DEVELOPMENT AGREEMENT

 

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                                                                    EXHIBIT 10.1

 

                               [O'CHARLEY'S LOGO]

 

                                O'CHARLEY'S INC.

 

                              DEVELOPMENT AGREEMENT

 

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                                 TABLE OF CONTENTS

 

<TABLE>

<S>                                                                                  <C>

ARTICLE I Grant ................................................................        2

ARTICLE II Fees ................................................................        4

ARTICLE III Schedule and Manner for Exercising Development Rights...............        5

ARTICLE IV Prerequisites to Obtaining Licenses..................................       11

ARTICLE V Term .................................................................       13

ARTICLE VI Duties of Developer..................................................       14

ARTICLE VII Default and Termination.............................................       18

ARTICLE VIII Transfer of Interest...............................................       23

ARTICLE IX Covenants............................................................       29

ARTICLE X Independent Contractor and Indemnification............................       32

ARTICLE XI Approvals............................................................       33

ARTICLE XII Non-Waiver and Remedies.............................................       33

ARTICLE XIII Notices............................................................       34

ARTICLE XIV Severability and Construction.......................................       34

ARTICLE XV Entire Agreement; Applicable Law.....................................       35

ARTICLE XVI Acknowledgments.....................................................       38

 

Attachment A     Operating Agreement.............................................     A-1

Attachment B     Lease Rider.....................................................     B-1

Attachment C     Confidentiality And Non-Compete Agreement.......................     C-1

Attachment D     Statement Of Ownership Interests and Principals.................     D-1

Attachment E     Guaranty........................................................     E-1

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                                O'CHARLEY'S INC.

 

                              DEVELOPMENT AGREEMENT

 

      THIS DEVELOPMENT AGREEMENT (this "Agreement") is made and entered into

this 18th day of May, 2005, by and among O'Charley's Inc., a Tennessee

corporation ("Licensor"), O'Candall Group, Inc., an Ohio corporation

("Developer") and Sam Covelli, an individual residing in the State of Ohio (the

"Controlling Principal").

 

                                   WITNESSETH:

 

      WHEREAS, Licensor, as a result of the expenditure of time, skill, effort

and money, has developed and owns the rights to develop and operate a unique

system of full service varied menu casual dining restaurants which feature

freshly prepared items such as hand-cut and aged steaks, fresh chicken, seafood,

homemade yeast rolls and fresh-cut salads with special recipe dressings and

which serve alcoholic beverages through a full-service bar all under the

trademark O'Charley's(R) (the "System");

 

      WHEREAS, the distinguishing characteristics of the System include, without

limitation, distinctive exterior and interior design, decor, color schemes,

awnings, neons and furnishings, special recipes and menu items, uniform

standards, specifications and procedures for operations, quality and uniformity

of products and services offered, procedures for inventory management and

financial control, training and assistance, and advertising and promotional

programs, all of which may be changed, improved and further developed by

Licensor from time to time;

 

      WHEREAS, Licensor identifies the System by means of certain trade names,

service marks, trademarks, emblems and indicia of origin, including, but not

limited to, the mark O'Charley's(R) and such other trade names, service marks

and trademarks as are now designated (and may hereafter be designated by

Licensor in writing) for use in connection with the System (the "Proprietary

Marks");

 

      WHEREAS, Licensor continues to develop, use and control the use of such

Proprietary Marks in order to identify for the public the source of services and

products marketed thereunder and under the System, and to represent the System's

high standards of quality, appearance and service;

 

      WHEREAS, the value of Licensor's Proprietary Marks is based upon: (a) the

maintenance of uniform high quality standards in connection with the preparation

and sale of Licensor-approved food and beverage products; (b) the uniform high

standards of appearance of the individual restaurant units in the System; (c)

the use of distinctive Proprietary Marks, building designs and advertising signs

representing a uniformly high quality of products and services; and (d) the

assumption by its franchisees of the obligation to maintain and enhance the

goodwill and public acceptance of the System and of the Proprietary Marks by

strict adherence to the high standards required by Licensor; and

 

      WHEREAS, Developer wishes to obtain certain development rights to operate

one (1) or more full-service O'Charley's restaurants (each, a "Restaurant" or

"Licensed Business," and

 

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together, the "Restaurants" or "Licensed Businesses") under the System in the

territory described in this Development Agreement.

 

      NOW, THEREFORE, the parties, in consideration of the mutual

representations, warranties, covenants and agreements set forth herein, and

intending to be legally bound, hereby agree as follows:

 

                                   ARTICLE I

                                      GRANT

 

      A.     In reliance on the representations, warranties, covenants and

agreements of Developer and its Controlling Principals hereunder, Licensor

hereby grants to Developer and Developer hereby accepts, pursuant to the terms

and conditions of this Agreement, the right and obligation to develop the number

of Restaurants described in the Development Schedule (as defined below) solely

within the geographic area(s) described on Schedule 1 hereto (collectively the

"Territory"). Developer may be granted rights to develop additional Restaurants

in Licensor's sole discretion. Any and all such rights to develop Restaurants

are subject to Developer's full compliance with all conditions precedent to the

grant of such rights outlined in this Agreement, and any such rights shall be

exercised in accordance with Article III.

 

      B.     Developer acknowledges and understands that the rights granted

hereunder are for the development of full-service O'Charley's restaurants.

Except as provided in this Agreement, and subject to Developer's full compliance

with this Agreement and any other agreements among Developer, or any of its

Affiliates and Licensor or any of its Affiliates, neither Licensor nor its

Affiliates shall establish or authorize any other person or any other

corporation, limited liability company, partnership, limited partnership, joint

venture, association, trust, unincorporated association or any other business

entity (each, an "Entity"), other than Developer, to establish a Restaurant in

the Territory during the term of this Agreement. Notwithstanding the above,

Developer acknowledges and agrees that Licensor and its Affiliates operate

restaurants under the trademark O'Charley's(R) and further agrees and

acknowledges that the rights granted hereby are only for the development and

operation of one (1) or more full-service O'Charley's restaurants, and,

therefore, Licensor and its Affiliates may conduct (or authorize one or more

third parties to conduct) the following activities:

 

            (1)    Licensor, its Affiliates, any O'Charley's developer or

operator and any other authorized person or Entity shall have the right, at any

time, to advertise and promote the System, and fill customer orders by providing

catering and/or delivery services in the Territory.

 

            (2)    Licensor and its Affiliates may offer and sell (or may

authorize others to offer and sell) collateral and ancillary products and

services under the Proprietary Marks which may be similar to those offered by

the Restaurants in the Territory if offered and sold other than through a

full-service O'Charley's restaurant, such as pre-packaged food products,

t-shirts and O'Charley's memorabilia.

 

            (3)    Subject to the requirements of Section I(B)(4), Licensor and

its Affiliates may (a) offer and sell in the Territory (or may authorize others

to offer and sell) such products and services under the Proprietary Marks

through any permanent, temporary or seasonal food

 

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service facility (e.g., a kiosk, concession or multi-brand facility) that will

provide a limited number or representative sample of the products and services

normally offered by, and be located in a smaller facility than, a full-service

O'Charley's restaurant ("Alternative Distribution Facilities"), or (b) operate

(or authorize others to operate) in the Territory a full-service O'Charley's

restaurant or other similar food service facilities offering the same products

and services offered by a full-service O'Charley's restaurant or an Alternative

Distribution Facility in any area of retail sales establishments, food courts,

transportation facilities (e.g., airports, train stations, bus terminals or port

authorities), hospitals and other healthcare facilities, cafeterias,

commissaries, schools, hotels, sports and entertainment facilities (e.g.,

stadiums, arenas, ball parks or convention centers) and other mass gathering

locations or events designated by Licensor (each, an "Excluded Area").

 

            (4)    Licensor shall first offer to Developer the right to open and

operate (a) an O'Charley's restaurant in an Excluded Area within the Territory

(each, an "Excluded Area Restaurant"), or (b) an Alternative Distribution

Facility within the Territory, in each such case on such terms and conditions as

such arrangements may be offered to third parties as determined by Licensor or

any other third party involved in the arrangement such as an airport or stadium

authority, educational institution or other facilities operator (each, a

"Facilities Operator"), as applicable; provided, however, that to be eligible to

receive such offer, Developer must (x) not be in default under this Agreement or

any Operating Agreement executed pursuant to this Agreement, and (y) meet each

of the conditions outlined in Section IV(B) and any other criteria and

qualifications deemed necessary by Licensor or any Facilities Operator to open

and operate such Excluded Area Restaurant or Alternative Distribution Facility.

If Developer does not meet any of the criteria or qualifications required by

Licensor or the Facilities Operator, then Developer shall have no right to open

and operate, or to receive an offer to open and operate, the Excluded Area

Restaurant or the Alternative Distribution Facility, and Licensor may conduct

such business, or authorize any other person or Entity to do so. If Developer

meets all of the conditions, criteria and qualifications required by Licensor

and the Facilities Operator, Licensor shall offer to Developer the right to open

and operate such Excluded Area Restaurant or Alternative Distribution Facility.

Developer shall have thirty (30) days after receipt of written notification of

any such offer from Licensor in which to accept such offer. If Developer fails

to notify Licensor in writing of Developer's intent to accept the offer within

such thirty (30) day time period, Licensor may conduct such business itself, or

authorize any other person or Entity to do so.

 

            (5)    Licensor and its Affiliates may offer and sell (or may

authorize others to offer and sell) products and services under any other names

and marks.

 

            (6)    Licensor, its Affiliates, any O'Charley's restaurant developer

or operator and any other authorized person or Entity may establish and operate

a full-service O'Charley's restaurant anywhere outside of the Territory

regardless of proximity to the Territory or the Location (as defined in the

Operating Agreement) of any O'Charley's Restaurant operated by Developer.

 

      C.     This Agreement is not a franchise or license agreement and does not

grant to Developer any right or license to operate a Restaurant, distribute

goods or services, or any right to use or interest in the Proprietary Marks

(such right and license being granted only pursuant to

 

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the Operating Agreement applicable to individual Restaurants as such Operating

Agreement may be entered into and become effective pursuant to this Agreement

and such Operating Agreement).

 

      D.     After this Agreement expires or is terminated, Licensor shall have

the complete and unrestricted right to operate or license other persons to

operate one or more restaurants utilizing the System in the Territory (except at

Locations for which Developer has a then outstanding and effective Operating

Agreement).

 

                                    ARTICLE II

                                      FEES

 

      A.     Simultaneously with the execution of this Agreement, Developer shall

pay Licensor an initial development fee of Ten Thousand Dollars ($10,000) for

each Restaurant to be developed pursuant to this Agreement.

 

      B.     Developer acknowledges that the development fees being paid to

Licensor simultaneously with the execution of this Agreement are being paid in

partial consideration of the administrative and other expenses incurred by

Licensor in connection with the development rights granted hereunder and for its

lost or deferred opportunity to grant such rights to any other party. Developer

acknowledges that no part of such fees shall be refunded to Developer under any

circumstances, even if no Restaurants are opened by Developer under this

Agreement, and that Developer shall have no right to recover from Licensor,

directly or indirectly, any of such portion of the development fees.

 

      C.     Pursuant to its obligations hereunder and under the applicable

Operating Agreements, Licensor will make various expenditures in connection with

the development of prospective Restaurant sites by Developer, including

expenditures for travel, lodging and meals. Developer shall promptly notify

Licensor of a decision to cease development of a prospective Restaurant site. In

the event that Developer fails to open a Restaurant at any such site, Developer

shall reimburse Licensor for Licensor's expenditures with respect to that site.

In such event, Licensor shall provide Developer with an itemized list of

Licensor's expenditures with respect to that site within sixty (60) days after

Licensor receives notice that Developer no longer intends to develop a

Restaurant at that site, and Developer shall reimburse Licensor for such

expenditures within thirty (30) days after receiving such list.

 

      D.     Developer shall not be entitled to withhold payments due Licensor

under this Agreement on grounds of alleged nonperformance by Licensor hereunder.

Any payment not actually received by Licensor on or before the date due shall be

deemed overdue. Time is of the essence with respect to all payments to be made

by Developer to Licensor. All unpaid obligations under this Agreement shall bear

interest from the date due until paid at the lesser of (1) the prime commercial

rate of interest as reported in the Wall Street Journal (Southeastern edition)

from time to time or by any bank or financial institution designated from time

to time by Licensor for short term unsecured loans to substantial and

responsible commercial borrowers, plus three percent (3%), or (2) the maximum

rate allowed by applicable law. Notwithstanding anything to the contrary

contained herein, no provision of this Agreement shall require the payment or

permit the collection of interest in excess of the maximum rate allowed by

applicable

 

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law. If any excess of interest is provided for herein, or shall be adjudicated

to be so provided in this Agreement, the provisions of this paragraph shall

govern and prevail, and neither Developer nor its Principals shall be obligated

to pay the excess amount of such interest. If for any reason interest in excess

of the maximum rate allowed by applicable law shall be deemed charged, required

or permitted, any such excess shall be applied as a payment and reduction of any

other amounts which may be due and owing hereunder, and if no such amounts are

due and owing hereunder then such excess shall be repaid to the party that paid

such interest.

 

      E.     Developer acknowledges that the Development Period extension fees in

Article III and the transfer fee in Section VIII(B)(2)(j) may, in Licensor's

sole discretion, be increased annually effective January 1 of each year

beginning on January 1 of the year following the date of this Agreement, by an

amount equal to the annual percentage increase during the preceding calendar

year in the Consumer Price Index---All Consumers (All Items)---United States

City Average, as compiled and published by the United States Department of

Labor, or such comparable successor index as may be designated by Licensor from

time to time.

 

                                  ARTICLE III

              SCHEDULE AND MANNER FOR EXERCISING DEVELOPMENT RIGHTS

 

      A.     Developer shall enter into a separate Operating Agreement with

Licensor for each Restaurant for which a development right is granted. The

Operating Agreement to be executed for each Restaurant to be developed under

this Agreement shall be in the form of the Operating Agreement attached hereto

as Attachment A.

 

      B.     (1)    Acknowledging that time is of the essence, and subject to the

requirements of Article IV, Developer agrees to exercise its development rights

according to the development schedule set forth on Schedule 1 hereto (the

"Development Schedule"), which schedule designates the number of Restaurants in

the Territory to be established and in operation by Developer upon the

expiration of each of the designated development periods (the "Development

Periods").

 

                  (a)    Developer shall have the obligation to develop each

Restaurant within the Territory during the Development Periods. If Developer has

developed the Restaurant(s) required in the applicable Development Period in

accordance with the Development Schedule and continues to meet the conditions

set forth in Article IV, Developer shall have the right and obligation to

develop the Restaurant(s) required during the next applicable Development

Period. Developer acknowledges that compliance with its development obligations

in each Development Period described above and continued compliance with Article

IV is a condition precedent to the receipt of such additional development

rights. If Developer fails to meet its development obligations or fails to

comply with the Operational Approval, Financial Approval, Legal Approval and

Ownership Approval requirements in Article IV, the conditions to the receipt of

those further development rights shall not have been met, and Developer shall

have no further rights to develop Restaurants hereunder.

 

                  (b)    During any of the Development Periods set forth above,

subject to the terms and conditions of this Agreement, Developer, with

Licensor's prior written consent (which consent may be withheld in Licensor's

sole discretion), may develop more than the total

 

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minimum number of Restaurants which Developer is required to develop during that

Development Period. Notwithstanding the above, Developer shall not open or

operate more than the cumulative total number of Restaurants Developer is

obligated to develop under this Agreement as set forth above in the Development

Schedule without Licensor's consent, which may be withheld in Licensor's sole

discretion. Any Restaurants developed during a Development Period in excess of

the minimum number of Restaurants required to be developed upon expiration of

that Development Period, shall be applied to satisfy Developer's development

obligation during the next succeeding Development Period, if any.

 

            (2)    If during the term of this Agreement, Developer ceases to

operate any Restaurant developed under this Agreement for any reason, Developer

shall develop a replacement Restaurant to fulfill Developer's obligation to have

open and in operation the required number of Restaurants upon the expiration of

each Development Period. The replacement Restaurant shall be developed within

the Territory and within a reasonable time to be determined by Licensor after

Developer ceases to operate the Restaurant to be replaced. If during the term of

this Agreement, Developer, in accordance with the terms of any Operating

Agreement for a Restaurant developed under this Agreement, transfers its

interest in such Restaurant, the transferred Restaurant shall continue to be

counted in determining whether Developer has complied with the Development

Schedule so long as it continues to be operated as an O'Charley's restaurant and

the transfer of the Restaurant is made in accordance with Article VIII of this

Agreement. If the transferred Restaurant ceases to be operated as an O'Charley's

restaurant during the term of this Agreement, Developer shall develop a

replacement Restaurant within the Territory and within a reasonable time to be

determined by Licensor after the transferred Restaurant ceases to be operated as

an O'Charley's restaurant. In either case, the reasonable time period shall

apply to the development of the replacement Restaurant only. In Licensor's sole

discretion, however, Licensor may extend the term of the applicable Development

Period; provided, however, that in no event shall such time period exceed three

(3) months; and, provided, further, that such agreed time period shall not

extend the term of this Agreement. In addition, Developer shall be required to

pay to Licensor a lost revenue fee for any Restaurant that ceases to be operated

as an O'Charley's restaurant. The lost revenue fee shall be an amount equal to

the amount of revenue that Licensor would have received from Developer during

the period between the closing of the Restaurant and the opening of the

replacement Restaurant had the original Restaurant never closed. The lost

revenue fee shall be determined by multiplying (x) by (y) where (x) equals the

number of Accounting Periods (both complete and partial) between the closing of

the Restaurant and the opening of the replacement Restaurant and (y) equals the

greater of: (i) the closed Restaurant's Gross Sales (as that term is defined in

the Operating Agreement) for its last full Accounting Period of operation, or

(ii) the average of the Restaurant's last twelve (12) Accounting Periods (or

such shorter period the Restaurant has been operating) of Gross Sales. For

purposes of this Agreement, the term "Accounting Period" shall mean the

accounting period for the Restaurant as established by Licensor from time to

time and described in the Manuals.

 

            (3)    Developer shall open each Restaurant developed hereunder and

shall commence business in accordance with the Development Schedule described in

this Article III.

 

                  (a)    Developer may request in writing that Licensor extend

the Development Period of any one Restaurant to permit Developer to complete

construction and

 

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begin operation of such Restaurant. If Licensor determines, in its sole

discretion, to grant any such request, the applicable Development Period shall

be extended for a period of thirty (30) days (each such 30-day period being

referred to as an "Extension Period"). Developer's initial written request for

an extension must be received by Licensor no later than sixty (60) days prior to

the end of the Development Period for that Restaurant, and such written request

must include a description of the reasons for Developer's failure to develop in

a timely manner and the date that Developer expects to complete construction and

opening of the Restaurant. During an Extension Period, any written request for a

subsequent Extension Period for that Restaurant must be received by Licensor no

later than fifteen (15) days prior to the end of the Extension Period for that

Restaurant, and such written request must include a description of the reasons

for Developer's failure to develop in a timely manner and the date that

Developer expects to complete construction and opening of the Restaurant.

 

                  (b)    If Developer has agreed to develop five (5) or more

Restaurants hereunder, unless otherwise agreed to by Licensor, in Licensor's

sole and absolute discretion, Developer shall not be entitled to more than three

(3) Extension Periods for any one Restaurant, nor more than six (6) Extension

Periods during the term of this Agreement. If Licensor permits a fourth (4th)

Extension Period for any one Restaurant, Developer must pay Licensor an

extension fee of Ten Thousand Dollars ($10,000) at the beginning of such

Extension Period, plus another Ten Thousand Dollar ($10,000) extension fee at

the beginning of each Extension Period Licensor approves thereafter until such

Restaurant has begun operation. If Licensor permits a seventh (7th) Development

Period, Developer must pay Licensor an extension fee of Ten Thousand Dollars

($10,000) at the beginning of such Extension Period, plus another Ten Thousand

Dollar ($10,000) extension fee at the beginning of each Extension Period

Licensor approves thereafter until such Restaurant has begun operation. No

extension of any Development Period will affect the duration of any Development

Period for any other Restaurant or any of Developer's other development

obligations hereunder.

 

                  (c)    If Developer has agreed to develop four (4) or fewer

Restaurants hereunder, unless otherwise agreed to by Licensor, in Licensor's

sole and absolute discretion, Developer will be permitted no more than three (3)

Extension Periods during the term of this Agreement. If Licensor permits a

fourth (4th) Extension Period, Developer must pay Licensor an extension fee of

Ten Thousand Dollars ($10,000) at the beginning of such Extension Period, plus

another Ten Thousand Dollar ($10,000) extension fee at the beginning of each

Extension Period Licensor approves thereafter until such Restaurant has begun

operation. No extension of any Development Period will affect the duration of

any Development Period for any other Restaurant or any of Developer's other

development obligations hereunder.

 

      C.     Developer acknowledges that the projected opening dates ("Projected

Opening Dates") for each Restaurant set forth on Schedule 1 hereto are

reasonable and consistent with the requirements of the Development Schedule.

Subject to Developer's compliance with Article IV hereof, Developer shall

execute an Operating Agreement for each Restaurant no later than six (6) months

prior to the Projected Opening Date for the applicable Restaurant.

 

      D.     Developer assumes all cost, liability, expense and responsibility

for locating, obtaining and developing sites for each Restaurant, and for

constructing and equipping each Restaurant at each such site. Developer shall

not make any binding commitment to a prospective

 

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vendor or lessor of real estate with respect to a site for a Restaurant unless

the site is accepted as set forth below. Developer acknowledges that the

location, selection, procurement and development of a site for each Restaurant

is Developer's responsibility; that in discharging such responsibility Operator

may consult with real estate and other professionals of Developer's choosing;

and that Licensor's acceptance of a prospective site and the rendering of

assistance in the selection of a site does not constitute a representation,

promise, warranty or guarantee, express or implied, by Licensor that the

Restaurant operated at that site will be profitable or otherwise successful.

 

            (1)    In connection with the development of each Restaurant

hereunder, Licensor shall do the following:

 

                  (a)    Licensor shall provide Developer with written site

selection guidelines, which may be found within the Manuals or may otherwise be

communicated to Developer, and such site selection assistance as Licensor may

deem advisable.

 

                  (b)    Licensor shall provide such on-site evaluation as

Licensor may deem necessary on its own initiative or in response to Developer's

reasonable request for site acceptance; provided, however, that Licensor shall

not provide an on-site evaluation for any proposed site prior to the receipt of

all required information and materials concerning such site prepared pursuant to

Section (III)(D)(2)(a). Licensor (or its designee) will provide at no additional

charge to Developer three (3) on-site evaluations for each of the first three

(3) Restaurants to be developed hereunder, and one (1) on-site evaluation for

each additional Restaurant to be developed hereunder. If additional on-site

evaluations are deemed appropriate by Licensor, or upon Developer's reasonable

request, Licensor reserves the right to charge a fee for each such evaluation

representing the reasonable expenses incurred by Licensor (or its designee) in

connection with such on-site evaluation, including, without limitation, the cost

of travel, lodging and meals.

 

                  (c)    Licensor shall loan to Developer a set of prototypical

architectural and design plans and specifications for an O'Charley's Restaurant.

 

            (2)    (a)    Developer shall locate a site for the Restaurant that

satisfies the Licensor's written site selection guidelines. Developer shall

submit to Licensor, in the form specified by Licensor in the Manuals, a fully

completed site selection acceptance request package which shall include a

description of the site, evidence satisfactory to Licensor demonstrating that

the site satisfies Licensor's current site selection guidelines and criteria, a

letter of intent or other evidence satisfactory to Licensor which confirms

Developer's favorable prospects for obtaining the site, together with such other

information and materials as required in the Manuals or as Licensor may

otherwise reasonably require. Recognizing that time is of the essence, Developer

agrees that it will submit each such fully completed site selection acceptance

request package and materials for the proposed site to Licensor for its

acceptance at such time and in accordance with such procedures as are set forth

in the Manuals, or which are otherwise communicated to Developer by Licensor.

Licensor shall have thirty (30) days after receipt of this information and

materials to accept or reject, in its sole discretion, the proposed site as the

location for the Restaurant. In the event Licensor rejects the proposed site,

Licensor may submit

 

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to Operator a document outlining the reasons why Licensor rejected the proposed

site. No site may be used for the location of the Restaurant unless it is first

accepted in writing by Licensor.

 

                  (b)    After a location for the Restaurant is accepted by

Licensor and acquired by Developer, the Location shall be described in

Attachment A to the Operating Agreement that will be executed by Developer in

connection with such Restaurant, which description shall be the legal

description and/or street address of the site at which the Restaurant is to be

located.

 

            (3)    At least six (6) months prior to the Projected Opening Date

for such Restaurant, Developer shall acquire by purchase or lease, at

Developer's expense, the site for the Restaurant as set forth below.

 

                  (a)    If Developer intends to purchase the premises for the

Restaurant, Developer shall submit a copy of the proposed contract of sale to

Licensor for its written acceptance prior to Developer's execution of such

contract and shall furnish to Licensor a copy of the executed contract of sale

within ten (10) days after execution. If Developer intends to occupy the

premises of the Restaurant under a lease, Developer shall submit a copy of the

proposed lease to Licensor for Licensor's written acceptance prior to

Developer's execution of such lease and shall furnish to Licensor a copy of the

executed lease within ten (10) days after execution. No lease for the Restaurant

premises shall be accepted by Licensor unless a rider to the lease, prepared by

Licensor and executed by Licensor, Developer and the lessor, in substantially

the form attached as Attachment B, is attached to the lease and incorporated

therein. Licensor shall have thirty (30) days after receipt of the proposed

lease or the proposed contract of sale to either accept, reject or propose

amendments to such documentation prior to its execution. If Licensor fails to

notify Developer of an objection to the proposed lease or the proposed contract

of sale within this time period, Developer may use such lease or contract of

sale; provided, however, the proposed contract or lease satisfies Licensor's

then current criteria and requirements for contracts or leases outlined in the

Manuals or as otherwise communicated to Developer by Licensor. These criteria

and requirements may include financial requirements, specific lease requirements

or other requirements that Licensor deems necessary. Licensor retains the right

to vary from any requirement, add new requirements or make exceptions to any

requirements in Licensor's sole discretion.

 

                  (b)    Developer shall be responsible for obtaining all zoning

classifications and clearances which may be required by state or local laws,

ordinances or regulations or which may be necessary as a result of any

restrictive covenants relating to the Restaurant premises. Prior to beginning

the construction of the Restaurant, Developer shall (i) obtain all permits,

licenses and certifications (including licenses and permits to sell alcoholic

beverages at the Restaurant) required for the lawful construction or remodeling

and operation of the Restaurant (provided, however, that if a liquor license

cannot be obtained before a Certificate of Occupancy is granted, then Developer

shall use its best efforts to obtain the liquor license as soon as possible

thereafter, and shall keep Licensor fully informed of the status of Developer's

application for the liquor license), and (ii) certify in writing to Licensor

that the insurance coverage specified in Article XIII of the Operating Agreement

is in full force and effect and that all required approvals, clearances, permits

and certifications (including alcoholic beverage licenses and permits) have been

obtained. Upon request, Developer shall provide to Licensor

 

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additional copies of Developer's insurance policies or certificates of insurance

and copies of all such approvals, clearances, permits and certifications.

 

                  (c)    Developer must independently obtain any architectural,

engineering and design services it deems necessary for the construction of the

Restaurant at its own expense from an architectural design firm, which Licensor

reserves the right to approve. Developer shall adapt the prototypical

architectural and design plans and specifications for construction of the

Restaurant provided to Developer by Licensor as necessary for the construction

of the Restaurant and shall submit such adapted plans to Licensor for review. If

Licensor determines, in its sole discretion, that any such plans do not satisfy

Licensor's architectural or design standards and specifications for a

full-service O'Charley's restaurant or are not consistent with the best

interests of the System, Licensor may prohibit the implementation of such plans,

and in this event will notify Developer of any objection(s) within thirty (30)

days of receiving such plans or such other time period as may be specified in

the Manuals. If Licensor fails to notify Developer of an objection to the plans

within this time period, Developer may use such plans, provided such plans

satisfy Licensor's then current architectural and design standards and

specifications for a full-service O'Charley's restaurant. If Licensor objects to

any such plans, it shall provide Developer with a reasonably detailed list of

changes necessary to make the plans acceptable. Licensor shall, upon a

resubmission of the plans with such changes, notify Developer within thirty (30)

days of receiving the resubmitted plans whether the plans are acceptable. If

such changes are not acceptable, Licensor shall notify Developer of such

objections as described above, and Developer shall resubmit such plans in

accordance with the procedures described above until such plans are accepted by

Licensor. If Licensor fails to notify Developer of any objection within such

time period, Developer may use the resubmitted plans. Developer acknowledges

that acceptance by Licensor of such plans does not constitute a representation,

warranty or guarantee, express or implied, by Licensor that such plans are free

of architectural or any design errors and thus, Licensor shall have no liability

to Developer or any other party with respect thereto.

 

                  (d)    Prior to commencement of construction, Developer must

submit all requested information, including, but not limited to, architectural

and design plans, construction schedules and current budgets in accordance with

Licensor's request. As time is of the essence, Developer shall timely commence

and diligently pursue construction of the Restaurant. Commencement of

construction shall be defined as the time at which any site work is initiated by

or on behalf of Developer at the Location accepted for the Restaurant. Site work

includes, without limitation, paving of parking areas, installing outdoor

lighting and sidewalks, extending utilities and demolishing of any existing

premises, depending on whether the accepted Location for the Restaurant is

freestanding. During the time of construction or remodeling, Developer shall

provide Licensor with such periodic reports regarding the progress of the

construction or remodeling as may be reasonably requested by Licensor or as

required in the Manuals. In addition, Licensor shall make such on-site

inspections as it may deem reasonably necessary to evaluate such progress. If

during such inspections Licensor identifies instances where Developer's

construction is inconsistent with, or does not meet, Licensor's standards,

Licensor shall notify Developer in writing of such deficiencies, and Developer

shall correct such deficiencies prior to opening the Restaurant. Developer shall

notify Licensor of the scheduled date for completion of construction no later

than sixty (60) days prior to such date. Within a reasonable time after the date

of completion of construction, Licensor shall, at its option, conduct

 

                                       10

<PAGE>

 

an inspection of the completed Restaurant. Developer acknowledges and agrees

that Developer will not open the Restaurant for business without written

authorization of Licensor and that authorization to open shall be conditioned

upon Developer's strict compliance with this Agreement.

 

                                   ARTICLE IV

                       PREREQUISITES TO OBTAINING LICENSES

 

      A.     Developer and Controlling Principals understand and acknowledge that

the rights and duties set forth in this Agreement are personal to Developer and

its Controlling Principals (as applicable), are non-delegable and

non-assignable, and that Licensor has granted such rights in reliance on the

business skill, financial capacity and personal character of and expectations of

performance of the duties hereunder by Developer and Controlling Principals.

Developer and Controlling Principals have represented to Licensor that they have

entered this Agreement for the purpose of fully complying and with the intention

to fully comply with the Restaurant development obligations hereunder and not

for the purpose of reselling the development rights granted herein. Developer

and Controlling Principals understand and agree that this Agreement does not

confer upon Developer a right to develop or license to operate any Restaurant,

but is intended by the parties to set forth the terms and conditions which, if

fully satisfied by Developer, shall entitle Developer to obtain the right to

develop and operate each Restaurant under an Operating Agreement within the

Territory.

 

      B.     In the event that Developer shall have obtained Licensor's

acceptance of a particular proposed site for a Restaurant and shall have paid to

Licensor all of the development fees due under this Agreement and all of the

license fees due under the applicable Operating Agreement, and if Licensor, in

the exercise of its sole and absolute discretion, has granted Developer, in

writing, "Operational Approval," "Financial Approval," "Legal Approval" and

"Ownership Approval" (collectively the "Conditions"), then Licensor will grant

Developer a license to operate a Restaurant at the site in question. As used

herein, Licensor will give Developer Operational Approval, Financial Approval,

Legal Approval and Ownership Approval under the following circumstances:

 

            (1)    Operational Approval will be granted if Licensor has

determined, in the exercise of its sole discretion, that:

 

                  (a)    Developer is in compliance with the Development Schedule

(including any extensions approved by Licensor in writing) and this Agreement

and has opened each Restaurant as required under the Development Schedule

(including any extensions approved by Licensor in writing);

 

                  (b)    Developer and its Affiliates are in compliance with any

other agreement between Developer and its Affiliates and Licensor and its

Affiliates;

 

                   (c)    Developer is conducting the operation of its existing

Restaurants, if any, and is capable of conducting the operation of each proposed

Restaurant required under the Development Schedule:

 

                                       11

<PAGE>

 

                         (i)    in accordance with the terms and conditions of the

            Agreement and any amendments thereto;

 

                        (ii)   in accordance with the provisions of the

            respective Operating Agreements and any amendments thereto; and

 

                        (iii) in accordance with the standards, specifications

            and procedures:

 

                              (A)    set forth and described in the Manuals (as

                  defined in the Operating Agreement), as such Manuals may be

                  amended from time to time;

 

                              (B)    as evaluated by Licensor, in its sole

                  discretion, in accordance with the evaluation programs

                  outlined in the Manuals; or

 

                              (C)    as otherwise set forth by Licensor in

                  writing.

 

            (2)    Developer acknowledges and agrees that it is vital to

Licensor's interest that each of its operators be financially sound to avoid

failure of an O'Charley's restaurant and that such failure would adversely

affect the reputation and good name of Licensor and the System. In accordance

with the foregoing criteria, Financial Approval will be granted if:

 

                  (a)    Developer and Controlling Principals satisfy Licensor's

then-current financial criteria for developers and controlling principals of

O'Charley's restaurants with respect to Developer's operation of its existing

Restaurants, if any, and the proposed Restaurant;

 

                  (b)    Developer and Controlling Principals have been and are

faithfully performing all terms and conditions under each of the existing

Operating Agreements with Licensor, if any;

 

                  (c)    Developer is not in default, and has not been in default

during the twelve (12) months preceding Developer's request for financial

approval, of any monetary obligations owed to Licensor or its Affiliates under

any Operating Agreement or other agreement between Developer or any of its

Affiliates and Licensor or any of its Affiliates; and

 

                  (d)    Developer is not in default, and has not been in default

during the twelve (12) months preceding the date of this Agreement, of any

financial covenant or monetary obligation with any of its lenders or financing

sources.

 

            (3)    Legal Approval will be granted if Developer has executed and

delivered to Licensor, in a timely manner, all information and documents

requested by Licensor prior to and as a basis for the issuance of individual

licenses or pursuant to any right granted to Developer by this Agreement or by

any Operating Agreement between Developer and Licensor and has taken such

additional actions in connection therewith as may be requested by Licensor from

time to time.

 

                                       12

<PAGE>

 

            (4)    Ownership Approval will be granted if:

 

                  (a)    neither Developer nor any of its Controlling Principals

(as applicable) shall have transferred a Controlling Interest in Developer; and

 

                  (b)    Developer and Controlling Principals upon whom Licensor

has relied to perform the duties under this Agreement shall continue to own and

exercise control over a Controlling Interest in Developer.

 

      C.     (1)    If Licensor determines, in its sole discretion, that Developer

                  and Controlling Principals:

 

                  (a)    have met all of the Conditions prior to the grant of the

right to establish each additional Restaurant, then Licensor shall grant to

Developer the right to develop such additional Restaurants pursuant to the

Development Schedule; or

 

                  (b)    have not met one (1) or more of the Conditions, Licensor

may (in addition to any other rights or remedies Licensor may have) suspend,

without extending the term of this Agreement, Developer's right to develop

Restaurants until the Conditions are satisfied in Licensor's sole discretion,

and re-state the Development Schedule (which may include a reduction in the

number of Restaurants and the number of Development Periods).

 

            (2)    The Conditions described above shall survive the termination

or expiration of this Agreement and shall apply with respect to any Operating

Agreement executed pursuant to this Development Agreement.

 

      D.     It is understood and agreed that the foregoing criteria apply to the

operational, financial, legal and ownership aspects of any Restaurant franchised

by Licensor in which Developer or any Controlling Principal has any legal or

equitable interest. It is further understood and agreed that Developer and

Controlling Principals have an ongoing responsibility to operate each Restaurant

in which Developer or any Controlling Principal has any legal or equitable

interest in a manner which satisfies the foregoing requirements for Operational

Approval, Financial Approval, Legal Approval and Ownership Approval.

 

                                   ARTICLE V

                                      TERM

 

      A.     Unless sooner terminated in accordance with this Agreement, the term

of this Agreement and all rights granted by Licensor under this Agreement shall

expire on the date on which Developer successfully and in a timely manner has

exercised all of the development rights and completed the development

obligations under this Agreement in accordance with the Development Schedule

(including, if applicable, any extension thereof under Section III(B)(3)).

 

      B.     As set forth in Section VII(E)(3), upon such expiration, Licensor

shall, subject to the terms of the Operating Agreements executed pursuant

hereto, have the right to develop, or authorize any other person or Entity to

develop, O'Charley's restaurants in the Territory and Developer shall have no

further rights with respect to the development of O'Charley's restaurants in the

Territory; provided, however, if an Operating Agreement is fully executed in

 

                                       13

<PAGE>

 

accordance with Article III, prior to the expiration of the Development

Schedule, Developer shall complete the development of such Restaurant subject to

the Operating Agreement and shall open and operate such Restaurant as provided

in the Operating Agreement.

 

                                   ARTICLE VI

                               DUTIES OF DEVELOPER

 

      A.     Developer and Controlling Principals, as applicable, make the

following representations, warranties and covenants and accept the following

obligations:

 

            (1)    If Developer is a corporation, limited liability company,

partnership or other Entity, Developer make the following representations,

warranties and covenants to Licensor:

 

                  (a)    Developer is duly organized and validly existing under

the state law of its formation.

 

                  (b)    Developer is duly qualified and is authorized to do

business in each jurisdiction in which its business activities or the nature of

the properties owned by it require such qualification.

 

                  (c)    Developer's corporate charter, written operating

agreement or written partnership agreement shall at all times provide that the

activities of Developer are confined exclusively to the development and

operation of O'Charley's restaurants. Unless otherwise consented to by Licensor

in writing, Developer shall not use the Proprietary Marks as part of its

corporate or other legal name, and, in any event, shall obtain Licensor's

approval of such corporate or other legal name prior to applying for or filing

it with the applicable government authority.

 

                   (d)    The execution of this Agreement and the consummation of

the transactions contemplated hereby are within Developer's corporate power, if

Developer is a corporation, are permitted under Developer's articles of

organization and written operating agreement and have been duly authorized by

Developer, if Developer is a limited liability company, or are permitted under

Developer's written partnership agreement and have been duly authorized by

Developer, if Developer is a partnership.

 

                   (e)    If Developer is a corporation, copies of Developer's

Articles of Incorporation, Bylaws, other governing documents, any amendments

thereto, resolutions of the Board of Directors authorizing entry into and

performance of this Agreement and any certificates, buy-sell agreements or other

documents restricting the sale or transfer of stock of the corporation, and any

other documents as may be reasonably required by Licensor, shall have been

furnished to Licensor prior to the execution of this Agreement; if Developer is

a limited liability company, copies of Developer's articles of organization,

operating agreement, any buy-sell agreements or other documents restricting the

sale or transfer of interests in the limited liability company, and any other

governing documents and any amendments thereto shall have been furnished to

Licensor prior to the execution of this Agreement; or, if Developer is a

partnership, copies of Developer's written partnership agreement, any buy-sell

agreements or other documents restricting the sale or transfer of interests in

the partnership, and any other

 

                                       14

<PAGE>

 

governing documents and any amendments thereto shall have been furnished to

Licensor prior to the execution of this Agreement. Developer shall also provide

to Licensor evidence of consent or approval of the entry into and performance of

this Agreement by the requisite number or percentage of shareholders, members or

partners, if such approval or consent is required by statute or by Developer's

Articles of Incorporation, Bylaws, articles of organization, operating

agreement, written partnership agreement or other governing documents, as

applicable.

 

                  (f)    If Developer is a corporation, limited liability company

or partnership, the ownership interests in Developer are accurately and

completely described in Attachment D. Further, if Developer is a corporation,

Developer shall maintain at all times a current list of all owners of record and

all beneficial owners of any class of voting securities in Developer, if

Developer is a limited liability company, Developer shall maintain at all times

a current list of all owners of an interest in the limited liability company,

or, if Developer is a partnership, Developer shall maintain at all times a

current list of all owners of an interest in the partnership. Developer shall

immediately provide a copy of the updated list to Licensor upon the occurrence

of any change of ownership and otherwise shall make its list of owners available

to Licensor upon request.

 

                  (g)    If, after the execution of this Agreement, any person

ceases to qualify as a Principal, or if any individual succeeds to or otherwise

comes to occupy a position which would, upon designation by Licensor, qualify

him as a Principal, Developer shall notify Licensor within five (5) days after

any such change and, upon designation of such person by Licensor as a Principal,

or as a Controlling Principal, as the case may be, such person shall execute

such documents and instruments (including, as applicable, this Agreement) as may

be required by Licensor to be executed by others in such positions.

 

                  (h)    If Developer is a corporation, Developer shall maintain

stop-transfer instructions against the transfer on its records of any of its

equity and voting securities and each certificate representing an equity or

voting security of the corporation shall have conspicuously endorsed upon it a

statement, in a form satisfactory to Licensor, that it is held subject to all

restrictions imposed upon assignments by this Agreement; provided, however, that

the requirements of this Section VI(A)(1)(h) shall not apply to the transfer of

equity securities of a Publicly-Held Entity that is otherwise approved to be the

Operator. If Developer is a limited liability company, its operating agreement

shall provide that ownership of an interest in the limited liability company is

held subject to all restrictions imposed upon assignments by this Agreement. If

Developer is a partnership, its written partnership agreement shall provide that

ownership of an interest in the partnership is held subject to all restrictions

imposed upon assignments by this Agreement.

 

                  (i)    Developer and each Controlling Principal have provided

Licensor with the most recent financial statements of Developer and each

Controlling Principal. Developer shall provide an annual balance sheet, income

statement, statement of shareholders' equity and statement of cash flows in the

form prescribed by Licensor (which may be unaudited, unless otherwise requested

or required by Licensor) within one hundred twenty (120) days after Developer's

fiscal year end. Such financial statements present fairly the financial position

of Developer and each Controlling Principal, as applicable, at the dates

indicated therein and with respect to Developer, the results of its operations,

cash flow and owners' equity for the years

 

                                       15

<PAGE>

 

then ended. Developer agrees that it shall maintain at all times during the term

of this Agreement, sufficient working capital to fulfill its obligations under

this Agreement. Each of the financial statements mentioned above shall be

certified as true, complete and correct by Developer's treasurer or chief

financial officer (or by the applicable Controlling Principal, as appropriate)

and shall have been prepared in conformity with accounting principles generally

accepted in the United States of America and consistently applied to all

applicable periods involved. Developer's treasurer or chief financial officer

shall deliver to Licensor, simultaneously with the financial statements

mentioned above, a certificate certifying that Developer is not in default of

any of Developer's financial covenants or monetary obligations with any of

Developer's lenders or financing sources. No material liabilities, adverse

claims, commitments or obligations of any nature exist as of the date of this

Agreement, whether accrued, unliquidated, absolute, contingent or otherwise,

which are not reflected as liabilities on the financial statements of Developer

or such Controlling Principals or otherwise appropriately disclosed in the notes

thereto.

 

                  (j)    Each of the Principals, except Controlling Principals,

shall execute and bind themselves to the confidentiality and non-competition

covenants set forth in the Confidentiality and Non-Compete Agreement attached

hereto as Attachment C to this Agreement (see Sections IX(B)(2) and IX(I)).

Controlling Principals shall jointly and severally guarantee Developer's

performance of all of Developer's obligations (including, but not limited to,

the payment of fees), covenants and agreements described in this Agreement

pursuant to the terms and conditions of the guaranty attached hereto as

Attachment E, and do otherwise bind themselves to the terms of this Agreement as

stated herein.

 

                  (k)    Developer and Controlling Principals acknowledge and

agree, jointly and severally, that the representations, warranties, covenants

and agreements set forth above in Section VI(A)(l)(a)-(j) are continuing

obligations of Developer and Controlling Principals, as applicable. Developer

and each Controlling Principal will cooperate with Licensor in any efforts made

by Licensor to verify compliance with such representations, warranties,

covenants and agreements.

 

            (2)    Upon the execution of this Agreement, Developer shall

designate and retain an individual to serve as Operating Principal of Developer

("Operating Principal"). If Developer is an individual, Developer shall perform

all obligations of Operating Principal. Operating Principal shall, during the

entire period he serves as such, meet the following qualifications:

 

                  (a)    Operating Principal may, at Operating Principal's

option, and, subject to the approval of Licensor, designate an individual to

perform the duties and obligations of Operating Principal described herein;

provided, however that Operating Principal shall ensure that such designee meets

all the requirements for an Operating Principal outlined below and conducts and

fulfills all of the Operating Principal's obligations in accordance with the

terms of this Agreement; provided, further, Operating Principal shall remain

fully responsible for any such performance.

 

                  (b)    Operating Principal must maintain a direct or indirect

ownership interest in the Developer reasonably satisfactory to Licensor. Except

as may otherwise be

 

                                        16

<PAGE>

 

provided in this Agreement, Operating Principal's interest in Developer shall be

and shall remain free of any pledge, mortgage, hypothecation, lien, charge,

encumbrance, voting agreement, proxy, security interest or purchase right or

options.

 

                  (c)    Developer and Operating Principal (or his designee, as

applicable) shall devote their full time and best efforts to the supervision and

conduct of the business contemplated by this Agreement. Operating Principal

shall execute this Agreement as a Controlling Principal, and shall be

individually, jointly and severally with Developer and the other Controlling

Principals, bound by all obligations of Developer, Operating Principal and

Controlling Principals hereunder.

 

                   (d)    Operating Principal (or his designee, as applicable)

shall meet Licensor's standards and criteria for such individual (including, but

not limited to, educational, financial and operational experience criteria

prescribed by Licensor), as set forth in the Manuals (as defined in the

Operating Agreement) or as otherwise communicated by Licensor to Operator from

time to time.

 

                  (e)    If during the term of this Agreement Operating Principal

(or any designee) is not able to continue to serve in the capacity of Operating

Principal or no longer qualifies to act as such in accordance with this Section,

Developer shall notify Licensor within ten (10) days and shall designate a

replacement within sixty (60) days after Operating Principal (or any designee)

ceases to serve or be so qualified, such replacement being subject to the same

qualifications and restrictions listed above. Developer shall provide for

interim management of the activities contemplated under this Agreement until

such replacement is so designated, such interim management to be conducted in

accordance with this Agreement.

 

            (3)    Developer and Controlling Principals understand that

compliance by all developers and operators operating under the System with

Licensor's training, development and operational requirements is an essential

and material element of the System and that Licensor and developers and

operators operating under the System consequently expend substantial time,

effort and expense in training management personnel for the development and

operation of their respective O'Charley's restaurants. Accordingly, Developer

and Controlling Principals agree that if during the term of this Agreement,

Developer or any Controlling Principal shall designate or employ any individual

who is at the time or was within the preceding three (3) months employed in a

restaurant managerial position, a multi-restaurant supervisory position or home

office staff position (e.g., officer or director level personnel, management

information systems personnel or human resources and training personnel), by

Licensor or any of its Affiliates, including, but not limited to, individuals

employed by Licensor to work in its O'Charley's restaurants, or at Licensor's

home office, or employed in a restaurant managerial position by any other

developer or operator operating under the System (a "Covered Individual"), then

(a) Developer shall give such former employer written notice of its intent to

employ such Covered Individual at least thirty (30) days prior to the date such

Covered Individual commences employment with Developer, and (b) such former

employer of such Covered Individual shall be entitled to compensation for the

reasonable costs and expenses, of whatever nature or kind, incurred by such

employer in connection with the training of such Covered Individual. The parties

hereto agree that such expenditures may be uncertain and difficult to ascertain

and, therefore, agree that the compensation specified herein reasonably

represents such expenditures

 

                                       17

<PAGE>

 

and is not a penalty. The employing Developer or Controlling Principal shall pay

to the former employer an amount equal to the salary of such Covered Individual

for the six (6) month period prior to the termination of his employment with

such former employer (or if the Covered Individual was employed less than six

(6) months, that Covered Individual's projected salary had the Covered

Individual been employed for the full six (6) months) for any restaurant level

managerial personnel. For any Covered Individual employed in a multi-restaurant

supervisory or home office staff position, the employing Developer or

Controlling Principal shall pay to the former employer an amount equal to the

salary of such Covered Individual for the twelve (12) month period immediately

prior to the termination of his employment with such former employer (or if the

Covered Individual was employed less than twelve (12) months, that Covered

Individual's projected salary had the Covered Individual been employed for the

full twelve (12) months). Such amount shall be paid by Developer, or the

applicable Controlling Principal, as the case may be, within thirty (30) days

after written notice, unless otherwise agreed with such former employer. The

parties hereto expressly acknowledge and agree that no current or former

employee of Licensor, its Affiliates, Developer, or of any other Entity

operating under the System shall be a third party beneficiary of this Agreement

or any provision hereof. Notwithstanding the above, solely for purposes of

bringing an action to collect any payment due under this Section, such former

employer shall be a third-party beneficiary of this Section VI(A)(3). Licensor

hereby expressly disclaims any representations and warranties regarding the

performance of any employee or former employee of Licensor or its Affiliates, or

any developer or operator operating under the System, who is designated or

employed by Developer or any Controlling Principal in any capacity, and Licensor

shall not be liable for any losses, of any nature or kind, incurred by Developer

or any Controlling Principal in connection therewith.

 

            (4)    Developer shall comply with all requirements of federal, state

and local laws, rules, regulations and orders.

 

            (5)    Developer shall obtain and maintain all appropriate licenses,

permits and certificates for the operation of the Restaurant, including licenses

and permits to sell alcoholic beverages in the Restaurant.

 

            (6)    Developer and Controlling Principals shall allow Licensor and

its representatives to review any and all of Developer's and Controlling

Principals' documents and other materials relating to their financing

arrangements or capital structure.

 

      B.     Developer and Controlling Principals represent, warrant, covenant

and agree that they shall comply with all other requirements and perform such

other obligations as provided in this Agreement and the Manuals.

 

                                  ARTICLE VII

                              DEFAULT AND TERMINATION

 

      A.     Developer shall be deemed to be materially in default under this

Agreement and all rights granted herein shall automatically terminate without

notice to Developer if:

 

                                        18

<PAGE>

 

            (1)    Developer becomes insolvent or makes a general assignment for

the benefit of creditors or files a voluntary petition under any section or

chapter of federal bankruptcy laws or under any similar law or statute of the

United States or any state thereof ("Bankruptcy Laws") or admits in writing its

inability to pay its debts when due;

 

            (2)    Developer is adjudicated bankrupt or insolvent in proceedings

filed against Developer under any section or chapter of any Bankruptcy Law;

 

            (3)    a bill in equity or other proceeding for the appointment of a

receiver of Developer or other custodian for Developer's business or assets is

filed and consented to by Developer, or if a receiver or other custodian

(permanent or temporary) of Developer's assets or property, or any part thereof,

is appointed by any court of competent jurisdiction;

 

            (4)    proceedings for a composition with creditors under any state

or federal law are instituted by or against Developer;

 

            (5)    a final judgment against Developer remains unsatisfied or of

record for thirty (30) days or longer (unless supersedeas bond is filed);

 

            (6)    Developer is dissolved;

 

            (7)    execution is levied against Developer's business or property;

 

            (8)    suit to foreclose any lien or mortgage against the premises or

equipment of any business operated hereunder or under any Operating Agreement is

instituted and not dismissed within thirty (30) days; or

 

            (9)    the real or personal property of any business operated

hereunder or under any Operating Agreement shall be sold after levy thereupon by

any sheriff, marshal or other government official.

 

      B.     Developer shall be deemed to be in material default and Licensor

may, at its option, terminate this Agreement and all rights granted hereunder,

without affording Developer any opportunity to cure the default except as

specifically provided below, effective immediately upon notice to Developer,

upon the occurrence of any of the following events of default:

 

            (1)    Developer fails to comply with the Development Schedule (or

any extension, if any, thereof approved by Licensor in writing), or Developer

fails to develop a replacement Restaurant within any time period agreed upon by

the parties under Section III(B)(2);

 

            (2)    Developer fails to execute each Operating Agreement in

accordance with Section III(C) (or any extension thereof approved by Licensor in

writing);

 

             (3)    Developer or any Controlling Principal is convicted of, or

shall have entered a plea of nolo contendere to, a felony, a crime involving

moral turpitude or any other crime or offense that Licensor believes is

reasonably likely to have an adverse effect on the System, the Proprietary

Marks, the goodwill associated therewith or Licensor's interest therein;

 

                                       19

<PAGE>

 

            (4)    a threat or danger to public health or safety results from the

construction, maintenance or operation of any Restaurant developed under this

Agreement;

 

            (5)    Developer fails to designate a qualified replacement Operating

Principal or designee appointed by Operating Principal within sixty (60) days

after any initial or successor Operating Principal or designee ceases to serve

as such, all as required under Section VI(A)(2)(e);

 

            (6)    Developer or any Controlling Principal breaches any of the

representations warranties and covenants in Article VI;

 

             (7)    Developer or any Controlling Principal transfers or attempts

to transfer any rights or obligations under this Agreement, any interest in

Developer or the assets of Developer, without first obtaining Licensor's written

consent pursuant to Section VIII(B) or offering Licensor a right of first

refusal with respect to such transfer pursuant to Section VIII(D);

 

            (8)    Developer or any Controlling Principal fails to comply with

the covenants in Article IX or fails to obtain execution of the covenants and

related agreements required under Article IX hereof within thirty (30) days

after being requested to do so by Licensor;

 

            (9)    an approved transfer upon death or Permanent Disability is not

effected within the time period and in the manner prescribed by Section VIII(E);

 

            (10)   Developer or any Controlling Principal misuses or makes any

unauthorized use of the Proprietary Marks or otherwise materially impairs the

goodwill associated therewith or with the System or Licensor's rights therein;

 

            (11)   Developer, any Controlling Principal or any of their

Affiliates fails, refuses or neglects promptly to pay when due any monetary

obligation owing to Licensor or any of its Affiliates under this Agreement, any

Operating Agreement or any other agreement (which shall include payments to

lenders where Licensor has guaranteed the underlying indebtedness) and does not

cure such default within five (5) days following notice from Licensor (or such

other applicable cure period contained in such other agreement, unless no cure

period is stated or such period is less than five (5) days, in which case the

five (5) day cure period shall apply);

 

            (12)   Developer, any Controlling Principal or any of their

Affiliates fails or refuses to comply with any term or condition of any sublease

or related agreement, between Licensor or its Affiliates and Developer or its

Affiliates, and does not cure such default within any notice and cure period

provided for in such sublease or related agreement following notice from

Licensor of such default (unless no cure period is specified in the sublease or

other agreement), in which case the notice and cure period in Section VII(C)

shall apply; or

 

            (13)   Developer or any Controlling Principal repeatedly commits a

material event of default under this Agreement, whether or not such defaults are

of the same or different nature and whether or not such defaults have been cured

by Developer after notice by Licensor.

 

      C.     Except as provided above in Sections VII(A) and VII(B), if Developer

fails to comply with any other term or condition imposed by this Agreement, any

Operating Agreement

 

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or any other development or operating agreement between Developer or any

Controlling Principal and Licensor, as such may from time to time be amended,

Licensor may terminate this Agreement only by giving written notice of

termination stating the nature of such default to Developer at least thirty (30)

days prior to the effective date of termination; provided, however, that

Developer may avoid termination by immediately initiating a remedy to cure such

default and curing it to Licensor's satisfaction within the thirty (30) day

period and by promptly providing proof thereof to Licensor. Subject to Section

VII(D), if any such default is not cured within the specified time, or such

longer period as applicable law may require, Developer's rights under this

Agreement shall terminate without further notice to Developer effective

immediately upon the expiration of the thirty (30) day period or such longer

period as applicable law may require, unless Licensor gives Developer notice of

Licensor's intent to continue this Agreement.

 

      D.     Upon default by Developer under Sections VII(B) or VII(C), Licensor

has the option, in its sole discretion, in addition to exercising its option to

terminate this Agreement as provided in Sections VII(B) and (C), to do any one

or more of the following:

 

            (1)    terminate or modify any territorial rights granted to

Developer in Article I;

 

            (2)    reduce the area of such territorial rights;

 

            (3)    reduce the number of Restaurants which Developer may establish

pursuant to Section III(B)(l);

 

             (4)    accelerate the Development Schedule;

 

            (5)    with respect to Section VII(B)(l), permit Developer to obtain

an extension of the Development Schedule under Section III(B);

 

            (6)    terminate or modify any right granted to Developer in Section

I(B); or

 

            (7)    pursue any other remedy Licensor may have at law or in equity;

provided, however, that Licensor shall not be entitled to recover money damages

for lost revenues or profits solely because of a failure of Developer to meet

the Development Schedule set out herein so long as Developer shall demonstrate

that such failure has occurred despite the exercise of all commercially

reasonable efforts on Developer's part to meet such Development Schedule.

 

      E.     (1)    Upon the termination or expiration of this Agreement,

                  Developer shall have no right to establish or operate any

                  Restaurant:

 

                  (a)    for which an Operating Agreement has not been executed

by Licensor and delivered to Developer at the time of termination or expiration,

or

 

                  (b)    with respect to which Developer has not satisfied the

prerequisites for obtaining licenses as described in Article IV whether or not

an Operating Agreement has been executed.

 

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            (2)    If Licensor elects to terminate the territorial rights granted

to Developer in Article I or modify such territorial rights or reduce the area

of territorial rights as provided in Section VII(D) above, Developer shall

continue to develop Restaurants in accordance with the Development Schedule or

Supplementary Development Schedule, to the extent that the number of Restaurants

Developer is required to develop is reduced and/or the area in which such

Restaurants are required to be developed is reduced by Licensor pursuant to

Sections VII(D)(2) and (3).

 

            (3)    If Licensor exercises any of its rights in Section VII(D) or

if this Agreement otherwise expires or terminates, Licensor shall be entitled to

establish, and to license others to establish, Restaurants in the Territory or

in the portion thereof no longer part of the Territory or pursuant to any other

modification of Developer's territorial rights, except as may be otherwise

provided under any Operating Agreement which is then in effect between Licensor

and Developer.

 

      F.     Licensors exercise of any of its options under Section VII(D) shall

not, in the event of a default, constitute a waiver by Licensor to exercise its

option to terminate this Agreement at any time with respect to a subsequent

event of default of a similar or different nature.

 

      G.     No default under this Agreement shall constitute a default under any

Operating Agreement between the parties hereto, unless the default is also a

default under the terms of such Operating Agreement.

 

      H.     Upon default of Developer and the early termination of this

Agreement, Licensor shall have the right to purchase the assets of all of the

Restaurants opened pursuant to Operating Agreements executed under the terms of

this Agreement. The terms and conditions of the purchase transaction, including,

but not limited to, the purchase price for the assets of such Restaurants, shall

be determined in accordance with the provisions contained in the applicable

Operating Agreement permitting the Licensor to purchase, at its option, such

assets upon termination or expiration of the Operating Agreement.

 

      I.     No right or remedy herein conferred upon or reserved to Licensor is

exclusive of any other right or remedy provided or permitted by law or in

equity.

 

      J.     Upon termination or expiration of this Agreement, Developer and

Controlling Principals shall comply with the restrictions on confidential

information and the covenants against competition contained in Article IX. Any

other person required to execute similar covenants pursuant to Article IX shall

also comply with such covenants.

 

      K.     Developer acknowledges and agrees that each of the obligations of

Developer and Controlling Principals described in this Agreement is a material

and essential obligation of Developer, that non-performance of such obligations

will adversely and substantially affect Licensor and the System, and that the

exercise by Licensor of the rights and remedies set forth herein is appropriate

and reasonable.

 

      L.     Any alleged default by Licensor of this Agreement shall be deemed

waived unless: (1) Developer gives Licensor written notice of such alleged

default within thirty (30)

 

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days of its occurrence; and (2) Licensor fails to initiate a remedy to such

alleged default within sixty (60) days of having received written notice

thereof.

 

                                  ARTICLE VIII

                              TRANSFER OF INTEREST

 

      A.     Licensor shall have the right to transfer or assign this Agreement

and all or any part of its rights or obligations herein to any person or Entity

without Developer's consent. Specifically, and without limitation to the

foregoing, Developer and Controlling Principals expressly affirm and agree that

Licensor may sell its assets, the Proprietary Marks or the System to a third

party; may offer its securities privately or publicly; may merge, spin-off,

acquire other Entities, or be acquired by another Entity; may undertake a

refinancing, recapitalization, leveraged buyout or other economic or financial

restructuring; and, with regard to any or all of the above sales, assignments

and dispositions, Developer and Controlling Principals expressly and

specifically waive any claims, demands or damages against Licensor arising from

or related to the transfer of the Proprietary Marks (or any variation thereof)

or its assets or the System (or any portion thereof) from Licensor to any other

party. Upon such sale, assignment or disposition, Developer further agrees that

Licensor shall have no further obligations arising out of or related to this

Agreement so long as such obligations are assumed by the transferee. Nothing

contained in this Agreement shall require Licensor to remain in the business of

operating or licensing the operation of O'Charley's restaurants or other

restaurant businesses or to offer any services or products, whether or not

bearing the Proprietary Marks, to Developer, if Licensor exercises its rights

hereunder to assign its rights in this Agreement.

 

      B.     (1)    Developer and Controlling Principals understand and

                  acknowledge that the rights and duties set forth in this

                  Agreement are personal to Developer and each Controlling

                  Principal and that Licensor has granted such rights in

                  reliance on the business skill, financial capacity and

                  personal character of Developer and Cont