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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 28, 1997
Commission file number 0-18629
O'CHARLEY'S INC.
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(Exact name of registrant as specified in its charter)
Tennessee 62-1192475
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3038 Sidco Drive
Nashville, Tennessee 37204
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (615) 256-8500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
no par value
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant on March 26, 1998 was approximately $179,452,772. For purposes
of this calculation, shares held by non-affiliates excludes only those shares
beneficially owned by officers, directors and shareholders beneficially owning
10% or more of the outstanding Common Stock. The market value calculation was
determined using the closing sale price of the registrant's common stock on
March 26, 1998 ($20.375) as reported on The Nasdaq Stock Market's National
Market.
The number of shares of common stock, no par value, outstanding on
March 26, 1998, was 10,213,494.
DOCUMENTS INCORPORATED BY REFERENCE
Documents from which portions are
Part of Form 10-K incorporated by reference
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Part III Proxy Statement relating to the registrant's Annual
Meeting of Shareholders to be held May 7, 1998
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O'CHARLEY'S INC.
PART I
ITEM 1. BUSINESS
At December 28, 1997, the Company owned and operated 82 O'Charley's
restaurants located in Alabama, Florida, Georgia, Indiana, Kentucky,
Mississippi, North Carolina, Ohio, South Carolina and Tennessee and had one
franchised O'Charley's restaurant in South Carolina. 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 an express lunch, 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 $5.99 to $15.99 for 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. In 1997, the average check per
customer, including beverages, was approximately $8.25 for lunch and $12.10 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.
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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.
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 increase 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. The
Company attempts to cluster restaurants in a manner that 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
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to enable the Company to utilize existing supervisory, marketing and
distribution systems. The Company expects to open 14 to 16 new Company-owned
restaurants in 1998.
During 1997, the Company opened 13 new Company-owned restaurants in the
following markets:
Indianapolis, IN (2) Lebanon, TN
Gainesville, GA Louisville, KY
Elizabethtown, KY Spartanburg, SC
Conyers, GA Meridian, MS
Alcoa, TN Asheville, NC
Dayton, OH Decatur, AL
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.
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 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 that 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 1997 and plans to
remodel an additional 11 restaurants in 1998. The average cost to remodel the
Company's restaurants in 1997 approximated $175,000 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 five regional
directors currently supervise 12 to 23 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.
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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 establish each year for their own
restaurants.
As an incentive for restaurant managers to improve sales and operating
efficiency, the Company also 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.
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 12 ETEs 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.
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 52,000 square feet of dry storage, 30,000 square feet of
refrigerated storage and 16,500 square feet of production facilities.
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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
2.8% of its 1997 restaurant sales on advertising. In addition to advertising,
the Company encourages unit level personnel to become active in their
communities through local charities and other organizations and sponsorships.
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.
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, analyze prospective sites
and maintain 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.
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RESTAURANT LOCATIONS
At December 28, 1997, the Company operated 82 O'Charley's restaurants.
The following table sets forth the locations (including the number of
restaurants at each location) of these 82 restaurants.
ALABAMA KENTUCKY SOUTH CAROLINA
Birmingham (4) Bowling Green Anderson
Decatur Elizabethtown Spartanburg
Huntsville Florence TENNESSEE
Mobile Lexington (2) Alcoa
Montgomery Louisville (5) Chattanooga (2)
Oxford Owensboro Clarksville (2)
Tuscaloosa Paducah Cleveland
FLORIDA Richmond Cookeville
Pensacola MISSISSIPPI Gatlinburg
GEORGIA Biloxi Jackson
Atlanta (3) Hattiesburg Johnson City
Conyers Meridian Knoxville (4)
Dalton NORTH CAROLINA Lebanon
Gainesville Asheville Memphis (3)
Lawrenceville Raleigh (3) Murfreesboro
Woodstock Winston-Salem Nashville (7)
INDIANA OHIO Pigeon Forge
Clarksville Cincinnati (5)
Evansville Dayton
Indianapolis (5)
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 is
currently in negotiations to acquire the franchised restaurant. 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 marks of the Company used by
third parties in certain limited geographical areas. Such third party use may
prevent the Company from licensing the use of its service marks for restaurants
in such areas. Except for these limited 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.
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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 in 1997 was
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 assure compliance with all
applicable codes and regulations. The Company is subject in most states in which
it operates restaurants to "dram-shop" statutes or judicial interpretations,
which generally provide a person injured by an intoxicated person the right to
recover damages from an establishment which wrongfully served alcoholic
beverages to such person. The Company carries liquor liability coverage as part
of its existing comprehensive general liability insurance.
The Federal Americans With Disabilities Act (the "ADA") prohibits
discrimination on the basis of disability in public accommodations and
employment. The ADA became effective as to public accommodations in January 1992
and as to employment in July 1992. The Company currently designs its restaurants
to be accessible to the disabled and believes that it is in substantial
compliance with all current applicable regulations relating to restaurant
accommodations for the disabled. The Company intends to comply with future
regulations relating to accommodating the needs of the disabled, and the Company
does not currently anticipate that such compliance will require the Company to
expend substantial funds.
The development and construction of additional restaurants will be
subject to compliance with applicable zoning, land use and environmental
regulations. The Company's restaurant operations are also subject to federal and
state minimum wage laws and other laws governing such matters as working
conditions, citizenship requirements, overtime and tip credits. 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.
EMPLOYEES
At December 28, 1997, the Company employed approximately 6,500 persons,
110 of whom were home office management and staff personnel, 140 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.
FORWARD-LOOKING STATEMENTS/RISK FACTORS
This report contains certain forward-looking statements within the
meaning of the federal securities laws, which are intended to be covered by the
safe harbors created thereby. Those statements include, but may not be
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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 below. 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 report
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. The
Company undertakes no obligation to publicly release any revisions to any
forward-looking statements contained herein to reflect events and circumstances
occurring after the date hereof or to reflect the occurrence of unanticipated
events.
Expansion Risks. 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 growth strategy also includes opening new restaurants
in geographic markets in which there are a number of existing O'Charley's
restaurants, which could have an adverse effect on sales and profitability at
these existing restaurants. 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.
Geographic Concentration. The Company's existing restaurants are
located predominantly in the Southeastern and Midwestern United States, with 27
of the 82 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.
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.
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
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through menu price adjustments could have a material adverse effect on the
Company's business, financial condition and operating results.
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.
EXECUTIVE OFFICERS
Officers of the Company are elected by the Board of Directors and serve
at the pleasure of the Board of Directors. There are no family relationships
among any officers. The following table sets forth certain information regarding
the executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Gregory L. Burns 43 President, Chief Executive Officer, and Chairman of
the Board of Directors
Steven J. Hislop 38 Executive Vice President and Chief Operating Officer
A. Chad Fitzhugh 37 Chief Financial Officer, Secretary, and
Treasurer
William E. Hall, Jr. 43 Vice President - Operations
</TABLE>
The following is a brief summary of the business experience of each of
the executive officers of the Company.
Gregory L. Burns has served as Chairman of the Board and Chief
Executive Officer of the Company since February 1994, and as President of the
Company since September 1996. Mr. Burns, a director of the Company since 1990,
served as Chief Financial Officer of the Company from October 1983 to September
1996, 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 served as Executive Vice President and Chief
Operating Officer of the Company since March 1997 and as a director of the
Company since March 1998. Mr. Hislop served as Senior Vice President Operations
from January 1993 to March 1997, and as Vice President - Operations from April
1990 to January 1993.
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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. Mr. Fitzhugh 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.
ITEM 2. PROPERTIES
Of the 82 Company-operated restaurants in operation at December 28,
1997, 47 are owned by the Company in fee simple while the remainder are leased.
Seven of the leased locations are owned by partnerships whose partners are
affiliated with the Company. Restaurant lease expirations range from 1999 to
2019, with the majority of the leases providing for an option to renew for
additional terms ranging from 5 to 20 years. All of the Company's leases provide
for a specified annual rental, and some leases call for additional rental based
on sales volume at the particular location over specified minimum levels.
Generally, the leases are net leases which require the Company to pay the cost
of insurance and taxes. The Company's executive offices and its commissary are
located in Nashville, Tennessee in approximately 138,000 square feet of office
and warehouse space under a lease which expires in March 2002. The Company has
an option to extend the lease for two additional five-year terms. The Company
has an option to purchase the property at various times during the lease term.
ITEM 3. LEGAL PROCEEDINGS
On February 15, 1994, a 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 in the fourth
quarter of 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. After the
adjustment, the total settlement amount payable to the plaintiff class and their
attorneys was approximately $5.2 million, of which approximately $445,000 was
paid through the issuance of shares of the Company's Common Stock and the
remaining amounts were to be paid in cash. As of December 28, 1997,
substantially all of the required payments under this settlement had been paid.
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 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
11
<PAGE> 12
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders during the
fourth quarter ended December 28, 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock trades on The Nasdaq Stock Market's National
Market (the "Nasdaq National Market") under the symbol "CHUX." As of March 26,
1998, there were approximately 650 shareholders of record. The following table
shows quarterly high and low sales prices for the Common Stock for the periods
indicated, as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
Fiscal 1996 High Low
- ----------- --------------- --------------
<S> <C> <C>
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 High Low
- ----------- --------------- --------------
First Quarter.......................... $14.38 $11.88
Second Quarter......................... 18.38 12.63
Third Quarter.......................... 18.38 14.75
Fourth Quarter......................... 19.38 15.38
</TABLE>
The Company has never paid a dividend on its Common Stock. The Company
intends to retain its earnings to finance the growth and development of its
business and does not expect to pay any cash dividends in the foreseeable
future. The Company's revolving credit facility prohibits the payment of cash
dividends on the Common Stock without the consent of the participating banks.
No securities of the Company were sold during the fiscal year ended
December 28, 1997 without registration under the Securities Act of 1933, as
amended.
12
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
December 28, December 29, December 31, December 25, December 26,
(In Thousands, Except Per Share Data) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year Ended
RESULTS OF OPERATIONS
Revenues $ 200,403 $ 164,530 $ 147,557 $ 122,697 $ 95,586
Restaurant Operating Margin 39,976 29,320 25,016 19,904 14,416
Advertising, General and
Administrative Expenses 12,932 9,370 8,187 7,717 5,894
Depreciation and Amortization 10,331 8,141 6,164 4,711 3,437
Asset Revaluation -- 5,110 -- -- --
Income From Operations 16,920 6,838 11,138 8,051 5,582
Litigation -- 6,200 1,000 -- --
Earnings (Loss) Before
Income Taxes 13,686 (1,944) 16,662 7,465 5,085
Income Tax Expense (Benefit)(1) 4,886 (797) 6,071 2,492 1,867
Net Earnings (Loss)(1) 8,800 (1,147) 10,591 4,973 3,218
--------------------------------------------------------------------------
EARNINGS PER SHARE DATA (DILUTED)(2)
Net Earnings (Loss)(1) $ 0.99 $ (0.15) $ 1.27 $ 0.61 $ 0.42
Weighted Average Common
Shares Outstanding 8,907 7,809 8,308 8,137 7,689
--------------------------------------------------------------------------
At Year End
FINANCIAL POSITION
Cash $ 1,965 $ 1,616 $ 2,576 $ 1,727 $ 1,180
Working Capital (Deficit) (11,309) (10,864) (7,344) (3,050) (3,327)
Property and Equipment, net 136,051 103,281 81,512 64,609 50,219
Total Assets 150,515 117,159 93,351 76,082 57,971
Long-Term Debt 13,679 29,822 11,990 15,140 8,987
Capitalized Lease Obligations 14,039 11,797 9,272 5,744 4,697
Shareholders' Equity 95,383 50,926 51,787 40,804 33,204
--------------------------------------------------------------------------
</TABLE>
(1) The income tax expense, net earnings and per share data for fiscal
years 1995, 1994 and 1993 represent pro forma amounts (see Note 2 and
Note 10 in Notes to Financial Statements).
(2) Earnings (loss) per share data has been restated to reflect the
adoption of FAS 128 in the fourth quarter of 1997.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
This report contains certain forward-looking statements within the meaning of
the federal securities laws, 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, increases in food, labor and employee benefit costs, the
availability of experienced management and hourly coworkers, the Company's
ability to locate and open new restaurants and to operate such restaurants
profitably, and the intense competition in the restaurant industry. Although the
Company believes 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 report 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. The Company undertakes no obligation to publicly release any revisions
to any forward-looking statements contained herein to reflect events and
circumstances occurring after the date hereof or to reflect the occurrence of
unanticipated events.
At December 28, 1997, the Company owned and operated 82 O'Charley's restaurants
in Alabama, Florida, Georgia, Indiana, Kentucky, Mississippi, North Carolina,
Ohio, South Carolina and Tennessee and franchised one O'Charley's restaurant in
South Carolina. The following table reflects changes in the number of
company-owned restaurants for the periods presented.
<TABLE>
<CAPTION>
Restaurants 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
In operation, beginning of period 69 55 44
Restaurants opened 13 12 11
Restaurants acquired from franchisee - 6 -
Restaurants closed - (4) -
----------------------------------------
In operation, end of period 82 69 55
----------------------------------------
</TABLE>
REVENUES consist of restaurant sales and to a lesser extent commissary sales and
franchise revenue. Restaurant sales include food and beverage sales and are net
of applicable state and local sales taxes. Commissary sales represent 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 declined in each of the
last three fiscal years.
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, 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
Company has an incentive bonus plan that compensates store management for
achieving certain store level financial targets and performance goals.
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.
RESTAURANT OPERATING MARGIN is defined as restaurant sales less cost of
restaurant sales. Cost of restaurant sales consists of cost of food, beverage
and supplies, payroll and benefits and restaurant operating costs.
14
<PAGE> 15
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.
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. Depreciation and
amortization as a percentage of total revenues may increase as the number of new
store openings increases.
A $5.1 million charge relating to the revaluation of certain assets was recorded
in fiscal 1996 pursuant to the provisions of FAS 121. See "Results of
Operations-Fiscal Year Ended December 29, 1996 Compared to the Fiscal Year Ended
December 31, 1995" and Note 3 of Notes to the Company's financial statements.
The following section should be read in conjunction with "Selected Financial
Data" and the Company's financial statements and the related Notes thereto
included elsewhere herein. The following table highlights the operating results
for fiscal years 1997, 1996 and 1995 as a percentage of total revenues unless
otherwise indicated. Fiscal years 1997 and 1996 are comprised of 52 weeks while
1995 is comprised of 53 weeks.
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Restaurant sales 98.6% 98.6% 93.6%
Commissary sales 1.4% 1.4% 6.4%
-------------------------------------------
100.0% 100.0% 100.0%
COSTS AND EXPENSES:
Cost of restaurant sales:(1)
Cost of food, beverage and supplies 34.7% 35.9% 36.7%
Payroll and benefits 30.6% 30.9% 30.1%
Restaurant operating costs 14.5% 15.1% 15.1%
-------------------------------------------
79.8% 81.9% 81.9%
-------------------------------------------
Restaurant operating margin(2) 20.2% 18.1% 18.1%
Cost of commissary sales(3) 93.7% 95.2% 95.3%
Advertising, general and administrative expenses 6.5% 5.7% 5.5%
Depreciation and amortization 5.2% 4.9% 4.2%
Asset revaluation -- 3.1% --
-------------------------------------------
INCOME FROM OPERATIONS 8.4% 4.2% 7.5%
OTHER (INCOME) EXPENSE:
Interest expense, net 1.7% 1.6% 1.3%
Litigation - 3.8% 0.7%
Other, net (0.1%) - (5.7%)
-------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES 6.8% (1.2%) 11.3%
INCOME TAX EXPENSE (BENEFIT)(4) 2.4% (0.5%) 4.1%
-------------------------------------------
NET EARNINGS (LOSS)(4) 4.4% (0.7%) 7.2%
-------------------------------------------
</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) The income tax expense and net earnings for 1995 represent pro forma
amounts.
15
<PAGE> 16
FISCAL YEAR ENDED DECEMBER 28, 1997 COMPARED TO THE FISCAL YEAR ENDED
DECEMBER 29, 1996
TOTAL REVENUES in 1997 increased $35.9 million, or 21.8%, to $200.4 million from
$164.5 million in 1996 primarily as a result of an increase in restaurant sales
of $35.3 million, or 21.8%, and an increase in commissary sales of $555,000, or
24.5%. The increase in restaurant sales was primarily attributable to the
addition of 13 restaurants in 1997 and an increase in same store sales of 4.7%.
The increase in same store sales resulted from an increase in customer traffic
and menu price increases. Management attributes the increase in customer traffic
to the introduction of a redesigned menu, a new advertising campaign, increased
promotional items, improved restaurant operations and milder weather in the
Company's markets during the first quarter of 1997 compared to 1996. The Company
initiated a new advertising campaign beginning in the fourth quarter of 1996
that continued through 1997. This new advertising effort focused on the
Company's defining differences and in some cases highlighted certain promotional
items. Menu price increases were instituted during the first and third quarters
of 1997 which realized approximately 1%. Liquor sales as a percentage of
restaurant sales decreased to 11.9% in 1997 reflecting industry trends.
COST OF FOOD, BEVERAGE AND SUPPLIES in 1997 increased $10.4 million, or 17.9%,
to $68.6 million from $58.2 million in the prior year. Cost of food, beverage
and supplies as a percentage of restaurant sales decreased to 34.7% in 1997 from
35.9% in 1996. This decrease was primarily attributable to cost reductions in
certain high volume food commodities, increased operating efficiencies at the
Company's commissary and overall lower produce costs due primarily to lower
potato costs. The Company's redesigned menu and seasonal promotions also
contributed to lower food cost by offering a mix of menu items competitively
priced that produced a lower food cost percentage while enhancing the Company's
quality standards. Overall, the effects of the impact of inflation on food cost
was minimal. While the Company has not yet experienced a significant increase in
food costs due to the effects of El Nino, management is expecting a possible
increase in certain produce items beginning in the second quarter of 1998.
PAYROLL AND BENEFITS increased $10.2 million, or 20.3%, to $60.4 million in 1997
from $50.2 million in the prior year. Payroll and benefits as a percentage of
restaurant sales decreased to 30.6% in 1997 from 30.9% in 1996. The Company
achieved a lower percentage of payroll and benefit cost due primarily to the
economies achieved from higher average unit sales volumes, reduced management
and hourly turnover and from certain employee benefit cost reductions. These
decreases were partially offset by increases in restaurant management bonus
expense and wage rates. Bonus expense increased due to a larger percentage of
stores meeting and exceeding their financial targets and performance goals in
1997 as compared to 1996. 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 in 1997 increased $4.1 million, or 16.6%, to $28.6
million from $24.5 million in the prior year. Restaurant operating costs as a
percentage of restaurant sales decreased to 14.5% in 1997 from 15.1% in 1996.
This decrease was primarily attributable to the allocation of certain
supervisory and overhead costs over a greater number of restaurants and
economies achieved from 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. These decreases in the restaurant operating percentage were partially
offset by an increase in the amount of bonus expense earned by supervisory
management. Bonus expense increased due to the improved financial and
performance results in 1997.
RESTAURANT OPERATING MARGIN increased 36.3% to $40.0 million in 1997 from $29.3
million in 1996. As a percentage of restaurant sales, the restaurant operating
margin increased to 20.2% in 1997 from 18.1% in 1996. This improvement was
primarily attributable to the leverage achieved from overall higher average unit
volumes and lower food cost.
ADVERTISING, GENERAL AND ADMINISTRATIVE EXPENSES increased $3.5 million, or
38.0%, to $12.9 million in 1997 from $9.4 million in the prior year.
Advertising, general and administrative expenses as a percentage of total
revenues increased to 6.5% in 1997 from 5.7% 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 increased to 2.8%
of restaurant sales in 1997 as compared to approximately 2.4% in 1996.
Management expects
16
<PAGE> 17
to continue its advertising efforts in 1998 at approximately 2.8% to 3.0% of
restaurant sales. Bonus expense increased primarily as a result of an increase
in the bonus compensation of senior management and executive officers that is
based in part on a formula that rewards increased profits.
DEPRECIATION AND AMORTIZATION in 1997 increased $2.2 million, or 26.9%, to $10.3
million from $8.1 million in the prior year. Depreciation and amortization as a
percentage of total revenues increased to 5.2% in 1997 from 4.9% in 1996. The
increase is primarily due to the Company incurring additional capital
expenditures for the remodeling of certain existing stores and the relocation of
two stores. See "New Accounting Pronouncements" for anticipated changes in the
reporting of preopening cost beginning in the first quarter of 1999.
INCOME FROM OPERATIONS increased $10.1 million, or 147.4%, to $16.9 million in
1997 from $6.8 million in 1996. This increase was primarily the result of the
$5.1 million charge in 1996 for assets impaired under FAS 121. Excluding the
$5.1 million charge in 1996, income from operations in 1996 would have been
$11.9 million and the increase in 1997 would have been $5.0 million over 1996.
Income from operations as a percentage of total revenues, excluding the FAS 121
charge in 1996, would have increased from 7.3% in 1996 to 8.4% in 1997. This
increase was primarily a result of improved restaurant operating margin, which
was partially offset by increased general and administrative and depreciation
and amortization expenses.
INTEREST EXPENSE, NET increased $871,000, or 33.7%, to $3.5 million in 1997 from
$2.6 million 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. The Company reduced its long-term debt by
approximately $34.7 million in the fourth quarter of 1997 with the net proceeds
received from the sale of common stock.
INCOME TAX EXPENSE was $4.9 million in 1997 as compared to income tax benefit of
$797,000 in the prior year. Income tax expense (benefit) as a percentage of
earnings (loss) before income taxes for 1997 was 35.7% as compared to (41.0%) in
1996. The income tax benefit in 1996 was higher than the expected rate because
of the amount of the Federal Insurance Contribution Act tip credits in relation
to a lower taxable income.
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%. 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. Restaurant sales were significantly impacted
during January and February of 1996 by unusually severe winter storms in the
Company's markets. The comparison of 1996 and 1995 restaurant sales was also
affected by 1995 being a 53-week year while 1996 was a 52-week year and the
closure of four restaurants in the third quarter of 1996 that were open for all
of 1995. Liquor sales as a percentage of restaurant sales decreased to 13.3% in
1996 reflecting industry trends.
COST OF FOOD, BEVERAGE AND SUPPLIES in 1996 increased $7.5 million, or 14.8%, to
$58.2 million from $50.7 million in 1995. 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 increased $8.7 million, or 21.0%, to $50.2 million in 1996
from $41.5 million in 1995. 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.
17
<PAGE> 18
RESTAURANT OPERATING COSTS in 1996 increased $3.6 million, or 17.3%, to $24.5
million from $20.9 million in 1995. 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 increased $1.2 million, or
14.4%, to $9.4 million in 1996 from $8.2 million in 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 that 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 in 1996 increased $1.9 million, or 32.1%, to $8.1
million from $6.2 million in 1995. 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 that increased the amount of depreciation expense.
ASSET REVALUATION in 1996 represents charges for assets impaired under FAS 121.
During the second quarter of 1996, the Company identified certain restaurant
units for possible impairment. Once identified, management estimated the
undiscounted future cash flows for each unit and determined that for each unit
the asset's net book value exceeded its related undiscounted cash flows. As a
result, the Company recognized asset write-downs totaling $5.1 million in the
second quarter of 1996. Such amount included $2.5 million related to assets to
be disposed of, including a charge of $536,000 related to two restaurant units
which were subsequently closed and sold later in the year, and $2.0 million for
two restaurant units which were closed in the third quarter of 1996. The Company
also recognized asset write-downs related to assets to be held and used totaling
$2.6 million, including $445,000 primarily for restaurant computer equipment and
$2.2 million for five restaurant units expected to remain open or to be
relocated. The write-downs were based on management's estimates of the fair
market value of the respective restaurant unit as determined primarily by
reference to market prices for similar assets and, in the case of the units to
be disposed of, management's estimates of the cost to dispose of such units. The
write-down of restaurant computer equipment and software related to systems
which management decided to abandon in favor of new systems. 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. This decrease was primarily the result of the $5.1
million charge for assets impaired under FAS 121. 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. This decrease was primarily the result of increased advertising, general
and administrative expenses, due primarily to increased advertising
expenditures, and increased depreciation and amortization, due primarily to
increased depreciation resulting from the increased level of capital
expenditures from store expansion.
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. See "Liquidity and Capital Resources."
18
<PAGE> 19
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 BENEFIT was $797,000 in 1996 as compared to income tax expense of
$6.1 million in 1995. 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 that 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.
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 1997, the Company expended approximately $41.8 million in capital for the
development of 13 new restaurants, improvements to existing restaurants,
relocation of two restaurants, the construction of the Company's training center
and for new equipment and additional warehouse space at the Company's
commissary. Additionally, the Company repaid $36.1 million in principal on its
long-term debt and capitalized lease obligations. These capital outlays were
funded primarily by $34.7 million of net proceeds from the sale of shares of the
Company's common stock, $18.3 million in cash provided by operating activities,
borrowings of $16.4 million under the Company's revolving credit agreement (the
"Revolver"), borrowings of approximately $7.1 million under capitalized lease
obligations and approximately $1.0 million in proceeds from the sale of certain
assets. During the fourth quarter of 1997, the Company consummated the sale of
2,232,000 shares of its common stock. Net proceeds of approximately $34.7
million were used to reduce the Company's indebtedness under its Revolver.
The Company expects to open 14 to 16 new company-owned restaurants in 1998. As
of December 28, 1997, the Company had seven additional restaurants under
construction, five of which are expected to open during the first quarter of
1998. Management estimates that the Company will make approximately $40.0
million in capital expenditures 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.
On December 8, 1997, the Company entered into an amended and restated Revolver
with its bank group that increased its previously existing maximum borrowing
capacity from $70 million to $100 million. As of December 28, 1997, $13.0
million of indebtedness was outstanding under the Revolver and bore interest at
6.65%. The maturity of the Revolver was extended to November 30, 2000 which may
be extended annually by one year, at the participating banks' option, beginning
on the first anniversary of the Revolver. 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 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.
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. After the adjustment, the
total settlement amount payable to the plaintiff class and their attorneys was
approximately $5.2 million, of which approximately $ 445,000 was to be paid
through the issuance of shares of the
19
<PAGE> 20
Company's Common Stock and the remaining amounts were to be paid in cash. In
1996, the Company expended approximately $1.4 in cash towards this settlement.
As of December 28, 1997, substantially all of the required payments under this
settlement had been paid.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1997, the AICPA Accounting Standards Executive Committee (AcSEC)
approved for issuance the Statement of Position (SOP), Reporting on the Costs of
Start-Up Activities. This SOP must be approved by the Financial Accounting
Standards Board (FASB) prior to final issuance. Issuance of this SOP is expected
during 1998, and will be effective for financial statements issued for fiscal
years beginning after December 15, 1998. The SOP requires that costs incurred
during a startup activity be expensed as incurred. Currently, the Company
capitalizes its preopening cost and amortizes these costs over a 12-month
period. At December 28, 1997, the Company had $1.3 million in unamortized
preopening costs. Assuming this SOP is issued in its current form and expected
effective date, the Company will recognize in the first quarter of 1999, as a
cumulative effect of a change in accounting principle, a charge equal to the
after tax effect of the unamortized pre-opening costs at the date of adoption.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosure about Segments of an Enterprise and Related Information, which
supersedes SFAS No. 14. This pronouncement is effective for fiscal years
beginning after December 15, 1997. Management is evaluating the impact of
reporting information about operating segments in the Company's financial
statements.
YEAR 2000
A business issue exists with regard to existing software applications and the
ability of these applications to process date values. Specifically, many
computer applications are written in two digits rather than four to define the
applicable year. Beginning in the year 2000, these applications will need to be
capable of recognizing four digit dates in order to properly distinguish the
year 2000 from prior periods.
Management of the Company has considered the impact of the year 2000 issues on
its computer systems and applications and has developed a remediation plan. The
plan provides for the remediation to be completed by 1999. The Company expenses
all costs associated with these system changes as the costs are incurred.
Management will also be making formal inquiries of its suppliers and other
third-party entities with which it has business relations, as the Company may be
vulnerable as the result of the failure of such entities to remediate their own
year 2000 issues. Management does not believe the impact of the year 2000 issue
will have a significant impact on the Company's operations or liquidity.
IMPACT OF INFLATION
The impact of inflation on the cost of food, labor, equipment, land and
construction costs could adversely 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.
20
<PAGE> 21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
O'CHARLEY'S INC.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report ........................................ 22
Balance Sheets at December 29, 1996 and December 28, 1997 ........... 23
Statements of Operations for the Years Ended December 31, 1995,
December 29, 1996, and December 28, 1997 .......................... 24
Statements of Shareholders' Equity for the Years Ended December 31,
1995, December 29, 1996, and December 28, 1997 .................... 25
Statements of Cash Flows for the Years Ended December 31, 1995,
December 29, 1996, and December 28, 1997 .......................... 26
Notes to Financial Statements ....................................... 27
</TABLE>
21
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
The Board of Directors
O'Charley's Inc.:
We have audited the balance sheets of O'Charley's Inc. as of December 28, 1997
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 28, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial 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
28, 1997 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 28, 1997, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Nashville, Tennessee
February 6, 1998
22
<PAGE> 23
BALANCE SHEETS
<TABLE>
<CAPTION>
December 28, December 29,
(Dollars in Thousands) 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 1,965 $ 1,616
Accounts receivable, less allowance for doubtful
accounts of $72 in 1997 and $58 in 1996 2,204 1,546
Inventories 4,600 4,505
Preopening costs 1,340 1,097
Deferred income taxes 807 2,334
Other current assets 2,231 1,357
----------------------
Total current assets 13,147 12,455
PROPERTY AND EQUIPMENT, NET 136,051 103,281
OTHER ASSETS 1,317 1,423
----------------------
$150,515 $117,159
----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,529 $ 5,022
Accrued payroll and related expenses 4,603 3,365
Accrued expenses 6,463 9,162
Federal, state and local taxes 3,240 2,461
Current portion of long-term debt and capitalized leases 4,621 3,309
----------------------
Total current liabilities 24,456 23,319
DEFERRED INCOME TAXES 2,958 1,295
LONG-TERM DEBT 13,679 29,822
CAPITALIZED LEASE OBLIGATIONS 14,039 11,797
SHAREHOLDERS' EQUITY:
Common stock-No par value; authorized, 50,000,000
shares; issued and outstanding, 10,176,614 in 1997 and
7,854,369 in 1996 65,249 29,592
Additional paid-in capital 652 652
Retained earnings 29,482 20,682
----------------------
Total shareholders' equity 95,383 50,926
----------------------
$150,515 $117,159
----------------------
</TABLE>
See notes to financial statements.
23
<PAGE> 24
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
------------------------------------------
December 28, December 29, December 31,
(In Thousands, Except Per Share Data) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Restaurant sales $197,554 $162,235 $138,098
Commissary sales 2,819 2,264 9,429
Franchise revenue 30 31 30
----------------------------------------
200,403 164,530 147,557
COSTS AND EXPENSES:
Cost of restaurant sales:
Cost of food, beverage and supplies 68,584 58,184 50,687
Payroll and benefits 60,431 50,227 41,511
Restaurant operating costs 28,563 24,504 20,884
Cost of commissary sales 2,642 2,156 8,986
Advertising, general and administrative expenses 12,932 9,370 8,187
Depreciation and amortization 10,331 8,141 6,164
Asset revaluation -- 5,110 --
----------------------------------------
183,483 157,692 136,419
----------------------------------------
INCOME FROM OPERATIONS 16,920 6,838 11,138
OTHER (INCOME) EXPENSE:
Interest expense, net 3,459 2,588 1,920
Litigation -- 6,200 1,000
Other, net (225) (6) (8,444)
----------------------------------------
3,234 8,782 (5,524)
----------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES 13,686 (1,944) 16,662
INCOME TAX EXPENSE (BENEFIT) 4,886 (797) 5,785
----------------------------------------
NET EARNINGS (LOSS) $ 8,800 $ (1,147) $ 10,877
----------------------------------------
PRO FORMA DATA:
Earnings before income taxes as reported $ 16,662
Pro forma income tax expense 6,071
--------
Pro forma net earnings $ 10,591
--------
EARNINGS (LOSS) PER COMMON SHARE - BASIC(1) $ 1.06 $ (0.15) $ 1.37
----------------------------------------
EARNINGS (LOSS) PER COMMON SHARE - DILUTED(1) $ 0.99 $ (0.15) $ 1.27
----------------------------------------
</TABLE>
(1) Earnings per common share for 1995 represent pro forma amounts (see
Note 2 in Notes to Financial Statements).
See notes to financial statements.
24
<PAGE> 25
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
------------------- Paid-in Retained
(In Thousands) Shares Amount Capital Earnings Total
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
1997 net earnings -- -- -- 8,800 8,800
Shares of common stock sold 2,232 34,726 -- -- 34,726
Litigation shares issued 31 445 -- -- 445
Exercise of employee stock options including
tax benefits 47 336 -- -- 336
Shares issued under CHUX Ownership Plan 13 150 -- -- 150
------------------------------------------------------------
Balance, December 28, 1997 10,177 $65,249 $ 652 $ 29,482 $ 95,383
------------------------------------------------------------
</TABLE>
See notes to financial statements.
25
<PAGE> 26
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
December 28, December 29, December 31,
(In Thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 8,800 $ (1,147) $ 10,877
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 7,920 5,982 4,875
Amortization of preopening costs 2,411 2,159 1,289
Deferred income taxes 3,190 (2,595) 936
Loss (gain) on sale of assets 73 (157) (7,448)
Asset revaluation -- 5,110 --
Changes in assets and liabilities:
Accounts receivable (658) (302) (84)
Due from related parties -- 108 281
Inventories (95) (725) 699
Additions to preopening costs (2,654) (2,211) (1,970)
Other current assets (874) (386) (120)
Accounts payable 507 599 981
Accrued payroll and other accrued expenses (237) 4,297 2,241
------------------------------------------
Net cash provided by operating activities 18,383 10,732 12,557
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (34,621) (27,744) (20,439)
Proceeds from sale of property and equipment 1,025 1,341 6,100
Proceeds from sale of unconsolidated partnership -- -- 7,894
Other, net 85 (516) (85)
------------------------------------------
Net cash used by investing activities (33,511) (26,919) (6,530)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 16,400 18,503 6,000
Payments on long-term debt and capitalized
lease obligations (36,135) (3,563) (11,284)
Distribution to shareholders of acquired entity -- (315) (418)
Net proceeds from sale of common stock 34,726 -- --
Exercise of employee incentive stock options 486 602 524
------------------------------------------
Net cash provided (used) by financing activities 15,477 15,227 (5,178)
------------------------------------------
Increase (Decrease) in Cash 349 (960) 849
Cash at Beginning of the Period 1,616 2,576 1,727
------------------------------------------
Cash at End of the Period $ 1,965 $ 1,616 $ 2,576
------------------------------------------
</TABLE>
See notes to financial statements.
26
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
O'CHARLEY'S INC. (the "Company") owns, operates and franchises 83 (at December
28, 1997) full-service restaurant facilities 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. Fiscal years 1997 and 1996 were
comprised of 52 weeks while fiscal year 1995 was comprised of 53 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 that 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 that do not enhance the value of or
increase the life of the assets are expensed 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 assesses the recoverability of this intangible asset by determining
whether the amortization of the asset balance over its remaining useful life can
be recovered through undiscounted future operating cash flows of the acquired
operations. The amount of asset impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average costs of funds. The assessment of the
recoverability of the asset will be impacted if estimated future operating cash
flows are not achieved.
ADVERTISING COSTS. The Company expenses advertising costs as incurred, except
for certain advertising production costs that are expensed the first time the
advertising takes place. Advertising expense for fiscal years 1997, 1996, and
1995 totaled $5,456,000, $3,956,000 and $2,326,000, respectively.
DEFERRED REVENUE, which is included in accrued expenses, includes deferred gift
certificate revenue. The Company records a deferred liability as certificates
are sold at an amount equal to the anticipated redemption value. The deferred
liability is reduced and revenue is recorded as restaurant sales when gift
certificates are redeemed.
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 bases.
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
27
<PAGE> 28
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. The Company adopted Statement of Financial Accounting Standards
No. 128 ("FAS 128"), Earnings Per Share, during the fourth quarter of 1997. All
prior period earnings (loss) per share ("EPS") data have been restated to
reflect the implementation of FAS 128. FAS 128 establishes standards for both
the computing and presentation of basic and diluted EPS on the face of the
statement of operations. Basic earnings per common share have been computed by
dividing net earnings (loss) by the weighted average number of common shares
outstanding during each year presented. Diluted earnings per common share have
been computed by dividing net earnings (loss) by the weighted average number of
common shares outstanding plus the dilutive effect of options outstanding during
the applicable periods.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company has adopted Statement of
Financial Accounting Standards No. 107 ("FAS 107"), Disclosures about Fair Value
of Financial Instruments, which requires disclosure of the fair values of most
on-and-off balance sheet financial instruments for which it is practicable to
estimate that value. The scope of FAS 107 excludes certain financial instruments
such as trade receivables and payables when the carrying value approximates the
fair value, employee benefit obligations, lease contracts, and all nonfinancial
instruments such as land, buildings, and equipment. The fair values of the
financial instruments are estimates based upon current market conditions and
quoted market prices for the same or similar instruments as of December 28,
1997. Book value approximates fair value for substantially all of the Company's
assets and liabilities that fall under the scope of FAS 107.
IMPAIRMENT OF LONG-LIVED ASSETS. The Company has adopted the provisions of
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. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of carrying amount or fair value less costs to
sell.
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.
CERTAIN RECLASSIFICATIONS have been made to the accompanying financial
statements for the previous fiscal years to conform to the 1997 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.
28
<PAGE> 29
Revenues, net earnings and changes in shareholders' equity of the separate
companies for the periods preceding the acquisition were as follows:
<TABLE>
<CAPTION>
Changes in
Net Shareholders'
(In Thousands) Revenues Earnings Equity
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fiscal year ended December 31, 1995:
O'Charley's, as previously reported $ 136,605 $ 10,068 -
Shoex 14,827 809 $ (440)
Pro forma adjustments (3,875) (286) -
----------------------------------------------------
Combined $ 147,557 $ 10,591 $ (440)
----------------------------------------------------
</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, in
1996 the Company recorded a $5.1 million charge to earnings for assets impaired
under FAS 121. This amount represented 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
primarily by reference to market prices for similar assets and, in the case of
the units to be disposed of, management's estimate of the cost to dispose of
such units. The $5.1 million charge was comprised of the following impaired
restaurant assets: (1) $2.5 million of assets to be disposed of including
$536,000 for two restaurant units which were closed in the third quarter of 1996
and were later sold in 1996, and $2.0 million for two units which were closed in
the third quarter of 1996, one of which was sold in 1997 and the other expected
to be disposed of in 1998 having a carrying value on December 28, 1997, of
$646,000; (2) $2.6 million of assets to be held including $445,000 primarily for
restaurant computer equipment and $2.2 million for five restaurant units
expected to remain open or be relocated. The 1996 results of operations include
revenues of $4.3 million and costs and expenses of $4.9 million for the four
units closed. No impairments were identified during 1997.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 28, 1997, and December 29, 1996, consist of
the following:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 32,940 $ 26,500
Buildings and improvements 46,105 36,680
Furniture, fixtures and equipment 35,330 26,365
Leasehold improvements 29,134 20,229
Equipment under capitalized leases 25,805 19,066
Property leased to others 957 957
---------------------------
170,271 129,797
Less accumulated depreciation and amortization (34,220) (26,516)
---------------------------
$136,051 $103,281
---------------------------
</TABLE>
29
<PAGE> 30
5. OTHER ASSETS
Other assets at December 28, 1997, and December 29, 1996, consist of the
following:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Excess of cost over fair value of net assets acquired,
net of accumulated amortization of $99 in 1997
and $83 in 1996 $ 223 $ 239
Prepaid expenses 535 647
Trade notes receivable 559 537
--------------------
$1,317 $1,423
--------------------
</TABLE>
6. ACCRUED EXPENSES
Accrued expenses at December 28, 1997, and December 29, 1996, include the
following:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- --------------------------------------------------------------
<S> <C> <C>
Deferred revenue-gift certificates $1,522 $1,151
Workers' compensation expenses 1,458 1,325
Accrued litigation 594 4,627
Other accrued expenses 2,889 2,059
--------------------
$6,463 $9,162
--------------------
</TABLE>
7. LONG-TERM DEBT
Long-term debt at December 28, 1997, and December 29, 1996, consists of the
following:
<TABLE>
(In Thousands) 1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Revolving line of credit $13,000 $29,000
Secured mortgage notes payable 243 251
Installment notes payable 580 722
------------------------
13,823 29,973
Less current maturities (144) (151)
------------------------
$13,679 $29,822
------------------------
</TABLE>
On December 8, 1997, the Company entered into an amended and restated revolving
credit agreement (the "Credit Agreement") which increased its unsecured line of
credit facility to $100 million from $70 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 28, 1997, the $13,000,000 outstanding balance carried an interest rate
of 6.65% (LIBOR rate plus .65%). The new credit facility includes a provision to
extend its November 30, 2000 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.
The secured mortgage note payable at December 28, 1997, 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 $1,055,000 at December 28, 1997.
30
<PAGE> 31
The installment notes payable at December 28, 1997, bear interest at 9.1% and
are payable in monthly installments, including interest, through October 2002.
Debt of $539,000 is secured by an airplane with a depreciated cost of
approximately $571,000 at December 28, 1997. The remaining debt of $41,000,
issued in connection with the 1993 merger of Burbet Foods, Inc. is unsecured.
The annual maturities of long-term debt as of December 28, 1997, are:
$144,000-1998; $113,000-1999; $13,124,000-2000; $135,000-2001; $125,000-2002;
and $182,000 thereafter.
8. LEASE COMMITMENTS
The Company has various leases for certain restaurant land and buildings under
operating lease agreements. Under these leases, the Company pays taxes,
insurance and maintenance costs in addition to the lease payments. Certain
leases also provide for additional contingent rentals based on a percentage of
sales in excess of a minimum rent. The Company leases certain equipment and
fixtures under capital lease agreements having lease terms from five to seven
years. The Company expects to exercise its options under these agreements to
purchase the equipment in accordance with the provisions of the lease
agreements.
As of December 28, 1997, approximately $25,805,000 cost less $6,068,000
accumulated amortization of the Company's property and equipment is under
capitalized lease obligations. Interest rates on capitalized lease obligations
range from 6.5% to 10.5%. Future minimum lease payments at December 28, 1997,
are as follows:
<TABLE>
<CAPTION>
Capitalized
Equipment Operating
(In Thousands) Leases Leases
- ------------------------------------------------------------------
<S> <C> <C>
1998 $ 5,725 $ 4,347
1999 5,003 4,347
2000 4,988 4,183
2001 3,529 4,199
2002 2,156 4,170
Thereafter 272 42,168
------- -------
Total minimum rentals 21,673 $63,414
-------
Less amount representing interest (3,157)
-------
Net minimum lease payments 18,516
Less current maturities (4,477)
-------
Capitalized lease obligations $14,039
-------
</TABLE>
Rent expense for the fiscal years ending in December for operating leases is as
follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $4,022 $3,766 $3,525
Contingent rentals 479 417 428
--------------------------------------
$4,501 $4,183 $3,953
--------------------------------------
</TABLE>
31
<PAGE> 32
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 that approved a definitive settlement
agreement. The settlement agreement provided for a settlement pool of $4.8
million for the benefit of present and past African-American employees of
O'Charley's (the "Class") whose claims arose on or after March 31, 1992,
reserved $700,000 for claims administration and fees, and included $2.0 million
for the attorneys representing the Class. Based on the relatively low number of
class members electing to participate in the settlement, the original $7.5
million total settlement amount was reduced to approximately $5.2 million. As of
December 28, 1997, the Company has paid substantially all of its commitment to
the plaintiff class that included approximately $445,000 paid with the issuance
of shares of the Company's common stock.
As of December 28, 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 judgement. 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:
<TABLE>
(In Thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings $4,886 $(797) $5,785
Shareholders' equity, tax benefit derived from
non-statutory stock options exercised (120) (200) (77)
-----------------------------------------
$4,766 $(997) $5,708
-----------------------------------------
</TABLE>
Effective January 5, 1996, the Company merged with Shoex, Inc. which was
accounted for as a pooling-of-interests. Shoex, Inc. was an S Corporation
whereby its income was taxable at the shareholder level. Had Shoex been subject
to income taxes, additional income tax expense of $286,000 in 1995, would have
been recorded. The pro forma data presented on the face of the statements of
operations reflect these amounts.
Income tax expense (benefit) related to earnings for the fiscal years ending in
December consists of:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- ------------------------------------------------------------
<S> <C> <C> <C>
Current $1,696 $ 1,798 $4,849
Deferred 3,190 (2,595) 936
--------------------------------------
$4,886 $ (797) $5,785
--------------------------------------
</TABLE>
32
<PAGE> 33
Income tax expense (benefit) attributable to earnings differs from the amounts
computed by applying the applicable U.S. federal income tax rate to pretax
earnings from operations as a result of the following:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% (34.0%) 35.0%
Increase (decrease) in taxes due to:
State income taxes, net of federal tax benefit 3.7 (1.8) 3.9
Utilization of tax credits (3.5) (21.3) (2.8)
Adjustment to deferred tax assets and liabilities for
change in tax status of Shoex -- 12.1 --
Earnings attributable to S Corporation -- -- (1.7)
Other 0.5 4.0 0.3
------------------------------------
35.7% (41.0%) 34.7%
------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at each of the
respective fiscal year ends are as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accrued expenses, principally due to accruals for workers'
compensation, employee health and retirement benefits $1,526 $ 1,161
Accrued litigation 95 1,827
Other 23 27
---------------------
Total gross deferred tax assets 1,644 3,015
Deferred tax liabilities:
Property and equipment, principally due to differences in
depreciation and capitalized lease amortization 3,207 1,468
Preopening cost, due to cost in excess of amortization 517 428
Other 71 80
---------------------
Total gross deferred tax liabilities 3,795 1,976
---------------------
Net deferred tax liability (asset) $2,151 $(1,039)
---------------------
</TABLE>
The net deferred tax liability (asset) at December 28, 1997 and December 29,
1996, are recorded as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Deferred income taxes, long-term liability $ 2,958 $ 1,295
Deferred income taxes, current asset (807) (2,334)
-----------------------
$ 2,151 $(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.
33
<PAGE> 34
11. SHAREHOLDERS' EQUITY
In the fourth quarter of 1997, the Company completed a secondary public offering
of its common stock in which 2,232,000 shares were sold by the Company for net
proceeds of $34.7 million. The net proceeds were used to reduce the Company's
outstanding indebtedness under its revolving credit agreement.
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 28, 1997,
no preferred shares had been issued.
12. EARNINGS PER SHARE
The following is a reconciliation of the Company's basic and diluted earnings
(loss) per share in accordance with FAS 128. Earnings (Loss) per share for 1995
represent pro forma amounts (see Note 2).
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data) 1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Earnings (Loss) $8,800 $(1,147) $10,591
-------------------------------------
Basic Earnings per Share:
Weighted shares outstanding 8,311 7,809 7,755
Basic earnings (loss) per share $ 1.06 $ (0.15) $ 1.37
-------------------------------------
Diluted Earnings per Share:
Weighted shares outstanding 8,311 7,809 7,755
Incremental stock option shares outstanding 596 -- 553
-------------------------------------
Total diluted shares outstanding 8,907 7,809 8,308
Diluted earnings (loss) per share $ 0.99 $ (0.15) $ 1.27
-------------------------------------
</TABLE>
During the first quarter of 1998, the Company issued 182,500 options at an
exercise price of $18 1/8.
13. 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
applies APB Opinion No. 25 in accounting for its plan, and accordingly, no
compensation cost has been recognized.
If compensation cost for these plans had been determined consistent with FAS
123, the Company's net earnings and earnings per share would have been reduced
to the following pro forma amounts:
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Earnings (Loss): As reported (pro forma in 1995) $8,800 $(1,147) $10,591
Pro forma, as adjusted under FAS 123 8,387 (1,493) 10,304
Basic Earnings (Loss) per
Common Share: As reported (pro forma in 1995) $ 1.06 $ (0.15) $ 1.37
Pro forma, as adjusted under FAS 123 1.01 (0.19) 1.33
Diluted Earnings (Loss) per
Common Share: As reported (pro forma in 1995) $ 0.99 $ (0.15) $ 1.27
Pro forma, as adjusted under FAS 123 0.94 (0.19) 1.24
</TABLE>
Because the FAS 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.
34
<PAGE> 35
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model. The weighted average assumptions used for
grants in 1997 were: risk-free interest rate of 5.8%; expected life of 7.8
years; expected volatility of 50.5%. For grants in 1996 and 1995, the weighted
average assumptions used were: risk-free interest rate of 6.7%; expected life of
7.4 years; expected volatility of 41.6%
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
Granted 165,500 15.14
Exercised (49,550) 4.79
Forfeited (54,285) 12.03
-----------------------------
Balance at December 28, 1997 1,901,274 $ 9.14
-----------------------------
</TABLE>
The following table summarizes information about stock options outstanding at
December 28, 1997:
<TABLE>
<CAPTION>
Options Outstanding
--------------------------------------------------------- Options Exercisable
Weighted Avg. ----------------------------------
Remaining Weighted Avg. Weighted Avg.
Exercise Price Number Contractual Life Exercise Price Number Exercise Price
- ------------------------------------------------------------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C>
$2.00 to 3.99 164,801 2.2 years $ 2.85 164,801 $ 2.85
$4.00 to 7.99 197,100 4.3 5.25 181,710 5.16
$8.00 to 9.99 872,358 5.6 8.50 561,536 8.47
$10.00 to 13.99 491,853 7.3 11.87 129,319 11.97
$14.00 to 17.00 175,162 9.2 15.14 14,350 14.10
- ------------------------------------------------------------------------------------ ----------------------------------
$2.00 to 17.00 1,901,274 5.9 $ 9.14 1,051,716 $ 7.52
- ------------------------------------------------------------------------------------ ----------------------------------
</TABLE>
At December 28, 1997, and December 29, 1996, the number of options exercisable
was 1,051,716 and 827,480, respectively, and the weighted average exercise price
of those options was $7.52 and $7.10, respectively.
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 the lower of 1) the closing
35
<PAGE> 36
market price per share of the Company's Common Stock on the last trading date of
the plan year or 2) the average of the closing market price of the Company's
Common Stock on the first and the last trading day of the plan year.
Contributions of up to 15% of base salary are made by each participant through
payroll deductions. The Plan year is from October 1 to September 30. As of
December 28, 1997, 67,000 shares have been issued under this Plan.
14. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) salary reduction and profit-sharing plan called the
CHUX Savings Plan. Under the Plan, employees can make contributions up to 15% of
their annual compensation. The Company contributes annually to the Plan an
amount equal to 40% of employee contributions, subject to certain limitations.
Additional contributions are made at the discretion of the Board of Directors.
Company contributions vest at the rate of 20% each year beginning after the
employee's initial year of employment. Company contributions were approximately
$140,000 in 1997, $105,000 in 1996 and $72,000 in 1995.
15. 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 that 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 was accounted for as a
pooling-of-interests; therefore, all related-party transactions previously
reported have been eliminated through the restatement of the financial
statements.
An officer of the Company, a principal shareholder, and certain directors own a
certain percentage of partnerships which have lease agreements with the Company
for eight of its restaurant facilities. The leases expire at various times
through 2012, with options to renew for a term of 10 years. The lease agreements
grant the Company an option to purchase the properties at fair market value at
any time during the term of the lease.
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. 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
that could be obtained from unaffiliated third parties.
36
<PAGE> 37
The aforementioned related-party transactions are reflected in the financial
statements as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE SHEETS
Current Assets:
Due from related parties -- -- $ 108
STATEMENTS OF EARNINGS
Revenues:
Commissary sales -- -- 6,463
Costs and Expenses:
Restaurant operating costs:
Rent expense 861 843 843
Contingent rentals 310 293 256
Depreciation and amortization (property leased to others) -- -- 69
Other (Income) Expense:
Interest income (guarantee fee) -- -- (54)
Other, net:
Accounting and administrative fees -- -- (56)
Net rental income -- -- (534)
Equity earnings in Partnership -- -- (273)
Gain on sale of assets -- -- (7,448)
STATEMENTS OF CASH FLOWS
Cash Flows From Investing Activities:
Proceeds from sale of property and equipment -- -- 6,100
Proceeds from sale of unconsolidated partnership -- -- 7,894
</TABLE>
16. STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information is as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid for interest $3,608 $3,074 $2,158
Additions to capitalized lease obligations 7,146 5,922 6,242
Income taxes paid 1,582 1,979 4,508
Litigation shares issued 445 -- --
</TABLE>
37
<PAGE> 38
17. SELECTED QUARTERLY DATA (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 is shown below:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In Thousands, Except Per Share Data) (16 weeks) (12 weeks) (12 weeks) (12 weeks)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 28, 1997
Net revenues $56,635 $46,411 $47,546 $49,811
Income from operations 4,500 4,001 4,077 4,342
Net earnings 2,262 2,011 2,050 2,477
Basic earnings per common share 0.29 0.26 0.26 0.26
Diluted earnings per common share 0.27 0.24 0.24 0.24
-----------------------------------------------------------------
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
Basic earnings (loss) per common share 0.20 (0.96) 0.19 0.42
Diluted earnings (loss) per common share 0.19 (0.96) 0.18 0.39
-----------------------------------------------------------------
</TABLE>
38
<PAGE> 39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Proxy Statement issued in connection with the shareholders meeting
to be held on May 7, 1998, to be filed with the Securities and Exchange
Commission pursuant to Rule 14a-6(b), contains under the caption "Election of
Directors" information required by Item 10 of Form 10-K as to directors of the
Company and is incorporated herein by reference. Pursuant to General Instruction
G(3), certain information concerning executive officers of the Company is
included in Part I of this Form 10-K, under the caption "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION.
The Proxy Statement issued in connection with the shareholders meeting
to be held on May 7, 1998, to be filed with the Securities and Exchange
Commission pursuant to Rule 14a-6(b), contains under the caption "Executive
Compensation" information required by Item 11 of Form 10-K and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Proxy Statement issued in connection with the shareholders meeting
to be held on May 7, 1998, to be filed with the Securities and Exchange
Commission pursuant to Rule 14a-6(b), contains under the captions "Security
Ownership of Certain Beneficial Owners" and "Election of Directors" information
required by Item 12 of Form 10-K and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Proxy Statement issued in connection with the shareholders meeting
to be held on May 7, 1998, to be filed with the Securities and Exchange
Commission pursuant to Rule 14a-6(b), contains under the caption "Certain
Transactions" information required by Item 13 of Form 10-K and is incorporated
herein by reference.
39
<PAGE> 40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements: See Item 8
2. Financial Statement Schedules: Not Applicable
3. Management Contracts and Compensatory Plans and Arrangements
<TABLE>
<S> <C>
- O'Charley's Inc. 1985 Stock Option Plan (included as Exhibit 10.9)
- O'Charley's Inc. 1990 Employee Stock Plan (included as Exhibit 10.10)
- First Amendment to O'Charley's Inc. 1990 Employee Stock Plan (included as Exhibit
10.11)
- Second Amendment to O'Charley's Inc. 1990 Employee Stock Plan (included as Exhibit
10.12)
- O'Charley's 1991 Stock Option Plan for Outside Directors, as amended (included as
Exhibit 10.13)
- CHUX Ownership Plan (included as Exhibit 10.14)
- Severance Compensation Agreement, dated September 16, 1996, by and between
O'Charley's Inc. and Gregory L. Burns (included as Exhibit 10.15)
- Severance Compensation Agreement, dated as of March 4, 1998, by and between
O'Charley's Inc. and A. Chad Fitzhugh (included as Exhibit 10.17)
- Severance Compensation Agreement, dated as of March 4, 1998, by and between
O'Charley's Inc. and Steven J. Hislop (included as Exhibit 10.18)
</TABLE>
4. Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C> <C>
3.1 ---- Restated Charter of the Company (incorporated by reference to Exhibit 3.1 of the
Company's Registration Statement on Form S-1, Registration No. 33-35170)
3.2 ---- Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2
of the Company's Annual Report on Form 10-K for the year ended December 30, 1990)
4.1 ---- Form of Certificate for the Common Stock (incorporated by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-1, Registration No. 33-35170)
10.1 ---- Lease dated May 1, 1987 between CWF Associates and CWF Corporation and all
amendments thereto for 2895 Richmond Road, Lexington, KY 40509 (incorporated by
reference to Exhibit 10.1 of the Company's Registration Statement on Form S-1,
Registration No. 33-35170)
</TABLE>
40
<PAGE> 41
<TABLE>
<S> <C> <C>
10.2 ---- Lease dated August 15, 1987 between CWF Associates and O'Charley's Inc. and all
amendments thereto for improvements located at 17 White Bridge Road, Nashville, TN
(incorporated by reference to Exhibit 10.3 of the Company's Registration Statement on
Form S-1, Registration No. 33-35170)
10.3 ---- Lease dated October 25, 1985 between Two Mile Partners and CWF Corporation and
all amendments thereto for 912 Two Mile Parkway, Goodlettsville, TN (incorporated by
reference to Exhibit 10.5 of the Company's Registration Statement on Form S-1,
Registration No. 33-35170)
10.4 ---- Lease dated December 30, 1985 between Two Mile Partners and CWF Corporation for
644 N. Riverside Dr., Clarksville, TN (incorporated by reference to Exhibit 10.6 of the
Company's Registration Statement on Form S-1, Registration No. 33-35170)
10.5 ---- Lease dated September 9, 1985 between Two Mile Partners and CWF Corporation for
1720 U.S. 31-W Bypass Building, Bowling Green, KY (incorporated by reference to
Exhibit 10.7 of the Company's Registration Statement on Form S-1, Registration No. 33-
35170)
10.6 ---- Lease dated December 26, 1986 between Two Mile Partners and CWF Corporation for
1006 Memorial Blvd., Murfreesboro, TN (incorporated by reference to Exhibit 10.8 of
the Company's Registration Statement on Form S-1, Registration No. 33-35170)
10.7 ---- Area Development Agreement dated July 9, 1987, between O'Charley's Inc. and
O'Charley's of the Carolinas, Inc. (incorporated by reference to Exhibit 10.18 of the
Company's Registration Statement on Form S-1, Registration No. 33-35170)
10.8 ---- License Agreement dated July 9, 1987, between O'Charley's Inc. and O'Charley's of the
Carolinas, Inc. (incorporated by reference to Exhibit 10.19 of the Company's
Registration Statement on Form S-1, Registration No. 33-35170)
10.9 ---- O'Charley's Inc. 1985 Stock Option Plan (incorporated by reference to Exhibit 10.27 of
the Company's Registration Statement on Form S-1, Registration No. 33-35170)
10.10 ---- O'Charley's Inc. 1990 Employee Stock Plan (incorporated by reference to Exhibit 10.26
of the Company's Registration Statement on Form S-1, Registration No. 33-35170)
10.11 ---- First Amendment to O'Charley's Inc. 1990 Employee Stock Plan (incorporated by
reference to Exhibit 10.24 of the Company's Annual Report on Form 10-K for the year
ended December 29, 1991)
10.12 ---- Second Amendment to O'Charley's Inc. 1990 Employee Stock Plan (incorporated by
reference to Exhibit 10.23 of the Company's Annual Report on Form 10-K for the year
ended December 26, 1993)
</TABLE>
41
<PAGE> 42
<TABLE>
<S> <C> <C>
10.13 ---- O'Charley's Inc. 1991 Stock Option Plan for Outside Directors, As Amended
(incorporated by reference to Exhibit 10.25 of the Company's Annual Report on Form
10-K for the year ended December 27, 1992)
10.14 ---- CHUX Ownership Plan (incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended October 3, 1993)
10.15 ---- Severance Compensation Agreement, dated September 16, 1996, by and between
O'Charley's Inc. and Gregory L. Burns (incorporated by reference to Exhibit 10.21 of
the Company's Annual Report on Form 10-K for the year ended December 29, 1996)
10.16 ---- Amended and Restated Revolving Credit Agreement, dated as of December 8, 1997,
among O'Charley's Inc. and Mercantile Bank National Association, Bank One, N.A.,
First Union National Bank, NationsBank of Tennessee, N.A., as Co-Agent, and First
American National Bank, as Agent
10.17 ---- Severance Compensation Agreement, dated March 4, 1998, by and between O'Charley's
Inc. and A. Chad Fitzhugh
10.18 ---- Severance Compensation Agreement, dated March 4, 1998, by and between O'Charley's
Inc. and Steven J. Hislop
21 ---- Subsidiaries of the Company
23.1 ---- Consent of KPMG Peat Marwick, LLP
27 ---- Financial Data Schedule
</TABLE>
(b) During the quarter ended December 28, 1997, the Company did not file
any Reports on Form 8-K.
42
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Nashville,
State of Tennessee.
O'CHARLEY'S INC.
Date: March 27, 1998 By: /s/ Gregory L. Burns
---------------------------------------
Gregory L. Burns
President, Chief Executive Officer, and
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------------- ------------------------------------- -------------------------
<S> <C> <C>
/s/ Gregory L. Burns President, Chief Executive Officer, and March 27, 1998
- ---------------------------------- Chairman of the Board (Principal
(Gregory L. Burns) Executive Officer)
/s/ A. Chad Fitzhugh Chief Financial Officer, Secretary, and March 27, 1998
- ---------------------------------- Treasurer (Principal Financial and
(A. Chad Fitzhugh) Accounting Officer)
/s/ John W. Stokes, Jr. Director March 27, 1998
- ----------------------------------
(John W. Stokes, Jr.)
/s/ Richard Reiss, Jr. Director March 27, 1998
- ----------------------------------
(Richard Reiss, Jr.)
/s/ G. Nicholas Spiva Director March 27, 1998
- ----------------------------------
(G. Nicholas Spiva)
/s/ H. Steve Tidwell Director March 27, 1998
- ----------------------------------
(H. Steve Tidwell)
/s/ C. Warren Neel Director March 27, 1998
- ----------------------------------
(C. Warren Neel)
/s/ Samuel H. Howard Director March 27, 1998
- ----------------------------------
(Samuel H. Howard)
/s/ Shirley A. Zeitlin Director March 27, 1998
- ----------------------------------
(Shirley A. Zeitlin)
/s/ Steven J. Hislop Director March 27, 1998
- ----------------------------------
(Steven J. Hislop
</TABLE>
42
<PAGE> 1
Exhibit 10.16
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
DATED AS OF DECEMBER 8, 1997
AMONG
O'CHARLEY'S INC.
AND
MERCANTILE BANK NATIONAL ASSOCIATION,
BANK ONE, N.A.,
FIRST UNION NATIONAL BANK,
NATIONSBANK OF TENNESSEE, N.A., AS CO-AGENT
AND
FIRST AMERICAN NATIONAL BANK,
AS AGENT
<PAGE> 2
O'CHARLEY'S INC.
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
DATED AS OF DECEMBER 8, 1997
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS.................................................................1
2. THE LOAN....................................................................7
2.1 The Commitments...................................................7
2.2 Disbursement of the Loans.........................................8
2.3 Upfront Fee......................................................10
2.4 Facility Fee.....................................................10
2.5 The Agent's Fee..................................................10
2.6 Reduction of Commitment..........................................10
2.7 Interest Rate and Payments of Interest...........................11
2.8 Payments to the Agent............................................11
2.9 Extension of Loan Termination Date...............................12
2.10 Alternate Rate of Interest......................................12
2.11 Change in Circumstances.........................................13
2.12 Change in Legality..............................................14
2.13 Letters of Credit...............................................14
3. CONDITIONS PRECEDENT.......................................................15
3.1 Documents Required for the Closing...............................15
3.2 Conditions Precedent for Subsequent Disbursements................16
3.3 Legal Matters....................................................17
4. REPRESENTATIONS AND WARRANTIES.............................................17
4.1 Original.........................................................17
4.2 Survival.........................................................19
5. THE BORROWER'S COVENANTS...................................................20
5.1 Affirmative Covenants............................................20
5.2 Negative Covenants...............................................22
6. DEFAULT....................................................................25
6.1 Events of Default................................................25
6.2 Acceleration.....................................................26
6.3 Remedies.........................................................27
7. THE AGENT..................................................................27
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
7.1 Authorization....................................................27
7.2 Standard of Care.................................................27
7.3 No Waiver of Rights..............................................28
7.4 Payments.........................................................28
7.5 Indemnification..................................................28
7.6 Exculpation......................................................28
7.7 Credit Investigation.............................................29
7.8 Resignation......................................................29
7.9 Proration of Payments............................................29
7.10 No Liability For Errors.........................................30
7.11 Offset..........................................................30
8. MISCELLANEOUS..............................................................30
8.1 Construction.....................................................30
8.2 Further Assurance................................................30
8.3 Enforcement and Waiver by the Banks..............................31
8.4 Expenses of the Agent............................................31
8.5 Notices..........................................................31
8.6 Waiver and Release...............................................32
8.7 Indemnification..................................................33
8.8 Assignment/Participations........................................33
8.9 Applicable Laws..................................................34
8.10 Binding Effect, Assignment and Entire Agreement.................34
8.11 Severability....................................................34
8.12 Counterparts....................................................34
8.13 Seal............................................................34
8.14 Venue...........................................................34
8.15 Waiver of Jury Trial............................................34
</TABLE>
<PAGE> 4
LIST OF SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
Schedule I Table for Calculation of Interest Rates and Commitment Fees
Exhibit A Permitted Liens
Exhibit B List of Fee Owned Restaurants
Exhibit C Subordinated Indebtedness
Exhibit D Form Note
Exhibit E State(s) of Incorporation of Subsidiaries
Exhibit F States in which Borrower and Subsidiaries are Qualified to Transact Business
Exhibit G Stock Ownership
Exhibit H Changes in Name, Principal Office, etc.
Exhibit I Addresses of Offices of Borrower and Subsidiary
Exhibit J Pending Litigation
Exhibit K Compliance with Laws
Exhibit L Existing Indebtedness
Exhibit M Leased Restaurant Facilities
Exhibit N Existing Investments
Exhibit O Insider Loans
Exhibit P Existing Sale/Leaseback Transactions
Exhibit Q Affiliated Transactions
Exhibit R Taylor Litigation Settlement Agreement
</TABLE>
<PAGE> 5
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
THIS AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made and
entered into as of this 8th day of December, 1997, by and among O'Charley's Inc.
(the "Borrower"), each of the undersigned Banks, NationsBank of Tennessee, N.A.,
individually and as Co-Agent, and First American National Bank (the "Agent"),
individually and as Agent for the Banks.
W I T N E S S E T H:
WHEREAS, pursuant to the terms of an Amended and Restated Revolving
Credit Agreement dated as of November 22, 1996 (the "Original Loan Agreement"),
by and between the Agent and the Banks (excluding First Union National Bank),
the Banks agreed to loan to the Borrower amounts not exceed $70,000,000, on a
revolving loan basis; and,
WHEREAS, Borrower has requested that the Agent and the Banks (including
First Union National Bank) increase the aggregate amount of the Loans available
to the Borrower from $70,000,000 to $100,000,000, and the Agent and the Banks
have agreed to such increase, subject to execution by Borrower, the Agent and
the Banks of this Amended and Restated Revolving Credit Agreement,
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and obligations herein contained, and each intending to be legally
bound hereby, the parties hereto hereby agree to amend and restate the Original
Loan Agreement as follows:
1. DEFINITIONS
As used herein:
"Accounts", "Chattel Paper", "Contracts", "Contract Rights",
"Documents", "Equipment", "Fixtures", "General Intangibles", "Goods",
"Instruments" and "Inventory" shall have the same respective meanings as are
given to those terms in the UCC.
"Adjusted Debt to Capitalization Ratio" means the Borrower's Funded
Debt plus eight (8) times the applicable Operating Lease Expense divided by
Funded Debt plus Net Worth plus eight (8) times the applicable Operating Lease
Expense.
"Affiliates" means as to any Person (a) any Person which, directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with such Person, or (b) any Person who is a director or
executive officer (i) of such Person, (ii) of any Subsidiary of such Person or
(iii) of any Person described in clause (a) above. For purposes of this
definition, "control" of a Person shall mean the power, direct or indirect, (i)
to vote or direct the voting of more than ten percent (10%) of the outstanding
shares of voting stock of such Person, or (ii) to direct or cause the direction
of the management and policies of such Person whether by contract or otherwise.
In no event shall any of the Banks be deemed to be Affiliates of the Borrower.
"Agent" means First American National Bank in its capacity as agent for
the Banks pursuant to Section 7 hereof, and not in its individual capacity as a
Bank, and any successor Agent appointed pursuant to Section 7.
1
<PAGE> 6
"Agreement" means this Amended and Restated Revolving Credit Agreement,
as it may be amended, restated, renewed or extended from time to time.
"Applicable Index Margin" means fifty basis points (.50%).
"Applicable LIBOR Margin" means the Applicable Margin calculated in
accordance with the table set forth in Schedule I to this Agreement.
"Bank" means each Bank listed on the signature pages of this Agreement
and their respective successors and assigns, including the Agent and Co-Agent in
each entity's individual capacity as a Bank, and "Banks" means all of such Banks
collectively.
"Borrowing Notice" means the Borrowing Notice delivered by Borrower in
accordance with Section 2.2 of this Agreement.
"Business Day" means any day on which the state banks and national
banking associations in Nashville, Tennessee are open for the conduct of
ordinary business.
"Closing" means the valid execution and delivery of the Notes and Loan
Documents to the Agent, or as the Banks otherwise direct.
"Co-Agent" means NationsBank of Tennessee, N.A.
"Commitment" means the respective obligation of each Bank, which is
several and not joint, to extend credit to the Borrower as set forth in Section
2.1 of this Agreement.
"Commitment Percentage" means each Bank's respective percentage of the
Total Commitments as set forth in Section 2.1 of this Agreement.
"Current Liabilities" means, at any time, all liabilities that, in
accordance with generally-accepted accounting principles, consistently applied,
should be classified as current liabilities on the balance sheet of the
Borrower.
"Default Rate" means the rate which is the lesser of (i) the rate which
is three percent (3%) per annum in excess of the applicable interest rate
payable on the Loans, or (ii) the Maximum Rate.
"EBITDA" means net earnings before interest expense, taxes,
depreciation, and amortization expense, less any extraordinary income generated
from nonrecurring events or from events not directly related to restaurant
operations.
"Environmental Laws" means the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA) and the Superfund Amendments and
Reauthorization Act (SARA); the Resource Conversation and Recovery Act (RCRA);
the Emergency Planning and Community Right to Know Act; the Clean Water Act
(Federal Water Pollution Control Act); the Safe Drinking Water Act; the Clean
Air Act; the Surface Mining Control and Reclamation Act; the Coastal Zone
Management Act; the Noise Control Act; the Occupational Safety and Health Act;
the Toxic Substances Control Act (TSCA); the Federal Insecticide, Fungicide and
Rodenticide Act (FIFRA); any so-called "Superfund" or "Superlien" law; or any
other federal, state or local statute, law, ordinance, code, rule regulation,
order, decree or other requirements of any governmental body
2
<PAGE> 7
regulating, relating to or imposing liability or standards of conduct concerning
any Hazardous Materials or toxic or dangerous chemical, waste, substance or
material.
"Eurodollar Interest Period" means, with respect to a Eurodollar Loan,
a period of 1, 2, 3, or 6 months commencing on a Business Day selected by
Borrower and designated in the Borrowing Notice, pursuant to Section 2.2 of this
Agreement. Such Eurodollar Interest Period shall end on the day in the last
calendar month of such period chosen by Borrower which corresponds numerically
to the beginning day of such Eurodollar Interest Period, provided, however, that
if there is no such numerically corresponding day in such month, such Eurodollar
Interest Period shall end on the last Business Day of such month. If the
Eurodollar Interest Period would otherwise end on a day which is not a Business
Day, such Eurodollar Interest Period shall end on the next succeeding Business
Day, provided, however, that if said next succeeding Business Day falls in a new
month, such Eurodollar Interest Period shall end on the immediately preceding
Business Day. Borrower may not elect any Eurodollar Interest Period that ends
later than the Loan Termination Date. Interest shall accrue from and including
the first day of a Eurodollar Interest Period to, but excluding the last day of
such Eurodollar Interest Period.
"Eurodollar Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Loan" means any Loan which bears interest based on the
LIBOR Rate.
"Eurodollar Rate Reserve Percentage" means the reserve percentage
applicable during any Eurodollar Interest Period (or if more than one such
percentage shall be so applicable, the daily average of such percentages for
those days in such Eurodollar Interest Period during which any such percentage
shall be so applicable) under regulations issued from time to time by the Board
of Governors of the Federal Reserve System (or any successor) for determining
the maximum reserve requirements (including, without limitation, any emergency,
supplemental, or other marginal reserve requirement) for any Bank with respect
to liabilities or assets consisting of or including Eurodollar Liabilities
having a term equal to such Eurodollar Interest Period.
"Event of Default" has the meaning set forth in Section 6.1.
"Facility A" means the $70,000,000 revolving line of credit facility
described in Section 2.1.
"Facility B" means the $30,000,000 revolving line of credit facility
described in Section 2.1.
"Financial Statements" means the balance sheet of the Borrower dated as
of October 5, 1997, and the statements of income and retained earnings of the
Borrower for the years or months ended on such date.
"Fixed Charges Coverage Ratio" means Borrower's EBITDA plus Rental
Expense divided by Rental Expense plus Proforma CMLTD plus interest expense.
"Floating Rate Loan" means any Loan which bears interest based on the
Index Rate.
"Funded Debt" means all indebtedness for money borrowed, purchase money
mortgages, capitalized leases, conditional sales contracts and similar title
retention debt instruments, including any current maturities of such
indebtedness. This calculation shall include all Funded Debt of other entities
or persons which has been guaranteed by the Borrower, or which is supported by a
letter of
3
<PAGE> 8
credit issued for the account of the Borrower. All outstanding standby
letters of credit issued for the account of the Borrower shall be excluded in
the Funded Debt definition. Funded Debt shall exclude those letters of credit
providing credit enhancement for obligations already counted in the Funded Debt
definition.
"Funded Debt to EBITDA Ratio" means Borrower's Funded Debt divided by
EBITDA.
"GAAP" means generally accepted accounting principles, consistently
applied.
"Hazardous Materials" means any hazardous, toxic or dangerous chemical,
substance, waste or material defined as such in any of the Environmental Laws.
"Indebtedness" means, as to the Borrower or any Subsidiary, all items
of indebtedness, obligation or liability, whether matured or unmatured,
liquidated or unliquidated, direct or contingent, joint or several, including
without limitation:
(A) All indebtedness guaranteed, directly or indirectly, in any manner,
or endorsed (other than for collection or deposit in the ordinary course of
business) or discounted with recourse;
(B) All indebtedness in effect guaranteed, directly or indirectly,
through agreements, contingent or otherwise: (1) to purchase such indebtedness;
or (2) to purchase, sell or lease (as lessee or lessor) property, products,
materials or supplies or to purchase or sell services, primarily for the purpose
of enabling the debtor to make payment of such indebtedness or to assure the
owner of the indebtedness against loss; or (3) to supply funds to or in any
other manner invest in the debtor;
(C) All indebtedness secured by (or for which the holder of such
indebtedness has a right, contingent or otherwise, to be secured by) any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance upon property owned or acquired subject thereto, whether or not the
liabilities secured thereby have been assumed; and
(D) All indebtedness incurred as the lessee of goods or services under
leases that, in accordance with GAAP, should not be reflected on the Borrower's
or any Subsidiary's balance sheet.
"Index Rate" means the reference or base rate established by the Agent
from time to time as the Index Rate for the Agent.
"Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs or decrees of any government or political subdivision or
agency thereof, or any court or similar entity established by any thereof.
"LIBOR Rate" means, with respect to any Eurodollar Loan, the interest
rate per annum (rounded upward, if necessary, to the next higher 1/100 of 1%),
at which dollar deposits approximately equal in the principal amount to the
applicable Eurodollar Loan and with a maturity comparable to the applicable
Eurodollar Interest Period are offered to first class banks in immediately
available funds in the London Interbank Market for U.S. Dollar Deposits at
approximately 12:00 Noon, Nashville time, two (2) Business Days prior to the
commencement of the applicable Eurodollar Interest Period, to be effective on
the date of commencement of the applicable Eurodollar Interest Period, as
determined by Agent, pursuant to the TELERATE reporting system.
4
<PAGE> 9
"Loan" means any funds which any Bank has advanced or will advance to
the Borrower on a revolving basis pursuant to its Commitment under Facility A or
Facility B, and shall include advances in the form of letters of credit issued
in accordance with the terms of this Agreement, and "Loans" means all such
advances by all Banks up to the aggregate amount of One Hundred Million and
00/100 Dollars ($100,000,000.00).
"Loan Documents" means this Agreement, the Notes, and any other
document executed or delivered by or on behalf of the Borrower or any Subsidiary
evidencing or securing the Obligations.
"Loan Termination Date" means the earlier of (i) the occurrence of an
Event of Default which is not waived by the Agent in accordance with the terms
of this Agreement, or (ii) November 30, 2000, in the case of Facility A, or
December 7, 1998, in the case of Facility B (or such later date as may be agreed
to by the Banks pursuant to Section 2.9 of this Agreement).
"Long-Term Debt" means that portion of Total Liabilities (including
capitalized leases) which constitute obligations for borrowed money and which
are not classified as Current Liabilities in accordance with generally-accepted
accounting principles consistently applied.
"Majority Banks" means Banks holding at least sixty-six and two-thirds
percent (66 2/3%) of the then aggregate unpaid principal amounts of the Notes
held by the Banks, or if no such principal amounts are outstanding, Banks having
at least sixty-six and two-thirds percent (66 2/3%) of the Total Commitments.
For purposes of determining the Majority Banks, $66,667,000.00 shall be deemed
to be 66 2/3% of the Total Commitments.
"Maximum Rate" means the maximum rate of interest permitted to be
charged by Agent under applicable laws in effect from time to time.
"Net Worth" means the sum of Stockholders' Equity, and, to the extent
not included in Stockholders' Equity, preferred stock and debt convertible to
capital stock of Borrower which is fully subordinated to the satisfaction of
Banks, plus minority interests.
"Note" means a promissory note or notes substantially in the form of
Exhibit D attached hereto, duly executed and delivered to the Agent by Borrower
and payable to the order of a Bank in the amount of its Commitment, including
any amendment, modification, renewal, extension, or replacement thereof, and
"Notes" means the Notes of each of the Banks collectively.
"Obligations" means the obligation of the Borrower:
(A) To pay the principal of and interest on the Notes in accordance
with the terms thereof and to satisfy all of its other liabilities to the Banks
hereunder, including, without limitation, obligations evidenced by applications
for letters of credit and other documents or instruments executed by Borrower in
connection with the issuance of letters of credit, whether now existing or
hereafter incurred, matured or unmatured, direct or contingent, joint or
severally, including any extensions, modifications, and renewals thereof and
substitutions therefore;
(B) To repay to the Banks all amounts advanced by the Banks hereunder
or otherwise on behalf of the Borrower; and
(C) To reimburse the Agent, on demand, for all of the Agent's
reasonable expenses and costs, including the reasonable fees and expenses of its
counsel, in connection with the enforcement
5
<PAGE> 10
of this Agreement and the documents required hereunder, including, without
limitation, any proceeding brought or threatened to enforce payment of any of
the Obligations referred to in the foregoing paragraphs (A) and (B); and
(D) To reimburse Agent for all legal costs and expenses incurred in
connection with the preparation of this Agreement and the other Loan Documents
and the consummation of the Loan transaction.
"Operating Lease Expense" means the minimum future operating lease
payment as designated in the Borrower's audited financial statements for the
fiscal year applicable in the following sequences: for the compliance
certificate due to the Agent in March (fiscal year end) and for the certificates
due in May, August and November (fiscal quarter ends), the appropriate minimum
future operating lease payment amount shall be the one designated in the most
recent audited financial statements for the specific year in which the
certificate is due.
"Permitted Liens" means:
(A) Liens described on Exhibit A hereof;
(B) Liens for taxes, assessments, or similar charges, incurred in the
ordinary course of business that are not yet delinquent;
(C) Pledges or deposits made in the ordinary course of business to
secure payment of workmen's compensation, or to participate in any fund in
connection with workmen's compensation, unemployment insurance, old-age pensions
or other social security programs;
(D) Liens of mechanics, materialmen, warehousemen, carriers, or other
like liens, securing obligations incurred in the ordinary course of business
that are not yet due and payable;
(E) Good faith pledges or deposits made in the ordinary course of
business to secure performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases, not in excess of ten percent (10%) of
the aggregate amount due thereunder;
(F) Encumbrances consisting of zoning restrictions, easements or other
similar use restrictions relating to the use of the Real Property that exist as
of the date hereof, and any such encumbrances that arise after the date hereof
that do not materially impair the use of the Real Property by the Borrower or
any Subsidiary in the operations of its business, and that are not violated in
any material respect by existing or proposed structures or land use; and
(G) Liens in favor of the Banks and/or Agent, or otherwise permitted by
the Majority Banks under Section 5.2(B).
"Person" means any individual, corporation, partnership, association,
joint-stock company, estate, trust, unincorporated organization, joint venture,
court or government or political subdivision or agency thereof.
"Proforma CMLTD" means proforma current maturities of Long Term Debt
compiled in accordance with GAAP for the four (4) fiscal quarters immediately
following the specified period.
6
<PAGE> 11
"Real Property" means the fee owned O'Charley's Restaurants listed on
Exhibit B attached hereto and made a part hereof, together with all future fee
owned O'Charley's Restaurants developed by the Borrower during the term of this
Agreement.
"Records" means correspondence, memoranda, tapes, books, discs, paper,
magnetic storage and other documents or information of any type, whether
expressed in ordinary or machine language.
"Rental Expense" means actual rental expenses paid on all operating
leases for the specified period.
"Stockholders' Equity" means, at any time, the aggregate of the
Subordinated Indebtedness plus the sum of the following accounts set forth in a
consolidated balance sheet of the Borrower and its Subsidiaries, prepared in
accordance with GAAP: (A) the par or stated value of all outstanding capital
stock; (B) capital surplus; and (C) retained earnings.
"Subordinated Indebtedness" means all Indebtedness incurred at any time
by the Borrower or any Subsidiary, the repayment of which is fully subordinated
to the Loans in form and manner satisfactory to the Banks. All existing
Subordinated Indebtedness is described in Exhibit C attached hereto.
"Subsidiary" means any corporation of which more than fifty percent
(50%) of the outstanding voting securities shall, at the time of determination,
be owned directly, or indirectly through one or more intermediaries, by the
Borrower.
"Total Commitments" means the aggregate of the several Commitments of
the Banks in the principal amount of up to One Hundred Million and 00/100
Dollars ($100,000,000.00), as set forth in Section 2 of this Agreement,
including the aggregate of the several Commitments as they may be reduced from
time to time.
"Total Liabilities" means all Indebtedness that, in accordance with
GAAP, should be classified as liabilities on a consolidated balance sheet of the
Borrower and its Subsidiaries.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of Tennessee, as it may be amended from time to time; provided that
if by reason of mandatory provisions of law, the perfection or the effect of
perfection or non-perfection of a security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than Tennessee, "UCC" means the Uniform Commercial Code as in effect in such
other jurisdiction for purposes of the provisions hereof relating to such
perfection or effect of perfection or non-perfection.
2. THE LOAN
2.1 The Commitments.
(A) The Borrower, the Agent and the Banks hereby agree that the terms
of the Original Loan Agreement are hereby terminated and replaced with the terms
and conditions set forth in this Agreement. Subject to the terms and conditions
of and relying on the representations, warranties and covenants contained in
this Agreement, for a period ending on the respective Loan
7
<PAGE> 12
Termination Date for each of Facility A and Facility B, each Bank agrees to fund
severally but not jointly to the Borrower up to the amount set out below
opposite their names, which for all of the Banks shall be the aggregate maximum
principal amount of up to One Hundred Million and 00/100 Dollars
($100,000,000.00). The maximum Commitment of each of the Banks and its
respective percentage of the Total Commitments (the "Commitment Percentage" of
each Bank) are as follows:
<TABLE>
<CAPTION>
Bank Commitment Amount Commitment Percentage
---- ----------------- ---------------------
Facility A Facility B Facility A Facility B
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
First American National Bank $17,500,000 $7,500,000 25% 25%
NationsBank of Tennessee, N.A. $17,500,000 $7,500,000 25% 25%
Mercantile Bank National Association $10,500,000 $4,500,000 15% 15%
Bank One, N.A. $14,000,000 $6,000,000 20% 20%
First Union National Bank of $10,500,000 $4,500,000 15% 15%
Tennessee
</TABLE>
(B) The Loans shall be evidenced by (i) the $17,500,000 Note of
Borrower to First American National Bank for Facility A and the $7,500,000 Note
of Borrower to First American National Bank for Facility B, (ii) the $17,500,000
Note of Borrower to NationsBank of Tennessee, N.A. for Facility A and the
$7,500,000 Note of Borrower to NationsBank of Tennessee, N.A. for Facility B,
(iii) the $10,500,000 Note of Borrower to Mercantile Bank National Association
for Facility A and the $4,500,000 Note of Borrower to Mercantile Bank National
Association for Facility B, (iv) the $14,000,000.00 Note of Borrower to Bank
One, N.A. for Facility A and the $6,000,000 Note of Borrower to Bank One, N.A.
for Facility B, and (v) the $10,500,000 Note of Borrower to First Union National
Bank for Facility A and the $4,500,000 Note of Borrower to First Union National
Bank for Facility B, which Notes are substantially in the form set forth in
Exhibit D attached hereto, with each Note payable in accordance with its terms.
The Borrower may obtain Loans, repay without penalty or premium (except that
Eurodollar Loans may only be prepaid at the end of the applicable Eurodollar
Interest Period) and reborrow hereunder, from the date of this Agreement until
the applicable Loan Termination Date either the full amount of the Total
Commitments, or any lesser sum which is (a) in the minimum amount of One Hundred
Thousand and 00/100 Dollars ($100,000.00) and in integral multiples of
$100,000.00 if in excess thereof for Floating Rate Loans, and (b) in the minimum
amount of Five Hundred Thousand and 00/100 Dollars ($500,000.00) and in integral
multiples of $500,000.00 if in excess thereof for Eurodollar Loans. Each of the
Loans hereunder shall be made by each Bank ratably in accordance with the ratio
that its respective Commitment Percentage bears to the amount of such Loan.
(C) The Loans made hereunder may be either Eurodollar Loans, Floating
Rate Loans, or a combination thereof.
2.2 Disbursement of the Loans.
(A) The Borrower shall give the Agent irrevocable notice (a "Borrowing
Notice") not later than 10:00 a.m. Nashville time on the day of disbursement of
Loans (other than Eurodollar Loans), or 1:00 p.m. Nashville time three (3)
Business Days prior to any requested disbursement of a Eurodollar Loan. Each
Borrowing Notice shall be written and may be made by telecopier, telex or cable
in addition to the means set forth for giving notice in Section 8.5. Each
Borrowing Notice shall specify the requested date of such requested
disbursement, the aggregate amount of such disbursement, the type of Loan
(Floating Rate Loan or Eurodollar Loan), and if a Eurodollar Loan, the
designated Eurodollar Interest Period. Agent shall promptly provide each Bank
with copies of each Borrowing Notice. Not later than noon Nashville time on each
disbursement date, and subject
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<PAGE> 13
to the terms and conditions hereof, each Bank shall make available to the Agent
at Agent's address specified hereafter such Bank's ratable portion of such Loan
in accordance with its respective Commitment Percentage in funds immediately
available in Nashville. All requests for disbursements shall be first funded
under Facility A until all availability under Facility A is utilized and then
under Facility B. No Bank shall be required to advance funds under either
Facility A or Facility B in excess of such Bank's Commitment Percentage. The
Agent will credit the proceeds of the Loans to the Borrower's deposit account
with the Agent on the same Business Day on which the Agent receives the proceeds
of each Bank's advances. Each such Borrowing Notice shall obligate the Borrower
to accept the disbursement of the Loans requested thereby.
(B) The Borrower shall have the right at any time, on prior irrevocable
written or telefaxed notice to the Agent, to convert any Floating Rate Loan into
a Eurodollar Loan, to convert a Eurodollar Loan into a Floating Rate Loan, or to
continue any Eurodollar Loan for a subsequent Eurodollar Interest Period
(specifying in each case the Eurodollar Interest Period to be applicable
thereto), subject in each case to the following:
(1) The irrevocable notice to convert a Loan to a Eurodollar Loan,
or to continue a Eurodollar Loan, must be received by Agent not later than 1:00
p.m., Nashville time, three (3) days prior to the requested conversion date;
(2) No Eurodollar Loan shall be converted or prepaid at any time
other than at the end of the Eurodollar Interest Period applicable thereto;
(3) Each conversion shall be effected by applying the proceeds of
the new Eurodollar or Floating Rate Loan, as the case may be, to the Loan (or
portion thereof) being converted;
(4) The number of Eurodollar Loans outstanding at any one time
shall not exceed eight (8).
Each notice pursuant to this subsection shall be irrevocable and shall
refer to this Agreement and specify (i) the identity and principal amount of the
particular Loan that the Borrower requests to be converted or continued, (ii) if
such notice requests conversion, the date of conversion (which shall be a
Business Day), and (iii) if a Loan is to be converted to a Eurodollar Loan, or a
Eurodollar Loan is to be continued, the Eurodollar Interest Period with respect
thereto. In the event that the Borrower shall not give notice to continue any
Eurodollar Loan for a subsequent period, such Loan (unless repaid) shall
automatically be converted into a Floating Rate Loan. If the Borrower shall fail
to specify in the Borrowing Notice the type of borrowing, or, in the case of a
Eurodollar Loan, the applicable Eurodollar Interest Period, the Borrower will be
deemed to have requested a Floating Rate Loan. If Agent reasonably believes that
any failure by Borrower to specify the type of borrowing or the applicable
Eurodollar Interest Period shall have resulted from failure of communications
equipment or clerical error, then prior to funding any such borrowing, the Agent
shall use reasonable efforts to obtain confirmation from Borrower of the
contents of such Borrowing Notice; however, in the absence of confirmation by
Borrower, which specifies the type of borrowing and the applicable Eurodollar
Interest Period, the Borrower will be deemed to have requested a Floating Rate
Loan. Notwithstanding anything to the contrary contained above, if an Event of
Default shall have occurred and be continuing, no Eurodollar Loan may be
continued, and no Floating Rate Loan may be converted into a Eurodollar Loan.
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<PAGE> 14
(C) The failure of any Bank to make any advances hereunder pursuant to
its Commitment upon Agent's receipt of a proper Borrowing Notice shall not
relieve any other Bank of its obligation, if any, hereunder to make its advances
pursuant to its Commitment and such Borrowing Notice. However, no Bank shall be
responsible for any other Bank's failure or refusal to make any advances
pursuant to such other Bank's Commitment and such Borrowing Notice.
2.3 Upfront Fee.
A fee equal to .10% of the $30,000,000 portion of the Total Commitments
for Facility B shall be paid by the Borrower to the Agent upon execution of this
Agreement, for the account of each of the Banks, increasing its Commitment
Amount to make funds available to Borrower under Facility B, such fee to be
distributed to such Banks as follows:
<TABLE>
<CAPTION>
Bank Amount
---- ------
<S> <C>
First American $ 5,000
NationsBank $ 5,000
BankOne $ 5,000
First Union $15,000
</TABLE>
2.4 Facility Fee.
(A) Facility A - From and after the date hereof, until the Loan
Termination Date for Facility A, the Borrower shall pay to the Agent for the
account of the Banks a Facility Fee per annum equal to $70,000,000 multiplied by
the applicable fee percentage set forth in the Table attached to this Agreement
as Schedule I. For purposes of calculating the Facility Fee, standby letters of
credit issued by the Banks for the account of Borrower under Facility A shall be
deemed to be a disbursement under Facility A. The Facility Fee for Facility A
shall be payable quarterly, in arrears, on the first Business Day following each
fiscal quarter end, the first such payment being due on December 30, 1997. Any
accrued and unpaid Facility Fee for Facility A shall be paid on the Loan
Termination Date for Facility A.
(B) Facility B - From and after the date hereof, until the Loan
Termination Date for Facility B, the Borrower shall pay to the Agent for the
account of the Banks, an annual Facility Fee equal to $30,000,000 multiplied by
0.125% per annum. The Facility Fee for Facility B shall be payable quarterly, in
arrears, on the first Business Day following each fiscal quarter-end, the first
such payment being due on December 30, 1997. Any accrued and unpaid Facility Fee
for Facility B shall be paid on the Loan Termination Date for Facility B.
2.5 The Agent's Fee.
The Borrower shall pay an annual Agent's Fee to the Agent, in
accordance with a Letter Agreement dated September 26, 1997, between the
Borrower and the Agent, the terms of which are incorporated herein by reference.
2.6 Reduction of Commitment.
The Borrower shall have the right to reduce the amount of the Total
Commitments, at any time and from time to time, in any integral multiple of
$1,000,000.00, which reduction shall reduce each Bank's Commitment pro rata in
accordance with its Commitment Percentage.
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<PAGE> 15
Contemporaneously with each such reduction, the Borrower shall repay to the
Agent for the account of each Bank in accordance with its respective Commitment
Percentage the amounts, if any, by which the then outstanding principal balance
of each Note exceeds each Commitment as so reduced. After each such reduction:
(i) the next Commitment Fee due in accordance with Section 2.4 shall be
calculated taking into account the date on which the Total Commitments are so
reduced; and (ii) the Total Commitments may not be increased without the written
consent of the Banks.
2.7 Interest Rate and Payments of Interest.
(A) Interest shall be charged and paid on Loans as follows:
(1) For a Floating Rate Loan, at a floating rate per annum equal
to the Index Rate minus the Applicable Index Margin, said rate to change
contemporaneously with any change in the Index Rate.
(2) For a Eurodollar Loan, at a rate per annum equal to the LIBOR
Rate plus the Applicable LIBOR Margin in accordance with the Table attached
hereto as Schedule I, said rate to adjust to reflect changes in the LIBOR Rate
or the Applicable LIBOR Margin.
(3) The Borrower shall pay to the Banks, if and so long as any
Banks shall be required under regulations of the Board of Governors of the
Federal Reserve System, to maintain reserves with respect to liabilities or
assets consisting of or including Eurodollar Liabilities, additional interest on
the unpaid principal amount of each Eurodollar Loan, from the date of such
advance until such principal amount is paid in full, at an interest rate per
annum equal at all times to the remainder obtained by subtracting (i) the LIBOR
Rate plus the Applicable LIBOR Margin for the Eurodollar Interest Period from
(ii) the rate obtained by dividing the LIBOR Rate plus the Applicable LIBOR
Margin by a percentage equal to 100% minus the Eurodollar Rate Reserve
Percentage for such Eurodollar Interest Period, payable on each date on which
interest is payable. Such additional interest shall be determined by each Bank,
which shall so notify Borrower thereof.
(4) The interest for Floating Rate Loans and Eurodollar Loans
shall be computed on the basis of a 360-day year, counting the actual number of
days elapsed, and shall be due and payable without notice (i) monthly in arrears
on the first day of each consecutive month commencing January 1, 1998, in the
case of Floating Rate Loans, and (ii) at the end of the applicable Eurodollar
Interest Period for each Eurodollar Loan.
(5) Notwithstanding the foregoing, upon the occurrence and
continuation of an Event of Default, interest may be charged at the Default Rate
set forth in the Notes, if the Majority Banks have so elected, but regardless of
whether the Majority Banks have elected to exercise any other remedies under
Section 6 hereof, including without limitation acceleration of the maturity of
the outstanding principal of the Notes. All such interest shall be paid at the
time of and as a condition precedent to the curing of any such default to the
extent any right to cure is given.
(B) If, at any time, the interest rate payable under the Notes shall be
deemed by any competent court of law, governmental agency or tribunal to exceed
the maximum rate of interest permitted by any applicable Laws, for such time as
such interest rate would be deemed excessive, its application shall be suspended
and there shall be charged instead the maximum rate of interest permissible
under such Laws.
2.8 Payments to the Agent.
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<PAGE> 16
(A) The Agent shall send the Borrower statements of all amounts due
hereunder, which statements shall be considered correct and conclusively binding
on the Borrower unless the Borrower notifies the Agent to the contrary within
ten (10) days of its receipt of any statement which it deems to be incorrect.
All sums payable to the Banks hereunder shall be paid directly to the Agent for
the account of each Bank in immediately available funds prior to 12:00 noon,
Nashville time, on the date when such sums are due and payable. Any amounts
received by the Agent prior to 12:00 noon Nashville time on any Business Day
shall be deemed to have been received by all Banks on such Business Day, and any
amounts received by Agent after such time shall be deemed to have been received
by all Banks on the next Business Day.
(B) Each payment made to the Agent on the Notes or for other sums or
fees due hereunder for the account of the Banks shall be properly remitted by
the Agent to each Bank, pro rata in accordance with the outstanding unpaid
principal amount of the Notes held by each Bank, no later than 2:00 p.m.
Nashville time on the date on which Agent receives such payment.
(C) Borrower shall give Agent two (2) Business Days notice of payments
of principal and/or interest other than interest payments on a regularly
scheduled payment date set forth in the Notes. Principal payment amounts shall
be in a minimum amount of $100,000.00 for Floating Rate Loans and $500,000.00
for Eurodollar Loans.
2.9 Extension of Loan Termination Date.
Provided no Default exists under this Agreement, and provided Borrower
has not instructed Agent, in writing, to the contrary, on or before the date
which is sixty (60) days prior to the anniversary date of this Agreement
(beginning with the first anniversary date), the Agent shall submit a written
request to the Banks, requesting the Banks' approval to extend the Loan
Termination Date for Facility A and/or Facility B for one (1) year (364 days in
the case of Facility B). Subject to the approval of all of the Banks to such
extension of the Loan Termination Date, the Loan Termination Date shall be
extended (i) for one (1) year in the case of Facility A, and (ii) 364 days in
the case of Facility B, and the Agent shall so notify the Borrower in writing of
such extension. To the extent the Agent has not notified the Borrower, in
writing, within sixty (60) days following the anniversary date of this Agreement
(beginning with the first anniversary date), that the Loan Termination Date for
Facility A and/or Facility B has been extended, the request of the Agent to
extend the Loan Termination Date, as provided for in this Section 2.9, shall be
deemed to be denied.
2.10 Alternate Rate of Interest.
(A) In the event, and on such occasion, that on the date of
commencement of any Eurodollar Interest Period for a Eurodollar Loan, any Bank
shall have reasonably determined:
(1) That dollar deposits in the amount of the requested principal
amount of such Eurodollar Loan are not generally available to first-class banks
in the London Interbank Market;
(2) That the rate at which such dollar deposits are being offered
will not adequately and fairly reflect the cost to such Bank of making or
maintaining such Eurodollar Loan during such Eurodollar Interest Period; or
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<PAGE> 17
(3) That reasonable means do not exist for ascertaining the LIBOR
Rate generally, such Bank shall, as soon as practicable thereafter, given
written or telephonic notice of such determination to the Borrower. In the event
of any such determination, any request by the Borrower for a Eurodollar Loan
pursuant to Section 2.2 shall, until the circumstances giving rise to such
notice no longer exist, be deemed to be a request for a Floating Rate Loan. Each
determination by the Banks hereunder shall be conclusive absent manifest error.
2.11 Change in Circumstances.
(A) Notwithstanding any other provision herein, if after the date of
this Agreement any change in applicable Laws or regulations or in the
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof (whether or not having the
force of law) shall change the basis of taxation of payments to a Bank under any
Eurodollar Loan made by a Bank or any other fees or amounts payable hereunder
(other than taxes imposed on the overall net income of a Bank by the country in
which a Bank is located, or by the jurisdiction in which a Bank has its
principal office, or by any political subdivision or taxing authority therein),
or shall impose, modify, or deem applicable any reserve requirement, special
deposit, insurance charge (including FDIC insurance on Eurodollar deposits) or
similar requirements against assets of, deposits with or for the account of, or
credit extended by, such Bank or shall impose on such Bank or the London
Interbank Market any other condition affecting this Agreement or Eurodollar
Loans made by such Bank, and the result of any of the foregoing shall be to
increase the cost to the Bank of making or maintaining its Eurodollar Loan or to
reduce the amount of any sum received or receivable by such Bank for any of its
Eurodollar Loans hereunder (whether of principal, interest or otherwise) by an
amount reasonably deemed by the Bank to be material, then the Borrower will pay
to such Bank such additional amount or amounts as will reasonably compensate
such Bank for such additional costs.
(B) If either:
(1) The introduction of, or any change in, or in the
interpretation of, any United States or foreign law, rule or regulation; or
(2) Compliance with any directive, guidelines or request from any
central bank or other United States or foreign governmental authority (whether
or not having the force of law) promulgated or made after the date hereof (but
excluding, however, any law, rule, regulation, interpretation, directive,
guideline or request contemplated by or resulting from the report dated July,
1988, entitled "International Convergence of Capital Measurement and Capital
Standards" issued by the Basic Committee on Banking Regulations and Supervisory
Practices), affects or would affect the amount of capital required or expected
to be maintained by any Bank (or any lending office of any Bank) or any
corporation directly or indirectly owning or controlling any Bank (or any
lending office of any Bank) based upon the existence of this Agreement, and such
Bank shall have determined that such introduction, change or compliance has or
would have the effect of reducing the rate of return on such Bank's capital or
on the capital of such owning or controlling corporation as a consequence of its
obligations hereunder (including its Commitment) to a level below that which
such Bank or such owning or controlling corporation could have achieved but for
such introduction, change or compliance (after taking into account that such
Bank's policies or the policies of such owning or controlling corporation, as
the case may be, regarding capital adequacy) by an amount deemed by such Bank
(in its sole discretion) to be material, then the Borrower will pay to such Bank
such additional amount or amounts as will compensate the Bank for such reduction
attributable to making, funding and maintaining its Commitment and Loans
hereunder.
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<PAGE> 18
(C) A certificate of any Bank setting forth such amount or amounts as
shall be necessary to compensate such Bank (or its participating banks or other
entities pursuant to this Agreement), as specified in paragraph (A) or (B)
above, as the case may be, shall be delivered to the Borrower and shall be
conclusive absent manifest error; provided, however, that the Borrower shall be
responsible for compliance herewith and the payment of increased costs only to
the extent:
(1) Any change in Laws giving rise to increased costs occurs
after the date of this Agreement, and such change or actions are generally
applicable to financial institutions similarly situated to the Banks; and
(2) Such costs arise or accrue after the day that is one hundred
eighty (180) Business Days after the date on which such Bank provides the
Borrower with written notice specifying the change or event giving rise to such
increased costs.
Subject to the foregoing, the Borrower shall pay the affected Bank the amount
shown as due on any such certificate within ten (10) days after its receipt of
such certificate.
(D) The protection of this Section 2.11 shall be available to the Banks
regardless of any possible contention of invalidity or inapplicability of the
law, regulation or condition that shall have been imposed.
2.12 Change in Legality.
(A) Notwithstanding anything to the contrary herein contained, if any
change in any law or regulation or in interpretation thereof by any governmental
authority charged with the administration or interpretation thereof shall make
it unlawful for any Bank to make or maintain any Eurodollar Loan or to give
effect to its obligations to make Eurodollar Loans as contemplated hereby, then,
by written notice to the Borrower, such Bank may:
(1) Declare that Eurodollar Loans will not thereafter be made by
such Bank hereunder, whereupon the Borrower shall be prohibited from requesting
Eurodollar Loans from the Banks hereunder unless such declaration is
subsequently withdrawn; and
(2) Require that all outstanding Eurodollar Loans made by it be
converted to Floating Rate Loans, in which event (a) all such Eurodollar Loans
shall be automatically converted to Floating Rate Loans as of the effective date
of such notice as provided in paragraph (B) below, and (b) all payments and
prepayments of principal that would otherwise have been applied to repay the
converted Eurodollar Loans shall instead be applied to repay the Floating Rate
Loans resulting from the conversion of such Eurodollar Loans.
(B) For purposes of this Section 2.12, a notice to the Borrower by any
Bank, pursuant to (A) above, shall be effective, if lawful, on the last day of
the then current Eurodollar Interest Period; in all other cases, such notice
shall be effective on the date of receipt by the Borrower.
2.13 Letters of Credit.
Subject to availability under the Commitments, Borrower's satisfaction
of other conditions for obtaining an advance under the Commitments, and the
provisions of this Section 2.13, upon
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<PAGE> 19
request of Borrower, Agent shall issue standby letters of credit for Borrower's
account. Each Bank shall have an obligation to reimburse Agent for such Bank's
prorata share of any amounts due from Borrower in connection with draws under
standby letters of credit issued by Agent pursuant to this Agreement. In
connection with standby letters of credit issued for the account of the
Borrower, the Borrower agrees to execute such letter of credit applications and
other documents and instruments as Agent reasonably deems necessary in
connection with the issuance of such letters of credit. The expiration date for
each letter of credit issued hereunder shall not exceed the earlier of (i) one
(1) year from the date the letter of credit is issued, or (ii) the applicable
Loan Termination Date (as the same may be extended). As reasonable compensation
to the Banks for reserving the funds necessary to issue letters of credit to the
Borrower, the Borrower shall pay to the Agent for the benefit of the Banks a
letter of credit fee equal to one percent (1%) of the face amount of each letter
of credit issued under this Agreement. Such letter of credit fee shall be due
and payable at the time the letter of credit is issued. The aggregate amount of
all standby letters of credit as may be outstanding from time to time under this
Agreement shall not exceed $5,000,000.
3. CONDITIONS PRECEDENT
The obligation of the Banks to fund the Loans hereunder is subject to
the following conditions precedent:
3.1 Documents Required for the Closing.
The Borrower shall have delivered to the Agent prior to the initial
disbursement of the Loans the following:
(A) The Notes executed by the Borrower;
(B) This Agreement executed by the Borrower;
(C) A copy of resolutions of the Borrower's board of directors,
certified by the corporate secretary of Borrower as of the date of Closing,
authorizing the execution, delivery and performance of this Agreement, the
Notes, the other Loan Documents, and each other document to be delivered
pursuant hereto;
(D) A copy, certified as of the most recent date practicable, by
the Secretary of State of Tennessee, of the Borrower's Charter, together with a
certificate dated the date of the Closing of the Borrower's corporate secretary
to the effect that such Charter has not been amended since the date of the
aforesaid Secretary of State certification;
(E) A copy of the Borrower's by-laws certified by Borrower's
secretary as of the date of the Closing;
(F) A certificate dated as of the date of the Closing of the
Borrower's corporate secretary as to the incumbency and signatures of the
officers of the Borrower executing this Agreement, the Notes, the other Loan
Documents, and each other document to be delivered pursuant hereto;
(G) Within thirty (30) days of the Closing, certificates, as of
the most recent dates practicable, of the aforesaid Secretary of State, the
Secretary of State of each state in which the
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<PAGE> 20
Borrower is qualified as a foreign corporation and of the department of revenue
or taxation of each of the foregoing states as to the good standing of the
Borrower;
(H) A written opinion of Bass, Berry & Sims, PLC, the Borrower's
counsel, dated the date of the Closing and addressed individually to each Bank,
in form reasonably satisfactory to the Banks.
(I) A certificate, dated as of the date of the Closing, signed by the
chief executive officer, chief financial officer or secretary/treasurer of the
Borrower (in his or her corporate capacity) and to the effect that:
(1) The representations and warranties set forth within Section
4.1 are true as of the date of the Closing;
(2) No Event of Default hereunder, and no event which, with the
giving of notice or passage of time or both, would become such an Event of
Default, has occurred as of such date;
(J) Copies of all documents evidencing the terms and conditions of any
debt specified as Subordinated Indebtedness on Exhibit C, all of which shall be
in form and substance satisfactory to Banks;
(K) Payment of the remaining balance of the Upfront Fee, together with
the initial Agent's Fee, together with all other reasonable costs and expenses
incurred by Agent in connection with the Loan, including, without limitation,
reasonable attorney's fees. The Banks acknowledge that Borrower shall be
responsible only for fees and expenses of counsel engaged by Agent in connection
with the Loan. Any additional legal fees or expenses incurred by the other Banks
shall be paid by such Banks.
3.2 Conditions Precedent for Subsequent Disbursements.
The obligation of the Banks to fund Loans hereunder is subject to the
fulfillment of each of the following conditions:
(A) The Agent shall have received the notices required by Section 2.2
of this Agreement with respect to any Loan.
(B) All the representations and warranties of the Borrower under this
Agreement shall be true and correct, in substantially all respects at the time
of such Loan.
(C) No Event of Default shall have occurred and be continuing, and no
event has occurred and is continuing that, with the giving of notice or passage
of time or both, would be an Event of Default; and
(D) No material adverse change shall have occurred in the financial
condition of Borrower and its Subsidiaries taken as a whole, since the date of
the most recent Financial Statements delivered to Agent.
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<PAGE> 21
3.3 Legal Matters.
At the time of the Closing and thereafter, all legal matters incidental
to the Loans shall be satisfactory to Sherrard & Roe, PLC, counsel to the Agent.
4. REPRESENTATIONS AND WARRANTIES
4.1 Original.
To induce the Banks to enter into this Agreement, the Borrower and each
Subsidiary jointly and severally represent and warrant to each Bank as follows:
(A) The Borrower is a corporation duly organized, validly existing and
in good standing under the Laws of the State of Tennessee; each Subsidiary is a
corporation duly organized, validly existing and in good standing under the Laws
of its state of incorporation, all as set forth in Exhibit E; the Borrower and
each Subsidiary have the lawful power to own their properties and to engage in
the business they conduct, and each is duly qualified and in good standing as a
foreign corporation in the jurisdictions wherein the nature of the business
transacted by it or property owned by it makes such qualification necessary; the
states in which the Borrower and each Subsidiary are qualified to do business
are set forth in Exhibit F; the percentage of the Borrower's ownership of the
outstanding stock of each Subsidiary is as listed in Exhibit G; neither the
Borrower nor any Subsidiary has changed its name, been the surviving corporation
in a merger, acquired any business, or changed its principal executive office
since April 21, 1994, except as set forth in Exhibit H; and the addresses of all
places of business of the Borrower and each Subsidiary are as set forth in
Exhibit I;
(B) Neither the Borrower nor any Subsidiary is in material default with
respect to any of its existing Indebtedness, and the making and performance of
this Agreement, the Notes and the other Loan Documents will not (immediately; or
with the passage of time or the giving of notice, or both):
(1) Violate the charter or bylaw provisions of the Borrower or
any Subsidiary, or violate any Laws or result in a default under any contract,
agreement, or instrument to which the Borrower or any Subsidiary is a party or
by which the Borrower or any Subsidiary or its property is bound; or
(2) Result in the creation or imposition of any security interest
in, or lien or encumbrance upon, any of the assets of the Borrower or any
Subsidiary;
(C) The Borrower has the power and authority to enter into and perform
this Agreement, the Notes and the other Loan Documents, as applicable, and to
incur the Obligations herein and therein provided for, and has taken all
corporate action necessary to authorize the execution, delivery, and performance
of this Agreement, the Notes and the other Loan Documents;
(D) This Agreement and the other Loan Documents are, and the Notes when
delivered will be, valid, binding, and enforceable in accordance with their
respective terms;
(E) Except as disclosed in Exhibit J hereto, there is no pending or, to
Borrower's knowledge, threatened order, notice, claim, litigation, proceeding or
investigation against or
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<PAGE> 22
affecting the Borrower or any Subsidiary, whether or not covered by insurance,
that would involve the payment by Borrower or any Subsidiary of Two Hundred
Fifty Thousand Dollars ($250,000.00) or more if adversely determined (upon
request by the Agent, the Borrower shall provide the Agent with copies of all
pleadings and other documents filed in any of the matters disclosed in Exhibit
J);
(F) The Borrower and its Subsidiaries have good and marketable title to
all of their respective assets, including without limitation the Real Property,
and the Real Property is subject to no security interest, encumbrance or lien,
or the claims of any other Person except for Permitted Liens;
(G) The Financial Statements, including any schedules and notes
pertaining thereto, have been prepared in accordance with GAAP, and fully and
fairly present in all material respects the financial condition of the Borrower
and its Subsidiaries at the dates thereof and the results of operations for the
periods covered thereby, and there have been no material adverse changes in the
financial condition or business of the Borrower and its Subsidiaries taken as a
whole from October 5, 1997, to the date hereof;
(H) Since October 5, 1997, the Borrower and its Subsidiaries had no
material Indebtedness of any nature, including, but without limitation,
liabilities for taxes and any interest or penalties relating thereto, except to
the extent reflected (in a footnote or otherwise) and reserved against in the
Financial Statements dated October 5, 1997, or as disclosed in or permitted by
this Agreement; the Borrower does not know, and has no knowledge of any basis
for the assertion against it or any Subsidiary, of any material Indebtedness of
any nature not fully reflected and reserved against in the Financial Statements;
(I) Except as otherwise permitted herein, the Borrower and its
Subsidiaries have filed all federal, state and local tax returns and other
reports they are required by Laws to file prior to the date hereof and which are
material to the conduct of their respective businesses, have paid or caused to
be paid all taxes, assessments and other governmental charges that are due and
payable prior to the date hereof, and have made adequate provision for the
payment of such taxes, assessments or other charges accruing but not yet
payable; the Borrower has no knowledge of any deficiency or additional
assessment in a materially important amount in connection with any taxes,
assessments or charges not provided for on its books;
(J) Except as otherwise disclosed in Exhibit K hereto, or except to the
extent that the failure to comply would not materially interfere with the
conduct of the business of the Borrower and its Subsidiaries taken as a whole,
the Borrower and its Subsidiaries have complied, in all material respects, with
all applicable Laws with respect to: (1) any restrictions, specifications, or
other requirement pertaining to products that the Borrower or any Subsidiary
sells or to the services each performs; (2) the conduct of their respective
businesses; (3) the use, maintenance, and operation of the Real Property and the
personal properties owned or leased by them, in the conduct of their respective
businesses; and (4) health, safety, worker's compensation, and equal employment
opportunity;
(K) The Borrower and its Subsidiaries and their respective assets and
operations are in compliance in all material respects with all Environmental
Laws, and the Borrower and its Subsidiaries will comply, in all material
respects, with all such Environmental Laws and regulations which may be imposed
in the future; all facilities and properties of the Borrower and its
Subsidiaries are and will be on the date of Closing, in all material respects,
in a clean and healthful condition, free of asbestos and of all contamination by
Hazardous Materials and other potentially harmful chemical
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<PAGE> 23
or physical conditions, including, without limitation, any contamination of the
air, soil, groundwater or surface waters associated with such facilities and
properties; there are no storage tanks (whether above or below ground) located
in or on such facilities and properties; no Hazardous Materials intended for use
or generated at any such facilities or properties have been or are used, stored
treated or disposed of in violation of applicable Laws and regulations; all
Hazardous Material which have been removed, released or emitted from any of such
facilities or properties were and are documented, transported and disposed of in
compliance in all material respects with all applicable Laws and regulations;
and neither the Borrower nor any Subsidiary is a defendant in any administrative
or judicial action alleging liability under the Comprehensive Environmental
Response, Compensation and Liability Act, as amended ("CERCLA"), or any other
Environmental Law, nor has the Borrower or any Subsidiary received a notice that
it is a potentially responsible party under CERCLA, similar state Laws, or any
other Environmental Law;
(L) No representation or warranty by the Borrower or any Subsidiary
contained herein or in any Exhibit furnished by the Borrower or any Subsidiary
pursuant to this Agreement contains any untrue statement of material fact or
omits to state a material fact necessary to make such representation or warranty
not misleading in light of the circumstances under which it was made;
(M) Each consent, approval or authorization of, or filing, registration
or qualification with, any Person required to be obtained or effected by the
Borrower or any Subsidiary in connection with the execution and delivery of the
Loan Documents or the undertaking or performance of any obligation thereunder
has been duly obtained or effected;
(N) All existing Indebtedness of the Borrower or any Subsidiary: (1)
for money borrowed; or (2) under any security agreement, mortgage, or agreement
covering the lease of real or personal property by the Borrower or any
Subsidiary as lessee, is described in Exhibit L;
(O) All lease agreements for restaurant facilities operated by Borrower
are described on Exhibit M hereto;
(P) Neither the Borrower nor any Subsidiary has made any agreement or
has taken any action which may cause anyone to become entitled to a commission
or finder's fee as a result of the making of the Loans;
(Q) All Defined Benefit Pension Plans, as defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), of the Borrower
and each Subsidiary meet, as of the date hereof, the minimum funding standards
of Section 302 of ERISA, and no Reportable Event or Prohibited Transaction, as
defined in ERISA, has occurred with respect to any such Plan.
4.2 Survival.
All of the representations and warranties set forth in Section 4.1
shall survive until all Obligations are satisfied in full.
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5. THE BORROWER'S COVENANTS
The Borrower does hereby covenant and agree with each Bank that, so
long as any of the Obligations remain unsatisfied, it will comply, and it will
cause its Subsidiaries to comply, with the following covenants:
5.1 Affirmative Covenants.
(A) The Borrower will use the proceeds of the Loans only for general
working capital needs and to provide interim financing for acquisition and
development of O'Charley's Restaurant facilities. Loan proceeds will not be used
for any purpose other than as specifically permitted by this Section 5.1(A),
without first obtaining the consent of the Majority Banks.
(B) The Borrower will furnish the Agent:
(1) Within forty-five (45) days after the close of each
quarter-annual accounting period in each fiscal year of Borrower: (a) quarterly
10-Q financial statements; and (b) income statement and balance sheet of the
Borrower for such quarter-annual period. All financial statements shall be in
reasonable detail, subject to year-end audit adjustments and certified by the
Borrower's president or principal financial officer to have been prepared in
accordance with GAAP, except for any inconsistencies explained in such
certificate;
(2) Within ninety (90) days after the close of each fiscal year
of Borrower: (a) annual audited financial statements of the Borrower as of the
end of such fiscal year--all in reasonable detail, including all supporting
schedules, notes and comments, and (b) an annual forecast prepared by Borrower
including a balance sheet, income statement and statement of cash flows, to be
in form and to contain reasonable detail satisfactory to the Banks. The annual
statements shall be audited by an independent certified public accountant
selected by the Borrower and reasonably acceptable to the Agent, and certified
by such accountants to have been prepared in accordance with GAAP, except for
any inconsistencies explained in such certificate. The Banks, shall have the
right, from time to time, to discuss the Borrower's affairs directly with the
Borrower's independent certified public accountants after notice to the Borrower
and opportunity of the Borrower to be present at any such discussions. So long
as Borrower is not in default, the Banks agree to coordinate discussions with
the Borrower's accountants so as to minimize the additional expense incurred;
(3) Contemporaneously with each quarter-annual and fiscal
year-end financial report required by the foregoing paragraphs (1) and (2), a
certificate of the chief executive officer, chief financial officer or
secretary/treasurer of the Borrower (in his or her corporate capacity) stating
that: (i) such officer has individually reviewed the provisions of this
Agreement and is knowledgeable of the activities of the Borrower and its
Subsidiaries during such year or quarter-annual period, as the case may be; and
(ii) to the best of such officer's knowledge, the Borrower has observed and
performed, in all material respects, each undertaking contained in this
Agreement and is not in default in the observance or performance of any of the
provisions hereof or, if the Borrower shall be so in default, specifying all
such defaults and events of which he or she may have knowledge. Such certificate
shall further set forth the calculations of the financial ratios and covenants
set forth in Section 5.1(F), including without limitation any antecedent
calculations and the source of any information that was used in such
calculations;
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(4) Promptly after the sending or making available or filing of
the same, copies of all reports, proxy statements, annual reports, and financial
statements that the Borrower sends or makes available to its stockholders
generally and all registration statements and reports that the Borrower files
with the Securities and Exchange Commission or any successor Person; and
(5) Immediately upon receipt of the same by Borrower or any
Subsidiary, copies of all management letters and any other reports which are
submitted to the Borrower or any of its Subsidiaries by its independent
accountants in connection with any annual or interim audit of the Records of the
Borrower or its Subsidiaries by such accountants.
Agent shall promptly forward to the Banks copies of all items delivered to Agent
under this paragraph (B).
(C) The Borrower and its Subsidiaries will maintain their respective
Inventory, Equipment, Real Property and other properties in as good condition
and repair as exist on this date (normal wear and tear excepted), and will pay
and discharge or cause to be paid and discharged prior to delinquency, the cost
of repairs to or maintenance of the same, and will pay or cause to be paid all
rental or mortgage payments prior to delinquency on such Equipment.
(D) The Borrower and its Subsidiaries will maintain, or cause to be
maintained, public liability insurance and fire and extended coverage insurance
on all assets owned by them, all in such form and amounts as are consistent with
industry practices and with such insurers as may be reasonably satisfactory to
the Banks. The Borrower will furnish to the Agent such evidence of insurance as
the Banks may require.
(E) The Borrower and its Subsidiaries will pay or cause to be paid
prior to delinquency, all taxes, assessments and charges or levies imposed upon
them or on any of their property or which any of them is required to withhold or
pay over, except where contested in good faith by appropriate proceedings with
adequate security therefor having been set aside in a manner satisfactory to the
Agent. The Borrower and each Subsidiary shall pay or cause to be paid all such
taxes, assessments, charges or levies forthwith whenever foreclosure on any lien
that attaches (or security therefor) appears imminent.
(F) The Borrower will maintain:
(1) a Fixed Charge Coverage Ratio of greater than 2.25 to 1,
calculated quarterly on a rolling four (4) quarter basis.
(2) an Adjusted Debt to Capitalization Ratio of less than or
equal to 59% at all times.
(3) a Funded Debt to EBITDA Ratio of less than 2.75 to 1,
calculated quarterly with EBITDA computed on a rolling four (4) quarter basis.
All financial covenants shall be tested on a consolidated basis and calculated
in accordance with GAAP, except as otherwise noted.
(G) The Borrower and its Subsidiaries will, when requested to do so,
make available any of their Records for inspection by duly authorized
representatives of the Agent, and will furnish the Agent (for the benefit of the
Banks) any information regarding their business affairs
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and financial condition within a reasonable time after written request therefor.
Notwithstanding the foregoing, so long as Borrower is not in default hereunder,
inspections of Borrower's Records shall be limited to once per calendar year and
any costs incurred in connection with such inspection shall be borne by the
Banks.
(H) The Borrower and its Subsidiaries, on a consolidated basis, will
take all steps reasonably necessary to preserve their corporate existence, good
standing, and franchise (where failure to do so would have a material adverse
effect on the financial condition of the Borrower and its Subsidiaries taken as
a whole), and will comply, in all material respects, with all present and future
Laws applicable to them in the operation of their respective businesses and all
material agreements to which they are subject, including without limitation
qualification by Borrower or any Subsidiary in any jurisdiction where
qualification is required by their respective businesses.
(I) The Borrower and its Subsidiaries will give immediate notice to the
Agent of: (1) any litigation or proceeding in which any of them is a party if an
adverse decision herein would require them to pay more than Five Hundred
Thousand Dollars ($500,000.00) or deliver assets the value of which exceeds such
sum (if such claim is not fully covered by insurance subject to approved
deductibles); and (2) the institution of any other suit or proceeding involving
any of them that might materially and adversely affect their operations,
financial condition, property, or business operations considered on a
consolidated basis.
(J) The Borrower and its Subsidiaries will pay when due (or within
applicable grace periods) all Indebtedness due any Person, which is material to
Borrower's business operations, except when the amount thereof is being
contested in good faith by appropriate proceedings or actions and with adequate
security therefor being set aside in a manner satisfactory to the Banks.
(K) The Borrower and its Subsidiaries will notify the Agent immediately
if any of them becomes aware of the occurrence of any Event of Default or of any
fact, condition or event that only with the giving of notice or passage of time
or both, would become an Event of Default, or of the failure of the Borrower or
any Subsidiary to observe any of their respective undertakings hereunder in any
material respect.
(L) The Borrower and its Subsidiaries will: (1) fund all their Defined
Benefit Pension Plans in accordance with no less than the minimum finding
standards of section 302 of ERISA and Section 412 of the Internal Revenue Code:
(2) furnish the Agent, promptly after filing of the same, with copies of all
reports or other statements filed with the United States Department of Labor or
the Internal Revenue Service with respect to all such Plans; and (3) promptly
advise the Agent of the occurrence of any "reportable event" or "prohibited
transaction" with respect to any such Plan.
5.2 Negative Covenants.
(A) Neither the Borrower nor any Subsidiary will change its name, or
enter into any merger, consolidation, or reorganization in which the Borrower or
such Subsidiary is not the surviving entity.
(B) Neither the Borrower nor any Subsidiary will (i) sell, transfer,
lease or otherwise dispose of all or (except for store closures and relocations
in the ordinary course of business consistent with Borrower's past practices)
any material part of its assets, including, without limitation, the Real
Property; provided, however, Borrower and its Subsidiaries may in the ordinary
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<PAGE> 27
course of business sell or dispose of obsolete Equipment or Inventory, or may
replace damaged or worn Equipment with Equipment of similar value and use, or
(ii) mortgage, pledge, grant or permit to exist a security interest in or lien
upon any of the Real Property, now owned or hereafter acquired, except for
Permitted Liens. Borrower may request, on a case-by-case basis, the Agent to
release specific Real Property from the provisions of this Section 5.2(B). The
release of the Real Property assets shall require the consent of the Majority
Banks, provided that such consent shall not be unreasonably withheld or delayed.
To the extent the Agent (with the consent of the Majority Banks) releases Real
Property for purposes of permitting the Borrower to obtain permanent financing
or to sell such Real Property, unless the Agent (with the consent of the
Majority Banks) agrees otherwise, Borrower agrees that the net proceeds
resulting from such permanent financing or sale received by the Borrower or any
Subsidiary shall be applied to the balance due under the Loan, to be applied by
the Agent in the Agent's discretion.
(C) Neither the Borrower nor any Subsidiary will become liable,
directly or indirectly, as guarantor or otherwise, for any obligation of any
other Person, except, provided no Default exists or would result from Borrower
or any Subsidiary incurring liability for the following liabilities: (i) the
endorsement of commercial paper for deposit or collection in the ordinary course
of business, (ii) the Indebtedness described in Exhibit L, (iii) Equipment
leases and purchase money financing for Equipment entered into in the ordinary
course of business, (iv) obligations to vendors and other trade payables
incurred in the ordinary course of business which are paid in accordance with
the customary terms provided to the Borrower (or such obligations or trade
payables which are being contested in good faith for which adequate security has
been reserved in a manner satisfactory to the Banks), (v) Indebtedness incurred
in connection with the release by the Majority Banks of specific properties from
the provisions of Section 5.2(B) hereof, and (vi) other Indebtedness incurred in
the ordinary course of business, which, including the Indebtedness described
under Section 5.2(D)(vii), does not, at any time, exceed $15,000,000.00 in the
aggregate, provided the documents or instruments evidencing such Indebtedness
contain terms and conditions reasonably acceptable to the Agent (with the
consent of the Majority Banks), which consent shall not be unreasonably
withheld).
(D) Neither the Borrower nor any Subsidiary will incur, create, assume,
or permit to exist any Indebtedness except: (i) the Loans; (ii) the Indebtedness
described in Exhibit L; and, provided no Default exists or would result from
Borrower or any Subsidiary incurring the following Indebtedness, (iii) Equipment
leases, and purchase money financing for Equipment entered into in the ordinary
course of business; (iv) obligations to vendors and other trade payables
incurred in the ordinary course of business which are paid in accordance with
the customary terms provided to the Borrower (or such obligations or trade
payables which are being contested in good faith for which adequate security has
been reserved in a manner satisfactory to the Banks); (v) contingent
Indebtedness permitted by Section 5.2(C); (vi) Indebtedness incurred in
connection with the release by the Majority Banks of specific properties from
the provisions of Section 5.2(B) hereof, and (vii) other Indebtedness incurred
in the ordinary course of business, which, including the Indebtedness described
in Section 5.2(C)(vi) does not exceed $15,000,000.00 in the aggregate, provided
the documents or instruments evidencing such Indebtedness contain terms and
conditions reasonably acceptable to the Agent (with the consent of the Majority
Banks), which consent shall not be unreasonably withheld).
(E) Except for the existing matters disclosed in Exhibit N, neither the
Borrower nor any Subsidiary will make any investment in or make any loan in the
nature of any investment to any Person, without the prior written consent of the
Agent (with consent of the Majority Banks), which consent shall not be
unreasonably withheld.
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(F) Except as described in Exhibit O, neither the Borrower nor any
Subsidiary will make any loan or advance to any officer, shareholder, director
or employee of the Borrower or any Subsidiary, except for temporary advances in
the ordinary course of business.
(G) Neither the Borrower nor any Subsidiary will prepay any
Subordinated Indebtedness, except in accordance with its terms.
(H) Neither the Borrower nor any Subsidiary will enter into any
sale-leaseback transaction, except: (i) the transactions described in Exhibit P;
(ii) such sale-leaseback transactions as shall be consented to by the Agent
(with the consent of the Majority Banks), which consent shall not be
unreasonably withheld, provided the proceeds of any such sale-leaseback
transaction are applied to the outstanding principal balance of the Loans.
(I) Neither the Borrower nor any Subsidiary will acquire any stock in,
or all or substantially all of the assets of, any Person, without the prior
written consent of the Agent (with consent of the Majority Banks), which consent
shall not be unreasonably withheld.
(J) Neither the Borrower nor any Subsidiary will furnish the Agent or
any Bank any certificate or other document that will contain any untrue
statement of material fact or that will omit to state a material fact necessary
to make it not misleading in light of the circumstances under which it was
furnished.
(K) Neither the Borrower nor any Subsidiary will directly or indirectly
apply any part of the proceeds of the Loans to the purchasing or carrying of any
"margin stock" within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System, or any regulation, interpretations or ruling
thereunder.
(L) Except as described in Exhibit Q, Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly, enter into or permit
to exist any transaction (including without limitation the purchase, sale, lease
or exchange of any property or the rendering of any service) with any Affiliate
(other than any Subsidiary which is wholly owned by Borrower) on terms that are
less favorable to the Borrower or its Subsidiaries than those that would be
obtainable at the time from any Person who is not an Affiliate.
(M) Neither Borrower nor any Subsidiary will materially alter its
current business operations, or engage in a new business venture which is not
reasonably compatible with the Borrower's current business operations.
(N) Borrower will not permit a change in Borrower's senior management,
except to the extent an individual member of senior management is replaced with
an individual with substantially equivalent expertise with the consent of the
Majority Banks, which consent shall not be unreasonably withheld. For purposes
of this Agreement, senior management shall mean Gregory L. Burns and Steve
Hislop.
(O) Borrower will not declare or pay cash dividends or other similar
distributions without the prior written consent of the Agent (with the consent
of the Majority Banks).
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(P) Borrower will not purchase, redeem or retire in excess of
$2,000,000 of Borrower's outstanding capital stock, without the prior written
consent of the Agent (with the consent of the Majority Banks).
6. DEFAULT
6.1 Events of Default.
The occurrence of any one or more of the following events shall
constitute an "Event of Default" hereunder:
(A) The Borrower shall fail to pay when due any installment of
principal or interest or fee payable hereunder.
(B) The Borrower shall fail to achieve any of the financial covenants
contained in Section 5.1(F).
(C) The Borrower or any Subsidiary shall fail to observe or perform any
obligation or covenant to be observed or performed by any of them, jointly or
severally, under any of the Loan Documents; provided, however, if such failure
is not related to the payment of money or the breach of a financial covenant
contained in Section 5.1(F), Borrower shall have twenty (20) days to cure such
failure before the Majority Banks and/or Agent exercise the rights and remedies
hereunder, with such twenty (20) day period commencing after: (1) notice of such
failure from the Agent or Banks; or (2) the Agent is notified of such failure or
should have been so notified pursuant to the provisions of Section 5.1(M), which
ever is earlier.
(D) Any financial statement, representation, warranty or certificate
made or furnished by the Borrower or any Subsidiary to the Agent or any Bank in
connection with this Agreement or the Loans, or as inducement to the Banks to
enter into this agreement, shall be false, incorrect, or incomplete in any
material respect when made.
(E) The Borrower or any Subsidiary shall admit its inability to pay its
debts as they mature, or shall make an assignment for the benefit of its or any
of its creditors.
(F) Proceedings in bankruptcy, or for reorganization or the Borrower or
any Subsidiary, or for the readjustment of any of their respective debts, under
the United States Bankruptcy Code, as amended, or any part thereof, or under any
other Laws, whether state or federal, for the relief of debtors, now or
hereafter existing, shall be commenced by the Borrower or any subsidiary, or
shall be commenced against the Borrower or any Subsidiary, and which, in the
case of an involuntary petition, are not dismissed within sixty (60) days from
the date of the filing.
(G) A receiver or trustee shall be appointed for the Borrower or any
Subsidiary or for any substantial part of their respective assets, or any
proceedings shall be instituted for the dissolution or the full or partial
liquidation of the Borrower or any Subsidiary, or the Borrower or any Subsidiary
shall discontinue business or materially change the nature of its business.
(H) The Borrower or any Subsidiary shall (i) suffer a final judgment
(which is not covered by insurance subject to approved deductibles) requiring
payment of money (including costs and expenses) aggregating in excess of
$500,000, which judgment is not discharged within a period
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<PAGE> 30
of thirty (30) days unless, pending further proceedings, execution has been
effectively stayed pending appeal, to the satisfaction of the Agent, or (ii)
suffer a final judgment or judgments (which are not covered by insurance subject
to approved deductibles), requiring payment of money (including costs and
expenses) in an aggregate amount in excess of $2,000,000.
(I) The Borrower or any Subsidiary shall pay, in satisfaction of a
final non-appealable judgment or in connection with the settlement or compromise
of litigation against the Borrower or any Subsidiary (excluding payment of
approved deductibles, or insurance proceeds paid, in connection with a judgment
or settlement of litigation which is covered by insurance, or in connection with
an appeal bond or other security required in connection with the appeal of a
final judgment against the Borrower or any Subsidiary, an aggregate amount in
excess of $750,000 in any fiscal year.
(J) A judgment creditor or other lien creditor of the Borrower or any
Subsidiary shall obtain possession of any of the Real Property by any means,
including, but without limitation, levy, distraint, replevin or self-help.
(K) Borrower or any Subsidiary shall default in any other Indebtedness
for borrowed money (including capitalized leases, but excluding the
Obligations), directly or indirectly, whether matured or unmatured, which (i) is
in excess of $2,500,000.00 and results in the acceleration of such Indebtedness,
or (ii) consists of obligations owed to two (2) different Persons and which
results in the acceleration of such obligations.
(L) A lien or other encumbrance shall be filed against the Real
Property, or any portion thereof, in violation of Section 5.2(B) hereof,
excluding: (i) Permitted Liens; and (ii) judgment liens permitted by Section
6.1(H) hereof.
(M) The occurrence of any liability, or the reasonable threat of such
liability, under Borrower's employee benefit plans, which results in a material
adverse effect on the financial condition or business operations of the Borrower
or any Subsidiary.
6.2 Acceleration.
Upon the occurrence of any of such Events of Default, the Majority
Banks may, at their option, immediately terminate the obligation to make any
further advances under the respective Commitments and/or declare the principal
and interest accrued on the Notes and all other Obligations to be immediately
due and payable, whereupon the same shall become forthwith due and payable,
without presentment, demand, protest, or any notice of any kind except as set
forth above; provided, that in the case of the Events of Default specified in
clause (F), (G) or (H) above with respect to Borrower, without any notice to
Borrower or any act by Agent or the Bank's the Commitments shall thereupon
terminate and the Notes and all other Obligations shall become immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which are waived by the Borrower. In addition, and regardless of whether
the Notes have been accelerated, the Majority Banks may upon the occurrence of
any Event of Default elect to charge interest at the Default Rate set forth in
the Notes.
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6.3 Remedies.
After any acceleration, as provided for in Section 6.2, the Banks shall
have, in addition to the rights and remedies given it by the Loan Documents, all
those allowed by all applicable Laws.
7. THE AGENT
Except as provided in Section 7.8 below, this Section VII is between
and among the Agent and the Banks only. Neither the Borrower nor any other
creditor of the Borrower shall have any rights under this section, whether as a
third party beneficiary or otherwise.
7.1 Authorization.
With respect to all funds advanced hereunder or under the Notes, First
American National Bank, NationsBank of Tennessee, N.A., Mercantile Bank National
Association, First Union National Bank and Bank One, N.A., shall be obligated to
advance, in the aggregate under Facilities A and B, $25,000,000.00;
$25,000,000.00; $15,000,000.00 $20,000,000.00, and $15,000,000.00, respectively,
and each such Bank shall own a corresponding undivided interest in this
Agreement. Each Bank authorizes the Agent to act on behalf of such Bank or
holder to the extent provided herein or in any document or instrument delivered
hereunder or in connection herewith and signed by such Bank, and to take such
other action as may be reasonably incidental thereto. The Agent shall be
considered as acting solely in an administrative and ministerial capacity, not
as trustee or other fiduciary of the Banks. The Agent shall not be construed as
having any agency or fiduciary relationship with the Borrower. The Agent shall
not have any duties or obligations to the Banks other than those expressly
provided for herein. The Agent shall not be required to exercise any discretion
or take any action, but shall be fully protected in so acting or in refraining
from acting, upon the instructions of the Majority Banks (except as otherwise
provided in Section 8.3, for matters which require the consent of all Banks),
and such instructions shall be binding upon all Banks and holders of the Notes,
and the Agent shall not be liable to any party hereto for any consequence of any
such action or refraining from action. Notwithstanding any instructions of the
Majority Banks, the Agent shall not be required to take any action that exposes
the Agent to personal liability or that is contrary to any loan document or
applicable law.
7.2 Standard of Care.
Neither the Agent nor any of its officers, directors, agents, employees
or representatives shall be liable for any action taken or omitted to be taken
by it or any of them under or in connection with this Agreement, except for its
or their own gross negligence or willful misconduct. Without limitation of the
generality of the foregoing, the Agent: (a) may treat the payee of any Notes as
the holder thereof and as a Bank hereunder until the Agent receives written
notice of the assignment or transfer thereof signed by such payee and in form
satisfactory to the Agent (which notice shall be binding on all parties hereto);
(b) may consult with legal counsel (including counsel for the Borrower),
independent public accountants and other experts and advisories selected by it
and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants, experts
or other advisors; (c) makes no warranty or representation to any Bank and shall
not be responsible to any Bank for any statements, warranties or representations
made in or in connection with this Agreement or for any failure or delay in
performance by the Borrower or any Bank under this Agreement; (d) shall not have
any duty to ascertain or to inquire as to the performance or observance of any
of the terms, covenants or
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<PAGE> 32
conditions of this Agreement; (e) shall not be responsible to any Bank for the
due execution, legality, validity, enforceability, perfection, collectibility,
genuineness, sufficiency or value of this Agreement, the Notes, or any other
instrument of document furnished pursuant thereto or for the accuracy or
completeness of any credit or other information provided to the Banks; (f) shall
incur no liability under or in respect of this Agreement by action upon any
notice, consent, certificate or other instrument or writing (which may be by
telecopier, telegram, cable or telex) believed by it to be genuine and signed or
sent by the proper party or parties; and (g) shall incur no liability for
relying upon any matters of fact that might reasonable be expected to be within
the knowledge of the Borrower, upon a certificate or other writing signed by
Borrower, or upon telephone communications with Borrower which are reasonably
believed to be true and valid.
7.3 No Waiver of Rights.
With respect to the Notes, the Agent shall have the same rights and
powers hereunder as any other Bank and may exercise the same as though it were
not the Agent, and the Agent may accept deposits from, and generally engage in
any kind of business with, the Borrower.
7.4 Payments.
The Agent shall use its best efforts to deliver to each Bank on the
same day as received by Agent in immediately available funds such Bank's pro
rata share of all payments received by the Agent for the benefit of the Banks,
but in the event Agent is unable to deliver such payments to any Bank on the
same day of receipt, Agent agrees to pay such Bank interest on the payment for
each day the Agent is unable to deliver the payments after the date of its
receipt based on the overnight federal funds rate of interest. Any payment due
for any reason under this Agreement that is required to be made on a date on
which the Agent is not open for business shall be extended until the next day on
which the Agent is open for the transaction of business.
7.5 Indemnification.
The Agent shall not be required to do any act hereunder or under any
other document or instrument delivered hereunder or in connection herewith or
take any action toward the execution or enforcement of the agency hereby
created, or to prosecute or defend any suit in respect of this Agreement or the
Notes or to advance funds hereunder upon the failure by any Bank to fund its pro
rata share of the Commitment hereunder, unless ratably indemnified to its
satisfaction (to the extent not reimbursed by Borrower) by the holders of the
Notes against loss, cost, liability and expense (including reasonable fees and
out-of-pocket expenses of counsel), claim, demand, action, loss or liability
(except such as result from Agent's gross negligence or willful misconduct) that
Agent may suffer or incur in connection with this Agreement or any action taken
or omitted by Agent hereunder. Each Bank agrees to reimburse the Agent promptly
upon demand for such Bank's pro rata share of any expenses referred to in
Section 8.4 incurred by the Agent to the extent that the Agent is not reimbursed
for such expenses by the Borrower.
7.6 Exculpation.
Neither Agent nor any of its directors, officers, employees or agents
shall be liable for any action taken or not taken by it in connection herewith
(a) with the consent or at the request of the Banks or Majority Banks, as
appropriate, or (b) in the absence of its own gross negligence or willful
misconduct. Neither Agent nor any of its directors, officers, employees or
agents shall (i) be responsible for any recitals, representations or warranties
contained in, or for the execution, validity,
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<PAGE> 33
genuineness, effectiveness or enforceability of this Agreement, any Note or any
other instrument or document delivered hereunder or in connection herewith, or
(ii) be under any duty to inquire into or pass upon any of the foregoing
matters, or to make any inquiry concerning the performance by Borrower or any
other obligor of its obligations.
7.7 Credit Investigation.
Each Bank acknowledges that it has made such inquiries and taken such
care on its own behalf as would have been the case had the Commitment been
granted and the Loan made directly by such Bank to the Borrower. Each Bank
agrees and acknowledges that the Agent makes no representations or warranties
about the creditworthiness or the Borrower or any other party to this Agreement
or with respect to the legality, validity, sufficiency or enforceability of this
Agreement, the Notes or the value of any security therefor and that each Bank
has not entered into this Agreement in reliance upon any action, statement,
representation, or warranty of any other Bank or Agent. Each Bank agrees that it
will, independently and without reliance upon the Agent or any other Bank and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement. Neither the Agent nor any other Bank shall have any
obligation whatsoever to make any such credit analysis or decisions for a Bank
or to provide any credit or other information with respect to the Borrower now
or in the future in the possession of the Agent or such other Bank, except that
the Agent shall promptly forward to the Banks a copy of any notice received by
the Agent from the Borrower of the occurrence of an Event of default hereunder
and copies of all material documents delivered to it by the Borrower pursuant to
the terms hereof.
7.8 Resignation.
The Agent may resign at any time as the Agent under this Agreement by
giving written notice thereof to the Banks and the Borrower, which resignation
shall be effective upon a successor Agent's acceptance of its appointment. Upon
any such resignation, the Majority Banks shall have the right to appoint a
successor Agent hereunder, which successor Agent shall also be reasonably
acceptable to the Borrower so long as there is no Event of Default in existence
hereunder. If no such successor Agent shall have been so appointed by the
Majority Banks, or Borrower shall have reasonably rejected such appointment,
within thirty (30) days after the retiring Agent's giving of notice of
resignation, then the retiring agent may, on behalf of the Banks, appoint a
successor Agent, which shall be a commercial bank organized under the laws of
the United States of America or of any State thereof having assets of at least
One Hundred Million and No/100 Dollars ($100,000,000.00) and which shall be
reasonably acceptable to the Borrower. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder. After any retiring Agent's resignation as an
Agent hereunder, the provisions of this Section VII shall insure to its benefit
as to any actions taken or omitted to be taken by it while it was an Agent under
the Loan Documents.
7.9 Proration of Payments.
Except as may be provided in other sections of this Agreement, all
funds received by Banks, or any of them, shall be allocated pro rata among all
banks in proportion to their respective Commitment Percentages as set forth in
Section 2.1 hereof. If any Bank or other holder of any Notes shall obtain any
payment or other recovery (whether voluntary, involuntary, by application of
29
<PAGE> 34
offset or otherwise) on account of principal of or interest on the Notes then
held by it in excess of its pro rata share of payments and other recoveries
obtained by all Banks or other holders on account of principal of and interest
on the Notes then held by them, such Bank or other holder shall purchase from
the other Banks or holders such participation in the Note held by them as shall
be necessary to cause such purchasing Bank or other holder to share the excess
payment or other recovery ratably with each of them; provided, however, if all
or any portion of the excess payment or other recovery is thereafter recovered
from such purchasing holder, the purchase shall be rescinded and the purchase
price restored to the extent of such recovery, but without interest.
Notwithstanding the foregoing, except as set forth in Section 7.11 hereof, no
Bank shall have any obligation to account for or share any amount, property or
profit of any kind received by it for its own account arising out of a banking
or other relationship with the Borrower apart from the obligations under the
Loan Documents.
7.10 No Liability For Errors.
The Agent shall not be liable for any error in computing the amounts
payable to any Bank in respect of any amounts due to the Banks hereunder or in
making payment of such amounts. In the event of an error in computing any amount
payable to any Bank or in the making of a payment, the Agent, the Borrower and
such Bank shall, forthwith upon discovery of such error, make such adjustment as
shall be required to correct such error, including the payment of interest on
any amounts that were incorrectly paid or not paid from the date paid or of the
date due to the date returned or paid, all as the case may be, at the average
daily rate for the overnight sale of federal funds by the Agent in effect for
such period.
7.11 Offset.
In addition to and not in limitation of all rights of offset that any
Bank or other holder of any Note may have under applicable Laws, each Bank or
other holder of a Note shall, upon the occurrence of any Event of Default
described in this Agreement or in the Note in question, have the right to
appropriate and apply to the payment of such Notes any and all balances,
credits, deposits, accounts or moneys of the Borrower then or thereafter with
such Bank or other holder; provided, however, all funds received as a result of
such offsets shall be applied pro rata among the Banks in proportion to their
respective Commitment Percentages as set forth in Section 2.1 hereof. Each Bank
agrees to notify the other Banks immediately upon the exercise by it of this
right of offset.
8. MISCELLANEOUS
8.1 Construction.
The provisions of this Agreement shall be in addition to those of any
guaranty, pledge or security agreement, note or other evidence of liability held
by the Banks, all of which shall be construed as complementary to each other.
Nothing herein contained shall prevent the Banks from enforcing any or all other
notes, guaranties, pledge or security agreements in accordance with their
respective terms.
8.2 Further Assurance.
From time to time, the Borrower will execute and deliver to the Banks
such additional documents and will provide such additional information as the
Banks may reasonably require to
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<PAGE> 35
carry out the terms of this Agreement and be informed of the Borrower's
operations, business and condition.
8.3 Enforcement and Waiver by the Banks.
The Majority Banks shall have the sole and exclusive right to
administer, amend, waive or modify the Loan Documents, and are hereby empowered
to act for the Banks with regard to the aggregate Commitments and the
documentation thereof; provided, however, it shall take an affirmative vote of
all the Banks to (i) increase any of the several Commitments; (ii) decrease any
of the interest rates on the Loan; (iii) amend the payment dates for the Loans
or extend the Loan Termination Date on the Loans; (iv) approve prepayments of
the Subordinated Indebtedness; (v) amend the definition of Majority Banks; and
(vi) amend Section 5.2(B) or this Section 8.3. The Banks shall have the right at
all times to enforce the provisions of the Loan Documents in strict accordance
with the terms thereof, notwithstanding any conduct or custom on the part of the
Banks and/or Agent in refraining from so doing at any time or times. The failure
of the Banks at any time or times to enforce their rights under such provisions,
strictly in accordance with the same, shall not be construed as having created a
custom in any way or manner contrary to specific provisions of the Loan
Documents or as having in any way or manner modified or waived as same. All
rights and remedies of the Banks are cumulative and concurrent and the exercise
of one right or remedy shall not be deemed a waiver or release of any other
right or remedy.
8.4 Expenses of the Agent.
The Borrower will, on demand, reimburse the Agent for all expenses,
including the reasonable fees and expenses of legal counsel for the Agent,
incurred by the Agent in connection with the preparation, administration,
amendment, modification, or enforcement of the Loan Documents and the collection
or attempted collection of the Notes.
8.5 Notices.
Any notices or consents required or permitted by this Agreement shall
be in writing and shall be deemed delivered when delivered in person, or when
sent by certified mail, postage prepaid, return receipt requested or by
overnight courier service, to the address as follows, unless such address is
changed by written notice hereunder:
(A) If to the Borrower:
O'Charley's Inc.
P.O. Box 291809
Nashville, TN 37229
Attn: Chad Fitzhugh, Chief Financial Officer
cc: J. Page Davidson, Esquire
Felix Dowsley, Esquire
Bass, Berry & Sims, PLC
First American Center
Nashville, TN 37229
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<PAGE> 36
(B) If to the Agent:
First American National Bank
First American Center
Nashville, TN 37237-0202
Attn: Ludolf H. Roell, Sr. Vice President
cc: Kim A. Brown, Esquire
Sherrard & Roe, PLC
424 Church Street, Suite 2000
Nashville, TN 37219
(C) If to Co-Agent:
NationsBank of Tennessee, N.A.
One NationsBank Plaza
414 Union Street
Nashville, TN 37239
Attn: William Diehl
(D) If to the Banks:
Mercantile Bank National Association
One Mercantile Center, Tram 12-3
721 Locust Street
St. Louis, MO 63101
Attn: Don Adam, Vice President
Bank One, N.A.
Kettering Tower
P.O. Box 1103
Dayton, OH 45423
Attn: Glenn T. Campbell, Vice President
First Union National Bank
150 4th Avenue North
Nashville, TN 37219
Attn: Andrew C. Tompkins, Vice President
8.6 Waiver and Release.
To the maximum extent permitted by applicable Laws, the Borrower and
each Subsidiary:
(A) Waive: (1) protest of all commercial paper at any time held by the
Banks on which the Borrower or any Subsidiary is in any way liable; and (2)
notice and opportunity to be heard, after acceleration in the manner provided in
Section 7.2, before exercise by the Banks of the remedies of self-help, set-off,
or of other summary procedures permitted by any applicable Laws or by an
agreements with the Borrower or any Subsidiary, and, except where required
hereby or by any applicable Laws, notice of any other action taken by the Banks;
and
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<PAGE> 37
(B) Release the Banks and their officers, directors, attorneys,
employees, and agents from all claims for loss or damage caused by any act or
omission on the part of any of them except willful misconduct or gross
negligence.
8.7 Indemnification.
Borrower and each Subsidiary hereby indemnify and hold the Banks and
their officers, directors, attorneys, employees and agents free and harmless
from and against any and all actions, causes of action, suits, losses,
liabilities and damages, and expenses in connection therewith, including without
limitation counsel fees and disbursements, incurred by the Banks or any of them
as a result of, or arising out of, or relating to the execution, delivery,
performance or enforcement of the Loan Documents or any instrument contemplated
therein, except for any Bank's gross negligence or willful misconduct. If and to
the extent that the foregoing undertaking may be unenforceable for any reason,
Borrower and each Subsidiary hereby agree to make the maximum contribution to
the payment and satisfaction of such liabilities and costs permitted under
applicable Laws.
8.8 Assignment/Participations.
Each Bank may, with the prior written consent of the Borrower (which
may be unreasonably withheld) and the Agent, assign to one or more eligible
assignees all or a portion of its interests, rights and obligations under this
Agreement (including, without limitation, all or a portion of the Advances at
the time owing to it and the Notes held by it); provided, however, that (a) each
such assignment shall be of a constant, and not a varying, percentage of all the
assigning Bank's rights and obligations under this Agreement, (b) the Commitment
Percentage of the assigning Bank subject to each such assignment (determined as
of the date the Assignment and Acceptance with respect to such assignment is
delivered to the Agent) shall in no event be less than $5,000,000 and must be in
multiples of $1,000,000, and (c) the parties to each such assignment shall
execute and deliver to the Agent, for its acceptance, an Assignment and
Acceptance, together with any Note or Notes subject to such assignment. Upon
such execution, delivery, acceptance and recording, from and after the effective
date specified in each Assignment and Acceptance, which effective date shall be
at least five Business Days after the execution thereof, (i) the assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Bank hereunder,
and (ii) the assigning Bank thereunder shall, to the extent provided in such
assignment, be released from its obligations under this Agreement.
Notwithstanding the foregoing, each Bank may assign its interest under this
Agreement without the consent of any other party (but in compliance with such
reasonable documentation requirements as the Agent may impose), (A) to any
institutional Affiliate of such Bank, or (B) to the Federal Reserve Bank or any
branch thereof as collateral in the ordinary course of business.
Notwithstanding any other provision of this Agreement, the Borrower
understands that any Bank may at any time enter into participation agreements
with one or more participating banks whereby such Bank will allocate certain
percentages of its Commitment to such bank or banks. The Borrower acknowledges
that, for the convenience of all parties, this Agreement is being entered into
with the Banks only and that Borrower's obligations hereunder are undertaken for
the benefit of, and as an inducement to, any such participating bank as well as
the Banks, and the Borrower hereby grants to each participating bank, to the
extent of its participation in the Commitment, the right to set off deposit
accounts maintained by the Borrower with such bank, provided that such
participating banks shall not become "Banks" hereunder, or be entitled to
directly exercise any of the rights or remedies of the Banks hereunder.
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<PAGE> 38
8.9 Applicable Laws.
The Laws of the State of Tennessee shall govern the construction of
this Agreement and the rights and remedies of the parties hereto.
8.10 Binding Effect, Assignment and Entire Agreement.
This Agreement shall inure to the benefit of, and shall be binding
upon, the respective successors and permitted assigns of the parties hereto. The
Borrower has no right to assign any of its rights or obligations hereunder
without the prior written consent of the Banks. This Agreement and the documents
executed and delivered pursuant hereto constitute the entire agreement between
the parties, and supersede all prior agreements and understandings among the
parties hereto. This Agreement may be amended only by a writing signed on behalf
of each party.
8.11 Severability.
If any provision of this Agreement shall be held invalid under any
applicable Laws, such invalidity shall not effect any other provision of this
Agreement that can be given effect without the invalid provision, and, to this
end, the provisions hereof are severable.
8.12 Counterparts.
This Agreement may be executed by the parties independently in any
number of counterparts, all of which together shall constitute but one and the
same instrument which is valid and effective as if all parties had executed the
same counterpart.
8.13 Seal.
This Agreement is intended to take effect as an instrument under seal.
8.14 Venue.
The Borrower and the Subsidiaries hereby irrevocably consent to the
jurisdiction of the United States District Court for the Middle District of
Tennessee and of all Tennessee state courts sitting in Davidson County,
Tennessee, for the purpose of any litigation to which the Agent or any other
Bank may be a party and which concerns this Agreement of the transactions
contemplated herein. It is further agreed that venue for any such action shall
lie exclusively with courts sitting in Davidson County, Tennessee, unless the
Agent agrees to the contrary in writing.
8.15 Waiver of Jury Trial.
THE BORROWER AND EACH SUBSIDIARY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE (TO THE EXTENT PERMITTED BY APPLICABLE LAWS) ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER, RELATING TO, OR
CONNECTED WITH THIS AGREEMENT, THE COLLATERAL OR ANY OTHER AGREEMENT, INSTRUMENT
OR DOCUMENT CONTEMPLATED HEREBY DELIVERED IN CONNECTION HEREWITH AND AGREE THAT
ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE BANKS' ENTERING INTO THIS AGREEMENT.
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<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
AGENT BORROWER
FIRST AMERICAN NATIONAL O'CHARLEY'S INC., a Tennessee
BANK, a national banking association corporation
BY: /s/ Ludolf H. Roell BY: /s/ A. Chad Fitzhugh
------------------------------- ------------------------------
TITLE: Senior Vice President TITLE: Chief Financial Officer
---------------------------- ---------------------------
35
<PAGE> 40
SIGNATURE PAGE FOR NATIONSBANK OF TENNESSEE, N.A.
FOR THE AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
DATED AS OF DECEMBER 8, 1997
NATIONSBANK OF TENNESSEE, N.A.
BY: /s/ William H. Diehl
----------------------------------
TITLE: Vice President
------------------------------
"CO-AGENT"
<PAGE> 41
SIGNATURE PAGE FOR MERCANTILE BANK NATIONAL
ASSOCIATION FOR THE AMENDED AND RESTATED REVOLVING
CREDIT AGREEMENT DATED AS OF DECEMBER 8, 1997
MERCANTILE BANK
NATIONAL ASSOCIATION
BY: Donald A. Adam
-------------------------------
TITLE: Vice President
----------------------------
<PAGE> 42
SIGNATURE PAGE FOR BANK ONE, N.A.
FOR THE REVOLVING CREDIT AGREEMENT
DATED AS OF DECEMBER 8, 1997
BANK ONE, N.A.
BY: Glenn T. Campbell
------------------------------
TITLE: Vice President
----------------------------
<PAGE> 43
SIGNATURE PAGE FOR FIRST AMERICAN NATIONAL BANK
FOR THE AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
DATED AS OF DECEMBER 8, 1997
FIRST AMERICAN NATIONAL BANK
BY: /s/ Ludolf H. Roell
-----------------------------------
TITLE: Senior Vice President
--------------------------------
<PAGE> 44
SIGNATURE PAGE FOR FIRST UNION NATIONAL BANK
FOR THE AMENDED AND RESTATED REVOLVING
CREDIT AGREEMENT DATED AS OF DECEMBER 8, 1997
FIRST UNION NATIONAL BANK
BY: S. Scott Miler
-----------------------------------
TITLE: Managing Director
---------------------------------
<PAGE> 45
SCHEDULE I
Table for Calculation of Interest
Rates and Facility Fee
<TABLE>
<CAPTION>
Funded Debt to EBITDA Applicable Index Applicable Facility Fee (Facility A)
- --------------------- ---------------- ---------- -------------------------
Ratio Margin LIBOR Margin
- ----- ------ ------------
<S> <C> <C> <C>
Below 1.30. .50% .65% .10%
Between 1.30 and 1.90 .75% .125%
(including 1.30). .50%
Between 1.90 and 2.35 .85% .15%
(including 1.90). .50%
2.35 and above. .50% 1.10% .15%
</TABLE>
I. Interest Rate Margins
The applicable Margin is indicated in the Table. The Applicable Index
Margin is subtracted from the Index Rate in the case of Floating Rate Loans, and
the Applicable LIBOR Margin is added to the LIBOR Rate in the case of LIBOR
Loans. The Applicable Index Margin for Floating Rate Loans shall be 50 basis
points (.50%) at all times. The Applicable LIBOR Margin for LIBOR Loans shall
adjust at the end of each applicable Eurodollar Interest Period but, in no
event, earlier than five (5) days after the receipt by the Agent of the
Borrower's compliance certificate confirming the Borrower's financial ratios for
the preceding quarter.
II. Facility Fee
The applicable Facility Fee for Facility A is indicated in the Table.
The applicable Facility Fee for Facility A shall adjust quarterly to reflect
changes in the Funded Debt to EBITDA Ratio effective as of the first day of the
fiscal quarter immediately following the period covered by the quarterly
compliance certificate submitted to Bank in accordance with this Agreement. The
Facility Fee for Facility B shall be 0.125% per annum of the Total Commitments
for Facility B at all times.
<PAGE> 1
Exhibit 10.17
SEVERANCE COMPENSATION AGREEMENT, dated as of March 4, 1998, between
O'Charley's Inc., a Tennessee corporation (the "Company"), and A. Chad Fitzhugh
(the "Executive").
The Company's Board of Directors has determined that it is appropriate
to reinforce and encourage the continued attention and dedication of certain
members of the Company's senior management, including the Executive, to their
assigned duties without distraction in potentially disturbing circumstances
arising from the possibility of a change in control of the Company.
This Agreement sets forth the severance compensation which the Company
agrees it will pay to the Executive if the Executive's employment with the
Company terminates under one of the circumstances described herein following a
Change In Control of the Company (as defined herein).
1. TERM. This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earliest of (i) three years from the date hereof if a Change in Control of the
Company has not occurred within such three-year period; (ii) the termination of
the Executive's employment with the Company based on death, Disability (as
defined in Section 3(b)), Retirement (as defined in Section 3(c)) or Cause (as
defined in Section 3(d)) or by the Executive other than for Good Reason (as
defined in Section 3(e)); and (iii) eighteen months from the date of a Change in
Control of the Company if the Executive has not terminated his employment for
Good Reason as of such time.
2. CHANGE IN CONTROL. No compensation shall be payable under this
Agreement unless and until (a) there shall have been a Change in Control of the
Company while the Executive is still an employee of the Company and (b) the
Executive's employment by the Company thereafter shall have been terminated in
accordance with Section 3. For purposes of this Agreement, a Change in Control
means the happening of any of the following:
(i) any person or entity, including a "group" as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
other than the Company, a wholly-owned subsidiary thereof, any employee
benefit plan of the Company or any of its Subsidiaries becomes the
beneficial owner of the Company's securities having 30% or more of the
combined voting power of the then outstanding securities of the Company
that may be cast for the election of directors of the Company (other
than as a result of an issuance of securities initiated by the Company
in the ordinary course of business); or
(ii) as the result of, or in connection with, any cash
tender or exchange offer, merger or other business combination, sale of
assets or contested election, or any combination of the foregoing
transactions less than a majority of the combined voting power of the
then outstanding securities of the Company or any successor corporation
or entity entitled to vote generally in the election of the directors
of the Company or such other corporation or entity after such
transaction are held in the aggregate by the holders of the Company's
securities entitled to vote generally in the election of directors of
the Company immediately prior to such transaction; or
<PAGE> 2
(iii) during any period of two consecutive years,
individuals who at the beginning of any such period constitute the
Board cease for any reason to constitute at least a majority thereof,
unless the election, or the nomination for election by the Company's
shareholders, of each director of the Company first elected during such
period was approved by a vote of at least two-thirds of the directors
of the Company then still in office who were directors of the Company
at the beginning of any such period.
3. TERMINATION FOLLOWING CHANGE IN CONTROL. (a) If a Change in Control
of the Company shall have occurred while the Executive is still an employee of
the Company, the Executive shall be entitled to the compensation provided in
Section 4 upon the subsequent termination of the Executive's employment with the
Company by the Executive or by the Company unless such termination is as a
result of (i) the Executive's death; (ii) the Executive's Disability (as defined
in Section (3)(b) below); (iii) the Executive's Retirement (as defined in
Section 3(c) below); (iv) the Executive's termination by the Company for Cause
(as defined in Section 3(d) below); or (v) the Executive's decision to terminate
employment other than for Good Reason (as defined in Section 3(e) below).
(b) DISABILITY. If, as a result of the Executive's incapacity
due to physical or mental illness, the Executive shall have been absent from his
duties with the Company on a full-time basis for six months and within 30 days
after written notice of termination is thereafter given by the Company the
Executive shall not have returned to the full-time performance of the
Executive's duties, the Company may terminate this Agreement for "Disability."
(c) RETIREMENT. The term "Retirement" as used in this
Agreement shall mean termination by the Company or the Executive of the
Executive's employment based on the Executive's having reached age 65 or such
other age as shall have been fixed in any arrangement established with the
Executive's consent with respect to the Executive.
(d) CAUSE. The Company may terminate the Executive's
employment for Cause. For purposes of this Agreement only, the Company shall
have "Cause" to terminate the Executive's employment hereunder only on the basis
of fraud, misappropriation or embezzlement on the part of the Executive.
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters of the membership of the Company's Board of Directors
(excluding the Executive if the Executive is then a member of the Board of
Directors) at a meeting of the Board called and held for the purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board), finding
that in the good faith opinion of the Board the Executive was guilty of conduct
set forth in the second sentence of this Section 3(d) and specifying the
particulars thereof in detail.
2
<PAGE> 3
(e) GOOD REASON. The Executive may terminate the Executive's
employment for Good Reason at any time during the term of this Agreement. For
purposes of this Agreement "Good Reason" shall mean any of the following
(without the Executive's express written consent):
(i) the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities and status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's titles
or offices as in effect immediately prior to a Change in Control of the
Company, or any removal of the Executive from or any failure to reelect
the Executive to any of such positions, except in connection with the
termination of his employment for Disability, Retirement or Cause or as
a result of the Executive's death or by the Executive other than for
Good Reason;
(ii) a reduction by the Company in the Executive's
base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement;
(iii) a relocation of the Company's principal executive
offices to a location outside of Nashville, Tennessee, or the
Executive's relocation to any place other than the location at which
the Executive performed the Executive's duties prior to a Change in
Control of the Company, except for required travel by the Executive on
the Company's business to an extent substantially consistent with the
Executive's business travel obligations at the time of a Change in
Control of the Company;
(iv) any material breach by the Company of any
provision of this Agreement;
(v) any failure by the Company to obtain the
assumption of this Agreement by any successor or assign of the
Company; or
(vi) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 3(f), and for purposes of this
Agreement, no such purported termination shall be effective.
(f) NOTICE OF TERMINATION. Any termination by the Company
pursuant to Section 3(b), 3(c) or 3(d) shall be communicated by a Notice of
Termination. For purposes of this Agreement, a "Notice of Termination" shall
mean a written notice which shall indicate those specific termination provisions
in this Agreement relied upon and which sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. For purposes of this
Agreement, no such purported termination by the Company shall be effective
without such Notice of Termination.
3
<PAGE> 4
(g) DATE OF TERMINATION. "Date of Termination" shall mean (a)
if this Agreement is terminated by the Company for Disability, 30 days after
Notice of Termination is given to the Executive (provided that the Executive
shall not have returned to the performance of the Executive's duties on a
full-time basis during such 30-day period) or (b) if the Executive's employment
is terminated by the Company for any other reason, the date on which a Notice of
Termination is given.
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT. (a) If the
Company shall terminate the Executive's employment following a Change in Control
other than pursuant to Section 3(b), 3(c) or 3(d) or if the Executive shall
terminate his employment following a Change in Control for Good Reason, then the
Company shall pay to the Executive as severance pay in a lump sum, in cash, on
the fifth day following the Date of Termination, an amount equal to the sum of
(i) 150% of the average of the aggregate annual salary paid to the Executive by
the Company during the three calendar years preceding the Change in Control of
the Company and (ii) 150% of the highest bonus compensation paid to the
Executive for any of the three calendar years preceding the Change in Control of
the Company; provided, however, that if the lump sum severance payment under
this Section 4, either alone or together with other payments which the Executive
has the right to receive from the Company, would constitute a "parachute
payment" (as defined in Section 28OG of the Internal Revenue Code of 1986, as
amended (the "Code")), such lump sum severance payment shall be reduced to the
largest amount as will result in no portion of the lump sum severance payment
under this Section 4 being subject to the excise tax imposed by Section 4999 of
the Code.
(b) In addition to the lump sum payment provided in Section
4(a), if the Company shall terminate the Executive's employment following a
Change in Control other than pursuant to Section 3(b), 3(c) or 3(d) or if the
Executive shall terminate his employment following a Change in Control for Good
Reason, then the Company shall provide to the Executive health insurance
equivalent to that provided to the Executive immediately prior to termination
until the earlier of: (i) eighteen months following the Date of Termination or
(ii) such time as Executive is employed by another employer and is covered or
permitted to be covered by benefit plans of another employer providing
substantially similar coverage.
5. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS. (a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer after the Date of Termination, or
otherwise.
(b) The provisions of this Agreement, and any payment provided
for hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any benefit plan, incentive plan or stock
option plan, employment agreement or other contract, plan or arrangement.
4
<PAGE> 5
6. SUCCESSOR TO THE COMPANY. (a) The Company will require any successor
or assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to the Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place. Any
failure of the Company to obtain such agreement prior to the effectiveness of
any such succession or assignment shall be a material breach of this Agreement
and shall entitle the Executive to terminate the Executive's employment for Good
Reason. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor or assign to its business and/or assets
as aforesaid which executes and delivers the agreement provided for in this
Section 6 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law. If at any time during the term of this
Agreement the Executive is employed by any corporation a majority of the voting
securities of which is then owned by the Company, "Company" as used in Sections
3, 4, 11 and 12 hereof shall in addition include such employer. In such event,
the Company agrees that it shall pay or shall cause such employer to pay any
amounts owed to the Executive pursuant to Section 4 hereof.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amounts are still payable to him hereunder, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee, or other
designee or, if there be no such designee, to the Executive's estate.
7. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
O'Charley's Inc.
3038 Sidco Drive
Nashville, Tennessee 37204
Attention: President
If to the Executive:
A. Chad Fitzhugh
3038 Sidco Drive
Nashville, Tennessee 37204
5
<PAGE> 6
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
8. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of Tennessee.
9. VALIDITY. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
10. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
11. LEGAL FEES AND EXPENSES. The Company shall pay all legal fees and
expenses which the Executive may incur as a result of the Company's contesting
the validity, enforceability or the Executive's interpretation of, or
determinations under, this Agreement.
12. CONFIDENTIALITY. The Executive shall retain in confidence any and
all confidential information known to the Executive concerning the Company and
its business so long as such information is not otherwise publicly disclosed.
The provisions of this Section 12 are not intended to restrict the ability of
the Executive following termination of employment for any reason to engage in
any business which is, directly or indirectly, competitive with the business
conducted by the Company.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
O'CHARLEY'S INC.
By: /s/ Gregory L. Burns
------------------------------
Name: Gregory L. Burns
Title: Chief Executive Officer
/s/ A. Chad Fitzhugh
------------------------------
A. Chad Fitzhugh
7
<PAGE> 1
Exhibit 10.18
SEVERANCE COMPENSATION AGREEMENT, dated as of March 4, 1998, between
O'Charley's Inc., a Tennessee corporation (the "Company"), and Steven J. Hislop
(the "Executive").
The Company's Board of Directors has determined that it is appropriate
to reinforce and encourage the continued attention and dedication of certain
members of the Company's senior management, including the Executive, to their
assigned duties without distraction in potentially disturbing circumstances
arising from the possibility of a change in control of the Company.
This Agreement sets forth the severance compensation which the Company
agrees it will pay to the Executive if the Executive's employment with the
Company terminates under one of the circumstances described herein following a
Change In Control of the Company (as defined herein).
1. TERM. This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earliest of (i) three years from the date hereof if a Change in Control of the
Company has not occurred within such three-year period; (ii) the termination of
the Executive's employment with the Company based on death, Disability (as
defined in Section 3(b)), Retirement (as defined in Section 3(c)) or Cause (as
defined in Section 3(d)) or by the Executive other than for Good Reason (as
defined in Section 3(e)); and (iii) eighteen months from the date of a Change in
Control of the Company if the Executive has not terminated his employment for
Good Reason as of such time.
2. CHANGE IN CONTROL. No compensation shall be payable under this
Agreement unless and until (a) there shall have been a Change in Control of the
Company while the Executive is still an employee of the Company and (b) the
Executive's employment by the Company thereafter shall have been terminated in
accordance with Section 3. For purposes of this Agreement, a Change in Control
means the happening of any of the following:
(i) any person or entity, including a "group" as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
other than the Company, a wholly-owned subsidiary thereof, any employee
benefit plan of the Company or any of its Subsidiaries becomes the
beneficial owner of the Company's securities having 30% or more of the
combined voting power of the then outstanding securities of the Company
that may be cast for the election of directors of the Company (other
than as a result of an issuance of securities initiated by the Company
in the ordinary course of business); or
(ii) as the result of, or in connection with, any cash
tender or exchange offer, merger or other business combination, sale of
assets or contested election, or any combination of the foregoing
transactions less than a majority of the combined voting power of the
then outstanding securities of the Company or any successor corporation
or entity entitled to vote generally in the election of the directors
of the Company or such other corporation or entity after such
transaction are held in the aggregate by the holders of the Company's
securities entitled to vote generally in the election of directors of
the Company immediately prior to such transaction; or
<PAGE> 2
(iii) during any period of two consecutive years,
individuals who at the beginning of any such period constitute the
Board cease for any reason to constitute at least a majority thereof,
unless the election, or the nomination for election by the Company's
shareholders, of each director of the Company first elected during such
period was approved by a vote of at least two-thirds of the directors
of the Company then still in office who were directors of the Company
at the beginning of any such period.
3. TERMINATION FOLLOWING CHANGE IN CONTROL. (a) If a Change in Control
of the Company shall have occurred while the Executive is still an employee of
the Company, the Executive shall be entitled to the compensation provided in
Section 4 upon the subsequent termination of the Executive's employment with the
Company by the Executive or by the Company unless such termination is as a
result of (i) the Executive's death; (ii) the Executive's Disability (as defined
in Section (3)(b) below); (iii) the Executive's Retirement (as defined in
Section 3(c) below); (iv) the Executive's termination by the Company for Cause
(as defined in Section 3(d) below); or (v) the Executive's decision to terminate
employment other than for Good Reason (as defined in Section 3(e) below).
(b) DISABILITY. If, as a result of the Executive's incapacity
due to physical or mental illness, the Executive shall have been absent from his
duties with the Company on a full-time basis for six months and within 30 days
after written notice of termination is thereafter given by the Company the
Executive shall not have returned to the full-time performance of the
Executive's duties, the Company may terminate this Agreement for "Disability."
(c) RETIREMENT. The term "Retirement" as used in this
Agreement shall mean termination by the Company or the Executive of the
Executive's employment based on the Executive's having reached age 65 or such
other age as shall have been fixed in any arrangement established with the
Executive's consent with respect to the Executive.
(d) CAUSE. The Company may terminate the Executive's
employment for Cause. For purposes of this Agreement only, the Company shall
have "Cause" to terminate the Executive's employment hereunder only on the basis
of fraud, misappropriation or embezzlement on the part of the Executive.
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters of the membership of the Company's Board of Directors
(excluding the Executive if the Executive is then a member of the Board of
Directors) at a meeting of the Board called and held for the purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board), finding
that in the good faith opinion of the Board the Executive was guilty of conduct
set forth in the second sentence of this Section 3(d) and specifying the
particulars thereof in detail.
2
<PAGE> 3
(e) GOOD REASON. The Executive may terminate the Executive's
employment for Good Reason at any time during the term of this Agreement. For
purposes of this Agreement "Good Reason" shall mean any of the following
(without the Executive's express written consent):
(i) the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities and status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's titles
or offices as in effect immediately prior to a Change in Control of the
Company, or any removal of the Executive from or any failure to reelect
the Executive to any of such positions, except in connection with the
termination of his employment for Disability, Retirement or Cause or as
a result of the Executive's death or by the Executive other than for
Good Reason;
(ii) a reduction by the Company in the Executive's
base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement;
(iii) a relocation of the Company's principal executive
offices to a location outside of Nashville, Tennessee, or the
Executive's relocation to any place other than the location at which
the Executive performed the Executive's duties prior to a Change in
Control of the Company, except for required travel by the Executive on
the Company's business to an extent substantially consistent with the
Executive's business travel obligations at the time of a Change in
Control of the Company;
(iv) any material breach by the Company of any
provision of this Agreement;
(v) any failure by the Company to obtain the
assumption of this Agreement by any successor or assign of the
Company; or
(vi) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 3(f), and for purposes of this
Agreement, no such purported termination shall be effective.
(f) NOTICE OF TERMINATION. Any termination by the Company
pursuant to Section 3(b), 3(c) or 3(d) shall be communicated by a Notice of
Termination. For purposes of this Agreement, a "Notice of Termination" shall
mean a written notice which shall indicate those specific termination provisions
in this Agreement relied upon and which sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. For purposes of this
Agreement, no such purported termination by the Company shall be effective
without such Notice of Termination.
3
<PAGE> 4
(g) DATE OF TERMINATION. "Date of Termination" shall mean (a)
if this Agreement is terminated by the Company for Disability, 30 days after
Notice of Termination is given to the Executive (provided that the Executive
shall not have returned to the performance of the Executive's duties on a
full-time basis during such 30-day period) or (b) if the Executive's employment
is terminated by the Company for any other reason, the date on which a Notice of
Termination is given.
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT. (a) If the
Company shall terminate the Executive's employment following a Change in Control
other than pursuant to Section 3(b), 3(c) or 3(d) or if the Executive shall
terminate his employment following a Change in Control for Good Reason, then the
Company shall pay to the Executive as severance pay in a lump sum, in cash, on
the fifth day following the Date of Termination, an amount equal to the sum of
(i) 150% of the average of the aggregate annual salary paid to the Executive by
the Company during the three calendar years preceding the Change in Control of
the Company and (ii) 150% of the highest bonus compensation paid to the
Executive for any of the three calendar years preceding the Change in Control of
the Company; provided, however, that if the lump sum severance payment under
this Section 4, either alone or together with other payments which the Executive
has the right to receive from the Company, would constitute a "parachute
payment" (as defined in Section 28OG of the Internal Revenue Code of 1986, as
amended (the "Code")), such lump sum severance payment shall be reduced to the
largest amount as will result in no portion of the lump sum severance payment
under this Section 4 being subject to the excise tax imposed by Section 4999 of
the Code.
(b) In addition to the lump sum payment provided in Section
4(a), if the Company shall terminate the Executive's employment following a
Change in Control other than pursuant to Section 3(b), 3(c) or 3(d) or if the
Executive shall terminate his employment following a Change in Control for Good
Reason, then the Company shall provide to the Executive health insurance
equivalent to that provided to the Executive immediately prior to termination
until the earlier of: (i) eighteen months following the Date of Termination or
(ii) such time as Executive is employed by another employer and is covered or
permitted to be covered by benefit plans of another employer providing
substantially similar coverage.
5. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS. (a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer after the Date of Termination, or
otherwise.
(b) The provisions of this Agreement, and any payment provided
for hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any benefit plan, incentive plan or stock
option plan, employment agreement or other contract, plan or arrangement.
4
<PAGE> 5
6. SUCCESSOR TO THE COMPANY. (a) The Company will require any successor
or assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to the Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place. Any
failure of the Company to obtain such agreement prior to the effectiveness of
any such succession or assignment shall be a material breach of this Agreement
and shall entitle the Executive to terminate the Executive's employment for Good
Reason. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor or assign to its business and/or assets
as aforesaid which executes and delivers the agreement provided for in this
Section 6 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law. If at any time during the term of this
Agreement the Executive is employed by any corporation a majority of the voting
securities of which is then owned by the Company, "Company" as used in Sections
3, 4, 11 and 12 hereof shall in addition include such employer. In such event,
the Company agrees that it shall pay or shall cause such employer to pay any
amounts owed to the Executive pursuant to Section 4 hereof.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amounts are still payable to him hereunder, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee, or other
designee or, if there be no such designee, to the Executive's estate.
7. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
O'Charley's Inc.
3038 Sidco Drive
Nashville, Tennessee 37204
Attention: President
If to the Executive:
Steven J. Hislop
3038 Sidco Drive
Nashville, Tennessee 37204
5
<PAGE> 6
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
8. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of Tennessee.
9. VALIDITY. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
10. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
11. LEGAL FEES AND EXPENSES. The Company shall pay all legal fees and
expenses which the Executive may incur as a result of the Company's contesting
the validity, enforceability or the Executive's interpretation of, or
determinations under, this Agreement.
12. CONFIDENTIALITY. The Executive shall retain in confidence any and
all confidential information known to the Executive concerning the Company and
its business so long as such information is not otherwise publicly disclosed.
The provisions of this Section 12 are not intended to restrict the ability of
the Executive following termination of employment for any reason to engage in
any business which is, directly or indirectly, competitive with the business
conducted by the Company.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
O'CHARLEY'S INC.
By: /s/ Gregory L. Burns
-------------------------------
Name: Gregory L. Burns
Title: Chief Executive Officer
/s/ Steven J. Hislop
-----------------------------------
Steven J. Hislop
7
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF THE COMPANY
Air Travel Services, Inc., a Tennessee corporation
DFI, Inc., a Tennessee corporation
O'Charley's Management Company, Inc., a Tennessee corporation
O'Charley's Restaurant Properties, LLC, a Delaware limited liability company
O'Charley's Sports Bar, Inc., an Alabama corporation
OCI, Inc., a Delaware corporation
<PAGE> 1
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
--------------------
The Board of Directors
O'Charley's Inc.:
We consent to incorporation by reference in the registration statements (No.
33-69934, No. 33-39869, No. 33-39872, No. 33-51258, No. 33-51316, and No.
33-51338 on Form S-8) of O'Charley's Inc. of our report dated February 6, 1998,
relating to the balance sheets of O'Charley's Inc. as of December 28, 1997 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 28, 1997, which report appears in the December 28, 1997 annual report
on Form 10-K of O'Charley's Inc.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Nashville, Tennessee
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF O'CHARLEY'S INC. FOR THE YEAR ENDED DECEMBER 28, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED IN O'CHARLEY'S INC. ANNUAL REPORT ON FORM 10-K
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> DEC-28-1997
<EXCHANGE-RATE> 1
<CASH> 1,965
<SECURITIES> 0
<RECEIVABLES> 2,276
<ALLOWANCES> 72
<INVENTORY> 4,600
<CURRENT-ASSETS> 13,147
<PP&E> 170,271
<DEPRECIATION> 34,220
<TOTAL-ASSETS> 150,515
<CURRENT-LIABILITIES> 24,456
<BONDS> 32,339
0
0
<COMMON> 65,249
<OTHER-SE> 30,134
<TOTAL-LIABILITY-AND-EQUITY> 150,515
<SALES> 200,373
<TOTAL-REVENUES> 200,403
<CGS> 160,220
<TOTAL-COSTS> 160,220
<OTHER-EXPENSES> 10,331
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,459
<INCOME-PRETAX> 13,686
<INCOME-TAX> 4,886
<INCOME-CONTINUING> 8,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,800
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 0.99
</TABLE>
