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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 26, 1999
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 (Zip Code)
offices)
Registrant's telephone number, including area code: (615) 256-8500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
no par value
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant on March 17, 2000 was approximately $143.9 million. 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 17, 2000 ($12.50) as reported on The Nasdaq Stock Market's National
Market.
The number of shares of common stock outstanding on March 17, 2000 was
15,499,187.
DOCUMENTS INCORPORATED BY REFERENCE
Documents from which portions are
Part of Form 10-K incorporated by reference
- ----------------- -------------------------
Part III Proxy Statement relating to the registrant's Annual
Meeting of Shareholders to be held May 4, 2000
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O'CHARLEY'S INC.
PART I
ITEM 1. BUSINESS.
At December 26, 1999, the Company owned and operated 117 O'Charley's
restaurants located in Alabama, Florida, Georgia, Indiana, Kentucky,
Mississippi, North Carolina, Ohio, South Carolina, Tennessee, and Virginia. With
value-conscious customers in mind, O'Charley's mission is to consistently exceed
customer expectations with high-quality food and customer service. Open seven
days a week, O'Charley's restaurants serve lunch, dinner, and Sunday brunch, and
most offer full bar service.
THE O'CHARLEY'S CONCEPT
O'Charley's restaurants provide fresh, high quality food at a good
value in a relaxed, friendly atmosphere. The key elements of the O'Charley's
concept include the following:
Variety of Freshly Prepared Items. O'Charley's offers a varied menu
with an emphasis on fresh preparation. The menu features approximately 45 items
including hand-cut and aged steaks, chicken that is always fresh and never
frozen, made-from-scratch soups, homemade yeast rolls, a variety of fresh-cut
salads with special-recipe salad dressings and signature carmel pie. All items
are cooked to order and all entrees are served with two side items and fresh
yeast rolls. To maintain freshness and quality, the Company operates its own
commissary where it ages and hand cuts its beef, prepares its special-recipe
salad dressings and mixes the dough for its yeast rolls that are proofed and
baked fresh daily in each restaurant. The Company is continually developing new
menu items to respond to changing customer tastes and preferences -- producing
only high-quality items that are well worth the extra effort it takes to prepare
them. In addition to its regular menu, O'Charley's restaurants offer speciality
menu items including an Express Lunch, daily special selections, a Sunday
brunch, a children's menu, as well as limited time seasonal offerings.
Attractive Menu Pricing. The Company believes its menu offers a good
value to the casual dining customer. The Company's prices range from $6.49 to
$16.99 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 1999, the average check per customer, including beverages,
was approximately $10.85.
Casual Ambiance. The Company seeks to create a casual, neighborhood
atmosphere in its restaurants. The interior decor of the Company's prototype
restaurant is open, casual and well lighted and features an exposed kitchen,
warm woods, polished brass and brick and neon accents. Hand-painted murals
depicting local history, people, places and events tailor the decor of many of
the restaurants to the local community. The Company remodels its restaurants on
average every three to five years to reflect refinements in the Company's
prototype restaurant and changes in customer tastes.
OPERATING STRATEGY
The Company's objective is to differentiate its restaurants by
exceeding customer expectations as to the quality of food and the friendliness
of service. To achieve this objective, the Company employs the following key
operating strategies:
Quality Assurance. The Company is committed to providing a broad menu
of freshly prepared, high quality items. The Company believes that its menu
offerings allow for simplified food preparation, efficient
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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 better than that of other casual dining
restaurants. The company believes that its pricing strategy and generous portion
sizes create an attractive price-to-value relationship, thereby increasing the
Company's ability to attract a broad spectrum of customers. O'Charley's
restaurants serve fresh yeast rolls with every order. In addition, entrees come
with a customer's choice of two side items including soup or house salad and
baked potato or fresh vegetables.
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. In order to ensure the best customer satisfaction,
the Company adopted "The Promise" - To create a friendly, warm environment; to
provide fast food and service; to present a clean, professional appearance; and
to have the knowledge needed to give each guest the best dining experience
possible. The Company's management team, including area supervisors, regional
directors and home office personnel, visit the Company's restaurants often,
reinforce the Company's commitment to customer service to its store level
managers and co-wokers, and communicate and receive feedback from customers. 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. Through the use of customer surveys, management
receives valuable feedback on its restaurants and through prompt response
demonstrates a continuing dedication to customer satisfaction.
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 co-workers. The Company operates a management training facility at its
home office in Nashville, Tennessee. Each new manager participates in a
comprehensive 11-week training program that 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
on sales, sales increases, 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
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metropolitan markets to enable the Company to utilize existing supervisory,
marketing and distribution systems. The Company expects to open 20 to 22 new
Company-owned restaurants in 2000.
During 1999, the Company opened 18 new restaurants in the following
markets:
Birmingham, Alabama Huntsville, Alabama
Columbus, Georgia Douglasville, Georgia
Newnan, Georgia Avon, Indiana
Bloomington, Indiana Evansville, Indiana
Lexington, Kentucky Pearl, Mississippi
Tupelo, Mississippi Charlotte, North Carolina
Greensboro, North Carolina Huntersville, North Carolina
Columbus, Ohio Greenwood, South Carolina
Collierville, Tennessee Roanoke, Virginia
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 or acquiring 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 and, in some cases, expands 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 or
expanded nine restaurants in 1999 and plans to remodel or expand approximately
12 additional restaurants in 2000. The average cost to remodel the Company's
restaurants in 1999 approximated $205,000 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 an average of approximately 80 full-time and part-time
employees. The Company employs area supervisors who have day-to-day
responsibility for the operating performance of approximately
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three to five restaurants. The Company's four regional directors currently
supervise 23 to 44 restaurants in their region and are directly involved in the
development of new restaurants. The Company's Executive Vice President,
Operations oversees all restaurant operations of the Company.
As an incentive for restaurant managers to improve sales and operating
efficiency, the Company has a monthly incentive compensation plan. Pursuant to
this plan, each member of the restaurant management team may earn a bonus,
payable during each four-week accounting period, based on a percentage of the
sales of the restaurant for which the manager has responsibility. The period
bonus is earned when budgeted financial results are achieved, subject to
adjustment based upon same store sales increases and certain operating
performance factors. In addition, in 1998 the Company instituted a store
management stock option program pursuant to which each member of the restaurant
management team is eligible to receive annual grants of options upon the
attainment of certain performance-based goals.
The Company also has a "3-Point Compensation Plan" that 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, and long-term
performance-based stock options that 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.
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 an 11-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 14 ETE's who are qualified and tested in their area of
responsibility. Restaurant level management is responsible for the hiring and
training of employees, but they involve the Company's hourly co-workers 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. The Company commissary operates a
USDA-approved meat processing facility at which it ages and cuts its beef and
manufactures O'Charley's salad dressings and yeast rolls. The commissary
primarily services the
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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
and most produce, which require more frequent deliveries, are typically
purchased locally by restaurant management to ensure freshness. The commissary
contains approximately 45,000 square feet of dry storage, 52,000 square feet of
refrigerated storage and 16,500 square feet of production facilities.
Management believes that its commissary enhances its restaurant
operations by assisting the Company in maintaining consistent food quality and
controlling costs. The commissary also simplifies the restaurant managers'
purchasing duties by providing fixed prices on food items and supplies, which
allows unit level management to focus on other areas of restaurant operations.
The Company establishes food and other product quality standards, and the
commissary negotiates directly with food manufacturers and other suppliers to
obtain the lowest possible prices at the required quality. The Company also
utilizes select long-term contracts on certain items to mitigate short-term food
cost fluctuations.
Quality Control. The Company uses written customer evaluations, which
are available to customers in the restaurants, as a means of monitoring customer
satisfaction. The Company also employs a "mystery shopper" program to
independently monitor quality control in areas such as timeliness of service,
atmosphere, cleanliness, employee attitude and food quality. In addition, the
Company has established a customer service department that receives calls and
routes comments to the appropriate personnel.
Advertising and Marketing. The Company has an ongoing defined
advertising and marketing plan for the development of television, radio and
newspaper advertising and also uses point of sale and local store marketing. The
Company focuses its marketing efforts 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 1999 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. The Company's management believes that the use of
technology and management information systems is essential for the management
oversight needed to produce strong operating results. In the past several years,
the Company has made significant improvements to its technology and systems,
which have contributed to the Company's financial and operating success. The
Company maintains operational and financial controls in each restaurant,
including management information systems to monitor sales, inventory, and labor,
that provide reports and data to the Company's home office. The management
accounting systems at the Company's home office polls data from the Company's
restaurants and generates daily reports of sales, sales mix, customer counts,
check average, cash, labor and food cost. Management utilizes this data to
monitor the effectiveness of controls and to prepare periodic financial and
management reports. The Company also utilizes these systems 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,
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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
conducts annual "Impact" meetings at each of its restaurants that provide a
forum for management to receive feedback from the Company's restaurant managers
and hourly co-workers. The Company has had in place for several years a plan to
foster diversity throughout its workforce.
RESTAURANT LOCATIONS
At December 26, 1999, the Company operated 117 O'Charley's restaurants.
The following table sets forth the locations (including the number of
restaurants at each location) of the Company's restaurants.
ALABAMA KENTUCKY SOUTH CAROLINA
Birmingham (5) Bowling Green Anderson
Decatur Elizabethtown Columbia
Dothan Florence Greenville
Huntsville (2) Frankfort Greenwood
Mobile Lexington (3) Rock Hill
Montgomery Louisville (5) Spartanburg
Oxford Owensboro TENNESSEE
Tuscaloosa Paducah Chattanooga (2)
FLORIDA Richmond Clarksville (2)
Pensacola MISSISSIPPI Cleveland
GEORGIA Biloxi Cookeville
Atlanta (5) Hattiesburg Franklin
Canton Jackson Gallatin
Columbus Meridian Gatlinburg
Conyers Pearl Jackson
Cumming Southhaven Johnson City
Dalton Tupelo Knoxville (5)
Douglasville NORTH CAROLINA Lebanon
Gainesville Asheville Memphis (4)
Macon Charlotte Murfreesboro
Newnan Fayetteville Nashville (6)
Snellville Greensboro Pigeon Forge
Warner Robbins Huntersville VIRGINIA
INDIANA Raleigh (3) Bristol
Avon Winston-Salem Roanoke
Bloomington OHIO
Clarksville Cincinnati (5)
Evansville (2) Columbus
Indianapolis (5) Dayton (2)
Lafayette
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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.
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 10.6% of the Company's restaurant sales in 1999 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 that 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 prohibits discrimination on
the basis of disability in public accommodations and employment. 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 that materially increases the applicable minimum wage, such
an increase may result in an increase in the Company's payroll and benefits
expense.
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EMPLOYEES
At December 26, 1999, the Company employed approximately 9,400 persons,
125 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 that are intended to be covered by the
safe harbors created thereby. Those statements include, but may not be limited
to, all statements regarding the intent, belief and expectations of the Company
and its management such as statements concerning the Company's future
profitability and its operating and growth strategy. Investors are cautioned
that all forward-looking statements involve risks and uncertainties including,
without limitation, the factors set forth 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 29
of the 117 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.
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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 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 45 Chief Executive Officer and Chairman of
the Board of Directors
Steven J. Hislop 40 President and Chief Operating Officer
A. Chad Fitzhugh 39 Chief Financial Officer, Secretary, and
Treasurer
William E. Hall, Jr. 45 Executive Vice President, Operations
Herman A. Moore, Jr. 48 Vice President, Commissary Operations
</TABLE>
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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. Mr. Burns, a director of
the Company since 1990, served as President of the Company from September 1996
to May 1999 and from May 1993 to February 1994, as Chief Financial Officer from
October 1983 to September 1996, and as Executive Vice President and Secretary of
the Company from October 1983 to May 1993.
Steven J. Hislop has served as President of the Company since May 1999,
as Chief Operating Officer of the Company since March 1997, and as a director of
the Company since March 1998. From March 1997 until May 1999, Mr. Hislop served
as Executive Vice President of the Company. 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.
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 Executive Vice President, Operations
since September 1999. Mr. Hall served as Vice President, Operations from March
1997 to September 1999, 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.
Herman A. Moore, Jr. has served as Vice President, Commissary
Operations since January 1996. Mr. Moore served as Director of Commissary
Operations from 1988 to January 1996.
ITEM 2. PROPERTIES.
Of the 117 O'Charley's restaurants in operation at December 26, 1999,
the Company owns 69 units, leases the land and building for 23 units, and leases
only the land for the remaining units. Six of the locations leased at December
26, 1999 were owned by partnerships whose partners are affiliated with the
Company. Restaurant lease expirations range from 2003 to 2019, with the majority
of the leases providing for an option to renew for additional terms ranging from
five 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 that expires in March 2017. 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.
The Company is 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.
10
<PAGE> 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of shareholders during the fourth
quarter ended December 26, 1999.
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 under the symbol "CHUX." As of March 17, 2000, there were approximately
750 shareholders of record. The following table shows quarterly high and low
closing prices for the Common Stock for the periods indicated, as reported by
the Nasdaq National Market.
<TABLE>
<CAPTION>
Fiscal 1998 High Low
- ----------- ------ ------
<S> <C> <C>
First Quarter $14.75 $10.00
Second Quarter 15.00 12.92
Third Quarter 15.00 9.25
Fourth Quarter 13.88 7.31
Fiscal 1999 High Low
- ----------- ------ ------
First Quarter $15.50 $10.88
Second Quarter 18.00 11.50
Third Quarter 16.88 13.50
Fourth Quarter 16.00 10.00
</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 26, 1999 without registration under the Securities Act of 1933, as
amended.
11
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
(IN THOUSANDS, DECEMBER 26, DECEMBER 27, DECEMBER 28, DECEMBER 29, DECEMBER 31,
EXCEPT PER SHARE DATA) 1999 1998 1997 1996 1995(1)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED
RESULTS OF OPERATIONS
Revenues $ 302,205 $ 246,046 $ 200,403 $ 164,530 $ 147,559
Restaurant Operating Margin 66,193 51,295 40,006 29,351 25,046
Advertising, General and
Administrative Expenses 19,235 15,533 12,932 9,370 8,187
Depreciation and Amortization 14,060 13,452 10,331 8,141 6,164
Asset Revaluation - - - 5,110 -
Preopening Costs 4,037 - - - -
Income from Operations 29,039 22,461 16,920 6,838 11,138
Special Charges Related to Litigation - - - 6,200 1,000
Earnings (Loss) Before Income
Taxes and Cumulative Effect of
Change in Accounting Principle 24,783 19,846 13,686 (1,944) 16,662
Income Taxes 8,674 6,946 4,886 (797) 6,071
Earnings (Loss) Before Cumulative Effect
of Change in Accounting Principle 16,109 12,900 8,800 (1,147) 10,591
-------------- --------------- --------------- ---------------- ---------------
Net Earnings (Loss) 14,761 12,900 8,800 (1,147) 10,591
-------------- --------------- --------------- ---------------- ---------------
EARNINGS PER SHARE DATA (DILUTED) (2)
Earnings (Loss) Before Cumulative Effect
of Change in Accounting Principle $ 0.97 $ 0.79 $ 0.66 $ (0.10) $ 0.85
Net Earnings (Loss) $ 0.89 $ 0.79 $ 0.66 $ (0.10) $ 0.85
Weighted Average Common Shares
Outstanding 16,656 16,392 13,361 11,714 12,462
-------------- --------------- --------------- ---------------- ---------------
AT YEAR END
FINANCIAL POSITION
Cash $ 3,178 $ 3,068 $ 1,965 $ 1,616 $ 2,576
Working Capital (19,411) (11,571) (11,309) (10,864) (7,344)
Property and Equipment, net 219,749 174,196 136,051 103,281 81,512
Total Assets 240,180 193,782 150,515 117,159 93,351
Long-Term Debt, net 54,441 35,566 13,679 29,822 11,990
Capitalized Lease Obligations, net 19,017 16,343 14,039 11,797 9,272
Shareholders' Equity 122,689 108,774 95,383 50,926 51,787
-------------- --------------- --------------- ---------------- ---------------
</TABLE>
(1) The income tax expense, net earnings and per share data for fiscal year
1995 represents pro forma amounts.
(2) Share and per share data have been restated to reflect the three-for-two
stock split in 1998.
12
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
GENERAL
At December 26, 1999, we owned and operated 117 O'Charley's restaurants in
Alabama, Florida, Georgia, Indiana, Kentucky, Mississippi, North Carolina, Ohio,
South Carolina, Tennessee and Virginia. O'Charley's are full service, casual
dining restaurants which appeal to traditional casual dining customers as well
as value-oriented customers by offering high quality food at moderate pricing
with outstanding service. Our restaurants are open seven days a week, and most
offer alcoholic beverages as well as food. We expect to increase revenues by
opening new units and by increasing same store sales. Our growth strategy is to
continue fully penetrating existing and new targeted major metropolitan areas
while opening new units in smaller secondary markets in close proximity to our
major markets. We operate a commissary for the primary purpose of providing our
restaurants with consistent quality food products which meet our specifications
while obtaining the best possible prices for those items. The majority of the
food products served in our restaurants are distributed to the stores by the
commissary. In addition to purchasing food and supply products, the commissary
manufactures certain proprietary products and ages and cuts red meat into steaks
in its USDA-approved meat facility. All sales from the commissary to the
restaurants are eliminated in the consolidated financial statements.
During the first quarter of 1999, we adopted Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities," which requires that preopening
and start-up costs be expensed as incurred rather than capitalized. Before the
accounting change, preopening costs were amortized over one year. The cumulative
effect of the accounting change totaled $2.1 million pre-tax and $1.3 million
net of tax, or $0.08 per diluted share. Earnings before the cumulative effect of
the change in accounting principle were $16.1 million, or $0.97 per diluted
share, in 1999 as compared with $12.9 million, or $0.79 per diluted share, for
1998.
The following table reflects changes in the number of Company-owned restaurants
for the periods presented:
<TABLE>
<CAPTION>
Restaurants 1999 1998 1997
----------- ---- ---- ----
<S> <C> <C> <C>
In operation, beginning of period 99 82 69
Restaurants opened 18 16 13
Restaurants acquired from franchisee - 1 -
In operation, end of period 117 99 82
</TABLE>
REVENUES consist of restaurant sales and to a lesser extent commissary sales.
Restaurant sales include food and beverage sales and are net of applicable state
and local sales taxes. Commissary sales represent sales to outside parties
consisting 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. We have historically
maintained a "kids eat free" program where we provide meals from a selected menu
to kids 10 years old and under. In select markets, we are currently offering a
value-oriented kids program where we provide a meal from a kid's menu, which
includes a beverage and dessert for a set price. The results indicate that there
are no material differences in profitability at restaurants that implement the
value-oriented kid's program.
13
<PAGE> 15
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 our control, including adverse weather, cause periodic
fluctuations in food costs. Generally, temporary increases are absorbed and are
not passed on to customers; however, we typically adjust menu prices to
compensate for increased costs of a more permanent nature.
PAYROLL AND BENEFITS include payroll and related costs and expenses directly
relating to restaurant level activities including restaurant management salaries
and bonuses, hourly wages for store level employees, payroll taxes, workers'
compensation, various health, life and dental insurance programs, vacation
expense and sick pay. We have an incentive bonus plan that compensates store
management for achieving and exceeding certain store level financial targets and
performance goals. Currently, Congress is contemplating an increase in the
federal minimum wage rate and it appears an increase is imminent. We typically
pay our employees more than minimum wage; thus, we do not expect an immediate
adverse effect on our financial performance from such an increase. However, as
in prior years, we do expect that overall wage inflation will be higher for
several years following any minimum wage increase that may effect payroll costs
in the future.
RESTAURANT OPERATING COSTS includes occupancy and other expenses at the
restaurant level, except property and equipment depreciation and amortization.
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, for purposes of this discussion,
consists of cost of food, beverage and supplies, payroll and benefits and
restaurant operating costs.
ADVERTISING, GENERAL AND ADMINISTRATIVE EXPENSES includes all advertising and
home office 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
prior to 1999, includes 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.
PREOPENING COSTS include operating costs and expenses incurred prior to a new
restaurant opening. Beginning in the first quarter of 1999, preopening costs are
expensed as incurred in accordance with SOP 98-5 rather than capitalized and
amortized over one year as was the practice prior to the implementation of this
new accounting pronouncement. This new accounting method affects when preopening
costs are expensed and may impact earnings relative to the previous method on a
quarter to quarter and year to year basis depending on when these costs are
incurred. We will continue to capture preopening costs; but will now reflect
these expenses on a separate line item labeled "preopening costs" on the
statement of earnings rather than reporting these costs in the depreciation and
amortization line item. The amount of preopening costs incurred in any one year
will include costs associated with new stores opening during that particular
year and most likely will include costs associated with stores expected to open
subsequent to that year. We typically incur average preopening costs of
approximately $190,000 for each new store.
14
<PAGE> 16
The following section should be read in conjunction with "Selected Financial
Data" and our financial statements and the related notes thereto included
elsewhere herein. The following table highlights the operating results for
fiscal years 1999, 1998 and 1997 as a percentage of total revenues unless
otherwise indicated. Fiscal years 1999, 1998 and 1997 are each comprised of 52
weeks.
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Restaurant sales 98.9% 98.9% 98.6%
Commissary sales 1.1 1.1 1.4
- -------------------------------------------------------------------------------------------------------
100.0 100.0 100.0
Costs and Expenses:
Cost of restaurant sales: 1
Cost of food, beverage and supplies 33.4 34.7 34.7
Payroll and benefits 30.3 30.2 30.6
Restaurant operating costs 14.2 14.0 14.5
- -------------------------------------------------------------------------------------------------------
77.9 78.9 79.8
- -------------------------------------------------------------------------------------------------------
Restaurant operating margin 2 22.1 21.1 20.2
Cost of commissary sales 3 94.4 94.3 93.7
Advertising, general and administrative expenses 6.4 6.3 6.5
Depreciation and amortization 4.7 5.5 5.2
Preopening costs 1.3 -- --
- -------------------------------------------------------------------------------------------------------
Income from Operations 9.6 9.1 8.4
Other (Income) Expense:
Interest expense, net 1.4 1.1 1.7
Other, net 0.0 (0.1) (0.1)
- -------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes and Cumulative
Effect of Change in Accounting Principle 8.2 8.1 6.8
Income Taxes 2.9 2.8 2.4
- -------------------------------------------------------------------------------------------------------
Earnings Before Cumulative Effect of Change
in Accounting Principle 5.3 5.2 4.4
Cumulative Effect of Change in Accounting
Principle, net of tax (0.4) -- --
- -------------------------------------------------------------------------------------------------------
Net Earnings 4.9% 5.2% 4.4%
- -------------------------------------------------------------------------------------------------------
</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.
15
<PAGE> 17
FISCAL YEAR 1999 COMPARED WITH FISCAL YEAR 1998
TOTAL REVENUES in 1999 increased $56.2 million, or 22.8%, to $302.2 million from
$246.0 million in 1998 primarily as a result of an increase in restaurant sales
of $55.6 million, or 22.9%. The increase in restaurant sales was attributable to
the addition of 18 new restaurants and an increase in same store sales of 3.1%.
In March 1999, we increased menu prices by approximately 2%.
COST OF FOOD, BEVERAGE AND SUPPLIES in 1999 increased $15.4 million, or 18.2%,
to $99.7 million from $84.4 million in 1998. As a percentage of restaurant
sales, cost of food, beverage and supplies decreased to 33.4% in 1999 from 34.7%
in 1998. We attribute these lower food cost percentages primarily to three
factors: we took a menu price increase in March 1999, which increased the
average check; the cost of several food items decreased; and we improved our
purchasing and operating efficiencies in our stores and commissary. These
improvements were partially offset by an increase in red meat costs. Currently,
we are anticipating further increases in red meat costs in 2000. There can be no
assurance that events outside our control will not result in increased food
costs.
PAYROLL AND BENEFITS increased $17.1 million, or 23.2%, to $90.6 million in 1999
from $73.6 million in 1998. Payroll and benefits as a percentage of restaurant
sales increased slightly to 30.3% in 1999 from 30.2% in 1998. The increase was
attributable to higher store level bonuses and increasing wage rates and
salaries for restaurant support staff and management in 1999. Those higher wages
and salaries were partially offset by economies achieved from higher average
unit sales volumes, reduced hourly turnover and from certain employee benefit
cost reductions. Our markets generally have low unemployment rates and we
compete with other restaurants for employees. We anticipate continued wage rate
increases in 2000 but do not expect an immediate material impact which would
adversely effect our operations.
RESTAURANT OPERATING COSTS in 1999 increased $8.3 million, or 24.2%, to $42.5
million from $34.2 million in 1998. Restaurant operating costs, as a percentage
of restaurant sales, increased to 14.2% in 1999 from 14.0%. This increase is
primarily attributable to an increase in management training salaries and
benefits related to the hiring and training of new store managers assigned to
stores opening in 2000. Additionally, we entered two new major markets in 1999,
Charlotte, North Carolina in the first quarter and Columbus, Ohio in the second
quarter, which increased certain supervision costs. Typically, we incur higher
initial supervision and other operating costs when entering new markets. We did
not enter any new major market in 1998.
RESTAURANT OPERATING MARGIN increased 29.1% to $66.2 million in 1999 from $51.3
million in 1998. Restaurant operating margin, as a percentage of restaurant
sales, improved to 22.1% in 1999 from 21.1% in 1998. This improvement is due
primarily to decreases in food and beverage costs as a percentage of sales.
ADVERTISING, GENERAL AND ADMINISTRATIVE expenses increased $3.7 million, or
23.8%, to $19.2 million in 1999 from $15.5 million in 1998. As a percentage of
total revenue, advertising, general and administrative expenses increased to
6.4% from 6.3%. Advertising expenditures increased 25.1% to $8.2 million in 1999
from $6.6 million in 1998 and, as a percentage of restaurant sales, increased to
2.8% in 1999 from 2.7% in 1998. General and administrative expenses increased
22.9% to $11.0 million in 1999 from $9.0 million in 1998, and as a percentage of
total sales, remained at 3.6% in 1999.
DEPRECIATION AND AMORTIZATION in 1999 increased $608,000, or 4.5%, to $14.1
million from $13.5 million in 1998. We adopted SOP 98-5 in the first quarter of
1999, which requires preopening costs to be expensed as incurred. Previously, we
capitalized preopening costs and amortized these amounts over one year from
16
<PAGE> 18
the opening of each store. The depreciation and amortization expense recorded in
1998 included preopening cost amortization of $2.9 million. Preopening costs are
now recorded in a separate line item category and the depreciation and
amortization line, beginning in 1999, no longer includes any preopening cost
amortization. Excluding the preopening cost amortization, depreciation expense
in 1999 increased $3.5 million, or 33.2%, to $14.1 million from $10.6 million in
1998. The increase in depreciation expense is primarily attributable to
additional capital expenditures for new units and remodeling of certain existing
units.
PREOPENING COSTS, excluding the one-time cumulative adjustment for the change in
accounting principle as measured under SOP 98-5, were $4.0 million in 1999. As a
percentage of total revenue, preopening costs were 1.3% in 1999, compared to
preopening cost amortization of 1.2% in 1998.
INCOME FROM OPERATIONS increased $6.6 million, or 29.3%, to $29.0 million in
1999 from $22.5 million in 1998.
INTEREST EXPENSE, net increased $1.4 million in 1999 to $4.2 million from $2.8
million in 1998. The increase is primarily related to the increased borrowings
under our revolving line of credit. During the fourth quarter of 1997, we
reduced our long-term debt by $34.7 million with the net proceeds received from
the sale of common stock, which reduced interest expense in 1998.
EARNINGS before income taxes and cumulative effect of change in accounting
principle for 1999 increased $4.9 million or 24.9%, to $24.8 million from $19.8
million in 1998.
THE CUMULATIVE EFFECT OF THE CHANGE IN ACCOUNTING PRINCIPLE, net of tax,
recorded in the first quarter of 1999 and included in 1999 results, represented
the write-off of unamortized preopening costs in accordance with SOP 98-5. The
$2.1 million of unamortized preopening costs remaining on our balance sheet at
December 27, 1998 was written off in this one-time adjustment. After adjusting
for the tax benefit, the net cumulative effect was $1.3 million.
FISCAL YEAR 1998 COMPARED WITH FISCAL YEAR 1997
TOTAL REVENUES in 1998 increased $45.6 million, or 22.8%, to $246.0 million from
$200.4 million in 1997 primarily as a result of an increase in restaurant sales
of $45.9 million, or 23.2%. The increase in restaurant sales was attributable to
the addition of 16 new restaurants, an increase in same store sales of 5.2% and
the acquisition of our remaining franchisee's operations. The increase in same
store sales was the result of an increase in customer traffic of approximately
3.2% and an increase in the average check of approximately 2.0%, which was
primarily the result of a menu price increase taken in March 1998.
COST OF FOOD, BEVERAGE AND SUPPLIES in 1998 increased $15.8 million, or 23.0%,
to $84.4 million from $68.6 million in 1997. As a percentage of restaurant
sales, cost of food, beverage and supplies remained at 34.7%. Although the
overall food cost percentage remained the same, there were some items that
positively and negatively effected food cost. Our menu price increase in March
1998 and improved operating efficiencies lowered food cost as a percentage of
sales. These improvements were offset by cost increases in poultry, primarily
chicken tenders, red meat, cheese and dairy products and potatoes. Except for
those food items mentioned above, the impact of inflation on food cost was
minimal.
PAYROLL AND BENEFITS increased $13.1 million, or 21.7%, to $73.6 million in 1998
from $60.4 million in 1997. Payroll and benefits as a percentage of restaurant
sales decreased to 30.2% in 1998 from 30.6% in 1997.
17
<PAGE> 19
Consistent with the previous year, we continued to achieve a lower payroll cost
as a percentage of restaurant sales due to the economies achieved from higher
average unit sales volumes, reduced management and hourly turnover and from
certain employee benefit cost reductions. Store level bonus increases and higher
average wage rates partially offset the decreases in payroll and benefit costs.
RESTAURANT OPERATING COSTS in 1998 increased $5.6 million, or 19.7%, to $34.2
million from $28.6 million in 1997. As a percentage of restaurant sales,
restaurant operating costs decreased to 14.0% in 1998 from 14.5%. This decrease
is primarily attributable to economies generated from higher average unit
volumes and lower rent expense as we have generally purchased our restaurant
sites in recent years. Decreases in the restaurant operating cost percentage
were partially offset by higher bonuses earned by supervisor and regional level
management and by increases in training expenses for store management. Each of
the supervisors and regional managers participate in an incentive-based
compensation plan tied directly to their financial results and performance
goals. We increased management training in 1998 to prepare for the additional
units opened in 1999 including stores in two new geographical markets,
Charlotte, North Carolina and Columbus, Ohio. Typically, we incur higher initial
supervision and other operating costs when entering new markets. We did not
enter any new major market in 1998.
RESTAURANT OPERATING MARGIN increased 28.3% to $51.3 million in 1998 from $40.0
million in 1997. As a percentage of restaurant sales, restaurant operating
margin improved to 21.1% in 1998 from 20.2% in 1997. This improvement is due to
the increases in overall average sales and decreases in payroll and benefit
costs and other restaurant operating cost as a percentage of sales.
ADVERTISING, GENERAL AND ADMINISTRATIVE EXPENSES increased $2.6 million, or
20.1%, to $15.5 million in 1998 from $12.9 million in 1997. As a percentage of
total revenue, advertising, general and administrative expenses decreased to
6.3% from 6.5%. Advertising expenditures increased 20.2% to $6.6 million in 1998
from $5.5 million in 1997 and, as a percentage of restaurant sales, decreased to
2.7% in 1998 from 2.8% in 1997. General and administrative expenses increased
20.0% to $9.0 million in 1998 from $7.5 million in 1997.
DEPRECIATION AND AMORTIZATION in 1998 increased $3.1 million, or 30.2%, to $13.5
million from $10.3 million in 1997. As a percentage of total revenue,
depreciation and amortization increased to 5.5% in 1998 from 5.2% in 1997.
Amortization of preopening expenses remained at 1.2% of total revenue in 1998
while depreciation expense increased to 4.3% of total revenue in 1998 from 4.0%
in 1997. The increase in depreciation expense is primarily attributable to
additional capital expenditures for the remodeling of certain existing stores.
INCOME FROM OPERATIONS increased $5.5 million, or 32.7%, to $22.5 million in
1998 from $16.9 million in 1997. After adjusting for the interest expense
reduction in 1998, earnings before income taxes increased $6.2 million, or 45.0%
to $19.8 million from $13.7 million in 1997.
INTEREST EXPENSE, NET decreased $658,000 in 1998 to $2.8 million from $3.5
million in 1997. We reduced our long-term debt by approximately $34.7 million in
the fourth quarter of 1997 from the net proceeds received from the sale of
common stock that reduced interest expense in 1998.
INCOME TAX EXPENSE increased $2.1 million, or 42.2%, to $6.9 million in 1998
from $4.9 million in 1997. As a percentage of earnings before income taxes,
income tax expense was 35.0% in 1998 versus 35.7% in 1997. This reduction is
primarily attributable to an overall lower state income tax expense in 1998.
18
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of capital have historically been generated from cash
provided by operations, borrowings under our bank credit facilities and
additions to capitalized lease obligations. Our principal capital needs arise
primarily from the purchase and development of new restaurants, equipment
replacement and improvements to existing restaurants.
Property and equipment additions were $59.7 million in 1999. Of these additions,
$56.2 million were made primarily for 18 new stores opened during the year,
stores under construction at December 26, 1999, improvements to existing
restaurants, and $3.5 million was used for the construction of a new commissary
freezer placed in operation in the fourth quarter of 1999. Additionally, we
repaid $5.6 million, net, in principal on our long-term debt and capitalized
lease obligations. These cash outlays were funded primarily by $36.7 million in
cash provided by operations, net borrowings of $19.0 million under our revolving
credit agreement (the "Revolver") and borrowings of approximately $9.8 million
under capitalized lease obligations. The total increase in cash was $110,000 in
1999.
We believe we will need additional capital of approximately $60.0 million in
2000 to fund capital expenditures for the planned 20 to 22 new restaurants and
for improvements to existing units. As of December 26, 1999, we had eleven
restaurants under construction; seven to eight of which are expected to open
during the first quarter of 2000. We are currently in discussions concerning the
purchase of the existing commissary and home office land and building
facilities, which are currently occupied under an operating lease. We estimate
the cost to purchase the commissary and home office facilities to be
approximately $5.7 to $6.0 million. Financing to fund these projects is
currently being evaluated and would likely include borrowings under the Revolver
or off balance sheet financing. Actual capital expenditures in 2000 may vary
from the above estimate based on a number of factors, including the timing of
additional purchases of future restaurant sites. We intend to continue financing
the furniture, fixtures and equipment for our new stores with capitalized lease
obligations.
On January 31, 2000, the Revolver was amended and restated to extend the
maturity date and increase the maximum borrowing capacity to $135 million from
$100 million. As of December 26, 1999, $54.0 million was outstanding under the
Revolver and bore interest at an average rate of 7.0%. The maturity date was
extended until May 31, 2003. The maturity date may be extended annually by one
year, at the participating banks' option, beginning on each anniversary of the
Revolver. The Revolver imposes restrictions on us with respect to the
maintenance of certain financial ratios, the incurrence of indebtedness, and the
sale of assets, mergers and the payment of dividends.
Our working capital historically has had current liabilities in excess of
current assets due to cash reinvestments in long-term assets, mostly property
and equipment additions. At December 26, 1999, the working capital deficiency
and the current ratio were $19.4 million and 0.5 to 1, respectively.
On September 2, 1998, the Board of Directors of the Company approved the
repurchase of up to 5.0% of our outstanding common stock. As of December 26,
1999, approximately 260,000 shares had been repurchased. Through March 17, 2000,
50,000 additional shares were repurchased. We continually evaluate the best uses
of our capital and may repurchase additional shares in the future.
19
<PAGE> 21
During 2000, we believe that available cash, cash generated from operations and
borrowings under the Revolver and capitalized lease obligations will be
sufficient to finance our operations and expected capital outlays. Our growth
strategy includes the consideration of acquisitions or strategic joint ventures.
Any such acquisitions, or joint ventures or other growth opportunities may
require additional external financing, and we may from time to time seek to
obtain additional funds from public or private issuances of equity or debt
securities.
YEAR 2000
We have not experienced any significant disruptions to our financial or
operating activities caused by the failure of our computerized systems, or those
of our suppliers, resulting from Year 2000 conversion issues. We do not expect
Year 2000 conversion issues to have a material adverse effect on our operations
or financial results in 2000.
IMPACT OF INFLATION
The impact of inflation on the cost of food, labor, equipment, land and
construction costs could adversely affect our operations. A majority of our
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 our restaurants are located, we have continued to increase
wages and benefits in order to attract and retain management personnel and
hourly co-workers. In addition, most of our leases require us to pay taxes,
insurance, maintenance, repairs and utility costs, and these costs are subject
to inflationary pressures. We 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> 22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Disclosure About Interest Rate Risk. The Company is subject to market risk
from exposure to changes in interest rates based on its financing, investing,
and cash management activities. The Company utilizes a balanced mix of debt
maturities along with both fixed-rate and variable-rate debt to manage its
exposures to changes in interest rates. See Notes 5 and 6 to the Financial
Statements appearing elsewhere in this Form 10-K. The Company does not expect
changes in interest rates to have a material effect on income or cash flows in
fiscal 2000, although there can be no assurances that interest rates will not
significantly change.
21
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
O'CHARLEY'S INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report 23
Balance Sheets at December 27, 1998 and December 26, 1999 24
Statements of Earnings for the Years Ended December 28, 1997,
December 27, 1998, and December 26, 1999 25
Statements of Shareholders' Equity for the Years Ended December 28,
1997, December 27, 1998, and December 26, 1999 27
Statements of Cash Flows for the Years Ended December 28, 1997,
December 27, 1998, and December 26, 1999 28
Notes to Financial Statements 29
</TABLE>
22
<PAGE> 24
The Board of Directors and Shareholders
O'Charley's Inc.
Nashville, Tennessee:
We have audited the balance sheets of O'Charley's Inc. as of December 26, 1999
and December 27, 1998, and the related statements of earnings, shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 26, 1999. 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 statements 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
26, 1999 and December 27, 1998, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 26, 1999, in
conformity with generally accepted accounting principles.
As discussed in note 1 to the financial statements, in 1999 the Company changed
its method of accounting for preopening costs.
/s/ KPMG LLP
Nashville Tennessee
February 2, 2000
23
<PAGE> 25
BALANCE SHEETS
<TABLE>
<CAPTION>
December 26, December 27,
(dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 3,178 $ 3,068
Accounts receivable, less allowance for doubtful
accounts of $119 in 1999 and $87 in 1998 2,195 2,371
Inventories 8,776 7,029
Preopening costs -- 2,074
Deferred income taxes 1,138 143
Other current assets 794 1,347
- ------------------------------------------------------------------------------------------------------------
Total current assets 16,081 16,032
Property and Equipment, net 219,749 174,196
Other Assets 4,350 3,554
- ------------------------------------------------------------------------------------------------------------
$ 240,180 $ 193,782
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 9,318 $ 6,941
Accrued payroll and related expenses 6,524 5,104
Accrued expenses 7,470 6,145
Federal, state and local taxes 5,167 3,984
Current portion of long-term debt and capitalized leases 7,013 5,429
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 35,492 27,603
Deferred Income Taxes 6,243 4,290
Other Liabilities 2,298 1,206
Long-Term Debt, net of current portion 54,441 35,566
Capitalized Lease Obligations, net of current portion 19,017 16,343
Shareholders' Equity:
Common stock--No par value; authorized, 50,000,000
shares; issued and outstanding, 15,502,182 in 1999 and
15,394,128 in 1998 65,732 65,986
Additional paid-in capital -- 509
Accumulated other comprehensive loss, net of tax (186) (103)
Retained earnings 57,143 42,382
--------- ---------
Total shareholders' equity 122,689 108,774
--------- ---------
$ 240,180 $ 193,782
========= =========
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to the financial statements.
24
<PAGE> 26
STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
Year Ended
- ---------------------------------------------------------------------------------------------------------------------
December 26, December 27, December 28,
(in thousands, except per share data) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Restaurant sales $299,014 $243,416 $197,584
Commissary sales 3,191 2,630 2,819
- ---------------------------------------------------------------------------------------------------------------------
302,205 246,046 200,403
Costs and Expenses:
Cost of restaurant sales:
Cost of food, beverage and supplies 99,736 84,370 68,584
Payroll and benefits 90,625 73,561 60,431
Restaurant operating costs 42,460 34,190 28,563
Cost of commissary sales 3,013 2,479 2,642
Advertising, general and administrative expenses 19,235 15,533 12,932
Depreciation and amortization 14,060 13,452 10,331
Preopening costs 4,037 -- --
- ---------------------------------------------------------------------------------------------------------------------
273,166 223,585 183,483
- ---------------------------------------------------------------------------------------------------------------------
Income from Operations 29,039 22,461 16,920
Other (Income) Expense:
Interest expense, net 4,174 2,801 3,459
Other, net 82 (186) (225)
- ---------------------------------------------------------------------------------------------------------------------
4,256 2,615 3,234
- ---------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes and Cumulative Effect
of Change in Accounting Principle 24,783 19,846 13,686
Income Taxes 8,674 6,946 4,886
- ---------------------------------------------------------------------------------------------------------------------
Earnings Before Cumulative Effect of
Change in Accounting Principle 16,109 12,900 8,800
Cumulative Effect of Change in Accounting
Principle, net of tax (1,348) -- --
- ---------------------------------------------------------------------------------------------------------------------
Net Earnings $ 14,761 $ 12,900 $ 8,800
======== ======== ========
</TABLE>
25
<PAGE> 27
<TABLE>
<S> <C> <C> <C>
Basic Earnings Per Common Share Before
Cumulative Effect of Change in Accounting
Principle $1.04 $0.84 $0.71
Cumulative Effect of Change in Accounting
Principle, net of tax ($0.09) -- --
- ---------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Common Share $0.95 $0.84 $0.71
===== ===== =====
- ---------------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Common Share Before
Cumulative Effect of Change in
Accounting Principle $0.97 $0.79 $0.66
Cumulative Effect of Change in Accounting
Principle, net of tax ($0.08) -- --
- ---------------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Common Share $0.89 $0.79 $0.66
===== ===== =====
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to the financial statements.
26
<PAGE> 28
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Stock Paid-in Comprehensive Retained
(in thousands) Shares Amount Capital Loss, net Earnings Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 29, 1996 11,782 $29,592 $ 652 -- $20,682 $ 50,926
Comprehensive income:
1997 net earnings -- -- -- -- 8,800 8,800
Shares of common stock sold 3,348 34,726 -- -- -- 34,726
Litigation shares issued 46 445 -- -- -- 445
Exercise of employee stock options including
tax benefits 70 336 -- -- -- 336
Shares issued under CHUX Ownership Plan 19 150 -- -- -- 150
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 28, 1997 15,265 65,249 652 -- 29,482 95,383
Comprehensive income:
1998 net earnings -- -- -- -- 12,900 12,900
Change in unrealized loss on
available for sale securities,
net of tax -- -- -- (103) -- (103)
--------
12,797
========
Repurchase of common stock (14) -- (143) -- -- (143)
Exercise of employee stock options including
tax benefits 95 447 -- -- -- 447
Stock donation 8 97 -- -- -- 97
Shares issued under CHUX Ownership Plan 40 193 -- -- -- 193
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 27, 1998 15,394 65,986 509 (103) 42,382 108,774
Comprehensive income:
1999 net earnings -- -- -- -- 14,761 14,761
Change in unrealized loss on
available for sale securities,
net of tax -- -- -- (83) -- (83)
--------
14,678
========
Repurchase of common stock (245) (2,637) (509) (3,146)
Exercise of employee stock options including
tax benefits 328 2,124 2,124
Shares issued under CHUX Ownership Plan 25 259 259
- -------------------------------------------------------------------------------------------------------------------------
15,502 $65,732 $ -- $(186) $57,143 $122,689
====== ======= ===== ===== ======= ========
</TABLE>
See notes to the financial statements.
27
<PAGE> 29
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
- ---------------------------------------------------------------------------------------------------------------------------
December 26, December 27, December 28,
(in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 14,761 $ 12,900 $ 8,800
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Cumulative effect of accounting change,
net of tax 1,348 -- --
Depreciation and amortization 14,060 10,558 7,920
Amortization of preopening costs -- 2,894 2,411
Deferred income taxes 1,729 2,052 3,190
(Gain)loss on the sale and involuntary
conversion of assets 86 (522) 73
Changes in assets and liabilities:
Accounts receivable 176 (167) (658)
Inventories (1,747) (2,429) (95)
Additions to preopening costs -- (3,628) (2,654)
Other current assets 2 (322) (874)
Accounts payable 2,377 1,412 507
Accrued payroll and other accrued expenses 3,868 2,230 (237)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 36,660 24,978 18,383
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (49,880) (42,550) (34,621)
Proceeds from the sale and involuntary conversion of assets 35 2,238 1,025
Purchase of equity securities -- (612) --
Other, net 654 (595) 85
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (49,191) (41,519) (33,511)
Cash Flows From Financing Activities:
Proceeds from long-term debt 38,803 43,822 16,400
Payments on long-term debt and capitalized
lease obligations (25,399) (26,675) (36,135)
Net proceeds from sale of common stock -- -- 34,726
Exercise of employee incentive stock options 2,383 640 486
Repurchase of common stock (3,146) (143) --
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 12,641 17,644 15,477
- ---------------------------------------------------------------------------------------------------------------------------
Increase in cash 110 1,103 349
Cash at beginning of the period 3,068 1,965 1,616
- ---------------------------------------------------------------------------------------------------------------------------
Cash at end of the period $ 3,178 $ 3,068 $ 1,965
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to the financial statements
28
<PAGE> 30
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
O'Charley's, Inc. (the "Company") owns and operates 117 (at December 26, 1999)
full-service restaurant facilities in 11 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 1999, 1998 and
1997 were comprised of 52 weeks, which ended December 26, December 27, and
December 28, respectively.
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. The
Company adopted SOP 98-5, "Reporting the Costs of Start-Up Activity," in the
first quarter of 1999. SOP 98-5 requires that costs incurred during a start-up
activity (including organization costs) be expensed as incurred. Prior to the
adoption of SOP 98-5, preopening costs were capitalized and amortized over one
year. Accordingly, the Company now expenses preopening costs in the period
incurred, and has recognized, as a cumulative effect of a change in accounting
principle, a charge equal to the after tax effect of the unamortized preopening
costs recorded on the accompanying balance sheet at December 27, 1998.
Investments. The Company owns certain marketable securities that are accounted
for in accordance with Statement of Financial Accounting Standards No. 115.
Accounting for Certain Debt and Equity Securities. Those securities related to
the Company's deferred compensation plan discussed in note 11 are accounted for
as trading securities, which are recorded at fair value with unrealized gains
and losses included in results of operations. Such unrealized gains and losses
are reflected in the accompanying statements of earnings, net of the associated
change in accrued liabilities for compensation costs. The fair values of such
assets at December 26, 1999 and December 27, 1998 are $2,133,000 and $1,206,000,
respectively.
All other marketable securities are classified as available for sale securities
and are carried at fair value with the unrealized gains and losses recorded in a
separate component of shareholders' equity, net of tax. At December 26, 1999,
the fair value and cost of such securities were $332,000 and $619,000,
respectively. At December 27, 1998, such amounts were $452,000 and $612,000,
respectively.
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. 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
29
<PAGE> 31
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 1999, 1998 and
1997 totaled $8,220,000, $6,569,000 and $5,464,000, 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 basis.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the statement
of operations in the period that includes the enactment date.
Stock Option Plan. The Company accounts for its stock option plans in accordance
with Statement of Financial Accounting Standards No. 123 ("FAS 123"), Accounting
for Stock-based Compensation, which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date of
the grant. Alternatively, FAS 123 also allows entities to continue to apply the
provisions of Accounting Principle Board ("APB") Opinion No. 25, Accounting for
Stock Issued to employees, 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.
Per Share Data. Basic earnings per common share have been computed by dividing
net earnings 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 by the weighted average number of common shares
outstanding plus the dilutive effect of options outstanding during the
applicable periods.
Stock Repurchase. Under Tennessee law, when a corporation purchases its common
stock in the open market, such repurchased shares become authorized but
unissued. The Company reflects the purchase price of any such repurchased shares
as a reduction of additional paid-in capital and common stock.
Fair Value of Financial Instruments. Statement of Financial Accounting Standards
No. 107 ("FAS 107"), Disclosures about Fair Value of Financial Instruments,
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 26, 1999. Book value
approximates fair value for substantially all of the Company's assets and
liabilities that fall under the scope of FAS 107.
30
<PAGE> 32
Impairment of Long-Lived Assets. 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, 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.
Comprehensive Income. Statement of Financial Accounting Standards No. 130 ("FAS
130"), Reporting Comprehensive Income, establishes rules for the reporting of
comprehensive income and its components. Comprehensive income, presented in the
Statement of Shareholders' Equity, consists of net income and in 1999 and 1998,
unrealized losses on available for sale securities. There were no components of
other comprehensive income for 1997.
Operating Segments. The Company has adopted Statement of Financial Accounting
Standards No. 131 ("FAS 131"), Disclosures About Segments of an Enterprise and
Related Information, which changes the way the Company reports information about
its operating segments. The Company operates in one segment as defined by FAS
131.
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 1999 presentation.
31
<PAGE> 33
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at year end:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 50,770 $ 43,864
Buildings and improvements 77,284 62,489
Furniture, fixtures and equipment 56,462 44,691
Leasehold improvements 52,204 33,926
Equipment under capitalized leases 39,452 32,747
Property leased to others 840 82
- -----------------------------------------------------------------------------------------------
277,012 217,799
Less accumulated depreciation and amortization (57,263) (43,603)
- -----------------------------------------------------------------------------------------------
$219,749 $174,196
- -----------------------------------------------------------------------------------------------
</TABLE>
3. OTHER ASSETS
Other assets consist of the following at year end:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Excess of cost over fair value of net assets acquired,
net of accumulated amortization of $131 in 1999
and $115 in 1998 $ 191 $ 207
Prepaid and other assets 802 775
Marketable securities, deferred compensation 2,133 1,206
Marketable securities, other 332 452
Notes receivable 892 914
- --------------------------------------------------------------------------------------------------
$4,350 $3,554
- --------------------------------------------------------------------------------------------------
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses include the following at year end:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred revenue $2,573 $2,002
Insurance expenses 1,807 1,441
Other accrued expenses 3,090 2,702
- ------------------------------------------------------------------------------------------------
7,470 $6,145
- ------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 34
5. LONG-TERM DEBT
Long-term debt consists of the following at year end:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving line of credit $54,000 $35,000
Secured mortgage notes payable 222 233
Installment notes payable 343 446
- ----------------------------------------------------------------------------------------------
54,565 35,679
Less current maturities (124) (113)
- ----------------------------------------------------------------------------------------------
$54,441 $35,566
- ----------------------------------------------------------------------------------------------
</TABLE>
On December 8, 1999, the Company entered into an amended and restated revolving
credit agreement (the "Second Amendment") that extended the maturity date of the
facility to November 30, 2002 for the first $70,000,000 outstanding under the
facility and December 6, 2000 for the remaining $30,000,000. Under the previous
agreement, the first $70,000,000 matured November 30, 2000 and the remaining
$30,000,000 matured December 7, 1999.
On January 31, 2000, the Company entered into an amended and restated revolving
credit agreement (the "Third Amendment") which increased its unsecured line of
credit facility to $135 million from $100 million. The Third Amendment 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 facility is based on certain financial
ratios achieved by the Company and is recomputed quarterly. At December 26,
1999, the $54,000,000 outstanding balance carried interest rates from 6.3% to
7.2%. The Third Amendment also extended the maturity date of the facility to May
31, 2003. The Third Amendment allows the facility to be extended annually by one
year at the participating Banks' option. The Third Amendment also requires the
Company to meet certain financial and other covenants, including restrictions on
the incurrence of indebtedness, the sale of assets, mergers and dividend
payments.
The secured mortgage note payable at December 26, 1999, bears interest at 10.5%
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 $959,000 at December 26, 1999.
The installment notes payable at December 26, 1999, bear interest at 8.6% and
are payable in monthly installments, including interest, through October 2002.
Installment notes payable of $343,000 is secured by an airplane with a
depreciated cost of approximately $901,000 at December 26, 1999.
The annual maturities of long-term debt as of December 26, 1999, are:
$124,000-2000; $135,000-2001; $125,000-2002; $54,017,000-2003; $19,000-2004; and
$145,000 thereafter.
6. 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.
33
<PAGE> 35
As of December 26, 1999, approximately $39,452,000 cost less $10,265,000
accumulated amortization of the Company's property and equipment is under
capitalized lease obligations. Interest rates on capitalized lease obligations
range from 5.3% to 11.3%. Future minimum lease payments at December 26, 1999 are
as follows:
<TABLE>
<CAPTION>
Capitalized
Equipment Operating
(in thousands) Leases Leases
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
2000 $ 8,352 $ 5,649
2001 6,852 5,675
2002 5,464 5,682
2003 3,563 5,552
2004 3,085 5,329
Thereafter 2,547 46,328
- ----------------------------------------------------------------------------------------------
Total minimum rentals 29,863 $74,215
- ----------------------------------------------------------------------------------------------
Less amount representing interest (3,957)
- ----------------------------------------------------------------------------------------------
Net minimum lease payments 25,906
Less current maturities (6,889)
- ----------------------------------------------------------------------------------------------
Capitalized lease obligations $19,017
- ----------------------------------------------------------------------------------------------
</TABLE>
Rent expense for the fiscal years ending in December for operating leases is as
follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $5,224 $4,393 $4,022
Contingent rentals 656 614 479
- --------------------------------------------------------------------------------
$5,880 $5,007 $4,501
</TABLE>
7. INCOME TAXES
The total income tax expense (benefit) for each respective year is as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- -------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Earnings before cumulative effect of accounting change $ 8,674 $ 6,946 $ 4,886
Tax effect of cumulative effect of accounting change (726) -- --
Shareholders' equity, tax benefit derived from
non-statutory stock options exercised and unrealized
loss on investment securities (768) (162) (120)
--------- --------- -----------
$ 7,180 $ 6,784 $ 4,766
========= ========= ===========
</TABLE>
34
<PAGE> 36
Income tax expense related to earnings before cumulative effect of accounting
change for each respective year is as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- ----------------------------------- ---- ---- ----
<S> <C> <C> <C>
Current $ 6,945 $ 4,894 $ 1,696
Deferred 1,729 2,052 3,190
------------ ------------ -----------
$ 8,674 $ 6,946 $ 4,886
============ ============ ===========
</TABLE>
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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes due to:
State income taxes, net of federal tax benefit 3.1 2.9 3.7
Utilization of tax credits (3.1) (2.9) (3.5)
Other - - 0.5
----- ----- -----
35.0% 35.0% 35.7%
===== ===== =====
</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 year ends are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- ---------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:
Accrued expenses, principally due to accruals for
workers' compensation, employee health and
retirement benefits $ 1,433 $ 1,333 $ 1,621
Other 204 240 23
----------- ------------ -----------
Total gross deferred tax assets 1,637 1,573 1,644
Deferred tax liabilities:
Property and equipment, principally due to differences
in depreciation and capitalized lease amortization 6,742 4,859 3,207
Preopening costs, due to cost in excess of amortization - 726 517
Other - 135 71
----------- ------------ -----------
Total gross deferred tax liabilities 6,742 5,720 3,795
----------- ------------ -----------
Net deferred tax liability $ 5,105 $ 4,147 $ 2,151
=========== ============ ===========
</TABLE>
35
<PAGE> 37
The net deferred tax liability (asset) at year-end is recorded as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- ------------------------------------------------ ---- ---- ----
<S> <C> <C> <C>
Deferred income taxes, long-term liability $ 6,243 $ 4,290 $ 2,958
Deferred income taxes, current asset (1,138) (143) (807)
------------ ------------ -----------
$ 5,105 $ 4,147 $ 2,151
============ ============ ===========
</TABLE>
Based on the Company's history of taxable income and management's projections of
future taxable income, the Company believes it is more likely than not that all
of the deferred assets will be realized; thus, no valuation allowance is
recorded.
8. SHAREHOLDERS' EQUITY
The Board of Directors of the Company approved a 3-for-2 stock split effected as
a 50% stock dividend for shareholders of record on May 20, 1998. Previously
stated common shares outstanding and basic and dilutive weighted average common
shares outstanding used to compute basic and dilutive earnings per common share
have been adjusted to reflect the stock split. Previously reported basic and
dilutive earnings per common share were $1.06 and $0.99 in 1997.
In the fourth quarter of 1997, the Company completed a secondary public offering
of its common stock in which 3,348,000 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.
On September 2, 1998, the Board of Directors of the Company approved the
repurchase of up to 750,000 shares of the Company's common stock. As of December
26, 1999, approximately 260,000 shares have been repurchased. Through March 17,
2000, the Company repurchased 50,000 additional shares of common stock.
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 26, 1999,
no preferred shares had been issued.
36
<PAGE> 38
9. EARNINGS PER SHARE
The following is a reconciliation of the Company's basic and diluted earnings
per share in accordance with FAS 128.
<TABLE>
<CAPTION>
(in thousands, except per share data) 1999 1998 1997
- -------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Earnings before cumulative effect of accounting
change $ 16,109 $ 12,900 $ 8,800
Net Earnings $ 14,761 $ 12,900 $ 8,800
Basic Earnings per Share:
Weighted shares outstanding 15,461 15,344 12,467
Earnings per common share before cumulative effect
of change in accounting principle $ 1.04 $ 0.84 $ 0.71
Cumulative effect of change in accounting principle $ (0.09) $ - $ -
------------ ----------- -----------
Basic earnings per share $ 0.95 $ 0.84 $ 0.71
============ =========== ===========
Diluted Earnings per Share:
Weighted shares outstanding 15,461 15,344 12,467
Incremental stock option shares outstanding 1,195 1,048 894
------------ ----------- -----------
Total diluted shares outstanding 16,656 16,392 13,361
Earnings per common share before cumulative effect
of change in accounting principle $ 0.97 $ 0.79 $ 0.66
Cumulative effect of change in accounting principle $ (0.08) $ - $ -
------------ ----------- -----------
Diluted earnings per share $ 0.89 $ 0.79 $ 0.66
============ =========== ===========
</TABLE>
During the first quarter of 2000, the Company issued options to purchase 345,000
shares of Common Stock at an exercise price of $11.875 per share. For the fiscal
years 1999, 1998 and 1997, the number of anti-dilutive shares excluded from the
weighted average shares calculation were approximately 646,300, 230,300 and
45,100, respectively.
37
<PAGE> 39
10. 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 8,795,500 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.
A summary of stock option activity during the past three years is as follows:
<TABLE>
<CAPTION>
Weighted-Average
Number of Shares Exercise Price
---------------- ----------------
<S> <C> <C>
Balance at December 29, 1996 2,759,413 $ 5.69
Granted 248,250 10.09
Exercised (74,325) 3.19
Forfeited (81,427) 8.02
--------------- -------------
Balance at December 28, 1997 2,851,911 6.08
Granted 463,700 12.14
Exercised (95,260) 4.11
Forfeited (71,425) 8.89
--------------- -------------
Balance at December 27, 1998 3,148,926 6.98
Granted 980,550 15.16
Exercised (328,438) 4.53
Forfeited (121,143) 12.33
--------------- -------------
Balance at December 26, 1999 3,679,895 $ 9.21
=============== =============
</TABLE>
38
<PAGE> 40
The following table summarizes information about stock options outstanding at
December 26, 1999.
<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>
$1.00 to 4.99 338,873 2.1 years $ 3.02 338,873 $ 3.02
$5.00 to 5.99 1,072,167 3.8 5.61 1,020,680 5.61
$6.00 to 7.99 444,942 5.0 7.49 314,435 7.44
$8.00 to 10.99 490,726 6.7 9.00 229,388 8.75
$11.00 to 13.99 395,237 8.2 12.32 110,036 12.34
$14.00 to 15.99 937,950 9.2 15.16 24,750 14.33
------------ ----------------- --------------- --------------- ----------------
$1.00 to 15.99 3,679,895 6.0 $ 9.21 2,038,162 $ 6.28
============ ================= =============== =============== ================
</TABLE>
At the end of 1999, 1998 and 1997, the number of options exercisable was
approximately 2,038,000, 2,003,000 and 1,578,000, respectively, and the weighted
average exercise price of those options was $6.28, $5.57 and $5.01,
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 675,000 common shares for this plan. The
CHUX Ownership Plan is intended to be an employee stock purchase plan which
qualifies for favorable tax treatment under Section 423 of the Internal Revenue
Code. The Plan allows participants to purchase common shares at 85% of the lower
of 1) the closing 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. As of December 26, 1999, 148,000 shares have been
issued under this plan.
If compensation cost for these plans had been determined consistent with FAS
Statement No. 123, the Company's net earnings and earnings per share would have
been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
(in thousands, except per share data) 1999 1998 1997
- --------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Earnings: As reported $ 14,761 $ 12,900 $ 8,800
Pro forma, as adjusted under FAS 123 13,391 12,162 8,387
Basic Earnings
per common
share: As reported $ 0.95 $ 0.84 $ 0.71
Pro forma, as adjusted under FAS 123 0.87 0.79 0.67
Diluted Earnings
per common
share: As reported $ 0.89 $ 0.79 $ 0.66
Pro forma, as adjusted under FAS 123 0.80 0.74 0.63
</TABLE>
39
<PAGE> 41
Because the FAS 123 method of accounting has not been applied to options granted
prior to January 1, 1996, the resulting pro forma compensation cost may not be
representative of that to be expected in future years. 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 each
respective year is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Risk-free investment interest 6.4% 5.3% 5.8%
Expected life in years 7.0 7.9 7.8
Expected volatility 51.5% 52.7% 50.5%
Fair value of options granted (per share) $ 9.30 $ 7.73 $ 6.33
</TABLE>
40
<PAGE> 42
11. EMPLOYEE BENEFIT PLANS
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 50% 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
$356,000 in 1999, $276,000 in 1998, and $140,000 in 1997.
The Company maintains a deferred compensation plan for a select group of
management employees to provide supplemental retirement income benefits through
deferrals of salary, bonus and deferral of contributions which cannot be made to
the Company's 401(k) Plan due to Internal Revenue code limitations. Participants
in this Plan can contribute, on a pre-tax basis, up to 50% of their base pay and
100% of their bonuses. The Company contributes annually to this Plan an amount
equal to a matching formula of each participant's deferrals. Company
contributions were $205,000 in 1999, $143,000 in 1998 and $109,000 in 1997. The
amount of the deferred compensation liability payable to the participants is
recorded as "other liabilities" on the balance sheet.
12. RELATED-PARTY TRANSACTIONS
The Company leases the land and building of four of its restaurants from an
entity that is owned by an officer and a principal shareholder of the Company.
The leases expire at various times through 2007, with options to renew for a
term of 10 years.
At the beginning of 1999, the Company leased three of its restaurants from an
entity that is owned by certain directors, an officer and a principal
shareholder of the Company. During 1999, the Company bought out one of the
leases. Subsequent to year-end, the Company purchased the remaining two leased
properties at fair value.
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.
The aforementioned related-party transactions are reflected in the financial
statements as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- ------------------------------------- --------- -------- -------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS
Costs and Expenses:
Restaurant operating costs:
Rent expense $599 $765 $861
Contingent rentals 410 386 310
</TABLE>
41
<PAGE> 43
13. STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information is as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- ------------------------------------------------- ------------ ----------- ------------
<S> <C> <C> <C>
Cash paid for interest $4,306 $3,021 $3,616
Additions to capitalized lease obligations 9,787 7,852 7,146
Income taxes paid 5,254 4,613 1,582
Litigation shares issued -- -- 445
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal actions incidental to its business. In
the opinion of management, the ultimate outcome of these matters will not have a
material impact on the Company's operating results, liquidity or financial
positions.
15. SELECTED QUARTERLY DATA (UNAUDITED)
Summarized quarterly financial data for each respective year is as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(in thousands, except for per share data) (16 weeks) (12 weeks) (12 weeks) (12 weeks)
- ------------------------------------------------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended December 26, 1999
Net revenues $ 87,849 $ 70,225 $ 72,148 $ 71,983
Income from operations 8,084 6,590 6,894 7,472
Income before cumulative change in accounting principle 4,470 3,629 3,821 4,190
Net earnings 3,122 3,629 3,821 4,190
Basic earnings per common share
Earnings before change in accounting principle 0.29 0.24 0.25 0.27
Net Earnings 0.20 0.24 0.25 0.27
Diluted earnings per common share
Earnings before change in accounting principle 0.27 0.22 0.23 0.25
Net Earnings 0.19 0.22 0.23 0.25
===== ===== ===== =====
Year Ended December 27, 1998
Net revenues $ 70,961 $ 56,589 $ 58,251 $ 60,245
Income from operations 6,122 5,325 5,278 5,736
Net earnings 3,463 3,083 3,047 3,307
Basic earnings per common share 0.23 0.20 0.20 0.21
Diluted earnings per common share 0.21 0.19 0.19 0.20
===== ===== ===== =====
</TABLE>
42
<PAGE> 44
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 4, 2000, 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 4, 2000, 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 4, 2000, 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 4, 2000, 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.
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
- O'Charley's Inc. 1985 Stock Option Plan (included as Exhibit 10.12)
- O'Charley's Inc. 1990 Employee Stock Plan (included as Exhibit 10.13)
43
<PAGE> 45
- First Amendment to O'Charley's Inc. 1990 Employee Stock Plan
(included as Exhibit 10.14)
- Second Amendment to O'Charley's Inc. 1990 Employee Stock Plan
(included as Exhibit 10.15)
- Third Amendment to O'Charley's Inc. 1990 Employee Stock Plan
(included as Exhibit 10.16)
- O'Charley's 1991 Stock Option Plan for Outside Directors, as amended
(included as Exhibit 10.17)
- CHUX Ownership Plan (included as Exhibit 10.18)
- Severance Compensation Agreement, dated February 16, 2000, by and
between O'Charley's Inc. and Gregory L. Burns (included as
Exhibit 10.19)
- Severance Compensation Agreement, dated as of March 4, 1998, by and
between O'Charley's Inc. and A. Chad Fitzhugh (included as
Exhibit 10.20)
- Severance Compensation Agreement, dated as of March 4, 1998, by and
between O'Charley's Inc. and Steven J. Hislop (included as
Exhibit 10.21)
4. Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ----- -----------
<S> <C>
3.1 ---- Restated Charter of the Company (incorporated by reference to Exhibit 4.1
of the Company's Registration Statement on Form S-3, Registration No. 333-33585)
3.2 ---- Amended and Restated Bylaws of the Company (incorporated by reference to
Exhibit 3 of the Company's Quarterly Report on Form 10-Q for the quarter ended April 18, 1999)
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)
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)
</TABLE>
44
<PAGE> 46
<TABLE>
<S> <C>
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 ---- Lease Agreement dated as of December 30, 1990 between Two Mile Partners, II and
O'Charley's Inc. (incorporated by reference to Exhibit 10.26 of the Company's Annual
Report on Form 10-K for the year ended December 30, 1990)
10.8 ---- 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 (incorporated by reference to Exhibit 10.18 of the Company's Annual Report
on Form 10-K for the year ended December 28, 1997)
10.9 ---- Assumption Agreement and Amendment to Amended and Restated Revolving Credit Agreement,
dated December 7, 1998, among O'Charley's Inc., OCI, Inc., O'Charley's Sports Bar, Inc., Air
Travel Services, Inc., O'Charley's Management Company, Inc., DFI, Inc., O'Charley's
Restaurant Properties, LLC, 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 (incorporated by reference to Exhibit 10.9 of the Company's Annual Report
on Form 10-K for the year ended December 27, 1998)
10.10 ---- Assumption and Second Amendment to Amended and Restated Revolving Credit Agreement, dated
December 8, 1999, among O'Charley's Inc., OCI, Inc., O'Charley's Sports Bar, Inc., Air Travel
Services, Inc., O'Charley's Management Company, Inc., DFI, Inc., O'Charley's Restaurant Properties,
LLC, O'Charley's Service Company, Inc., Mercantile Bank National Association, First Union National
Bank, Bank of America, N.A., as Co-Agent, and First American National Bank, as Agent.
10.11 ---- Third Amendment to Amended and Restated Revolving Credit Agreement, dated January 31, 2000, by and
among O'Charley's Inc., OCI, Inc., O'Charley's Sports Bar, Inc., Air Travel Services, Inc.,
O'Charley's Management Company, Inc., DFI, INC., O'Charley's Restaurant Properties, LLC, O'Charley's
Service Company, Inc., Mercantile Bank, National Association, First Union National Bank, SunTrust
Bank, Bank of America, N.A., as Co-Agent, and AmSouth Bank, as Agent.
</TABLE>
45
<PAGE> 47
<TABLE>
<S> <C>
10.12 ---- 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)
10.13 ---- 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)
10.14 ---- 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)
10.15 ---- Second Amendment to O'Charley's Inc. 1990 Employee Stock Plan (incorporated by reference to Exhibit
10.23 of the Company's Annual Report on Form 10-K for the year ended December 26, 1993)
10.16 ---- Third Amendment to O'Charley's Inc. 1990 Employee Stock Plan (incorporated by reference to Exhibit
10.14 of the Company's Annual Report on Form 10-K for the year ended December 27, 1998)
10.17 ---- O'Charley's Inc. 1991 Stock Option Plan for Outside Directors, As Amended (incorporated by
reference to Exhibit 4.4 of the Company's Registration Statement on Form S-8, Registration No.
333-63495)
10.18 ---- CHUX Ownership Plan (incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended October 3, 1993)
10.19 ---- Severance Compensation Agreement, dated February 16, 2000, by and between O'Charley's Inc. and
Gregory L. Burns
10.20 ---- Severance Compensation Agreement, dated March 4, 1998, by and between O'Charley's Inc. and A. Chad
Fitzhugh (incorporated by reference to Exhibit 10.19 of the Company's Annual Report on Form 10-K
for the year ended December 28, 1997)
10.21 ---- Severance Compensation Agreement, dated March 4, 1998, by and between O'Charley's Inc. and Steven
J. Hislop (incorporated by reference to Exhibit 10.20 of the Company's Annual Report on Form 10-K
for the year ended December 28, 1997)
21 ---- Subsidiaries of the Company
23 ---- Consent of KPMG LLP
27 ---- Financial Data Schedule
</TABLE>
(b) During the quarter ended December 26, 1999, the Company did not
file any Reports on Form 8-K.
46
<PAGE> 48
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, 2000 By: /s/ Gregory L. Burns
-----------------------------------------------
Gregory L. Burns
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 Chief Executive Officer and Chairman of March 27, 2000
- -------------------------------- the Board (Principal Executive Officer)
(Gregory L. Burns)
/s/ Steven J. Hislop President, Chief Operating Officer and March 27, 2000
- -------------------------------- Director
(Steven J. Hislop)
/s/ A. Chad Fitzhugh Chief Financial Officer, Secretary, and March 27, 2000
- -------------------------------- Treasurer (Principal Financial and
(A. Chad Fitzhugh) Accounting Officer)
Director
- --------------------------------
(John W. Stokes, Jr.)
/s/ Richard Reiss, Jr. Director March 27, 2000
- --------------------------------
(Richard Reiss, Jr.)
/s/ G. Nicholas Spiva Director March 27, 2000
- --------------------------------
(G. Nicholas Spiva)
/s/ H. Steve Tidwell Director March 27, 2000
- --------------------------------
(H. Steve Tidwell)
/s/ C. Warren Neel Director March 27, 2000
- --------------------------------
(C. Warren Neel)
/s/ Samuel H. Howard Director March 27, 2000
- --------------------------------
(Samuel H. Howard)
/s/ Shirley A. Zeitlin Director March 27, 2000
- --------------------------------
(Shirley A. Zeitlin)
</TABLE>
47
<PAGE> 1
EXHIBIT 10.10
ASSUMPTION AND SECOND AMENDMENT TO
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
THIS ASSUMPTION AND SECOND AMENDMENT (this "AMENDMENT") made this 8th
day of December, 1999, is by and among O'CHARLEY'S INC., a Tennessee corporation
("ORIGINAL BORROWER"), OCI, INC., a Delaware corporation ("OCI"), O'CHARLEY'S
SPORTS BAR, INC., an Alabama corporation ("SPORTS BAR"), AIR TRAVEL SERVICES,
INC., a Tennessee corporation ("AIR TRAVEL"), O'CHARLEY'S MANAGEMENT COMPANY,
INC., a Tennessee corporation ("MANAGEMENT COMPANY"), DFI, INC., a Tennessee
corporation ("DFI"), O'CHARLEY'S RESTAURANT PROPERTIES, LLC, a Delaware limited
liability company, ("RESTAURANT PROPERTIES"; individually, OCI, Sports Bar, Air
Travel, Management Company, DFI and Restaurant Properties are sometimes referred
to herein as an "ADDITIONAL BORROWER" and when referencing two or more of such
entities, they are sometimes referred to herein as "ADDITIONAL BORROWERS");
O'Charley's Service Company, Inc., a Tennessee corporation ("NEW BORROWER"), the
Original Borrower, the Additional Borrowers and the New Borrower are sometimes
referred to herein, individually and collectively, as a "BORROWER" and the
"Borrowers"), each of the undersigned Banks, BANK OF AMERICA, N.A., a national
banking association, successor by merger to NationsBank, N.A., as a Bank and as
Co-Agent, and FIRST AMERICAN NATIONAL BANK, a national banking association
("AGENT") as a Bank and as Agent for the Banks.
RECITALS:
Pursuant to that certain Amended and Restated Revolving Credit and
Security Agreement, dated as of December 8, 1997, as amended by that certain
Assumption Agreement and Amendment to Amended and Restated Revolving Credit
Agreement dated December 7, 1998 (as amended, the "AGREEMENT"), the Banks and
Bank One, N.A. ("BANK ONE") made certain loans to the Original Borrower and the
Additional Borrowers. Capitalized terms not otherwise defined herein shall have
the same meaning as in the Agreement. The Original Borrower and the Additional
Borrowers have requested that the Banks restructure such loans to add the New
Borrower as a Borrower under the credit facility governed by the Agreement, to
increase the Commitment of several of the Banks in order to pay in full the
amounts owing to Bank One under the Loan Documents and to extend the Loan
Termination Date of Facility A and Facility B and the Swingline Facility, and
the Banks are willing to do so, subject, among other things, to execution of
this Agreement which includes, among other things, amendments to certain terms
of the Loan and to add an additional financial covenant.
NOW, THEREFORE, in consideration of the foregoing premises, and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. The New Borrower hereby joins in and assumes each of the
obligations, covenants and conditions set forth in the Agreement, as hereby
amended, and agrees to be bound by all of the terms thereof and further assumes
and agrees to pay, jointly and severally with the Original Borrower and the
Additional Borrowers, the indebtedness evidenced by the Notes and other
Obligations.
2. Section 1 of the Agreement entitled "DEFINITIONS" is hereby
amended by adding or amending the following definitions:
"Adjusted Fund Debt" means the Borrower's Funded Debt plus
eight (8) times the applicable Operating Lease Expense.
"Adjusted Funded Debt to EBITDAR Ratio" means Borrower's
Adjusted Funded Debt divided by EBITDAR.
"Borrowers" or "Borrower" means O'Charley's Inc., OCI, Inc.,
O'Charley's Sports Bar, Inc., Air Travel Services, Inc., DFI, Inc.,
O'Charley's Restaurant Properties, LLC and O'Charley's Service Company,
Inc., individually and/or collectively.
"Co-Agent" means Bank of America, N.A., successor by merger to
NationsBank of Tennessee, N.A.
<PAGE> 2
"EBITDAR" means net earnings before interest expense, taxes,
depreciation, amortization expense and Rental Expense, less any
extraordinary income generated from nonrecurring events or from events
not directly related to restaurant operations.
"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) (A) November 30,
2002, in the case of Facility A, (B) December 6, 2000, 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), or (C) November 30, 2002,
in the case of the Swingline Facility.
"Note" means any of the promissory note or notes dated
December 9, 1997 and dated December 8, 1999, as applicable, and
delivered to the Banks in connection with the execution of the
Agreement and the Swingline Note, including any amendment,
modification, renewal, extension, or replacement thereof, and "Notes"
means the Notes of each of the Banks collectively.
3. The last sentence of section 2.1(A) of the Agreement is
hereby amended in its entirety to read as follows:
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
---------- ----------
<S> <C> <C> <C>
First American National
Bank 22,750,000 9,750,000 32.5%
Bank of America, N.A. 22,750,000 9,750,000 32.5%
Mercantile Bank
National Association 10,500,000 4,500,000 15%
First Union National
Bank 14,000,000 6,000,000 20%
</TABLE>
4. The first sentence of Section 2.1(B) of the Agreement is
hereby amended in its entirety as follows:
The Loans shall be evidenced by (i) the $22,750,000 Note of Borrower to
First American National Bank for Facility A and the $9,750,000 Note of
Borrower to First American National Bank for Facility B, (ii) the
$22,750,000 Note of Borrower to Bank of America, N.A. for Facility A
and the $9,750,000 Note of Borrower to Bank of America, 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, and (iv) the
$14,000,000 Note of Borrower to First Union National Bank for Facility
A and the $6,000,000 Note of Borrower to First Union National Bank for
Facility B, which Notes are substantially in the form of Exhibit D-1
attached hereto, with each Note payable in accordance with its terms.
5. The first sentence of Section 2.2(A) of the Agreement is
hereby amended in its entirety to read as follows:
The Borrower shall give the Agent irrevocable notice (a "BORROWING
NOTICE") not later than 10:00 a.m., Nashville time one (1) Business Day
prior to any requested 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.
6. The Agreement is hereby amended by adding the following
Section 2.14 and Section 2.15 immediately following Section 2.13 contained
therein:
Section 2.14. Funding Losses.
Borrowers shall compensate each Bank, upon its written request
to Borrowers (which request shall set forth the basis for requesting
such amounts in reasonable detail and which request shall be made in
good
2
<PAGE> 3
faith and, absent manifest error, shall be final, conclusive and
binding upon all of the parties hereto), for all actual losses,
expenses and liabilities (including, without limitation, any interest
paid by such Bank to lenders of funds borrowed by it to make or carry
its Eurodollar Loans to the extent not recovered by such Bank in
connection with the re-employment of such funds but excluding loss of
anticipated profits), which the Bank may sustain: (i) if for any reason
(other than a default by such Bank) a borrowing of, or conversion to or
continuation of, Eurodollar Loans to Borrowers does not occur on the
date specified therefor in a Borrowing Notice, any notice of conversion
or notice of continuation to a Eurodollar Loan (whether or not
withdrawn), (ii) if any repayment (including mandatory prepayments and
any conversions) of any Eurodollar Loans to Borrowers occurs on a date
which is not the last day of a Eurodollar Interest Period applicable
thereto, or (iii) if, for any reason, Borrowers default in their
obligation to repay their Eurodollar Loans when required by the terms
of this Agreement.
Section 2.15. Assumptions Concerning Funding of Eurodollar
Loans.
Calculation of all amounts payable to a Bank under this
Article 2 shall be made as though that Bank had actually funded its
relevant Eurodollar Loans through the purchase of deposits in the
relevant market bearing interest at the rate applicable to such
Eurodollar Loans in an amount equal to the amount of the Eurodollar
Loans and having a maturity comparable to the relevant Eurodollar
Interest Period and through the transfer of such Eurodollar Loans from
an offshore office of that Bank to a domestic office of that Bank in
the United States of America; provided, however that each Bank may fund
each of its Eurodollar Loans in any manner it sees fit and the
foregoing assumption shall be used only for calculation of amounts
payable under this Article 2.
7. The second sentence of Section 2.4(A) is hereby deleted in its
entirety.
8. Subsection (R) of Section 4.1 of the Agreement is hereby
amended in its entirety to read as follows:
(R) O'Charley's Inc. owns 100% of the issued and outstanding
stock of OCI, Inc., O'Charley's Sports Bar, Inc., Air Travel Services,
Inc., O'Charley's Management Company, Inc., DFI, Inc. and O'Charley's
Service Company, Inc. and DFI, Inc. owns 100% of the outstanding
membership interests of O'Charley's Restaurant Properties, LLC. Except
as set forth in the preceding sentence, none of the Borrowers owns an
interest in any Person.
9. Subsection (F) of Section 5.1 of the Agreement is hereby
amended in its entirety to read as follows:
(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 2.50 to 1,
calculated quarterly with EBITDA computed on a rolling four (4) quarter
basis.
(4) an Adjusted Funded Debt to EBITDAR Ratio of less than 3.25
to 1, calculated quarterly with EBITDAR 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.
10. Subsection (N) of Section 5.1 of the Agreement is hereby
amended in its entirety to read as follows:
3
<PAGE> 4
(N) On or before January 31, 2000, the Borrowers will deliver
to Agent a Certificate of Existence issued by the Tennessee Secretary
of State evidencing that all fees, taxes and penalties owed to the
State of Tennessee and affecting the existence of the Original Borrower
have been paid.
11. Section 6.1(C) of the Agreement is hereby amended by deleting
the reference to Section 5.1(M) contained therein and substituting in lieu
thereof the reference to Section 5.1(K).
12. The first sentence of Section 7.1 of the Agreement is hereby
amended in its entirety to read as follows:
With respect to all funds advanced hereunder or under the Notes, First
American National Bank, Bank of America, N.A., Mercantile Bank National
Association, and First Union National Bank shall be obligated to
advance, in the aggregate under Facilities A and B, $32,500,000;
$32,500,000, $15,000,000, and $20,000,000, respectively, and each such
Bank shall own a corresponding undivided interest in this Agreement.
13. Section 8.5 of the Agreement is hereby amended in its entirety
read as follows:
Section 8.5. Notices.
Any notices or consents required or permitted by this
Agreement shall be in writing and shall be deemed 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, Esq.
Felix Dowsley, Esq.
Bass, Berry & Sims, PLC
First American Center
Nashville, TN 37229
(B) If to the Agent:
First American National Bank
First American Center
Nashville, TN 37237-0202
Attn: Mary Buckner, Sr. Vice President
cc: Cynthia N. Sellers, Esq.
Farris, Warfield & Kanaday, PLC
424 Church Street, Suite 1800
Nashville, TN 37219
(C) If to Co-Agent:
Bank of America, N.A.
One Bank of America Plaza
414 Union Street
Nashville, TN 37239
Attn: William Diehl
4
<PAGE> 5
(D) If to the Banks:
First American National Bank
First American Center
Nashville, TN 37237-0202
Attn: Ken Dobbins, Sr. Vice President
Bank of America, N.A.
One Bank of America Plaza
414 Union Street
Nashville, TN 37239
Attn: William Diehl
Mercantile Bank National Association
One Mercantile Center, Tram 12-3
721 Locust Street
St. Louis, MO 63101
Attn: Eric J. Hartman, Assistant Vice President
First Union National Bank
301 South College Street, TW-10
Charlotte, NC 28288-0745
Attn: Mary J. Amatore, Vice President
14. The first sentence of the second paragraph of Section 8.8 of
the Agreement is hereby amended in its entirety to read as follows:
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 financial
institutions whereby such Bank will allocate certain percentages of its
outstanding Loans and/or Commitment to such financial institution or
financial institutions.
15. All references to "NationsBank, N.A." or "NationsBank of Tennessee,
N.A." in the Agreement are amended to read "Bank of America, N.A."
16. All references to Bank One, N.A. in the Agreement are hereby
deleted.
17. Fees. In connection with the increased Commitments of the Banks in
connection with Facility A and Facility B and the extension of Facility B, the
Borrowers agree to pay to First American National Bank, Bank of America, N.A.,
Mercantile Bank National Association and First Union National Bank a fee in the
amount of $35,000 for Facility A and $30,000 for Facility B, each to be
apportioned among the Banks in accordance with their respective Commitment
Percentages. In addition, the Borrowers agree to pay all reasonable
out-of-pocket fees of the Agent incurred in connection with this Amendment,
including, without limitation, reasonable attorneys' fees and expenses.
18. Ratification. Subject to the terms hereof, each Borrower hereby
restates and ratifies, as of the date hereof, all the representations,
warranties and covenants contained in the Agreement in favor of Agent and Banks,
and confirms that the terms and conditions of the Agreement, as amended hereby,
remain in full force and effect and that the terms of Article 8 of the
Agreement, as hereby amended, shall continue to govern the Agreement and shall
govern this Amendment.
[Signature Pages to Follow]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereby have duly executed this
Agreement as of the day and year first above written.
AGENT: BORROWER:
FIRST AMERICAN NATIONAL BANK O'CHARLEY'S INC.
By: By:
------------------------------- --------------------------------
Title: Title:
--------------------------- -----------------------------
CO-AGENT: OCI, INC.
BANK OF AMERICA, N.A. By:
--------------------------------
By: Title:
------------------------------ ------------------------------
Title:
--------------------------- O'CHARLEY'S SPORTS BAR, INC.
By:
--------------------------------
Title:
-----------------------------
AIR TRAVEL SERVICES, INC.
By:
--------------------------------
Title:
-----------------------------
O'CHARLEY'S MANAGEMENT
COMPANY, INC.
By:
--------------------------------
Title:
-----------------------------
DFI, INC.
By:
--------------------------------
Title:
-----------------------------
O'CHARLEY'S RESTAURANT
PROPERTIES, LLC
By:
--------------------------------
Title:
-----------------------------
O'CHARLEY'S SERVICE COMPANY, INC.
By:
--------------------------------
Title:
-----------------------------
6
<PAGE> 7
BANKS:
FIRST AMERICAN NATIONAL BANK
By:
---------------------------------
Title:
------------------------------
BANK OF AMERICA, N.A.
By:
---------------------------------
Title:
------------------------------
MERCANTILE BANK NATIONAL
ASSOCIATION
By:
---------------------------------
Title:
------------------------------
FIRST UNION NATIONAL BANK
By:
---------------------------------
Title:
------------------------------
7
<PAGE> 1
EXHIBIT 10.11
THIRD AMENDMENT TO
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
(this "AMENDMENT") made this 31st day of January, 2000, is by and among
O'CHARLEY'S INC., a Tennessee corporation ("ORIGINAL BORROWER"), OCI, INC., a
Delaware corporation ("OCI"), O'CHARLEY'S SPORTS BAR, INC., an Alabama
corporation ("SPORTS BAR"), AIR TRAVEL SERVICES, INC., a Tennessee corporation
("AIR TRAVEL"), O'CHARLEY'S MANAGEMENT COMPANY, INC., a Tennessee corporation
("MANAGEMENT COMPANY"), DFI, INC., a Tennessee corporation ("DFI"), O'CHARLEY'S
RESTAURANT PROPERTIES, LLC, a Delaware limited liability company ("RESTAURANT
PROPERTIES"), O'CHARLEY'S SERVICE COMPANY, INC., a Tennessee corporation
("SERVICE COMPANY"; individually, OCI, Sports Bar, Air Travel, Management
Company, DFI, Restaurant Properties and Service Company are sometimes referred
to herein as an "ADDITIONAL BORROWER" and when referencing two or more of such
entities, they are sometimes referred to herein as "ADDITIONAL BORROWERS"; the
Original Borrower and the Additional Borrowers are sometimes referred to herein,
individually and collectively, as a "BORROWER" and the "BORROWERS"), each of the
undersigned Banks, BANK OF AMERICA, N.A., a national banking association,
successor in interest by merger to NationsBank, N.A., as a Bank and as Co-Agent,
and AMSOUTH BANK, an Alabama state bank, successor in interest by merger to
First American National Bank ("AGENT") as a Bank and as Agent for the Banks.
RECITALS:
Pursuant to that certain Amended and Restated Revolving Credit and
Security Agreement, dated as of December 8, 1997 (the "AMENDED AND RESTATED
AGREEMENT") by and among the Banks (other than SunTrust Bank) and Bank One, N.A.
("BANK ONE") (herein, the "ORIGINAL BANKS") and the Original Borrower, the
Original Banks made certain loans (the "LOANS") in two separate facilities, to
the Original Borrower, in an aggregate amount of up to $100,000,000.00. Pursuant
to an Assumption Agreement and Amendment to Amended and Restated Revolving
Credit Agreement dated December 7, 1998 and an Assumption Agreement and Second
Amendment to Amended and Restated Revolving Credit Agreement dated December 8,
1999, the Amended and Restated Agreement was amended to restructure the Loans
to, among other things, include the Additional Borrowers as borrowers thereunder
and to alter the Original Banks' commitments resulting from Bank One's departure
from the credit facility (the Amended and Restated Agreement, as so amended, is
hereinafter referred to as the "AGREEMENT"). Capitalized terms not otherwise
defined herein shall have the same meaning as in the Agreement. The Borrowers
have requested that the Banks further restructure the Loans to combine Facility
A and Facility B into one Loan Facility, to increase the Commitment of several
of the Banks and add SunTrust Bank as an additional Bank, to increase the
applicable principal amount of the Loans to $135,000,000.00 and to extend the
Loan Termination Date of the Loan Facility and the Swingline Facility, and the
Banks are willing to do so, subject, among other things, to execution of this
Amendment and satisfaction of the conditions contained herein.
NOW, THEREFORE, in consideration of the foregoing premises, and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. SunTrust Bank hereby becomes a Bank under the Agreement and agrees
to be bound by the covenants, agreements and obligations of a Bank to the same
extent as if it was an original signatory to the Agreement.
2. Section 1 of the Agreement entitled "DEFINITIONS" is hereby amended
by deleting the definition of "Facility B" and changing the definition of
"Facility A" to read as follows:
"Loan Facility" means the $135,000,000.00 revolving line of credit
facility described in Section 2.1.
All references throughout the Agreement to "Facility B" are hereby
deleted and all references throughout the Agreement to "Facility A" are
hereby changed to "Loan Facility".
3. Section 1 of the Agreement entitled "DEFINITIONS" is hereby further
amended by amending the following definitions:
<PAGE> 2
"Index Rate" means the rate designated from to time to time by
Agent as its "Prime Rate" and references in the Loan Documents to
"Index Rate" shall mean such Prime Rate.
"Loan" means any funds which any Bank has advanced or will advance
to the Borrowers on a revolving basis pursuant to its Commitment under
the Loan Facility or the Swingline Facility, 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 Thirty-Five Million and 00/100
Dollars ($135,000,000.00).
"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) May 31, 2003 (or such later date
as may be agreed to by the Banks pursuant to Section 2.9 of this
Agreement).
"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 have at least sixty-six and two-thirds percent
(66 2/3%) of the Total Commitments. For purposes of determining the
Majority Banks, $90,000,000 shall be deemed to be 66 2/3% of the Total
Commitments.
"Note" means a promissory note or notes substantially in the form of
Exhibit D-1 attached hereto, duly executed and delivered to the Agent
by Borrowers and payable to the order of a Bank in the amount of its
Commitment and the Swingline Note, including any amendment,
modification, renewal, extension, or replacement thereof, and "Notes"
means the Notes of each of the Banks collectively.
"Total Commitments" means the aggregate of the several Commitments
of the Banks in the principal amount of up to One Hundred Thirty-Five
Million and 00/100 Dollars ($135,000,000.00), 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.
4. The second and third sentences of Section 2.1(A) of the Agreement
are hereby amended in their entirety to read as follows:
Subject to the terms and conditions of and relying on the
representations, warranties and covenants contained in this Agreement,
for a period ending on the Loan Termination Date, each Bank agrees to
fund severally, but not jointly, to the Borrowers up to the amount set
forth below opposite their names, which for all of the Banks shall be
the aggregate maximum principal amount of up to One Hundred Thirty-Five
Million and 00/100 Dollars ($135,000,000.00). 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
---- ----------------- ---------------------
<S> <C> <C>
AmSouth Bank $32,500,000 24.074%
Bank of America, N.A. $32,500,000 24.074%
Mercantile Bank
National Association $20,000,000 14.814%
First Union National
Bank $25,000,000 18.518%
SunTrust Bank $25,000,000 18.518%
</TABLE>
5. The first sentence of Section 2.1(B) of the Agreement is hereby
amended in its entirety as follows:
The Loans shall be evidenced by (i) the $32,500,000 Note of Borrower to
AmSouth Bank, (ii) the $32,500,000 Note of Borrower to Bank of America,
N.A., (iii) the $20,000,000 Note of Borrower to Mercantile Bank
National Association, and (iv) the $25,000,000 Note of Borrower to
First Union National Bank, and (v) the $25,000,000 Note of Borrowers to
SunTrust Bank, which Notes are substantially in the form of Exhibit D-1
attached hereto, with each Note payable in accordance with its terms.
2
<PAGE> 3
6. The second, third and fourth sentences of Section 2.1(D) of the
Agreement are hereby amended in their entirety to read as follows:
The Swingline Facility shall be a sublimit of the Loan Facility. All
Loans under the Swingline Facility will be Floating Rate Loans.
Notwithstanding that the Swingline Facility shall be evidenced by a
separate promissory note, the aggregate principal amount of all Loans
that may be outstanding at any one time may not exceed $135,000,000.00.
7. Section 2.1(E) of the Agreement is hereby deleted in its entirety.
8. The sixth sentence of Section 2.2(A) of the Agreement is hereby
deleted in its entirety.
9. Section 2.4 of the Agreement entitled "Facility Fee" is hereby
amended in its entirety to read as follows:
2.4 Facility Fee.
Beginning January 31, 2000 until the Loan Termination Date, the
Borrower shall pay to the Agent for the account of the Banks a Facility
Fee per annum equal to $135,000,000 multiplied by the applicable fee
percentage set forth in the Table attached to this Agreement as
Schedule I-A. All accrued but unpaid Facility Fee due until January 31,
2000 shall be payable pursuant to the Table attached to this Agreement
as Schedule I. The Facility Fee shall be payable quarterly, in arrears,
on the first business day following each fiscal quarter end, the first
such payment being due on March 31, 2000. Any accrued and unpaid
Facility Fee shall be paid on the Loan Termination Date.
10. The first sentence of Section 7.1 of the Agreement is hereby
amended in its entirety to read as follows:
With respect to all funds advanced hereunder or under the Notes,
AmSouth Bank, Bank of America, N.A., Mercantile Bank National
Association, First Union National Bank, SunTrust Bank shall be
obligated to advance, in the aggregate under the Loan Facility,
$32,500,000; $32,500,000; $20,000,000; $25,000,000; and $25,000,000;
respectively, and each such Bank shall own a corresponding undivided
interest in this Agreement.
11. Section 8.5(D) of the Agreement is hereby amended to add the
following Bank:
SunTrust Bank
201 Fourth Avenue North
Nashville, TN 37219
Attn: Vipul Patel
12. The first sentence of the second paragraph of Section 8.8 of the
Agreement is hereby amended in its entirety to read as follows:
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 financial institutions
whereby such Bank will allocate certain percentages of its outstanding
Loans and/or Commitment to such financial institution or financial
institutions.
13. The following described Exhibits to the Agreement will be modified
as of the date of this Amendment by the corresponding Exhibits attached to this
Amendment:
<TABLE>
<CAPTION>
Exhibits to Agreement to be modified Modified Exhibits attached to Amendment
------------------------------------ ---------------------------------------
<S> <C>
A A-1
B B-1
D D-1
E E-1
F F-1
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C>
G G-1
I I-1
J J-1
K K-1
L L-1
M M-1
N N-1
P P-1
</TABLE>
14. Schedule I to the Agreement setting forth the table for calculating
interest rates and facility fees shall be effective through January 30, 2000 and
thereafter shall be changed to reflect the table set forth on Schedule I-A to
this Amendment.
15. All references to "First American National Bank" in the Agreement
are amended to read "AmSouth Bank".
16. Conditions. The effectiveness of this Amendment is expressly
contingent upon Borrowers' delivery to Agent of the following documents, in form
and content acceptable to Agent, in its sole discretion:
(a) The Notes executed by the Borrowers;
(b) This Amendment executed by the Borrowers;
(c) Copies of the resolutions of each Borrowers' governing boards,
certified by the secretaries of each Borrower as of the date of this
Amendment, authorizing the execution, delivery and performance of this
Amendment, the Notes, the other Loan Documents, and each other document
to be delivered pursuant hereto;
(d) Copies of each Borrowers' charter or articles of organization,
as applicable, all certified as of the most recent date practicable by
the Secretary of State of its incorporation or formation, together with
certificates dated the date of this Amendment of each Borrowers'
secretary to the effect that such charters or articles of organization
have not been amended since the date of the aforesaid Secretary of
State certifications;
(e) Copies of each Borrowers' by-laws or operating agreement, as
applicable, all certified by each Borrowers' secretary as of the date
of this Amendment;
(f) Certificates dated as of the date of this Amendment of each
Borrowers' secretary as to the incumbency and signatures of the
officers of the Borrowers executing this Amendment, the Notes, the
other Loan Documents, and each other document to be delivered pursuant
hereto;
(g) Certificates, as of the most recent dates practicable, of the
aforesaid Secretary of State, the Secretary of State of each state in
which each Borrower is qualified as foreign corporations or entities
and of the department of revenue or taxation of the foreign states as
to the good standing of each Borrower;
(h) Written opinions of Bass, Berry & Sims, PLC, each Borrowers'
counsel, dated the date of this Amendment and addressed individually to
Agents and Banks, in form reasonably satisfactory to the Agents and
Banks.
(i) Payment of the Upfront Fees described in paragraph 17 below,
together with all reasonable costs and expenses incurred by Agent in
connection with the Amendment, including, without limitation,
reasonable attorneys' fees.
17. Upfront Fees. The Borrowers shall pay to the Agent upon execution
of this Amendment, for the account of each of the Banks increasing (in
connection with this Amendment and the amendment executed on December 8, 1999)
or making available its Commitment Amount, as the case may be, to the Borrower
under the Loan Facility and extending the Loan Termination Date for the portion
of the Loan formerly described as Facility B, which fees shall be in the
aggregate amount of $212,500 and will be distributed to such Banks as follows:
4
<PAGE> 5
<TABLE>
<CAPTION>
Bank Amount for Increased or New Amount for Extension of Former
---- Commitment Facility B
---------- ----------
<S> <C> <C>
AmSouth Bank $18,750 $18,055.50
Bank of America, N.A. $18,750 $18,055.50
Mercantile Bank
National Association $12,500 $11,110.50
First Union National Bank $25,000 $13,888.50
SunTrust Bank $62,500 $13,888.50
</TABLE>
18. Ratification. Subject to the terms hereof, each Borrower hereby
restates and ratifies, as of the date hereof, all the representations,
warranties and covenants contained in the Agreement in favor of Agent and Banks,
and confirms that the terms and conditions of the Agreement, as amended hereby,
remain in full force and effect, that no Event of Default under the Agreement
has occurred and continues to exist and that the terms of Article 8 of the
Agreement, as hereby amended, shall continue to govern the Agreement and shall
govern this Amendment.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereby have duly executed this
Agreement as of the day and year first above written.
AGENT: BORROWER:
- ----- --------
AMSOUTH BANK O'CHARLEY'S INC.
By: By:
------------------------------- ---------------------------------
Title: Title:
--------------------------- -----------------------------
CO-AGENT: OCI, INC.
- --------
BANK OF AMERICA, N.A. By:
--------------------------------
By: Title:
------------------------------- -----------------------------
Title:
--------------------------- O'CHARLEY'S SPORTS BAR, INC.
By:
BANKS: --------------------------------
- ----- Title:
-----------------------------
AMSOUTH BANK
AIR TRAVEL SERVICES, INC.
By:
------------------------------ By:
Title: --------------------------------
--------------------------- Title:
-----------------------------
BANK OF AMERICA, N.A.
O'CHARLEY'S MANAGEMENT
By: COMPANY, INC.
------------------------------
Title: By:
--------------------------- --------------------------------
Title:
-----------------------------
MERCANTILE BANK, NATIONAL
ASSOCIATION DFI, INC.
By: By:
------------------------------ --------------------------------
Title: Title:
--------------------------- -----------------------------
FIRST UNION NATIONAL BANK O'CHARLEY'S RESTAURANT
PROPERTIES, LLC
By: By:
------------------------------ --------------------------------
Title: Title:
--------------------------- -----------------------------
SUNTRUST BANK O'CHARLEY'S SERVICE COMPANY, INC.
By: By:
------------------------------ --------------------------------
Title: Title:
--------------------------- -----------------------------
6
<PAGE> 7
Modified Exhibits
<PAGE> 8
Schedule I-A
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Funded Debt to Applicable Index Applicable LIBOR
EBITDA Margin Margin Facility Fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier I Below 1.90 .50% .75% .125%
- ------------------------------------------------------------------------------------------------------
Tier II Between 1.90 and .50% .85% .15%
2.35 (including 1.90)
- ------------------------------------------------------------------------------------------------------
Tier III 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 the Loan Facility is indicated in the
Table. The applicable Facility Fee for the Loan Facility 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.
<PAGE> 1
EXHIBIT 10.19
SEVERANCE COMPENSATION AGREEMENT dated as of February 16, 2000, between
O'Charley's Inc., a Tennessee corporation (the "Company"), and Gregory L. Burns
(the "Executive").
The Company's Board of Directors has determined that it is appropriate
to reinforce and encourage the continued attention and dedication of certain
members of the Company's senior management, including the Executive, to their
assigned duties without distraction in potentially disturbing circumstances
arising from the possibility of a change in control of the Company.
This Agreement sets forth the severance compensation which the Company
agrees it will pay to the Executive if the Executive's employment with the
Company terminates under one of the circumstances described herein following a
Change In Control of the Company (as defined herein).
1. TERM. This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earliest of (i) three years from the date hereof if a Change in Control of the
Company has not occurred within such three-year period; (ii) the termination of
the Executive's employment with the Company based on death, Disability (as
defined in Section 3(b)), Retirement (as defined in Section 3(c)) or Cause (as
defined in Section 3(d)) or by the Executive other than for Good Reason (as
defined in Section 3(e)); and (iii) eighteen months from the date of a Change in
Control of the Company if the Executive has not terminated his employment for
Good Reason as of such time.
2. CHANGE IN CONTROL. No compensation shall be payable under this
Agreement unless and until (a) there shall have been a Change in Control of the
Company, while the Executive is still an employee of the Company and (b) the
Executive's employment by the Company thereafter shall have been terminated in
accordance with Section 3. For purposes of this Agreement, a Change in Control
means the happening of any of the following:
(i) any person or entity, including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, other than the
Company, a wholly-owned subsidiary thereof, any employee benefit plan
of the Company or any of its Subsidiaries becomes the beneficial owner
of the Company's securities having 30% or more of the combined voting
power of the then outstanding securities of the Company that may be
cast for the election of directors of the Company (other than as a
result of an issuance of securities initiated by the Company in the
ordinary course of business); or
(ii) as the result of, or in connection with, any cash tender
or exchange offer, merger or other business combination, sale of assets
or contested election, or any combination of the foregoing transactions
less than a majority of the combined voting power of the then
outstanding securities of the Company or any successor corporation or
entity entitled to vote generally in the election of the directors of
the Company or such other corporation or entity after such transaction
are held in the aggregate by the holders of the Company's securities
entitled to vote generally in the election of directors of the Company
immediately prior to such transaction; or
<PAGE> 2
(iii) during any period of two consecutive years, individuals
who at the beginning of any such period constitute the Board cease for
any reason to constitute at least a majority thereof, unless the
election, or the nomination for election by the Company's shareholders,
of each director of the Company first elected during such period was
approved by a vote of at least two-thirds of the directors of the
Company then still in office who were directors of the Company at the
beginning of any such period.
3. TERMINATION FOLLOWING CHANGE IN CONTROL. If a Change in Control of
the Company shall have occurred while the Executive is still an employee of the
Company, the Executive shall be entitled to the compensation provided in Section
4 upon the subsequent termination of the Executive's employment with the Company
by the Executive or by the Company unless such termination is as a result of (i)
the Executive's death; (ii) the Executive's Disability (as defined in Section
(3)(b) below); (iii) the Executive's Retirement (as defined in Section 3(c)
below); (iv) the Executive's termination by the Company for Cause (as defined in
Section 3(d) below); or (v) the Executive's decision to terminate employment
other than for Good Reason (as defined in Section 3(e) below).
(b) DISABILITY. If, as a result of the Executive's incapacity due
to physical or mental illness, the Executive shall have been absent from his
duties with the Company on a full-time basis for six months and within 30 days
after written notice of termination is thereafter given by the Company the
Executive shall not have returned to the full-time performance of the
Executive's duties, the Company may terminate this Agreement for "Disability."
(c) RETIREMENT. The term "Retirement" as used in this Agreement
shall mean termination by the Company or the Executive of the Executive's
employment based on the Executive's having reached age 65 or such other age as
shall have been fixed in any arrangement established with the Executive's
consent with respect to the Executive.
(d) CAUSE. The Company may terminate the Executive's employment for
Cause. For purposes of this Agreement only, the Company shall have "Cause" to
terminate the Executive's employment hereunder only on the basis of fraud,
misappropriation or embezzlement on the part of the Executive. Notwithstanding
the foregoing, the Executive shall not be deemed to have been terminated for
Cause unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the membership of the Company's Board of Directors (excluding
the Executive) at a meeting of the Board called and held for the purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board), finding
that in the good faith opinion of the Board the Executive was guilty of conduct
set forth in the second sentence of this Section 3(d) and specifying the
particulars thereof in detail.
(e) GOOD REASON. The Executive may terminate the Executive's
employment for Good Reason at any time during the term of this Agreement. For
purposes of this Agreement "Good Reason" shall mean any of the following
(without the Executive's express written consent):
2
<PAGE> 3
(i) the assignment to the Executive by the Company of duties
inconsistent with the Executive's position, duties, responsibilities
and status with the Company immediately prior to a Change in Control of
the Company, or a change in the Executive's titles or offices as in
effect immediately prior to a Change in Control of the Company, or any
removal of the Executive from or any failure to reelect the Executive
to any of such positions, except in connection with the termination of
his employment for Disability, Retirement or Cause or as a result of
the Executive's death or by the Executive other than for Good Reason;
(ii) a reduction by the Company in the Executive's base salary
as in effect on the date hereof or as the same may be increased from
time to time during the term of this Agreement;
(iii) a relocation of the Company's principal executive
offices to a location outside of Nashville, Tennessee, or the
Executive's relocation to any place other than the location at which
the Executive performed the Executive's duties prior to a Change in
Control of the Company, except for required travel by the Executive on
the Company's business to an extent substantially consistent with the
Executive's business travel obligations at the time of a Change in
Control of the Company;
(iv) any material breach by the Company of any provision of
this Agreement;
(v) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company; or
(vi) any purported termination of the Executive's employment
which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 3(f), and for purposes of this Agreement,
no such purported termination shall be effective.
(f) NOTICE OF TERMINATION. Any termination by the Company pursuant
to Section 3(b), 3(c) or 3(d) shall be communicated by a Notice of Termination.
For purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) DATE OF TERMINATION. "Date of Termination" shall mean (a) if
this Agreement is terminated by the Company for Disability, 30 days after Notice
of Termination is given to the Executive (provided that the Executive shall not
have returned to the performance of the Executive's duties on a full-time basis
during such 30-day period) or (b) if the Executive's employment is terminated by
the Company for any other reason, the date on which a Notice of Termination is
given.
3
<PAGE> 4
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT. If the
Company shall terminate the Executive's employment following a Change in Control
other than pursuant to Section 3(b), 3(c) or 3(d) or if the Executive shall
terminate his employment following a Change in Control for Good Reason, then the
Company shall pay to the Executive as severance pay in a lump sum, in cash, on
the fifth day following the Date of Termination, an amount equal to the sum of
(i) three times the average of the aggregate annual salary paid to the Executive
by the Company during the three calendar years preceding the Change in Control
of the Company and (ii) three times the highest bonus compensation paid to the
Executive for any of the three calendar years preceding the Change in Control of
the Company; provided, however, that if the lump sum severance payment under
this Section 4, either alone or together with other payments which the Executive
has the right to receive from the Company, would constitute a "parachute
payment" (as defined in Section 28OG of the Internal Revenue Code of 1986, as
amended (the "Code")), such lump sum severance payment shall be reduced to the
largest amount as will result in no portion of the lump sum severance payment
under this Section 4 being subject to the excise tax imposed by Section 4999 of
the Code.
(b) In addition to the lump sum payment provided in Section 4(a),
if the Company shall terminate the Executive's employment following a Change in
Control other than pursuant to Section 3(b), 3(c) or 3(d) or if the Executive
shall terminate his employment following a Change in Control for Good Reason,
then the Company shall provide to the Executive health insurance equivalent to
that provided to the Executive immediately prior to termination for a period of
two years following the Date of Termination.
5. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS. The Executive shall not be required to mitigate damages or the amount of
any payment provided for under this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment provided for under this Agreement
be reduced by any compensation earned by the Executive as the result of
employment by another employer after the Date of Termination, or otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any benefit plan, incentive plan or stock
option plan, employment agreement or other contract, plan or arrangement.
6. SUCCESSOR TO THE COMPANY. (a) The Company will require any successor
or assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to the Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
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
4
<PAGE> 5
terms and provisions of this Agreement by operation of law. If at any time
during the term of this Agreement the Executive is employed by any corporation a
majority of the voting securities of which is then owned by the Company,
"Company" as used in Sections 3, 4, 11 and 12 hereof shall in addition include
such employer. In such event, the Company agrees that it shall pay or shall
cause such employer to pay any amounts owed to the Executive pursuant to Section
4 hereof.
(b) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amounts are still payable to him hereunder, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee, or other
designee or, if there be no such designee, to the Executive's estate.
7. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
O'Charley's Inc.
3038 Sidco Drive
Nashville, Tennessee 37204
Attention: President
If to the Executive:
Gregory L. Burns
3038 Sidco Drive
Nashville, Tennessee 37204
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
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.
5
<PAGE> 6
9. VALIDITY. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
10. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
11. LEGAL FEES AND EXPENSES. The Company shall pay all legal fees and
expenses which the Executive may incur as a result of the Company's contesting
the validity, enforceability or the Executive's interpretation of, or
determinations under, this Agreement.
12. CONFIDENTIALITY. The Executive shall retain in confidence any and
all confidential information known to the Executive concerning the Company and
its business so long as such information is not otherwise publicly disclosed.
The provisions of this Section 12 are not intended to restrict the ability of
the Executive following termination of employment for any reason to engage in
any business which is, directly or indirectly, competitive with the business
conducted by the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
O'CHARLEY'S INC.
By: /s/ Steven J. Hislop
-------------------------------------
Name: Steven J. Hislop
Title: President & Chief Operating
Officer
/s/ Gregory L. Burns
-----------------------------------------
Gregory L. Burns
6
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Air Travel Services, Inc. - Tennessee
O'Charley's Sports Bar, Inc. - Alabama
OCI, Inc. - Delaware
DFI, Inc. - Tennessee
O'Charley's Management Company, Inc. - Tennessee
O'Charley's Restaurant Properties, LLC - Delaware
O'Charley's Service Company, Inc. - Tennessee
<PAGE> 1
Exhibit 23
The Board of Directors
O'Charley's Inc.
We consent to incorporation by reference in the registration statements (No.
33-39869, No. 33-39872, No. 33-51316, No. 33-51338, No. 333-63495 on Form S-8)
of O'Charley's Inc. of our report dated February 2, 2000, relating to the
balance sheets of O'Charley's Inc. as of December 26, 1999 and December 27,
1998, and the related statements of earnings, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 26, 1999,
which report appears in the December 26, 1999 annual report on Form 10-K of
O'Charley's Inc.
/s/ KPMG LLP
Nashville, Tennessee
March 24, 2000
<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 26, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> DEC-28-1998
<PERIOD-END> DEC-26-1999
<CASH> 3,178
<SECURITIES> 0
<RECEIVABLES> 2,195
<ALLOWANCES> 0
<INVENTORY> 8,776
<CURRENT-ASSETS> 16,081
<PP&E> 219,749
<DEPRECIATION> 0
<TOTAL-ASSETS> 240,180
<CURRENT-LIABILITIES> 35,492
<BONDS> 0
0
0
<COMMON> 65,732
<OTHER-SE> 56,957
<TOTAL-LIABILITY-AND-EQUITY> 240,180
<SALES> 299,014
<TOTAL-REVENUES> 302,205
<CGS> 232,821
<TOTAL-COSTS> 273,166
<OTHER-EXPENSES> 82
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,174
<INCOME-PRETAX> 24,783
<INCOME-TAX> 8,674
<INCOME-CONTINUING> 16,109
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,348)
<NET-INCOME> 14,761
<EPS-BASIC> 0.95
<EPS-DILUTED> 0.89
</TABLE>
