10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended July 11, 2010

Commission file number 0-18629

O’Charley’s Inc.

(Exact name of registrant as specified in its charter)

Tennessee	62-1192475
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

3038 Sidco Drive, Nashville, Tennessee	37204
(Address of principal executive offices)	(Zip Code)

(615) 256-8500

(Registrant’s telephone number, including area code)

       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 o

       Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes o  No  o

       Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  Large accelerated filer o Accelerated filer x Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding as of August 6, 2010
Common Stock, no par value	21,681,919 shares

O’Charley’s Inc.

Form 10-Q

Index

	Page No.
Part I — Financial Information
Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets as of July 11, 2010 and December 27, 2009		3
Consolidated Statements of Operations for the 12 weeks ended July 11, 2010 and July 12, 2009		4
Consolidated Statements of Operations for the 28 weeks ended July 11, 2010 and July 12, 2009		5
Consolidated Statements of Cash Flows for the 28 weeks ended July 11, 2010 and July 12, 2009		6
Consolidated Statements of Shareholders’ Equity and Comprehensive Loss for the 28 weeks ended July 11, 2010		7
Notes to Unaudited Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3. Quantitative and Qualitative Disclosures About Market Risk		30
Item 4. Controls and Procedures		30
Part II — Other Information
Item 1. Legal Proceedings		31
Item 1A. Risk Factors		31
Item 2. Issuer Purchases of Equity Securities		31
Item 6. Exhibits		31
Signatures

EX-10.1 General Release Agreement, dated June 17, 2010, by and between Jeffrey D. Warne and O’Charley’s Inc.

EX-10.2 Executive Employment Agreement dated July 30, 2010, by and between O’Charley’s Inc. and David Head

EX-31.1 Section 302 Certification of the Interim Chief Executive Officer

EX-31.2 Section 302 Certification of the Chief Financial Officer

EX-32.1 Section 906 Certification of the Interim Chief Executive Officer

EX-32.2 Section 906 Certification of the Chief Financial Officer

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PART I — FINANCIAL INFORMATION

 Item 1. Consolidated Financial Statements (Unaudited)

O’CHARLEY’S INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

	July 11,		December 27,
	2010		2009
ASSETS
Current Assets:
Cash and cash equivalents	$	25,855	$	21,880
Trade accounts receivable, net		14,839		17,209
Inventories		8,764		10,594
Deferred income taxes		680		—
Assets held for sale		809		1,937
Other current assets		6,245		4,434
Total current assets		57,192		56,054
Property and equipment, net of accumulated depreciation of $376,812 and $356,818		345,557		366,850
Trade names and other intangible assets		25,946		25,946
Other assets		13,844		13,405
Total Assets	$	442,539	$	462,255
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Trade accounts payable	$	7,859	$	5,101
Accrued payroll and related expenses		15,948		16,044
Accrued expenses		23,108		21,446
Deferred revenue		6,617		17,969
Federal, state and local taxes		15,025		10,459
Current portion of long-term debt and capitalized lease obligations		1,996		1,979
Total current liabilities		70,553		72,998
Deferred income taxes		1,333		1,386
Other liabilities		47,679		48,833
Long-term debt, less current portion		117,548		128,121
Capitalized lease obligations, less current portion		820		1,798
Shareholders’ Equity:
Common stock — No par value; authorized, 50,000 shares; issued and outstanding, 21,682 in 2010 and 21,547 in 2009		163,871		161,514
Retained earnings		40,735		47,605
Total shareholders’ equity		204,606		209,119
Total Liabilities and Shareholders’ Equity	$	442,539	$	462,255

See accompanying notes to unaudited consolidated financial statements

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O’CHARLEY’S INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

12 Weeks Ended July 11, 2010 and July 12, 2009

(In thousands, except per share data)

(Unaudited)

	2010			2009
Revenues:
Restaurant sales	$	193,848		$	206,028
Franchise and other revenue		239			189
		194,087			206,217
Costs and Expenses:
Cost of restaurant sales:
Cost of food and beverage		57,595			59,796
Payroll and benefits		68,531			72,480
Restaurant operating		40,313			39,949
Cost of restaurant sales, exclusive of depreciation and
amortization shown separately below		166,439			172,225
Advertising and marketing		7,922			8,107
General and administrative		10,190			8,075
Depreciation and amortization of property and equipment		9,942			10,956
Impairment and disposal charges, net		126			1,543
Pre-opening costs		—			80
		194,619			200,986
(Loss) Income from Operations		(532	)		5,231
Other Expense (Income):
Interest expense, net		2,874			2,741
Other, net		(1	)		(82	)
		2,873			2,659
(Loss) Earnings Before Income Taxes		(3,405	)		2,572
Income Tax (Benefit)		(882	)		(322	)
Net (Loss) Earnings	$	(2,523	)	$	2,894
Net (Loss) Attributable/Earnings Available to Common Shareholders	$	(2,523	)	$	2,822
Basic (Loss) Earnings per common share:
Net (loss) earnings	$	(0.12	)	$	0.14
Weighted average common shares outstanding		21,230			20,883
Diluted (Loss) Earnings per common share:
Net (loss) earnings	$	(0.12	)	$	0.13
Weighted average common shares outstanding		21,230			21,378

See accompanying notes to unaudited consolidated financial statements

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O’CHARLEY’S INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

28 Weeks Ended July 11, 2010 and July 12, 2009

(In thousands, except per share data)

(Unaudited)

	2010			2009
Revenues:
Restaurant sales	$	465,001		$	497,392
Franchise and other revenue		572			483
		465,573			497,875
Costs and Expenses:
Cost of restaurant sales:
Cost of food and beverage		137,149			144,820
Payroll and benefits		163,289			171,803
Restaurant operating		95,140			96,537
Cost of restaurant sales, excluding depreciation and
amortization shown separately below		395,578			413,160
Advertising and marketing		19,689			18,558
General and administrative		21,139			20,783
Depreciation and amortization of property and equipment		23,566			25,978
Impairment and disposal charges, net		5,678			1,836
Pre-opening		7			345
		465,657			480,660
(Loss) Income from Operations		(84	)		17,215
Other Expense (Income):
Interest expense, net		6,918			6,784
Other, net		1			(72	)
		6,919			6,712
(Loss) Earnings Before Income Taxes		(7,003	)		10,503
Income Tax (Benefit) Expense		(135	)		468
Net (Loss) Earnings	$	(6,868	)	$	10,035
Net (Loss) Attributable/Earnings Available to Common Shareholders	$	(6,868	)	$	9,746
Basic (Loss) Earnings per common share:
Net (loss) earnings	$	(0.32	)	$	0.47
Weighted average commons shares outstanding		21,136			20,721
Diluted (Loss) Earnings per common share:
Net (loss) earnings	$	(0.32	)	$	0.47
Weighted average diluted common shares outstanding		21,136			20,933

See accompanying notes to unaudited consolidated financial statements

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O’CHARLEY’S INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

28 Weeks Ended July 11, 2010 and July 12, 2009

(In thousands)

(Unaudited)

	2010			2009
Cash Flows from Operating Activities:
Net (loss) earnings	$	(6,868	)	$	10,035
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Depreciation and amortization of property and equipment		23,566			25,978
Amortization of debt issuance costs and swap termination payment		552			151
Share-based compensation		2,211			2,371
Loss on early extinguishment of debt		198			—
Amortization of deferred gain on sale-leasebacks		(569	)		(569	)
Deferred income taxes and other income tax related items		(924	)		(1,695	)
Loss on the sale of assets		52			62
Impairment and disposal charges, net		5,678			1,689
Noncontrolling interests		—			(84	)
Changes in assets and liabilities:
Trade accounts and other receivables		2,609			4,961
Inventories		1,830			3,346
Other current assets		(1,811	)		(1,444	)
Trade accounts payable		2,758			(6,381	)
Deferred revenue		(11,352	)		(11,114	)
Accrued payroll, accrued expenses, and federal, state and local taxes		6,474			1,485
Other long-term assets and liabilities		(1,220	)		985
Net cash provided by operating activities		23,184			29,776
Cash Flows from Investing Activities:
Additions to property and equipment		(7,661	)		(6,532	)
Proceeds from the sale of assets		1,131			1,023
Other, net		1			42
Net cash used in investing activities		(6,529	)		(5,467	)
Cash Flows from Financing Activities:
Payments on long-term debt and capitalized lease obligations		(1,168	)		(28,256	)
Repurchase of senior notes		(9,993	)		—
Debt issuance costs		(1,640	)		—
Payments to noncontrolling interests		—			(50	)
Proceeds from swap cancellation		—			3,510
Proceeds from the exercise of stock options and issuances under CHUX Ownership Plan		388			404
Shares tendered and retired for minimum tax withholdings		(271	)		(129	)
Excess tax benefit from share-based payments		6			—
Dividends paid		(2	)		—
Net cash used in financing activities		(12,680	)		(24,521	)
Increase (decrease) in cash and cash equivalents		3,975			(212	)
Cash and cash equivalents at beginning of the period		21,880			6,818
Cash and cash equivalents at end of the period	$	25,855		$	6,606

See accompanying notes to unaudited consolidated financial statements

6

O’CHARLEY’S INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND

COMPREHENSIVE LOSS

28 Weeks Ended July 11, 2010

(In thousands)

(Unaudited)

	Common Stock						Retained
	Shares			Amount			Earnings			Total
Balance, December 27, 2009		21,547		$	161,514		$	47,605		$	209,119
Comprehensive loss:
Net loss		—			—			(6,868	)		(6,868	)
Shares tendered and retired for minimum tax withholdings		(36	)		(271	)		—			(271	)
Excess tax benefit from share-based payments		—			6			—			6
Shares issued under CHUX Ownership Plan and exercise of stock options		53			388			—			388
Dividends paid		—			—			(2	)		(2	)
Share-based compensation expense		118			2,234			—			2,234
Balance, July 11, 2010		21,682		$	163,871		$	40,735		$	204,606

See accompanying notes to unaudited consolidated financial statements

7

O’CHARLEY’S INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

12 and 28 Weeks Ended July 11, 2010 and July 12, 2009

(Unaudited)

A.   BASIS OF PRESENTATION

O’Charley’s Inc. (the “Company”) operates 234 (at July 11, 2010) full-service restaurant facilities in 17 states in the East, Southeast and Midwest under the trade name “O’Charley’s,” 113 full-service restaurant facilities in nine states throughout New England and the Mid-Atlantic under the trade name “Ninety Nine Restaurants,” and 11 full-service restaurant facilities in six states in the East, Southeast and Midwest under the trade name “Stoney River Legendary Steaks.” As of July 11, 2010, the Company had nine franchised O’Charley’s restaurants in five states.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and in accordance with Rule 10-01 of Regulation S-X. The Company’s fiscal year ends on the last Sunday in December with its first quarter consisting of sixteen weeks and its second, third and fourth quarters consisting of twelve weeks each in most years.

In the opinion of management, the unaudited interim consolidated financial statements contained in this report reflect all adjustments, consisting primarily of normal recurring accruals, which are necessary for a fair presentation of the consolidated financial position and the results of operations for the interim periods presented. The results of operations for any interim period are not necessarily indicative of results for the full year.

The Company’s significant interim accounting policies include the recognition of certain advertising and marketing costs, generally in proportion to revenue.

These unaudited interim consolidated financial statements and footnote disclosures should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 27, 2009. Management of the Company has made certain estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period to prepare these unaudited interim consolidated financial statements in conformity with GAAP.

B.   FAIR VALUE MEASUREMENTS

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 825, “Fair Value of Financial Instruments,” (“ASC 825”),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 ASC 825 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 July 11, 2010 and December 27, 2009.   Book value approximates fair value for substantially all of the Company’s financial assets and liabilities that fall under the scope of ASC 825, except for the Company’s nine percent senior subordinated notes (the “Senior Notes”). The fair value of the Senior Notes was $119.4 million and $123.8 million as of July 11, 2010 and December 27, 2009, respectively, compared to the carrying value of $115.2 million and $125.0 million as of July 11, 2010 and December 27, 2009, respectively. The fair value of the Senior Notes was based on quoted market prices as of the last day of the second quarter of fiscal 2010 and last day of fiscal 2009.

ASC 820, “Fair Value Measurements and Disclosures,” (“ASC 820”) defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  Fair value is defined under ASC 820 as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a three-level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date.

Level 1                  Inputs based on quoted prices in active markets for identical assets.

Level 2                  Inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly.

Level 3                  Inputs that are unobservable for the asset.

There were no transfers among levels within the fair value hierarchy during the 12 and 28 week periods ended July 11, 2010.  Assets measured at fair value on a recurring basis are summarized in the table below (in thousands):

	Fair Value Measurement
Description	Level		July 11, 2010		December 27, 2009
Deferred compensation plan assets		1	$	3,942	$	4,644

The deferred compensation plan assets are comprised of various investment funds, which are valued based upon their quoted market prices.

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There were no assets and liabilities measured at fair value on a nonrecurring basis during the second quarter of fiscal 2010. In certain prior periods significant adjustments were made to assets and liabilities where observable inputs were not available. As such, when future positive cash flows are projected, but less than the carrying value, Level 3 fair value is determined by projected future discounted cash flows for each restaurant location. The discount rate is the Company’s weighted average borrowing rate on outstanding debt during fiscal 2010 which the Company believes is commensurate with the required rate of return that a potential buyer would expect to receive when purchasing a similar restaurant and the related long-lived assets. The Company limits assumptions about important factors such as sales and margin change to those that are supportable for the restaurant. When the real estate value is deemed the highest and best use of the property, the fair value is determined using a valuation model that is based upon recent appraisals of the most representative operating location(s) based upon proximity, sales level, square footage, and land area.

C.   IMPAIRMENT AND DISPOSAL, NET

Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. During the 12 and 28 weeks ended July 11, 2010, impairment and disposal charges, net were $0.1 million and $5.7 million, respectively, as compared to $1.5 million and $1.8 million for the same prior-year periods.  The net charge during the 12 weeks ended July 11, 2010 is primarily insurance deductibles related to flood damage at the Company’s Clarksville, Tennessee properties.

Included in the $5.7 million of impairment and disposal charges, net, for the 28 weeks ended July 11, 2010, is $0.6 million of net exit and disposal costs related to three Ninety Nine restaurants closed during the first quarter of fiscal 2010 and one O’Charley’s restaurant that was previously closed.  These four restaurant locations currently have operating lease obligations with lease termination dates ranging from 2010 to 2014.  The present value of remaining lease obligations expected to be paid for these four restaurants was $0.8 million at the time of the restaurants’ closure.

A reconciliation of the liability balance is summarized in the table below (in millions):

Abandonment of Excess Leased Facilities
Balance, December 27, 2009	$	—
Charges		0.8
Payments		(0.1	)
Balance, July 11, 2010	$	0.7

D.   SHARE-BASED COMPENSATION

Total net share-based compensation expense was $0.8 million and $2.2 million for the 12 and 28 weeks ended July 11, 2010 and $1.0 million and $2.4 million for the 12 and 28 weeks ended July 12, 2009, respectively.  The Company’s net share-based compensation expense primarily consisted of expense associated with restricted stock awards and to a lesser extent expense associated with unvested stock options and the Company’s employee share purchase plan.

During the 12 and 28 weeks ended July 11, 2010, the Company issued 86,020 and 163,020 shares of restricted stock awards, respectively, to its Board of Directors and certain employees. The Company also issued 25,000 and 55,000 shares of non-qualified stock options to certain members of senior management during the 12 and 28 weeks ended July 11, 2010, respectively. As of July 11, 2010, there were 1.9 million options outstanding and 0.4 million restricted stock awards outstanding.

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E.   LONG-TERM DEBT

On January 26, 2010 the Company entered into its Third Amended and Restated Credit Agreement (the “Credit Agreement”).  The maximum borrowing capacity was reduced from $83 million (originally scheduled to be reduced to $65 million on April 18, 2010) to $45 million.  The prior credit agreement had participation from nine banks, while the current credit agreement has participation from three banks. The maximum adjusted leverage ratio was reduced from 5.50 to 5.25.  The definitions of adjusted leverage ratio and senior secured ratio have been changed, and capital expenditures for expansion (as defined by the Credit Agreement) are limited to 15% of EBITDA in 2010 and 30% of EBITDA in subsequent years. Under the Credit Agreement, the Company is permitted to repurchase its Senior Notes due in 2013, subject to certain limitations. The Credit Agreement also reduced the number of company-owned restaurants subject to collateral mortgages from 88 to 47. The Credit Agreement also “resets” the restricted payments basket for dividends and bond repurchases; however, such payments are currently restricted by the governing bond indenture. The Credit Agreement also permits sale-leaseback transactions, subject to certain limitations.  At July 11, 2010, the Company had no amounts outstanding on its revolving credit facility and $12.6 million outstanding in letters of credit, which reduced its available capacity under the Credit Agreement to $32.4 million.  During the 28 weeks ended July 11, 2010, the Company repurchased $9.8 million of its Senior Notes due 2013 resulting in a loss on early extinguishment of debt of $0.2 million, which is included in interest expense, net.

F.   NET (LOSS) EARNINGS PER COMMON SHARE

The two-class method is an earnings allocation formula that determines earnings per share for common stock and participating securities, according to dividends declared and participation rights in undistributed earnings.  Under this method, net earnings are reduced by the amount of dividends declared in the current period for common shareholders and participating security holders.  The remaining earnings or “undistributed earnings” are allocated between common stock and participating securities to the extent that each security may share in earnings as if all of the earnings for the period had been distributed.  Since the Company had net losses for the 12 and 28 weeks ended July 11, 2010, undistributed losses were not allocated to participating securities.  Since the Company had net e arnings for the 12 and 28 weeks ended July 12, 2009, undistributed  earnings were allocated to participating securities; however, there was only a minimal impact on diluted earnings per share.  No dividends were declared in the 12 and 28 weeks ended July 11, 2010 or July 12, 2009.

Following is a reconciliation of the Company’s basic and diluted (loss) earnings per share calculation applying the two-class method (in thousands, except per share data):

	12 Weeks Ended						28 Weeks Ended
	July 11,			July 12,			July 11,			July 12,
	2010			2009			2010			2009
Net (loss) earnings	$	(2,523	)	$	2,894		$	(6,868	)	$	10,035
Less: Net earnings allocated to unvested participating restricted stock		—			(72	)		—			(289	)
(Loss) attributable/ earnings available to common shareholders	$	(2,523	)	$	2,822		$	(6,868	)	$	9,746
Weighted average common shares outstanding		21,230			20,883			21,136			20,721
Incremental options and restricted shares outstanding		—			495			—			212
Weighted average diluted common shares outstanding		21,230			21,378			21,136			20,933
Basic (loss) earnings per common share	$	(0.12	)	$	0.14		$	(0.32	)	$	0.47
Diluted (loss) earnings per common share	$	(0.12	)	$	0.13		$	(0.32	)	$	0.47

Options for 1.9 million shares were excluded from the 12 and 28 weeks ended July 11, 2010 diluted weighted average share calculations and options for 1.7 million shares were excluded from 12 and 28 weeks ended July 12, 2009 diluted weighted average share calculations, due to these shares being anti-dilutive.  In addition, restricted stock awards for 0.4 million shares were excluded from the 12 and 28 weeks ended July 11, 2010 diluted weighted average shares calculations and 0.6 million shares were excluded from the 12 and 28 weeks ended July 12, 2009 diluted weighted average shares calculations, due to these shares being anti-dilutive.

G.    DERIVATIVE INSTRUMENTS

On December 17, 2008, the counterparties to the Company’s interest rate swap agreements exercised their right to exit the agreements in exchange for a $3.5 million payment of the remaining swap value.  This amount is included as long-term debt in the Company’s consolidated balance sheet and is being amortized against interest expense over the remaining life of the Senior Notes.  For the 12 and 28 weeks ended July 11, 2010, $0.2 million and $0.6 million, respectively, were amortized against interest expense.  As of July 11, 2010, the amount remaining to be amortized was $2.2 million.  The Company did not have any swap arrangements as of July 11, 2010.

H.    LEGAL PROCEEDINGS

The Company is a defendant from time to time in various legal proceedings arising in the ordinary course of its business, including claims relating to injury or wrongful death under “dram shop” laws that allow a person to sue the Company based on any injury caused by an intoxicated person who was wrongfully served alcoholic beverages at one of its restaurants; claims relating to workplace, workers compensation and employment matters, discrimination and similar matters; claims resulting from “slip and fall” accidents; claims relating to lease and contractual obligations; claims  relating to its franchising initiatives; and claims from guests or employees alleging illness, injury or other food quality, health or operational concerns.

The Company does not believe that any of the legal proceedings pending against it as of the date of this report will have a material adverse effect on its liquidity or financial condition. The Company may incur liabilities, settle disputes, sustain judgments, or accrue expenses relating to legal proceedings in a particular fiscal quarter which may adversely affect its consolidated results of operations, or on occasion, receive settlements that favorably affect its consolidated results of operations.

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I.    ASSETS HELD FOR SALE

The $0.8 million shown in assets held for sale as of July 11, 2010 on the consolidated balance sheet is a site the Company no longer plans to utilize that is currently being marketed for sale.  The Company does not recognize depreciation expense for assets held for sale.  During the second fiscal quarter of 2010, a restaurant that was previously an asset held for sale was sold for a nominal gain.

J.    INCOME TAXES

During the second quarter ended July 11, 2010, the Company performed its quarterly assessment of its net deferred tax assets. Companies are required to assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified.  As a result of the goodwill impairment charge recognized by the Company during fiscal 2008 and current year losses, the Company had a three-year cumulative pre-tax loss.  In evaluating all of the positive and negative evidence in determining that a valuation allowance was required, the Company evaluated future reversals of existing taxable temporary differences, future tax able income exclusive of reversing temporary differences and carryforwards, taxable income in prior carryback years, if applicable, and tax planning strategies, and compared the likelihood of these sources of income in light of the recent pre-tax losses and determined that it is more likely than not that the Company will not be able to realize the majority of its net deferred tax assets in the future. A cumulative pre-tax loss is given considerably more weight than projections of future income, and a recent historical cumulative loss is considered a significant factor that is difficult to overcome.

For the 12 and 28 weeks ended July 11, 2010, the Company has recorded an income tax benefit of $0.9 million and $0.1 million, respectively. The Company projects that its tax credits, which are primarily the FICA (Social Security and Medicare taxes) tip credits and the WOTC (Work Opportunity Tax Credit), will be $7.8 million for the year. The FICA tip credit is a non-refundable federal income tax credit available to offset a portion of employer’s FICA tax paid on employee cash tips. WOTC is available for wages paid by employers who hire individuals from certain target groups of hard-to-employ individuals.

The Company’s provision for income taxes for the first 28 weeks of 2010 was a benefit of $0.1 million, a rate of approximately 1.9 percent, versus tax expense of $0.5 million in the prior year period, a rate of approximately 4.5 percent.  Based upon its estimated full year results combined with its estimated full year tax credits, the Company expects its full year effective tax rate to be approximately negative 13.8 percent, excluding discrete items.  Under U.S. GAAP, the Company is required to apply its estimated full year tax rate to its pretax (loss) earnings on a year-to-date basis in each interim period.  The difference between its estimated annual tax rate of negative 13.8 percent and the 1.9 percent rate for the first 28 weeks of 2010 relates to certain discrete items, primarily the $1.3 million benefit for the valuation allowance reversal related to a revision in estimate on the carryback of 2008 net operating losses due to the completion of its evaluation of the alternative financial impacts of the elective provisions of the Worker, Homeownership and Business Assistance Act of 2009 which expanded net operating loss (NOL) carryback provisions to five years for certain NOL’s generated in 2008 or 2009. Additionally, a $0.1 million reduction in expense associated with uncertain tax positions was partially offset by $0.3 million for the establishment of a valuation allowance associated with certain state net operating loss carry-forwards.  The change in the effective tax rate from fiscal 2009 to fiscal 2010 is the result of fluctuations in pre-tax net (loss) earnings and the related rate impacts of federal tax credits on the expected full year results, as well as changes in the fiscal 2010 valuation allowance.

K.    RECENT ACCOUNTING PRONOUNCEMENTS

In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and Disclosures” (“ASU 2010-06”), which adds new disclosure requirements for transfers into and out of Levels 1 and 2 in the fair value hierarchy and additional disclosures about purchases, sales, issuances and settlements relating to Level 3 fair value measurements. This ASU also clarifies existing fair value disclosures about the level of disaggregation about inputs and valuation techniques used to measure fair value.  The ASU is effective for the first reporting period beginning after December 15, 2009, except for the requirement to provide the Level 3 activity on a gross basis, which is effective for fiscal years beginning after December 15, 2010 and interim periods within those years. The adoption of ASU 2010-06, except for the requirement to provide the Level 3 activity on a gross basis, did not have any impact on the Company’s consolidated financial statements. The Company does not expect the requirement to provide the Level 3 activity on a gross basis to have an impact on its consolidated financial statements.

L.    SUPPLEMENTARY CONSOLIDATING FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS

Presented below is supplementary consolidating financial information for the Company and the subsidiary guarantors as of July 11, 2010 and December 27, 2009 and for the 12 and 28 week periods ended July 11, 2010 and July 12, 2009.

11

Consolidating Balance Sheet

As of July 11, 2010

(Unaudited)

							Minor
							Subsidiaries and
	Parent			Subsidiary			Consolidating
	Company			Guarantors			Adjustments			Consolidated
	(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	1,156		$	24,699		$	—		$	25,855
Trade accounts receivable, net		5,794			9,752			(707	)		14,839
Intercompany (payable) receivable		(229,050	)		198,564			30,486			—
Inventories		3,971			4,793			—			8,764
Deferred income taxes		680			—			—			680
Assets held for sale		809			—			—			809
Other current assets		3,299			2,916			30			6,245
Total current (liabilities) assets		(213,341	)		240,724			29,809			57,192
Property and equipment, net		242,669			102,888			—			345,557
Trade names and other intangible assets		25			25,921			—			25,946
Other assets		209,551			29,548			(225,255	)		13,844
Total Assets (Liabilities)	$	238,904		$	399,081		$	(195,446	)	$	442,539
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Trade accounts payable	$	8,595		$	(1,365	)	$	629		$	7,859
Accrued payroll and related expenses		11,684			4,264			—			15,948
Accrued expenses		18,293			5,492			(677	)		23,108
Deferred revenue		—			7,246			(629	)		6,617
Federal, state and local taxes		(9,736	)		24,761			—			15,025
Current portion of long-term debt and capitalized lease obligations		1,853			143			—			1,996
Total current liabilities (assets)		30,689			40,541			(677	)		70,553
Deferred income taxes		1,333			—			—			1,333
Other liabilities		27,355			20,224			100			47,679
Long-term debt, less current portion		140,901			326			(23,679	)		117,548
Capitalized lease obligations, less current portion		665			155			—			820
Shareholders’ Equity (Deficit):
Common stock		121,495			343,431			(301,055	)		163,871
Retained (deficit) earnings		(83,534	)		(5,596	)		129,865			40,735
Total shareholders’ equity (deficit)		37,961			337,835			(171,190	)		204,606
Total Liabilities and Shareholders’ Equity (Deficit)	$	238,904		$	399,081		$	(195,446	)	$	442,539

12

Consolidating Balance Sheet

As of December 27, 2009

(Unaudited)

							Minor
							Subsidiaries and
	Parent			Subsidiary			Consolidating
	Company			Guarantors			Adjustments			Consolidated
	(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	2,127		$	19,753		$	—		$	21,880
Trade accounts receivable, net		8,280			9,139			(210	)		17,209
Intercompany (payable) receivable		(257,253	)		226,774			30,479			—
Inventories		4,663			5,931			—			10,594
Assets held for sale		809			1,128			—			1,937
Other current assets		1,961			2,462			11			4,434
Total current (liabilities) assets		(239,413	)		265,187			30,280			56,054
Property and equipment, net		256,799			110,051			—			366,850
Trade names and other intangible assets		25			25,921			—			25,946
Other assets		208,619			30,042			(225,256	)		13,405
Total Assets (Liabilities)	$	226,030		$	431,201		$	(194,976	)	$	462,255
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Trade accounts payable	$	4,484		$	(12	)	$	629		$	5,101
Accrued payroll and related expenses		12,052			3,992			—			16,044
Accrued expenses		16,287			5,365			(206	)		21,446
Deferred revenue		—			18,598			(629	)		17,969
Federal, state and local taxes		(14,234	)		24,693			—			10,459
Current portion of long-term debt and capitalized lease obligations		1,835			144			—			1,979
Total current liabilities (assets)		20,424			52,780			(206	)		72,998
Deferred income taxes		1,386			—			—			1,386
Other liabilities		28,234			20,499			100			48,833
Long-term debt, less current portion		151,272			528			(23,679	)		128,121
Capitalized lease obligations, less current portion		1,548			250			—			1,798
Shareholders’ Equity (Deficit):
Common stock		119,138			343,431			(301,055	)		161,514
Retained (deficit) earnings		(95,972	)		13,713			129,864			47,605
Total shareholders’ equity (deficit)		23,166			357,144			(171,191	)		209,119
Total Liabilities and Shareholders’ Equity (Deficit)	$	226,030		$	431,201		$	(194,976	)	$	462,255

13

Consolidating Statement of Operations

12 Weeks Ended July 11, 2010

(Unaudited)

							Minor
							Subsidiaries and
	Parent			Subsidiary			Consolidating
	Company			Guarantors			Adjustments			Consolidated
	(In thousands)
Revenues:
Restaurant sales	$	109,417		$	81,410		$	3,021		$	193,848
Franchise and other revenue		157			82			—			239
		109,574			81,492			3,021			194,087
Costs and Expenses:
Cost of restaurant sales:
Cost of food and beverage		32,249			24,240			1,106			57,595
Payroll and benefits		40,949			29,463			(1,881	)		68,531
Restaurant operating		21,190			15,810			3,313			40,313
Cost of restaurant sales, exclusive of depreciation and                          amortization shown separately below		94,388			69,513			2,538			166,439
Advertising and marketing		—			7,887			35			7,922
General and administrative		1,348			9,014			(172	)		10,190
Depreciation and amortization of property and equipment		5,531			4,299			112			9,942
Impairment and disposal charges, net		116			10			—			126
Pre-opening costs		—			—			—			—
		101,383			90,723			2,513			194,619
Income (Loss) from Operations		8,191			(9,231	)		508			(532	)
Other Expense (Income):
Interest expense, net		2,740			134			—			2,874
Other, net		(1	)		—			—			(1	)
		2,739			134			—			2,873
Earnings (Loss) Before Income Taxes		5,452			9,365			508			(3,405	)
Income Tax (Benefit)		(531	)		(351	)		—			(882	)
Net Earnings (Loss)	$	5,983		$	(9,014	)	$	508		$	(2,523	)

14

Consolidating Statement of Operations

12 Weeks Ended July 12, 2009

(Unaudited)

							Minor
							Subsidiaries and
	Parent			Subsidiary			Consolidating
	Company			Guarantors			Adjustments			Consolidated
	(In thousands)
Revenues:
Restaurant sales	$	117,993		$	83,314		$	4,721		$	206,028
Commissary sales		—			18,656			(18,656	)		—
Franchise and other revenue		190			65			(66	)		189
		118,183			102,035			(14,001	)		206,217
Costs and Expenses:
Cost of restaurant sales:
Cost of food and beverage		33,966			24,530			1,300			59,796
Payroll and benefits		43,493			30,093			(1,106	)		72,480
Restaurant operating		21,172			15,170			3,607			39,949
Cost of restaurant sales, exclusive of depreciation and                          amortization shown separately below		98,631			69,793			3,801			172,225
Cost of commissary sales		—			18,246			(18,246	)		—
Advertising and marketing		—			8,052			55			8,107
General and administrative		1,078			7,394			(397	)		8,075
Depreciation and amortization of property and equipment		6,300			4,467			189			10,956
Impairment and disposal charges, net		1,345			52			146			1,543
Pre-opening costs		—			80			—			80
		107,354			108,084			(14,452	)		200,986
Income (Loss) from Operations		10,829			(6,049	)		451			5,231
Other Expense (Income):
Interest expense, net		2,476			152			113			2,741
Other, net		(82	)		—			—			(82	)
		2,394			152			113			2,659
Earnings (Loss) Before Income Taxes		8,435			(6,201	)		338			2,572
Income Tax (Benefit)		(267	)		(55	)		—			(322	)
Net Earnings (Loss)	$	8,702		$	(6,146	)	$	338		$	2,894

15

Consolidating Statement of Operations

28 Weeks Ended July 11, 2010

(Unaudited)

							Minor
							Subsidiaries and
	Parent			Subsidiary			Consolidating
	Company			Guarantors			Adjustments			Consolidated
	(In thousands)
Revenues:
Restaurant sales	$	266,201		$	191,532		$	7,268		$	465,001
Franchise and other revenue		369			203			—			572
		266,570			191,735			7,268			465,573
Costs and Expenses:
Cost of restaurant sales:
Cost of food and beverage		78,196			56,323			2,630			137,149
Payroll and benefits		97,935			69,467			(4,113	)		163,289
Restaurant operating		50,005			37,554			7,581			95,140
Cost of restaurant sales, exclusive of depreciation and                          amortization shown separately below		226,136			163,344			6,098			395,578
Advertising and marketing		—			19,607			82			19,689
General and administrative		3,075			18,497			(433	)		21,139
Depreciation and amortization of property and equipment		13,209			10,079			278			23,566
Impairment and disposal charges, net		5,141			537			—			5,678
Pre-opening costs		—			7			—			7
		247,561			212,071			6,025			465,657
Income (Loss) from Operations		19,009			(20,336	)		1,243			(84	)
Other Expense:
Interest expense, net		6,603			315			—			6,918
Other, net		1			—			—			1
		6,604			315			—			6,919
Earnings (Loss) Before Income Taxes		12,405			(20,651	)		1,243			(7,003	)
Income Tax (Benefit)		(37	)		(98	)		—			(135	)
Net Earnings (Loss)	$	12,442		$	(20,553	)	$	1,243		$	(6,868	)

16

Consolidating Statement of Operations

28 Weeks Ended July 12, 2009

(Unaudited)

							Minor
							Subsidiaries and
	Parent			Subsidiary			Consolidating
	Company			Guarantors			Adjustments			Consolidated
	(In thousands)
Revenues:
Restaurant sales	$	283,815		$	201,669		$	11,908		$	497,392
Commissary sales		—			44,778			(44,778	)		—
Franchise and other revenue		488			164			(169	)		483
		284,303			246,611			(33,039	)		497,875
Costs and Expenses:
Cost of restaurant sales:
Cost of food and beverage		81,834			59,627			3,359			144,820
Payroll and benefits		102,394			72,209			(2,800	)		171,803
Restaurant operating		49,577			38,209			8,751			96,537
Cost of restaurant sales, exclusive of depreciation and                         amortization shown separately below		233,805			170,045			9,310			413,160
Cost of commissary sales		—			43,741			(43,741	)		—
Advertising and marketing		—			18,383			175			18,558
General and administrative		2,954			18,529			(700	)		20,783
Depreciation and amortization of property and equipment		15,015			10,524			439			25,978
Impairment and disposal charges, net		1,340			350			146			1,836
Pre-opening		1			344			—			345
		253,115			261,916			(34,371	)		480,660
Income (Loss) from Operations		31,188			(15,305	)		1,332			17,215
Other Expense (Income):
Interest expense, net		6,131			348			305			6,784
Other, net		(72	)		—			—			(72	)
		6,059			348			305			6,712
Earnings (Loss) Before Income Taxes		25,129			(15,653	)		1,027			10,503
Income Tax Expense		421			47			—			468
Net Earnings (Loss)	$	24,708		$	(15,700	)	$	1,027		$	10,035

17

Consolidating Statement of Cash Flows

28 Weeks Ended July 11, 2010

(Unaudited)

							Minor
							Subsidiaries and
	Parent			Subsidiary			Consolidating
	Company			Guarantors			Adjustments			Consolidated
	(In thousands)
Cash Flows from Operating Activities:
Net earnings (loss)	$	12,442		$	(20,552	)	$	1,242		$	(6,868	)
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment		13,209			10,079			278			23,566
Amortization of debt issuance costs and swap termination payment		552			—			—			552
Share–based compensation		2,211			—			—			2,211
Loss on early extinguishment of debt		198			—			—			198
Amortization of deferred gain on sale-leasebacks		(569	)		—			—			(569	)
Deferred income taxes and other income tax related items		(924	)		—			—			(924	)
Loss on the sale of assets		37			15			—			52
Impairment and disposal charges, net		5,032			646			—			5,678
Changes in assets and liabilities:
Trade accounts and other receivables		2,725			(614	)		498			2,609
Inventories		692			1,138			—			1,830
Other current assets		(1,337	)		(454	)		(20	)		(1,811	)
Trade accounts payable		4,111			(1,353	)		—			2,758
Deferred revenue		—			(11,352	)		—			(11,352	)
Accrued payroll, accrued expenses, and federal, state and local taxes		6,478			466			(470	)		6,474
Other long-term assets and liabilities		(1,454	)		234			—			(1,220	)
Net cash provided by (used in) operating activities		43,403			(21,747	)		1,528			23,184
Cash Flows from Investing Activities:
Additions to property and equipment		(4,315	)		(3,068	)		(278	)		(7,661	)
Proceeds from the sale of assets		2			1,129			—			1,131
Other, net		1			—			—			1
Net cash (used in) investing activities		(4,312	)		(1,939	)		(278	)		(6,529	)
Cash Flows from Financing Activities:
Payments on long-term debt and capitalized lease obligations		(1,168	)		—			—			(1,168	)
Repurchase of senior notes		(9,993	)		—			—			(9,993	)
Debt issuance costs		(1,640	)		—			—			(1,640	)
Proceeds from the exercise of stock options and issuances under CHUX        Ownership Plan		388			—			—			388
Shares tendered and retired for minimum tax withholding		(271	)		—			—			(271	)
Excess tax benefit from share-based payments		6			—			—			6
Dividends paid		(2	)		—			—			(2	)
Net cash used in financing activities		(12,680	)		—			—			(12,680	)
Increase (decrease) in cash and cash equivalents		26,411			(23,686	)		1,250			3,975
Cash and cash equivalents at beginning of the period		2,127			19,753			—			21,880
Cash and cash equivalents at end of the period	$	28,538		$	(3,933	)	$	1,250		$	25,855

18

Consolidating Statement of Cash Flows

28 Weeks Ended July 12, 2009

(Unaudited)

							Minor
							Subsidiaries and
	Parent			Subsidiary			Consolidating
	Company			Guarantors			Adjustments			Consolidated
	(In thousands)
Cash Flows from Operating Activities:
Net earnings (loss)	$	24,708		$	(15,700	)	$	1,027		$	10,035
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment		15,015			10,524			439			25,978
Amortization of debt issuance costs		151			—			—			151
Share–based compensation		2,371			—			—			2,371
Amortization of deferred gain on sale-leasebacks		(569	)		—			—			(569	)
Deferred income taxes and other income tax related items		(1,695	)		—			—			(1,695	)
Loss on the sale of assets		47			15			—			62
Impairment and disposal charges, net		(8	)		1,697			—			1,689
Noncontrolling interests		—			—			(84	)		(84	)
Changes in assets and liabilities:
Trade accounts receivable		6,011			(1,522	)		472			4,961
Inventories		122			3,195			29			3,346
Other current assets		(1,315	)		1,354			(1,483	)		(1,444	)
Trade accounts payable		267			(1,527	)		(5,121	)		(6,381	)
Deferred revenue		—			(11,072	)		(42	)		(11,114	)
Accrued payroll, accrued expenses, and federal, state and local taxes		2,893			(1,109	)		(299	)		1,485
Other long-term assets and liabilities		352			1,380			(747	)		985
Net cash provided by (used in) operating activities		48,350			(12,765	)		(5,809	)		29,776
Cash Flows from Investing Activities:
Additions to property and equipment		(2,938	)		(3,680	)		86			(6,532	)
Proceeds from the sale of assets		11			1,012			—			1,023
Other, net		(22,578	)		23,277			(657	)		42
Net cash (used in) provided by investing activities		(25,505	)		20,609			(571	)		(5,467	)
Cash Flows from Financing Activities:
Payments on long-term debt and capitalized lease obligations		(28,256	)		—			—			(28,256	)
Payments to noncontrolling interests		(50	)		—			—			(50	)
Proceeds from swap cancellation		3,510			—			—			3,510
Proceeds from the exercise of stock options and issuances under CHUX        Ownership Plan		404			—			—			404
Shares tendered and retired for minimum tax withholding		(129	)		—			—			(129	)
Net cash used in financing activities		(24,521	)		—			—			(24,521	)
(Decrease) increase in cash and cash equivalents		(1,676	)		7,844			(6,380	)		(212	)
Cash and cash equivalents at beginning of the period		2,924			(2,639	)		6,533			6,818
Cash and cash equivalents at end of the period	$	1,248		$	5,205		$	153		$	6,606

19

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

Note Regarding Forward-Looking Statements

This report contains certain forward-looking statements within the meaning of the federal securities laws, which are intended to be covered by the safe harbors created thereby. Those statements include, but may not be limited to, all statements regarding our intent, belief and expectations such as statements concerning our estimated results in future periods, operating and growth strategy, and financing plans. Forward-looking statements are generally identifiable by the use of the words “anticipate,” “will,” “believe,” “estimate,” “expect,” “plan,” “intend,” “seek,” “forecast,” or similar expressions.  These forward-looking statements may be affected by certain risks and uncertainties, including, but not limited to, th e continued deterioration in the United States economy and the related adverse effect on our sales of decreases in consumer spending; our ability to achieve our internal forecast of sales and profitability; our ability to comply with the terms and conditions of our financing agreements;our ability to maintain or increase same store sales and operating margins at our restaurants; the effect that increases in food, labor, energy, interest costs and other expenses have on our results of operations; the effect of increased competition; our ability to successfully implement changes to our supply chain; our ability to sell closed restaurants and other surplus assets; our ability to successfully implement and realize projected benefits of our turnaround and transformation process, and other initiatives;  the result of existing or proposed government laws and regulation; the resolution of outstanding legal proceedings; and the other risks describe d in our Annual Report on Form 10-K for the fiscal year ended December 27, 2009 under the caption “Risk Factors” and in our other filings with the Securities and Exchange Commission (“the Commission”). Although we believe 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 us or any other person that our objectives and plans will be achieved. We undertake 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.

Overview

We are a multi-concept restaurant company headquartered in Nashville, Tennessee. We operate three restaurant concepts under the “O’Charley’s,” “Ninety Nine” and “Stoney River Legendary Steaks” trade names. As of July 11, 2010, we operated 234 O’Charley’s restaurants in 17 states in the East, Southeast and Midwest, 113 Ninety Nine restaurants in nine states throughout New England and the Mid-Atlantic, and 11 Stoney River restaurants in six states in the East, Southeast and Midwest. As of July 11, 2010, we had nine franchised O’Charley’s restaurants in five states.  Our fiscal year ends on the last Sunday of the calendar year.  We have one reportable segment.

During the second fiscal quarter, Jeffrey D. Warne resigned as President and Chief Executive Officer of O’Charley’s Inc. (the “Company”), from its Board of Directors and from all other positions with the Company’s subsidiaries and other affiliates.  The Company’s Board of Directors appointed Philip J. Hickey, Jr., the Company’s Chairman of the Board, to serve as Interim President and Chief Executive Officer. On August 2, 2010, the Company announced the hiring, effective no later than September 1, 2010, of David Head as the Company’s President, Chief Executive Officer and a member of its Board of Directors.

In response to the macroeconomic conditions of the past two years, much of management’s focus has been on improving guest satisfaction, controlling margins, reducing overhead costs, maximizing cash flow, and reducing debt.  While we believe that we have made progress in these areas, and that the tools we applied, such as our theoretical food, labor, and beverage cost systems, continue to contribute positively to our operating results, we understand that we still have considerable opportunities to improve our business model, especially at the O’Charley’s brand.  We continue to improve our Guest Satisfaction Index “GSI” scores, with a 300 basis point improvement in overall satisfaction at O’Charley’s and a 200 basis point improvement at Ninety Nine in the second quarter of fi scal 2010 compared to the prior year quarter.  Going forward, we believe that our primary focus must be on positioning each of our brands to increase guest counts and drive profitable sales.

At our O’Charley’s restaurants, we have conducted extensive market research over the past year to better understand the perceptions of the brand, and have recently sought feedback from current and lapsed guests.  Based upon this research, we believe that many guests no longer perceive O’Charley’s to have better food and service than our competitors, causing many of them to leave the brand or reduce their frequency of visits.  We also learned that many of our formerly loyal guests have a strong attachment to the brand. In response, we have a series of initiatives underway to build upon the brand’s existing strengths by simplifying the menu and improving the quality of every menu item. We recognize that the turnaround in guest perce ptions of O’Charley’s is not likely to happen quickly.  In the short term, we plan to drive sales by increasing the focus on value with attractively-priced  entrées, appetizers and cocktails.  In addition, we plan to improve the level of service and the timing of food execution and consistency by re-training and re-certifying our management teams and then cascade this training to every team member at our O’Charley’s restaurants.

At our Ninety Nine restaurants, we plan to continue to strengthen the loyalty of our core guests, who we believe appreciate a friendly environment that offers generous portions of high quality traditional fare at moderate prices.  Our “Nine Real-Sized Entrées for $9.99” continues to prove popular with our guests, and we plan to continue to refresh the nine menu items over time.  This offering is now featured in the regular menu rather than as a menu insert as previously placed. Additionally, our guests continue to respond favorably to the opportunity to upgrade their entrée into a full meal for an additional $3.00 and our “Red Sox Win, Kids Eat Free” promotion continues to be popular. We are encouraged that during the quarter Ninety Nine outperformed its relevant Knapp-Track averages for same store sales and guest counts, and had its first quarter of positive guest count growth in more than four years.

At our Stoney River restaurants, in the interest of providing increased brand relevance to our guests, we have reduced prices on certain menu items, added new menu items and added more affordable choices to our wine list while continuing to offer our signature favorite menu items and outstanding guest service.  We completed the roll out of these repositioning elements last year and are now focused on refreshing our menu choices as well as bringing Stoney River’s cost structure in line with the lower check average.  We believe these efforts are beginning to show success as we have had three consecutive quarters of increased guest counts and an increase of 530 basis points in restaurant operating margin for the second quarter of fiscal 2010 compared to the second quarter of fiscal 2009.

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Following is an explanation of certain items in our consolidated statements of operations:

Revenues consist primarily of company-operated restaurant sales and, to a lesser extent, royalty and franchise revenue.  Restaurant sales include food and beverage sales and are net of applicable state and local sales taxes and discounts.  Franchise and other revenue consists of development fees, royalties on sales by franchised units, and royalties on sales of branded food items, particularly salad dressings. The development fees are recognized during the reporting period in which the developed restaurant begins operation. The royalties are recognized as revenue in the period corresponding to the franchisees’ sales. Revenue resulting from the sale of gift cards is recognized in the period redeemed.  A percentage of gift card redemptions, based upon actual experience, are recognized as a reduction in restaurant operating costs for gift cards sold that will not be redeemed.

Cost of Food and Beverage primarily consists of the costs of beef, poultry, seafood, and alcoholic and non-alcoholic beverages net of vendor discounts and rebates. The three most significant commodities that may affect our cost of food and beverage are beef, poultry and seafood which accounted for approximately 25 percent, 9 percent and 11 percent, respectively, of our overall cost of food and beverage in the second quarter of fiscal 2010. Generally, temporary increases in these costs are not passed on to guests; however, in the past, we have adjusted 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, bonuses, share-based compensation, 401(k) compensation match, hourly wages for restaurant level team members, payroll taxes, workers’ compensation programs, various health, life and dental insurance programs, vacation expense and sick pay. We have various incentive plans that compensate restaurant management for achieving certain restaurant level financial targets and performance goals.

Restaurant Operating Costs include occupancy and other expenses at the restaurant level, except property and equipment depreciation and amortization. In addition to occupancy costs, supplies, straight-line rent, supervisory salaries, bonuses, share-based compensation, 401(k) and deferred compensation match for multi-unit operational employees and related expenses, management training salaries, general liability and property insurance programs, property taxes, utilities, repairs and maintenance, outside services and credit card fees account for the major expenses in this category.

Advertising and Marketing Expenses include all advertising and marketing-related expenses for the various programs that we utilize to promote traffic and brand recognition for our three restaurant concepts. This category also includes the administrative costs of our marketing departments. We expense advertising and marketing costs in the year incurred, except for certain advertising production costs that are initially capitalized and subsequently expensed the first time the advertising takes place.  On a quarterly basis and for purposes of interim reporting, we expense a portion of the projected annual advertising and marketing expenses in proportion to revenue for the quarter compared to projected annual revenue.

General and Administrative Expenses include the costs of the administrative functions that support the existing restaurant base and provide the infrastructure for future growth. Executive management and support staff salaries, bonuses, share-based compensation, 401(k) and deferred compensation match for support employees, benefits and related expenses, legal and accounting expenses, changes in the liabilities associated with plan gains or losses in employees’ self-directed non-qualified deferred compensation plan accounts and office expenses account for the major expenses in this category. This category also includes recruiting, relocation and most severance-related expenses.

Depreciation and Amortization, Property and Equipment primarily includes depreciation on property and equipment calculated on a straight-line basis over the estimated useful lives of the respective assets or the base lease term plus one renewal term for leasehold improvements, if shorter.  Based on the size of the investment that we make, the economic penalty incurred by discontinuing use of the leased facility, our historical experience with respect to the length of time a restaurant operates at a specific location and leases that typically have multiple five-year renewal options that are exercised entirely at our discretion, we have concluded that one five-year renewal option is reasonably assured.

Impairment and Disposal Charges, net includes asset impairments, either operating or held for sale, exit and disposal costs related to restaurant closings, asset disposals, and gains and losses incurred upon the sale of assets or from insurance proceeds, net of deductibles. Impairment charges are taken for land, buildings and equipment and certain other assets 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 the assets to the future undiscounted net cash flows expected to be generated by the assets.  The impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds th e fair value of the asset. Impairment charges for assets that are held for sale represent the difference between their current book value and the estimated net sales proceeds.  Disposal charges include the costs incurred to prepare the asset or assets for sale, including repair and maintenance; clean up costs; broker commissions; and independent appraisals. Exit and disposal costs are primarily future lease obligations net of expected sublease income, if any.

We evaluate restaurant closures for potential disclosure as discontinued operations based on an assessment of quantitative and qualitative factors, including the nature of the closure, potential for revenue migration to other company-operated and franchised restaurants, planned market development in the area of the closed restaurant and the significance of the impact on the related consolidated financial statement line items.

Pre-opening Costs represent costs associated with our restaurant opening teams, as well as other costs associated with opening a new restaurant. These costs are expensed as incurred. These costs also include straight-line rent related to leased properties from the period of time between when we have waived any contingencies regarding use of the leased property and the date on which the restaurant opens. The amount of pre-opening costs incurred in any one period includes costs incurred during the period for new or recently opened restaurants and those under development. Our pre-opening costs may vary significantly from period to period primarily due to the timing of restaurant development and openings.  Pre-opening costs also include training, supply, and other increment al costs necessary to prepare for the re-opening of an existing restaurant as part of re-branding or re-modeling initiatives.

Interest Expense, net represents the sum of the following: interest on our 9 percent Senior Subordinated Notes due 2013 (the “Senior Notes”);  interest and fees associated with our credit facility; amortization of prepaid interest and finance charges; amortization of the swap exit payment; changes in the value of the assets associated with our non-qualified deferred compensation plan resulting from gains and losses in the underlying funds; interest on capital lease obligations; and the premiums paid over the face value of any Senior Notes repurchased during the relevant fiscal period.

Income Tax Expense (Benefit) represents the provision for income taxes, including the impact of permanent tax differences, uncertain tax positions and valuation allowances on our income tax provision.

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The following sections should be read in conjunction with our unaudited interim consolidated financial statements and the related notes thereto included elsewhere herein.

Operating Results

The following table highlights the operating results for the 12 and 28 week periods ended July 11, 2010 and July 12, 2009 as a percentage of total revenues unless specified otherwise.

	12 Weeks Ended				28 Weeks Ended
	July 11,		July 12,		July 11,		July 12,
	2010		2009		2010		2009
Revenues:
Restaurant sales	99.9	%	99.9	%	99.9	%	99.9	%
Franchise and other revenue	0.1		0.1		0.1		0.1
	100.0	%	100.0	%	100.0	%	100.0	%
Costs and Expenses:
Cost of restaurant sales: (1)
Cost of food and beverage	29.7		29.0		29.5		29.1
Payroll and benefits	35.4		35.2		35.1		34.5
Restaurant operating costs	20.8		19.4		20.5		19.4
Cost of restaurant sales, exclusive of depreciation and                         amortization shown separately below	85.9		83.6		85.1		83.1
Advertising and marketing	4.1		3.9		4.2		3.7
General and administrative	5.3		3.9		4.5		4.2
Depreciation and amortization	5.1		5.3		5.1		5.2
Impairment, and disposal charges, net	0.1		0.7		1.2		0.4
Pre-opening costs	0.0		0.0		0.0		0.1
(Loss) Income from Operations	(0.3	)	2.5		0.0		3.5
Other Expense:
Interest expense, net	1.5		1.3		1.5		1.4
(Loss) Earnings before Income Taxes	(1.8	)	1.2		(1.5	)	2.1
Income Tax (Benefit) Expense	(0.5	)	(0.2	)	0.0		0.1
Net (Loss) Earnings	(1.3	)%	1.4	%	(1.5	)%	2.0	%

(1) Percentages calculated as a percentage of restaurant sales.

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Adjusted EBITDA

We present Adjusted EBITDA to assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.  Also, our credit agreement uses measures similar to Adjusted EBITDA to measure our compliance with certain covenants.  The following table is a reconciliation of U.S. generally accepted accounting principles (“GAAP”) financial measure of (Loss) Income from Operations to Adjusted EBITDA, a non-GAAP financial measure, for the 12 and 28 week periods ended July 11, 2010 and July 12, 2009 (1):

	12 Weeks Ended					28 Weeks Ended
	July 11, 2010			July 12, 2009		July 11, 2010			July 12, 2009
(Loss) Income from Operations	$	(532	)	$	5,231	$	(84	)	$	17,215
Add:
Depreciation and amortization		9,942			10,956		23,566			25,978
Impairment and disposal charges, net (2)		126			1,543		5,678			1,836
Share-based compensation expense (3)		777			1,033		2,211			2,371
Severance, recruiting and relocation expense (4)		2,395			25		2,395			290
Changes in deferred compensation balances (5)		(280	)		125		—			39
Adjusted EBITDA	$	12,428		$	18,913	$	33,766		$	47,729

(1) We present Adjusted EBITDA as a supplemental measure which we believe supplements a discussion and analysis of our results of operations.  We define Adjusted EBITDA as (Loss) Income from Operations plus (i) depreciation and amortization, (ii) impairment and disposal charges, net, (iii) share-based compensation expense, (iv) severance, recruiting and relocation costs for management changes, and (v) changes in deferred compensation balances.  You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis.  In evaluating Adjusted EBITDA, you should be aware that it is reasonable to expect we will incur expenses that are the same as or similar to some of the adjustments in this presentation, but the amounts recognized can vary significantly from period to period, may no t directly relate to the ongoing operations of our restaurants and complicate period comparisons of our results of operations and operations comparisons to other restaurant companies.

Adjusted EBITDA is not a measure of financial performance under GAAP, and should not be considered an alternative to (Loss) Income from Operations as a measure of  operating performance.  Because Adjusted EBITDA is not a measure determined in accordance with GAAP and is susceptible to varying calculations, Adjusted EBITDA as presented may not be comparable to other similarly titled measures presented by other companies.

Adjusted EBITDA has limitations as an analytical tool.  Some of these limitations are:

·   Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

·   Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

·   Adjusted EBITDA does not reflect significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;

·   although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and

·   non-cash compensation is a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing operating performance for a particular period.

(2)   Long-lived assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Charges include the non-cash write-down of assets to their estimated recovery value as well as certain cash expenses related to the holding and disposition of assets no longer in service and, in fiscal 2009, various costs associated with restructuring our supply chain.

(3)   Includes charges relating to the “discount” on the Company’s Employee Stock Purchase Plan and share-based compensation expense.

(4)   Cash and non-cash charges relating to significant organization changes.  Charges in the 12 and 28 weeks ended July 11, 2010, relate primarily to the severance associated with the resignation of the Company’s former CEO and other operational changes. Charges in the 28 weeks ended July 12, 2009, related primarily to the retirement of the Company’s former CEO and the recruitment of a new CEO. These charges are reflected in general and administrative expenses in our unaudited consolidated statements of operations.

(5)   The Company sponsors a deferred compensation plan for certain management employees, which is fully funded with a “Rabbi Trust.”  Changes in the value of the employee’s self-directed balances are reported in compensation expense, with an offsetting amount in interest expense, net.

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Concept Performance Measures

The following table reflects margin performance of each of our concepts for the 12 and 28 week periods ended July 11, 2010 and July 12, 2009.

	12 Weeks Ended						28 Weeks Ended
	July 11,			July 12,			July 11,			July 12,
	2010			2009			2010			2009
	($ in millions)						($ in millions)
O’Charley’s Concept: (1)
Restaurant Sales	$	122.3		$	133.6		$	297.6		$	322.2
Cost and expenses: (2)
Cost of food and beverage		29.5	%		28.8	%		29.4	%		28.9	%
Payroll and benefits		35.5	%		35.0	%		34.9	%		34.2	%
Restaurant operating costs (3)		20.4	%		19.0	%		19.8	%		18.5	%
Cost of restaurant sales, exclusive of depreciation and                         amortization shown separately below		85.4	%		82.8	%		84.1	%		81.6	%
Ninety Nine Concept:
Restaurant Sales	$	64.2		$	65.4		$	149.5		$	157.2
Cost and expenses: (2)
Cost of food and beverage		29.4	%		28.6	%		28.9	%		28.7	%
Payroll and benefits		36.0	%		35.9	%		36.5	%		35.7	%
Restaurant operating costs (3)		21.4	%		20.0	%		21.9	%		20.9	%
Cost of restaurant sales, exclusive of depreciation and                         amortization shown separately below		86.8	%		84.5	%		87.3	%		85.3	%
Stoney River Concept:
Restaurant Sales	$	7.4		$	7.0		$	17.9		$	18.0
Cost and expenses: (2)
Cost of food and beverage		36.3	%		36.6	%		35.7	%		36.8	%
Payroll and benefits		27.3	%		31.5	%		26.6	%		30.0	%
Restaurant operating costs (3)		21.0	%		21.8	%		20.6	%		21.8	%
Cost of restaurant sales, exclusive of depreciation and                         amortization shown separately below		84.6	%		89.9	%		82.9	%		88.6	%
(1) Includes restaurant sales from O’Charley’s joint venture operations of $1.7 million and $4.2 million for the 12 and 28 weeks ended July 12, 2009, respectively. These restaurants became company-owned restaurants later in 2009. This line excludes revenue from franchised restaurants. (2) Shown as a percentage of restaurant sales. (3) Includes rent, where 100% of the Ninety Nine restaurant locations are leased (land or land and building) as compared to 58% for O’Charley’s and 73% for Stoney River.

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Concept Restaurant Count and Operating Statistics

The following table sets forth certain financial and other restaurant data for the quarters ended July 11, 2010 and July 12, 2009:

	July 11,			July 12,
	2010			2009
Number of Restaurants:
O’Charley’s Restaurants:
In operation, beginning of quarter		234			232
Restaurants opened		—			1
Restaurant closed		—			—
In operation, end of quarter		234			233
Ninety Nine Restaurants:
In operation, beginning of quarter		113			116
Restaurants opened		—			—
Restaurants closed		—			—
In operation, end of quarter		113			116
Stoney River Restaurants:
In operation, beginning of quarter		11			11
Restaurants opened		—			—
Restaurants closed		—			(1	)
In operation, end of quarter		11			10
Franchised / Joint Venture Restaurants (O’Charley’s)
In operation, beginning of quarter		10			13
Restaurants opened		—			—
Restaurants closed		(1	)		(1	)
In operation, end of quarter		9			12
Average Weekly Sales per Store:
O’Charley’s	$	43,640		$	47,284
Ninety Nine		47,355			47,016
Stoney River		55,720			55,174
Change in Same Store Sales (1):
O’Charley’s		(7.9	)%		(6.9	)%
Ninety Nine		(0.5	)%		(10.0	)%
Stoney River		(0.7	)%		(20.4	)%
Change in Same Store Guest Visits (1):
O’Charley’s		(5.7	)%		(7.4	)%
Ninety Nine		0.4	%		(8.4	)%
Stoney River		7.8	%		(9.0	)%
Change in Same Store Average Check per Guest (1):
O’Charley’s		(2.4	)%		0.6	%
Ninety Nine		(0.9	)%		(1.8	)%
Stoney River		(8.0	)%		(12.6	)%
Average Check per Guest (2):
O’Charley’s	$	12.68		$	12.98
Ninety Nine		14.49			14.61
Stoney River		36.13			40.19

(1)	When computing same store sales and guest visits, restaurants open for at least 78 weeks are compared from period to period.
(2)	The average check per guest is computed using all restaurants open during the quarter.

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Second Quarter and First 28 Weeks of Fiscal 2010 Versus Second Quarter and First 28 Weeks of Fiscal 2009

Revenues

During the 12 weeks ended July 11, 2010, total revenues decreased 5.9 percent to $194.1 million from $206.2 million for the same prior year period. Total revenues for the first 28 weeks of 2010 decreased 6.5 percent to $465.6 million from $497.9 million in the same prior year period. We continue to see sales at each of our brands negatively impacted by the economic environment.

Restaurant sales for company-operated O’Charley’s decreased 7.3 percent to $122.3  million for the second quarter of fiscal 2010, reflecting a decline in same store sales of 7.9 percent, the acquisition of two former joint venture restaurants and the closure of one company-owned restaurant since the second quarter of fiscal 2009. The same-store sales decrease of 7.9 percent was comprised of a 2.4 percent decrease in average check and a 5.7 percent decrease in guest counts. The decline in average check reflects the impact of increased value offerings such as our Ultimate Choices value menu, which offers entrées at $7.99, $8.99 and $9.99, and the decline in incremental sales of appetizers, beverages and desserts. Restaurant sales for company-operated O’Charley’s decreased to $297.6 million for the first 28 weeks of 2010 from $318.0 million for the first 28 weeks of 2009, reflecting a same store sales decrease of 7.2 percent comprised of a 4.3 percent lower average check as well as a decrease in guest counts of 3.1 percent.

Restaurant sales for Ninety Nine decreased 1.9 percent to $64.2 million in the second quarter of fiscal 2010, reflecting a decline in same store sales of 0.5 percent, and the closure of three restaurants since the first quarter of fiscal 2009. The same-store sales decrease of 0.5 percent was comprised of a 0.9 percent decrease in average check and a 0.4 percent increase in guest counts.  The decline in average check reflects the impact of the “Nine for $9.99” promotion in the quarter as well as the “Red Sox Win, Kids Eat Free” promotion which was not present for the entire second quarter of the prior year. Restaurant sales for Ninety Nine decreased to $149.5 million for the first 28 weeks of 2010 from $157.2 million for the first 28 weeks of 2009, reflecting a same store sales decrease of 3.7 percent comprised of 1.7 percent lower average check and a decrease in guest counts of 2.0 percent.

Restaurant sales for Stoney River Legendary Steaks increased 5.0 percent to $7.4 million for the second quarter of fiscal 2010, which reflects a same store sales decrease of 0.7 percent, and the addition of one new restaurant since the second quarter of fiscal 2009. The same-store sales decrease of 0.7 percent consisted of an 8.0 percent decrease in average check partially offset by a 7.8 percent increase in guest counts.  The decline in average check is consistent with our strategic repositioning efforts involving the roll-out of new lower priced menu items that began in the first quarter of the prior year. Restaurant sales for Stoney River Legendary Steaks decreased to $17.9 million for the first 28 weeks of 20 10 from $18.0 million for the first 28 weeks of 2009, reflecting a same store sales decrease of 5.2 percent comprised of an 11.4 percent lower average check and an increase in guest counts of 7.1 percent.

Cost of Food and Beverage

During the second quarter of 2010, our cost of food and beverage was $57.6 million, or 29.7 percent of restaurant sales, compared with $59.8 million, or 29.0 percent of restaurant sales, in the second quarter of 2009.  This increase in food and beverage as a percent of restaurant sales is partially due to the impact of promotional offerings primarily at the O’Charley’s concept, and higher beverage costs, partially offset by lower commodity costs. During the first 28 weeks of 2010, cost of food and beverage was $137.1 million, or 29.5 percent of restaurant sales, compared to $144.8 million, or 29.1 percent of restaurant sales, in the same prior year period.

Payroll and Benefits

During the second quarter of 2010, payroll and benefits were $68.5 million, or 35.4 percent of restaurant sales, compared to $72.5 million, or 35.2 percent of restaurant sales, in the same prior-year period. This 20 basis point increase in labor costs as a percentage of restaurant sales was due to the deleveraging impact of reduced average weekly sales, partially offset by $0.9 million reduction in bonus expense and a $0.7 million reduction in the cost of our employee benefit plans. During the first 28 weeks of 2010, payroll and benefits were $163.3 million, or 35.1 percent of restaurant sales, compared to $171.8 million, or 34.5 percent of restaurant sales, in the same prior year period.

Restaurant Operating Costs

During the second quarter of 2010, restaurant operating costs were $40.3 million, or 20.8 percent of restaurant sales, compared to $39.9 million, or 19.4 percent of restaurant sales, in the same prior year period.  This 140 basis point increase was primarily due to the deleveraging impact of reduced sales and a $0.4 million increase in repair and maintenance costs. During the first 28 weeks of 2010, restaurant operating costs were $95.1 million, or 20.5 percent of restaurant sales, compared to $96.5 million, or 19.4 percent of restaurant sales, in the same prior year period.

Advertising and Marketing Expenses

During the second quarter of 2010, advertising and marketing expenses were $7.9 million, or 4.1 percent of revenue, as compared to $8.1 million, or 3.9 percent of revenue, in the same prior year period.  This year-over-year change in the quarter is due to changes in projected sales and a reduction in advertising and marketing. The increase in advertising and marketing expense as a percentage of revenue is due to the deleveraging impact of lower revenue. During the first 28 weeks of 2010, advertising and marketing expenses were $19.7 million, or 4.2 percent of revenue, as compared to $18.6 million, or 3.7 percent of revenue, in the same prior year period.

General and Administrative Expenses

General and administrative expenses were $10.2 million, or 5.3 percent of revenue, in the second quarter of 2010, compared to $8.1 million, or 3.9 percent of revenue, in the second quarter of 2009.  This increase is attributed to $2.4 million, or 1.2 percent of revenue, for severance costs associated with the resignation of our former CEO and other operational changes. Otherwise, we continue to tightly control all general and administrative costs. During the first 28 weeks of 2010, general and administrative expenses were $21.1 million, or 4.5 percent of revenue, compared to $20.8 million, or 4.2 percent of revenue, in the same prior year period.

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Depreciation and Amortization, Property and Equipment

During the second quarter of 2010, depreciation and amortization was $9.9 million, or 5.1 percent of revenue, as compared to $11.0 million, or 5.3 percent of revenue, in the same prior year period.  This reduction in expense is primarily due to lower carrying values of assets following the restaurant impairment charges recognized in the prior quarter and prior year. During the first 28 weeks of 2010, depreciation and amortization was $23.6 million, or 5.1 percent of revenue, compared to $26.0 million, or 5.2 percent of revenue, in the same prior year period.

Impairment and Disposal Charges, net

During the second quarter of 2010, impairment and disposal charges, net were $0.1 million, or 0.1 percent of revenue, as compared to $1.5 million, or 0.7 percent of revenue, in the same prior year period. Approximately $0.1 million was recorded during the second fiscal quarter relating to insurance deductibles at our Clarksville, TN properties which were affected by the recent flooding in the area. We have filed our initial claim with our insurance carrier and anticipate the settlement of these claims in the second half of 2010.  During the first 28 weeks of 2010, impairment and disposal charges, net were $5.7 million, or 1.2 percent of revenue, compared to $1.8 million, or 0.4 percent of revenue, in the same prior year period. Impairment charges of $4.9 million were recorded for four O’Charley’s restaurants, whi ch will remain open.  In addition, we recorded exit and disposal costs of $0.6 million relating to three Ninety Nine restaurants that were closed during the first quarter of fiscal 2010 and one O’Charley’s restaurant that was previously closed.  These four restaurant locations currently have operating lease obligations with lease terminations ranging from 2010 to 2014.  Impairment expense in the prior year primarily relates to impairment charges with respect to three O’Charley’s restaurants that remain open and an aircraft that was subsequently sold.

Pre-opening Costs

There were no pre-opening costs in the second quarter of 2010, compared to $0.1 million in the second quarter of 2009.  Pre-opening costs for the 28 weeks ended July 11, 2010 were insignificant, compared to $0.3 million in the 28 weeks ended July12, 2009. This year-over-year reduction is the result of no new restaurant development.

Interest Expense, Net

Interest expense for the second quarter of 2010 was $2.9 million, or 1.5 percent of revenue, compared to $2.7 million, or 1.3 percent of revenue, in the second quarter of 2009. The impact of reduced debt levels was more than offset by a $0.4 million impact from changes in the value of deferred compensation balances. At the end of the quarter, we had $115.2 million of senior subordinated notes, a cash balance of $25.9 million and no drawings on our revolving line of credit. During the first 28 weeks of 2010, interest expense was $6.9 million, or 1.5 percent or revenue, compared to $6.8 million, or 1.4 percent of revenue, in the same prior year period.

Income Taxes

Our provision for income taxes for the first 28 weeks of 2010 was a benefit of $0.1 million, a rate of approximately 1.9 percent, versus  tax expense of $0.5 million in the prior year period, a rate of approximately 4.5 percent.  Based upon our estimated full year results combined with our estimated full year tax credits, we expect our full year effective tax rate to be approximately negative 13.8 percent, excluding discrete items.  Under U.S. GAAP, we are required to apply our estimated full year tax rate to our pretax (loss) income on a year-to-date basis in each interim period.  The difference between our estimated annual tax rate of negative 13.8 percent and the 1.9 percent rate for the first 28 weeks of 2010 relates to certain discrete items, primarily the $1.3 million benefit for the valua tion allowance reversal related to a revision in estimate on the carryback of 2008 net operating losses due to the completion of our evaluation of the alternative financial impacts of the elective provisions of the Worker, Homeownership and Business Assistance Act of 2009 which expanded net operating loss (NOL) carryback provisions to five years for certain NOL’s generated in 2008 or 2009. Additionally, a $0.1 million reduction in expense associated with uncertain tax positions was partially offset by $0.3 million for the establishment of a valuation allowance associated with certain state net operating loss carry-forwards.  The change in the effective tax rate from fiscal 2009 to fiscal 2010 is the result of fluctuations in pre-tax net (loss) earnings and the related rate impacts of federal tax credits on the expected full year results, as well as changes in the fiscal 2010 valuation allowance.

27

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of capital have historically been cash provided by operations, borrowings under our credit facilities and capital leases. Our principal capital needs have historically arisen from property and equipment additions, acquisitions, and payments on long-term debt and capitalized lease obligations. In addition, we lease a substantial number of our restaurants under operating leases and have substantial operating lease obligations. Like many restaurant companies, our working capital has historically had current liabilities in excess of current assets due to collection of our sales being received in four days or less while our typical accounts payable turnover, excluding food invoices, averages thirty days.  We do not believe this indicates a lack of liquidity. We have slowed our restaurant development in recent years in order to focus on improving the performance of our existing restaurants and reducing our debt. As a result of these reductions in investment, we had a cash balance of $25.9 million and there were no amounts outstanding on our revolving line of credit at July 11, 2010.  We have no plans to develop any new restaurants in 2010.

The following table presents a summary of our cash flows for the 28 weeks ended July 11, 2010 and July 12, 2009:

	July 11, 2010			July 12, 2009
Net cash provided by operating activities	$	23,184		$	29,776
Net cash used in investing activities		(6,529	)		(5,467	)
Net cash used in financing activities		(12,680	)		(24,521	)
Net increase (decrease) in cash and cash equivalents	$	3,975		$	(212	)

Net cash provided by operating activities during the 28 weeks ended July 11, 2010 was $23.2 million, a decrease of $6.6 million from the same prior year period.  This reduction in net cash provided by operating activities is due to a $14.0 million reduction in net earnings, after adjusting for non-cash charges, partially offset by a $7.4 million net decrease in the change in working capital and other long-term assets and liabilities over the same prior year period. This $7.4 million net decrease in working capital change is primarily due to current year increases in accounts payable due to payment timing in both trade and other accrued payables and a prior year reduction in credit balances with certain financial institutions.

Net cash used in financing activities during the 28 weeks ended July 11, 2010 includes the repurchase of $9.8 million in face value of our Senior Notes. Net cash used in financing activities during the 28 weeks ended July 12, 2009 includes paying off the outstanding borrowings under our revolving line of credit of $23.8 million.

We believe that our various sources of capital, including cash flow from operating activities, and availability under our revolving credit facility, are adequate to fund our capital requirements for at least the next twelve months As of the end of the second quarter of fiscal 2010, our remaining borrowing capacity under our credit facility, net of $12.6 million of outstanding letters of credit, was $32.4 million.  We do not expect to rely on our credit facility as a significant source of funds during 2010.

On January 26, 2010, we entered into a Third Amended and Restated Credit Agreement (as amended, the “Credit Agreement”). The maximum borrowing capacity was reduced from $83 million (originally scheduled to be reduced to $65 million on April 18, 2010) to $45 million.  The prior credit agreement had participation from nine regional and national bank organizations, while the current credit agreement has participation from three regional and national bank organizations. The maximum adjusted leverage ratio was reduced from 5.50 to 5.25.  The definitions of adjusted leverage ratio and senior secured ratio have been changed, and capital expenditures for expansion (as defined by the Credit Agreement) are limited to 15% of EBITDA in 2010 and 30% of EBITDA in subsequent years. Under the Credit Agreement, we are p ermitted to repurchase our Senior Notes subject to certain limitations. The Credit Agreement also reduced the number of our company-owned restaurants subject to collateral mortgages from 88 to 47. The Credit Agreement also “resets” the restricted payments basket for dividends and Senior Note repurchases; however, such payments are currently restricted by the indenture governing the Senior Notes. The Credit Agreement also permits sale-leaseback transactions, subject to certain limitations.  In the event of a disruption or cessation of operations by one or more participants in our Credit Agreement, rendering them unable to fund their portion of any drawings, we believe that our available cash balance, and the available capacity from the other banks in the Credit Agreement, would be sufficient to permit us to continue meeting our current obligations and funding our operating activities.

In 2010 and 2009, net cash flows used by investing activities included capital expenditures incurred principally for improvements to existing restaurants and technological improvements in our information systems. The Company did not finance any capital expenditures using capital leases during the quarters ended July 11, 2010 or July 12, 2009.  Capital expenditures for the 28 weeks ended July 11, 2010 and July 12, 2009 were as follows:

	July 11, 2010		July 12, 2009
New restaurant capital expenditures	$	—	$	1,872
Re-model capital expenditures		3,041		672
Other capital expenditures		4,620		3,988
Total capital expenditures	$	7,661	$	6,532

For fiscal 2010 we are projecting capital expenditures of between $14 million and $16 million.

28

Critical Accounting Policies

In our Annual Report on Form 10-K for the year ended December 27, 2009, we identified our critical accounting policies related to property and equipment, lease accounting, share-based compensation, trademarks, impairment of long-lived assets, and income taxes.  We consider an accounting policy to be critical if it is most important to the portrayal of our consolidated financial condition and results, and it requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. During the first 28 weeks of 2010, there have been no changes in our critical accounting policies.

Contractual Obligations and Commercial Commitments

There were no material changes in our contractual obligations and commercial commitments as of July 11, 2010 from that disclosed in our Annual Report on Form 10-K for the year ended December 27, 2009. As of July 11, 2010 and December 27, 2009, we had no amounts outstanding on our revolving credit facility.

Outlook

Our first quarter is a 16 week quarter, while our second through fourth quarters are each 12 weeks.  Based on financial historical seasonal patterns, average weekly sales per restaurant are typically higher in the first quarter than in subsequent quarters and we typically generate a disproportionate share of our income from operations and adjusted EBITDA in the first quarter. For the third quarter of 2010, we are forecasting total revenue of between $186 million and $192 million, and a loss from operations of between $1 million and $4 million. We project adjusted EBITDA of between $7 million and $10 million in the third quarter, based upon estimated depreciation and amortization expense of approximately $10 million, and estimated stock compensation expense of approximately $1 million. With respect to our food and beverage co sts for the remainder of fiscal 2010, we have locked in our pricing for over 85 percent our beef requirements, approximately 75 percent of our estimated pork requirements, almost all of our estimated poultry requirements, and approximately 40 percent of our estimated seafood requirements.  Of the prices we have locked in, on a constant mix basis, we expect the percentage decline in our food costs to be in the low single digits. We project our alcoholic beverage costs to increase in the mid single digits.  Capital expenditures are projected to be between $14 million and $16 million for the year.  We do not plan to develop any new restaurants for the year.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and Disclosures” (“ASU 2010-06”), which adds new disclosure requirements for transfers into and out of Levels 1 and 2 in the fair value hierarchy and additional disclosures about purchases, sales, issuances and settlements relating to Level 3 fair value measurements. This ASU also clarifies existing fair value disclosures about the level of disaggregation about inputs and valuation techniques used to measure fair value.  The ASU is effective for the first reporting period beginning after December 15, 2009, except for the requirement to provide the Level 3 activity on a gross basis , which is effective for the fiscal years beginning after December 15, 2010 and interim periods within those years. The adoption of ASU 2010-06, except for the requirement to provide the Level 3 activity on a gross basis, did not have any impact on our consolidated financial statements. We do not expect the requirement to provide the Level 3 activity on a gross basis to have an impact on our consolidated financial statements.

Impact of Inflation

The impact of inflation on the cost of food, labor, equipment, land, construction costs, and fuel/energy costs could adversely affect our operations. A majority of our employees are paid hourly rates related to federal and state minimum wage laws. The federal government and several states have instituted or are considering changes to their minimum wage and/or benefit related laws which, if and when enacted, could have an adverse impact on our payroll and benefit costs. 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. Commodity inflation has had a significant impact on our operating costs. We attempt to offset the effect of inflation through periodic menu price increases, economies of scale in purchasing and cost controls a nd efficiencies at our restaurants.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are subject to market risk from exposure to changes in interest rates based on our financing, investing, and cash management activities and fluctuations in commodity prices. Our fixed-rate debt consists primarily of capitalized lease obligations and Senior Notes. A significant portion of our debt is at a fixed-rate; therefore a one percent fluctuation in interest rates is not expected to have a material impact on our results of operations.

We purchase certain commodities such as beef, pork, poultry, seafood, produce, and dairy. These commodities are generally purchased based upon market prices established with vendors. These purchase arrangements may contain contractual features that fix the price paid for certain commodities. We do not use financial instruments to hedge commodity prices because these purchase arrangements help control the ultimate cost paid and any commodity price aberrations are generally short-term in nature.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report. Based on that evaluation, the principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, includin g our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during our fiscal quarter ended July 11, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

30

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

We are a defendant from time to time in various legal proceedings arising in the ordinary course of our business, including claims relating to injury or wrongful death under “dram shop” laws that allow a person to sue us based on any injury caused by an intoxicated person who was wrongfully served alcoholic beverages at one of our restaurants; claims relating to workplace, workers compensation and employment matters, discrimination and similar matters; claims resulting from “slip and fall” accidents; claims relating to lease and contractual obligations; claims  relating to our franchising initiatives; and claims from guests or employees alleging illness, injury or other food quality, health or operational concerns.

We do not believe that any of the legal proceedings pending against us as of the date of this report will have a material adverse effect on our liquidity or financial condition. We may incur liabilities, settle disputes, sustain judgments, or accrue expenses relating to legal proceedings in a particular fiscal quarter which may adversely affect our consolidated results of operations, or on occasion, receive settlements that favorably affect our consolidated results of operations.

Item 1A. Risk Factors

Various risks and uncertainties could affect our business. These risks are described elsewhere in this report and our other filings with the Commission, including our Annual Report on Form 10-K for the year ended December 27, 2009. The risks identified in the Annual Report on Form 10-K for the year ended December 27, 2009 have not changed in any material respect, except that the risk under the heading “We may incur costs or liabilities and lose revenue as the result of existing or proposed government laws or regulation” has been updated to reflect changes in federal healthcare law that will require us to disclose calorie amounts for menu items and may potentially impact our costs and practices related to employee health insurance. Such risk factor is hereby revised to read in its entirety as follows:

We may incur costs or liabilities and lose revenue as the result of existing or proposed government laws or regulation.

Our restaurants are subject to extensive federal, state and local government laws and regulation, including regulations related to the preparation and sale of food (such as regulations regarding labeling, allergens content, trans fat content and other menu information regarding nutrition), the  sale of alcoholic beverages, employment matters (such as minimum wage, employee health insurance, organizing and collective bargaining, fair employment practices, and employee health and safety), zoning and building codes and other health, sanitation and safety matters. The federal healthcare reform legislation that became law in March 2010 (known as the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010 or (“PPACA”)) will require restaurant companies such as o urs to disclose calorie information on their menus. We do not expect to incur any material costs from compliance with this provision, but cannot anticipate any changes in guest behavior resulting from the implementation of this portion of the law, which could have an adverse effect on our sales and results of operations.

All of these regulations impact not only our current restaurant operations but also our ability to open new restaurants, if our business strategy calls for us to do so. We will be required to comply with applicable state and local regulations in any new locations into which we expand. Any difficulties, delays or failures in obtaining licenses, permits or approvals in such new locations could delay or prevent the opening of a restaurant in a particular area or reduce operations at an existing location, either of which could materially and adversely affect our growth and results of operations.

The revenues and costs of operating our restaurants may be adversely effected if there are changes in laws governing minimum hourly wages or tip credits, labor or collective bargaining laws, nutritional labeling, workers’ compensation insurance rates, employee health insurance, unemployment tax rates, sales taxes, corporate income tax or other laws and regulations, such as the federal Americans with Disabilities Act, the Family Medical Leave Act and the PPACA. The PPACA contains requirements that may significantly raise our employee health benefits costs or alter the benefits we provide, including mandatory enrollment of employees in company health plans, the elimination of caps on annual and lifetime coverage limits, a ban on pre-existing conditions as an exclusion for coverage, a prohibition on linking eligibility and premium rates to health-status related factors, and mandatory coverage availability for dependents through age 26.  If our employee health insurance and other of the foregoing costs increase, we cannot ensure that we will be able to offset the increase by increasing our menu prices or by other means, which would adversely affect our results of operations.

 Item 2. Issuer Purchases of Equity Securities

The following table sets forth information with respect to purchases of shares of the Company’s common stock made during the quarter ended July 11, 2010 by or on behalf of the Company or any “affiliated purchaser,” as defined by Rule 10b-18 of the Exchange Act:

O’Charley’s Accounting Periods	Total Number of Shares Purchased (1)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
04/19/10-05/16/10		861	$	9.55		—		—
05/17/10-06/13/10		882		6.92		—		—
06/14/10-07/11/10		—		—		—		—
Total		1,743	$	8.21		—		—

(1) Represents shares withheld to cover tax-withholding requirements relating to the vesting of restricted stock issued to employees pursuant to the Company's shareholder-approved stock incentive plans.

Item 6. Exhibits

No.	Description
10.1	General Release Agreement, dated June 17, 2010, by and between Jeffrey D. Warne and O’Charley’s Inc.
10.2	Executive Employment Agreement dated July 30, 2010, by and between O’Charley’s Inc. and David Head
31.1	Certification of Philip J. Hickey, Jr., Chairman of the Board, Interim President and Chief Executive Officer of O’Charley’s Inc.,  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Lawrence E. Hyatt, Chief Financial Officer of O’Charley’s Inc.,  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Philip J. Hickey, Jr., Chairman of the Board, Interim President and Chief Executive Officer of O’Charley’s Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Lawrence E. Hyatt, Chief Financial Officer of O’Charley’s Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

31

SIGNATURES

Pursuant to the requirements 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.

O’Charley’s Inc.

(Registrant)

Date: August 12, 2010	By:	/s/ PHILIP J. HICKEY, JR.
		Philip J. Hickey, Jr.
		Chairman of the Board,
		Interim President and Chief Executive Officer

By:	/s/ LAWRENCE E. HYATT
	Lawrence E. Hyatt
	Chief Financial Officer and Treasurer

EX-31.1

Exhibit 31.1

CERTIFICATION OF INTERIM CHIEF EXECUTIVE OFFICER

I, Philip J. Hickey, Jr. certify that:

1. I have reviewed this quarterly report on Form 10-Q of O'Charley's Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;

and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 12, 2010

/s/ Philip J. Hickey, Jr.

Philip J. Hickey, Jr.

Chairman of the Board

         Interim President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Lawrence E. Hyatt, certify that:

1. I have reviewed this quarterly report on Form 10-Q of O'Charley's Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;

and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 12, 2010

/s/ Lawrence E. Hyatt

Lawrence E. Hyatt

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of O'Charley's Inc. (the "Company") on Form 10-Q for the period ended July 11, 2010, as filed with the Securities and Exchange Commission on August 12, 2010 (the "Report"), I, Philip J. Hickey, Jr., Chairman of the Board, Interim President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1)      The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2)      The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Philip J. Hickey, Jr.

Philip J. Hickey, Jr.

Chairman of the Board

Interim President and Chief Executive Officer

August 12, 2010

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of O'Charley's Inc. (the "Company") on Form 10-Q for the period ended July 11, 2010 as filed with the Securities and Exchange Commission on August 12, 2010 (the "Report"), I, Lawrence E. Hyatt, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1)      The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2)      The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Lawrence E. Hyatt

Lawrence E. Hyatt

Chief Financial Officer

August 12, 2010

EX-10.1

GENERAL RELEASE AGREEMENT

THIS GENERAL RELEASE (“Agreement”) is made and entered into this 17th day of June, 2010, by and between Jeffrey D. Warne(“Mr. Warne”) and O’Charley’s Inc. (the “Company”).

W I T N E S S E T H:

WHEREAS, the Company and Mr. Warne are signatories to a certain Amended and Restated Executive Employment Agreement dated June 3, 2009 (as amended, the “Employment Agreement”); and

WHEREAS, Mr. Warne has resigned as the Company’s President and Chief Executive Officer and as a member of the Company's Board of Directors; and

WHEREAS, as contemplated in the Employment Agreement, Mr. Warne and the Company wish to enter into this Agreement so that Mr. Warne may provide a general release of clams against the Company in exchange for certain compensation and benefits as set forth in the Employment Agreement.

NOW, THEREFORE, in consideration of the premises and mutual promises herein contained, it is agreed as follows:

1.Resignation. Mr. Warne hereby confirms his resignation, effective June 4, 2010 (the “Resignation Date”), from his positions as the Company’s President and Chief Executive Officer, as a director of the Company, and from all positions held as an executive, officer, director or otherwise with the Company’s subsidiaries, related entities and affiliates of the same.

2.Release. In consideration of the payment and benefits described in Paragraph 13 below, Mr. Warne does hereby irrevocably and unconditionally release, acquit and discharge O’Charley’s Inc., any related or affiliated companies and all other subsidiaries, assigns, predecessors or transferees, all present and former directors, officers, insurers, employees, servants, agents or affiliates of any of them (together individually and collectively, “O’Charley’s”), from any and all manner of actions, charges, complaints, suits, proceedings, claims, liabilities, obligations, agreements, controversies, deman ds, costs, losses, debts and expenses whatsoever of any kind or nature, at law or in equity, arising before and through the Resignation Date, whether known or unknown, fixed or contingent, choate or inchoate, arising out of or in any way connected with the employment of Mr. Warne by O’Charley’s and with his termination from employment with O’Charley’s, including but not limited to any and all claims, under the Employment Agreement or otherwise, for pay, benefits, damages, or any other relief that were, might or could have been asserted in any court, before any arbitrator, or before any administrative agency, including without limitation, the Civil Rights Act of 1991; Title VII of the Civil Rights Act of 1964; the Civil Rights Act of 1866; the Americans with Disabilities Act; the Rehabilitation Act of 1973; the Age Discrimination in Employment Act; the Older Workers Benefit Protection Act; the Family and Medical Leave Act; the Employee Retirement Income Security Act of 1974, as amended (“ERISA”); the Equal Pay Act; the Fair Labor Standards Act; the Vietnam Era Veteran’s Readjustment Assistance Act; the Uniformed Service Employment and Reemployment Rights Act of 1994; the Worker Adjustment and Retraining Notification Act; the Fair Credit Reporting Act; the Immigration Reform and Control Act of 1986; the Occupational Safety and Health Act of 1970; the Employee Polygraph Protection Act; any and all “whistle blower” employee statutes or regulations (i.e., those providing protection to an employee who raises charges of illegality, impropriety, workplace misconduct, failure to adhere to policies and procedures, etc.), any amendments to any of the foregoing, and any other federal, state, or local statute, regulation, ordinance, or common law, including without limitation any law related to discrimination (i.e., those pertaining generally to race, color, sex, age, religion, national origin, sexual orientation, worker’s compensation or disability), retaliatory d ischarge (whether actual or constructive, and as and to the extent related to any of the foregoing), terms and conditions of employment, or termination of employment, to the full extent that such a release is allowed by law. This provision does not include the release of claims with respect to any vested benefits under a plan governed by ERISA, including any vested benefits under the Company’s 401(k) or deferred compensation plans, or any claim related to the rights and benefits granted by the express terms of this Agreement.

3.Waiver. Mr. Warne acknowledges that he is aware of his rights under the laws specifically and generally described above and that he waives those rights to the full extent that waiver is allowed by law, although the provisions of such waiver are not intended to be, nor will the same be construed as, an indication that Mr. Warne has any legitimate causes of action under such provisions nor that O’Charley’s has taken any actions in violation of such provisions.

4.No Admission. Mr. Warne also expressly acknowledges that the consideration to be paid by O’Charley’s described in Paragraph 13 will not be considered an admission of liability or an admission that O’Charley’s has violated any law, regulation or contract (express or implied). Mr. Warne further acknowledges that such consideration also represents payment in full satisfaction and resolution of all potential and/or disputed claims for back pay, bonuses, equity grants/options, compensatory, punitive, and/or liquidated damages, and damages or relief of any kind including costs, attorneys’ fees, and expenses arising out of or pertaining to the unasserted claims described above.

5.No Pending Complaints. Mr. Warne represents and warrants that he has not filed any complaint(s) or charge(s) against O’Charley’s with the Equal Employment Opportunity Commission or the state commission empowered to investigate claims of employment discrimination, the United States Department of Labor, the Office of Federal Contract Compliance Programs, or with any other local, state or federal agency or court, and that if any such agency or court assumes jurisdiction of any complaint(s) or charge(s) against O’Charley’s on Mr. Warne’ behalf, Mr. Warne will request such agency or court to withdraw from the matter, Mr. Warne will refuse any benefits derived therefrom, and the release contained in this Agreement will apply to such claim. This Agreement will not affect Mr. Warne’s right to hereafter file a charge with or otherwise participate in an investigation or proceeding conducted by any such agency or court regarding matters that arise after the Resignation Date and which are not the subject of this Agreement. Mr. Warne represents and warrants that he has no knowledge of any practice engaged in by O’Charley’s that is or was a violation in any material respect of any applicable state law or regulations or of any federal law or regulations including, but not by way of limitation, the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder.

6.Tax Liability. Mr. Warne further acknowledges and agrees that any tax consequence that he may personally incur that arises from or is attributable to the payments and benefits described in Paragraph 13 is solely his responsibility, although O’Charley’s agrees to continue making withholdings and deductions from such payments in accordance with Mr. Warne’ most current W-4 on file with O’Charley’s.

7.Civil Action Waiver. In consideration of the payments described in Paragraph 13 below, Mr. Warne further agrees to neither institute nor in any manner voluntarily participate in, as a class member or otherwise, any civil action or arbitration against O’Charley’s that is now pending or may hereafter be brought that concerns any matter encompassed by this release.

8.Confidentiality. Mr. Warne agrees that he will comply with the provisions of Section 5.3 of the Employment Agreement, which remains in full force and effect.  In connection therewith, Mr. Warne represents and warrants that he has returned to the Company all copies of confidential and proprietary Company information and property in his possession or control (these include, without limitation, all documents, manuals, coupons, letterhead/stationary, business cards, computers, computer programs, phones, compact discs, diskettes, emails, customer lists, notebooks, reports and other written or graphic materials, including all copies thereof, in any way relating to O’Charley’s’ business and prepared by Mr. Warne or obtained from O’Charley’s during the course of Mr. Warne’ service to O’Charley’s).

9.Termination of Employment/Benefits. Mr. Warne acknowledges that his employment with O’Charley’s, together with his rights to continue to participate in (and O’Charley’s corresponding obligation to provide, make contributions to or fund) certain O’Charley’s related benefits, car allowances, deferred compensation plans (including bonus plans), stock purchase plans, long-term incentive plans, 401(k) plans, ambassador card programs, or any other O’Charley’s monitored or provided benefit plan or program (except with respect to his existing family health insurance coverage as more fully di scussed below), ceased effective the close of business on the Resignation Date. Distribution of any vested deferred compensation balances, vested 401(k) balances, vested O’Charley’s Inc. shares or options to Mr. Warne, etc. will be made expressly in accordance with the terms and conditions of the Company plans governing the same and elections thereunder, all in accordance with applicable law.

10.Non-Disparagement. In consideration of the payments described in Paragraph 13 below and the release provided in Paragraph 2 above, each of Mr. Warne and O’Charley’s further agrees to refrain from making any negative or disparaging comments regarding the other.

11.Validity. If any term, condition, section or provision of this release will be held to be invalid or unenforceable, such invalidity will not affect any other term, condition, section or provision hereof, and this release will be construed and enforced as if such term, condition, section or provision had not been included.

12.Arbitration Agreement. Mr. Warne acknowledges that any action for breach of this Agreement or of any term of this Agreement is subject to the arbitration agreement in effect between Mr. Warne and the Company (the “Arbitration Agreement”). Mr. Warne reaffirms the enforceability of the Arbitration Agreement and agrees not to challenge the enforceability of the same.

13.Consideration. In return for Mr. Warne’ execution and delivery of this Agreement, and subject to his faithful and strict adherence and compliance to the terms hereof and thereof, O’Charley’s Inc. agrees to pay Mr. Warne the following amounts and provide the following benefits (1) an aggregate severance payment of $1.8 million (the “Severance Payment”), which will be paid in equal once-a-month installments of $100,000 (less applicable tax withholdings with each installment payable on the last payroll cycle date of the applicable month (the “Last Monthly Payroll Cycle”)) to Mr. Warne over t he 18-month period beginning with the Last Monthly Payroll Cycle for June 2010; provided, however, that Mr. Warne hereby acknowledges that he shall forfeit his right to the Severance Payment if he shall revoke his execution of this Agreement; (2) any amounts vested under the Company’s 401(k) and deferred compensation plans, with the payment of such amounts determined in accordance with the terms of the applicable plan; and (3) continuation of those health insurance benefits to which Mr. Warne and his spouse and dependents would have been entitled to receive pursuant to the Company’s health insurance plan during the twelve (12)-month period following the Resignation Date had Mr. Warne remained an employee during that period, with such benefits provided at no less than the same coverage level and at no more of a cost to Mr. Warne as in effect as of the date of the Resign ation Date, subject to such reduction in coverage or increases in cost as shall become in effect for senior executive employees of the Company generally; provided, however, that such continued health insurance benefits will terminate on the date or dates Mr. Warne receives substantially similar coverage and benefits, without waiting period or pre-existing condition limitations, under the plans and programs of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage or benefit-by-benefit basis). In the event of Mr. Warne’s death before receipt of the Severance Payment, O’Charley’s will pay any unpaid amounts to his surviving spouse as his beneficiary on the schedule set forth in this Paragraph 13.

Attached as Schedule A is a listing of all stock options and restricted stock awards held by Mr. Warne as of the Resignation Date.  Mr. Warne agrees that Schedule A accurately reflects all equity awards and their respective terms held by him as of the date hereof and that are vested or exercisable in whole or in part on the Resignation Date, giving effect to Mr. Warne’s resignation.  All such awards were granted pursuant to the terms of the O’Charley’s 2000 Stock Incentive Plan, as amended, or 2008 Equity and Incentive Plan (collectively, the “Plan”).  Pursuant to the Plan, each of the stock option an d restricted stock awards listed on Schedule A will automatically terminate as of the Resignation Date and any remaining rights with respect thereto will be governed by the Plan and the applicable award agreements issued thereunder.

14.Revocation. Mr. Warne has consulted with his attorney before his execution of this Agreement. He has been advised that he had twenty-one (21) days from the date this Agreement was first presented to him to consider executing it and that his decision to execute it was knowingly and voluntarily made. Mr. Warne further acknowledges that this Agreement has been individually negotiated and is not part of a group exit incentive or other separation package.

By signing and returning this Agreement, Mr. Warne acknowledges that he has read carefully and fully understands the terms of this Agreement, has had an opportunity to consult with his attorney before signing it and is signing it knowingly and voluntarily and has not been coerced or threatened into signing it or promised anything else in exchange for signing it (other than the consideration provided in Paragraph 13 above).

Furthermore, Mr. Warne is aware that he has the right for a period of seven (7) days following his execution of this Agreement (the “Revocation Period”) to revoke this Agreement. His receipt, however, of any severance benefits under this Agreement is contingent upon (1) his execution and delivery of this Agreement, and (2) the expiration of the Revocation Period without this Agreement being revoked by Mr. Warne.

15.Termination of Severance Payments. Any severance payments or other payments or benefits payable to Mr. Warne under this Agreement will immediately cease, without notice, if Mr. Warne breaches any term of this Agreement. Mr. Warne agrees that if he breaches any of the provisions of Paragraphs 8, 10, 17 or 18, such breach likely will not have an adequate remedy at law and that O’Charley’s will be entitled, in addition to all other legal and/or equitable remedies available to it, to cease making the payments provided under Paragraph 13 and to apply to and obtain from a court of competent jurisdiction an injunction agains t any violation thereof with the prevailing party entitled to recover all costs of such action, including reasonable attorneys’ fees. These rights and remedies will be cumulative and not alternative. Without limiting the generality of the foregoing, the prevailing party in any action brought to enforce the terms and conditions of this Agreement (not just those of Paragraphs 8, 10, 17 and 18) will be entitled to recoup their reasonable attorneys’ fees in enforcing this Agreement.

16.Indemnification. Anything contained in this Agreement to the contrary notwithstanding, the parties expressly agree that nothing in this Agreement is intended to abrogate, diminish or amend the Company’s continued indemnification obligations to Mr. Warne pursuant to Section 6.7 of the Employment Agreement.

17.Noncompetition. Mr. Warne agrees that he will comply with the provisions of Section 5.1 of the Employment Agreement, which remain in full force and effect.

18.Non-Solicitation. Mr. Warne agrees that he will comply with the provisions of Section 5.2 of the Employment Agreement, which remain in full force and effect.

19.Section 409A Provisions. It is intended that (i) each payment or installment of payments provided under this Agreement is a separate “payment” for purposes of Code Section 409A and (ii) that the payments satisfy, to the greatest extent possible, the exemptions from the application of Code Section 409A, including those provided under Treasury Regulations 1.409A-1(b)(4) (regarding short-term deferrals), 1.409A-1(b)(9)(iii) (regarding the two-times, two year exception), and 1.409A-1(b)(9)(v) (regarding reimbursements and other separation pay). Notwithstanding anything to the contrary in this Agreement, if the Company det ermines (i) that on the Resignation Date or at such other time that the Company determines to be relevant, Mr. Warne is a “specified employee” (as such term is defined under Treasury Regulation 1.409A-1(i)(1)) of the Company and (ii) that any payments to be provided to Mr. Warne pursuant to this Agreement are or may become subject to the additional tax under Code Section 409A(a)(1)(B) or any other taxes or penalties imposed under Code Section 409A (“Section 409A Taxes”) if provided at the time otherwise required under this Agreement, then (A) such payments will be delayed until the date that is six (6) months after the date of the Executive’s termination of employment with the Company, or such shorter period that, as determined by the Company, is sufficient to avoid the imposition of Section 409A Taxes (the “Payment Delay Period”). Any payments delayed pursuant to this Paragraph 19 will be made in a lump sum on the first day of the seventh month following Mr. Warne&# 8217; termination of employment, or such earlier date that, as determined by the Company, is sufficient to avoid the imposition of any Section 409A Taxes. The parties acknowledge and agree that, to the extent applicable, this Agreement shall be interpreted in accordance with, and the parties agree to use their reasonable best efforts to achieve timely compliance with, Code Section 409A and the Treasury Regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the Resignation Date.  In addition, to the extent that any reimbursement (including expense reimbursements) provided for pursuant to this Agreement or other related agreement provides for a “deferral of compensation” within the meaning of Code Section 409A and the Treasury Regulations promulgated thereunder, such amounts shall be reimbursed in accordance with Section 1.409A-3(i)(1)(iv) of the Treasury Regulations.  Notwithsta nding the foregoing, the Company does not warrant that any payments provided herein will qualify for favorable treatment under Code Section 409A, and the Company will not be liable to Mr. Warne for any tax, interest or penalties that Mr. Warne might owe as a result of any payments hereunder.

20.Governing Law. This Agreement will be construed in accordance with the laws of the State of Tennessee, without regard to its conflict of laws or choice of laws provisions. Each and every term of this Agreement will be binding upon and inure to the benefit of the successors and assigns of the parties hereto.

21.Integration. Mr. Warne acknowledges and agrees that this Agreement contains the parties’ entire understanding and supersedes and replaces any other agreement regarding the subject matter hereof, except that Sections 5.1(c) (Noncompetition), 5.2 (Non-solicitation), 5.3 (Confidentiality) and 6.7 (Indemnification) of the Employment Agreement have been incorporated by reference herein and remain in full force and effect; any stock option of restricted stock awards will be governed  as contemplated in the second paragraph of Paragraph 13; and the Arbitration Agreement remains in effect pursuant to Paragraph 12.Mr. Warne acknowledges and agrees that this Agreement is not being executed in reliance upon any statement or representation made by the Company outside of this Agreement.

22.Binding Effect/No Oral Modification. This Agreement will be binding upon the Company, Mr. Warne and upon Mr. Warne’ heirs, administrators, representatives, executors, successors, and assigns. The provisions of this Agreement may not be modified orally, but only in a writing signed by the parties to be charged.

[Signature page(s) follow]

I HAVE READ THE FOREGOING TRANSITION AGREEMENT AND GENERAL RELEASE, I FULLY UNDERSTAND ITS TERMS, I HAVE BEEN GIVEN 21 DAYS OR REASONABLE TIME TO CONSULT WITH AN ATTORNEY ABOUT IT, AND I HAVE SIGNED IT VOLUNTARILY THIS THE 17th DAY OF JUNE, 2010.

/s/ Jeffrey D. Warne                                                           

Jeffrey D. Warne

O’CHARLEY’S INC.

By: /s/ Philip J. Hickey, Jr.                                                           

Name: Philip J. Hickey, Jr.

Title: Chairman

--

Schedule A

List of Equity Awards

Type of Award	Grant Date	Exercise Price		Shares Originally Subject to Award Agreement		Number of Shares Vested/ Exercisable as of Resignation Date
Stock Option	February 10, 2009	$	2.74		150,000		0
Stock Option	June 3, 2009	$	9.76		150,000		55,906	1
Restricted Stock Award (Time-vesting)	March 10, 2008		N/A		16,291		8,145
Restricted Stock Award (Performance-vesting)	March 10, 2008		N/A		16,291		3,482
Restricted Stock Award (Time-vesting)	February 7, 2007		N/A		17,180		12,885

 

1Represents shares vesting upon termination of employment in accordance with the terms of the Employment Agreement.

EX-10.2

O’CHARLEY’S INC.

EXECUTIVE EMPLOYMENT AGREEMENT

(the “Agreement”)

O’CHARLEY’S INC.

(the “Company”)

and

DAVID HEAD

(“Executive”)

July 30, 2010

BACKGROUND

Effective September 1, 2010 (the “Commencement Date”), Executive shall commence employment as the Company's President and Chief Executive Officer and, in connection therewith, the Company and Executive desire to enter into this Agreement setting forth the terms and conditions of the employment relationship of the Executive with the Company..

ARTICLE I.

EMPLOYMENT, DUTIES AND TERM

1.1Employment.  Upon the terms and conditions set forth in this Agreement, the Company hereby employs Executive effective on the Commencement Date as the Company's President and Chief Executive Officer, and Executive accepts such employment.

1.2Duties.  Executive shall devote his full-time and best efforts to the Company and to fulfilling the duties of his position, which shall include such duties as may from time to time be assigned to him by the Company.  The Executive may devote reasonable time and attention to civic, charitable, business and social organizations so long as such activities do not interfere with the performance of Executive’s responsibilities under this Agreement and provided that Executive shall obtain the prior written approval of the Company’s Chairman of the Board of Directors prior to joining the board of directors or other governing body of any such civic, charitable, business or social organization.  Executive is currently a board member of a privately held, dental services company; in addition to ensuring that such activities do not interfere with Executive’s performance of Executive's responsibilities under this Agreement, Executive agrees and acknowledges that Executive will resign from such board to the extent such private company should ever become a public company. Executive shall comply with the Company’s policies and procedures to the extent they are not inconsistent with this Agreement, in which case the provisions of this Agreement shall prevail.  The Executive agrees to serve without any additional compensation as a member of the Board of Directors of the Company and any committee thereof and as an officer and/or director of the board of directors of any subsidiary of the Company as requested.  If the Executive’s employment terminates for any reason, the Executive shall resign as an o fficer and director of the Company and all of its subsidiaries, such resignation to be effective no later than the date of termination of Executive's employment hereunder.

1.3Term.  Subject to the provisions of Articles III, IV and V herein, this Agreement and Executive’s employment shall commence on the Commencement Date and continue until September 30, 2014 (the “Initial Term”) and shall automatically renew for successive one year periods (each, a “Renewal Term”) upon all terms, conditions and obligations set forth herein unless either party shall provide written notice to the other not less tha n ninety (90) days prior to the expiration of the Initial Term or any Renewal Term, as applicable.  For purposes hereof, the Initial Term, together with any Renewal Term, are hereinafter referred to as the “Term.” In the event that Company does not elect to extend Executive's Term (whether an Initial Term or a Renewal Term), and provided that Company's decision not to extend is based on a reason other than those enumerated as a "Termination With Cause" as defined in Section 3.2(c) below, then the Company shall pay Executive severance equal to one year of Executive's then current Base Salary, payable in fifty-two equal weekly installments in accordance with the Company's regular payroll practices (and subject to all applicable withholdings and deductions), commencing on the first pay period following Executive's final day of employment with the Company. The payments provided pursuant to this Section 1.3 are in lieu of any other severance obligations / payments hereunder. In the event for any reason Executive shall not commence employment on or before the Commencement Date, this Agreement shall be deemed void and of no force or effect.

ARTICLE II.

COMPENSATION AND EXPENSES

2.1Base Salary.  For services rendered under this Agreement during the Term, the Company shall pay Executive a base salary at the rate of $535,000 per annum commencing on the Commencement Date.  Executive’s base salary shall be reviewed annually by the Compensation and Human Resources Committee of the Board (the “Committee”) and may be increased in the sole discretion of the Committee (such base salary, as it may be increased from time to time during the Term, is hereinafter referred to as the “Base Salary”).

2.2Bonus and Incentive.  The Executive shall be eligible to participate in such bonus and incentive plans during the Term as the Committee may determine appropriate.  For purposes of the Company's 2010 fiscal year, Executive shall be eligible for a bonus equal to the greater of (A) $75,000 and (B) an amount as determined in the sole discretion of the Committee.  For fiscal years following the Company’s 2010 fiscal year during the Term, it is contemplated that the Executive’s bonus plan will provide for bonus eligibility based on 100% of Base Salary at the “Target” level of performance and based 100% o n the Company's performance and such other metrics as from time to time determined by the Committee. It shall be a condition precedent to the Company's obligation to pay any bonus hereunder that Executive be employed by the Company on the date the Bonus is so paid. However, should the Executive work for the Company for an entire fiscal year and meet the performance measures established by the Committee which would otherwise entitle Executive to some portion or all of Executive's bonus for such fiscal year, and should Executive thereafter be subject to a Termination Without Cause prior to the date the bonus for such fiscal year is paid, then Executive shall be entitled to the payment of such bonus on the date the Company pays fiscal year bonuses to its other employees generally.

2.3Long-Term Incentive.  On the Commencement Date, Executive shall be granted an option (the “Stock Option”) to purchase 120,000 shares of the Company's Common Stock at an exercise price equal to the closing price for the Company's common stock on the Commencement Date.  Subject to the terms of the award agreement evidencing such Stock Option and this Agreement, fifty percent (50%) of the shares subject to the Stock Option shall vest on September 1, 2012 and fifty percent (50%) shall vest on September 1, 2013 and the Stock Option shall expire on September 1, 2020.  On the Commencement Date, Executive shall be issued 4 0,000 shares of the Company’s Common Stock in the form of a restricted stock award (the “Restricted Stock Award”). Subject to the terms of the award agreement evidencing such Restricted Stock Award and this Agreement, the shares of Common Stock subject to the Restricted Stock Award shall “cliff” vest in full on September 1, 2014. The Agreements for the Restricted Stock Award and Stock Option shall contain language providing for the immediate vesting of the same upon a change of control as defined therein.

2.4Business Expenses.  The Company shall, consistent with its policies in effect from time to time, bear all ordinary and necessary business expenses incurred by Executive in performing Executive’s duties as an employee of the Company, provided, that Executive incurs and accounts promptly for such expenses to the Company in the manner prescribed by the Company. Executive agrees to submit such expense reports in a timely manner for the Chairman of the Board's approval.

2.5Benefits.  During the Term, the Company shall provide Executive with those benefits provided generally to members of senior management, including a car allowance of $25,000 per annum and a term life insurance policy providing for a death benefit of $1,000,000.

ARTICLE III.

SEVERANCE FOR CIRCUMSTANCES OTHER THAN CHANGE IN CONTROL

3.1Severance.  This Article III shall not apply to a termination of Executive's employment following a Change in Control (as hereinafter defined), which is governed solely by Article IV.

3.2Severance Payment.

(a)It is understood and agreed that if Executive’s employment with the Company should be terminated at any time prior to the expiration of the Term as a result of a Termination Without Cause (defined below) or a Termination With Good Reason (defined below), and upon the execution and delivery to the Company by Executive of an agreement, in a form presented by the Company and accepted by Executive, which acceptance shall not be unreasonably withheld or delayed, releasing all claims which Executive may have against the Company (other than claims for indemnification pursuant to Section 6.7 hereunder, claims under this Agreement, claims for vested benefits including retirement benefits, claims under COBRA, and claims for any vested equity interest in the Company), Executive shall receive, in full and complete settlement of any claims for compensation which Executive may have, and in lieu of any severance pay under any policy of the Company or otherwise, the following:

(i)continued weekly payments, in accordance with the Company’s regular payroll practices (subject to all applicable withholding and deductions), for a period of fifty-two (52) weeks after the date of termination equal to one-fifty second (1/52) of Executive’s then current Base Salary;

(ii)any bonus which would be payable pursuant to the last sentence of Section 2.2; and

(iii)any payments and benefits which Executive or Executive’s spouse, dependents, beneficiaries or estate would have been entitled to receive pursuant to any employee health benefit plan of the Company during the twelve (12)-month period following Executive’s termination had Executive remained an employee during that period, with such benefits provided to Executive at no less than the same coverage level and at no more of a cost to Executive as in effect as of the date of Executive’s termination subject to such reduction in coverage or increases in cost as shall become in effect for senior executive employees of the Company generally, provided, however, that such continued payments and benefits shall terminate on the date or dates Executive receives substantially similar coverage and benefits, without waiting period or pre-existing condition limitations, under the plans and programs of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage or benefit-by-benefit basis). The Company and executive agree to review the severance provided in this Section 3.2(a) upon the Executive's first anniversary with the Company; although the Executive expressly agrees and acknowledges that the Company is under no obligation to increase the severance payable hereunder, nor shall the Company's failure to do so afford Executive any greater rights than those expressly provided hereunder nor constitute grounds entitling Executive to exercise a Termination With Good Reason.

(b)As used in this Article III, “Termination Without Cause” means any termination of Executive’s employment by the Company other than a Termination With Cause (defined below).

(c)As used in this Article III, “Termination With Cause”means termination by the Company of Executive’s employment at any time after the Company believes in good faith it has actual knowledge of the occurrence of any of the following events: gross neglect of duty, knowing material breach of this Agreement, a material act of dishonesty or disloyalty, the inability by Executive to discharge Executive’s material duties due to alcohol or drug addiction, or gross misconduct inimical to the best interests of the Company; provided, however, that termination of employment solely due to unsatisfactory job performance shall not be considered a Termination With Cause; and, providedfurther, that a “Termination With Cause” shall not be deemed existing unless and until the Company has delivered to Executive a copy of a resolution duly adopted by the Company’s Board of Directors at a meeting of the Board duly called (after reasonable (but in no event less than seven (7) days) notice to Executive and an opportunity for Executive, together with Executive’s counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive had engaged in the conduct set forth above and specifying the particulars thereof in reasonable detail.

(d)As used in this Article III, “Termination With Good Reason” means Executive’s termination of employment at any time within the earlier of two (2) years after Executive has actual knowledge of the occurrence or the expiration of the Term, without Executive’s written consent, of one of the following events: (i) any reduction in Executive’s Base Salary or a material reduction in the health and welfare insurance, retirement and other benefits available to Executive as of the date of this Agreement, except for reductions in such benefits as shall become in effect for senior executive employees of the Company generally; (ii) the failure of th e Company or any successor to honor any material terms of this Agreement; (iii) a material diminution in Executive's position, authority, duties or responsibilities; or (iv) the relocation of Executive’s principal office to a location more than fifty (50) miles from Nashville, Tennessee; provided that Executive shall have notified the Company of the existence of a condition described in items (i) through (iv), within ninety (90) days of Executive’s actual knowledge of the initial existence of the condition, and the Company shall have failed to remedy the condition within thirty (30) days of receiving such notice.  For the avoidance of doubt, subsequent occurrences of these events shall start new time periods described in this paragraph.

(e)In the event Executive's employment pursuant to this Agreement terminates for any reason other than a Termination Without Cause or a Termination With Good Reason, Executive shall be entitled to receive, in full and complete settlement of any claims for compensation which Executive may have, and in lieu of any severance pay under any policy of the Company or otherwise, Base Salary and benefits (including any Bonus which has been determined by the Committee to have been earned in respect of a completed fiscal year but not yet paid) to be paid or provided by the Company through the date of termination.

(f)The amounts payable to Executive under this Article III are not eligible earnings under any pension, savings, deferred compensation, bonus, incentive, supplemental retirement benefit or other benefit plan of the Company.

ARTICLE IV.

CHANGE IN CONTROL

4.1Change In Control.  No compensation shall be payable under this Article IV unless and until (a) there shall have been a Change in Control of the Company during the Termand (b) Executive’s employment by the Company thereafter shall have been terminated in accordance with Section 4.2. For purposes of this Agreement, a Change in Control means the happening of any of the following:

(a)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 50% 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

(b)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.

4.2Termination.  If a Change in Control of the Company shall have occurred during the Term, Executive shall be entitled to the compensation and health benefits provided in Section 4.3 upon the subsequent termination of Executive’s employment with the Company by Executive or by the Company within eighteen months of the Change in Control of the Company unless such termination is as a result of (i) Executive’s death; (ii) Termination by Reason of Disability (as defined in Section 4.2(a)); (iii) Terminat ion by Reason of Retirement (as defined in Section 4.2(b)); (iv) Termination With Cause (as defined in Section 4.2(c)); or (v) termination by the Executive other than a Termination With Good Reason (as defined in Section 4.2(d)).

(a)As used in this Article IV, “Termination by Reason of Disability” means a termination of the Executive by the Company by reason of Executive’s inability, as determined by the Board, to perform his regular duties and responsibilities due to physical or mental illness which has lasted for six months and within 30 days after written notice of termination is thereafter given by the Company, Executive shall not have returned to the full-time performance of Executive’s duties.

(b)As used in this Article IV, “Termination by Reason of Retirement” means a termination by the Company or Executive of Executive’s employment based on Executive’s having reached age 65 or such other age as shall have been fixed in any arrangement established with Executive’s consent with respect to Executive.

(c)As used in this Article IV, "Termination With Cause" means the termination of the Executive's employment on the basis of fraud, misappropriation or embezzlement on the part of Executive. Notwithstanding the foregoing, the termination of Executive's employment shall not be deemed to have been a Termination With Cause unless and until there shall have been delivered to 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 Executive if Executive is then a member of the Board of Directors) at a meeting of the Board called and held for the purpose (after reasonable notice to Executive and an opportunity for Executive, toget her with Executive's counsel, to be heard before the Board), finding that in the good faith opinion of the Board Executive was guilty of conduct set forth in the first sentence of this Section 4(c) and specifying the particulars thereof in detail.

(d)As used in this Article IV, "Termination for Good Reason" means a termination by the Executive upon the occurrence of any of the following (without Executive's express written consent):

(i)the assignment to Executive by the Company of duties that constitute a material diminution of Executive's position, duties, responsibilities and status with the Company immediately prior to a Change in Control of the Company, or a change in Executive's titles or offices as in effect immediately prior to a Change in Control of the Company, or any removal of Executive from or any failure to reelect Executive to any of such positions, except in connection with a Termination by Reason of Disability, a Termination by Reason of Retirement, a Termination With Cause, a termination by the Executive other than a Termination for Good Reason or as a result of Executive's death (each as defined in this Article IV);

(ii)any reduction by the Company in Executive's Base Salary or a material reduction in the health and welfare insurance, retirement and other benefits available to Executive as of immediately prior to the Change in Control, except for reductions in such benefits as shall become in effect for senior executive employees of the Company generally;

(iii)a relocation of the Company's principal executive offices to a location more than fifty (50) miles from Nashville, Tennessee, or Executive's relocation to any place other than the location at which Executive performed Executive's duties prior to a Change in Control of the Company, except for required travel by Executive on the Company's business to an extent substantially consistent with Executive's business travel obligations at the time of a Change in Control of the Company;

(iv)any material breach by the Company or any successor of any provision of this Agreement; or

(v)any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company; provided that Executive shall have notified the Company of the existence of a condition described in items (i), (ii) or (iii), within ninety (90) days of Executive's actual knowledge of the initial existence of the condition, and the Company shall have failed to remedy the condition within thirty (30) days of receiving such notice. For the avoidance of doubt, subsequent occurrences of these events shall start new time periods described in this paragraph.

(e)Notice of Termination.  Any termination by the Company under this Article IV shall be communicated by a Notice of Termination. For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which indicates 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 Executive’s employment under the provisions so indicated. For purposes of this Agreement, no such purported termination by the Company shall be effective without s uch Notice of Termination.

(f)Date of Termination.  “Date of Termination” shall mean (a) if Executive’s employment is terminated by the Company, the date on which a Notice of Termination is given, or (b) if Executive terminates his employment pursuant to Section 4.2(d), the date executive so terminates his employment; provided the Company has been afforded a thirty (30) day cure period in the instance of conditions described in Section 4.2(d)(i), (ii) or (iii) and the Com pany has failed to satisfactorily cure such conditions during such period.

4.3Compensation Upon Termination of Employment.

(a)Under the circumstances set forth in Section 4.2, the Company shall pay to Executive as severance pay in a lump sum, in cash, on the fifth (5th) day following the Date of Termination, an amount equal to the sum of: (i) 350% of the average of Executive's Base Salary during the three calendar years preceding the Change in Control; and (ii) 150% of the highest bonus compensation paid to Executive for any of the three calendar years preceding the Change in Control; provided, however, that if the lump sum severance payment under this Section 4.3, either alone or together with other payments which Executive has the right to receive from the Company, would constitute a “parachute payment” (as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”)), at the written election of the Executive such lump sum severance payment shall be reduced to the largest amount as shall result in no portion of the lump sum severance payment under this Section 4.3 being subject to the excise tax imposed by Section 4999 of the Code.

(b)In addition to the lump sum payment provided in Section 4.3(a), the Company shall provide to Executive health insurance equivalent to that provided to Executive immediately prior to the Date of Termination until the earlier of: (i) eighteen months following the Date of Termination or (ii) such time as Executive is employed by another employer and is covered or permitted to be covered by benefit plans of another employer providing substantially similar coverage.

(c)Additionally, all unvested Restricted Stock Awards and Stock Options granted pursuant to this Agreement shall immediately vest upon such Change in Control.

ARTICLE V.

NONCOMPETITION, NONSOLICITATION AND CONFIDENTIALITY

5.1Noncompetition.

(a)So long as Executive remains employed by the Company, Executive shall not compete, directly or indirectly, with the Company. In accordance with this restriction, but without limiting its terms, Executive shall not:

(i)enter into or engage in any business which competes with the business of the Company; or

(ii)promote or assist, financially or otherwise, any person, firm, association or corporation or any other entity engaged in any business which competes with the business of the Company.

(b)For a period of twelve (12) months following termination of Executive’s employment with the Company for any reason (the “Non-compete Period”), Executive shall not enter into or engage in any business that competes with the business of the Company.

(c)During the Non-compete Period, Executive shall not promote or assist financially or otherwise, any person, firm, association, partnership, corporation, or any other entity engaged in any business which competes with the business of the Company.

(d)For the purposes of this Section 5.1, Executive understands that he shall be competing with the business of the Company if he engages in any or all of the activities set forth herein directly as an individual on his own account, or indirectly as a partner, joint venturer, employee, agent, consultant, officer and/or director of any firm, association, corporation, or other entity, or as a stockholder of any corporation in which Executive owns, directly or indirectly, individually or in the aggregate, more than one percent (1%) of the outstanding stock; provided, however, that at such time as he is no longer employed by the Company, Executive’s direct or indirect ownership as a stockholder of less than five percent (5%) of the outstanding stock of any publicly traded corporation shall not by itself constitute a violation of this Section 5.1.

(e)For the purposes of this Section 5.1, the Company’s business is defined as owning, operating and/or franchising restaurants in either the steak and/or casual dining segment of the restaurant industry, as well as any other segments of the restaurant industry in which the Company shall own, operate or franchise restaurants during the Term and as of the date of termination of Executive’s employment with the Company. The above nowithstanding, provided that any such: (i) casual dining restaurant is not located within seven (7) miles of any casual dining restaurant owned, operated or franchised by the Company or in development by the Company or any of its franchisees as of the date Executive's employment with the Company is terminated; or (ii) steak restaurant is not located within twenty (20) miles of any Stoney River restaurant owned, operated or franchised by the Company or in development by the Company or any of its franchisees as of the date Executive's employment with the Company is terminated; then the same shall not be deemed a competing business hereunder. Executive understands that the activities described in this Section 5.1, shall be prohibited only within the United States. If it shall be judicially determined that Executive has violated any of his obligations under this Section 5.1, then the period applicable to the obligation which Executive shall have been determined to have violated shall automatically be extended by a period of time equal in length to the period during which said violation(s) occurred.< /font>

(f)In the event of a termination of Executive’s employment under circumstances where Executive is not entitled to receive severance pay pursuant to Section 3.2(a) or Section 4.3 of this Agreement, prior to engaging in any of the activities set forth in Section 5.1(b) or 5.1(c) during the Non-compete Period (a “Competitive Activity”), Executive shall give 30 days prior written notice to the Company describing in reasonable detail the proposed Competitive Activity and a copy of any written offer of employment or engagement relating thereto. At its sole option, the Company may, by written notice to Executive provided within 20 days of receipt of Executive’s notice meeting the requirement s of this Section 5.1(f), waive the restrictions on the ability of the Executive to engage in the Competitive Activity set forth in Executive’s notice. In such event, Executive shall be entitled to engage in the Competitive Activity set forth in Executive’s notice. In the event Executive has provided notice to the Company pursuant to this Section 5.1(f), Executive has not engaged in the Competitive Activity described in the notice as a result of his non-competition obligations set forth in this Section 5.1 and the Company has not waived the restrictions on the ability of the Executive to engage in such Competitive Activity in accordance with this Section 5.1(f), the Company shall pay Executive an amount equal to the Executive’s Base Salary as in effect upon the termination of his employment until the end of the Non-compete Period.

5.2Nonsolicitation.  Executive agrees that, for a period of eighteen (18) months following Executive's termination, he shall not directly or indirectly at any time solicit or induce or attempt to solicit or induce any employee(s) (at the level of director or above) of the Company or any of its parent, subsidiary or affiliate entities to terminate their employment with the Company or such entity or hire, employ or otherwise retain the services of any such employee.

5.3Confidentiality.

(a)During the Term and at any time thereafter, Executive shall not disclose, furnish, disseminate, make available or, except in the ordinary course of performing his duties on behalf of the Company, use any trade secrets or confidential business and technical information of the Company, or its parent, subsidiaries or affiliated entities without limitation as to when it was acquired by Executive or whether it was compiled or obtained by, or furnished to Executive while he was employed by the Company. Such trade secrets and confidential business and technical information are considered to include, without limitation, development plans, financial statistics, research data, or any other statistics and plans contained in monthly and annu al review books, profit plans, capital plans, critical issues plans, strategic plans, or marketing, real estate, or store operations plans. Executive specifically acknowledges that all such information, whether reduced to writing or maintained in Executive’s mind or memory and whether compiled by the Company and/or Executive derives independent economic value from not being readily known to or ascertainable by proper means by others who can obtain economic value from its disclosure or use, that reasonable efforts have been put forth by the Company to maintain the secrecy of such information, that such information is and shall remain the sole property of the Company and that any retention and use of such information during or after the termination of Executive’s relationship with the Company (except in the course of Executive’s performance of his duties) shall constitute a misappropriation of the Company’s trade secrets; provided, however, that this restriction shall not apply to infor mation which is in the public domain or otherwise made public by others through no fault of Executive.

(b)The above restrictions on disclosure and use of confidential information shall not prevent Executive from: (i) using or disclosing information in the good faith performance of his duties on behalf of the Company; (ii) using or disclosing information to another employee to whom disclosure is required to perform in good faith the duties of either person on behalf of the Company; (iii) using or disclosing information to another person or entity bound by a duty or an agreement of confidentiality as part of the performance in good faith of Executive’s duties on behalf of the Company or as authorized in writing by the Company; (iv) at any time after the period of Executive’s employment using or disclosing information to the extent such information is, through no fault or disclosure of Executive, generally known to the public; (v) using or disclosing information which was not disclosed to Executive by the Company or otherwise during the period of Executive’s employment which is then disclosed to Executive after termination of Executive’s employment with the Company by a third party who is under no duty or obligation not to disclose such information; or (vi) disclosing information as required by law. If Executive becomes legally compelled to disclose any of the confidential information, Executive shall (i) provide the Company with reasonable prior written notice of the need for such disclosure such that the Company may obtain a protective order; (ii) if disclosure is required, furnish only that portion of the confidential information which, in the written opinion of Executive’s counsel delivered to the Company, is legally required; and (iii) exercise reasonable efforts to obtain reliable assurances that confide ntial treatment shall be accorded to the confidential information.

(c)Executive expressly agrees and understands that the remedy at law for any breach by Executive of this Article V will be inadequate and that the damages flowing from such breach are not readily susceptible to being measured in monetary terms. Accordingly, it is acknowledged that upon any violation of any provision of this Article V, the Company will be entitled, subject to applicable legal standards and burden of proof, to seek to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach. Nothing in this Agreement shall be deemed to limit the Company’ ;s remedies at law or in equity for any further breach by Executive of any of the provisions of this Agreement which may be pursued or availed of by the Company.

ARTICLE VI.

MISCELLANEOUS

6.1Notice.  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:  Chairman of the Board

If to Executive:                                                      David Head

4311 Sneed Road

Nashville, TN 37215

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.

6.2Modification.  No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in a writing signed by 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 t hat are not set forth expressly in this Agreement.

6.3Validity.  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.

6.4Counterparts.  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 shall constitute one and the same instrument.

6.5Legal Fees and Expenses.  In the event either party hereto shall institute litigation against the other party hereto relating to the interpretation or enforcement of this Agreement, the prevailing party in such litigation shall be entitled to recover from the other party any and all attorneys’ and related fees and expenses incurred by the prevailing party in such litigation.

6.6No Obligation to Mitigate Damages; No Effect on Other Contractual Rights.  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 Executive as the result of employment by another employer after the Term, or otherwise.

6.7Indemnification.  It is understand and agreed that the Company will indemnify Executive (including advancing expenses) to the fullest extent permitted by Tennessee law and the Company’s Charter and Bylaws for any judgments, amounts paid in settlement and reasonable expenses, including reasonable attorneys’ fees, incurred by Executive in connection with the defense of any lawsuit or other claim to which Executive is made a party by reason of being an officer, director or employee of the Company or any of its subsidiaries.

6.8Assignment; Successor to the Company.  This Agreement is not assignable by either party without the prior written consent of the other except that the Company may assign it without such consent to any parent, subsidiary or affiliated entity, and upon such entity’s assumption of the Company’s duties and obligations hereunder, such entity shall succeed to each of the Company’s rights hereunder. Upon such assignment and assumption, Executive agrees to and becomes an employee of such entity, and all references to the Company in this Agreement shall, as the context requires, be deemed to be to the entity to which such assignment, ass umption and employment relate.  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 and such termination shall constitute a Termination for Good Reason under Article IV.  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 6.8 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.  Notwithstanding anything to the contrary herein, this Agreement, in the event of the death of Executive, shall inure to the benefit of and be enforceable by Executive’s personal and legal representatives, executors, administrators, successors, heirs, distributes, devisees and legatees.  If 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 Executive’s devisee, legatee, or other designee or, if there be no such designee, to Executive’s estate.

6.9Governing Law; Jurisdiction.  This Agreement and any amendments thereto shall become and shall be governed by, and construed in accordance with, the internal, substantive laws of the State of Tennessee. Executive agrees that the state and federal courts located in the State of Tennessee shall have jurisdiction in any action, suit or proceeding against Executive arising out of this Agreement and Executive hereby: (a) submits to the personal jurisdiction of such courts; (b) consents to service of process in connection with any action, suit or proceeding against Executive; and (c) waives any other requirement (whether imposed by statute, rule of cou rt or otherwise) with respect to personal jurisdiction, venue or service of process.

6.10Section 409A Provisions.  It is intended that (i) each payment or installment of payments provided under this Agreement is a separate “payment” for purposes of  Section 409A of the Code and (ii) that the payments satisfy, to the greatest extent possible, the exemptions from the application of Code Section 409A, including those provided under Treasury Regulations 1.409A-1(b)(4) (regarding short-term deferrals), 1.409A-1(b)(9)(iii) (regarding the two-times, two year exception), and 1.409A-1(b)(9)(v) (regarding reimbursements and other separation pay).  Notwithstanding anything to the contrary in this Agreement, if t he Company determines (i) that on the date of Executive’s termination of employment or at such other time that the Company determines to be relevant, the Executive is a “specified employee” (as such term is defined under Treasury Regulation 1.409A-1(i)(1)) of the Company and (ii) that any payments to be provided to the Executive pursuant to this Agreement are or may become subject to the additional tax under Code Section 409A(a)(1)(B) or any other taxes or penalties imposed under Code Section 409A (“Section 409A Taxes”) if provided at the time otherwise required under this Agreement, then (A) such payments shall be delayed until the date that is six (6) months after the date of the Executive’s termination of employment with the Company, or such shorter period that, as determined by the Company, is sufficient to avoid the imposition of Section 409A Taxes (the “Payment Delay Period”).  Any payments delayed pursuant to this Section 6.10 shall be made in a lump sum on the first day of the seventh month following the Executive’s termination of employment, or such earlier date that, as determined by the Company, is sufficient to avoid the imposition of any Section 409A Taxes. The Company shall make any payment or provide any benefit to the extent that Section 409A would not be triggered by such payment or benefit as otherwise provided herein.

6.11Entire Agreement.  This Agreement, those documents expressly referred to herein, and those documents by which Executive is entitled to remuneration or benefits under this Agreement, contain the entire understanding between the parties hereto with respect to the subject matter hereof, and supersedes the provisions of each and every other agreement or understanding, whether oral or written, between the undersigned and the Company relating to the subject matter contained herein, and any such agreement or understanding shall be of no further force and effect. The provisions of this Agreement are severable and if any one or more provisions may be det ermined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions and any partially unenforceable provision, to the extent enforceable in any jurisdiction, shall, nevertheless, be binding and enforceable. The parties hereto agree that when fully executed, the foregoing shall constitute a legally enforceable agreement between the parties, which also shall inure the benefit of the Company’s successors and assigns and Executive's heirs and personal representatives.

6.12Review of Agreement by Executive.  Executive represents that prior to signing this Agreement, he has read, fully understood and voluntarily agrees to the terms and conditions as stated above, that he was not coerced to sign this Agreement, that Executive was not under duress at the time he signed this Agreement and that, prior to signing this Agreement, Executive had adequate time to consider entering into this Agreement, including without limitation, the opportunity to discuss the terms and conditions of this Agreement, as well as its legal consequences, with an attorney of his choice. This Agreement shall become effective as of the date hereof .

[Signature Page Follows]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

O’CHARLEY’S INC.

By: /s/ Philip J. Hickey, Jr.                                                                           

Name:  Philip J. Hickey, Jr.

Title:    Chairman of the Board

EXECUTIVE

 /s/ David Head                                                                           

Name:  David Head

Signature Page to O’Charley’s Inc. Executive Employment Agreement