Logan's in exchange for a 31.1% interest (as determined under the
amended Agreement) in Logan's which occurred upon a qualifying initial public
offering. The Logan's 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 Logan's offering, Logan's purchased all of 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 Logan's offering of
$14.0 million netted cash of approximately $10.7 million after federal and state
taxes, which was used to reduce the Company's long-term debt. As a result of the
Logan's offering, the Company earned and reported a one-time gain in the third
quarter of 1995 of $0.55 per share.
On January 5, 1996, the shareholders of the Company approved an Agreement
and Plan of Merger, dated October 9, 1995 (the "Merger Agreement"), to acquire
Shoex, which owned and operated six O'Charley's restaurants in Alabama. The
transaction was accounted for as a pooling-of-interests. Pursuant to the Merger
Agreement, the Company issued 666,666 shares of its Common Stock valued at
approximately $9.5 million and assumed approximately $1.9 million in net
obligations of Shoex (defined as long-term debt, capitalized lease obligations
and working capital deficit). Under the terms of the Merger Agreement,
O'Charley's acquired the six restaurants operated by Shoex and regained the
rights to develop other O'Charley's restaurants in Alabama, Mississippi and
specific locations in Florida and Georgia. The Company recorded merger expenses
of approximately $290,000 in the first quarter of 1996 as a result of this
transaction.
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<PAGE> 23
During the fourth quarter of 1996, a consent decree approving the
definitive settlement agreement of a two-year old class action lawsuit against
the Company was approved by the U.S. District Court for the Middle District of
Tennessee. The settlement agreement created a settlement pool of $4.8 million
for the benefit of the class members, $700,000 for claims administration and
fees and $2.0 million for the attorneys representing the plaintiff class. The
Company accrued $1.0 million for legal and other expenses related to the
settlement. An adjustment of approximately $2.3 million was made to the original
accrual in December 1996 as a result of the lower than originally anticipated
number of claims submitted by members of the plaintiff class. As of July 13,
1997, the total settlement amount payable to the plaintiff class and their
attorneys was expected to approximate $5.2 million, of which approximately
$500,000 was to be paid through the issuance of shares of the Company's Common
Stock and the remaining amounts were to be paid in cash. As of July 13, 1997,
approximately $2.3 million had been paid. The issuance of the shares of the
Company's Common Stock and the majority of the remaining additional cash
payments will be made in the third quarter of 1997. The additional cash will be
funded by additional borrowings under the Revolver.
22
<PAGE> 24
BUSINESS
GENERAL
The Company owns and operates 79 O'Charley's restaurants located in
Alabama, Florida, Georgia, Indiana, Kentucky, Mississippi, North Carolina, Ohio,
South Carolina and Tennessee and franchises one O'Charley's restaurant in South
Carolina. O'Charley's restaurants are intended to appeal to traditional casual
dining customers as well as value-oriented customers by offering high quality
food at moderate prices with outstanding customer service. O'Charley's
restaurants are open seven days a week, and most offer full bar service.
THE O'CHARLEY'S CONCEPT
O'Charley's restaurants provide fresh, high quality food at moderate prices
in a relaxed atmosphere. The key elements of the O'Charley's concept include the
following:
Variety of Freshly Prepared Items. O'Charley's restaurants offer a varied
menu of distinctive American fare made from original recipes. The Company's menu
features approximately 45 items including prime rib, steaks, chicken, seafood,
made-from-scratch soups, entree salads, sandwiches, pastas and an assortment of
appetizers and desserts. All specialty entrees are prepared using aged beef and
fresh chicken and seafood, are cooked to order and are served with a choice of
soup or salad, fresh yeast rolls and a side item. Most items are prepared on
premises using fresh ingredients. To maintain freshness and quality, the Company
operates its own commissary at which it ages and cuts its beef and prepares the
yeast rolls and salad dressings served in its restaurants. The Company
introduced a redesigned menu in the fourth quarter of 1996 and is continually
developing new menu items to respond to changing customer tastes and
preferences. In addition to its normal menu, the Company's restaurants offer a
Sunday brunch, a children's menu and seasonal menu offerings.
Attractive Menu Pricing. The Company believes its menu offers a compelling
value to the traditional casual dining customer while remaining competitive with
restaurants targeting value-oriented customers. The Company's prices range from
$4.99 to $7.99 for lunch items and from $6.99 to $16.99 for dinner entrees, with
many items priced under $10.00. Additionally, the Company offers a "Kids Eat
Free" program for children ten and under in most of its restaurants. For the
first half of 1997, the average check per customer, including beverages, was
$8.20 for lunch and $11.80 for dinner.
Casual Ambiance. The Company seeks to create a casual, neighborhood
atmosphere in its restaurants. The interior decor of the Company's prototype
restaurant is open, casual and well lighted and features an exposed kitchen,
warm woods, polished brass and brick and neon accents. Hand-painted murals
depicting local history, people, places and events tailor the decor of many of
the restaurants to the local community. The Company remodels its restaurants on
average every three to five years to reflect refinements in the Company's
prototype restaurant and changes in customer tastes.
OPERATING STRATEGY
The Company's objective is to differentiate its restaurants by exceeding
customer expectations as to the quality of food and the friendliness of service.
To achieve this objective, the Company employs the following key operating
strategies:
Quality Assurance. The Company is committed to providing a broad menu of
freshly prepared, high quality items. The Company believes that its menu
offerings allow for simplified food preparation, efficient delivery and
consistent quality. Unlike most casual dining restaurants, the Company operates
its own commissary which enables the Company to better control its food quality
and costs. The commissary purchases and distributes food and other supplies to
all of the Company's restaurants, operates a USDA-approved facility at which it
ages and cuts its beef and prepares fresh breads and salad dressings. Management
believes the commissary also provides the Company with a competitive advantage
by simplifying purchasing duties of restaurant level management, thus enabling
them to focus on restaurant operations.
23
<PAGE> 25
Commitment to Value. Management believes that the food quality and service
at the Company's restaurants are comparable or superior to that of other casual
dining restaurants. The Company believes that its pricing strategy creates an
attractive price-to-value relationship, thereby increasing the Company's ability
to attract value-oriented customers as well as traditional casual dining
customers. O'Charley's restaurants serve fresh yeast rolls with every order and
a choice of soup or salad with specialty entree items. Additionally, programs
such as "Express Lunch" and "Kids Eat Free" reinforce the Company's
value-oriented philosophy.
Focus on Customer Service. The Company believes that it must provide
prompt, friendly and efficient service to ensure customer satisfaction. The
Company staffs each restaurant with an experienced management team and keeps
table-to-server ratios low. Through the use of customer surveys, management
receives valuable feedback on its restaurants and through prompt response
demonstrates a continuing dedication to customer satisfaction. The Company also
employs a "mystery shopper" program to independently monitor quality control in
areas such as timeliness of service, atmosphere, employee attitude and food
quality.
Well-Trained and Highly Motivated Employees. The Company believes a
well-trained, highly motivated restaurant management team is critical to
achieving the Company's operating objectives. The Company's training and
compensation systems are designed to create accountability at the restaurant
level for the performance of each restaurant. The Company expends significant
resources to train, motivate and educate its restaurant level managers and
hourly coworkers. The Company has recently opened a management training facility
at its home office in Nashville, Tennessee. Each new manager participates in a
comprehensive 12-week training program which combines hands-on experience in one
of the Company's training restaurants and instruction at the training facility.
To instill a sense of ownership in restaurant management, compensation is based,
in part, on restaurant profit, employee turnover and mystery shopper reports.
Management believes this focus on unit level operations creates a "single store
mentality" and provides an incentive for managers to focus on increasing same
store sales and restaurant profitability.
GROWTH STRATEGY
The Company's growth strategy is to open new Company-owned restaurants and
continue increasing sales at existing restaurants. The Company intends to
continue clustering new restaurants in existing metropolitan markets, which
management believes enhances supervisory, marketing and distribution
efficiencies and does not result in a material decrease in sales at existing
restaurants. The Company also intends to develop restaurants in selected new
metropolitan markets in the Southeast and Midwest and in smaller markets in
close proximity to the Company's existing metropolitan markets to enable the
Company to utilize existing supervisory, marketing and distribution systems. The
Company has opened ten new restaurants to date in 1997 and intends to open three
additional new restaurants during the remainder of 1997 and 14 to 16 new
restaurants in 1998.
Management devotes significant time and resources to analyzing prospective
restaurant sites and gathering appropriate cost, demographic and traffic data.
The Company utilizes an in-house construction and real estate department to
develop architectural and engineering plans and to oversee new construction.
While the Company prefers to develop its prototype restaurant, the Company
considers developing additional O'Charley's restaurants in existing buildings
where appropriate. Management believes that its ability to remodel an existing
building into an O'Charley's restaurant permits greater accessibility to quality
sites in more developed markets. The Company prefers to own, rather than lease,
its restaurants.
In the past, the Company has entered into joint ventures for the
development of other restaurant concepts, and from time to time the Company may
consider developing additional restaurant concepts in the future.
RESTAURANT DESIGN
The prototypical O'Charley's restaurant is a freestanding building
containing approximately 6,500 square feet and seating for approximately 260
customers, including approximately 50 bar seats. The exterior features old-style
red brick, bright red and green neon borders, multi-colored awnings and
attractive landscaping. The interior is open, casual and well lighted and
features an exposed kitchen, warm woods, polished brass, brick
24
<PAGE> 26
and neon accents, and hand-painted murals depicting local history, people,
places and events. In addition, the kitchen design provides the Company with
flexibility in the types of food items which can be prepared so that it can
adapt to changing customer tastes and preferences.
The Company remodels its restaurants on average every three to five years
to reflect refinements in the Company's prototype restaurant and changes in
customer tastes. The Company remodeled 16 restaurants in 1996 and 12 restaurants
in the first half of 1997 and plans to remodel an additional 14 restaurants
during the remainder of 1997 and in 1998. The average cost to remodel the
Company's restaurants in 1996 and for the first half of 1997 approximated
$175,000 per restaurant.
UNIT ECONOMICS
During the 12-month period ended July 13, 1997, the 64 restaurants open
throughout the period generated average revenues of $2.5 million, average
restaurant cash flow (defined by the Company as restaurant sales less cost of
sales, adjusted to exclude rent expense and restaurant supervisory costs) of
$632,000, or 25.1% of average restaurant sales, and average restaurant cash flow
after depreciation and amortization of $577,000, or 22.9% of average restaurant
sales. The Company has opened 22 restaurants since the beginning of 1996, of
which 20 included land purchases. The average cost to construct these 20
restaurants was approximately $2.0 million, including land, building and
equipment. Preopening costs averaged approximately $155,000 per restaurant. The
Company estimates that the cost to develop the Company's prototype restaurant
ranges from $1.9 million to $2.2 million, including approximately $900,000 for
building costs and $500,000 for equipment. Land cost is estimated to range from
$500,000 to $800,000 and will vary according to the site and market. In
addition, the Company estimates preopening costs at approximately $150,000 per
restaurant.
RESTAURANT 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 typically has six managers (a
general manager, three assistant managers, a kitchen manager and an assistant
kitchen manager) and approximately 80 full-time and part-time employees. The
Company employs area supervisors who have day-to-day responsibility for the
operating performance of three to five restaurants. The Company's four regional
directors supervise approximately 20 restaurants in their region and are
directly involved in the development of new restaurants. The Company's Director
of Operations oversees all restaurant operations of the Company.
The Company has a "3-Point Compensation Plan" which gives general managers
an opportunity to participate in the growth of their restaurant and the Company.
Pursuant to the 3-Point Compensation Plan, general managers receive a
competitive minimum base salary, a quarterly bonus based upon a certain
percentage of the profit of the restaurant for which the manager has
responsibility and long-term performance-based stock options which provide an
incentive for general managers to increase store level profitability and
shareholder value. The quarterly bonuses are based on the attainment of certain
performance targets that the managers themselves establish each year for their
own restaurants.
As an incentive for restaurant managers to improve sales and operating
efficiency, the Company has a monthly incentive compensation plan. Pursuant to
this plan, each member of the restaurant management team may earn a bonus,
payable during each four-week accounting period, based on a percentage of the
sales of the restaurant for which the manager has responsibility. The period
bonus is earned when budgeted financial results are achieved, subject to
adjustment based upon same store sales increases and certain operating
performance factors. The Company believes that its compensation plans,
particularly the quarterly bonus, encourage the general managers to establish
and implement an annual strategy. The Company's area supervisors, regional
directors and senior management also receive incentive based cash bonuses and
participate in the Company's senior management stock program pursuant to which
they receive performance-based stock options, the vesting of which is based on
the Company achieving certain budgeted levels of profitability and the
individual achieving goals related to their area of responsibility. The
Company's managerial turnover rate was approximately 48% in 1996, and 35% for
the first half of 1997.
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<PAGE> 27
Recruiting and Training. The Company emphasizes the careful selection and
training of all restaurant employees. 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. Management trainees are
required to complete a 12-week training program, a portion of which is conducted
at the Company's training center in Nashville, Tennessee. The training facility
has a theater-style auditorium, facilities for operational and information
services training and an area for team-building exercises. The program
familiarizes new managers with all the responsibilities required at an
individual restaurant and with the Company's operations, management objectives,
controls and evaluation criteria before they assume restaurant management
responsibility. Each new hourly coworker is trained by a qualified in-store
trainer called an "ETE" (Educator Through Excellence). Each store has
approximately ten ETE's who are qualified and tested in their area of
responsibility. Restaurant level management is responsible for the hiring and
training of employees but they involve the Company's hourly coworkers in the
process. See "Risk Factors -- Labor Cost and Availability."
SUPPORT OPERATIONS
Commissary Operations. The Company operates its own commissary in
Nashville, Tennessee through which it purchases and distributes most of its food
products and restaurant supplies. At the commissary, the Company operates a
USDA-approved meat processing facility at which it ages and cuts its beef and
prepares salad dressings and fresh breads. The commissary primarily services the
Company's restaurants; however, it also sells food products and supplies to
certain other customers, including retail grocery chains, mass merchandisers and
wholesale clubs. Food products and other restaurant supplies are distributed to
the Company's restaurants twice each week by Company-operated trucks. Seafood,
poultry and most produce, which require more frequent deliveries, are typically
purchased locally by restaurant management to ensure freshness. The commissary
contains approximately 71,000 square feet of dry storage, 22,500 square feet of
refrigerated storage and 16,500 square feet of production facilities.
Management believes that its commissary enhances its restaurant operations
by assisting the Company in maintaining consistent food quality and controlling
costs. The commissary also simplifies the restaurant managers' purchasing duties
by providing fixed prices on food items and supplies, which allows unit level
management to focus on other areas of restaurant operations. The Company
establishes food and other product quality standards, and the commissary
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 mitigate short-term food cost
fluctuations.
Quality Control. The Company uses written customer evaluations, which are
available to customers in the restaurants, as a means of monitoring customer
satisfaction. The Company also employs a "mystery shopper" program to
independently monitor quality control in areas such as timeliness of service,
atmosphere, cleanliness, employee attitude and food quality. In addition, the
Company has established a customer service department that receives calls and
routes comments to the appropriate personnel.
Advertising and Marketing. The Company has an ongoing defined 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's
advertising focuses on building brand loyalty and emphasizing the
distinctiveness of the O'Charley's atmosphere and menu offerings. The Company
conducts annual studies of changes in customer tastes and preferences and is
constantly evaluating the quality of its menu offerings. The Company expended
2.4% of its 1996 restaurant sales on advertising. The Company introduced a new
advertising campaign in the fourth quarter of 1996 to promote its redesigned
menu. The Company's advertising expense as a percentage of restaurant sales
increased to 2.8% in the first half of 1997 primarily as a result of increased
use of television and radio advertising. The Company expects the percentage of
restaurant sales devoted to advertising will continue at approximately 3.0% for
the remainder of 1997. In addition to advertising, the Company encourages unit
level personnel to become active in their communities through local charities
and other organizations and sponsorships.
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<PAGE> 28
Restaurant Reporting. Systems and technology are essential for the
management oversight needed to monitor the Company's restaurant operations.
Operational and financial controls are maintained through the use of point of
sale systems in each restaurant and an automated data processing system at the
home office. The management accounting system polls data from the point of sale
system and generates daily reports of sales, sales mix, customer counts, check
average, cash, labor and food cost. Inventories are taken of key products daily
and of all products at the end of each four-week accounting period. Management
utilizes this data to monitor the effectiveness of controls and to prepare
periodic financial and management reports. The system is also utilized for
financial and budgetary analysis, including analysis of sales by restaurant,
product mix and labor utilization. Planned system developments include
additional enhancements, such as sales forecasting, labor scheduling and
ordering of food products and supplies from the Company's commissary.
Real Estate and Construction. The Company maintains an in-house
construction and real estate department to assist in the site selection process,
develop architectural and engineering plans and oversee new construction. The
Company's Director of Real Estate, Chief Executive Officer and Chief Operating
Officer, together with other members of management, work actively to analyze
prospective sites and maintain and regularly update a broad database of possible
sites. Once a site is selected, the Director of Real Estate oversees the zoning
process, obtains all required governmental permits, develops detailed building
plans and specifications and equips the restaurants.
Human Resources. The Company maintains a human resources department that
supports restaurant operations through the design and implementation of
policies, programs, procedures and benefits for the Company's employees. The
human resources department also includes an employee relations manager and
maintains a toll-free number for employee comments and questions. The Company
has had in place for several years a plan to foster diversity throughout its
workforce.
PROPERTIES
The Company currently operates 79 O'Charley's restaurants. The following
table sets forth the locations (including the number of restaurants at each
location) of the Company's existing O'Charley's restaurants.
ALABAMA KENTUCKY SOUTH CAROLINA
Birmingham(4) Bowling Green Anderson
Decatur Elizabethtown
Huntsville Florence TENNESSEE
Mobile Lexington(2) Alcoa
Montgomery Louisville(4) Chattanooga(2)
Oxford Owensboro Clarksville(2)
Tuscaloosa Paducah Cleveland
Richmond Cookeville
FLORIDA MISSISSIPPI Gatlinburg
Pensacola Biloxi Jackson
Hattiesburg Johnson City
GEORGIA NORTH CAROLINA Knoxville(4)
Atlanta(4) Lebanon
Dalton Asheville Memphis(3)
Gainesville Murfreesboro
Lawrenceville Raleigh(3) Nashville(7)
Woodstock Winston-Salem Pigeon Forge
OHIO
INDIANA Cincinnati(5)
Clarksville
Evansville Dayton
Indianapolis(5)
Currently, the Company has three additional O'Charley's restaurants under
construction in Louisville, Kentucky, Spartanburg, South Carolina and Meridian,
Mississippi which are expected to open during 1997. The Company's restaurants
range in size from approximately 5,000 to 8,500 square feet and have seating for
approximately 200 to 265 customers. Of the 79 O'Charley's restaurants, 46 are
owned and 33 are leased. See "Risk Factors -- Geographic Concentration."
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<PAGE> 29
The Company's executive offices and its commissary are located in
Nashville, Tennessee in approximately 138,000 square feet of office and
warehouse space under a lease which expires in March 2002. The Company has the
option to extend the term of the lease for two additional five-year terms. The
Company has an option to purchase the property at various times during the
lease. The Company is in the process of expanding its commissary to add
additional freezer storage.
FRANCHISED RESTAURANT
The Company has one franchisee which owns one O'Charley's restaurant in
Greenville, South Carolina. The Company's franchised restaurant is currently
operated pursuant to a franchise agreement that provides for royalties of 2.0%
of gross sales, marketing contributions of up to 1.0% of gross sales and a
20-year term. The Company retains the right to terminate the franchise agreement
in the event of a breach or default under the franchise agreement, including
failure to maintain Company operating standards. In addition, the franchisee is
required to comply with Company specifications as to space, design and decor,
menu items, principal food ingredients and day-to-day operations. The Company
does not currently intend to franchise any additional O'Charley's restaurants.
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 mark 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 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. The Company's commissary is licensed and subject to regulation by
the USDA. In addition, 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. Most
municipalities in which the Company's restaurants are located require local
business licenses. 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 such regulations have not had a material adverse
effect on the Company's operations to date.
Approximately 12% of the Company's restaurant sales is attributable to the
sale of alcoholic beverages. Each restaurant, where permitted by local law, 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 assist in 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 Disabilities Act prohibits discrimination on the basis of disability in
public accommodations and employment. The Disabilities 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.
28
<PAGE> 30
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. In the event a proposal is
adopted which materially increases the applicable minimum wage, such an increase
would result in an increase in the Company's payroll and benefits expense. See
"Risk Factors -- Government Regulation."
EMPLOYEES
At July 13, 1997, the Company employed approximately 6,300 persons, 110 of
whom were home office management and staff personnel, 120 of whom were
commissary personnel and the remainder of whom 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 employee 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. See
"Risk Factors -- Competition."
LITIGATION
On February 15, 1994, a class action suit was filed in the United States
District Court in the Western District of Tennessee against the Company, Gregory
L. 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.
Although the Company believes the suit was without merit, the Company entered
into a settlement agreement in November 1996 in order to permit management to
focus its resources on the Company's operation. 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, $700,000 for claims administration and fees and $2.0
million for the attorneys representing the class. The Company accrued an
additional $1.0 million for legal and other expenses related to the settlement.
An adjustment of approximately $2.3 million was made to the original accrual in
December 1996 as a result of the lower than originally anticipated number of
claims submitted by members of the plaintiff class. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
The Company is presently a party in a civil action in the United States
District Court for the Middle District of Tennessee involving a former general
manager of the Company. In September 1995, the Company filed an action against
the former employee alleging wrongful conversion of Company funds and fraudulent
misrepresentation. The former employee has moved to amend his answer in the
civil action filed by the Company claiming damages of $30.0 million relating to
counterclaims alleging malicious prosecution and
29
<PAGE> 31
intentional infliction of emotional distress and $600,000 relating to
counterclaims alleging breach of contract and race discrimination. To date the
Court has not ruled on whether it will allow the former employee to pursue any
of the foregoing counterclaims. The Company believes the counterclaims are
without merit, intends to vigorously prosecute its claims and vigorously defend
any counterclaims. Based on the advice of counsel, the Company believes that to
the extent the counterclaims relating to malicious prosecution and intentional
infliction are allowed to proceed, it is likely that these counterclaims will be
dismissed upon the Company's motion for summary judgment. The Company does not
believe the outcome of this proceeding will materially affect its financial
condition or results of operations.
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's business,
financial condition or results of operations.
30
<PAGE> 32
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Gregory L. Burns..................................... 42 President, Chief Executive Officer and
Chairman of the Board of Directors
Steven J. Hislop..................................... 37 Executive Vice President and Chief
Operating Officer
A. Chad Fitzhugh..................................... 37 Chief Financial Officer, Secretary and
Treasurer
William E. Hall, Jr. ................................ 42 Vice President -- Operations
John W. Stokes, Jr. ................................. 60 Director
Richard Reiss, Jr. .................................. 53 Director
G. Nicholas Spiva.................................... 45 Director
H. Steve Tidwell..................................... 55 Director
C. Warren Neel....................................... 58 Director
Samuel H. Howard..................................... 58 Director
Shirley A. Zeitlin................................... 62 Director
</TABLE>
The Company's Board of Directors is divided into three classes of as nearly
equal size as possible. The Company's Board of Directors currently consists of
eight directors. At each annual meeting of shareholders, directors constituting
one class are elected for a three-year term. The terms of Messrs. Stokes,
Tidwell and Howard will expire at the 1998 Annual Meeting of Shareholders, the
terms of Messrs. Reiss and Spiva and Ms. Zeitlin will expire at the 1999 Annual
Meeting of Shareholders, and the terms of Messrs. Burns and Neel will expire at
the 2000 Annual Meeting of Shareholders.
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, 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 January 1993 to March 1997, as Vice
President -- Operations from April 1990 to January 1993, and as Director of
Operations from September 1989 to April 1990.
A. Chad Fitzhugh has served as Chief Financial Officer since September
1996, as Secretary of the Company since May 1993, and as Treasurer since April
1990. He served as Controller from 1987 until his appointment as Chief Financial
Officer. Mr. Fitzhugh is a certified public accountant.
William E. Hall, Jr. has served as Vice President -- Operations since March
1997. Mr. Hall served as Director of Operations from December 1996 to March
1997, as a Regional Director of the Company from July 1992 to December 1996, and
as an Area Supervisor of the Company from May 1991 to July 1992.
John W. Stokes, Jr. has served as a director of the Company since 1983. Mr.
Stokes has served as Vice Chairman of Morgan Keegan & Company, Inc. since 1983.
From 1984 to August 1997, Mr. Stokes served as President of The Equity Capital
Markets of Morgan Keegan & Company, Inc., a wholly-owned subsidiary of Morgan
Keegan & Company, Inc. Mr. Stokes also serves as a director of RFS Hotel
Investors, Inc.
Richard Reiss, Jr. has served as a director of the Company since 1983. Mr.
Reiss is the President of Georgia Advisors, LLC, a private investment management
firm. From January 1982 to December 1996, Mr. Reiss was the Managing Partner of
Cumberland Associates, Cumberland Partners and Longview
31
<PAGE> 33
Partners, a private investment management firm and two domestic investment
partnerships, respectively. Mr. Reiss is also a director of The Lazard Funds,
Inc. and Page One Communications, Ltd.
G. Nicholas Spiva has served as a director of the Company since 1985. Mr.
Spiva has served as President of Spiva-Hill Investments, a commercial real
estate development company, since 1975. Mr. Spiva was an owner of the original
O'Charley's restaurant prior to its acquisition by the Company.
H. Steve Tidwell has served as a director of the Company since 1988. Mr.
Tidwell has served as President of SPFS, Inc., which operates 18 unaffiliated
restaurants in five southern states, since February 1991. From January 1987 to
February 1991, Mr. Tidwell served as Secretary and Treasurer of SPFS. Mr.
Tidwell served as Vice President of Real Estate and Construction at Shoney's,
Inc. from December 1978 to January 1987.
Dr. C. Warren Neel has served as a director of the Company since 1990. Dr.
Neel has served as the Dean of the University of Tennessee College of Business
Administration since 1977. From October 1985 to January 1987, Dr. Neel was
Commissioner of Employment Security of the State of Tennessee. Dr. Neel was a
member of the Board of Directors of the Federal Reserve Bank of Nashville from
1980 to 1986, where he served as Chairman in 1985. Dr. Neel is a member of the
Board of Directors of Proffitt's Inc., American Healthcorp, Inc. and Clayton
Homes, Inc.
Samuel H. Howard has served as a director of the Company since 1992. Mr.
Howard has served as Chairman of Phoenix Holdings, Inc., an investment holding
company, since 1989, as Chairman of Phoenix Healthcare Corporation, a health
maintenance organization, since April 1993, and as President and Chief Executive
Officer of Phoenix Communications Group, Inc., a company engaged in radio
broadcasting, since 1971. From 1981 to 1989, Mr. Howard was Senior Vice
President, Public Affairs for Hospital Corporation of America. Mr. Howard is a
member of the Board of Directors of Genesis Health Ventures, Inc.
Shirley A. Zeitlin has served as a director of the Company since May 1996.
Ms. Zeitlin has served as President and Chief Executive Officer of Shirley
Zeitlin & Co., Realtors, a brokerage firm, since 1979. Ms. Zeitlin has served as
President and a member of the board of the Tennessee Association of Realtors and
the Nashville Board of Realtors and is an incoming vice president of the
National Association of Realtors. She was a member of the board of the Federal
Reserve Bank of Nashville where she served as chairman in 1991. In addition to
serving on the advisory Board of Directors of First American National Bank, Ms.
Zeitlin serves on the boards of numerous civic and charitable organizations.
The Board of Directors has an Executive Committee which is authorized
generally to act on behalf of the Board of Directors between scheduled meetings
of the Board, subject to certain limitations established by the Board and
applicable corporate law. Messrs. Burns, Reiss and Tidwell comprise the
Executive Committee.
The Board of Directors has an Audit Committee for the purpose of
recommending the Company's auditors, reviewing the scope of their engagement,
consulting with such auditors, reviewing the results of the audit examination,
acting as a liaison between the Board and the auditors and reviewing various
Company policies, including those related to accounting and internal controls
matters. Messrs. Tidwell, Neel and Howard comprise the Audit Committee.
The Board of Directors has a Compensation Committee for the purpose of
evaluating the performance of the Company's officers, reviewing and approving
officers' compensation, formulating bonuses for the Company's management and
administering the Company's stock incentive plans. Messrs. Stokes, Reiss and
Spiva comprise the Compensation Committee.
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<PAGE> 34
PRINCIPAL AND SELLING SHAREHOLDERS
The table below sets forth certain information regarding the beneficial
ownership of the Common Stock as of the date hereof, and as adjusted to reflect
the sale of the Common Stock offered hereby of (i) each current director and
executive officer of the Company, (ii) each Selling Shareholder, (iii) each
person who is known by the Company to be the beneficial owner of more than 5% of
the outstanding shares of Common Stock and (iv) all current directors and
executive officers as a group. Except as otherwise indicated, the persons or
entities listed below have sole voting and investment power with respect to all
shares shown beneficially owned by them, except to the extent such power is
shared by a spouse under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENT BENEFICIALLY PERCENT BENEFICIALLY
OWNED PRIOR TO OWNED BEFORE THE OWNED AFTER THE
NAME OFFERING(1) OFFERING OFFERING
- ---- ------------------- -------------------- --------------------
<S> <C> <C> <C>
Gregory L. Burns(2)........................ 263,939 3.3% 2.6%
Steven J. Hislop(2)........................ 111,002 1.4 1.1
A. Chad Fitzhugh(2)........................ 88,496 1.1 *
William E. Hall, Jr.(2).................... 28,000 * *
John W. Stokes, Jr......................... 121,562(3) 1.5 1.2
Richard Reiss, Jr.......................... 77,500 1.0 *
G. Nicholas Spiva(2)....................... 48,750(4) * *
H. Steve Tidwell........................... 39,000 * *
C. Warren Neel............................. 19,500 * *
Samuel H. Howard........................... 12,750 * *
Shirley A. Zeitlin......................... 4,500 * *
David K. Wachtel, Jr.(5)................... 1,067,599(6) 13.5 10.8
Wellington Management Company, LLP(7)...... 534,000(6)(8) 6.8 5.4
St. Denis J. Villere & Company(9).......... 485,800(6) 6.2 4.9
All current executive officers and
directors as a group (11 persons)........ 814,999 9.8 7.9
</TABLE>
- ---------------
* Less than one percent
(1) Includes the following shares which are not currently outstanding but which
the named individuals are entitled to acquire within 60 days of the date
hereof upon the exercise of options: Gregory L. Burns -- 147,540 shares;
Steven J. Hislop -- 91,871 shares; A. Chad Fitzhugh -- 74,820 shares;
William E. Hall, Jr. -- 23,400 shares; John W. Stokes, Jr. -- 15,000 shares;
Richard Reiss, Jr. -- 15,000 shares; G. Nicholas Spiva -- 15,000 shares; H.
Steve Tidwell -- 15,000 shares; C. Warren Neel -- 15,000 shares; Samuel H.
Howard -- 12,000 shares; Shirley A. Zeitlin -- 3,000 shares; and all
directors and executive officers as a group (11 persons) -- 427,631 shares.
The shares described in this note are deemed to be outstanding for the
purpose of computing the percentage of outstanding Common Stock owned by
such persons individually and by the group, but are not deemed to be
outstanding for the purpose of computing the percentage of ownership of any
other person.
(2) Messrs. Burns, Hislop, Fitzhugh, Hall and Spiva have agreed to sell up to
35,000, 15,000, 10,000, 8,000 and 11,000 shares of Common Stock,
respectively, pursuant to the Underwriters' over-allotment option. See
"Underwriting."
(3) Includes 43,462 shares owned by Mr. Stokes' wife, as to which Mr. Stokes
disclaims beneficial ownership.
(4) Includes 14,500 shares held by a trust for the benefit of Mr. Spiva.
(5) Address: 640 Spence Lane, Suite 123, Nashville, TN 37217.
(6) Based solely upon information contained in a Schedule 13G filed with the
Commission.
(7) Address: 75 State Street, Boston, MA 02109.
(8) Wellington Management Company, LLP has shared voting power with respect to
242,000 shares and shared dispositive power with respect to 534,000 shares.
(9) Address: 210 Baronne Street, Suite 808, New Orleans, LA 70112.
33
<PAGE> 35
UNDERWRITING
Pursuant to the Underwriting Agreement, and subject to the terms and
conditions thereof, the Underwriters named below acting through J.C. Bradford &
Co., Montgomery Securities and Morgan Keegan & Company, Inc., as representatives
of the several Underwriters (the "Representatives"), have agreed, severally, to
purchase from the Company the number of shares of Common Stock set forth below
opposite their respective names.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
------------------- ---------
<S> <C>
J.C. Bradford & Co. ........................................
Montgomery Securities.......................................
Morgan Keegan & Company, Inc. ..............................
---------
Total........................................ 2,000,000
=========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions contained therein, to purchase all shares of Common Stock
offered hereby, if any of such shares are purchased.
The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose initially to offer the shares of
Common Stock to the public at the public offering price set forth on the cover
page of this Prospectus and to certain dealers at such price less a concession
not in excess of $ per share. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share to certain other
dealers. After the public offering, the public offering price and such
concessions may be changed. The Representatives have informed the Company that
the Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
The offering of the shares of Common Stock is made for delivery when, as
and if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any offer for the purchase of the shares.
The Company and the Selling Shareholders have granted to the Underwriters
an option, exercisable not later than 30 days from the date of this Prospectus,
to purchase up to 221,000 and 79,000 additional shares of Common Stock,
respectively, to cover over-allotments, if any. To the extent that the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the table above
bears to the total number of shares in such table, and the Company and the
Selling Shareholders will be obligated, pursuant to the option, to sell such
shares to the Underwriters. In the event the Underwriters exercise this option
for less than 300,000 shares, the Underwriters will purchase the 79,000 shares
being offered by the Selling Shareholders, pro rata, prior to purchasing any
shares from the Company. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the 2,000,000 shares of
Common Stock offered hereby. If purchased, the Underwriters will sell such
additional shares on the same terms as those on which the 2,000,000 shares are
being offered.
The Company, its executive officers, directors and certain of its
shareholders have agreed with the Representatives not to offer to sell or
otherwise dispose of any shares of Common Stock they currently own for a period
of 120 days from the date of this Prospectus, without prior written consent of
J.C. Bradford & Co., except that the Company may issue shares in connection with
the exercise of stock options granted pursuant to the Company's stock option
plans.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters and controlling persons, if any,
against certain liabilities, including liabilities under the Securities Act, or
will contribute to payments which the Underwriters or any such controlling
persons may be required to make in respect thereof.
In connection with this offering, certain Underwriters and selling group
members (if any) who in the past have acted as market makers in the Common Stock
may engage in passive market making activities in the Common Stock on the Nasdaq
National Market in accordance with Rule 103 of Regulation M under the Exchange
Act. Underwriters and other participants in the distribution of the Common Stock
generally are
34
<PAGE> 36
prohibited during a specified time period (the "qualifying period"), determined
in light of the timing of the pricing of the offering, from bidding for or
purchasing the Common Stock or a related security except to the extent permitted
under the applicable rules of Regulation M. Rule 103 allows, among other things,
an Underwriter or member of the selling group (if any) for the Common Stock to
effect "passive market making" transactions on the Nasdaq National Market in the
Common Stock during the qualifying period at a price that does not exceed the
highest independent bid for that security at the time of the transaction. Such a
passive market maker must not display a bid for the subject security at a price
in excess of the highest independent bid and generally must lower its bid if all
independent bids are lowered. Moreover, the passive market maker's net purchases
of such security on each day of the qualifying period shall not exceed 30% of
its average daily trading volume during a reference period preceding the
distribution.
In connection with the offering, the Underwriters and other persons
participating in the offering may engage in transactions that stabilize,
maintain or otherwise affect the price of Common Stock. Specifically, the
Underwriters may over-allot in connection with the offering, creating a short
position in Common Stock for their own account. To cover over-allotments or to
stabilize the price of Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. The Underwriters may also impose a
penalty bid whereby they may reclaim selling concessions allowed to an
underwriter or a dealer for distributing Common Stock in the offering, if the
Underwriters repurchase previously distributed Common Stock in transactions to
cover their short position, in stabilization transactions or otherwise. Finally,
the Underwriters may bid for, and purchase, shares of Common Stock in market
making transactions. These activities may stabilize or maintain the market price
of Common Stock above market levels that may otherwise prevail. The Underwriters
are not required to engage in these activities and may end any of these
activities at any time.
John W. Stokes, Jr., a director of the Company, is Vice Chairman of Morgan
Keegan & Company, Inc., one of the Representatives.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Bass, Berry & Sims PLC, Nashville, Tennessee. Certain
legal matters related to this offering will be passed upon for the Underwriters
by Nelson Mullins Riley & Scarborough, L.L.P., Atlanta, Georgia.
EXPERTS
The financial statements of O'Charley's Inc. as of December 29, 1996 and
December 31, 1995, and for each of the years in the three-year period ended
December 29, 1996, have been included herein and in the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
The financial statements of O'Charley's Inc. as of December 29, 1996 and
December 31, 1995, and for each of the years in the three-year period ended
December 29, 1996, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
35
<PAGE> 37
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto. Certain items are omitted in
accordance with the rules and regulations of the Commission. Statements
contained in this Prospectus concerning the provisions or contents of any
contract or other document referred to herein are qualified in all respects by
reference to such document for a more complete description.
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files proxy statements, reports, and other
information with the Commission. The Registration Statement (with exhibits), as
well as such proxy statements, reports and other information, may be inspected
and copied at prescribed rates at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Seven World Trade Center, 13th Floor, New York, New York 10048, and Northwestern
Atrium Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661. The
Commission maintains a web site that contains reports, proxy and information
statements and other information regarding registrants, including the Company,
at http://www.sec.gov.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents or portions of documents filed with the Commission
by the Company (File No. 0-18629) are incorporated by reference into this
Prospectus:
(i) The Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1996, as amended by the Company's Annual Report on Form 10-K/A
dated August 13, 1997;
(ii) The Company's Quarterly Report on Form 10-Q for the quarter ended
July 14, 1996, as amended by the Company's Quarterly Report on Form 10-Q/A
dated August 13, 1997;
(iii) The Company's Quarterly Report on Form 10-Q for the quarter
ended October 14, 1996, as amended by the Company's Quarterly Report on
Form 10-Q/A dated August 13, 1997;
(iv) The Company's Quarterly Reports on Form 10-Q for the quarters
ended April 20, 1997 and July 13, 1997; and
(v) The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A, including all amendments and reports
filed for the purpose of updating such description prior to the termination
of this offering.
All reports and other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document which also is
incorporated or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus. Subject to the foregoing, all information appearing in this
Prospectus is qualified in its entirety by the information appearing in the
documents incorporated herein by reference.
The Company undertakes to provide, without charge, to each person,
including any beneficial owner, to whom this Prospectus is delivered, upon
written or oral request of such person, a copy of any document incorporated by
reference herein (not including exhibits to such documents unless such exhibits
are specifically incorporated by reference into the information incorporated
into this Prospectus). Requests for such information should be directed to A.
Chad Fitzhugh, Secretary, O'Charley's Inc., 3038 Sidco Drive, Nashville,
Tennessee 37204, (615) 256-8500.
36
<PAGE> 38
INDEX TO FINANCIAL STATEMENTS
O'CHARLEY'S INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets at December 31, 1995, December 29, 1996 and
July 13, 1997 (unaudited)................................. F-3
Statements of Operations for the Years Ended December 25,
1994, December 31, 1995 and December 29, 1996 and the
twenty-eight weeks ended July 14, 1996 (unaudited) and
July 13, 1997 (unaudited)................................. F-4
Statements of Shareholders' Equity for the Years Ended
December 25, 1994, December 31, 1995 and December 29, 1996
and the twenty-eight weeks ended July 13, 1997
(unaudited)............................................... F-5
Statements of Cash Flows for the Years Ended December 25,
1994, December 31, 1995 and December 29, 1996 and the
twenty-eight weeks ended July 14, 1996 (unaudited) and
July 13, 1997 (unaudited)................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 39
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 31,
1995 and December 29, 1996 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 these 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 statements. 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 statements referred to above present fairly,
in all material respects, the financial position of O'Charley's Inc. as of
December 31, 1995 and December 29, 1996 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
F-2
<PAGE> 40
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29, JULY 13,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash.................................................... $ 2,576 $ 1,616 $ 1,683
Accounts receivable, less allowance for doubtful
accounts of $92 in 1995, $58 in 1996 and $66 in
1997................................................. 1,244 1,546 1,770
Due from related parties................................ 108 -- --
Inventories............................................. 3,780 4,505 5,732
Preopening costs........................................ 1,045 1,097 1,322
Deferred income taxes................................... 839 2,334 1,912
Other current assets.................................... 971 1,357 2,203
------- -------- --------
Total current assets................................. 10,563 12,455 14,622
Property and Equipment, Net............................... 81,512 103,281 118,389
Other Assets.............................................. 1,276 1,423 1,361
------- -------- --------
$93,351 $117,159 $134,372
======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................ $ 4,423 $ 5,022 $ 6,226
Accrued payroll and related expenses.................... 3,435 3,365 4,559
Accrued expenses........................................ 4,650 9,162 7,634
Federal, state and local taxes.......................... 2,606 2,461 4,117
Current portion of long-term debt and capitalized
leases............................................... 2,793 3,309 4,052
------- -------- --------
Total current liabilities............................ 17,907 23,319 26,588
Deferred income taxes..................................... 2,395 1,295 1,295
Long-term debt............................................ 11,990 29,822 38,133
Capitalized lease obligations............................. 9,272 11,797 13,055
Shareholders' Equity:
Common stock -- no par value; authorized, 50,000,000
shares; issued and outstanding, 7,770,964 in 1995,
7,854,369 in 1996 and 7,885,581 in 1997.............. 28,991 29,592 29,694
Additional paid-in capital.............................. 967 652 652
Retained earnings....................................... 21,829 20,682 24,955
------- -------- --------
Total shareholders' equity........................... 51,787 50,926 55,301
------- -------- --------
$93,351 $117,159 $134,372
======= ======== ========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 41
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED TWENTY-EIGHT WEEKS ENDED
------------------------------------------ -------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 29, JULY 14, JULY 13,
1994 1995 1996 1996 1997
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Restaurant sales.................. $112,183 $138,098 $162,235 $ 84,306 $101,655
Commissary sales.................. 10,483 9,429 2,264 1,241 1,375
Franchise revenue................. 31 30 31 17 16
-------- -------- -------- -------- --------
122,697 147,557 164,530 85,564 103,046
Costs and Expenses:
Cost of restaurant sales:
Cost of food, beverage and
supplies..................... 41,356 50,687 58,184 30,242 35,247
Payroll and benefits........... 33,641 41,511 50,227 26,217 31,361
Restaurant operating costs..... 17,282 20,884 24,504 12,950 14,748
Cost of commissary sales.......... 9,939 8,986 2,156 1,181 1,289
Advertising, general and
administrative expenses........ 7,717 8,187 9,370 4,802 6,739
Depreciation and amortization..... 4,711 6,164 8,141 4,229 5,161
Asset revaluation................. -- -- 5,110 5,110 --
-------- -------- -------- -------- --------
114,646 136,419 157,692 84,731 94,545
-------- -------- -------- -------- --------
Income from operations.............. 8,051 11,138 6,838 833 8,501
Other (Income) Expense:
Interest expense, net............. 1,290 1,920 2,588 1,340 1,971
Litigation........................ -- 1,000 6,200 8,500 --
Other, net........................ (704) (8,444) (6) 92 (147)
-------- -------- -------- -------- --------
586 (5,524) 8,782 9,932 1,824
-------- -------- -------- -------- --------
Earnings (loss) before income
taxes............................. 7,465 16,662 (1,944) (9,099) 6,677
Income tax expense (benefit)........ 2,236 5,785 (797) (3,185) 2,404
-------- -------- -------- -------- --------
Net earnings (loss)................. $ 5,229 $ 10,877 $ (1,147) $ (5,914) $ 4,273
======== ======== ======== ======== ========
Pro forma data:
Earnings before income taxes as
reported....................... $ 7,465 $ 16,662
Pro forma income tax expense...... 2,492 6,071
-------- --------
Pro forma net earnings............ $ 4,973 10,591
======== ========
Earnings (loss) per common
share(1).......................... $ 0.61 $ 1.26 $ (0.15) $ (0.76) $ 0.51
======== ======== ======== ======== ========
Weighted average common shares
outstanding....................... 8,137 8,438 7,802 7,779 8,417
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Earnings per common share for 1994 and 1995 represent pro forma amounts (see
Note 2 in Notes to Financial Statements).
See notes to financial statements.
F-4
<PAGE> 42
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------- ---------- -------- -------
<S> <C> <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
Net earnings for the twenty-eight week period
(unaudited).................................. -- -- -- 4,273 4,273
Exercise of employee stock options including tax
benefits (unaudited)......................... 32 102 -- -- 102
----- ------- ----- ------- -------
Balance, July 13, 1997 (unaudited)................ 7,886 $29,694 $ 652 $24,955 $55,301
===== ======= ===== ======= =======
</TABLE>
See notes to financial statements.
F-5
<PAGE> 43
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED TWENTY-EIGHT WEEKS ENDED
------------------------------------------ -------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 29, JULY 14, JULY 13,
1994 1995 1996 1996 1997
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Net earnings (loss)............... $ 5,229 $ 10,877 $ (1,147) $ (5,914) $ 4,273
Adjustments to reconcile net
earnings (loss) to net cash
provided by operating
activities:
Depreciation and
amortization................. 3,876 4,875 5,982 3,101 3,937
Amortization of preopening
costs........................ 835 1,289 2,159 1,128 1,224
Deferred income taxes.......... (216) 936 (2,595) (1,800) 422
(Gain) loss on sale of
assets....................... -- (7,448) (157) (171) 73
Asset revaluation.............. -- -- 5,110 5,110 --
Changes in assets and liabilities:
Accounts receivable............ (464) (84) (302) (173) (224)
Due from related parties....... (172) 281 108 -- --
Inventories.................... (1,446) 699 (725) (2,377) (1,227)
Additions to preopening
costs........................ (794) (1,970) (2,211) (1,258) (1,449)
Other current assets........... (356) (120) (386) (1,313) (847)
Accounts payable............... 705 981 599 741 1,204
Accrued payroll and other
accrued expenses............. 2,041 2,241 4,297 5,758 1,324
-------- -------- -------- -------- --------
Net cash provided by
operating activities.... 9,238 12,557 10,732 2,832 8,710
Cash Flows from Investing
Activities:
Additions to property and
equipment...................... (15,364) (20,439) (27,744) (14,864) (16,202)
Proceeds from sale of property and
equipment...................... 48 6,100 1,341 171 1,025
Proceeds from sale of
unconsolidated partnership..... -- 7,894 -- -- --
Other, net........................ (360) (85) (516) 49 53
-------- -------- -------- -------- --------
Net cash used by investing
activities.............. (15,676) (6,530) (26,919) (14,644) (15,124)
Cash Flows from Financing
Activities:
Proceeds from long-term debt...... 13,300 6,000 18,503 14,137 8,400
Payments on long-term debt and
capitalized lease
obligations.................... (8,943) (11,284) (3,563) (3,023) (2,021)
Distribution to shareholders of
acquired entity................ (440) (418) (315) (315) --
Exercise of employee incentive
stock options.................. 2,811 524 602 111 102
-------- -------- -------- -------- --------
Net cash provided (used)
by financing
activities.............. 6,728 (5,178) 15,227 10,910 6,481
-------- -------- -------- -------- --------
Increase (Decrease) in Cash......... 290 849 (960) (902) 67
Cash at Beginning of the Period..... 1,437 1,727 2,576 2,576 1,616
-------- -------- -------- -------- --------
Cash at End of the Period........... $ 1,727 $ 2,576 $ 1,616 $ 1,674 $ 1,683
======== ======== ======== ======== ========
</TABLE>
See notes to financial statements
F-6
<PAGE> 44
O'CHARLEY'S INC.
NOTES TO FINANCIAL STATEMENTS
UNAUDITED INTERIM FINANCIAL INFORMATION
The balance sheet as of July 13, 1997, the statements of operations and
cash flows for the twenty-eight weeks ended July 14, 1996 and July 13, 1997, the
statement of shareholders' equity for the twenty-eight week period ended July
13, 1997, and the footnote disclosures related to such interim statements (the
"Interim Financial Information") have been prepared by management of O'Charley's
Inc. and are unaudited. In the opinion of management, such Interim Financial
Information includes all adjustments, consisting only of normal recurring
accruals, which are necessary for a fair presentation of the Company's financial
position and results of operations. The results of operations for any interim
period are not necessarily indicative of results that may be expected for the
full year. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from the Interim Financial
Information. The Interim Financial Information should be read in conjunction
with the Company's audited financial statements appearing herein.
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
F-7
<PAGE> 45
O'CHARLEY'S INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 operations 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 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, except for those reporting periods which reflect a net loss,
as the inclusion of common stock equivalents in such periods would be
anti-dilutive. 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. In February 1997, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (FAS 128), which establishes standards
for the computation, presentation and disclosure requirements for earnings per
share. FAS 128 replaces the presentation of primary earnings per share with a
presentation of basic earnings per share, and fully diluted earnings per share
with diluted earnings per share. It also requires all entities, other than those
with simple capital structures, to present basic and diluted per-share amounts
on the face of the income statement. FAS 128 is effective for financial
statements for both interim and annual periods ending after December 15, 1997.
Earlier application is not permitted. Upon adoption, all calculations of prior
period earnings per share will be restated to conform with FAS 128. The
Company's pro forma basic and primary earnings per share as calculated under FAS
128 for the twenty-eight week period ending July 13, 1997, were $0.54 and $0.51,
respectively.
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
F-8
<PAGE> 46
O'CHARLEY'S INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 was 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.
Revenues, net earnings and changes in shareholders' equity of the separate
companies for the periods preceding the acquisition were as follows (in
thousands):
<TABLE>
<CAPTION>
CHANGES IN
NET SHAREHOLDERS'
REVENUES EARNINGS EQUITY
-------- -------- -------------
<S> <C> <C> <C>
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)
-------- ------- -----
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)
======== ======= =====
</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
F-9
<PAGE> 47
O'CHARLEY'S INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29, JULY 13,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Land and improvements............................. $ 20,524 $ 26,500 $ 29,205
Buildings and improvements........................ 26,582 36,680 43,075
Furniture, fixtures and equipment................. 20,195 26,365 29,701
Leasehold improvements............................ 18,332 20,154 22,761
Equipment under capitalized leases................ 15,990 19,066 22,858
Property leased to others......................... 951 1,032 1,032
-------- -------- --------
102,574 129,797 148,632
Less accumulated depreciation and amortization.... (21,062) (26,516) (30,243)
-------- -------- --------
$ 81,512 $103,281 $118,389
======== ======== ========
</TABLE>
5. OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29, JULY 13,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Excess of cost over fair value of net assets
acquired, net of accumulated amortization of
$144 in 1995, $83 in 1996 and $91 in 1997....... $ 490 $ 239 $ 231
Prepaid expenses.................................. 469 647 714
Trade notes receivable............................ 317 537 416
------ ------ ------
$1,276 $1,423 1,361
====== ====== ======
</TABLE>
F-10
<PAGE> 48
O'CHARLEY'S INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCRUED EXPENSES
Accrued expenses include the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29, JULY 13,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred revenue-gift certificates................ $ 807 $1,151 $ 290
Workers' compensation expenses.................... 1,363 1,325 1,522
Accrued litigation................................ 605 4,627 3,557
Other accrued expenses............................ 1,875 2,059 2,265
------ ------ --------
$4,650 $9,162 $ 7,634
====== ====== ========
</TABLE>
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29, JULY 13,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
$70 million revolving line of credit.............. $10,500 $29,000 $37,400
Secured mortgage notes payable.................... 845 251 246
Installment notes payable......................... 972 722 643
------- ------- -------
12,317 29,973 38,289
Less current maturities........................... (327) (151) (156)
------- ------- -------
$11,990 $29,822 $38,133
======= ======= =======
</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.
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.
F-11
<PAGE> 49
O'CHARLEY'S INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 (in thousands):
<TABLE>
<CAPTION>
CAPITALIZED
EQUIPMENT OPERATING
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 operating leases is as follows (in thousands):
<TABLE>
<CAPTION>
TWENTY-EIGHT
WEEKS ENDED
FISCAL YEAR -------------------
------------------------ JULY 14, JULY 13,
1994 1995 1996 1996 1997
------ ------ ------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Minimum rentals............................. $3,105 $3,525 $3,100 $1,657 $1,755
Contingent rentals.......................... 314 428 417 221 245
------ ------ ------ ------ ------
$3,419 $3,953 $3,517 $1,878 $2,000
====== ====== ====== ====== ======
</TABLE>
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
F-12
<PAGE> 50
O'CHARLEY'S INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
settlement amount was reduced to approximately $5.2 million. As of December 29,
1996, the Company has paid approximately $1.4 million towards the total
settlement.
As of July 13, 1997, approximately $2.3 million had been paid to the
plaintiff class and their attorneys, with an additional cash outlay of $2.4
million expected to be paid in the third quarter of 1997, along with the
issuance of shares of the Company's common stock valued at approximately
$500,000. The Company believes it has adequately provided for these anticipated
future payments in its financial statements.
As of July 13, 1997, the Company is a party in a civil action in the United
States District Court for the Middle District of Tennessee involving a former
general manager of the Company. In September 1995, the Company filed an action
against the former employee alleging wrongful conversion of Company funds and
fraudulent misrepresentation. The former employee has moved to amend his answer
in the civil action filed by the Company claiming damages of $30.0 million
relating to counterclaims alleging malicious prosecution and intentional
infliction of emotional distress and $600,000 relating to counterclaims alleging
breach of contract and race discrimination. To date the Court has not ruled on
whether it will allow the former employee to pursue any of the foregoing
counterclaims. The Company believes the counterclaims are without merit, intends
to vigorously prosecute its claims and vigorously defend any counterclaims.
Based on the advice of counsel, the Company believes that to the extent the
counterclaims relating to malicious prosecution and intentional infliction are
allowed to proceed, it is likely that these counterclaims will be dismissed upon
the Company's motion for summary judgment. The Company does not believe the
outcome of this proceeding will materially affect its financial condition or
results of operations.
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 (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ -----
<S> <C> <C> <C>
Earnings.................................................... $2,236 $5,785 $(797)
Shareholders' equity, tax benefit derived from non-statutory
stock options exercised................................... (1,100) (77) (200)
------ ------ -----
$1,136 $5,708 $(997)
====== ====== =====
</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 $256,000 and $286,000 in 1994
and 1995, 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 (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ -------
<S> <C> <C> <C>
Current..................................................... $2,452 $4,849 $ 1,798
Deferred.................................................... (216) 936 (2,595)
------ ------ -------
$2,236 $5,785 $ (797)
====== ====== =======
</TABLE>
F-13
<PAGE> 51
O'CHARLEY'S INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense (benefit) attributable to fiscal year earnings differs
from the amounts computed by applying the applicable U.S. federal income tax
rate to pretax earnings (loss) from operations as a result of the following:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- -----
<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............ 3.9 3.9 (1.8)
Utilization of tax credits................................ (5.1) (2.8) (21.3)
Adjustment to deferred tax assets and liabilities for
change in tax status of Shoex.......................... -- -- 12.1
Earnings attributable to S Corporation.................... (3.4) (1.7) --
Other (primarily goodwill amortization)................... 0.6 0.3 4.0
---- ---- -----
30.0% 34.7% (41.0)%
==== ==== =====
</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 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------ -------
<S> <C> <C>
Deferred tax assets:
Accrued expenses, principally due to accruals for workers'
compensation, employee health and retirement
benefits............................................... $ 833 $ 1,161
Accrued litigation........................................ 182 1,827
Other..................................................... 141 27
------ -------
Total gross deferred tax assets................... 1,156 3,015
------ -------
Deferred tax liabilities:
Property and equipment, principally due to differences in
depreciation and capitalized lease amortization........ 2,203 1,468
Preopening cost, due to cost in excess of amortization.... 403 428
Other..................................................... 106 80
------ -------
Total gross deferred tax liabilities.............. 2,712 1,976
------ -------
Net deferred tax liability (asset)................ $1,556 $(1,039)
====== =======
</TABLE>
The net deferred tax liability (asset) at December 31, 1995, and December
29, 1996, are recorded as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------ -------
<S> <C> <C>
Deferred income taxes, long-term liability.................. $2,395 $ 1,295
Deferred income taxes, current asset........................ (839) (2,334)
------ -------
$1,556 $(1,039)
====== =======
</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.
F-14
<PAGE> 52
O'CHARLEY'S INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
and July 13, 1997, 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 1995 and 1996 fiscal year net earnings
(loss) and earnings (loss) per share would have been reduced to the following
pro forma amounts:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C> <C>
As reported (pro forma in
Net Earnings (Loss): 1995)........................ $10,590,000 $(1,147,000)
Pro forma, as adjusted under
FAS 123...................... $10,303,000 $(1,493,000)
Earnings (Loss) per Common As reported (pro forma in
Share: 1995)........................ $ 1.26 $ (0.15)
Pro forma, as adjusted under
FAS 123...................... $ 1.22 $ (0.19)
</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>
F-15
<PAGE> 53
O'CHARLEY'S INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 3.50..................... 188,851 3.3 years $2.81 165,301 $ 2.85
$4.17 to 6.83..................... 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 years $8.53 827,480 $ 7.10
========= ========= ===== ======= ======
</TABLE>
At December 31, 1995, and December 29, 1996, the number of options
exercisable was 781,000 and 827,480, respectively, and the weighted-average
exercise price of those options was $6.37 and $7.10, 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 1995 and 1996: 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 fiscal year contributions were approximately $65,000 in 1994, $77,000 in
1995 and $84,000 in 1996.
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
F-16
<PAGE> 54
O'CHARLEY'S INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Company an option to purchase the properties at fair market value at any
time during the term of the lease.
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
Company's fiscal year financial statements as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
BALANCE SHEETS
Current Assets:
Due from related parties................................ $ 388 $ 108 $ --
Property and equipment, net (property leased to others)... 4,630 -- --
Other Assets:
Investment in unconsolidated partnership................ 283 -- --
STATEMENTS OF OPERATIONS
Revenues:
Commissary sales........................................ 4,075 6,463 --
Costs and Expenses:
Restaurant operating costs:
Rent expense......................................... 859 843 843
Contingent rentals................................... 219 256 293
Depreciation and amortization (property leased to
others).............................................. 57 69 --
Other (Income) Expense:
Interest income (guarantee fee)......................... (15) (54) --
Other, net:
Accounting and administrative fees................... (68) (56) --
Net rental income.................................... (396) (534) --
Equity earnings in Partnership....................... (328) (273) --
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>
F-17
<PAGE> 55
O'CHARLEY'S INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
15. STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information is as follows (in
thousands):
<TABLE>
<CAPTION>
TWENTY-EIGHT
WEEKS ENDED
FISCAL YEAR --------------------
------------------------------ JULY 14, JULY 13,
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid for interest...................... $1,300 $2,158 $3,074 $1,617 $1,864
Additions to capitalized lease
obligations............................... 2,938 6,242 5,922 2,789 3,932
Income taxes paid........................... 1,404 4,508 1,979 1,857 1,235
</TABLE>
16. SELECTED QUARTERLY DATA (UNAUDITED)
Summarized quarterly financial data for 1995, 1996 and 1997 is shown below
(in thousands, except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
(16 WEEKS) (12 WEEKS) (12 WEEKS) (12 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>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
(16 WEEKS) (12 WEEKS) (12 WEEKS) (13 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 (.96) .18 .39
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND
QUARTER QUARTER
(16 WEEKS) (12 WEEKS)
---------- ----------
<S> <C> <C>
Year Ended December 28, 1997
Net revenues............................... $56,635 $46,411
Income from operations..................... 4,500 4,001
Net earnings............................... 2,262 2,011
Earnings per common share.................. .27 .24
</TABLE>
- ---------------
(1) The income tax expense and net earnings for 1995 represent pro forma amounts
(see Notes 2 and 10).
F-18
<PAGE> 56
Omitted Graphic and Image Material
The following graphic and image material is omitted from the form of
prospectus filed electronically:
Inside Back Cover and Fold-out:
1. A copy of the O'Charley's menu.
<PAGE> 57
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDERS OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THE SHARES OF COMMON STOCK OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSONS
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Price Range of Common Stock and
Dividend Policy..................... 10
Use of Proceeds....................... 10
Capitalization........................ 11
Selected Financial Data............... 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 23
Management............................ 31
Principal and Selling Shareholders.... 33
Underwriting.......................... 34
Legal Matters......................... 35
Experts............................... 35
Additional Information................ 36
Incorporation of Certain Documents by
Reference........................... 36
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
2,000,000 SHARES
[O'CHARLEY'S LOGO]
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
J.C. BRADFORD & CO.
MONTGOMERY SECURITIES
MORGAN KEEGAN
& COMPANY, INC.
, 1997
======================================================
<PAGE> 58
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 11,152
Nasdaq National Market Fee.................................. 17,500
NASD Fee.................................................... 4,180
Blue Sky Fees and Expenses.................................. 2,500*
Legal Fees and Expenses..................................... 100,000*
Accounting Fees and Expenses................................ 50,000*
Transfer Agent and Registrar Fees........................... 3,000*
Printing Expenses........................................... 125,000*
Miscellaneous............................................... 86,668*
--------
Total....................................................... $400,000
========
</TABLE>
- ---------------
* Estimated for filing purposes.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Tennessee Business Corporation Act ("TBCA") provides that a corporation
may indemnify any of its directors and officers against liability incurred in
connection with a proceeding if (i) the director or officer acted in good faith,
(ii) in the case of conduct in his or her official capacity with the
corporation, the director or officer reasonably believed such conduct was in the
corporation's best interest, (iii) in all other cases, the director or officer
reasonably believed that his or her conduct was not opposed to the best interest
of the corporation, and (iv) in connection with any criminal proceeding, the
director or officer had no reasonable cause to believe that his or her conduct
was unlawful. In actions brought by or in the right of the corporation, however,
the TBCA provides that no indemnification may be made if the director or officer
is adjudged to be liable to the corporation. In cases where the director or
officer is wholly successful, on the merits or otherwise, in the defense of any
proceeding instigated because of his or her status as a director or officer of a
corporation, the TBCA mandates that the corporation indemnify the director or
officer against reasonable expenses incurred in the proceeding. The TBCA also
provides that in connection with any proceeding charging improper personal
benefit to a director or officer, no indemnification may be made if such
director or officer is adjudged liable on the basis that personal benefit was
improperly received. Notwithstanding the foregoing, the TBCA provides that a
court of competent jurisdiction, upon application, may order that a director or
officer be indemnified for reasonable expenses if, in consideration of all
relevant circumstances, the court determines that such individual is fairly and
reasonably entitled to indemnification, whether or not the standard of conduct
set forth above was met.
Article VIII of the Company's Restated Charter provides that, to the
fullest extent permitted by the TBCA, as amended from time to time, directors
shall not be liable to the Company or its shareholders for monetary damages for
breach of fiduciary duty as a director, and that to the extent permitted by the
TBCA, the liability of a director to the Company or its shareholders shall be
further limited or eliminated. The Company's Amended and Restated By-laws
provide that the Company shall indemnify from liability, and advance expenses
to, each present or former director or officer of the Company to the fullest
extent allowed under Tennessee law, as now or hereafter in effect.
The Underwriting Agreement, (to be included in Exhibit 1 hereto) provides
for the indemnification by the Underwriters of the Company, the Selling
Shareholders, each of the Company's directors, each of the Company's officers
who signs the Registration Statement and each person who controls the Company
within the meaning of the Securities Act of 1933, as amended, solely with
respect to information provided by the Underwriters for inclusion in this
Registration Statement.
II-1
<PAGE> 59
Directors' and officers' liability insurance has also been obtained by the
Company, the effect of which is to indemnify the directors and officers of the
Company against certain damages and expenses because of certain claims made
against them caused by their negligent act, error or omission.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1 -- Form of Underwriting Agreement
4.1 -- Restated Charter of the Company*
4.2 -- Amended and Restated By-laws 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)
4.3 -- Form of Certificate for the Common Stock (incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-1, Registration No. 33-35170)
5 -- Opinion of Bass, Berry & Sims PLC*
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Bass, Berry & Sims PLC (contained in Exhibit 5)
24 -- Power of Attorney*
</TABLE>
- ---------------
* Previously filed
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 15 above, or otherwise,
the Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE> 60
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in The City of Nashville, State of Tennessee, on this 24th day
of September, 1997.
O'CHARLEY'S, INC.
By: /s/ GREGORY L. BURNS
------------------------------------
Gregory L. Burns, President
Chief Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <C> <C>
/s/ GREGORY L. BURNS President, Chief Executive September 24, 1997
- ------------------------------------------------ Officer, and Chairman of the
Gregory L. Burns Board (Principal Executive
Officer)
/s/ A. CHAD FITZHUGH Chief Financial Officer, September 24, 1997
- ------------------------------------------------ Secretary and Treasurer
A. Chad Fitzhugh (Principal Financial and
Accounting Officer)
* Director September 24, 1997
- ------------------------------------------------
John W. Stokes, Jr.
Director
- ------------------------------------------------
Richard Reiss, Jr.
* Director September 24, 1997
- ------------------------------------------------
G. Nicholas Spiva
* Director September 24, 1997
- ------------------------------------------------
H. Steve Tidwell
Director
- ------------------------------------------------
C. Warren Neel
* Director September 24, 1997
- ------------------------------------------------
Samuel H. Howard
* Director September 24, 1997
- ------------------------------------------------
Shirley A. Zeitlin
* /s/ GREGORY L. BURNS
- ------------------------------------------------
Gregory L. Burns, Attorney-in-Fact.
</TABLE>
II-3
<PAGE> 61
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
1 Form of Underwriting Agreement
4.1 Restated Charter of the Company*
4.2 Amended and Restated By-laws 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)
4.3 Form of Certificate for the Common Stock (incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-1, Registration No. 33-35170)
5 Opinion of Bass, Berry & Sims PLC*
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Bass, Berry & Sims PLC (contained in Exhibit 5)
24 Power of Attorney*
</TABLE>
- ---------------
* Previously filed
<PAGE> 1
EXHIBIT 1.1
O'CHARLEY'S INC.
2,000,000 SHARES OF COMMON STOCK
UNDERWRITING AGREEMENT
_______________ , 1997
J.C. BRADFORD & CO.
MONTGOMERY SECURITIES
MORGAN KEEGAN & COMPANY, INC.
As Representatives of the several Underwriters
c/o J.C. Bradford & Co.
J.C. Bradford Financial Center
330 Commerce Street
Nashville, Tennessee 37201
Ladies and Gentlemen:
O'Charley's Inc., a Tennessee corporation (the "Company"), proposes to
sell to the several underwriters named in Schedule I hereto (the "Underwriters")
for whom you are acting as the representatives (the "Representatives") with
respect to the sale by the Company of 2,000,000 shares (the "Firm Shares") of
the Company's common stock, no par value per share (the "Common Stock"). The
Company and the shareholders of the Company named in Schedule II hereto (the
"Selling Shareholders") have also agreed to grant to you an option (the
"Option") to purchase up to 221,000 (the "Company Option Shares") and 79,000
(the "Selling Shareholder Option Shares") additional shares of Common Stock,
respectively, on the terms and for the purposes set forth in Section 1(b)
hereof. The Company Option Shares and the Selling Shareholder Option Shares are
hereinafter referred to collectively as the "Option Shares." The Firm Shares and
the Option Shares are hereinafter collectively referred to as the "Shares."
The Company and the Selling Shareholders confirm as follows their
agreements with you.
1. AGREEMENT TO SELL AND PURCHASE; PUBLIC OFFERING.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to all the terms and conditions of this Agreement,
the Company agrees to sell to the Underwriters an aggregate of 2,000,000 Firm
Shares, and each of the Underwriters, severally and not jointly, agrees to
purchase at the purchase price of $_____ per share the number of Firm Shares set
forth opposite such Underwriter's name in Schedule I hereto.
(b) Subject to all the terms and conditions of this Agreement, the
Company also grants the Underwriters the Option to purchase, severally and not
jointly, up to 221,000 Company Option Shares and each of the Selling
Shareholders agrees, severally and not jointly, to sell to the Underwriters the
aggregate number of Selling Shareholder Option Shares set forth opposite such
Selling Shareholder's name in Schedule II hereto, each at the same price per
share as you shall pay for the Firm Shares. The Option may be exercised only to
cover over-
<PAGE> 2
allotments in the sale of the Firm Shares and may be exercised in whole or in
part at any time or from time to time on or before the 30th day after the date
of the Prospectus (as defined below) upon written or telegraphic notice (the
"Option Shares Notice") by you to the Company and Custodian (as defined herein)
for the Selling Shareholders no later than 12:00 noon, Nashville, Tennessee time
at least two and no more than ten business days before the date and time
specified for closing in the Option Shares Notice (the "Option Closing Date")
setting forth the aggregate number of Option Shares to be purchased. On the
Option Closing Date, the Company will issue and sell and the Selling
Shareholders will sell to the Underwriters the number of Option Shares set forth
in the Option Shares Notice, and unless otherwise adjusted by the
Representatives, each of the Underwriters will purchase such percentage of the
Option Shares as is equal to the percentage of Firm Shares that such Underwriter
is purchasing.
(c) After the Registration Statement becomes effective, upon the
authorization by you of the release of the Shares, the several Underwriters
propose to offer the Firm Shares and the Option Shares purchased by the
Underwriters for sale initially at the price per share set forth in the
Prospectus (the initial offering price) and upon the terms set forth therein.
2. DELIVERY AND PAYMENT.
Delivery of the Firm Shares shall be made to you by or on behalf of the
Company against payment of the purchase price by federal funds wire transfer
payable in same day funds to the order of the Company at the offices of J.C.
Bradford & Co., J.C. Bradford Financial Center, 330 Commerce Street, Nashville,
Tennessee 37201, or at such other place as may be agreed upon by the
Representatives and the Company, at 10:00 a.m., Nashville time, on the third
full business day following the date of this Agreement (the "Closing Date"), or
at such other time on such date, or at such other place, as may be agreed upon
by the Company and the Representatives.
To the extent the Option is exercised, delivery of the Option Shares
against payment therefor (in the manner specified above) will take place at the
offices specified above on the Option Closing Date (which, subject to the
requirements set forth above for the Option Shares Notice, may be the Closing
Date).
Certificates evidencing the Shares shall be in definitive form and
shall be registered in such names and in such denominations as you shall request
not less than 48 hours prior to the Closing Date or the Option Closing Date, as
the case may be, by written notice to the Company. For the purpose of expediting
the checking and packaging of certificates for the Shares, the Company agrees to
make such certificates available for inspection at least 24 hours prior to the
Closing Date or the Option Closing Date, as the case may be, at a location to be
designated by you, which may be in New York, New York, or elsewhere. If the
Representatives so elect, delivery of the Shares may be made by credit through
full fast transfer to the accounts designed by the Representatives at The
Depository Trust Company.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Shares by the Company to the Underwriters shall be
borne by the Company. The Company will pay and save each of the Underwriters and
any subsequent holder of the Shares harmless from any and all liabilities with
respect to or resulting from any failure or delay in
2
<PAGE> 3
paying federal and state stamp and other transfer taxes, if any, which may be
payable or determined to be payable in connection with the original issuance or
sale to such Underwriter of the Firm Shares and Option Shares.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents, warrants and covenants to each of the
Underwriters that:
(a) The Company has prepared and has filed with the Securities and
Exchange Commission (the "Commission") a registration statement (Registration
No. 333-33585) on Form S-3 relating to the Shares, including a preliminary
prospectus and such amendments to such registration statement as may have been
required to the date of this Agreement, under the provisions of the Securities
Act of 1933, as amended (the "Act"), and the rules and regulations (collectively
referred to as the "Rules and Regulations") of the Commission thereunder. The
registration statement and all amendments thereto have been duly authorized and
executed by the Company in accordance with the Rules and Regulations. The term
"preliminary prospectus" as used herein means a preliminary prospectus as
contemplated by Rule 430 or Rule 430A of the Rules and Regulations included at
any time as part of the registration statement. Copies of such registration
statement and amendments and of each related preliminary prospectus have been
delivered to you. If such registration statement has not become effective, a
further amendment to such registration statement, including a form of final
prospectus, necessary to permit such registration statement to become effective,
will be filed promptly by the Company with the Commission. If such registration
statement has become effective, a final prospectus containing information
permitted to be omitted at the time of effectiveness by Rule 430A of the Rules
and Regulations will be filed promptly by the Company with the Commission in
accordance with Rule 424(b) of the Rules and Regulations, if required. The term
"Registration Statement" as used herein means the registration statement as
amended at the time it becomes or became effective (the "Effective Date"),
including financial statements and all exhibits and any information deemed to be
included by Rule 430A. The term "Prospectus" means the prospectus as first filed
with the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if
no such filing is required, the form of final prospectus included in the
Registration Statement at the Effective Date.
(b) On the Effective Date, the date the Prospectus is first filed
with the Commission pursuant to Rule 424(b) (if required), at all times
subsequent thereto through and including the Closing Date and, if later, the
Option Closing Date and when any post-effective amendment to the Registration
Statement becomes effective or any amendment or supplement to the Prospectus is
filed with the Commission, the Registration Statement and the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment or supplement thereto), including the financial statements
included in the Prospectus, did or will comply with all applicable provisions of
the Act and the Rules and Regulations and did or will contain all statements
required to be stated therein in accordance with the Act and the Rules and
Regulations. On the Effective Date and when any post-effective amendment to the
Registration Statement becomes effective, no part of the Registration Statement,
the Prospectus or any such amendment or supplement did or will contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. On the date any amendment or supplement to the Prospectus is filed
3
<PAGE> 4
with the Commission and at the Closing Date and, if later, the Option Closing
Date, the Prospectus did not or will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The foregoing representations and warranties in this Section 3(b) do
not apply to any statements or omissions made in reliance on and in conformity
with information relating to the Underwriters furnished in writing to the
Company by the Representatives specifically for inclusion in the Registration
Statement or Prospectus or any amendment or supplement thereto. The Company
acknowledges that the only information relating to the Underwriters furnished in
writing to the Company by the Representatives specifically for inclusion in the
Registration Statement, any preliminary prospectus and the Prospectus is the
information in the last paragraph on the cover page, the paragraphs relating to
stabilization and passive market making practices on the inside front cover and
the statements set forth under the heading "Underwriting" in any preliminary
prospectus or the Prospectus.
(c) There are no subsidiaries (as defined in the Rules and
Regulations) of the Company. The Company is, and at the Closing Date and, if
later, the Option Closing Date will be, a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation. The Company has, and at the Closing Date and, if later, the
Option Closing Date will have, full power and authority to conduct all the
activities conducted by it, to own or lease all the assets owned or leased by it
and to conduct its business as described in the Registration Statement and the
Prospectus. The Company is, and at the Closing Date and, if later, the Option
Closing Date will be, duly licensed or qualified to do business and in good
standing as a foreign corporation in all jurisdictions in which the nature of
the activities conducted by it or the character of the assets owned or leased by
it makes such licensing or qualification necessary, except where the failure to
so qualify would not have a material adverse effect upon the business,
properties, business prospects, condition (financial or otherwise) or results of
operations of the Company, and no proceeding has been instituted in any
jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, the Company's power, authority, licensing or qualification. The Company
does not own, and at the Closing Date and, if later, the Option Closing Date
will not own, directly or indirectly, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity interest in any
firm, partnership, joint venture, association or other entity. Complete and
correct copies of the Restated Charter (the "Restated Charter") and the Amended
and Restated Bylaws (the "Bylaws") of the Company and all amendments thereto
have been delivered to you, and no changes therein will be made subsequent to
the date hereof and prior to the Closing Date or, if later, the Option Closing
Date.
(d) The outstanding shares of the Company's Common Stock have
been, and the Shares to be issued and sold by the Company upon such issuance
will be, duly authorized, validly issued, fully paid and nonassessable and will
not be subject to any preemptive or similar right. The description of the Common
Stock in the Registration Statement and the Prospectus is, and at the Closing
Date and, if later, the Option Closing Date will be, complete and accurate in
all respects. All offers and sales of securities of the Company have been at all
relevant times duly registered under or exempt from the registration
requirements of the Act and were duly registered under or exempt from the
registration requirements of all applicable state securities or Blue Sky laws.
Except as set forth in the Prospectus and except for options issued under the
Company's stock option plans, the Company does not have outstanding, and at the
Closing Date
4
<PAGE> 5
and, if later, the Option Closing Date will not have outstanding, any options to
purchase, or any rights or warrants to subscribe for, or any securities or
obligations convertible into, or any contracts or commitments to issue or sell
any shares of Common Stock or any such warrants, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus accurately and fairly presents
the information required to be shown with respect to such plans, arrangements,
options and rights.
(e) The financial statements together with the related notes and
schedules included in the Registration Statement or the Prospectus are accurate
in all material respects and present fairly the financial condition of the
Company as of the respective dates thereof and the results of operations and
cash flows of the Company for the respective periods covered thereby, all in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the entire period involved, except as otherwise disclosed in
the Prospectus. The financial and statistical data set forth in the Prospectus
under the captions "Prospectus Summary," "Summary Financial and Operating Data,"
"Use of Proceeds," "Capitalization," "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business," "Management" and "Principal and Selling Shareholders" have been
compiled on a basis consistent with that of the audited financial statements
contained in the Registration Statement and Prospectus and fairly present the
information set forth therein. No other financial statements or schedules of the
Company are required by the Act, the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or the Rules and Regulations to be included in the
Registration Statement or the Prospectus. KPMG Peat Marwick LLP (the
"Accountants"), who have reported on certain of such financial statements and
schedules, are independent auditors with respect to the Company as required by
the Act and the Rules and Regulations.
(f) The Company maintains a system of internal accounting controls
sufficient to assure that: (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences. The Company's system of
internal accounting controls is sufficient to meet the broad objectives of
internal accounting control insofar as those objectives pertain to the
prevention or detection of errors or irregularities in amounts that would be
material in relation to the Company's financial statements; and, except as
disclosed in the Prospectus, neither the Company nor any employee or agent of
the Company has made any payment of funds of the Company or received or retained
any funds in violation of any law, rule or regulation, the receipt or payment of
which could have a material adverse effect on the Company.
(g) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.
5
<PAGE> 6
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and prior to the Closing
Date and, if later, the Option Closing Date, except as set forth in the
Registration Statement and the Prospectus, (i) there has not been and will not
have been any material adverse change in the business, properties, business
prospects, condition (financial or otherwise) or results of operations of the
Company, arising for any reason whatsoever, (ii) the Company has not incurred
nor will it incur any material liabilities or obligations, direct or contingent,
except in the ordinary course of business, (iii) the Company has not entered
into any material transaction not in the ordinary course of business, (iv) the
Company has not and will not have paid or declared any dividends or other
distributions of any kind on any class of its capital stock, (v) there has not
been and will not have been any change in the capitalization of the Company
other than pursuant to the exercise of employee stock options or the issuance of
shares under the Company's stock option plans and (vi) there has not been any
loss or damage (whether or not insured) to the property of the Company which has
been sustained or will have been sustained which has a material adverse effect
on the business, business prospects, condition (financial or otherwise) or
results of operations of the Company.
(i) The Company has timely filed all necessary federal, state and
foreign income and franchise tax returns and has paid all taxes shown thereon as
due, and there is no tax deficiency that has been or, to the best of the
Company's knowledge, might be asserted against the Company that might have a
material adverse effect on the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company, and
all tax liabilities are adequately provided for on the books of the Company.
(j) The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940, as
amended.
(k) Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings pending or threatened
against or affecting the Company or any of its officers in their capacity as
such, before or by any federal or state court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, wherein
an unfavorable ruling, decision or finding would materially and adversely affect
the Company or its business, properties, business prospects, condition
(financial or otherwise) or results of operations or prevent or materially
hinder the consummation of this Agreement.
(l) The Company has not at any time during the past five years:
(i) made any unlawful contributions to any candidate for any political office,
or failed fully to disclose any contribution in violation of law; or (ii) made
any payment to any state, federal or foreign government official, or other
person charged with similar public or quasi-public duty (other than payment
required or permitted by applicable law).
(m) The Company has, and at the Closing Date and, if later, the
Option Closing Date will have: (i) all governmental licenses, permits, consents,
orders, approvals and other authorizations necessary to carry on its business as
contemplated in the Prospectus; (ii) complied in all material respects with all
laws, regulations and orders applicable to it or its business or properties; and
(iii) performed all obligations required to be performed by it, and is not, and
at
6
<PAGE> 7
the Closing Date and, if later, the Option Closing Date will not be, in default,
under any contract or other instrument material to it to which it is a party or
by which its property is bound or affected where such default would materially
and adversely affect the Company or its business, properties, business
prospects, condition (financial or otherwise) or results of operations or
prevent or materially hinder the consummation of this Agreement. To the best
knowledge of the Company, as of the date of this Agreement, the Closing Date
and, if later, the Option Closing Date no other party under any contract or
other instrument to which it is a party is in default thereunder. The Company is
not, nor at the Closing Date and, if later, the Option Closing Date will it be,
in violation of any provision of its certificate of incorporation or bylaws.
(n) No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is required
for the consummation by the Company of the transactions on its part herein
contemplated, except such as have been obtained under the Act or the Rules and
Regulations and such as may be required under state securities or Blue Sky laws
or the bylaws and rules of the National Association of Securities Dealers, Inc.
(the "NASD") in connection with the purchase and distribution by the
Underwriters of the Shares, all of which requirements have been satisfied in all
material respects.
(o) The filing of the Registration Statement and the execution and
delivery of this Agreement have been duly authorized by the Board of Directors
of the Company, and the Company has full corporate power and authority to enter
into this Agreement and to perform its obligations hereunder. This Agreement has
been duly executed and delivered by the Company and constitutes a valid and
binding agreement of the Company enforceable against the Company in accordance
with the terms hereof. The performance of this Agreement and the consummation of
the transactions contemplated hereby will not result in the creation or
imposition of any material lien, charge or encumbrance upon any of the assets of
the Company pursuant to the terms or provisions of, or result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
or give any other party a right to terminate any of its obligations under, or
result in the acceleration of any obligation under, the Restated Charter or
Bylaws of the Company, any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or instrument to which the
Company is a party or by which the Company or any of its properties are bound or
affected, or violate or conflict with any judgment, ruling, decree, order,
statute, rule or regulation of any court or other governmental agency or body
applicable to the business or properties of the Company; the occurrence of which
would materially and adversely affect the Company or its business, properties,
business prospects, condition (financial or otherwise) or results of operations
or prevent or materially hinder the consummation of this Agreement.
(p) The Company has good and marketable title to all properties
and assets described in the Registration Statement and Prospectus as owned by
it, free and clear of all liens, charges, encumbrances or restrictions, except
such as are described in the Prospectus or are not material to the business of
the Company. The Company has valid, subsisting and enforceable leases for the
properties described in the Prospectus as leased by it, with such exceptions as
are not material and do not materially interfere with the use made and proposed
to be made of such properties by the Company, and the Company has no notice or
knowledge of any material claim of any sort which has been, or may be, asserted
by anyone adverse to the Company's rights as
7
<PAGE> 8
lessee or sublessee under any lease or sublease described above, or affecting or
questioning the Company's rights to the continued possession of the leased or
subleased premises under any such lease or sublease in conflict with the terms
thereof. The Company owns or leases all such properties as are necessary to its
operations as now conducted.
(q) The Company owns or possesses adequate rights to use all
patents, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names and copyrights which are necessary to conduct its businesses
as described in the Registration Statement and Prospectus; the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of the Company by others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights, and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights owned or used by the
Company, which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could have a material adverse effect on the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company.
(r) To the best of the Company's knowledge, no labor disturbance
by the employees of the Company exists or is imminent; and the Company is not
aware of any existing or imminent labor disturbance by the employees of any of
its principal suppliers that could be expected to result in a material averse
change in the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company.
(s) The Company maintains insurance with insurers of recognized
financial responsibility of the types and in the amounts generally deemed
adequate for its respective business and consistent with insurance coverage
maintained by similar companies in similar businesses, including, but not
limited to, insurance covering real and personal property owned or leased by the
Company against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect; the Company has not been refused any insurance coverage sought or
applied for; and the Company has no reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company.
(t) Except as described in the Registration Statement and the
Prospectus, there is no factual basis for any action, suit or other proceeding
involving the Company, or any of its material assets for any failure of the
Company, or any predecessor thereof, to comply with any requirements of federal,
state, local or foreign regulation relating to air, water, solid waste
management, hazardous or toxic substances, or the protection of health or the
environment. Except as described in the Registration Statement and the
Prospectus, none of the property owned or leased by the Company is, to the best
knowledge of the Company, contaminated with any waste or hazardous substances,
and the Company may not be deemed an "owner or operator" of a "facility" or
"vessel" which owns, possesses, transports, generates or disposes
8
<PAGE> 9
of a "hazardous substance" as those terms are defined in Section 9601 of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. ss.9601, et seq.
(u) All documents or contracts required to be filed as an exhibit
to the Registration Statement to which the Company is a party have been filed as
exhibits to the Registration Statement or incorporated by reference therein and
have been duly authorized, executed and delivered by the Company, constitute
valid and binding agreements of the Company and are enforceable against the
Company in accordance with the terms thereof, except where the lack of
authorization, execution, delivery or enforceability of any such contract would
not materially and adversely affect the Company or its business, properties,
business prospects, condition (financial or otherwise) or results of operations
or prevent or materially hinder the consummation of this Agreement.
(v) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required by
this Agreement to be delivered to you was or will be, when made, inaccurate,
untrue or incorrect in any material respect.
(w) The Company has not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Shares or the Common Stock,
and the Company is not aware of any such action taken or to be taken by
affiliates of the Company. To assure compliance with Regulation M under the
Exchange Act, the Company will not make bids for or purchases of or induce bids
for or purchases of, directly or indirectly, any shares of Common Stock or
securities convertible into Common Stock of the Company until the distribution
of all shares of Common Stock being sold in the public offering has been
completed.
(x) No holder of securities of the Company has rights which have
not been waived to require the registration of any securities of the Company
because of the filing of the Registration Statement. There are no contracts,
agreements or understandings between the Company and any person granting such
person the right to require the Company to file a registration statement under
the Act with respect to any securities of the Company owned or to be owned by
such person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration statement filed
by the Company under the Act.
(y) The Company has taken such action as necessary to have the
Firm Shares and the Company Option Shares authorized for trading, and all of the
Firm Shares and the Company Option Shares have been approved for listing, on the
National Association of Securities Dealers Automated Quotation National Market
System (the "Nasdaq National Market") upon notice of issuance and the Selling
Shareholder Option Shares are listed on the Nasdaq National Market.
(z) Other than as contemplated by this Agreement, there is no
broker, finder or other party that is entitled to receive from the Company any
brokerage or finder's fee or other fee or commission as a result of any of the
transactions contemplated by this Agreement.
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(aa) The Company has timely filed all required forms, reports and
other documents with the Commission all of which complied, when filed, in all
material respects, with all applicable requirements of the Act and the Exchange
Act. As of their respective dates, such reports, forms and other documents
(including all exhibits and schedules thereto) and documents incorporated by
reference therein (the "Reports"), did not contain any untrue statement of a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Company has delivered a complete copy of all such Reports to the
Representatives prior to the date of this Agreement. The documents incorporated
or deemed to be incorporated by reference in the Prospectus, at the time they
hereafter are filed with the Commission, will comply with the requirements of
the Exchange Act and the rules and regulations (the "Exchange Act Rules and
Regulations") of the Commission thereunder, and, when read together with the
other information in the Prospectus, at the time the Registration Statement and
any amendments thereto become effective, at the Closing Date and, if later, at
the Option Closing Date, will not contain an untrue statement of material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The financial statements of the Company included or
incorporated by reference in such Reports, forms and other documents were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (except as may otherwise be
indicated in the notes thereto), and fairly present the financial position of
the Company as of the dates thereof and the results of its operations and
changes in its financial position for the periods then ended (subject, in the
case of any unaudited interim financial statements, to year-end adjustments).
(ab) The representations and warranties made by the Company in that
certain Amended and Restated Revolving Credit Agreement dated as of November 22,
1996 among the Company, Mercantile Bank of St. Louis National Association, Bank
One, Dayton, N.A., Nationsbank of Tennessee, N.A., individually and as co-agent
and First American National Bank, individually and as agent, as amended,
modified or supplemented from time to time (the "Line of Credit"), were true,
correct and complete when and as made and will continue to be true, correct and
complete in all material respects as of the date of this Agreement, the Closing
Date and, if later, the Option Closing Date as if set forth in their entirety
herein. The Company is in compliance with all covenants of the Company and is
not in default or breach of any of the terms and provisions set forth in the
Line of Credit, and after giving effect to the Offering, the Company will
continue to be in compliance with the covenants, terms and provisions of the
Line of Credit.
(ac) To the best of the Company's knowledge, none of the Selling
Shareholders listed under the caption "Principal and Selling Shareholders"
section of the Prospectus is a member of the NASD that is participating in the
distribution of the Shares or a "person associated with a member," as that term
is defined in the NASD's Review of Corporate Financing Interpretation.
(ad) Any certificate signed by any officer of the Company and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty to each Underwriter as to the matters covered
thereby.
(ae) The Company has not distributed and will not distribute prior
to the later of (i) the Closing Date or the Option Closing Date, as the case may
be, or (ii) completion of the
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distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any preliminary prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted by
the Act.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS.
Each of the Selling Shareholders, severally and not jointly,
represents, warrants and covenants to each Underwriter as of the Option Closing
Date (if any) that:
(a) Such Selling Shareholder at the Option Closing Date will have
good and valid title to the Shares set forth in Schedule II to be sold by such
Selling Shareholder, free and clear of any liens, encumbrances, equities and
claims (other than as imposed by the Act or this Agreement), and full right,
power and authority to effect the sale and delivery of such Shares; and upon the
delivery of and payment for the Shares to be sold by such Selling Shareholder
pursuant to this Agreement, good and valid title thereto, free and clear of any
liens, encumbrances, equities and claims, will be transferred to the
Underwriters.
(b) Such Selling Shareholder has duly executed and delivered the
Custody Agreement and Power of Attorney (the "Custody Agreement") in the form
previously delivered to the Representatives, appointing ___________ and
_______________, and each of them, as such Selling Shareholder's
attorney-in-fact (the "Attorney-in-Fact") and ________________________, as
custodian (the "Custodian"). The Attorney-in-Fact is authorized to execute,
deliver and perform this Agreement on behalf of such Selling Shareholder, to
deliver the Shares to be sold by such Selling Shareholder hereunder, to accept
payment therefor and otherwise to act on behalf of such Selling Shareholder in
connection with this Agreement. Certificates, in suitable form for transfer by
delivery or accompanied by duly executed instruments of transfer or assignment
in blank, representing the Shares to be sold by such Selling Shareholder
hereunder have been deposited with the Custodian pursuant to the Custody
Agreement for the purpose of delivery pursuant to this Agreement. Such Selling
Shareholder agrees that the shares of Common Stock represented by the
certificates on deposit with the Custodian are subject to the interests of the
Company, the Underwriters and the other Selling Shareholders hereunder, that the
arrangements made for such custody and the appointment of the Attorney-in-Fact
are to that extent irrevocable, and that the obligations of such Selling
Shareholder hereunder shall not be terminated except as provided in this
Agreement and the Custody Agreement. If such Selling Shareholder should die,
become disabled or be declared incompetent, dissolve or become insolvent, or if
any other event should occur before the delivery of the Shares of such Selling
Shareholder hereunder, the certificates for such Shares deposited with the
Custodian shall be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such death, disability, incompetency,
dissolution, insolvency or other event had not occurred, regardless of whether
or not the Custodian or the Attorney-in-Fact shall have received notice thereof.
(c) Such Selling Shareholder, acting through its duly authorized
Attorney-in-Fact, has duly executed and delivered this Agreement and the Custody
Agreement; this Agreement constitutes a legal valid and binding obligation of
such Selling Shareholder; all authorizations and consents necessary for the
execution and delivery of this Agreement and the Custody Agreement on behalf of
such Selling Shareholder and for the sale and delivery of the Shares to be sold
by such Selling Shareholder hereunder have been given, except as may be required
by
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<PAGE> 12
the Act or state securities laws or the NASD; and such Selling Shareholder has
the legal capacity and full right, power and authority to execute this Agreement
and the Custody Agreement.
(d) The performance of this Agreement and the Custody Agreement
and the consummation of the transactions contemplated hereby and thereby by each
of the Selling Shareholders will not result in a material breach or violation
of, or material conflict with, any of the terms or provisions of, or constitute
a material default by such Selling Shareholder under, any indenture, mortgage,
deed of trust (constructive or other), loan agreement, lease, franchise, license
or other agreement or instrument to which such Selling Shareholder or any of its
properties is bound, any statute, or any judgment, decree, order, rule or
regulation or any court or governmental agency or body applicable to such
Selling Shareholder or any of its properties.
(e) Such Selling Shareholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offer and sale of the Shares other than any preliminary prospectus prepared and
filed by the Company with the Commission or the Prospectus or other material
permitted by the Act.
(f) To the knowledge of such Selling Shareholder, the
representations and warranties of the Company contained in Section 3 of this
Agreement are true and correct in all material respects; such Selling
Shareholder has reviewed and is familiar with the Registration Statement as
originally filed with the Commission and the preliminary prospectus contained
therein. To the knowledge of such Selling Shareholder, the preliminary
prospectus does not include an untrue statement of a material fact, or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; other
than as disclosed to the Underwriters, such Selling Shareholder is not prompted
to sell the Shares to be sold by such Selling Shareholder by any material,
non-public information concerning the Company that is not set forth in the
preliminary prospectus or the Prospectus.
(g) To the extent that any statements or omissions made in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity with
written information furnished to the Company by such Selling Shareholder
expressly for use therein, such Registration Statement, preliminary prospectus
and Prospectus and any amendments or supplements thereto did not and will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading.
(h) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory body, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement by such Selling Shareholder, and the consummation by it of the
transactions herein contemplated (other than as required by the Act, state
securities laws and the NASD).
(i) Any certificates signed by or on behalf of such Selling
Shareholder as such and delivered to the Representatives or to counsel for the
Representatives shall be deemed a representation and warranty by such Selling
Shareholder to each Underwriter as to the matters covered thereby.
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<PAGE> 13
(j) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 with respect to the transactions herein contemplated such Selling
Shareholder agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
(k) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action intended to constitute or which has
constituted, or which might reasonably be expected to cause or result in,
stabilization or manipulation of the price of the Common Stock. To assure
compliance with Regulation M under the Exchange Act, such Selling Shareholder
will not make bids for or purchases of or induce bids for or purchases of,
directly or indirectly, any shares of Common Stock or securities convertible
into Common Stock of the Company until the distribution of all shares of Common
Stock being sold in the public offering has been completed.
5. COVENANTS OF THE COMPANY.
The Company covenants and agrees with each of the Underwriters as
follows:
(a) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an underwriter or dealer,
file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to you within
a reasonable period of time prior to the filing thereof and you shall not have
objected thereto in good faith.
(b) The Company will use its reasonable best efforts to cause the
Registration Statement and any amendment thereto, if not effective at the time
and date that this Agreement is executed by the parties hereto, to become
effective as promptly as possible and will notify you promptly and confirm such
advice in writing: (i) when the Registration Statement has become effective and
when any post-effective amendment thereto becomes effective; (ii) of any request
by the Commission for amendments or supplements to the Registration Statement or
the Prospectus or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose or the threat
thereof; (iv) of the happening of any event during the period mentioned in the
second sentence of Section 5(e) that in the judgment of the Company makes any
statement made in the Registration Statement or the Prospectus untrue or that
requires the making of any changes in the Registration Statement or the
Prospectus in order to make the statements therein, in light of the
circumstances in which they are made, not misleading; and (v) of receipt by the
Company or any representatives or attorney of the Company of any other
communication from the Commission relating to the Company, the Registration
Statement, any preliminary prospectus or the Prospectus. If at any time the
Commission shall issue any order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible moment. If the Company has
omitted any information from the Registration Statement pursuant to Rule 430A of
the Rules and Regulations, the Company will use its best efforts to comply with
the provisions of and make all requisite filings with the Commission pursuant to
said Rule 430A and to notify the Representatives promptly of all such filings.
If the Company files a term sheet pursuant to
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<PAGE> 14
Rule 434 of the Rules and Regulations, the Company will provide evidence
satisfactory to you that the Prospectus and term sheet meeting the requirements
of Rule 434(b) or (c), as applicable, of the Rules and Regulations, have been
filed, within the time period prescribed, with the Commission pursuant to
subparagraph (7) of Rule 424(b) of the Rules and Regulations; if for any reason
the filing of the final form of Prospectus is required under Rule 424(b)(3) of
the Rules and Regulations, the Company will provide evidence satisfactory to you
that the Prospectus contains such information and has been filed with the
Commission within the time period prescribed.
(c) The Company will furnish to you at or before the Closing
Date, without charge, four signed copies of the Registration Statement and of
any post-effective amendment thereto, including financial statements and
schedules, and all exhibits thereto, and will furnish you with such number of
copies of the Registration Statement, without exhibits, and all amendments
thereto as you may reasonably request.
(d) The Company will comply with all the provisions of any
undertakings contained in the Registration Statement. The Company will, from
time to time, after the effective date of the Registration Statement file with
the Commission such reports as are required by the Act, the Exchange Act, the
Rules and Regulations and the Exchange Act Rules and Regulations, and shall also
file with state securities commissions in states where the Shares have been sold
by you (as you shall have advised us in writing) such reports as are required to
be filed by the securities acts and the regulations of those states.
(e) On the Effective Date, and thereafter from time to time until
expiration of the period mentioned in the second sentence of this Section 5(e),
the Company will deliver to each of you, without charge, as many copies of the
Prospectus or any amendment or supplement thereto as you may reasonably request.
The Company consents to the use of the Prospectus or any amendment or supplement
thereto by you and by all dealers to whom the Shares may be sold, both in
connection with the offering or sale of the Shares and for any period of time
thereafter during which the Prospectus is required by law to be delivered in
connection therewith. If during such period of time any event shall occur which
in the judgment of the Company or your counsel should be set forth in the
Prospectus in order to make any statement therein, in light of the circumstances
under which it was made, not misleading, or if it is necessary to supplement or
amend the Prospectus to comply with law, the Company will forthwith prepare and
duly file with the Commission an appropriate supplement or amendment thereto,
and will deliver to each of you, without charge, such number of copies thereof
as you may reasonably request.
(f) Prior to any public offering of the Shares by you, the Company
will cooperate with you and your counsel in connection with the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of such jurisdictions as you may request; provided, that in no event shall
the Company be obligated to qualify to do business in any jurisdiction where it
is not now so qualified or to take any action which would subject it to general
service of process in any jurisdiction where it is not now so subject. The
Company will, from time to time, file such statements, reports and other
documents as are or may be required to continue such qualifications in effect
for so long a period as the Underwriters may reasonably request.
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(g) During a period of five years after the date hereof, the
Company will furnish to its shareholders as soon as practicable after the end of
each respective period annual reports (including financial statements audited by
independent certified public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year, and will
furnish to you and the other several Underwriters hereunder, upon request (i)
concurrently with furnishing such reports to its shareholders, statements of
operations of the Company for each of the first three quarters in the form
furnished to the Company's shareholders, (ii) concurrently with furnishing to
its shareholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, shareholders' equity and cash
flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants, (iii)
as soon as they are available, copies of all reports (financial or other) mailed
to shareholders, (iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, any securities
exchange or the NASD, (v) every material press release and every material news
item or article in respect of the Company or its affairs which was generally
released to shareholders or prepared by the Company and (vi) any additional
information of a public nature concerning the Company, or its business which you
may reasonably request.
(h) The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later than the last day
of the 15th full calendar month following the calendar quarter in which the
Effective Date falls, an earnings statement (which need not be audited but shall
be in reasonable detail) for a period of 12 months ended commencing after the
Effective Date, and satisfying the provisions of Section 11(a) of the Act
(including Rule 158 of the Rules and Regulations).
(i) Whether or not the transactions contemplated by this Agreement
are consummated or this Agreement is terminated, the Company will pay, or
reimburse if paid by the Underwriters, all costs and expenses incident to the
performance of the obligations of the Company under this Agreement, including
but not limited to costs and expenses of or relating to: (i) the preparation,
printing, and filing of the Registration Statement and exhibits to it, each
preliminary prospectus; the Prospectus and any amendment or supplement to the
Registration Statement or the Prospectus; (ii) the preparation and delivery of
certificates representing the Shares; (iii) the printing of this Agreement and
other underwriting documents, including Underwriter's Questionnaires,
Underwriter's Powers of Attorney, Blue Sky Memorandum, Master Agreement Among
Underwriters and Master Selected Dealer Agreements; (iv) furnishing (including
costs of shipping and mailing) such copies of the Registration Statement, the
Prospectus and any preliminary prospectus, and all amendments and supplements
thereto, as may be requested for use in connection with the offering and sale of
the Shares by the Underwriters or by dealers to whom Shares may be sold; (v) the
quotation of the Shares on the Nasdaq National Market; (vi) any filings required
to be made by you with the NASD, and the fees, disbursements and other charges
of your counsel in connection therewith; (vii) the registration or qualification
of the Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions designated pursuant to Section 5(f), including the fees,
disbursements and other charges of your counsel in connection therewith, and the
preparation and printing of preliminary, supplemental and final Blue Sky
memoranda (subject to a maximum fee of $10,000, assuming no unusual
circumstances); and (viii) the transfer agent for the Shares.
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(j) If this Agreement shall be terminated by the Company or if
for any reason the Company shall be unable to perform its obligations hereunder,
the Company will reimburse you for all out-of-pocket expenses (including the
fees, disbursements and other charges of your counsel) reasonably incurred by
them in connection herewith. If this Agreement shall be terminated by the
Underwriters based upon a matter within the control of the Company or any fault
of the Company, the Company shall reimburse you for any out-of-pocket expenses
(including the fees, disbursements and other charges of your counsel).
(k) The Company will not at any time, directly or indirectly,
take any action designed, or which might reasonably be expected, to cause or
result in, or which will constitute, stabilization of the price of the shares of
Common Stock to facilitate the sale or resale of any of the Shares. The Company
will not make bids for or purchases of or induce bids for or purchases of,
directly or indirectly, any shares of Common Stock or securities convertible
into Common Stock of the Company until the distribution of all shares of Common
Stock being sold in the public offering has been completed.
(l) The Company will apply the net proceeds from the offering and
sale of the Shares to be sold by the Company in the manner set forth in the
Prospectus under "Use of Proceeds," which description complies in all respects
with the requirements of Item 504 of Regulation S-K.
(m) During the period of 120 days commencing at the Closing Date,
the Company will not, without your prior written consent, grant options to
purchase shares of Common Stock, except under stock option plans previously
approved by the Company's shareholders and except at prices equal to or greater
than "fair market value," as defined in the Company's stock option plans.
(n) Except pursuant to this Agreement or with the prior written
consent of J.C. Bradford & Co., the Company will not, and the Company has
provided agreements executed by each of the Company's officers and directors and
each record or beneficial owner of more than 1% of the shares of Company's
Common Stock providing that none of them will, for a period of 120 days from the
Effective Date, directly or indirectly, make, agree to or cause any offer, sale
(including short sale but excluding any sale of shares to any employee of the
Company pursuant to the exercise of options under the Company's stock option
plans), loan, pledge or other disposition of, or grant any options (other than
options under the Company's stock option plans) or other rights with respect to,
or otherwise reduce any risk of ownership, directly or indirectly, of any shares
of Common Stock or other capital stock of the Company, or any securities that
are convertible into or exchangeable or exercisable for shares of Common Stock
or other capital stock of the Company, or derivatives thereof, or request the
registration of any of the foregoing.
(o) The Company will maintain and keep accurate books and records
reflecting its assets and maintain internal accounting controls which provide
reasonable assurance that: (i) transactions are executed in accordance with
management's authorization; (ii) transactions are recorded as necessary to
permit the preparation of the Company's financial statements and to maintain
accountability for the assets of the Company; (iii) access to the assets of the
Company is permitted only in accordance with management's authorization; and
(iv) the recorded accounts of the assets of the Company are compared with
existing assets at reasonable intervals.
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(p) If at any time during the 90-day period after the Registration
Statement is declared effective, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which, in your opinion, the
market price for the Shares has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising it as to the effect set forth above, prepare, consult
with you concerning the substance of and disseminate a press release or other
public statement, reasonably satisfactory to you, responding to or commenting on
such rumor, publication or event.
(q) The Company will supply you with copies of all correspondence
to and from, and all documents issued to and by, the Commission in connection
with the registration of the Shares under the Act.
(r) Prior to the Closing Date (and, if applicable, the Option
Closing Date), the Company will furnish to you, as soon as they have been
prepared, copies of any unaudited interim financial statements of the Company
for any periods subsequent to the periods covered by the financial statements
appearing in the Registration Statement and the Prospectus.
(s) Prior to the Closing Date (and, if applicable, the Option
Closing Date), the Company will not issue any press releases or other
communications directly or indirectly and will hold no press conferences with
respect to the Company, the business, properties, assets, liabilities, financial
condition or results of operations of the Company, or the offering of the
Shares, without your prior written consent.
(t) The Company will use its best efforts to maintain the
quotation of the Shares on the Nasdaq National Market.
(u) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
(v) During a period of 120 days from the effective date of the
Registration Statement, the Company will not file a registration statement
registering shares under any stock option plan or other employee benefit plan.
6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS.
The respective obligations of the Underwriters to purchase and pay for
the Shares shall be subject to the following conditions:
(a) Notification that the Registration Statement has become
effective shall be received by you not later than 5:30 p.m., Nashville,
Tennessee time, on the date of this Agreement or at such later date and time as
shall be consented to in writing by you and all filings required by Rule 424,
Rule 430A, Rule 434 and Rule 462(b) of the Rules and Regulations shall have been
made.
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(b) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall be pending or, to the knowledge of the Company, threatened by the
Commission, (ii) no order suspending the effectiveness of the Registration
Statement or the qualification or registration of the Shares under the
securities or Blue Sky laws of any jurisdiction shall be in effect, and no
proceeding for such purpose shall be pending before or threatened or
contemplated by the Commission or the authorities of any such jurisdiction,
(iii) any request for additional information on the part of the staff of the
Commission or any such authorities shall have been complied with to the
satisfaction of the staff of the Commission or such authorities and to the
satisfaction of the Representatives, (iv) after the date hereof no amendment or
supplement to the Registration Statement or the Prospectus shall have been filed
unless a copy thereof was first submitted to you and you did not object thereto
in good faith, (v) the NASD, upon review of the terms of the public offering of
the Shares, shall not have objected to such offering, such terms or the
Underwriters' participation in the same, and (vi) and you shall have received
certificates, dated the Closing Date and the Option Closing Date and signed by
the Chief Executive Officer and the Chief Financial Officer of the Company (who
may, as to proceedings threatened, rely upon the best of their information and
belief), to the effect of clauses (i), (ii) and (iii).
(c) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, (i) there shall not have been
a material adverse change, or any development involving a prospective material
adverse change, in the general affairs, business, business prospects,
properties, management, key personnel, condition (financial or otherwise) or
results of operations of the Company, whether or not arising from transactions
in the ordinary course of business, in each case other than as set forth in the
Registration Statement and the Prospectus (or, in the case of a prospective
change, other than as contemplated by the Registration Statement and the
Prospectus) and (ii) the Company shall not have sustained any material loss or
interference with its business or properties from fire, explosion, flood,
hurricane or other casualty or calamity, whether or not covered by insurance, or
from any labor dispute or any court or legislative or other governmental action,
order or decree, which is not set forth in the Registration Statement and the
Prospectus, if in your reasonable judgment any such development makes it
inadvisable to consummate the sale and delivery of the Shares by you at the
public offering price. Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall have been no
litigation or other proceeding instituted against the Company or any of its
officers or directors in their capacities as such, before or by any federal,
state or local court, commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, in which litigation or proceeding
an unfavorable ruling, decision or finding would materially and adversely affect
the business, properties, business prospects, condition (financial or otherwise)
or results of operations of the Company.
(d) All corporate proceedings and other legal matters in
connection with this Agreement, the Registration Statement and the Prospectus,
and the registration, authorization, issue, sale and delivery of the Shares,
shall have been reasonably satisfactory to counsel to the Underwriters, and such
counsel shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section 6(d).
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(e) Each of the representations and warranties of the Company
contained herein shall be true and correct in all material respects at the
Closing Date and, with respect to the Option Shares, at the Option Closing Date,
as if made at the Closing Date and, with respect to the Option Shares, at the
Option Closing Date, and all covenants and agreements herein contained to be
performed on the part of the Company and all conditions herein contained to be
fulfilled or complied with by the Company at or prior to the Closing Date and,
with respect to the Option Shares, at or prior to the Option Closing Date, shall
have been duly performed, fulfilled or complied with.
(f) The Underwriters shall have received an opinion, dated the
Closing Date and, with respect to the Option Shares, the Option Closing Date,
satisfactory in form and substance to your counsel, from Bass, Berry & Sims PLC,
counsel to the Company, to the effect that:
(i) The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the State of
Tennessee, with corporate power and authority to own its properties and
conduct its business as described in the Prospectus. The Company is
qualified to do business as a foreign corporation in good standing in
all other jurisdictions, except where the failure to so qualify would
not have a material adverse effect upon the Company.
(ii) As of the dates specified therein, the Company had
authorized and issued capital stock as set forth under the caption
"Capitalization" in the Prospectus.
(iii) The Shares delivered on such Closing Date have been
duly authorized, validly issued and are fully paid and nonassessable
and conform to the description thereof contained in the Prospectus.
(iv) The outstanding shares of Common Stock have been
duly authorized and validly issued, are fully paid and nonassessable
and conform to the description thereof contained in the Prospectus;
and the shareholders of the Company have no preemptive or similar
rights with respect to the Shares or the Common Stock. All offers
and sales of the Company's securities during the past three years were
at all relevant times duly registered or exempt from the registration
requirements of the Act and were duly registered or the subject of an
exemption from the registration requirements of applicable state
securities or Blue Sky laws.
(v) There are no contracts, agreements or understandings
known to such counsel between the Company and any person granting such
person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company
owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant
to any other registration statement filed by the Company under the Act.
(vi) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is required
for the issuance or sale of the Shares or the consummation of the other
transactions contemplated by this Agreement,
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<PAGE> 20
except such as have been obtained and made under the Act, the Exchange
Act and such as may be required under state securities or Blue Sky
laws.
(vii) The filing of the Registration Statement has been
duly authorized by the Board of Directors of the Company. The
execution, delivery and performance of this Agreement and the
consummation of the transactions herein contemplated, including the
issuance and sale of the Shares and compliance with the provisions
thereof, will not result in a breach or violation of any of the terms
or provisions of, or constitute a default under, (A) any statute, rule
or regulation or, to the knowledge of such counsel, order of any
governmental agency or body or any court having jurisdiction over the
Company or any of its properties, (B) any material obligation,
agreement, covenant or condition contained in any agreement or
instrument to the knowledge of such counsel to which the Company is a
party or by which the Company is bound or to which any of the
properties of the Company is subject, or (C) the Restated Charter, as
amended, or the Bylaws of the Company, and the Company has full power
and authority to authorize, issue and sell the Firm Shares and the
Company Option Shares as contemplated by this Agreement.
(viii) The Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Prospectus either was filed with the Commission pursuant to the
subparagraph of Rule 424(b) specified in such opinion on the date
specified therein or was included in the Registration Statement (as the
case may be), and, to the best of the knowledge of such counsel, no
stop order suspending the effectiveness of the Registration Statement
or any part thereof has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the Act; the
Registration Statement and the Prospectus, and each amendment or
supplement thereto, as of their respective effective or issue dates,
complied as to form in all material respects with the requirements of
the Act and the Rules and Regulations (except that such counsel need
express no opinion as to financial statements, schedules and other
financial or statistical information included therein); the
descriptions in the Registration Statement and Prospectus of the
Restated Charter and Bylaws of the Company and of statutes, legal and
governmental proceedings and contracts and other documents are accurate
in all material respects and fairly present the information required to
be shown; and such counsel does not know of any statutes or regulations
or any pending or threatened legal or governmental proceedings,
required to be described in the Prospectus which are not described as
required nor of any contracts or documents of a character required to
be described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement which are not described
and filed as required; it being understood that such counsel need
express no opinion as to the financial statements, schedules or other
financial or statistical data contained in the Registration Statement
or the Prospectus or as to the section of the Prospectus entitled
"Underwriting."
(ix) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and legally binding
obligation of the Company enforceable in accordance with its terms,
except (A) as such enforceability may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance or similar laws now
or hereafter in effect relating to creditors' rights or debtors'
obligations generally;
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<PAGE> 21
(B) that the remedies of specific performance and injunctive and other
forms of relief are subject to general equitable principles, whether
enforcement is sought at law or in equity, and that such enforcement
may be subject to the discretion of the court before which any
proceedings therefor may be brought; and (C) as rights to indemnity and
contribution may be limited by state or federal laws relating to
securities or the policies underlying such laws.
(x) To the knowledge of such counsel, the Company holds
all licenses, certificates, permits and approvals from all state,
federal and other regulatory authorities, and has satisfied in all
material respects the requirements imposed by regulatory bodies,
administrative agencies or other governmental bodies, agencies or
officials, that are required for the Company lawfully to own, lease and
operate its properties and conduct its business as described in the
Prospectus, and, to the knowledge of such counsel, the Company is
conducting its business in compliance in all material respects with all
of the laws, rules and regulations of each jurisdiction in which it
conducts its business.
(xi) The statements made in the Registration Statement
under the captions "Price Range of Common Stock and Dividend Policy"
and "Capitalization," to the extent that they constitute summaries of
documents referred to therein or matters of law or legal conclusions,
have been reviewed by such counsel and are accurate summaries and
fairly present the information disclosed therein.
(xii) The Company is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, counsel for the Underwriters and the Accountants,
at which such conferences the contents of the Registration Statement and
Prospectus and related matters were discussed, and although they have not
verified the accuracy or completeness of the statements contained in the
Registration Statement or the Prospectus, nothing has come to the attention of
such counsel which leads them to believe that, at the time the Registration
Statement became effective and at all times subsequent thereto up to and on the
Closing Date and on the Option Closing Date, the Registration Statement and any
amendment or supplement thereto (other than the financial statements including
supporting schedules and other financial and statistical information derived
therefrom, as to which such counsel need express no comment) contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or at the Closing Date or the Option Closing Date, as the case may be, the
Registration Statement, the Prospectus and any amendment or supplement thereto
(except as aforesaid) contained any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of law
not involving the laws of the United States or the State of Tennessee upon
opinions of local counsel, and as to questions of fact upon representations or
certificates of officers of the Company, the Selling
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Shareholders or officers of the Selling Shareholders (when the Selling
Shareholder is not a natural person), and of government officials, in which case
their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion.
(g) The Underwriters shall have received an opinion, dated the
Option Closing Date satisfactory in form and substance to your counsel, from
Bass, Berry & Sims PLC, counsel to the Selling Shareholders, to the effect that:
(i) This Agreement and the Custody Agreement have been
duly executed and delivered by or on behalf of each of the Selling
Shareholders and constitute valid and binding agreements of such
Selling Shareholders in accordance with their terms, except as
enforceability may be limited by applicable equitable principles or by
bankruptcy, insolvency, moratorium, reorganization or similar laws from
time to time in effect affecting the enforcement of creditors' rights
and except that the enforceability of the rights to indemnity and
contribution contained herein may be limited by federal or state laws
and public policy underlying such laws.
(ii) To the knowledge of such counsel, the sale of the
Shares to be sold by each Selling Shareholder hereunder and the
compliance by such Selling Shareholder with all of the provisions of
this Agreement and the Custody Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any terms or provisions of, or
constitute a default under any material indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument known to such
counsel to which such Selling Shareholder is a party or by which such
Selling Shareholder is bound or to which any of the property or assets
of such Selling Shareholder is subject, or any statute, order, rule or
regulation of any court or governmental agency or body known to such
counsel to be applicable to such Selling Shareholder or the property of
such Selling Shareholder.
(iii) To the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental agency or
body is required for the consummation of the transactions contemplated
by this Agreement in connection with the Shares to be sold by each
Selling Shareholder hereunder, except which have been duly obtained and
in full force and effect, such as have been obtained under the Act and
such as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of such Shares by the
Underwriters, as to which such counsel need express no opinion.
(iv) Assuming that the Underwriters will take delivery of
the Shares for value in good faith and without notice of any adverse
claim and that the Underwriters are not parties themselves to any fraud
or illegality affecting the Shares, and by delivery of a certificate or
certificates therefor, the Selling Shareholders will transfer to the
Underwriters good and valid title to such shares, free and clear of any
pledge, lien, security interest, charge, claim, equity or encumbrance
of any kind.
In rendering such opinion, such counsel may rely as to matters of fact,
to the extent proper, on certificates of the Selling Shareholders and the
representations and warranties
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<PAGE> 23
contained in the Custody Agreement executed by such Selling Shareholder. Such
counsel also may rely as to matters of fact, to the extent deemed proper, on
certificates of responsible officers of the Company and public officials.
(h) You shall have received an opinion, dated the Closing Date
and, if applicable, the Option Closing Date, from Nelson Mullins Riley &
Scarborough, L.L.P., as your counsel, with respect to the Registration
Statement, the Prospectus and this Agreement, which opinion shall be
satisfactory in all respects to you, and the Company shall have furnished to
such counsel such documents as they request for the purpose of enabling them to
pass upon such matters.
(i) You shall have received at or prior to the Closing Date from
Nelson Mullins Riley & Scarborough, L.L.P. a memorandum or memoranda, in form
and substance satisfactory to you, with respect to the qualification for
offering and sale by the Underwriters of the Shares under state securities or
Blue Sky laws of such jurisdictions as the Underwriters may have designated to
the Company.
(j) The Representative shall have received from the Accountants a
letter dated the date hereof, and at the Closing Date a second letter dated the
Closing Date (and, if applicable, the Option Closing Date), in form and
substance satisfactory to the Representatives, stating that they are independent
auditors with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations, and the answer to Item 509 of Regulation S-K
set forth in the Registration Statement is correct insofar as it relates to
them, and stating that:
(i) In their opinion, the financial statements and
schedules examined by them and included in the Registration Statement
or Prospectus comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and
Regulations and are presented in accordance with generally accepted
accounting principles; and they have made a review in accordance with
standards established by the American Institute of Certified Public
Accountants of the interim financial statements, selected financial and
operating data, and/or condensed financial statements derived from
audited financial statements of the Company.
(ii) The financial information included in the Preliminary
Prospectus and the Prospectus under the captions "Prospectus Summary,"
"Summary Financial and Operating Data" and "Selected Financial Data"
for each of the fiscal years ended December 31, 1992, 1993, 1994, 1995
and 1996, and the 28-week periods ended July 14, 1996 and July 13, 1997
agrees with the corresponding amounts in the audited financial
statements included in the Prospectus or previously reported on by
them.
(iii) On the basis of a reading of the latest available
interim financial statements (unaudited) of the Company, a reading of
the minute books of the Company, inquiries of officials of the Company
responsible for financial and accounting matters and other specified
procedures, all of which have been agreed to by the Representatives,
nothing came to their attention that caused them to believe that:
a. the unaudited financial statements included
in the Registration Statement do not comply as to form in all
material respects with the accounting
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<PAGE> 24
requirements of the federal securities laws and the related
published rules and regulations thereunder or are not in
conformity with generally accepted accounting principles
applied on a basis consistent with the basis for the audited
financial statements contained in the Registration Statement;
b. any other unaudited financial statement data
included in the Prospectus do not agree with the corresponding
items in the unaudited financial statements from which data
was derived and any such unaudited data were not determined on
a basis consistent with the basis for the corresponding
amounts in the audited financial statements included in the
Prospectus;
c. at a specified date not more than five days
prior to the date of delivery of such respective letter, there
was any change in the capital stock, decline in shareholders'
equity or increase in long-term debt of the Company, or any
decreases in working capital, net current assets or net assets
or other items specified by the Underwriters, in each case as
compared with amounts shown in the latest balance sheets
included in the Prospectus, except in each case for changes,
decreases or increases which the Prospectus discloses have
occurred or may occur or which are described in such letters;
and
d. for the period from the closing date of the
latest statements of operations included in the Prospectus to
a specified date not more than five days prior to the date of
delivery of such respective letter, there were any decreases
in net revenues or net income of the Company, or other items
appearing on the face of the statement of operations specified
by the Representatives, or any increases in any items
appearing on the face of the statement of operations specified
by the Representatives, in each case as compared with the
corresponding period of the preceding year, except in each
case for decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter.
(iv) They have carried out certain specified procedures,
not constituting an audit, with respect to certain amounts, percentages
and financial information specified by you which are derived from the
general accounting records of the Company, which appear in the
Prospectus and have compared such amounts, percentages and financial
information with the accounting records of the Company and have found
them to be in agreement.
In the event that the letters to be delivered referred to above set
forth any such changes, decreases or increases, it shall be a further condition
to the obligations of the Underwriters that the Underwriters shall have
reasonably determined, after discussions with officers of the Company
responsible for financial and accounting matters and with the Accountants, that
such changes, decreases or increases as are set forth in such letters do not
reflect a material adverse change in the shareholders' equity or long-term debt
of the Company as compared with the amounts shown in the latest balance sheet of
the Company included in the Prospectus, or a material adverse change in total
net revenues or net income of the Company, in each case as compared with the
corresponding period of the prior year.
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(k) At the Closing Date and, as to the Option Shares, the Option
Closing Date, there shall be furnished to you a certificate, dated the date of
its delivery, signed by each of the Chief Executive Officer and Chief Financial
Officer of the Company, in form and substance satisfactory to you, to the effect
that:
(i) Each of the representations and warranties of the
Company contained in Section 3 of this Agreement were, when originally
made, and are, at the time such certificate is delivered, true and
correct in all material respects;
(ii) Each of the covenants required herein to be
performed by the Company on or prior to the delivery of such
certificate has been duly, timely and fully performed and each
condition herein required to be complied with by the Company on or
prior to the date of such certificate has been duly, timely and fully
complied with.
(l) On or prior to the Closing Date, you shall have received the
executed agreements referred to in Section 5(n).
(m) The Shares shall be qualified for sale in such states as you
may reasonably request, each such qualification shall be in effect and not
subject to any stop order or other proceeding on the Closing Date or the Option
Closing Date.
(n) The Shares shall have been duly authorized for quotation and
shall have been approved for listing on the Nasdaq National Market upon official
notice of issuance.
(o) No Underwriter shall have advised the Company that the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendment or any supplement thereto, contains an untrue statement of fact which,
in your reasonable judgment, is material, or omits to state a fact which, in
your reasonable judgment, is material and is required to be stated therein or
necessary to make the statements therein not misleading and the Company shall
not have cured such untrue statement of fact or stated a statement of fact
required to be stated therein.
(p) The Company shall have furnished to you such certificates, in
addition to those specifically mentioned herein, as you may have reasonably
requested as to the accuracy and completeness at the Closing Date and the Option
Closing Date of any statement in the Registration Statement or the Prospectus,
as to the accuracy at the Closing Date and the Option Closing Date of the
representations and warranties of the Company herein, as to the performance by
the Company of its obligations hereunder, or as to the fulfillment of the
conditions concurrent and precedent to your obligations hereunder.
(q) The Selling Shareholders or the Attorney-in-Fact shall
deliver to the Underwriters a certificate dated the Option Closing Date, if any,
and executed by each Selling Shareholder or the Attorney-in-Fact to the effect
that the representations and warranties of the Selling Shareholders shall be
true and correct in all material respects as of the Option Closing Date.
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<PAGE> 26
All such opinions, certificates, letters and documents will be in
compliance with the provisions of this Agreement only if they are reasonably
satisfactory to you and counsel for the Underwriters. The Company will furnish
you with such conformed copies of such opinions, certificates, letters and
documents as you may request.
If any of the conditions specified in this Section 6 shall not have
been satisfied at or prior to the Closing Date (and, if applicable, the Option
Closing Date) or waived by you in writing, this Agreement may be terminated by
you pursuant to Section 8 hereof.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company will indemnify and hold harmless each Underwriter
(including, without limitation, in its capacity as an Underwriter or as a
"qualified independent underwriter" within the meaning of Rule 2700 of the
NASD), the directors, officers, employees and agents of each Underwriter and
each person, if any, who controls each Underwriter within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, liabilities, expenses and damages (including any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they, or any of them, may become subject under the
Act, the Exchange Act or other federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, liabilities, expenses
or damages arise out of or are based in whole or in part upon (i) any inaccuracy
in the representations and warranties of the Company contained herein, (ii) any
failure of the Company to perform its obligations hereunder or under law or
(iii) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, the Registration Statement or the
Prospectus or any amendment or supplement to the Registration Statement or the
Prospectus or in any documents filed under the Exchange Act or any blue sky
application or filing, or the omission or alleged omission to state in such
document a material fact required to be stated in it or necessary to make the
statements in it not misleading; provided, however, that the foregoing indemnity
agreement with respect to any preliminary prospectus or the Prospectus shall not
inure to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus (as
so amended or supplemented) would have cured the defect giving rise to such
loss, claim, damage or liability; and further provided, that the Company will
not be liable to the extent that such loss, claim, liability, expense or damage
arises from the sale of the Shares in the public offering to any person by an
Underwriter and is based on an untrue statement or omission or alleged untrue
statement or omission made in reliance on and in conformity with information
relating to an Underwriter furnished in writing to the Company by an Underwriter
expressly for inclusion in the Registration Statement, any preliminary
prospectus or the Prospectus. The Company acknowledges that the information in
the last paragraph on the cover page, the paragraphs relating to stabilization
and passive market making practices on the inside front cover and the statements
set forth under the heading "Underwriting" in any preliminary prospectus and the
Prospectus constitute the only information relating to any Underwriter furnished
in writing
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<PAGE> 27
to the Company by you expressly for inclusion in the Registration Statement, any
preliminary prospectus or the Prospectus. This indemnity agreement will be in
addition to any liability that the Company might otherwise have.
(b) Each Selling Shareholder agrees, severally and not jointly, to
indemnify and hold harmless each Underwriter (including, without limitation, in
its capacity as an Underwriter or as a "qualified independent underwriter"
within the meaning of Rule 2700 of the NASD), and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act, and the Company, its directors, its officers who
sign the Registration Statement and each person, if any who controls the Company
within the meaning of either such Section, provided, however, that the
indemnification obligation of each Selling Shareholder shall be limited to the
net proceeds received by such Selling Shareholder with respect to the Shares
sold, from and against any and all losses, claims, damages and liabilities
caused by any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendment or supplement
thereto) or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with reference
to information relating to such Selling Shareholder furnished in writing by or
on behalf of such Selling Shareholder expressly for use in the Registration
Statement or the Prospectus or in any preliminary prospectus; provided, however,
that the foregoing indemnity agreement shall be effective only if Selling
Shareholder Option Shares are sold pursuant to this Agreement; further provided,
that the foregoing indemnity agreement with respect to any preliminary
prospectus or the Prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any such losses, claims, damages or liabilities
purchased Shares, or any person controlling such Underwriter, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Shares to such
person, and if the Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such loss, claim, damage or liability; and further
provided, that the Selling Shareholders will not be liable to the extent that
such loss, claim, liability, expense or damage arises from the sale of the
Shares in the public offering to any person by an Underwriter and is based on an
untrue statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information relating to an Underwriter
furnished in writing to the Company by an Underwriter expressly for inclusion in
the Registration Statement, any preliminary prospectus or the Prospectus. The
Selling Shareholders acknowledge that the information in the last paragraph on
the cover page, the paragraphs relating to stabilization and passive market
making practices on the inside front cover and the statements set forth under
the heading "Underwriting" in any preliminary prospectus and the Prospectus
constitute the only information relating to any Underwriter furnished in writing
to the Company by you expressly for inclusion in the Registration Statement, any
preliminary prospectus or the Prospectus. This indemnity agreement will be in
addition to any liability that each Selling Shareholder might otherwise have.
(c) Each Underwriter will indemnify and hold harmless the Company,
each Selling Shareholder, each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, each
director of the Company and each officer
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<PAGE> 28
of the Company who signs the Registration Statement to the same extent as the
foregoing indemnity from the Company to the Underwriters, but only insofar as
losses, claims, liabilities, expenses or damages arise out of or are based on
any untrue statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information relating to you furnished in
writing to the Company by you expressly for use in the Registration Statement,
any preliminary prospectus or the Prospectus; provided, however, that such
indemnity shall not be applicable to any Selling Shareholder if no Selling
Shareholder Option Shares are sold pursuant to this Agreement. The Company
acknowledges that the information set forth in the last paragraph on the cover
page, the paragraphs relating to stabilization and passive market making
practices on the inside front cover and the statements set forth under the
heading "Underwriting" in any preliminary prospectus and the Prospectus
constitute the only information relating to the Underwriters furnished in
writing to the Company by the Underwriters expressly for inclusion in the
Registration Statement, any preliminary prospectus or the Prospectus. This
indemnity will be in addition to any liability that the Underwriters might
otherwise have.
(d) Any party that proposes to assert the right to be indemnified
under this Section 7 will, promptly after receipt of notice of commencement of
any action against such party in respect of which a claim is to be made against
an indemnifying party or parties under this Section 7, notify each such
indemnifying party of the commencement of such action, enclosing a copy of all
papers served, but the omission so to notify such indemnifying party will not
relieve it from any liability that it may have to any indemnified party under
the foregoing provisions of this Section 7 unless, and only to the extent that,
such omission results in the forfeiture of substantive rights or defenses by the
indemnifying party. If any such action is brought against any indemnified party
and it notifies the indemnifying party of its commencement, the indemnifying
party will be entitled to participate in and, to the extent that it elects by
delivering written notice to the indemnified party promptly after receiving
notice of the commencement of the action from the indemnified party, jointly
with any other indemnifying party similarly notified, to assume the defense of
the action, with counsel reasonably satisfactory to the indemnified party, and
after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below and
except for the reasonable costs of investigation subsequently incurred by the
indemnified party in connection with the defense. The indemnified party will
have the right to employ its own counsel in any such action, but the fees,
expenses and other charges of such counsel will be at the expense of such
indemnified party unless (i) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (ii) the indemnified
party has reasonably concluded (based on advice of counsel) that there may be
legal defenses available to it or other indemnified parties that are different
from or in addition to those available to the indemnifying party, (iii) a
conflict of interests exists (based on advice of counsel to the indemnified
party) between the indemnified party and the indemnifying party (in which case
the indemnifying party will not have the right to direct the defense of such
action on behalf of the indemnified party) or (iv) the indemnifying party has
not in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, in
each of which cases the reasonable fees, disbursements and other charges of
counsel will be at the expense of the indemnifying party or parties. It is
understood that the indemnifying party or parties shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees, disbursements and other charges of more than one
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<PAGE> 29
separate firm admitted to practice in such jurisdiction at any one time for all
such indemnified party or parties. All such fees, disbursements and other
charges will be reimbursed by the indemnifying party promptly as they are
incurred. An indemnifying party will not be liable for any settlement of any
action or claim effected without its written consent (which consent will not be
unreasonably withheld).
(e) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 7 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company, the Underwriters or the
Selling Shareholders, then the Company, the Underwriters and the Selling
Shareholders will contribute to the total losses, claims, liabilities, expenses
and damages (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted, but after deducting any contribution
received by the Company from persons other than the Underwriters and the Selling
Shareholders, such as persons who control the Company within the meaning of the
Act, officers of the Company who signed the Registration Statement and directors
of the Company, who may be liable for contribution) to which the Company, the
Underwriters and the Selling Shareholders may be subject in such proportion as
shall be appropriate to reflect the relative benefits received by the Company,
the Underwriters and the Selling Shareholders. The relative benefits received by
the Company on the one hand and the Underwriters on the other hand shall be
deemed to be in the same respective proportions as the total net proceeds from
the offering (before deducting expenses) received by the Company bears to the
total underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the Prospectus. The
relative benefits received by the Selling Shareholders shall be deemed to be in
proportion to the net proceeds to be received by them in the offering, as set
forth in the table on the cover page of the Prospectus. If, but only if, the
allocation provided by the foregoing sentences is not permitted by applicable
law, the allocation of contribution shall be made in such proportion as is
appropriate to reflect not only the relative benefits referred to in the
foregoing sentences but also the relative fault of the Company, the Underwriters
and the Selling Shareholders with respect to the statements or omissions which
resulted in such loss, claim, liability, expense or damage, or action in respect
thereof, as well as any other relevant equitable considerations with respect to
such offering. Such relative fault shall be determined by reference to whether
the untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the
Company, the Underwriters or the Selling Shareholders, the intent of the parties
and their relative knowledge, access to information and opportunity to correct
or prevent such statement or omission. The Company, the Underwriters and the
Selling Shareholders agree that it would not be just and equitable if
contributions pursuant to this Section 7(d) were to be determined by pro rata or
per capita allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take into
account the equitable considerations referred to herein. The amount paid or
payable by an indemnified party as a result of the loss, claim, liability,
expense or damage, or action in respect thereof, referred to above in this
Section 7(d) shall be deemed to include, for purpose of this Section 7(d), any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7(d), an Underwriter shall not be
required to contribute any amount in excess of the underwriting discounts
received by it (less the aggregate amount of any damages
29
<PAGE> 30
which such Underwriter and its controlling persons have otherwise been required
to pay in respect of the same or any similar claim), and no person found guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
will be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute as
provided in this Section 7(d) are several in proportion to their respective
underwriting obligations and not joint. For purposes of this Section 7(d), any
person who controls a party to this Agreement within the meaning of the Act will
have the same rights to contribution as that party, and each officer and
director of the Company who signed the Registration Statement will have the same
rights to contribution as the Company, subject in each case to the provisions
hereof. Any party entitled to contribution, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim for
contribution maybe made under this Section 7(d), will notify any such party or
parties from whom contribution may be sought, but the omission to notify will
not relieve the party or parties from whom contribution may be sought from any
other obligation it or they may have under this Section 7(d). No party will be
liable for contribution with respect to any action or claim settled without its
written consent (which consent will not be unreasonably withheld).
(f) The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Company and the Selling
Shareholders contained in this Agreement shall remain operative and in full
force and effect regardless of (i) any investigation made by the Underwriters or
on their behalf, (ii) acceptance of any of the Shares and payment therefor or
(iii) any termination of this Agreement.
(g) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 7, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 7 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
8. TERMINATION.
The Underwriters' obligations under this Agreement may be terminated at
any time on or prior to the Closing Date (or, with respect to the Option Shares,
on or prior to the Option Closing Date), by notice to the Company from the
Representatives, without liability on the part of any of the Underwriters to the
Company (provided, however, that this Section 8 and Sections 5(h), 5(i) and 7
shall be and always remain effective), if, prior to delivery and payment for the
Shares (or the Option Shares, as the case may be), in your reasonable judgment,
(i) the Company shall have failed, refused or been unable to perform any
agreement on its part to be performed, or because of such condition the
Underwriters' obligations hereunder required to be fulfilled are not fulfilled,
including, but not limited to, any change in the business, properties, business
prospects, condition (financial or otherwise) or results of operations of the
Company from that set forth in the Registration Statement or Prospectus which,
in your reasonable judgment, is material and adverse; (ii) any condition
specified in Section 6 of this Agreement shall not have been satisfied; (iii)
trading in any of the equity securities of the Company shall have been suspended
by the Commission, by an exchange that lists the Shares or by the Nasdaq
30
<PAGE> 31
National Market; (iv) trading in securities generally on the New York Stock
Exchange or the Nasdaq National Market shall have been suspended or limited or
minimum or maximum prices shall have been generally established on such
exchange, or additional material governmental restrictions, not in force on the
date of this Agreement, shall have been imposed upon trading in securities
generally by such exchange or by order of the Commission or any court of other
governmental authority; (v) a general banking moratorium shall have been
declared by either federal or state authorities; or (vi) any material adverse
change in the financial or securities markets in the United States or in
political, financial or economic conditions in the United States or any outbreak
or material escalation of hostilities or declaration by the United States of a
national emergency or war or other calamity, crisis, act of God or hostile act
against the United States shall have occurred the effect of any of which is such
as to make it, in your reasonable judgment, impracticable or inadvisable to
market the Shares on the terms and in the manner contemplated by the Prospectus.
9. SUBSTITUTION OF UNDERWRITERS.
If any Underwriter shall fail or refuse to purchase any of the Firm
Shares which it has agreed to purchase hereunder, and the aggregate number of
Firm Shares which such defaulting Underwriter agreed but failed or refused to
purchase is not more than one-tenth of the aggregate number of Firm Shares, the
other Underwriters shall be obligated, severally, to purchase the Firm Shares
that such defaulting Underwriter agreed but failed or refused to purchase, in
the proportions which the number of Firm Shares which they have respectively
agreed to purchase pursuant to Section 1 bears to the aggregate number of Firm
Shares which all such non-defaulting Underwriters have so agreed to purchase, or
in such other proportions as you may specify; provided, that in no event shall
the maximum number of Firm Shares which an Underwriter has been obligated to
purchase pursuant to Section 1 be increased pursuant to this Section 9 by more
than one-ninth of such number of Firm Shares without the prior written consent
of such Underwriter. If an Underwriter shall fail or refuse to purchase any Firm
Shares and the aggregate number of Firm Shares which such defaulting Underwriter
agreed but failed or refused to purchase exceeds one-tenth of the aggregate
number of the Firm Shares and arrangements satisfactory to the non-defaulting
Underwriters or the Company for the purchase of such Firm Shares are not made
within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company for the
purchase or sale of any Shares under this Agreement. In any such case the
Underwriters or the Company shall have the right to postpone the Closing Date or
Option Closing Date, but in no event for longer than seven days, in order that
the required changes, if any, in the Registration Statement and in the
Prospectus or in any other documents or arrangements may be effected. Any action
taken pursuant to this Section 9 shall not relieve any defaulting Underwriter
from liability in respect to any default of such Underwriter under this
Agreement.
10. DEFAULT BY A SELLING SHAREHOLDER.
If any of the Selling Shareholders shall fail to sell and deliver the
number of Selling Shareholder Option Shares that such Selling Shareholder is
obligated to sell, the Underwriters may, at their option, by notice to the
Company, either (a) require the Company to sell and deliver such number of
shares of Common Stock as to which the Selling Shareholders have defaulted, (b)
elect to purchase the Firm Shares and the Option Shares that the Company and
31
<PAGE> 32
the non-defaulting Selling Shareholders have agreed to sell pursuant to this
Agreement or (c) terminate this Agreement if the Company shall have refused to
sell and deliver to the Underwriters the shares of Common Stock referred to in
clause (a) of this Section 10.
In the event of a default under this Section 10 that does not result in
the termination of this Agreement, either the Underwriters or the Company shall
have the right to postpone the Closing Date for a period not exceeding seven
days in order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements. No action taken pursuant
to this Section 10 shall relieve the Company or the Selling Shareholder so
defaulting from liability, if any, in respect of such default.
11. MISCELLANEOUS.
All communications hereunder shall be in writing and, if sent to any of
the Underwriters, shall be mailed, first class postage prepaid, sent via
reliable overnight delivery service, sent by facsimile (and by one of the two
preceding methods), delivered by hand or telegraphed and confirmed in writing to
the Representatives in care of J.C. Bradford & Co., One Buckhead Plaza, 3060
Peachtree Road, N.W., Atlanta, Georgia 30305, Attention: Kip Reed Caffey, or if
sent to the Company shall be sent by one of the foregoing methods to the Company
at 3038 Sideo Drive, Nashville, Tennessee 37204, Attention: Gregory L. Burns.
This Agreement has been and is made solely for the several
Underwriters' and the Company's and the Selling Shareholders' benefits and of
the controlling persons, directors and officers referred to in Section 7, and
their respective heirs, executors, administrators, successors and assigns, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" as used in this Agreement shall not
include a purchaser, as such purchaser, of Shares from an Underwriter.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Tennessee.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
THE COMPANY, EACH SELLING SHAREHOLDER AND YOU EACH HEREBY IRREVOCABLY
WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED
UPON OR ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
You hereby represent and warrant to the Company and each Selling
Shareholder that you have authority to act hereunder on behalf of the several
Underwriters, and any action hereunder taken by you will be binding upon all the
Underwriters.
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<PAGE> 33
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Shareholders and you.
Very truly yours,
O'CHARLEY'S INC.
By: ----------------------------------
Name:
Title:
SELLING SHAREHOLDERS:
By: __________________________________
__________________, as Attorney-in-Fact
for each of the Selling Shareholders
identified on Schedule II
Confirmed and accepted as of the
date first above written.
J.C. BRADFORD & CO.
MONTGOMERY SECURITIES
MORGAN KEEGAN & COMPANY, INC.
For themselves and as Representatives
of the several Underwriters
By: J.C. Bradford & Co.
By: ------------------------------
Name:
Title:
33
<PAGE> 34
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Name of Underwriter Firm Shares
- ------------------- -----------
<S> <C>
J.C. Bradford & Co.........................................
Montgomery Securities......................................
Morgan Keegan & Company, Inc...............................
-----------
Total............................................. 2,000,000
===========
</TABLE>
<PAGE> 35
SCHEDULE II
SELLING SHAREHOLDERS
FOR OPTION SHARES
<TABLE>
<CAPTION>
Number of
Option
Name of Selling Shareholder Shares
- --------------------------- ----------
<S> <C>
Gregory L. Burns........................................... 35,000
Steven J. Hislop........................................... 15,000
A. Chad Fitzhugh........................................... 10,000
William E. Hall, Jr........................................ 8,000
G. Nicholas Spiva.......................................... 11,000
------
Total............................................. 79,000
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
O'Charley's Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the Prospectus.
We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Nashville, Tennessee
September 24, 1997
2
