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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

____________

FORM 10-K

|    |  |                                                                                     
|--- |  | ------------------------------------------------------------------------------------
|[X] |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 29, 2002

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 Identification No.)
|incorporation or organization)           |  |                                     
|                                         |  |                                     
|3038 Sidco Drive                         |  |                                     
|Nashville, Tennessee                     |  | 37204                               
|                                         |  |                                     
|(Address of principal executive offices) |  | (Zip Code)                          

|                                                            |  |                                                
|----------------------------------------------------------- |  | -----------------------------------------------
|Registrants telephone number, including area code:         |  | (615) 256-8500                                 
|Securities registered pursuant to Section 12(b) of the Act: |  | None                                           
|Securities registered pursuant to Section 12(g) of the Act: |  | Common Stock, no par value                     
|                                                            |  | Series A Junior Preferred Stock Purchase Rights

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X No

The aggregate market value of the voting stock held by non-affiliates of
the registrant as of the last business day of the registrants most recently
completed second fiscal quarter was approximately $347.0 million. For purposes
of this calculation, shares held by non-affiliates excludes only those shares
beneficially owned by officers, directors and shareholders beneficially owning
10% or more of the outstanding common stock.

The number of shares
of common stock outstanding on February 28, 2003 was
19,910,200.

DOCUMENTS INCORPORATED BY REFERENCE

|                  |  |                                                                                                    
|----------------- |  | ---------------------------------------------------------------------------------------------------
|                  |  | Documents from which portions are                                                                  
|Part of Form 10-K |  | incorporated by reference                                                                          
|                  |  |                                                                                                    
|Part III          |  | Proxy Statement relating to the registrants Annual
Meeting of Shareholders to be held May 15, 2003

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TABLE OF CONTENTS



|                                         |  |  |  |  |  |  |  | 
|---------------------------------------- |  |  |  |  |  |  |  | 
|PART I                                  
|PART II                                 
|PART III                                
|SIGNATURES                              
|Certification of Chief Executive Officer
|Certification of Chief Financial Officer
|SEVERANCE COMPENSATION AGREEMENT        
|MASTER LEASE                            
|ASSUMPTION OF LEASE                     
|MASTER LEASE                            
|FIRST AMENDMENT TO MASTER LEASE         
|ASSIGNMENT AND ASSUMPTION OF LEASE      
|MASTER LEASE                            
|ASSIGNMENT AND ASSUMPTION OF LEASE      
|MASTER LEASE                            
|FIRST AMENDMENT TO MASTER LEASE         
|ASSIGNMENT AND ASSUMPTION OF LEASE      
|SUBSIDIARIES OF THE COMPANY             
|CONSENT OF KPMG LLP                     
|SECTION 906 CERTIFICATION OF THE CEO    
|SECTION 906 CERTIFICATION OF THE CFO    



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OCHARLEYS INC.




PART I

Item 1. Business.

As of December 29, 2002, we operated 182 OCharleys restaurants in
Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana,
Mississippi, Missouri, North Carolina, Ohio, South Carolina, Tennessee and
Virginia, and six Stoney River Legendary Steaks restaurants in Georgia,
Illinois, Kentucky, and Tennessee. OCharleys is a leading casual dining
restaurant concept known for its high-quality, freshly prepared food, moderate
prices and friendly and attentive customer service. Stoney River Legendary
Steaks restaurants are upscale steakhouses that are intended to appeal to both
upscale casual dining and fine dining customers by offering the high-quality
food and attentive customer service typical of high-end steakhouses at more
moderate prices. On January 27, 2003, we acquired Ninety Nine Restaurant and
Pub, a casual dining restaurant chain based in Woburn, Massachusetts. At
January 27, 2003, Ninety Nine Restaurant and Pub operated 78 restaurants
located in Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and
Vermont. Ninety Nine Restaurant and Pub is known for providing high-quality
food at moderate prices in a comfortable, relaxed atmosphere.

The OCharleys Concept

OCharleys restaurants provide fresh, high quality food in a relaxed,
friendly atmosphere. Our goal is to differentiate our OCharleys restaurants
by exceeding customer expectations as to the quality of food and the
friendliness of service. The key elements of the OCharleys concept include
the following:

Offer High-Quality, Freshly Prepared American Fare.The OCharleys menu
is mainstream, but innovative and distinctive in taste. The OCharleys menu
features approximately 50 items including USDA Choice hand-cut and aged steaks,
baby-back ribs basted with our own tangy BBQ sauce, chicken that is always
fresh and never frozen, fresh salmon and grilled tuna with a spicy ginger
sauce, a variety of fresh-cut salads with special recipe salad dressings and
OCharleys signature caramel pie. All entrees are made from original recipes,
are cooked to order and feature side items in addition to our hot,
freshly-baked yeast rolls. OCharleys restaurants are open seven days a week
and serve lunch, dinner and Sunday brunch. Specialty menu items include
limited-time promotions, OCharleys Express Lunch, daily special selections
and a special kids menu. We are continually developing new menu items for our
OCharleys restaurants to respond to changing customer tastes and preferences.

Provide an Attractive Price-to-Value Relationship.We believe that the
pricing strategy for our OCharleys restaurants, as well as the generous
portions we serve, create an attractive price-to-value relationship. This
strategy, coupled with our high food quality, is intended to appeal to a broad
spectrum of customers from a diverse income base, including mainstream casual
dining customers, as well as upscale casual dining and value oriented
customers. Lunch entrees range in price from $6.99 to $9.99, with dinner
entrees ranging from $6.99 to $16.99. In 2002, the average check per customer,
including beverages, was $9.96 for lunch and $12.74 for dinner.

Ensure a Superior Dining Experience.Our strategy stresses providing
prompt, friendly and attentive service to ensure customer satisfaction. Our
strategy is to staff each restaurant with an experienced management team that
is dedicated to enhancing customer satisfaction and to keep our table-to-server
ratios low. In order to promote customer satisfaction, we adopted the
following strategy, which we refer to as The Promise:



| |  |  | create a friendly, warm environment;                                             
| | - |  | ---------------------------------------------------------------------------------
|
| |  |  | provide prompt food and service;                                                 
|
| |  |  | present a clean, professional appearance; and                                    
|
| |  |  | have the knowledge needed to give each guest the best dining experience possible.

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Our management team, including area supervisors, regional directors and
home office personnel, visit our restaurants frequently in order to reinforce
our commitment to customer service to our restaurant level managers and hourly
employees and communicate with and receive feedback from customers. We also
utilize a mystery shopper program to independently monitor quality control in
areas such as timeliness of service, atmosphere, cleanliness, employee attitude
and food quality. Through the use of customer surveys, we receive valuable
feedback on our restaurants and, where appropriate, respond promptly to
customer comments in order to demonstrate our continuing dedication to customer
satisfaction.

Create a Casual, Neighborhood Atmosphere Through Our Restaurant Design.
We seek to create a casual, neighborhood atmosphere in our OCharleys
restaurants through an open layout and exposed kitchen and by tailoring the
decor of our restaurants to the local community. The prototypical OCharleys
restaurant is a free-standing brick building containing approximately 6,800
internal square feet and seating for approximately 275 customers, including
approximately 52 bar seats. The exterior features old-style red brick, bright
red and green neon borders, multi-colored awnings and attractive landscaping.
The interior is open, casual and well lighted and features warm woods, exposed
brick, color prints and hand-painted murals depicting local history, people,
places and events. In addition, the kitchen design provides flexibility in the
types of food items that can be prepared so that we can adapt to changing
customer tastes and preferences. We periodically update the interior and
exterior of our restaurants to reflect refinements in the concept and respond
to changes in customer tastes and preferences.

Provide an Attractive Operating Environment for Our Employees.We believe
that a well-trained, highly-motivated restaurant management team is critical to
achieving our operating objectives. Our training and compensation systems are
designed to create accountability at the restaurant management level for the
performance of each restaurant. We invest significant resources to train,
motivate and educate our restaurant level managers and hourly employees and
operate an approximately 9,500 square foot management training facility at our
home office in Nashville, Tennessee. Each new manager participates in a
comprehensive ten-week training program that combines hands-on experience in
one of our training restaurants and instruction at the training facility. To
instill a sense of ownership, a portion of the compensation of our
restaurant level managers is based upon restaurant operating results, employee
turnover and mystery shopper reports. This focus on restaurant level operations
is intended to create a single store mentality and provide an incentive for
managers to improve same store sales and restaurant operating results. We
believe our strong focus on employee satisfaction has resulted in a decrease in
our employee turnover rate in each of the past five years. Also, in 2003 we
have implemented improvements to the insurance benefits for our hourly
employees.

Leverage Our Commissary Operations. We operate an approximately 220,000
square foot commissary in Nashville, Tennessee through which we purchase and
distribute a substantial majority of the food products and supplies for our
OCharleys and Stoney River restaurants. The commissary operates a
USDA-approved and inspected facility at which we age and cut our beef and a
production facility at which we prepare the yeast rolls, salad dressings and
sauces served in our OCharleys and Stoney River restaurants. We believe our
commissary enhances restaurant operations by maintaining consistent food
quality, helping to ensure reliable distribution services to our restaurants
and simplifying our restaurant managers food cost management responsibilities.
We attribute the decreases in food cost as a percentage of our restaurant
sales over the past four years, in part, to the financial leverage generated
from the increased purchasing volumes and operating efficiencies of our
commissary. We believe our Nashville commissary has sufficient capacity to
meet a substantial majority of the distribution needs of our existing and
planned OCharleys and Stoney River restaurants for the next several years.

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Pursue Disciplined Growth Strategy. During 2002, we opened 24 new
OCharleys restaurants in the following markets:

|                             |  |                         
|---------------------------- |  | ------------------------
|Atlanta, Georgia (2)         |  | Lexington, Kentucky     
|Augusta, Georgia             |  | Louisville, Kentucky    
|Biloxi, Mississippi          |  | Mobile, Alabama         
|Cincinnati, Ohio             |  | Monroe, Louisiana       
|Columbia, South Carolina (2) |  | Nashville, Tennessee (2)
|Dayton, Ohio (2)             |  | Paducah, Kentucky       
|Fort Wayne, Indiana          |  | Richmond, Virginia      
|Indianapolis, Indiana (2)    |  | Roanoke, Virginia       
|Jacksonville, Florida        |  | St. Louis, Missouri     
|Knoxville, Tennessee         |  |                         

We plan to open 27 to 29 OCharleys restaurants in 2003. We intend to
continue to develop new OCharleys restaurants in our target markets,
primarily in the Southeast and Midwest. Our target markets include both
metropolitan markets and smaller markets in close proximity to metropolitan
markets where we have a significant presence. Our strategy is to cluster our
new restaurants to enhance supervisory, marketing and distribution
efficiencies.

Management devotes significant time and resources to analyzing prospective
restaurant sites and gathering appropriate cost, demographic and traffic data.
We utilize an in-house construction and real estate department to
oversee the development of architectural and engineering plans and new construction. While we
prefer to develop restaurants based on our prototype OCharleys restaurant, we
from time to time develop OCharleys restaurants in existing buildings. Our
ability to remodel an existing building into an OCharleys restaurant can
permit greater accessibility to quality sites in more developed markets.

The Stoney River Legendary Steaks Concept

Stoney River restaurants are upscale steakhouses that are intended to
appeal to both upscale casual dining and fine dining customers by offering the
high-quality food and attentive customer service typical of high-end
steakhouses at more moderate prices. Stoney River restaurants have an upscale
mountain lodge design with a large stone fireplace, plush sofas and rich woods
that make the interior of the restaurant inviting and comfortable. The menu
features hand-cut, premium midwestern beef along with fresh seafood and a
variety of other gourmet entrees. An extensive assortment of freshly prepared
salads and side dishes is available a la carte. The menu also includes several
specialty appetizers and desserts. The price range of entrees is $16.95 to
$29.95. In 2002, the average check per customer was $37.11. Stoney River
restaurants are open for dinner during the week and opening times on the
weekend vary by location with some opening at noon and others opening in the
early afternoon. During 2002, we opened three new Stoney River restaurants,
one each in Chicago, Louisville, and Nashville. We plan to open up to two Stoney
River restaurants in 2003. Our growth strategy for the Stoney River concept is
to concentrate on major metropolitan markets in the Southeast and Midwest with
disciplined, controlled development and the potential to accelerate development
over the next several years. At December 29, 2002, we operated six Stoney
River restaurants in Georgia, Illinois, Kentucky and Tennessee.

We have established a managing partner program for the general managers
of our Stoney River restaurants pursuant to which each general manager has
acquired a 6% interest in the subsidiary that owns the restaurant that the
general manager manages in exchange for a capital contribution to that
subsidiary. We have also entered into a five-year employment agreement with
each general manager. During the five-year employment term, each general
manager is prohibited from selling or otherwise transferring his or her 6%
interest. Upon the fifth anniversary of the general managers capital
contribution to the subsidiary, we have the option, but not the obligation, to
purchase the general managers 6% interest for fair market value. In the event
the general managers employment with us terminates prior to the expiration of
the five-year term of his employment agreement, we have the option, but not the
obligation, to purchase the general managers 6% interest. In addition, the
general managers 6% interest is subject to forfeiture based on certain events.

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The Ninety Nine Restaurant and Pub Concept

On January 27, 2003, we acquired Ninety Nine Restaurant and Pub, a casual
dining chain based in Woburn, Massachusetts. We acquired Ninety Nine
Restaurant and Pub for $116 million in cash and approximately 2.35 million
shares of our common stock, plus the assumption of certain liabilities. In
addition to the purchase price, we have agreed to pay a total of $1.0 million
per year, plus accrued interest, on each of January 1, 2004, 2005, 2006 and
2007, to certain key employees of Ninety Nine who we continue to employ at the
time of such payments. Of the stock portion of the purchase price, we
delivered approximately 941,000 shares at closing, and will deliver
approximately 408,000 shares on each of the first, second, and third
anniversaries of the closing and 94,000 shares on each of the fourth and fifth
anniversaries of the closing.

At January 27, 2003, Ninety Nine operated 78 restaurants located in
Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont.
Ninety Nine has earned a reputation for providing high quality food at moderate
prices in a comfortable, relaxed atmosphere. The menu features a wide selection
of appetizers, salads, sandwiches, burgers, entrees and desserts, all served in
generous portions. The prototype Ninety Nine restaurant is a freestanding,
wood building containing approximately 5,500 internal square feet and seating
for 170 customers. Signature elements of the Ninety Nine prototype restaurant
include an open view kitchen, booth seating, walls covered with historical
local community memorabilia and a self-enclosed, centrally located rectangle
bar. The restaurants interior features slate floors, low ceilings and natural
woods, designed to create a cozy, friendly and warm atmosphere. Ninety Nine
has expanded through developing new prototype locations as well as through
remodeling both traditional and non-traditional restaurant locations.

Ninety Nine operates a 20,000-square-foot commissary and purchasing
operation located in Woburn, Massachusetts through which we purchase and
distribute food products and supplies for our Ninety Nine restaurants. The
commissary operates a USDA-approved and inspected meat facility at which we cut
beef and a production facility at which we prepare the meats, signature soups,
sauces and marinades served in our Ninety Nine restaurants. We believe that our
Woburn, Massachusetts commissary enhances the operations of our Ninety Nine
restaurants by maintaining consistent quality, helping to ensure reliable
distribution services to our restaurants and simplifying our restaurant
managers food cost management responsibilities.

OCharleys Restaurant Operations

Restaurant Management.Each OCharleys restaurant requires an effective
management team in order to ensure high quality food and attentive service.
Each restaurant typically has five to six managers (a general manager, two to
three assistant managers, a kitchen manager and an assistant kitchen manager)
and an average of approximately 80 full-time and part-time employees. We employ
area supervisors who have day-to-day responsibility for the operating
performance of approximately three to seven OCharleys restaurants. Our nine
regional directors each currently supervise 12 to 25 restaurants in their
respective regions and are directly involved in the development of new
OCharleys restaurants. Our Concept President-OCharleys oversees all
OCharleys restaurant operations.

As an incentive for restaurant managers to improve sales and operating
efficiency, we have a monthly incentive compensation plan. Pursuant to this
plan, each member of the restaurant management team may earn a bonus, payable
during each four-week accounting period, based on a percentage of the sales of
the restaurant for which the manager has responsibility. The monthly bonus is
earned when budgeted and prior year financial results are exceeded, subject to
adjustment based upon same store sales increases and certain operating
performance factors. We also offer a restaurant management stock option program
pursuant to which each member of the restaurant management team is eligible to
receive annual grants of options upon the attainment of certain
performance-based goals.

We also provide a compensation plan that gives general managers of our
OCharleys restaurants an opportunity to participate in the growth of their
restaurant and our company. Pursuant to this compensation plan, general
managers receive a competitive minimum base salary, are eligible to receive a
bonus calculated quarterly and paid annually, and receive long-term stock
options that provide an incentive for general managers to improve restaurant
level operating results. The annual bonuses are based on the attainment of
certain performance targets that the managers establish each year for their own
restaurants.

We believe that our compensation plans, particularly the bonus plans,
encourage the general managers to establish

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and implement an annual strategy. Area supervisors, regional directors and
senior management also are eligible to receive performance based cash bonuses
and participate in the senior management stock program pursuant to which they
receive stock options, the vesting of which can be accelerated based on our
achievement of certain specified financial targets.

Recruiting and Training.We emphasize the careful selection and training
of all restaurant employees. The restaurant management recruiting and training
program begins with an evaluation and screening program. In addition to
multiple interviews and background and experience verification, we conduct a
testing procedure designed to identify those applicants who we believe are well
suited to manage restaurant operations. Management trainees are required to
complete a ten-week training program, a portion of which is conducted at our
training center in Nashville, Tennessee. The training facility has a
theater-style auditorium, facilities for operational and information services
training and an area for team-building exercises. The program familiarizes new
managers with the responsibilities required at an individual restaurant and
with our operations, management objectives, controls and evaluation criteria
before they assume restaurant management responsibility. Each new hourly
employee is trained by an in-restaurant trainer called an ETE (Educator
Through Excellence). Each restaurant has approximately 15 ETEs who are
qualified and tested in their area of responsibility. Restaurant level
management is responsible for the hiring and training of servers and kitchen
staff, but they typically involve hourly employees in the process.

Commissary Operations

We operate an approximately 220,000 square foot commissary in Nashville,
Tennessee and an approximately 20,000 square foot commissary in Woburn,
Massachusetts through which we purchase and distribute a substantial majority
of the food products and supplies for our restaurants. Our commissaries
operate USDA-approved and inspected facilities at which we cut our beef and
production facilities at which we manufacture soups, salad dressings, sauces
and other food products and supplies. Our commissaries primarily service our
restaurants; however, our Nashville commissary also sells food products and
supplies to certain other customers, including retail grocery chains, mass
merchandisers and wholesale clubs. Food products and other restaurant supplies
are distributed to our restaurants each week by our trucks. Seafood and some
produce, which require more frequent deliveries, are typically purchased
locally by restaurant management to ensure freshness.

We believe our commissaries enhance restaurant operations by maintaining
consistent food quality, helping to ensure reliable distribution services to
our restaurants and simplifying our restaurant managers food cost management
responsibilities by negotiating prices on food items and supplies for our
restaurants. We set food and other product quality standards for our
restaurants, and our commissaries negotiate directly with food manufacturers
and other suppliers to obtain lower prices for those items through volume
purchasing.

OCharleys Support Operations

Quality Control.We use written customer evaluations, which are available
to customers in the restaurants, as a means of monitoring customer
satisfaction. We also employ a mystery shopper program to independently
monitor quality control in areas such as timeliness of service, atmosphere,
cleanliness, employee attitude and food quality. In addition, our customer
service department receives calls from customers and, when necessary, routes
comments to the appropriate personnel.

Advertising and Marketing.We have an ongoing advertising and marketing
plan for the development of television, radio and newspaper advertising for our
OCharleys restaurants and also use point of sale and local restaurant
marketing. We focus our marketing efforts on building brand loyalty and
emphasizing the distinctiveness of the OCharleys atmosphere and menu
offerings. We conduct annual studies of changes in customer tastes and
preferences and are continually evaluating the quality of our menu offerings.
During 2002, our advertising expenses were approximately 3.4% of restaurant
sales. In addition to advertising, we encourage unit level personnel to become
active in their communities through local charities and other organizations and
sponsorships.

Restaurant Reporting.Our use of technology and management information
systems is essential for the management oversight needed to produce strong
operating results. We maintain operational and financial controls in each
restaurant, including management information systems to monitor sales,
inventory, and labor, that provide reports and data to our home office. The
management accounting system polls data from our restaurants and generates
daily reports of sales, sales mix, customer counts, check average, cash, labor
and food cost. Management utilizes this data to monitor the effectiveness of

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controls and to prepare periodic financial and management reports. We also
utilize these systems for financial and budgetary analysis, including analysis
of sales by restaurant, product mix and labor utilization.

Real Estate and Construction.We maintain an in-house construction and
real estate department to assist in the site selection process,
oversee the development
of architectural and engineering plans and new construction. We maintain
a broad database of possible sites and our Vice President of Real Estate and
Development and our management team analyze prospective sites. Once a site is
selected, our real estate department oversees the zoning process, obtains
required governmental permits, develops detailed building plans and
specifications and equips the restaurants.

Human Resources.We maintain a human resources department that supports
restaurant operations through the design and implementation of policies,
programs, procedures and benefits for our employees. The human resources
department also includes an employee relations manager and maintains a
toll-free number for employee comments and questions. We conduct annual
Impact meetings at our OCharleys restaurants that provide a forum for
home office management to receive feedback from restaurant managers and hourly
employees. We have had in place for several years a plan to foster diversity
throughout our workforce.

Restaurant Locations

The following table sets forth the markets in which our OCharleys and
Stoney River restaurants were located at December 29, 2002 and in which our
Ninety Nine restaurants were located at January 27, 2003, including the number
of restaurants in each market.

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| |                          |                       |  |           |                |                |           |  |                 |                
| | ------------------------ | --------------------- |  | --------- | -------------- | -------------- | --------- |  | --------------- | ---------------
| | OCharleys Restaurants  |                       |  |           |                |                |           |  |                
| | Alabama                  |                       |  | Kentucky  |                |                | Ohio     
| |                          | Birmingham (6)        |  |           |                | Bowling Green  |           |  |                 | Cincinnati (7) 
| |                          | Decatur               |  |           |                | Cold Spring    |           |  |                 | Columbus (5)   
| |                          | Dothan                |  |           |                | Elizabethtown  |           |  |                 | Dayton (4)     
| |                          | Florence              |  |           |                | Florence       |           |  | South Carolina 
| |                          | Huntsville (2)        |  |           |                | Frankfort      |           |  |                 | Anderson       
| |                          | Mobile (4)            |  |           |                | Hopkinsville   |           |  |                 | Charleston     
| |                          | Montgomery (2)        |  |           |                | Lexington (4)  |           |  |                 | Columbia (3)   
| |                          | Oxford                |  |           |                | Louisville (5) |           |  |                 | Greenville     
| |                          | Tuscaloosa            |  |           |                | Owensboro      |           |  |                 | Greenwood      
| | Arkansas                 |                       |  |           | Paducah        |                |           |  | Rock Hill      
| |                          | Jonesboro             |  |           |                | Richmond       |           |  |                 | Spartanburg    
| | Florida                  |                       |  | Louisiana |                |                | Tennessee
| |                          | Destin                |  |           |                | Monroe         |           |  |                 | Chattanooga (2)
| |                          | Jacksonville          |  |           | Mississippi    |                |           |  | Clarksville (2)
| |                          | Panama City           |  |           |                | Biloxi (2)     |           |  |                 | Cleveland      
| |                          | Pensacola             |  |           |                | Hattiesburg    |           |  |                 | Cookeville     
| | Georgia                  |                       |  |           | Jackson        |                |           |  | Jackson        
| |                          | Atlanta (16)          |  |           |                | Meridian       |           |  |                 | Johnson City   
| |                          | Augusta               |  |           |                | Pearl          |           |  |                 | Kingsport      
| |                          | Canton                |  |           |                | Southhaven     |           |  |                 | Knoxville (6)  
| |                          | Columbus              |  |           |                | Tupelo         |           |  |                 | Memphis (3)    
| |                          | Dalton                |  |           | Missouri       |                |           |  | Morristown     
| |                          | Gainesville           |  |           |                | St. Louis (5)  |           |  |                 | Murfreesboro   
| |                          | Macon (2)             |  |           | North Carolina |                |           |  | Nashville (13) 
| | Illinois                 |                       |  |           | Asheville      |                |           |  | Pigeon Forge   
| |                          | Champaign             |  |           |                | Burlington     |           |  | Virginia       
| |                          | Marion                |  |           |                | Charlotte (6)  |           |  |                 | Bristol        
| |                          | OFallon              |  |           |                | Fayetteville   |           |  |                 | Lynchburg      
| |                          | Springfield (2)       |  |           |                | Greensboro     |           |  |                 | Roanoke (2)    
| | Indiana                  |                       |  |           | Hickory        |                |           |  | Richmond (3)   
| |                          | Bloomington           |  |           |                | Raleigh (4)    |           |  |                 |                
| |                          | Clarksville           |  |           |                | Winston-Salem  |           |  |                 |                
| |                          | Corydon               |  |           |                |                |           |  |                 |                
| |                          | Evansville (2)        |  |           |                |                |           |  |                 |                
| |                          | Fort Wayne            |  |           |                |                |           |  |                 |                
| |                          | Indianapolis (9)      |  |           |                |                |           |  |                 |                
| |                          | Lafayette             |  |           |                |                |           |  |                 |                
|
| | Stoney River Restaurants |                       |  |           |                |                |           |  |                
| |                          | Atlanta, Georgia (2)  |  |           |                | Louisville, KY |           |  |                 |                
| |                          | Chicago, Illinois (2) |  |           |                | Nashville, TN  |           |  |                 |                

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| |                                |                 |  |               |              |               
| | ------------------------------ | --------------- |  | ------------- | ------------ | --------------
| | Ninety Nine Restaurant and Pub |                 |  |              
| | Connecticut                    |                 |  | New Hampshire
| |                                | Hartford (6)    |  |               |              | Concord       
| |                                |                 |  |               |              | Hookset       
| | Maine                          |                 |  |               | Keene       
| |                                | Portland (5)    |  |               |              | Londonderry   
| |                                |                 |  |               |              | Manchester    
| | Massachusetts                  |                 |  |               | North Conway
| |                                | Attleboro       |  |               |              | Nashua        
| |                                | Boston (43)     |  |               |              | Portsmouth    
| |                                | Dartmouth       |  |               |              | Salem         
| |                                | Fairhaven       |  |               |              | Seabrook      
| |                                | Fall River      |  |               |              | Tilton        
| |                                | Pittsfield      |  |               |              |               
| |                                | Seekonk         |  |               | Rhode Island
| |                                | Springfield (4) |  |               |              | Providence (2)
| |                                |                 |  |               |              |               
| |                                |                 |  |               | Vermont     
| |                                |                 |  |               |              | Rutland       

Franchising

We have completed a detailed study of the potential franchising of the
OCharleys concept and, based upon the results of this study, intend to begin
franchising OCharleys restaurants in 2003. We expect to enter into
franchising arrangements with experienced restaurant operators for the
development of OCharleys restaurants in areas that are outside of our current
development and growth plans. Franchisees will be required to comply with our
specifications as to restaurant space, design and décor, menu items, principal
food ingredients, employee training and day-to-day operations.

Service Marks

The name
OCharleys and its logo, the name Stoney River Legendary Steaks, and the Ninety Nine Restaurant and Pub logo are registered
service marks with the United States Patent and Trademark Office. We also have
other service marks that are registered in the states in which we operate. We
are aware of names and marks similar to our service marks used by third parties
in certain limited geographical areas. Use of our service marks by third
parties may prevent us from licensing the use of our service marks for
restaurants in those areas. We intend to protect our service marks by
appropriate legal action whenever necessary.

Government Regulation

We are subject to various federal, state, and local laws affecting our
business. Our commissaries are licensed and subject to regulation by the USDA.
In addition, each of our restaurants is subject to licensing and regulation by
a number of governmental authorities, which may include alcoholic beverage
control, health, safety, sanitation, building, and fire agencies in the state
or municipality in which the restaurant is located. Most municipalities in
which our restaurants are located require local business licenses. Difficulties
in obtaining or failures to obtain the required licenses or approvals could
delay or prevent the development of a new restaurant in a particular area. We
are also subject to federal and state environmental regulations, but those
regulations have not had a material adverse effect on our operations to date.

Approximately 10% of restaurant sales in 2002 was attributable to the sale of alcoholic beverages. Each
restaurant, where permitted by local law, has appropriate licenses from
regulatory authorities allowing it to sell liquor, beer and wine, and in some
states or localities to provide service for extended hours and

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on Sunday. Each restaurant has food service licenses from local health
authorities. Similar licenses would be required for each new restaurant. The
failure of a restaurant to obtain or retain liquor or food service licenses
could adversely affect or, in an extreme case, terminate its operations. We
have established standardized procedures for our restaurants designed to assure
compliance with applicable codes and regulations.

We are subject in most states in which we operate restaurants to
dram-shop statutes or judicial interpretations, which generally provide a
person injured by an intoxicated person the right to recover damages from an
establishment that wrongfully served alcoholic beverages to the intoxicated
person.

The Federal Americans With Disabilities Act prohibits discrimination on
the basis of disability in public accommodations and employment. We design our
restaurants to be accessible to the disabled and believe that we are in
substantial compliance with all current applicable regulations relating to
restaurant accommodations for the disabled.

The development and construction of additional restaurants will be subject
to compliance with applicable zoning, land use and environmental regulations.

Our restaurant operations are also subject to federal and state minimum
wage laws and other laws governing matters such as working conditions,
citizenship requirements, overtime and tip credits. In the event a proposal is
adopted that materially increases the applicable minimum wage, the wage
increase would likely result in an increase in payroll and benefits expense.

Employees

At December 29, 2002, we employed approximately 5,200 full-time and 10,500
part-time employees, approximately 200 of whom were home office management and
staff personnel, approximately 200 of whom were commissary personnel and the
remainder of whom were restaurant personnel. Ninety Nine Restaurant and Pub,
which we acquired on January 27, 2003, employs approximately
2,100 full-time and
2,300 part-time employees, approximately 70 of whom are corporate management and
staff personnel, approximately 30 of whom are commissary personnel and the
remainder of whom are restaurant personnel. None of our employees is covered
by a collective bargaining agreement. We consider our employee relations to be
good.

Risk Factors

Some of the statements we make in this Annual Report on Form 10-K are
forward-looking. Forward-looking statements are generally identifiable by the
use of the words anticipate, will, believe, estimate, expect, plan,
intend, seek or similar expressions. These forward-looking statements
include all statements that are not historical statements of fact and those
regarding our intent, belief, plans or expectations including, but not limited
to, the discussions of our operating and growth strategy, projections of
revenue, income or loss, information regarding future restaurant openings and
capital expenditures, potential increases in food and other operating costs,
and our development, expansion and franchising plans and future operations.
Forward-looking statements involve known and unknown risks and uncertainties
that may cause actual results in future periods to differ materially from those
anticipated in the forward-looking statements. Those risks and uncertainties
include, among others, the risks and uncertainties discussed below. Although we
believe that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of these assumptions could prove to be
inaccurate, and, therefore, there can be no assurance that the forward-looking
statements included in this Annual Report on Form 10-K will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, you should not regard the inclusion
of such information as a representation by us or any other person that our
objectives and plans will be achieved. We do not undertake any 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.

We May Not Be Able to Successfully Complete the Integration of Ninety Nine
Restaurant and Pub, Which Could Adversely Affect Our Business, Financial
Condition and Results of Operations.

On January 27, 2003, we acquired Ninety Nine Restaurant and Pub, a casual
dining restaurant company with 78

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locations in Connecticut, Maine, Massachusetts, New Hampshire, Rhode
Island, and Vermont. The acquisition of Ninety Nine was substantially larger
than any acquisition we have previously completed, and our management team does
not have significant experience integrating the operations of acquired
businesses. In addition, our Ninety Nine restaurants are located in markets in
which we have not historically operated. Achieving the expected benefits of
the Ninety Nine acquisition will depend in large part on our completion of the
integration of Ninety Nines operations and personnel in a timely and efficient
manner. The challenges involved in this integration include the following:



| |  |  | persuading employees of Ninety Nine that our business cultures are
compatible and maintaining employee morale;                     
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | retaining the senior management team of Ninety Nine, many of whom
received significant payments in connection with the acquisition;
|
| |  |  | maintaining a workforce over expanded geographic locations; and                                                                    
|
| |  |  | consolidating corporate, commissary, information technology and administrative infrastructures.                                    

If we cannot overcome the challenges we face in completing the integration
of Ninety Nine, our ability to effectively and profitably manage Ninety Nines
business could suffer. We cannot assure you that our Ninety Nine Restaurant
and Pub restaurants will generate revenues or profit margins consistent with
prior years. Moreover, the integration process itself may be disruptive to our
business, as it will divert the attention of management from its normal
operational responsibilities and duties. We cannot offer any assurance that we
will be able to successfully integrate Ninety Nines operations or personnel or
realize the anticipated benefits of the acquisition. Our failure to
successfully complete the integration of Ninety Nine could harm our business,
financial condition and results of operations.

Our Continued Growth Depends On Our Ability To Open New Restaurants And
Operate Our New Restaurants Profitably.

A significant portion of our historical growth has been due to opening new
restaurants. We opened 24 new OCharleys restaurants and three new Stoney
River restaurants in 2002 and plan to open 27 to 29 additional OCharleys
restaurants, approximately ten Ninety Nine restaurants and approximately two
Stoney River restaurants during 2003. Our ability to open new restaurants will
depend on a number of factors, such as:



| |  |  | the selection and availability of quality restaurant sites;                                                                                                                                                            
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to negotiate acceptable lease or purchase terms;                                                                                                                                                           
|
| |  |  | our ability to hire, train and retain the skilled management and
other personnel necessary to open new restaurants;                                                                                                    
|
| |  |  | our ability to secure the governmental permits and approvals required
to open new restaurants;                                                                                                                         
|
| |  |  | our ability to manage the amount of time and money required to build
and open new restaurants, including the possibility that adverse weather
conditions may delay construction and the opening of new restaurants;
and
|
| |  |  | the availability of adequate financing.                                                                                                                                                                                

Many of these factors are beyond our control. We cannot assure you that we
will be successful in opening new restaurants in accordance with our current
plans or otherwise or that our rate of future growth, if any, will not decline
from our recent historical growth rates. Furthermore, we cannot assure you that
our new restaurants will generate revenues or profit margins consistent with
those of our existing restaurants, or that the new restaurants will be operated
profitably. In May 2000, we acquired the Stoney River Legendary Steaks
concept, including two Stoney River restaurants in suburban Atlanta. We
currently operate six Stoney River restaurants. On January 27, 2003, we
acquired Ninety Nine Restaurant and Pub, including 78 Ninety Nine Restaurant
and Pub restaurants. We cannot assure you that we will be able to operate
these restaurants profitably.

Our Growth May Strain Our Management And Infrastructure, Which Could Slow
Our Development Of New Restaurants And Adversely Affect Our Ability To Manage
Existing Restaurants.

Our growth has placed significant demands upon our management. We also
face the risk that our existing systems and procedures, restaurant management
systems, financial controls, and information systems will be inadequate to
support our planned growth. We cannot predict whether we will be able to
respond on a timely basis to all of the changing demands that

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our planned growth will impose on management and these systems and
controls. In May 2000, we acquired the Stoney River Legendary Steaks concept.
In January 2003, we acquired the Ninety Nine Restaurant and Pub concept. The
development of the Stoney River concept and the integration and operation of
the Ninety Nine concept will place significant demands on our management. These
demands on our management and systems could also adversely affect our ability
to manage our existing restaurants. If our management is unable to meet these
demands or if we fail to continue to improve our information systems and
financial controls or to manage other factors necessary for us to achieve our
growth objectives, our operating results or cash flows could be materially
adversely affected.

Unanticipated Expenses And Market Acceptance Could Affect The Results Of
Restaurants We Open In New And Existing Markets.

As part of our growth plans, we may open new restaurants in areas in which
we have little or no operating experience and in which potential customers may
not be familiar with our restaurants. As a result, we may have to incur costs
related to the opening, operation and promotion of those new restaurants that
are substantially greater than those incurred in other areas. Even though we
may incur substantial additional costs with these new restaurants, they may
attract fewer customers than our more established restaurants in existing
markets. As a result, the results of operations at new restaurants may be
inferior to those of our existing restaurants. The new restaurants may even
operate at a loss.

Another part of our growth plan is to open restaurants in markets in which
we already have existing restaurants. We may be unable to attract enough
customers to the new restaurants for them to operate at a profit. Even if we
are able to attract enough customers to the new restaurants to operate them at
a profit, those customers may be former customers of one of our existing
restaurants in that market and the opening of a new restaurant in the existing
market could reduce the revenue of our existing restaurants in that market.

We May Experience Higher Operating Costs, Which Would Adversely Affect Our
Operating Results If We Cannot Increase Menu Prices To Cover Them.

Our operating results are significantly dependent on our ability to
anticipate and react to increases in food, labor, employee benefits and other
costs. The cost of many items we serve in our restaurants are subject to
seasonal fluctuations, weather, demand and other factors. We compete with other
restaurants for experienced management personnel and hourly employees. Given
the low unemployment rates in certain areas in which we operate, we will likely
be required to continue to enhance our wage and benefits package in order to
attract qualified management and other personnel. For example, we recently
announced that we will offer expanded medical benefits for our hourly
employees. In addition, any increase in the federal minimum wage rate would
likely cause an increase in our labor costs. We cannot assure you that we will
be able to anticipate and react to changing costs through our purchasing and
hiring practices or menu price increases. As a result, increases in operating
costs could have a material adverse effect on our business and could decrease
our profitability and the cash available to service our debt obligations.

We have completed a feasibility study on franchising our OCharleys
restaurant concept and have begun marketing the franchise concept, but we do
not believe we will generate any significant revenue or profits in 2003 related
to our franchising activities. We may continue to experience expenditures and
losses in implementing our franchising initiative until such time, if ever,
that we generate sufficient revenue to cover these expenditures.

We Could Face Labor Shortages That Could Adversely Affect Our Results Of
Operations.

Our success depends in part upon our ability to attract, motivate and
retain a sufficient number of qualified employees, including restaurant
managers, kitchen staff and servers, necessary to continue our operations and
to keep pace with our growth. Qualified individuals of the requisite caliber
and quantity needed to fill these positions are in short supply. Given the low
unemployment rates in certain areas in which we operate, we may have difficulty
hiring and retaining qualified management and other personnel. Any inability to
recruit and retain sufficient qualified individuals may adversely affect
operating results at existing restaurants and delay the planned openings of new
restaurants. Any delays in opening new restaurants or any material increases in
employee turnover rates in existing restaurants could have a material adverse
effect on our business, financial condition, operating results or cash flows.
Additionally, we have increased wages and benefits to attract a sufficient
number of competent employees, resulting in higher labor costs.

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Fluctuations In Our Operating Results And Other Factors May Result In Decreases
In Our Stock Price.

In recent periods, the stock markets have experienced extreme volatility
that has often been unrelated to the operating performance of particular
companies. These broad market fluctuations may adversely affect the trading
price of our common stock. From time to time, there may be significant
volatility in the market price of our common stock. If we are unable to
operate our restaurants as profitably as we have in the past, develop
restaurants at a pace that reflects the expectations of the market or
successfully integrate the operations of Ninety Nine, investors could sell
shares of our common stock at or after the time that it becomes apparent that
the expectations of the market may not be realized, resulting in a decrease in
the market price of our common stock.

In addition to our operating results, the operating results of other
restaurant companies, changes in financial estimates or recommendations by
analysts, speculation in the press or investment community, future sales of our
common stock, the outbreak of war or other hostilities, adverse weather
conditions, which can reduce the number of customers visiting our restaurants,
increase operating costs and delay the construction and opening of new
restaurants, federal or state legislative, licensing or regulatory changes with
respect to zoning, land use, environmental factors, labor, alcoholic beverage
control, health and sanitation, changes in general conditions in the economy or
the financial markets or other developments affecting us or our industry, such
as outbreaks of food-related disease, could cause the market price of our
common stock to fluctuate substantially. In recent years, the stock market has
experienced extreme price and volume fluctuations. This volatility has had a
significant effect on the market prices of securities issued by many companies
for reasons unrelated to their operating performance.

Our Restaurants Are Concentrated Geographically; If Any One Of The Regions
In Which Our Restaurants Are Located Experiences An Economic Downturn, Adverse
Weather Or Other Material Change, Our Business Results May Suffer.

Our OCharleys restaurants are located predominately in the Southeastern
and Midwestern United States. Our Ninety Nine restaurants are located in the
Northeastern United States. We operate 35 of our 186 OCharleys restaurants
in Tennessee and 53 of our 78 Ninety Nine restaurants in
Massachusetts, including 43 in the greater Boston area. As a
result, our business and our financial or operating results may be materially
adversely affected by adverse economic, weather or business conditions in these
markets, as well as in other geographic regions in which we locate restaurants.

Our Future Performance Depends On Our Senior Management Who Are
Experienced In Restaurant Management And Who Could Not Easily Be Replaced With
Executives Of Equal Experience And Capabilities.

We depend significantly on the services of Gregory L. Burns, our Chief
Executive Officer, Steven J. Hislop, our President and Chief Operating Officer,
and A. Chad Fitzhugh, our Chief Financial Officer. We also depend
significantly on the services of each of our Concept Presidents, including
Charles F. Doe, Jr., our Concept President-Ninety Nine Restaurant and Pub. Mr.
Doe received significant payments at the time of our acquisition of Ninety
Nine, and we do not have an employment agreement with Mr. Doe. If we lose the
services of members of our senior management for any reason, we may be unable
to replace them with qualified personnel, which could have a material adverse
effect on our business and development. We do not have employment agreements
with any of our executive officers and we do not carry key person life
insurance on any of our executive officers.

Our Restaurants May Not Be Able To Compete Successfully With Other
Restaurants, Which Could Adversely Affect Our Results Of Operations.

If our restaurants are unable to compete successfully with other
restaurants in new and existing markets, our results of operations will be
adversely affected. The restaurant industry is intensely competitive with
respect to price, service, location and food quality, and there are many
well-established competitors with substantially greater financial and other
resources than us, including a large number of national and regional restaurant
chains. Some of our competitors have been in existence for a substantially
longer period than us and may be better established in the markets where our
restaurants are or may be located.

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To the extent that we open restaurants in larger cities and metropolitan
areas, we expect competition to be more intense in those markets. We also
compete with other restaurants for experienced management personnel and hourly
employees and with other restaurants and retail establishments for quality
sites.

Changing Consumer Preferences And Discretionary Spending Patterns Could
Force Us To Modify Our Concepts And Menus And Could Result In A Reduction In
Our Revenues.

Even if we are able to compete successfully with other restaurant
companies, we may be forced to make changes in our concepts and menus in order
to respond to changes in consumer tastes or dining patterns. Consumer
preferences could be affected by health concerns about the consumption of beef,
the primary item on our Stoney River menu, or by specific events such as E.
coli food poisoning or outbreaks of mad cow, foot and mouth or other
diseases. If we change a restaurant concept or menu, we may lose customers who
do not prefer the new concept or menu, and may not be able to attract a
sufficient new customer base to produce the revenue needed to make the
restaurant profitable. In addition, we may have different or additional
competitors for our intended customers as a result of a concept change and may
not be able to compete successfully against those competitors. Our success also
depends on numerous factors affecting discretionary consumer spending,
including economic conditions, disposable consumer income and consumer
confidence. Adverse changes in these factors could reduce guest traffic or
impose practical limits on pricing, either of which could reduce our revenues
and profitability.

Any Disruption In The Operation Of Our Commissaries Could Adversely Affect
Our Ability To Operate Our Restaurants

We operate commissaries in Nashville, Tennessee and Woburn, Massachusetts
through which we purchase and distribute a substantial majority of the food
products and supplies for our restaurants. If the operations of our
commissaries are disrupted, we may not be able to deliver food and supplies to
our restaurants. If our commissaries are unable to deliver the food products
and supplies required to run our restaurants, we may not be able to find other
sources of food or supplies, or, if alternative sources of food or supplies are
located, our operating costs may increase. Accordingly, any disruption in the
operation of our commissaries could adversely affect our ability to operate our
restaurants and our results of operations.

We May Incur Costs Or Liabilities And Lose Revenue As The Result Of
Government Regulation.

Our restaurants are subject to extensive federal, state and local
government regulation, including regulations related to the preparation and
sale of food, the sale of alcoholic beverages, zoning and building codes, and
other health, sanitation and safety matters. All of these regulations impact
not only our current restaurant operations but also our ability to open new
restaurants. We will be required to comply with applicable state and local
regulations in 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 would materially and
adversely affect our growth and results of operations. In addition, our
commissaries are licensed and subject to regulation by the United States
Department of Agriculture and are subject to further regulation by state and
local agencies. Our failure to obtain or retain federal, state or local
licenses for our commissaries or to comply with applicable regulations could
adversely affect our commissary operations and disrupt delivery of food and
other products to our restaurants. If one or more of our restaurants was unable
to serve alcohol or food for even a short time period, we could experience a
reduction in our overall revenue.

The costs of operating our restaurants may increase if there are changes
in laws governing minimum hourly wages, workers compensation insurance rates,
unemployment tax rates, sales taxes or other laws and regulations, such as the
federal Americans with Disabilities Act, which governs access for the disabled.
If any of the above costs increase, we cannot assure you 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.

Restaurant Companies Have Been The Target Of Class Actions And Other
Lawsuits Alleging Violations Of Federal And State Law.

We are subject to the risk that our results of operations may be adversely
affected by legal or governmental

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proceedings brought by or on behalf of our employees or customers. In
recent years, a number of restaurant companies have been subject to lawsuits,
including class action lawsuits, alleging violations of federal and state law
regarding workplace and employment matters, discrimination and similar matters.
A number of these lawsuits have resulted in the payment of substantial damages
by the defendants. Similar lawsuits have been instituted against us from time
to time and we cannot assure you that we will not incur substantial damages and
expenses resulting from lawsuits of this type, which could have a material
adverse effect on our business.

We May Incur Costs Or Liabilities As A Result Of Litigation And Publicity
Concerning Food Quality, Health And Other Issues That Can Cause Customers To
Avoid Our Restaurants.

We are sometimes the subject of complaints or litigation from customers
alleging illness, injury or other food quality or health concerns. Litigation
or adverse publicity resulting from these allegations may materially adversely
affect us or our restaurants, regardless of whether the allegations are valid
or whether we are liable. In addition, our restaurants are subject in each
state in which we operate to dram shop laws that allow a person to sue us if
that person was injured by an intoxicated person who was wrongfully served
alcoholic beverages at one of our restaurants. A lawsuit under a dram shop law
or alleging illness or injury from food may result in a verdict in excess of
our liability insurance policy limits, which could result in substantial
liability for us and may have a material adverse effect on our results of
operations.

Our Business May Be Adversely Affected By Our Leverage And Our Obligations
Under Capital And Operating Leases.

Our financial performance could be affected by our level of debt. We
entered into new senior credit facilities in connection with our acquisition of
Ninety Nine which significantly increased our debt. As of December 29, 2002
and after giving effect to the acquisition of Ninety Nine, the total amount of
our long-term debt and capitalized lease obligations, including current
portion, was approximately $249 million. In addition, as of December 29, 2002
and after giving effect to the acquisition of Ninety Nine, we were a party to
operating leases requiring approximately $146 million in minimum future lease
payments. In addition, we intend to continue to make borrowings under our
revolving credit facility in connection with the development of new restaurants
and for other general corporate purposes, and we expect the aggregate amount of
our indebtedness and capitalized and operating lease obligations will increase,
perhaps substantially.

The amount of our indebtedness and lease obligations could have important
consequences to investors, including the following:



| |  |  | our ability to obtain additional financing in the future may be
impaired;                                                                                                                                                                        
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a substantial portion of our cash flow from operations must be
applied to pay principal and interest on our indebtedness and lease
payments under capitalized and operating leases, thus reducing funds
available for other purposes;            
|
| |  |  | some of our borrowings, including borrowings under our revolving
credit and term loan facility, are and will continue to be at variable
rates based upon prevailing interest rates, which will expose us to the
risk of increased interest rates;
|
| |  |  | we may be substantially more leveraged than some of our competitors,
which may place us at a competitive disadvantage; and                                                                                                                       
|
| |  |  | our leverage may limit our flexibility to adjust to changing market
conditions, reduce our ability to withstand competitive pressures and
make us more vulnerable to a downturn in general economic conditions or
our business.                  

We Are Subject To Restrictive Covenants, Which May Restrict Our
Operational Flexibility.

Our senior credit facilities contain covenants that restrict our ability
to incur additional indebtedness, pay dividends on and redeem capital stock,
make other restricted payments, including investments, sell our assets and
enter into consolidations, mergers and transfers of our assets. Our senior
credit facilities also require us to satisfy financial ratio tests. In
addition, certain of our lease agreements contain restrictive covenants. Our
ability to meet those financial ratio tests and restrictive covenants can be
affected by events beyond our control and we cannot assure you that we will
continue to meet those tests in the future. The failure to comply with any of
these covenants would cause a default under our credit facilities. Any of
these defaults, if not waived, could result in the acceleration of all of our
debt, in which case the debt would become

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immediately due and payable. If this occurs, we may not be able to repay our
debt or borrow sufficient funds to refinance it. Even if new financing were
available, it may not be on terms that are acceptable to us.

Our Shareholder Rights Plan, Charter And Bylaws And Tennessee Law Could
Delay Or Prevent A Change In Control Of Our Company That Our Shareholders
Consider Favorable.

We have a shareholder rights plan that may have the effect of discouraging
unsolicited takeover proposals. The rights issued under the shareholder rights
plan would cause substantial dilution to a person or group that attempts to
acquire us on terms not approved in advance by our board of directors. In
addition, provisions in our charter and bylaws and Tennessee law may
discourage, delay or prevent a merger, acquisition or change in control
involving our company that our shareholders may consider favorable. These
provisions could also discourage proxy contests and make it more difficult for
shareholders to elect directors and take other corporate actions. Among other
things, these provisions:



| |  |  | authorize us to issue preferred stock, the terms of which may be
determined at the sole discretion of our board of directors and may
adversely affect the voting or economic rights of our common
shareholders;                                                  
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | provide for a classified board of directors with staggered three year
terms so that no more than one-third of our directors could be replaced
at any annual meeting;                                                                                             
|
| |  |  | provide that directors may be removed only for cause;                                                                                                                                                                                                            
|
| |  |  | provide that any amendment or repeal of the provisions of our charter
establishing our classified board of directors and concerning the
removal of directors must be approved by the affirmative vote of the
holders of two-thirds of our outstanding shares; and
|
| |  |  | establish advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
shareholders at a meeting.                                                                                         

We also have severance agreements with certain members of our senior
management and we are subject to anti-takeover provisions under Tennessee law.
These provisions of our charter and bylaws, Tennessee law, our shareholder
rights plan and the severance agreements may discourage transactions that
otherwise could provide for the payment of a premium over prevailing market
prices for our common stock and also could limit the price that investors are
willing to pay in the future for shares of our common stock.

We May Issue A Substantial Number Of Shares Of Our Common Stock Under Our
Stock Option And Stock Purchase Plans, And Shareholders May Be Adversely
Affected By The Issuance Of Those Shares.

As of December 29, 2002 and after giving effect to options granted to
employees of Ninety Nine upon the consummation of the acquisition, options to
purchase 4.1 million shares of our common stock, representing 16.1% of our
shares and options outstanding at that date after giving effect to the stock
issuable in connection with the acquisition of Ninety Nine, were outstanding.
These options had a weighted average exercise price of $13.59 per share. As of
December 29, 2002 and after giving effect to options granted to employees of
Ninety Nine, we had an additional 1.8 million shares authorized for issuance
under our stock purchase and stock option plans which represented 7.2% of our
outstanding shares and options at December 29, 2002 after giving effect to the
stock issuable in connection with the acquisition of Ninety Nine. We believe
that the issuance of stock options is an important tool to motivate our
employees and align their interests with those of our shareholders and we
intend to continue issuing stock options to our employees. We believe that the
shares authorized for issuance under our plans will be sufficient to cover
awards to our employees through at least 2003, although there can be no
assurance in this regard. The issuance of significant additional shares of our
common stock upon the exercise of outstanding options or otherwise pursuant to
these stock plans could have a material adverse effect on the market price of
our common stock and could significantly dilute the interests of other
shareholders. In addition, in connection with our acquisition of Ninety Nine,
we are obligated to issue approximately 1.4 million shares of our common stock
to the prior owners of Ninety Nine over the five-year period which began on
January 27, 2003. The future issuances of these shares will dilute the
interests of other shareholders and could adversely affect the market price of
our common stock.

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Executive Officers of the Registrant

Our executive officers are elected by the board of directors and serve at
the pleasure of the board of directors. The following table sets forth certain
information regarding our executive officers.

|                     |  |     |    |          |  |                                                  
|-------------------- |  | --- | -- | -------- |  | -------------------------------------------------
|Name                 |  | Age |    | Position
|                     |  |     |    |         
|Gregory L. Burns     |  |     | 48 |          |  | Chief Executive Officer and Chairman of the Board
|                     |  |     |    |          |  |                                                  
|Steven J. Hislop     |  |     | 43 |          |  | President and Chief Operating Officer            
|                     |  |     |    |          |  |                                                  
|A. Chad Fitzhugh     |  |     | 42 |          |  | Chief Financial Officer, Secretary, and Treasurer
|                     |  |     |    |          |  |                                                  
|William E. Hall, Jr. |  |     | 48 |          |  | Concept President-OCharleys                    
|                     |  |     |    |          |  |                                                  
|Herman A. Moore, Jr. |  |     | 51 |          |  | President, Commissary Operations                 
|                     |  |     |    |          |  |                                                  
|Charles F. Doe, Jr.  |  |     | 42 |          |  | Concept President-Ninety Nine Restaurant and Pub 
|                     |  |     |    |          |  |                                                  
|R. Jeffrey Williams  |  |     | 36 |          |  | Corporate Controller                             

The following is a brief summary of the business experience of each of our
executive officers.

Gregory L. Burnshas served as Chairman of the Board and Chief Executive
Officer since February 1994. Mr. Burns, a director since 1990, served as
President from September 1996 to May 1999 and from May 1993 to February 1994,
as Chief Financial Officer from October 1983 to September 1996, and as
Executive Vice President and Secretary from October 1983 to May 1993.

Steven J. Hislophas served as President since May 1999, as Chief
Operating Officer since March 1997 and as a director since March 1998. From
March 1997 until May 1999, Mr. Hislop served as an Executive Vice President of
our company. Mr. Hislop served as Senior Vice President  Operations from
January 1993 to March 1997, and as Vice President  Operations from April 1990
to January 1993.

A. Chad Fitzhughhas served as Chief Financial Officer since September 10,
1996, as Secretary since May 1993, and as Treasurer since April 1990. He
served as our Controller from 1987 until his appointment as Chief Financial
Officer. Mr. Fitzhugh is a certified public accountant.

William E. Hall, Jr. has served as Concept President-OCharleys since
December 2002. Mr. Hall served as Executive Vice President, Operations from
September 1999 to December 2002. Mr. Hall served as Vice President, Operations
from March 1997 to September 1999, as Director of Operations from December 1996
to March 1997, as a Regional Director from July 1992 to December 1996, and as
an Area Supervisor from May 1991 to July 1992.

Herman A. Moore, Jr.has served as President, Commissary Operations since
December 2002. Mr. Moore served as Vice President, Commissary Operations from
January 1996 to December 2002. Mr. Moore served as Director of Commissary
Operations from 1988 to January 1996.

Charles F. Doe, Jr. has served as Concept President-Ninety Nine Restaurant
and Pub since February 2003. Mr. Doe served as President of Ninety Nine
Restaurant and Pub from 1991 until we acquired Ninety Nine Restaurant and Pub.
Mr. Doe served in various capacities in the Operations and Real Estate
departments for Ninety Nine Restaurant and Pub prior to 1991.

R. Jeffrey Williamshas served as Corporate Controller since February
2003. Mr. Williams served as Controller for the OCharleys Concept from July
2001 to February 2003. Mr. Williams served as Controller of The Krystal
Company from July 2000 to July 2001. Mr. Williams served as a Director of
Financial Planning and Analysis for CBRL Group, Inc. from

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##### Table of Contents



July 1999 to July 2000 and as Accounting Manager for CBRL Group, Inc from
November 1996 to July 1999. Mr. Williams is a certified public accountant.

Available Information

We file reports with
the Securities and Exchange Commission (SEC), including
annual reports of Form 10-K, quarterly reports on Form 10-Q
and other reports from time to time. The public may read and copy any
materials we file with the SEC at the SECs Public Reference
Room at 450  Fifth Street, NW, Washington, DC 20549. The public
may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. We are an electronic filer and
the SEC maintains an internet site at http://www.sec.gov that
contains the reports, proxy and information statements, and other
information filed electronically. Our internet website is
http://www.ocharleys.com. We
make available free of charge through our website the Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports as soon as reasonably practicable after we
electronically file or furnish such material to the SEC. Information
contained on our website is not part of this
report, and is therefore not incorporated by reference unless such
information is otherwise specifically referenced elsewhere in this
report.

Item 2. Properties.

At December 29, 2002, we operated 182 OCharleys and six Stoney River
Legendary Steak restaurants. As of that date, we owned the land and building
at 110 of our OCharleys restaurants, leased the land and buildings at ten of
our OCharleys restaurants and leased the land only at 62 of our OCharleys
restaurants. We own the land and building at three of our Stoney River
restaurants and lease the land only at our other three Stoney River
restaurants. At January 27, 2003, the date we acquired Ninety Nine Restaurant
and Pub, there were 78 Ninety Nine restaurants. We lease the land and building
at 62 of our Ninety Nine restaurants and lease the land only at 16 of our
Ninety Nine restaurants. Restaurant lease expirations range from 2003 to 2025,
with the majority of the leases providing for an option to renew for additional
terms ranging from five to 20 years. All of our restaurant leases provide for
a specified annual rental, and some leases call for additional rental based on
sales volume at the particular location over specified minimum levels.
Generally, our restaurant leases are net leases, which require us to pay the
cost of insurance and taxes.

Our executive offices and Nashville commissary are located in Nashville,
Tennessee in approximately 290,000 square feet of office and warehouse space.
We own these facilities. Our Woburn, Massachusetts commissary is located in
approximately 20,000 square feet of warehouse space. We lease that facility.

Item 3. Legal Proceedings.

We are defendants from time to time in various legal proceedings arising
in the ordinary course of our business, including claims relating to the
workplace and employment matters, discrimination and similar matters, claims
resulting from slip and fall accidents and claims from customers 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 operating
results, liquidity or financial condition.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of shareholders during the fourth
quarter ended December 29, 2002.

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##### Table of Contents






PART II

Item 5. Market for Registrants Common Equity and Related Stockholder Matters.

Our common stock trades on the NASDAQ National Market under the symbol
CHUX. As of February 28, 2003, there were approximately 2,800 shareholders
of record of our common stock. The following table shows quarterly high and low
closing prices for our common stock for the periods indicated, as reported by
the NASDAQ National Market.

|               |  |      |       |     |  |   |       | 
|-------------- |  | ---- | ----- | --- |  | - | ----- | 
|Fiscal 2002    |  | High |       | Low
|               |  |      |       |    
|First Quarter  |  | $    | 24.07 |     |  | $ | 18.51 | 
|Second Quarter |  |      | 25.50 |     |  |   | 21.33 | 
|Third Quarter  |  |      | 22.21 |     |  |   | 17.67 | 
|Fourth Quarter |  |      | 22.30 |     |  |   | 15.87 | 

|               |  |   |       |  |  |   |       | 
|-------------- |  | - | ----- |  |  | - | ----- | 
|Fiscal 2001    |  |   |       |  |  |   |       | 
|               |  |   |       |  |  |   |       | 
|First Quarter  |  | $ | 21.45 |  |  | $ | 15.38 | 
|Second Quarter |  |   | 21.05 |  |  |   | 17.00 | 
|Third Quarter  |  |   | 19.54 |  |  |   | 14.25 | 
|Fourth Quarter |  |   | 19.33 |  |  |   | 14.51 | 

We have never paid a cash dividend on our common stock and we presently
intend to retain our cash to finance the growth and development of our
business. Our revolving credit facility prohibits the payment of cash
dividends on our common stock without the consent of the participating banks.

We did not sell any securities during the fiscal year ended December 29,
2002 without registration under the Securities Act of 1933, as amended.

Item 6. Selected Financial Data

The selected financial data presented below under the captions Statement
of Earnings Data and Balance Sheet Data for, and as of the end of, each of
the fiscal years in the five-year period ended December 29, 2002, were derived
from the consolidated financial statements of OCharleys Inc. and
subsidiaries, which consolidated financial statements have been audited by KPMG
LLP, independent auditors. The selected data should be read in conjunction
with the consolidated financial statements for the year ended December 29,
2002, and the related notes thereto.

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|                                                                                             |                                                  |                               |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |        |   |         |         |        | 
|-------------------------------------------------------------------------------------------- | ------------------------------------------------ | ----------------------------- | ------- | ------------------------------------- | ------- | ---- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------ | - | ------- | ------- | ------ | 
|                                                                                             |                                                  |                               |         | Fiscal Years                         
|                                                                                             |                                                  |                               |         |                                      
|                                                                                             |                                                  |                               |         | 2002                                  |         | 2001 |         | 2000(1) |         | 1999 |         | 1998   
|                                                                                             |                                                  |                               |         |                                       |         |      |         |         |         |      |         |        
|                                                                                             |                                                  |                               |         | (in thousands, except per share data)
|Statement of Earnings Data:                                                                  |                                                  |                               |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |        |   |         |        
|Revenues:                                                                                    |                                                  |                               |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |        |   |         |        
|                                                                                             | Restaurant sales                                 |                               | $       | 495,112                               |         |      | $       | 440,875 |         |      | $       | 373,700 |         |   | $       | 299,014 |        |   | $       | 243,416 |       
|                                                                                             | Commissary sales                                 |                               |         | 4,800                                 |         |      |         | 4,056   |         |      |         | 3,562   |         |   |         | 3,191   |        |   |         | 2,630   |       
|                                                                                             |                                                  |                               |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |        |   |         |        
|                                                                                             |                                                  |                               | 499,912 |                                       |         |      | 444,931 |         |         |      | 377,262 |         |         |   | 302,205 |         |        |   | 246,046 |        
|Costs and expenses:                                                                          |                                                  |                               |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |        |   |         |        
|                                                                                             | Cost of restaurant sales:                        |                               |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |        |   |         |         |       
|                                                                                             |                                                  | Cost of food and beverage(2)  |         |                                       | 140,023 |      |         |         | 129,062 |      |         |         | 109,480 |   |         |         | 89,713 |   |         |         | 75,848 | 
|                                                                                             |                                                  | Payroll and benefits          |         |                                       | 154,311 |      |         |         | 138,009 |      |         |         | 115,029 |   |         |         | 90,625 |   |         |         | 73,561 | 
|                                                                                             |                                                  | Restaurant operating costs(2) |         |                                       | 86,315  |      |         |         | 76,788  |      |         |         | 64,818  |   |         |         | 52,483 |   |         |         | 42,712 | 
|                                                                                             | Cost of commissary sales                         |                               |         | 4,488                                 |         |      |         | 3,808   |         |      |         | 3,341   |         |   |         | 3,013   |        |   |         | 2,479   |       
|                                                                                             | Advertising, general and
administrative expenses |                               |         | 37,677                                |         |      |         | 29,979  |         |      |         | 24,480  |         |   |         | 19,235  |        |   |         | 15,533  |       
|                                                                                             | Depreciation and amortization (3)                |                               |         | 25,527                                |         |      |         | 22,135  |         |      |         | 18,202  |         |   |         | 14,060  |        |   |         | 13,452  |       
|                                                                                             | Asset impairment and exit costs(4)               |                               |         |                                      |         |      |         | 5,798   |         |      |         |        |         |   |         |        |        |   |         |        |       
|                                                                                             | Preopening costs (3)                             |                               |         | 5,074                                 |         |      |         | 5,654   |         |      |         | 4,705   |         |   |         | 4,037   |        |   |         |        |       
|                                                                                             |                                                  |                               |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |        |   |         |        
|                                                                                             |                                                  |                               | 453,415 |                                       |         |      | 411,233 |         |         |      | 340,055 |         |         |   | 273,166 |         |        |   | 223,585 |        
|                                                                                             |                                                  |                               |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |        |   |         |        
|Income from operations                                                                       |                                                  |                               | 46,497  |                                       |         |      | 33,698  |         |         |      | 37,207  |         |         |   | 29,039  |         |        |   | 22,461  |        
|Other (income) expense:                                                                      |                                                  |                               |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |        |   |         |        
|                                                                                             | Interest expense, net                            |                               |         | 5,556                                 |         |      |         | 6,610   |         |      |         | 7,398   |         |   |         | 4,174   |        |   |         | 2,801   |       
|                                                                                             | Other, net                                       |                               |         | (118                                  | )       |      |         | 189     |         |      |         | 24      |         |   |         | 82      |        |   |         | (186    | )     
|                                                                                             |                                                  |                               |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |        |   |         |        
|                                                                                             |                                                  |                               | 5,438   |                                       |         |      | 6,799   |         |         |      | 7,422   |         |         |   | 4,256   |         |        |   | 2,615   |        
|                                                                                             |                                                  |                               |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |        |   |         |        
|Earnings before income taxes and
cumulative effect of change in
accounting principle         |                                                  |                               | 41,059  |                                       |         |      | 26,899  |         |         |      | 29,785  |         |         |   | 24,783  |         |        |   | 19,846  |        
|Income taxes                                                                                 |                                                  |                               | 14,268  |                                       |         |      | 9,347   |         |         |      | 10,425  |         |         |   | 8,674   |         |        |   | 6,946   |        
|                                                                                             |                                                  |                               |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |        |   |         |        
|Earnings before cumulative effect of
change in accounting principle                          |                                                  |                               | 26,791  |                                       |         |      | 17,552  |         |         |      | 19,360  |         |         |   | 16,109  |         |        |   | 12,900  |        
|Cumulative effect of change in
accounting principle, net of tax (3)(5)                       |                                                  |                               | (6,123  | )                                     |         |      |        |         |         |      |        |         |         |   | (1,348  | )       |        |   |        |        
|                                                                                             |                                                  |                               |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |        |   |         |        
|Net earnings                                                                                 |                                                  | $                             | 20,668  |                                       |         | $    | 17,552  |         |         | $    | 19,360  |         |         | $ | 14,761  |         |        | $ | 12,900  |        
|                                                                                             |                                                  |                               |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |        |   |         |        
|Basic earnings per common share before
cumulative effect of change in
accounting principle   |                                                  | $                             | 1.44    |                                       |         | $    | 0.99    |         |         | $    | 1.24    |         |         | $ | 1.04    |         |        | $ | 0.84    |        
|Cumulative effect of change in
accounting principle, net of tax (3)(5)                       |                                                  |                               | (0.33   | )                                     |         |      |        |         |         |      |        |         |         |   | (0.09   | )       |        |   |        |        
|                                                                                             |                                                  |                               |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |        |   |         |        
|Basic earnings per common share                                                              |                                                  | $                             | 1.11    |                                       |         | $    | 0.99    |         |         | $    | 1.24    |         |         | $ | 0.95    |         |        | $ | 0.84    |        
|                                                                                             |                                                  |                               |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |        |   |         |        
|Diluted earnings per common share
before cumulative effect of change in
accounting principle |                                                  | $                             | 1.35    |                                       |         | $    | 0.93    |         |         | $    | 1.17    |         |         | $ | 0.97    |         |        | $ | 0.79    |        
|Cumulative effect of change in
accounting principle, net of tax (3)(5)                       |                                                  |                               | (0.31   | )                                     |         |      |        |         |         |      |        |         |         |   | (0.08   | )       |        |   |        |        
|                                                                                             |                                                  |                               |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |        |   |         |        
|Diluted earnings per common share                                                            |                                                  | $                             | 1.04    |                                       |         | $    | 0.93    |         |         | $    | 1.17    |         |         | $ | 0.89    |         |        | $ | 0.79    |        
|                                                                                             |                                                  |                               |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |        |   |         |        
|Balance Sheet Data (at end of period):                                                       |                                                  |                               |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |        |   |         |        
|Working capital (deficit)                                                                    |                                                  | $                             | (21,417 | )                                     |         | $    | (15,222 | )       |         | $    | (20,185 | )       |         | $ | (19,411 | )       |        | $ | (11,571 | )      
|Total assets                                                                                 |                                                  |                               | 428,791 |                                       |         |      | 383,430 |         |         |      | 311,018 |         |         |   | 240,180 |         |        |   | 193,782 |        
|Current portion of long-term debt and
capitalized lease obligations                          |                                                  |                               | 8,015   |                                       |         |      | 7,924   |         |         |      | 7,574   |         |         |   | 7,013   |         |        |   | 5,429   |        
|Long-term debt and capitalized lease
obligations, including current portion                  |                                                  |                               | 132,102 |                                       |         |      | 121,929 |         |         |      | 122,244 |         |         |   | 80,471  |         |        |   | 57,338  |        
|Total shareholders equity                                                                   |                                                  |                               | 229,964 |                                       |         |      | 204,202 |         |         |      | 143,490 |         |         |   | 122,689 |         |        |   | 108,774 |        

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---

|(1) |  | In May 2000, we acquired two Stoney River restaurants and all
associated trademarks and intellectual property for approximately $15.8
million in a cash transaction accounted for as a purchase.
Accordingly, the results of operations of the two Stoney River
restaurants have been included in our consolidated results of
operations since the date of acquisition. Fiscal 2000 consisted of 53
weeks.                                                                                                                                                                                                                                                                                                                                           
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | In 2002, we began classifying restaurant supplies as part of
restaurant operating costs. In prior years, these costs were shown in
the cost of food, beverage and supplies. The prior year amounts have
been adjusted to conform to the current year presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(3) |  | During the first quarter of 1999, we adopted Statement of Position
98-5 Reporting on the Costs of Start-Up Activities, which requires
that restaurant preopening costs be expensed rather than capitalized.
Previously, we capitalized restaurant preopening costs and amortized
these amounts over one year from the opening of each restaurant. The
depreciation and amortization expense recorded in 1998 included
preopening cost amortization of $2.9 million. For subsequent years,
the depreciation and amortization line item does not include
amortization of preopening costs. We incurred a pre-tax charge of $2.1
million, or $1.3 million net of tax, in the first quarter of 1999 as a
result of this change in accounting principle.
|   
|(4) |  | During the third quarter of 2001, we decided to close certain
restaurant locations. As a result, we recorded a non-cash charge of
$5.0 million pursuant to the provisions of Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of to
reflect the differences between the fair value and net book value of
the assets and a charge of $800,000 for exit costs associated with the
closure of such locations.                                                                                                                                                                                                                                         
|   
|(5) |  | We incurred an after-tax charge of $6.1 million, or $0.31 per diluted
share, which was recorded as a cumulative affect of a change in
accounting principle as of the beginning of fiscal 2002 associated with
the adoption of Statement of Financial Accounting Standards No. 142
Goodwill and Other Intangible Assets. The charge was related to the
goodwill associated with the Stoney River acquisition in May 2000. See
note 1 to the accompanying consolidated financial statements for net
earnings and earnings per share for fiscal 2000 and 2001 as if SFAS No.
142 had been adopted at the beginning of fiscal 2000.                                                                                                                    

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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.

General

As of December 29, 2002, we operated 182 OCharleys restaurants in
Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana,
Mississippi, Missouri, North Carolina, Ohio, South Carolina, Tennessee and
Virginia and operated six Stoney River restaurants in Georgia, Illinois,
Kentucky and Tennessee. In addition, on January 27, 2003, we acquired Ninety
Nine Restaurant and Pub. As of January 27, 2003, there were 78 Ninety Nine
Restaurant and Pub restaurants in Connecticut, Maine, Massachusetts, New
Hampshire, Rhode Island and Vermont. The financial results for the Ninety Nine
concept will be included in our results of operations and financial condition
beginning January 27, 2003.

OCharleys are casual dining restaurants that are intended to appeal to
mainstream casual dining customers as well as upscale casual dining and value
oriented customers by offering high quality, freshly prepared food at moderate
prices with friendly and attentive customer service. Our growth strategy for
the OCharleys concept is to continue penetrating existing and new major
metropolitan areas while opening new units in smaller secondary markets in
close proximity to our metropolitan markets.

Stoney River restaurants are upscale steakhouses that are intended to
appeal to both upscale casual dining and fine dining customers by offering
hand-cut, premium mid-western beef along with fresh seafood and other gourmet
entrees with attentive service in a warm, friendly and relaxed environment. Our
growth strategy for Stoney River is to concentrate on major metropolitan
markets in the Southeast and Midwest with disciplined, controlled development
and the potential to accelerate development over the next several years. Total
revenues for Stoney River were $15.8 million, $10.8 million and $5.4 million
for 2002, 2001 and 2000, respectively. The loss before income taxes and the cumulative
effect of a change in accounting principle for Stoney River was $1.0 million, $2.3
million and $1.3 million for 2002, 2001 and 2000, respectively. In 2002, the
Company adopted SFAS No. 142 and wrote off $9.9 million of goodwill related to
the Stoney River acquisition completed in May of 2000.

Ninety Nine are casual dining restaurants that have earned a reputation
for providing high quality food at moderate prices in a comfortable, relaxed
atmosphere. The menu features a wide selection of appetizers, salads,
sandwiches, burgers, entrees and desserts, all served in generous portions. We
plan to operate Ninety Nine as a stand-alone concept, while providing strategic
oversight and support. Our growth strategy for Ninety Nine, which is similar
to the OCharleys growth strategy, includes continuing to penetrate existing
markets while adding new restaurants in the same general geographic areas where
Ninety Nine currently operates.

We operate two commissaries for the primary purpose of providing our
restaurants with consistent quality food products that meet our specifications
while obtaining lower prices for those items through volume purchasing. A
substantial majority of the food products served in our OCharleys and Stoney River restaurants are
distributed to the restaurants by our Nashville commissary. The commissary for Ninety Nine Restaurant and Pub distributes primarily the center of the plate items
including red meat, poultry and seafood. In addition to purchasing
food and other non-food products, the Nashville commissary manufactures certain
proprietary products and both of our commissaries cut red meat into steaks in
USDA-approved and inspected facilities. We believe our commissaries give us a
competitive advantage in servicing our restaurants and a financial advantage.
We attribute the decreases in food cost as a percentage of our restaurant sales
over the past four years, in part, to the operating leverage generated from the
increased purchasing volumes and efficiencies achieved at our Nashville
commissary.

The following tables reflect changes in the number of restaurants we
operated during the years presented:

|                                |  |      |     |      |  |      |     |   |  |  |     | 
|------------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  |  | --- | 
|O'Charley's Restaurants         |  | 2002 |     | 2001 |  | 2000
|                                |  |      |     |      |  |     
|In operation, beginning of year |  |      | 161 |      |  |      | 138 |   |  |  | 117 | 
|Restaurants opened              |  |      | 24  |      |  |      | 24  |   |  |  | 21  | 
|Restaurants closed              |  |      | (3  | )    |  |      | (1  | ) |  |  |    | 
|                                |  |      |     |      |  |      |     |   |  |  |     | 
|In operation, end of year       |  |      | 182 |      |  |      | 161 |   |  |  | 138 | 
|                                |  |      |     |      |  |      |     |   |  |  |     | 

|                                |  |      |   |      |  |      |   |  |  |  |   | 
|------------------------------- |  | ---- | - | ---- |  | ---- | - |  |  |  | - | 
|Stoney River Restaurants        |  | 2002 |   | 2001 |  | 2000
|                                |  |      |   |      |  |     
|In operation, beginning of year |  |      | 3 |      |  |      | 2 |  |  |  |  | 
|Restaurants acquired            |  |      |  |      |  |      |  |  |  |  | 2 | 
|Restaurants opened              |  |      | 3 |      |  |      | 1 |  |  |  |  | 
|                                |  |      |   |      |  |      |   |  |  |  |   | 
|In operation, end of year       |  |      | 6 |      |  |      | 3 |  |  |  | 2 | 
|                                |  |      |   |      |  |      |   |  |  |  |   | 

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Net earnings in 2002 and 2001 each were impacted by certain charges. In 2002,
we recorded a non-cash pre-tax charge of $9.9 million ($6.1 million net of tax
or $0.31 per diluted share) as a cumulative effect of a change in accounting
principle as a result of our evaluation of the goodwill carrying value of the
Stoney River reporting unit. We were required to perform this evaluation upon
our adoption of SFAS No. 142, which dictates how companies must account for
goodwill, and which we adopted on December 31, 2001. We determined the
goodwill was impaired based upon our valuation of the fair value of the Stoney
River reporting unit and the fair value of its net assets, exclusive of
goodwill. The write-off represented the total goodwill associated with the
Stoney River acquisition. Additionally, in accordance with SFAS No. 142,
beginning in 2002, we no longer amortize goodwill.

In 2001, we incurred charges of approximately $5.8 million, or
approximately $0.20 per diluted share, related to the closing of five stores.
These closings were the result of a comprehensive review of the past and
expected performance of all locations, taking into consideration the difficult
economic environment. We closed one of the five restaurants in fiscal 2001. We
closed three additional stores in fiscal 2002. We closed the fifth store
during the first quarter of 2003.

We are pursuing franchising our OCharleys restaurant concept and expect
to have our first franchise agreement in place in 2003. We will
continue to incur certain
legal and administrative expenses during the development stage of this program,
which will not necessarily be offset by franchising revenue. The establishment
of franchising operations could have an adverse effect on our operating results
until such time, if ever, as those operations begin to generate revenues in
excess of their related expenses. We anticipate approximately $750,000 in
expenses for this program in fiscal 2003.

Revenues consist of restaurant sales and, to a lesser extent, commissary
sales. Restaurant sales include food and beverage sales and are net of
applicable state and local sales taxes. Commissary sales represent sales to
outside parties consisting primarily of sales of OCharleys branded food
items, primarily salad dressings, to retail grocery chains, mass merchandisers
and wholesale clubs.

Cost of food and beverage primarily consists of the costs of beef,
poultry, seafood, produce and alcoholic and non-alcoholic beverages. We believe
our menus offer a broad selection of menu items and as a result there is not a
high concentration of our food costs in any one product category. The overall
food cost environment has been positive during 2002, which has had a positive
effect on our earnings. We believe food costs have benefited from the slowing
economy and other factors. Although we currently believe there will be nominal
food cost inflation in 2003, there can be no assurance that favorable food
costs trends will continue. Various factors beyond our control, including
adverse weather, cause periodic fluctuations in food and other costs.
Generally, temporary increases in these costs are not passed on to customers;
however, we have in the past generally 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 and bonuses, hourly wages for restaurant level employees,
payroll taxes, workers compensation, various health, life and dental insurance
programs, vacation expense and sick pay. We have an incentive bonus plan that
compensates restaurant management for achieving and exceeding certain
restaurant level financial targets and performance goals. In 2003, we have made
improvements to the insurance benefits offered to our hourly employees. The
cost associated with these improvements is projected to be approximately $3.2
million in fiscal 2003. This amount may vary from our estimate based upon a
number of factors, including the number of employees that enroll in the new
plan. We believe these improvements will result in an increase to our payroll
and related costs and expenses as a percentage of restaurant sales in 2003.

Restaurant operating costs include occupancy and other expenses at the
restaurant level, except property and equipment depreciation and amortization.
Supplies, rent, supervisory salaries, bonuses and related expenses, management
training salaries, general liability and property insurance, property taxes,
utilities, repairs and maintenance, outside services and credit card fees
account for the major expenses in this category.

23



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Advertising, general and administrative expenses include all advertising
and home office administrative functions that support the existing restaurant
base and provide the infrastructure for future growth. Advertising, executive
management and support staff salaries, bonuses and related expenses, data
processing, legal and accounting expenses and office expenses account for the
major expenses in this category.

Depreciation and amortization primarily includes depreciation on property
and equipment calculated on a straight-line basis over an estimated useful
life. For periods prior to December 31, 2001, depreciation and amortization
also includes amortization of goodwill, which related primarily to the
acquisition of the Stoney River concept. In accordance with SFAS No. 142,
beginning December 31, 2001, we no longer amortize goodwill.

Preopening costs include operating costs and expenses incurred prior to a
new restaurant opening. Our current practice of expensing preopening costs may
cause fluctuations in our results of operations from quarter to quarter and
year to year depending on when those costs are incurred. The amount of
preopening costs incurred in any one year includes costs incurred during the
year for restaurants opened and under development. We incurred average
preopening costs of approximately $190,000 for each new restaurant opened
during 2002.

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##### Table of Contents



The following information should be read in conjunction with Selected
Financial Data and our consolidated financial statements and the related notes
thereto included elsewhere herein. The following table reflects our operating
results for 2002, 2001, and 2000 as a percentage of total revenues unless
otherwise indicated. Fiscal years 2002 and 2001 were comprised of 52 weeks
while fiscal year 2000 was comprised of 53 weeks. As a result, some of the
variations reflected in the following data may be attributed to the different
lengths of the fiscal years. The information contained in the table below
reflect OCharleys Inc. and subsidiaries as of December 29, 2002 and does not
include Ninety Nine Restaurant and Pub.

|                                                                                     |                                                  |                            |       |      |      |      |       |      |      |   |       |      |      |  
|------------------------------------------------------------------------------------ | ------------------------------------------------ | -------------------------- | ----- | ---- | ---- | ---- | ----- | ---- | ---- | - | ----- | ---- | ---- | -
|                                                                                     |                                                  |                            |       | 2002 |      | 2001 |       | 2000
|                                                                                     |                                                  |                            |       |      |      |      |       |     
|Revenues:                                                                            |                                                  |                            |       |      |      |      |       |      |      |   |       |     
|                                                                                     | Restaurant sales                                 |                            |       | 99.0 | %    |      |       | 99.1 | %    |   |       | 99.1 | %   
|                                                                                     | Commissary sales                                 |                            |       | 1.0  |      |      |       | 0.9  |      |   |       | 0.9  |     
|                                                                                     |                                                  |                            |       |      |      |      |       |      |      |   |       |     
|                                                                                     |                                                  |                            | 100.0 | %    |      |      | 100.0 | %    |      |   | 100.0 | %   
|                                                                                     |                                                  |                            |       |      |      |      |       |      |      |   |       |     
|Costs and expenses:                                                                  |                                                  |                            |       |      |      |      |       |      |      |   |       |     
|                                                                                     | Cost of restaurant sales: (1)                    |                            |       |      |      |      |       |      |      |   |       |      |     
|                                                                                     |                                                  | Cost of food and beverage  |       |      | 28.3 | %    |       |      | 29.3 | % |       |      | 29.3 | %
|                                                                                     |                                                  | Payroll and benefits       |       |      | 31.2 |      |       |      | 31.3 |   |       |      | 30.8 |  
|                                                                                     |                                                  | Restaurant operating costs |       |      | 17.4 |      |       |      | 17.4 |   |       |      | 17.3 |  
|                                                                                     | Cost of commissary sales (2)                     |                            |       | 0.9  |      |      |       | 0.9  |      |   |       | 0.9  |     
|                                                                                     | Advertising, general and administrative expenses |                            |       | 7.5  |      |      |       | 6.7  |      |   |       | 6.5  |     
|                                                                                     | Depreciation and amortization(3)                 |                            |       | 5.1  |      |      |       | 5.0  |      |   |       | 4.8  |     
|                                                                                     | Asset impairment and exit costs                  |                            |       |     |      |      |       | 1.3  |      |   |       |     |     
|                                                                                     | Preopening costs                                 |                            |       | 1.0  |      |      |       | 1.3  |      |   |       | 1.2  |     
|                                                                                     |                                                  |                            |       |      |      |      |       |      |      |   |       |     
|Income from operations                                                               |                                                  |                            | 9.3   |      |      |      | 7.6   |      |      |   | 9.9   |     
|                                                                                     | Interest expense, net                            |                            |       | 1.1  |      |      |       | 1.5  |      |   |       | 2.0  |     
|                                                                                     |                                                  |                            |       |      |      |      |       |      |      |   |       |     
|Earnings before income taxes and cumulative effect of change in accounting
principle |                                                  |                            | 8.2   |      |      |      | 6.1   |      |      |   | 7.9   |     
|Income taxes                                                                         |                                                  |                            | 2.9   |      |      |      | 2.1   |      |      |   | 2.8   |     
|                                                                                     |                                                  |                            |       |      |      |      |       |      |      |   |       |     
|Earnings before cumulative
effect of change in accounting principle                  |                                                  |                            | 5.3   |      |      |      | 4.0   |      |      |   | 5.1   |     
|Cumulative effect of change in accounting principle, net of tax                      |                                                  |                            | (1.2  | )    |      |      |      |      |      |   |      |     
|                                                                                     |                                                  |                            |       |      |      |      |       |      |      |   |       |     
|Net earnings                                                                         |                                                  |                            | 4.1   | %    |      |      | 4.0   | %    |      |   | 5.1   | %   
|                                                                                     |                                                  |                            |       |      |      |      |       |      |      |   |       |     



---

|(1) |  | As a percentage of restaurant sales.                                                                                                                                                                  
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Cost of commissary sales as a percentage of commissary sales was
93.5%, 93.9% and 93.8% for fiscal years 2002, 2001 and 2000, respectively.                                                           
|   
|(3) |  | See note 1 to the accompanying consolidated financial statements
for net earnings and earnings per share for fiscal 2000 and 2001 as if
SFAS No. 142 had been adopted at the beginning of fiscal 2000.

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Fiscal Year 2002 Compared with Fiscal Year 2001

Total revenues in 2002 increased $55.0 million, or 12.4%, to $499.9
million from $444.9 million in 2001 primarily as a result of an increase in
restaurant sales of $54.2 million, or 12.3%. The increase in restaurant sales
was attributable to the net addition of 21 OCharleys restaurants, three new
Stoney River restaurants opened in 2002 and a 0.6% same store sales increase
for the Stoney River concept, partially offset by a 0.1% same store sales
decline at our OCharleys restaurants. Our overall check average for the
OCharleys concept was $11.59 in 2002 compared to $11.28 in 2001. Our guest
traffic at our OCharleys restaurants decreased approximately 2.6% during
fiscal 2002. During the second quarter of 2001, we implemented a value menu
promotion in response to the slowing economy, which lowered the price of
certain entrees. We believe this promotion generated positive guest traffic
and lowered our average check in 2001. We believe our guest traffic was lower
in 2002, in part, as a result of not having a similar value promotion in 2002.
During the third quarter of 2002, we increased menu prices by approximately
3.1% in approximately two-thirds of our OCharleys restaurants. During the
fourth quarter of 2002, we introduced a new menu in all of our OCharleys
restaurants that included a menu price increase of approximately 3.1% for the
remaining one-third of our stores that had not taken the menu price increase
during the third quarter of 2002. We believe the increase in our check average
is the result of the combination of the menu price increase taken in 2002 and
the absence of a value promotion in 2002 similar to the one in 2001.
Additionally, we believe consumer-spending patterns have vacillated due to the
uncertain U.S. economy and geopolitical environment, causing a negative effect
on our guest traffic. The increase in same store sales at our Stoney River
restaurants resulted from an increase in check average, partially offset by a
decrease in guest traffic. We expect that the uncertain U.S. economy, the
possible outbreak of war or other hostilities and adverse winter weather in
many of our markets may adversely effect restaurant sales in 2003.

Cost of food and beverage in 2002 increased $11.0 million, or 8.5%, to
$140.0 million from $129.1 million in 2001. As a percentage of restaurant
sales, cost of food and beverage decreased to 28.3% in 2002 from 29.3% in 2001.
We attribute the lower food cost percentage in 2002 primarily to an overall
reduction in the cost of certain food items and continued improvements in
operating efficiencies at our stores and commissary. We experienced lower costs
in red meat, pork, poultry and dairy costs, partially offset by increases in
certain produce costs. We anticipate a nominal increase in commodity prices in
2003. There can be no assurance that events outside of our control will not
result in increases in food costs as a percentage of restaurant sales.

Payroll and benefits increased $16.3 million, or 11.8%, to $154.3 million
in 2002 from $138.0 million in 2001. Payroll and benefits, as a percentage of
restaurant sales, declined to 31.2% in 2002 from 31.3% in 2001. The slight
decline was attributable to lower restaurant level bonuses and workers
compensation expenses, offset by a modest increase in hourly wage rates and
increased salaries for restaurant management in 2002. We have implemented
improvements to the insurance benefits offered to our hourly employees for
2003, and believe the cost associated with these improvements will be
approximately $3.2 million in 2003. This amount may vary based upon a number
of factors, including the number of employees that enroll in the new plan. We
believe these improvements will result in an increase to our payroll and
related costs and expenses as a percentage of restaurant sales in 2003.

Restaurant operating costs in 2002 increased $9.5 million, or 12.4%, to
$86.3 million from $76.8 million in 2001. Restaurant operating costs, as a
percentage of restaurant sales, remained relatively flat at 17.4% in 2002
compared to 2001. In 2002, we experienced higher overall store occupancy and
operating costs due primarily to increases in repair and maintenance cost,
general liability insurance and credit card fees partially offset by lower
utility costs compared to 2001. We also experienced a decrease in supervisory
expenses in 2002 as a percentage of total restaurant sales due primarily to
lower management training salaries. We anticipate higher natural gas
costs in 2003 due
to increased usage as a result of lower average temperatures to
date in 2003 compared to 2002.

Advertising, general and administrative expenses increased $7.7 million,
or 25.7%, to $37.7 million in 2002 from $30.0 million in 2001. As a percentage
of total revenues, advertising, general and administrative expenses increased
to 7.5% in 2002 from 6.7% in 2001. Advertising expenditures increased 28.1% to
$17.0 million in 2002 from $13.3 million in 2001 and, as a percentage of total
revenues, increased to 3.4% in 2002 from 3.0% in 2001. The increase in
advertising expenditures was in response to the continued weakness of the U.S.
economy. An increase in television costs represented the primary share of the
overall increase in advertising expenditures. Stoney River restaurants rely
primarily on word-of-mouth to attract new customers rather than media
advertising. General and administrative expenses increased

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23.9% to $20.7 million in 2002 from $16.7 million in 2001, and as a
percentage of total revenues increased to 4.1% in 2002 from 3.8% in 2001. The
increase in general and administrative expenses was primarily due to increased
bonus expenses and integration costs associated with the acquisition of Ninety
Nine partially offset by lower legal costs.

Depreciation and amortization in 2002 increased $3.4 million, or 15.3%, to
$25.5 million in 2002 from $22.1 million in 2001. As a percentage of total
revenues, depreciation and amortization increased to 5.1% in 2002 from 5.0% in
2001. The increase in depreciation expense was primarily attributable to new
restaurants opened in 2002 and capital expenditures for improvements to
existing restaurants, which offset the lack of goodwill amortization in 2002
(see note 1 to the accompanying consolidated financial statements).

Pre-opening costs in 2002 declined $600,000, or 10.3%, to $5.1 million
from $5.7 million in 2001. As a percentage of total revenues, pre-opening costs
declined to 1.0% in 2002 from 1.3% in 2001. The decrease in pre-opening costs
was primarily attributable to lower average cost per store opening this year
versus last year.

Income from operations increased $12.8 million, or 38.0%, to $46.5 million
in 2002 from $33.7 million in 2001. Excluding the effect of the asset
impairment and exit costs recorded in 2001, income from operations increased
$7.0 million, or 17.7% in 2002.

Interest expense, net decreased $1.1 million in 2002 to $5.6 million from
$6.6 million in 2001. This decrease is the result of overall lower interest
rates in 2002. The weighted average interest rate on our revolving credit
facility decreased to 3.7% in 2002 as compared with 5.2% in 2001 due to lower
short-term LIBOR rates in 2002. We anticipate higher interest expense in 2003
due to the increased borrowings incurred to finance the acquisition of Ninety
Nine Restaurant and Pub coupled with higher average interest rates under our
new credit facility.

Earnings before income taxes and cumulative effect of change in accounting
principle for 2002 increased $14.2 million, or 52.6%, to $41.1 million from
$26.9 million in 2001. Excluding the effect of the asset impairment and exit
costs recorded in 2001, earnings before income taxes increased $8.4 million, or
25.6%, in 2002.

Income taxes for 2002 increased $4.9 million, or 52.6%, to $14.3 million
from $9.4 million in 2001. This increase was primarily the result of the
increase in earnings before income taxes. Our effective tax rate remained
relatively flat at 34.8% of pre-tax earnings.

In 2002, we recorded a non-cash pre-tax charge of $9.9 million ($6.1
million net of tax or $0.31 per diluted share) as a cumulative effect of a
change in accounting principle as a result of our evaluation of the goodwill
carrying value of the Stoney River reporting unit.

The number of diluted weighted shares outstanding was 19.8 million shares
in 2002, compared with 18.9 million shares in 2001. This increase is
attributable primarily to the effect of the sale of common shares in April 2001
and a higher number of dilutive stock options in 2002.

Fiscal Year 2001 Compared with Fiscal Year 2000

Total revenues in 2001 increased $67.7 million, or 17.9%, to $444.9
million from $377.3 million in 2000 primarily as a result of an 18.0% increase
in restaurant sales to $67.2 million. The increase in restaurant sales was
attributable to the addition of 24 new OCharleys restaurants, the inclusion
of the two original Stoney River restaurants

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for the entire year following their acquisition in May 2000, one new
Stoney River restaurant opened in 2001, and an increase in same store sales at
our OCharleys restaurants of 2.1%. Our overall check average for the
OCharleys concept was $11.28 in 2001 and $11.13 in 2000. The increases in
revenue were partially offset by us having 52 weeks of operations in 2001 as
compared to 53 weeks in 2000. In January 2001, we increased menu prices at our
OCharleys restaurants by approximately 2.0%. We believe we realized the
majority of that price increase during the first quarter of 2001, but by the
end of the first quarter, we began to see slowing consumer spending which
resulted in a lower than expected check average. In response to the slowing
consumer spending patterns, we increased our marketing efforts and began to
promote lower priced entrees and lowered certain daily entree specials. As a
result of this effort, we believe we maintained our increases in customer
traffic but lowered our overall check average. Near the end of the third
quarter of 2001, we began to see increases in consumer spending which raised
our check average but we continued to promote lower priced entrees through the
end of 2001.

Cost of food and beverage in 2001 increased $19.6 million, or 17.9%, to
$129.1 million from $109.5 million in 2000. As a percentage of restaurant
sales, cost of food and beverage remained flat at 29.3% in 2001 and 2000.
Although we experienced an increase in the cost of food and beverage in 2001
due to significantly higher cost for certain commodity food items, including
red meat, dairy and baby back ribs, we continued to experience improved
purchasing and operating efficiencies in our restaurants and commissary
offsetting the higher commodity prices. Additionally, food cost were impacted
by our Stoney River restaurants in 2001 where the food costs are higher than
OCharleys due primarily to a higher percentage of red meat sales. Food costs
were also impacted by the promotion of lower priced entrees in 2001.

Payroll and benefits increased $23.0 million, or 20.0%, to $138.0 million
in 2001 from $115.0 million in 2000. Payroll and benefits, as a percentage of
restaurant sales, increased to 31.3% in 2001 from 30.8% in 2000. The increase
was attributable to increasing salaries for restaurant management along with
higher employee benefit costs, including workers compensation and health
insurance costs in 2001.

Restaurant operating costs in 2001 increased $12.0 million, or 18.5%, to
$76.8 million from $64.8 million in 2000. Restaurant operating costs, as a
percentage of restaurant sales, increased to 17.4% in 2001 from 17.3% in 2000.
In 2001, we experienced higher utility costs, primarily natural gas, and higher
insurance expenses, primarily general and liquor liability insurance. These
increases were partially offset by a decrease in supervisory expenses in 2001
as a percentage of total revenue. Overall utilities in 2001 increased 28% as
compared to 2000. Natural gas prices were significantly higher during the first
three quarters of 2001, but decreased during the fourth quarter to similar
levels in the same quarter of 2000.

Advertising, general and administrative expenses increased $5.5 million,
or 22.5%, to $30.0 million in 2001 from $24.5 million in 2000. As a percentage
of total revenues, advertising, general and administrative expenses increased
to 6.7% in 2001 from 6.5% in 2000. Advertising expenditures increased 39.6% to
$13.3 million in 2001 from $9.5 million in 2000 and, as a percentage of
restaurant sales, increased to 3.0% in 2001 from 2.5% in 2000. OCharleys
advertising, as a percentage of OCharleys restaurant sales, was 3.1% in 2001
compared to 2.6% in 2000. We increased our advertising expenditures beginning
in the second quarter of 2001 through the end of the year in response to the
slowing consumer spending trends we began to experience near the end of the
first quarter. An increase in television costs represented the primary share of
the overall increase in advertising expenditures. General and administrative
expenses increased 11.6% to $16.7 million in 2001 from $15.0 million in 2000,
but as a percentage of total revenues, decreased to 3.8% in 2001 from 4.0% in
2000. The decrease in general and administrative expenses primarily resulted
from a decrease in bonus and legal expenses.

Depreciation and amortization in 2001 increased $3.9 million, or 21.6%, to
$22.1 million in 2001 from $18.2 million in 2000. As a percentage of total
revenues, depreciation and amortization increased to 5.0% in 2001 from 4.8% in
2000. The increase in depreciation expense was primarily attributable to the
growth in the number of new restaurants and capital expenditures for
improvements to existing restaurants.

Asset impairment and exit costs were $5.8 million during 2001. During the
third quarter of 2001, we made the decision to close five restaurants. The
decision followed a review of historical and projected cash flows of our stores
in view of the difficult economic environment in which we were operating. As a
result of this decision, we recognized a

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charge during the third quarter of 2001 for asset impairment of
approximately $5.0 million and exit costs of approximately $800,000 primarily
associated with certain related lease commitments.

Pre-opening costs in 2001 increased $1.0 million, or 20.2%, to $5.7
million from $4.7 million in 2000. As a percentage of total revenues,
pre-opening costs increased to 1.3% in 2001 from 1.2% in 2000. This increase is
attributable primarily to the cost incurred for the new OCharleys restaurants
in addition to higher pre-opening costs incurred for the new Stoney River
restaurant.

Income from operations decreased $3.5 million, or 9.4%, to $33.7 million
in 2001 from $37.2 million in 2000. Excluding the asset impairment and exit
costs, income from operations increased $2.3 million, or 6.2%, to $39.5
million, in 2001. This increase was less than our original expectations due
primarily to slowing consumer spending, higher than expected costs of certain
food commodities, higher utilities, higher insurance costs and increased
advertising expenditures.

Interest expense, net decreased $800,000 in 2001 to $6.6 million from $7.4
million in 2000. This decrease is primarily the result of overall lower
interest rates in 2001. The weighted average interest rate on our revolving
credit facility decreased to 5.2% in 2001 as compared with 7.4% in 2000 due to
lower short-term LIBOR rates in 2001. Additionally, overall interest expense
was reduced due to decreased borrowings on our revolver as we used the $41.7
million proceeds from the sale of our common stock in April 2001 to reduce our
debt.

Earnings before income taxes for 2001 decreased $2.9 million, or 9.7%, to
$26.9 million from $29.8 million in 2000. Excluding the effect of the asset
impairment and exit costs, earnings before income taxes increased 9.8 % to
$32.7 million in 2001.

Income taxes for 2001 decreased $1.1 million, or 10.3%, to $9.3 million
from $10.4 million in 2000. This decrease was primarily the result of the
decrease in earnings before income taxes. The effective tax rate decreased to
34.8% of pre-tax earnings from 35.0% in 2000 due primarily to higher tax
credits.

The number of diluted weighted shares outstanding was 18.9 million shares
in 2001, compared with 16.5 million shares in 2000. The primary reason for this
increase is the 2.3 million shares of our common stock sold in April 2001.

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Quarterly Financial and Restaurant Operating Data

The following is a summary of certain unaudited quarterly results of
operations data for each of the last three fiscal years. For accounting
purposes, the first quarter consists of 16 weeks and the second, third and
fourth quarters each consist of 12 weeks (13 weeks in the fourth quarter of
2000 because it was a 53-week year). As a result, some of the variations
reflected in the following table are attributable to the different lengths of
the fiscal quarters.

|                                         |  |                                               |         |         |  |         |         |         |  |   |         |  |  |   |         | 
|---------------------------------------- |  | --------------------------------------------- | ------- | ------- |  | ------- | ------- | ------- |  | - | ------- |  |  | - | ------- | 
|                                         |  | First                                         |         | Second  |  | Third   |         | Fourth 
|                                         |  | Quarter                                       |         | Quarter |  | Quarter |         | Quarter
|                                         |  |                                               |         |         |  |         |         |        
|                                         |  | (dollars in thousands, except per share data)
|2002 (1)                                 |  |                                               |         |         |  |         |         |         |  |   |         |  |  |   |         | 
|Revenues                                 |  | $                                             | 149,632 |         |  | $       | 115,141 |         |  | $ | 116,622 |  |  | $ | 118,517 | 
|Income from operations                   |  | $                                             | 13,946  |         |  | $       | 10,446  |         |  | $ | 10,277  |  |  | $ | 11,828  | 
|Net earnings                             |  | $                                             | 1,935   |         |  | $       | 5,975   |         |  | $ | 5,902   |  |  | $ | 6,856   | 
|Basic earnings per common share          |  | $                                             | 0.10    |         |  | $       | 0.32    |         |  | $ | 0.31    |  |  | $ | 0.36    | 
|Diluted earnings per common share        |  | $                                             | 0.10    |         |  | $       | 0.30    |         |  | $ | 0.30    |  |  | $ | 0.35    | 
|Restaurants in operation, end of quarter |  |                                               | 171     |         |  |         | 177     |         |  |   | 183     |  |  |   | 188     | 
|                                         |  |                                               |         |         |  |         |         |         |  |   |         |  |  |   |         | 
|2001 (2)                                 |  |                                               |         |         |  |         |         |         |  |   |         |  |  |   |         | 
|Revenues                                 |  | $                                             | 130,084 |         |  | $       | 103,335 |         |  | $ | 105,757 |  |  | $ | 105,755 | 
|Income from operations                   |  | $                                             | 12,771  |         |  | $       | 8,800   |         |  | $ | 2,146   |  |  | $ | 9,982   | 
|Net earnings                             |  | $                                             | 6,738   |         |  | $       | 4,860   |         |  | $ | 495     |  |  | $ | 5,458   | 
|Basic earnings per common share          |  | $                                             | 0.42    |         |  | $       | 0.26    |         |  | $ | 0.03    |  |  | $ | 0.29    | 
|Diluted earnings per common share        |  | $                                             | 0.39    |         |  | $       | 0.25    |         |  | $ | 0.03    |  |  | $ | 0.28    | 
|Restaurants in operation, end of quarter |  |                                               | 149     |         |  |         | 157     |         |  |   | 162     |  |  |   | 164     | 
|                                         |  |                                               |         |         |  |         |         |         |  |   |         |  |  |   |         | 
|2000                                     |  |                                               |         |         |  |         |         |         |  |   |         |  |  |   |         | 
|Revenues                                 |  | $                                             | 106,298 |         |  | $       | 85,411  |         |  | $ | 89,145  |  |  | $ | 96,408  | 
|Income from operations                   |  | $                                             | 10,549  |         |  | $       | 8,225   |         |  | $ | 8,419   |  |  | $ | 10,014  | 
|Net earnings                             |  | $                                             | 5,689   |         |  | $       | 4,265   |         |  | $ | 4,257   |  |  | $ | 5,149   | 
|Basic earnings per common share          |  | $                                             | 0.37    |         |  | $       | 0.27    |         |  | $ | 0.27    |  |  | $ | 0.33    | 
|Diluted earnings per common share        |  | $                                             | 0.35    |         |  | $       | 0.26    |         |  | $ | 0.26    |  |  | $ | 0.31    | 
|Restaurants in operation, end of quarter |  |                                               | 125     |         |  |         | 133     |         |  |   | 137     |  |  |   | 140     | 



---

|(1) |  | The Company incurred an after-tax charge of $6.1 million, or $0.31
per diluted share, which was recorded as a cumulative effect of a
change in accounting principle as of the beginning of fiscal 2002
associated with the adoption of Statement of Financial Accounting
Standards No. 142 Goodwill and Other Intangible Assets. The charge
was related to the write off of goodwill associated with the Stoney
River acquisition in May 2000.                                                        
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | During the third quarter of 2001, management decided to close five
restaurants. As a result, we recorded a non-cash charge of $5.0
million pursuant to the provisions of Statement of Financial Accounting
Standards No. 121 Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of to reflect the differences
between the fair value and net book value of the assets, and a charge
of $800,000 for exit costs associated with the closure of such
locations.

Liquidity and Capital Resources

Our primary sources of cash have historically been cash provided by
operations, borrowings under our revolving credit facility, capitalized lease
obligations and sales of our common stock. Our cash needs arise primarily from
the purchase and development of new restaurants, equipment replacement,
improvements to existing restaurants and the repayment of debt.

Our working capital historically has had current liabilities in excess of
current assets due to cash reinvestments in long-term assets, mostly property
and equipment additions, and does not indicate a lack of liquidity. We expect
to meet our obligations as they come due through available cash, internally
generated funds and borrowings under our revolving credit facility. At December
29, 2002, our working capital deficiency was $21.4 million. The total net
increase in cash was $1.9 million in 2002.

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Net cash provided by operations was $64.9 million in 2002, $46.7 million
in 2001, and $40.0 million in 2000. Other sources of cash in 2002 came from net
borrowings of $9.0 million under our revolving credit facility, $4.4 million of
proceeds from the exercise of stock options and approximately $2.0 million from
the sale of assets. Additionally, we financed $8.8 million in new restaurant
equipment through capitalized lease obligations. In 2001, we received $41.7
million in net proceeds from the sale of approximately 2.3 million shares of
our common stock.

In 2002, we invested $78.5 million in property and equipment expenditures,
including $8.8 million of equipment acquired under capital leases. These
expenditures were made primarily for 24 new OCharleys restaurants opened
during the year, three new Stoney River restaurants opened during the year,
restaurants under construction at December 29, 2002, and improvements to
existing restaurants and commissary facilities. Other primary uses of cash were
$7.6 million in principal payments on capitalized lease obligations and other
long-term debt.

The amount outstanding under the revolving credit facility was $98.0
million on December 29, 2002, an increase of approximately $9.0 million from
December 30, 2001. The credit facility required monthly interest payments at a
floating rate based on the banks prime rate plus or minus a certain percentage
spread or the LIBOR rate plus a certain percentage spread. The interest rate
spread (85 basis points at December 29, 2002) was based on certain financial
ratios and was recomputed quarterly. The weighted average interest rate on the
outstanding borrowings under the facility during 2002 was 3.7%, as compared
with 5.2% during 2001. On December 29, 2002, the average interest rate on the
outstanding balance of the facility was 3.1%, as compared with 4.5% at the end
of 2001.

From time to time, we may enter into interest rate swap agreements with
certain financial institutions for the purpose of fixing the amount of interest
we pay over a certain period of time at varying notional amounts. At December
29, 2002, there were $20.0 million in aggregate amounts of interest rate swap
agreements outstanding that carried a weighted average interest rate of 5.6%.
The effective amount of interest we pay on the notional amounts of these swap
agreements is calculated using the interest rate of the swap plus the
percentage spread on our revolving credit facility. The swap agreements
outstanding at December 29, 2002 expire as follows: $10.0 million in January
2004, and $10.0 million in January 2006.

On January 27, 2003, we consummated the acquisition of Ninety Nine
Restaurant and Pub for $116.0 million in cash and approximately 2.35 million
shares of our common stock, plus the assumption of certain liabilities of
Ninety Nine. Of the stock portion of the purchase price, we delivered
approximately 941,000 shares at closing, and will deliver approximately 408,000
shares on each of the first, second and third anniversaries of the closing and
94,000 shares on each of the fourth and fifth anniversaries of the closing.

In conjunction with the acquisition of Ninety Nine, we entered into a new
$300 million senior secured credit facility to fund the purchase price for
Ninety Nine, repay our previous revolving credit facility and provide capital
for future growth. The new credit facility is comprised of a revolving credit
facility with a maximum principal amount of $200 million and a term loan in the
original principal amount of $100 million. The revolving credit facility
matures on January 27, 2007 and the term loan matures on January 27, 2009. The
term loan provides for scheduled quarterly principal amortization of $2.5
million commencing June 30, 2003 and ending March 31, 2008 and quarterly
principal amortization of $16.5 million commencing June 30, 2008, with a final
payment of $17.0 million due at maturity.

Amounts outstanding under the new revolving credit facility bear interest,
at the Companys option, at either LIBOR plus a specified margin ranging from
2.25% to 3.0% based on certain financial ratios or the base rate, which is the
higher of the lenders prime rate and the federal funds rate plus 0.5%, plus a
specified margin ranging from 1.0% to 1.75% based on certain financial ratios.
Amounts outstanding under the term loan bear interest, at the Companys option,
at either LIBOR plus 4.0% or the base rate plus 2.75%. At February 26, 2003,
the effective interest rate was 4.0% on the revolving credit facility and 5.3%
on the term loan. Our new credit facility imposes restrictions on us with
respect to the incurrence of additional indebtedness, sales of assets, mergers,
acquisitions, joint ventures, investments, repurchases of stock and the payment
of dividends. In addition, the credit facility requires us to comply with
certain specified financial covenants, including covenants relating to maximum
adjusted debt to EBITDAR (earnings before interest, taxes, depreciation,
amortization and rent) ratio, maximum leverage, minimum fixed charge coverage
ratio, minimum asset coverage ratio and minimum capital expenditures ratio.

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During 2001 and 2002, Ninety Nine Restaurant and Pub entered into a
sale-leaseback facility under which it sold 30 properties and leased the
properties back from the buyer. The total proceeds from the transaction were
$50.8 million. The future obligations under this facility are reflected under
operating leases in the Contractual Obligations and Commercial Commitments
table below.

We have budgeted approximately $100 million to $105 million in 2003 for
capital expenditures for the planned 27 to 29 new OCharleys restaurants,
approximately ten new Ninety Nine restaurants, improvements to existing
restaurants, approximately two new Stoney River restaurants, expansion of our
commissary facilities, and information systems improvements. There can be no
assurance that actual capital expenditures in 2003 will not vary significantly
from budgeted amounts based upon a number of factors, including the timing of
additional purchases of restaurant sites. We intend to continue financing the
furniture, fixtures and equipment for our new restaurants primarily with
capitalized lease obligations.

On May 26, 2000, we purchased two existing Stoney River Legendary Steaks
restaurants and all associated trademarks and intellectual property for
approximately $15.8 million in cash. The transaction includes an earn-out
provision for the benefit of the former owners of up to $1.25 million at the
end of 2002, $1.25 million at the end of 2003, and $2.5 million at the end of
2004. The potential earn-out is based on the Stoney River Legendary Steaks
concept achieving certain performance thresholds (income before taxes and
pre-opening costs) for such year. The performance thresholds were not satisfied
as of the end of 2002 and, accordingly, no earnout was paid in 2002. In the
event that these performance thresholds are met in future years, we would
recognize an expense related to the earn-out provision as all of the goodwill
related to the acquisition has been written off.

Based upon our current level of operations and anticipated growth, we
believe that available cash flow from operations, combined with the available
borrowings under our new credit facility and capitalized lease arrangements,
will be adequate to meet our anticipated future requirements for working
capital, capital expenditures and scheduled payments under our new term loan
facility through at least December 2003. We have historically produced
sufficient cash flow from operations to supplement our capital needs each year.
Our ability to meet our capital needs are highly dependent on us continuing to
generate sufficient cash from operations and there can be no assurance that we
will continue to do so. We continually review our capital structure
to determine the optimum structure to fund our operations and
anticipated growth. This may result in our repaying from time to time
amounts outstanding under our Credit Facility through public or
private issuances of debt or equity securities or through a
sale-leaseback of certain OCharleys properties. In addition, our growth strategy includes possible acquisitions or
strategic joint ventures. Any acquisitions, joint ventures or other growth
opportunities may require additional external financing. There can be no assurances that such sources of
financing will be available to us or that any such financing would
not negatively impact our earnings.

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Contractual Obligations and Commercial Commitments

The following tables set forth our contractual obligations and commercial
commitments at December 29, 2002.

|                                       |  |                        |         |      |  |         |        |         |  |            |        |  |  |   |         |  |  |   |        | 
|-------------------------------------- |  | ---------------------- | ------- | ---- |  | ------- | ------ | ------- |  | ---------- | ------ |  |  | - | ------- |  |  | - | ------ | 
|                                       |  | Payments Due by Period
|                                       |  |                       
|Contractual                            |  |                        |         |      |  |         |        |         |  |            |        |  |  |   |         |  |  |   |        | 
|Obligation                             |  | Total                  |         | 1 Yr |  | 2-3 Yrs |        | 4-5 Yrs |  | Thereafter
|                                       |  |                        |         |      |  |         |        |         |  |           
|                                       |  | (in thousands)        
|Long-term debt                         |  | $                      | 98,181  |      |  | $       | 17     |         |  | $          | 39     |  |  | $ | 98,048  |  |  | $ | 77     | 
|Capitalized lease obligations (1)      |  |                        | 38,790  |      |  |         | 9,389  |         |  |            | 17,889 |  |  |   | 9,120   |  |  |   | 2,392  | 
|Operating leases                       |  |                        | 85,148  |      |  |         | 7,689  |         |  |            | 14,555 |  |  |   | 14,023  |  |  |   | 48,881 | 
|Interest rate swaps                    |  |                        | 2,352   |      |  |         | 1,124  |         |  |            | 1,180  |  |  |   | 48      |  |  |   |       | 
|Unconditional purchase obligations (2) |  |                        | 42,343  |      |  |         | 28,968 |         |  |            | 7,501  |  |  |   | 5,874   |  |  |   |       | 
|                                       |  |                        |         |      |  |         |        |         |  |            |        |  |  |   |         |  |  |   |        | 
|Total contractual cash obligations     |  | $                      | 266,814 |      |  | $       | 47,187 |         |  | $          | 41,164 |  |  | $ | 127,113 |  |  | $ | 51,350 | 
|                                       |  |                        |         |      |  |         |        |         |  |            |        |  |  |   |         |  |  |   |        | 

|                   |  |                 |         |      |  |                                            |   |         |  |            |   |  |  |   |         |  |  |  |   | 
|------------------ |  | --------------- | ------- | ---- |  | ------------------------------------------ | - | ------- |  | ---------- | - |  |  | - | ------- |  |  |  | - | 
|                   |  |                 |         |      |  | Amount of Commitment Expiration per Period
|                   |  |                 |         |      |  |                                           
|Other Commercial   |  |                 |         |      |  |                                            |   |         |  |            |   |  |  |   |         |  |  |  |   | 
|Commitments        |  | Total Committed |         | 1 Yr |  | 2-3 Yrs                                    |   | 4-5 Yrs |  | Thereafter
|                   |  |                 |         |      |  |                                            |   |         |  |           
|                   |  | (in thousands) 
|Line of credit (3) |  | $               | 135,000 |      |  |                                            |  |         |  |            |  |  |  | $ | 135,000 |  |  |  |  | 



---

|(1) |  | Capitalized lease obligations include the interest expense component.                                                                                                                                                                                                                                                                                        
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | These purchase obligations are primarily fixed volume, fixed price food and
beverage contracts. In situations where the price is based on
market prices, we use the existing market prices at December 29, 2002 to
determine the amount of the obligation. Of the total unconditional
purchase obligations shown, $9.4 million are based on variable pricing.
|   
|(3) |  | This pertains to our revolving line of credit of which $98.0 million is
included in long-term debt shown above.                                                                                                                                                                                                                                              

On January 27, 2003, we acquired Ninety Nine Restaurant and Pub. The
table below sets forth our contractual obligations and commercial commitments
at December 29, 2002 after giving effect to the acquisition:

|                                                |  |                        |         |      |  |         |        |         |  |            |        |  |  |   |         |  |  |   |         | 
|----------------------------------------------- |  | ---------------------- | ------- | ---- |  | ------- | ------ | ------- |  | ---------- | ------ |  |  | - | ------- |  |  | - | ------- | 
|                                                |  | Payments Due by Period
|                                                |  |                       
|Contractual                                     |  |                        |         |      |  |         |        |         |  |            |        |  |  |   |         |  |  |   |         | 
|Obligation                                      |  | Total                  |         | 1 Yr |  | 2-3 Yrs |        | 4-5 Yrs |  | Thereafter
|                                                |  |                        |         |      |  |         |        |         |  |           
|                                                |  | (in thousands)        
|Long-term debt                                  |  | $                      | 214,676 |      |  | $       | 7,517  |         |  | $          | 20,039 |  |  | $ | 134,543 |  |  | $ | 52,577  | 
|Capitalized lease obligations (1)               |  |                        | 38,790  |      |  |         | 9,389  |         |  |            | 17,889 |  |  |   | 9,120   |  |  |   | 2,392   | 
|Operating leases (2)                            |  |                        | 146,241 |      |  |         | 11,088 |         |  |            | 21,589 |  |  |   | 21,259  |  |  |   | 92,305  | 
|Acquisition-related contractual
obligations (3) |  |                        | 4,000   |      |  |         | 1,000  |         |  |            | 2,000  |  |  |   | 1,000   |  |  |   |        | 
|Interest rate swaps                             |  |                        | 2,352   |      |  |         | 1,124  |         |  |            | 1,180  |  |  |   | 48      |  |  |   |        | 
|Unconditional purchase
obligations              |  |                        | 52,288  |      |  |         | 33,627 |         |  |            | 11,822 |  |  |   | 6,839   |  |  |   |        | 
|                                                |  |                        |         |      |  |         |        |         |  |            |        |  |  |   |         |  |  |   |         | 
|Total contractual cash
obligations              |  | $                      | 458,347 |      |  | $       | 63,745 |         |  | $          | 74,519 |  |  | $ | 172,809 |  |  | $ | 147,274 | 
|                                                |  |                        |         |      |  |         |        |         |  |            |        |  |  |   |         |  |  |   |         | 

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|                             |  |                 |         |      |  |                                            |       |         |  |            |        |  |  |   |         |  |  |   |        | 
|---------------------------- |  | --------------- | ------- | ---- |  | ------------------------------------------ | ----- | ------- |  | ---------- | ------ |  |  | - | ------- |  |  | - | ------ | 
|                             |  |                 |         |      |  | Amount of Commitment Expiration per Period
|                             |  |                 |         |      |  |                                           
|Other Commercial             |  |                 |         |      |  |                                            |       |         |  |            |        |  |  |   |         |  |  |   |        | 
|Commitments                  |  | Total Committed |         | 1 Yr |  | 2-3 Yrs                                    |       | 4-5 Yrs |  | Thereafter
|                             |  |                 |         |      |  |                                            |       |         |  |           
|                             |  | (in thousands) 
|Line
of credit(4)            |  | $               | 200,000 |      |  |                                            |      |         |  |            |       |  |  | $ | 200,000 |  |  |   |       | 
|Term
loan(5)                 |  |                 | 100,000 |      |  |                                            | 7,500 |         |  |            | 20,000 |  |  |   | 20,000  |  |  |   | 52,500 | 
|                             |  |                 |         |      |  |                                            |       |         |  |            |        |  |  |   |         |  |  |   |        | 
|Total commercial commitments |  | $               | 300,000 |      |  | $                                          | 7,500 |         |  | $          | 20,000 |  |  | $ | 220,000 |  |  | $ | 52,500 | 
|                             |  |                 |         |      |  |                                            |       |         |  |            |        |  |  |   |         |  |  |   |        | 



---

|(1) |  | Capitalized lease obligations include the interest expense
component.                                                                                                                                               
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Reflects total operating lease obligations including the
sale-leaseback facility for Ninety Nine Restaurant and Pub.                                                                                                
|   
|(3) |  | We have agreed to pay $1.0 million per year, plus accrued interest,
on each of January 1, 2004, 2005, 2006 and 2007, to certain key
employees of Ninety Nine who we continue to employ at the time of such
payments.
|   
|(4) |  | This pertains to our new
Credit Facility of which $114.7 million is included in long-term debt
above.                                                                                                               
|   
|(5) |  | This pertains to our new
Credit Facility of which $100.0 million is included in long-term debt
above.                                                                                                               

Critical Accounting Policies

Our critical accounting policies are as follows:



| |  |  | Property and equipment                                          
| | - |  | ----------------------------------------------------------------
|
| |  |  | Excess of cost over fair value of net assets acquired (goodwill)
|
| |  |  | Impairment of long-lived assets                                 

Property and Equipment

As discussed in Note 1 to the Consolidated Financial Statements, our
property and equipment are stated at cost and depreciated on a straight-line
method over the following estimated useful lives: building and improvements 
30 years; furniture, fixtures and equipment  3 to 10 years. Leasehold
improvements are amortized over the lesser of the assets estimated useful life
or the expected lease term. Equipment under capital leases is amortized to its
expected value at the end of the lease term. Gains or losses are recognized
upon the disposal of property and equipment, and the asset and related
accumulated depreciation and amortization are removed from the accounts.
Maintenance, repairs and betterments that do not enhance the value of or
increase the life of the assets are expensed as incurred.

Inherent in the policies regarding property and equipment are certain
significant management judgments and estimates, including useful life, residual
value to which the asset is depreciated, the expected value at the end of the
lease term for equipment under capital leases, and the determination as to what
constitutes enhancing the value of or increasing the life of assets. These
significant estimates and judgments, coupled with the fact that the ultimate
useful life and economic value at the end of a lease are typically not known
until the passage of time, through proper maintenance of the asset, or through
continued development and maintenance of a given market in which a store
operates can, under certain

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circumstances, produce distorted or inaccurate depreciation and
amortization or, in some cases result in a write down of the value of the
assets under Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. See Critical Accounting Policy Impairment of Long-Lived
Assets below.

We believe that our accounting policy for property and equipment provides
a reasonably accurate means by which the costs associated with an asset are
recognized in expense as the cash flows associated with the assets use are
realized.

Excess of Cost Over Fair Value of Net Assets Acquired (Goodwill)

As discussed in Note 1 to the Consolidated Financial Statements, as of
December 29, 2002, we no longer amortize goodwill. Beginning in fiscal 2002,
we adopted SFAS No. 142 Goodwill and Other Intangibles. SFAS No. 142
requires that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually in
accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires
that intangible assets with definite useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.

We incurred an after-tax charge of $6.1 million, or $0.31 per diluted
share, which was recorded as a cumulative effect of a change in accounting
principle as of the beginning of fiscal 2002 associated with the adoption of
SSFAS No. 142. The charge was related to the goodwill associated with the
Stoney River acquisition.

On January 27, 2003, we acquired Ninety Nine
Restaurant and Pub for $116 million in cash and approximately 2.35 million
shares of our common stock. We are required to complete a valuation of the
assets and liabilities of Ninety Nine and to allocate the purchase price to the
acquired tangible and intangible assets and liabilities with the remaining
amount being allocated to goodwill. We anticipate that a substantial majority
of the purchase price will be allocated to goodwill and trademarks, which we
will be required to test for impairment under SFAS No. 142 on an annual basis.

Impairment of Long-Lived Assets

As discussed in Note 1 to the Consolidated Financial Statements, SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets,
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower
of carrying amount or fair value less costs to sell.

The judgments made related to the ultimate expected useful life and our
ability to realize undiscounted cash flows in excess of the carrying value of
an asset are affected by such issues as ongoing maintenance of the asset,
continued development and sustenance of a given market within which a store
operates, including the presence of traffic generating businesses in the area,
and our ability to operate the store efficiently and effectively can cause us
to realize an impairment charge. We assess the projected cash flows and
carrying values at the restaurant level, which is the level where identifiable
cash flows are largely independent of the cash flows of other groups of assets,
whenever events or changes in circumstances indicate that the long-lived assets
associated with a restaurant may not be recoverable.

We believe that our accounting policy for impairment of long-lived assets
provides reasonable assurance that any assets that are impaired are written
down to their fair value and a charge is taken in earnings on a timely basis.

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Other Accounting Matters

As discussed in Note 1 to our Consolidated Financial Statements, we
account for our stock option plans in accordance with SFAS No. 123, Accounting
for Stock-based Compensation. SFAS 123 encourages all entities to adopt a
fair value based method of accounting for employee stock compensation plans,
whereby compensation cost is measured at the grant date based on the value of
the award and is recognized over the service period, which is usually the
vesting period. However, SFAS No. 123 also allows an entity to continue to
measure compensation cost for those plans using the intrinsic value based
method of accounting prescribed by Accounting Principle Board Opinion No. 25
(APB 25), whereby compensation cost is the excess, if any, of the quoted
market price of the stock on the grant date (or other measurement date) over
the amount an employee must pay to acquire the stock. We currently apply the
provisions of APB 25 to account for our stock option plans. Stock options
issued to-date pursuant to our stock options plans have had no intrinsic value
at the grant date, and under Opinion No. 25, no compensation cost is recognized
for them. We have provided in the notes to our Consolidated Financial
Statements pro forma net earnings and pro forma earnings per share disclosures
for employee stock option grants made in 1997 and subsequent years as if the
fair-value-based method defined in SFAS 123 had been applied. As of December
29, 2002, we had options to purchase approximately 3.5 million shares of common
stock outstanding at an average exercise price of $12.43 per share. In
January 2003, we issued options to purchase an aggregate of 1.1 million shares
of our common stock, 533,000 of which were granted to the management of Ninety
Nine Restaurant and Pub.

In the event that accounting rules associated with stock options were to
change to require all entities to use the fair value based method of accounting
prescribed by SFAS No. 123, or were we to voluntarily elect to apply such
methods, our consolidated statement of earnings would be impacted.

Recent Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendments of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 amends existing guidance on reporting gains and
losses on the extinguishments of debt to prohibit the classification of the
gain or loss as extraordinary, as the use of such extinguishments have become
part of the risk management strategy of many companies. SFAS No. 145 also
amends SFAS No. 13 to require sale-leaseback accounting for certain lease
modifications that have economic effects similar to sale-leaseback
transactions. The provisions of the Statement related to the rescission of
Statement No. 4 is applied in fiscal years beginning after May 15, 2002.
Earlier application of these provisions is encouraged. The provisions of the
Statement related to Statement No. 13 were effective for transactions occurring
after May 15, 2002, with early application encouraged. The adoption of SFAS No.
145 is not expected to have a material effect on our consolidated financial
statements.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity. The provisions of this Statement are effective for exit or
disposal activities that are initiated after December 31, 2002, with early
application encouraged.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken. The initial recognition and measurement provisions
of the Interpretation are applicable to guarantees issued or modified after
December 31, 2002 and are not expected to have a material effect on our
consolidated financial statements. The disclosure requirements are effective
for financial statements of interim and annual periods ending after December
15, 2002.

In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123,

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##### Table of Contents



Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement No. 123 to require prominent disclosures
in both annual and interim financial statements. Certain of the disclosure
modifications are required for fiscal years ending after December 15, 2002 and
are included in the notes to the accompanying consolidated financial
statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, and Interpretation of ARB No. 51. This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. It applies in the first fiscal year, or
interim period beginning after June 15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. The application of this Interpretation is not expected to
have a material effect on our consolidated financial statements.

Impact of Inflation

The impact of inflation on the cost of food, labor, equipment, land and
construction costs could adversely affect our operations. A majority of our
employees are paid hourly rates related to federal and state minimum wage laws.
As a result of increased competition and the low unemployment rates in the
markets in which our restaurants are located, we have continued to increase
wages and benefits in order to attract and retain management personnel and
hourly employees. In addition, most of our leases require us to pay taxes,
insurance, maintenance, repairs and utility costs, and these costs are subject
to inflationary pressures. We attempt to offset the effect of inflation through
periodic menu price increases, economies of scale in purchasing and cost
controls and efficiencies at our restaurants.

Item 7A. 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. We
currently utilize a balanced mix of debt maturities along with both fixed-rate
and variable-rate debt to manage our exposure to changes in interest rates.
Our fixed-rate debt consists primarily of capitalized leases and our
variable-rate debt consists of amounts outstanding under our revolving credit
facility and term loan.

As an additional method of managing our interest rate exposure on our
credit facility, at certain times we enter into interest rate swap agreements
whereby we agree to pay over the life of the swaps a fixed interest rate
payment on a notional amount and in exchange we receive a floating rate payment
calculated on the same amount over the same time period. The fixed interest
rates are dependent upon market levels at the time the swaps are consummated.
The floating interest rates are generally based on the monthly LIBOR rate and
rates are typically reset on a monthly basis, which is intended to coincide
with the pricing adjustments on our revolving credit facility. As of December
29, 2002, we had in effect $20.0 million in swaps at an average fixed rate of
5.6%, $10.0 million of which matures in January 2004 and $10.0 million of which
matures in January 2006.

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##### Table of Contents



Item 8. Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OCHARLEYS INC.

|                                                                                                                                                         |  |      |    | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                                                         |  | Page
|                                                                                                                                                         |  |     
|Independent Auditors Report                                                                                                                             |  |      | 39 | 
|Consolidated Balance Sheets at December 29, 2002 and December 30, 2001                                                                                   |  |      | 40 | 
|Consolidated Statements of Earnings for the Years Ended December 29, 2002, December 30, 2001
and December 31, 2000                                       |  |      | 41 | 
|Consolidated Statements of Shareholders Equity and Comprehensive Income for the Years Ended
December 29, 2002, December 30, 2001, and December 31, 2000 |  |      | 42 | 
|Consolidated Statements of Cash Flows for the Years Ended December 29, 2002, December 30, 2001,
and December 31, 2000                                    |  |      | 43 | 
|Notes to the Consolidated Financial Statements                                                                                                           |  |      | 44 | 

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INDEPENDENT AUDITORS REPORT

The Board of Directors and Shareholders
OCharleys Inc.
Nashville, Tennessee:

We have audited the consolidated balance sheets of OCharleys Inc. and
subsidiaries (the Company) as of December 29, 2002 and December 30, 2001, and
the related consolidated statements of earnings, shareholders equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 29, 2002. These consolidated financial statements are
the responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of OCharleys
Inc. and subsidiaries as of December 29, 2002 and December 30, 2001, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 29, 2002, in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for goodwill and other intangible
assets in 2002.

|                                      |  |         
|------------------------------------- |  | --------
|                                      |  | KPMG LLP
|                                      |  |         
|Nashville, Tennessee
February 5, 2003 |  |         

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CONSOLIDATED BALANCE SHEETS

|                                                      |                                                                                                                             |                            |         |                        |         |                   |         |         |         | 
|----------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ---------------------- | ------- | ----------------- | ------- | ------- | ------- | 
|                                                      |                                                                                                                             |                            |         | December 29, 2002      |         | December 30, 2001
|                                                      |                                                                                                                             |                            |         |                        |         |                  
|                                                      |                                                                                                                             |                            |         | (dollars in thousands)
|ASSETS                                                |                                                                                                                             |                            |         |                        |         |                   |         |        
|Current Assets:                                       |                                                                                                                             |                            |         |                        |         |                   |         |        
|                                                      | Cash and cash equivalents                                                                                                   |                            | $       | 8,311                  |         |                   | $       | 6,369   |        
|                                                      | Accounts receivable, less allowance for doubtful
accounts of $188 in 2002 and $153 in 2001                                  |                            |         | 4,800                  |         |                   |         | 4,348   |        
|                                                      | Inventories                                                                                                                 |                            |         | 18,300                 |         |                   |         | 18,288  |        
|                                                      | Deferred income taxes                                                                                                       |                            |         | 4,255                  |         |                   |         | 3,914   |        
|                                                      | Short-term notes receivable                                                                                                 |                            |         | 2,950                  |         |                   |         | 2,025   |        
|                                                      | Other current assets                                                                                                        |                            |         | 2,288                  |         |                   |         | 1,611   |        
|                                                      |                                                                                                                             |                            |         |                        |         |                   |         |        
|                                                      |                                                                                                                             | Total current assets       |         |                        | 40,904  |                   |         |         | 36,555  | 
|Property and Equipment, net                           |                                                                                                                             |                            | 381,553 |                        |         |                   | 330,553 |        
|Other Assets                                          |                                                                                                                             |                            | 6,334   |                        |         |                   | 16,322  |        
|                                                      |                                                                                                                             |                            |         |                        |         |                   |         |        
|                                                      |                                                                                                                             | $                          | 428,791 |                        |         | $                 | 383,430 |        
|                                                      |                                                                                                                             |                            |         |                        |         |                   |         |        
|LIABILITIES AND SHAREHOLDERS EQUITY                  |                                                                                                                             |                            |         |                        |         |                   |         |        
|Current Liabilities:                                  |                                                                                                                             |                            |         |                        |         |                   |         |        
|                                                      | Accounts payable                                                                                                            |                            | $       | 13,284                 |         |                   | $       | 11,334  |        
|                                                      | Accrued payroll and related expenses                                                                                        |                            |         | 13,328                 |         |                   |         | 10,789  |        
|                                                      | Accrued expenses                                                                                                            |                            |         | 10,387                 |         |                   |         | 9,490   |        
|                                                      | Deferred revenue                                                                                                            |                            |         | 8,712                  |         |                   |         | 4,974   |        
|                                                      | Federal, state and local taxes                                                                                              |                            |         | 8,595                  |         |                   |         | 7,266   |        
|                                                      | Current portion of long-term debt and capitalized leases                                                                    |                            |         | 8,015                  |         |                   |         | 7,924   |        
|                                                      |                                                                                                                             |                            |         |                        |         |                   |         |        
|                                                      |                                                                                                                             | Total current liabilities  |         |                        | 62,321  |                   |         |         | 51,777  | 
|Long-Term Debt, net of current portion                |                                                                                                                             |                            | 98,164  |                        |         |                   | 89,181  |        
|Capitalized Lease Obligations, net of current portion |                                                                                                                             |                            | 25,923  |                        |         |                   | 24,824  |        
|Deferred Income Taxes                                 |                                                                                                                             |                            | 7,796   |                        |         |                   | 9,576   |        
|Other Liabilities                                     |                                                                                                                             |                            | 4,623   |                        |         |                   | 3,870   |        
|Shareholders Equity:                                 |                                                                                                                             |                            |         |                        |         |                   |         |        
|                                                      | Common stockNo par value; authorized, 50,000,000
shares; issued and outstanding, 18,838,826 in
2002 and 18,392,554 in 2001 |                            |         | 116,171                |         |                   |         | 110,636 |        
|                                                      | Accumulated other comprehensive loss, net of tax                                                                            |                            |         | (931                   | )       |                   |         | (490    | )      
|                                                      | Retained earnings                                                                                                           |                            |         | 114,724                |         |                   |         | 94,056  |        
|                                                      |                                                                                                                             |                            |         |                        |         |                   |         |        
|                                                      |                                                                                                                             | Total shareholders equity |         |                        | 229,964 |                   |         |         | 204,202 | 
|                                                      |                                                                                                                             |                            |         |                        |         |                   |         |        
|                                                      |                                                                                                                             | $                          | 428,791 |                        |         | $                 | 383,430 |        
|                                                      |                                                                                                                             |                            |         |                        |         |                   |         |        

See notes to the consolidated financial statements

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CONSOLIDATED STATEMENTS OF EARNINGS

|                                                                                             |                                                  |                            |         |                                       |         |                   |         |                   |         |   |         |         |         | 
|-------------------------------------------------------------------------------------------- | ------------------------------------------------ | -------------------------- | ------- | ------------------------------------- | ------- | ----------------- | ------- | ----------------- | ------- | - | ------- | ------- | ------- | 
|                                                                                             |                                                  |                            |         | Year Ended                           
|                                                                                             |                                                  |                            |         |                                      
|                                                                                             |                                                  |                            |         | December 29, 2002                     |         | December 30, 2001 |         | December 31, 2000
|                                                                                             |                                                  |                            |         |                                       |         |                   |         |                  
|                                                                                             |                                                  |                            |         | (in thousands, except per share data)
|Revenues:                                                                                    |                                                  |                            |         |                                       |         |                   |         |                   |         |   |         |        
|                                                                                             | Restaurant sales                                 |                            | $       | 495,112                               |         |                   | $       | 440,875           |         |   | $       | 373,700 |        
|                                                                                             | Commissary sales                                 |                            |         | 4,800                                 |         |                   |         | 4,056             |         |   |         | 3,562   |        
|                                                                                             |                                                  |                            |         |                                       |         |                   |         |                   |         |   |         |        
|                                                                                             |                                                  |                            | 499,912 |                                       |         |                   | 444,931 |                   |         |   | 377,262 |        
|Costs and Expenses:                                                                          |                                                  |                            |         |                                       |         |                   |         |                   |         |   |         |        
|                                                                                             | Cost of restaurant sales:                        |                            |         |                                       |         |                   |         |                   |         |   |         |         |        
|                                                                                             |                                                  | Cost of food and beverage  |         |                                       | 140,023 |                   |         |                   | 129,062 |   |         |         | 109,480 | 
|                                                                                             |                                                  | Payroll and benefits       |         |                                       | 154,311 |                   |         |                   | 138,009 |   |         |         | 115,029 | 
|                                                                                             |                                                  | Restaurant operating costs |         |                                       | 86,315  |                   |         |                   | 76,788  |   |         |         | 64,818  | 
|                                                                                             | Cost of commissary sales                         |                            |         | 4,488                                 |         |                   |         | 3,808             |         |   |         | 3,341   |        
|                                                                                             | Advertising, general and administrative expenses |                            |         | 37,677                                |         |                   |         | 29,979            |         |   |         | 24,480  |        
|                                                                                             | Depreciation and amortization                    |                            |         | 25,527                                |         |                   |         | 22,135            |         |   |         | 18,202  |        
|                                                                                             | Asset impairment and exit costs                  |                            |         |                                      |         |                   |         | 5,798             |         |   |         |        |        
|                                                                                             | Preopening costs                                 |                            |         | 5,074                                 |         |                   |         | 5,654             |         |   |         | 4,705   |        
|                                                                                             |                                                  |                            |         |                                       |         |                   |         |                   |         |   |         |        
|                                                                                             |                                                  |                            | 453,415 |                                       |         |                   | 411,233 |                   |         |   | 340,055 |        
|                                                                                             |                                                  |                            |         |                                       |         |                   |         |                   |         |   |         |        
|Income from Operations                                                                       |                                                  |                            | 46,497  |                                       |         |                   | 33,698  |                   |         |   | 37,207  |        
|Other (Income) Expense:                                                                      |                                                  |                            |         |                                       |         |                   |         |                   |         |   |         |        
|                                                                                             | Interest expense, net                            |                            |         | 5,556                                 |         |                   |         | 6,610             |         |   |         | 7,398   |        
|                                                                                             | Other, net                                       |                            |         | (118                                  | )       |                   |         | 189               |         |   |         | 24      |        
|                                                                                             |                                                  |                            |         |                                       |         |                   |         |                   |         |   |         |        
|                                                                                             |                                                  |                            | 5,438   |                                       |         |                   | 6,799   |                   |         |   | 7,422   |        
|                                                                                             |                                                  |                            |         |                                       |         |                   |         |                   |         |   |         |        
|Earnings Before Income Taxes and Cumulative Effect
of Change in Accounting Principle         |                                                  |                            | 41,059  |                                       |         |                   | 26,899  |                   |         |   | 29,785  |        
|Income Taxes                                                                                 |                                                  |                            | 14,268  |                                       |         |                   | 9,347   |                   |         |   | 10,425  |        
|                                                                                             |                                                  |                            |         |                                       |         |                   |         |                   |         |   |         |        
|Earnings Before Cumulative Effect of Change in
Accounting Principle                          |                                                  |                            | 26,791  |                                       |         |                   | 17,552  |                   |         |   | 19,360  |        
|Cumulative Effect of Change in Accounting
Principle, net of tax                              |                                                  |                            | (6,123  | )                                     |         |                   |        |                   |         |   |        |        
|                                                                                             |                                                  |                            |         |                                       |         |                   |         |                   |         |   |         |        
|Net Earnings                                                                                 |                                                  | $                          | 20,668  |                                       |         | $                 | 17,552  |                   |         | $ | 19,360  |        
|                                                                                             |                                                  |                            |         |                                       |         |                   |         |                   |         |   |         |        
|Basic Earnings Per Common Share Before Cumulative
Effect of Change in Accounting Principle   |                                                  | $                          | 1.44    |                                       |         | $                 | 0.99    |                   |         | $ | 1.24    |        
|Cumulative Effect of Change in Accounting
Principle, net of tax                              |                                                  |                            | (0.33   | )                                     |         |                   |        |                   |         |   |        |        
|                                                                                             |                                                  |                            |         |                                       |         |                   |         |                   |         |   |         |        
|Basic Earnings Per Common Share                                                              |                                                  | $                          | 1.11    |                                       |         | $                 | 0.99    |                   |         | $ | 1.24    |        
|                                                                                             |                                                  |                            |         |                                       |         |                   |         |                   |         |   |         |        
|Diluted Earnings Per Common Share Before
Cumulative Effect of Change in Accounting
Principle |                                                  | $                          | 1.35    |                                       |         | $                 | 0.93    |                   |         | $ | 1.17    |        
|Cumulative Effect of Change in Accounting
Principle, net of tax                              |                                                  |                            | (0.31   | )                                     |         |                   |        |                   |         |   |        |        
|                                                                                             |                                                  |                            |         |                                       |         |                   |         |                   |         |   |         |        
|Diluted Earnings Per Common Share                                                            |                                                  | $                          | 1.04    |                                       |         | $                 | 0.93    |                   |         | $ | 1.17    |        
|                                                                                             |                                                  |                            |         |                                       |         |                   |         |                   |         |   |         |        

See notes to the consolidated financial statements

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##### Table of Contents



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND
COMPREHENSIVE INCOME

|                           |  |                                                                                   |                            |  |              |   |               |  |           |   |          |   |             |   |         |  |        |   |         |  |        |        | 
|-------------------------- |  | --------------------------------------------------------------------------------- | -------------------------- |  | ------------ | - | ------------- |  | --------- | - | -------- | - | ----------- | - | ------- |  | ------ | - | ------- |  | ------ | ------ | 
|                           |  |                                                                                   |                            |  |              |   |               |  |           |   |          |   | Accumulated |   |         |  |        |   |         |  |       
|                           |  |                                                                                   |                            |  | Common Stock |   | Other         |  |           |   |          |   |             |   |        
|                           |  |                                                                                   |                            |  |              |   | Comprehensive |  | Retained  |   |          |   |            
|                           |  |                                                                                   |                            |  | Shares       |   | Amount        |  | Loss, net |   | Earnings |   | Total      
|                           |  |                                                                                   |                            |  |              |   |               |  |           |   |          |   |            
|                           |  | (in thousands)                                                                   
|Balance, December 26, 1999 |  |                                                                                   | 15,502                     |  |              | $ | 65,732        |  |           | $ | (186     | ) |             | $ | 57,143  |  |        | $ | 122,689 | 
|                           |  | Comprehensive income:                                                             |                            |  |              |   |               |  |           |   |          |   |             |   |         |  |        |   |         |  |        |       
|                           |  | 2000 net earnings                                                                 |                            |  |             |   |               |  |          |   |          |   |            |   |         |  | 19,360 |   |         |  | 19,360 |       
|                           |  | Change in unrealized loss on
available for sale securities,
net of tax            |                            |  |             |   |               |  |          |   |          |   | (34         | ) |         |  |       |   |         |  | (34    | )     
|                           |  |                                                                                   |                            |  |              |   |               |  |           |   |          |   |             |   |         |  |        |   |         | 
|                           |  |                                                                                   | Total comprehensive income |  |              |   |               |  |           |   |          |   |             |   |         |  |        |   |         |  |        | 19,326 | 
|                           |  |                                                                                   |                            |  |              |   |               |  |           |   |          |   |             |   |         |  |        |   |         | 
|                           |  | Repurchase of common stock                                                        |                            |  | (52          | ) |               |  | (584      | ) |          |   |            |   |         |  |       |   |         |  | (584   | )     
|                           |  | Exercise of employee stock
options including tax benefits                         |                            |  | 196          |   |               |  | 1,436     |   |          |   |            |   |         |  |       |   |         |  | 1,436  |       
|                           |  | Shares issued under CHUX
Ownership Plan                                           |                            |  | 58           |   |               |  | 623       |   |          |   |            |   |         |  |       |   |         |  | 623    |       
|                           |  |                                                                                   |                            |  |              |   |               |  |           |   |          |   |             |   |         |  |        |   |         | 
|Balance, December 31, 2000 |  |                                                                                   | 15,704                     |  |              |   | 67,207        |  |           |   | (220     | ) |             |   | 76,503  |  |        |   | 143,490 | 
|                           |  | Comprehensive income:                                                             |                            |  |              |   |               |  |           |   |          |   |             |   |         |  |        |   |         |  |        |       
|                           |  | 2001 net earnings                                                                 |                            |  |             |   |               |  |          |   |          |   |            |   |         |  | 17,552 |   |         |  | 17,552 |       
|                           |  | Change in unrealized loss on
available for sale securities,
net of tax            |                            |  |             |   |               |  |          |   |          |   | 220         |   |         |  |       |   |         |  | 220    |       
|                           |  | Market value of derivatives, net
of tax                                           |                            |  |             |   |               |  |          |   |          |   | (490        | ) |         |  |       |   |         |  | (490   | )     
|                           |  |                                                                                   |                            |  |              |   |               |  |           |   |          |   |             |   |         |  |        |   |         | 
|                           |  |                                                                                   | Total comprehensive income |  |              |   |               |  |           |   |          |   |             |   |         |  |        |   |         |  |        | 17,282 | 
|                           |  |                                                                                   |                            |  |              |   |               |  |           |   |          |   |             |   |         |  |        |   |         | 
|                           |  | Repurchase of common stock                                                        |                            |  | (286         | ) |               |  | (5,153    | ) |          |   |            |   |         |  |       |   |         |  | (5,153 | )     
|                           |  | Sale of common stock                                                              |                            |  | 2,300        |   |               |  | 41,744    |   |          |   |            |   |         |  |       |   |         |  | 41,744 |       
|                           |  | Exercise of employee stock
options including tax benefits                         |                            |  | 593          |   |               |  | 5,619     |   |          |   |            |   |         |  |       |   |         |  | 5,619  |       
|                           |  | Shares issued under CHUX
Ownership Plan                                           |                            |  | 82           |   |               |  | 1,219     |   |          |   |            |   |         |  |       |   |         |  | 1,219  |       
|                           |  |                                                                                   |                            |  |              |   |               |  |           |   |          |   |             |   |         |  |        |   |         | 
|Balance, December 30, 2001 |  |                                                                                   | 18,393                     |  |              |   | 110,636       |  |           |   | (490     | ) |             |   | 94,056  |  |        |   | 204,202 | 
|                           |  | Comprehensive income:                                                             |                            |  |              |   |               |  |           |   |          |   |            |   |         |  |       |   |         |  |       |       
|                           |  | 2002 net earnings                                                                 |                            |  |              |   |               |  |           |   |          |   |             |   |         |  | 20,668 |   |         |  | 20,668 |       
|                           |  | Market value of derivatives, net
of tax                                           |                            |  |             |   |               |  |          |   |          |   | (441        | ) |         |  |       |   |         |  | (441   | )     
|                           |  |                                                                                   |                            |  |              |   |               |  |           |   |          |   |             |   |         |  |        |   |         | 
|                           |  |                                                                                   | Total comprehensive income |  |              |   |               |  |           |   |          |   |             |   |         |  |        |   |         |  |        | 20,227 | 
|                           |  |                                                                                   |                            |  |              |   |               |  |           |   |          |   |             |   |         |  |        |   |         | 
|                           |  | Exercise
of employee stock options net of shares tendered, including tax benefits |                            |  | 361          |   |               |  | 4,097     |   |          |   |            |   |         |  |       |   |         |  | 4,097  |       
|                           |  | Shares issued under CHUX
Ownership Plan                                           |                            |  | 85           |   |               |  | 1,438     |   |          |   |            |   |         |  |       |   |         |  | 1,438  |       
|                           |  |                                                                                   |                            |  |              |   |               |  |           |   |          |   |             |   |         |  |        |   |         | 
|Balance, December 29, 2002 |  |                                                                                   | 18,839                     |  |              | $ | 116,171       |  |           | $ | (931     | ) |             | $ | 114,724 |  |        | $ | 229,964 | 
|                           |  |                                                                                   |                            |  |              |   |               |  |           |   |          |   |             |   |         |  |        |   |         | 

See notes to the consolidated financial statements

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CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                   |                                                                                           |                                                                     |                                           |                                           |        |              |        |              |        |                |        |         |        |         |        | 
|-------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ------ | ------------ | ------ | ------------ | ------ | -------------- | ------ | ------- | ------ | ------- | ------ | 
|                                                   |                                                                                           |                                                                     |                                           |                                           |        | Year Ended  
|                                                   |                                                                                           |                                                                     |                                           |                                           |        |             
|                                                   |                                                                                           |                                                                     |                                           |                                           |        | December 29, |        | December 30, |        | December 31,  
|                                                   |                                                                                           |                                                                     |                                           |                                           |        | 2002         |        | 2001         |        | 2000          
|                                                   |                                                                                           |                                                                     |                                           |                                           |        |              |        |              |        |               
|                                                   |                                                                                           |                                                                     |                                           |                                           |        |              |        |              |        | (in thousands) |        |         |        |        
|Cash Flows from Operating Activities:              |                                                                                           |                                                                     |                                           |                                           |        |              |        |              |        |                |        |        
|                                                   | Net earnings                                                                              |                                                                     | $                                         | 20,668                                    |        |              | $      | 17,552       |        |                | $      | 19,360  |       
|                                                   | Adjustments to reconcile net earnings to net cash
provided by operating activities:       |                                                                     |                                           |                                           |        |              |        |              |        |                |        |         |       
|                                                   |                                                                                           | Cumulative effect of accounting change, net of tax                  |                                           |                                           | 6,123  |              |        |              |       |                |        |         |       |        
|                                                   |                                                                                           | Depreciation and amortization  property and
equipment and goodwill |                                           |                                           | 25,527 |              |        |              | 22,135 |                |        |         | 18,202 |        
|                                                   |                                                                                           | Amortization of debt issuance costs                                 |                                           |                                           | 380    |              |        |              | 237    |                |        |         | 139    |        
|                                                   |                                                                                           | Deferred income taxes                                               |                                           |                                           | 1,845  |              |        |              | (1,336 | )              |        |         | 2,052  |        
|                                                   |                                                                                           | (Gain) loss on the sale and involuntary conversion of
assets        |                                           |                                           | (63    | )            |        |              | 104    |                |        |         | 10     |        
|                                                   |                                                                                           | Asset impairment and exit costs                                     |                                           |                                           |       |              |        |              | 5,798  |                |        |         |       |        
|                                                   | Changes in assets and liabilities, excluding the
effects of the Stoney River acquisition: |                                                                     |                                           |                                           |        |              |        |              |        |                |        |         |       
|                                                   |                                                                                           | Accounts receivable                                                 |                                           |                                           | (452   | )            |        |              | (712   | )              |        |         | (1,441 | )      
|                                                   |                                                                                           | Inventories                                                         |                                           |                                           | (12    | )            |        |              | (5,683 | )              |        |         | (3,684 | )      
|                                                   |                                                                                           | Other current assets and short term notes receivable                |                                           |                                           | (677   | )            |        |              | (2,243 | )              |        |         | (614   | )      
|                                                   |                                                                                           | Accounts payable                                                    |                                           |                                           | 1,950  |              |        |              | (1,305 | )              |        |         | 3,321  |        
|                                                   |                                                                                           | Deferred revenue                                                    |                                           |                                           | 3,738  |              |        |              | 1,638  |                |        |         | 762    |        
|                                                   |                                                                                           | Accrued payroll and other accrued expenses                          |                                           |                                           | 4,766  |              |        |              | 8,707  |                |        |         | 1,535  |        
|                                                   | Tax benefit derived from exercise of stock options                                        |                                                                     |                                           | 1,100                                     |        |              |        | 1,816        |        |                |        | 368     |       
|                                                   |                                                                                           |                                                                     |                                           |                                           |        |              |        |              |        |                |        |        
|                                                   |                                                                                           |                                                                     |                                           | Net cash provided by operating activities |        |              | 64,893 |              |        |                | 46,708 |         |        |         | 40,010 | 
|Cash Flows from Investing Activities:              |                                                                                           |                                                                     |                                           |                                           |        |              |        |              |        |                |        |        
|                                                   | Additions to property and equipment                                                       |                                                                     |                                           | (69,711                                   | )      |              |        | (73,467      | )      |                |        | (56,796 | )     
|                                                   | Acquisition of company, net of cash acquired                                              |                                                                     |                                           |                                          |        |              |        |             |        |                |        | (15,849 | )     
|                                                   | Proceeds from the sale of assets                                                          |                                                                     |                                           | 2,018                                     |        |              |        | 1,355        |        |                |        | 293     |       
|                                                   | Other, net                                                                                |                                                                     |                                           | (1,083                                    | )      |              |        | (860         | )      |                |        | 56      |       
|                                                   |                                                                                           |                                                                     |                                           |                                           |        |              |        |              |        |                |        |        
|                                                   |                                                                                           |                                                                     | Net cash used in investing activities     |                                           |        | (68,776      | )      |              |        | (72,972        | )      |         |        | (72,296 | )     
|Cash Flows From Financing Activities:              |                                                                                           |                                                                     |                                           |                                           |        |              |        |              |        |                |        |        
|                                                   | Proceeds from long-term debt                                                              |                                                                     |                                           | 9,000                                     |        |              |        | 38,700       |        |                |        | 38,000  |       
|                                                   | Payments on long-term debt and capitalized lease
obligations                              |                                                                     |                                           | (7,610                                    | )      |              |        | (49,573      | )      |                |        | (7,099  | )     
|                                                   | Debt issuance costs                                                                       |                                                                     |                                           |                                          |        |              |        | (659         | )      |                |        | (348    | )     
|                                                   | Net proceeds from sale of common stock                                                    |                                                                     |                                           |                                          |        |              |        | 41,744       |        |                |        |        |       
|                                                   | Exercise of employee incentive stock options and
issuances under stock purchase plan      |                                                                     |                                           | 4,435                                     |        |              |        | 5,022        |        |                |        | 1,691   |       
|                                                   | Repurchase of common stock                                                                |                                                                     |                                           |                                          |        |              |        | (5,153       | )      |                |        | (584    | )     
|                                                   |                                                                                           |                                                                     |                                           |                                           |        |              |        |              |        |                |        |        
|                                                   |                                                                                           |                                                                     | Net cash provided by financing activities |                                           |        | 5,825        |        |              |        | 30,081         |        |         |        | 31,660  |       
|                                                   |                                                                                           |                                                                     |                                           |                                           |        |              |        |              |        |                |        |        
|Increase (decrease) in cash and cash equivalents   |                                                                                           |                                                                     | 1,942                                     |                                           |        |              | 3,817  |              |        |                | (626   | )      
|Cash and cash equivalents at beginning of the year |                                                                                           |                                                                     | 6,369                                     |                                           |        |              | 2,552  |              |        |                | 3,178  |        
|                                                   |                                                                                           |                                                                     |                                           |                                           |        |              |        |              |        |                |        |        
|Cash and cash equivalents at end of the year       |                                                                                           | $                                                                   | 8,311                                     |                                           |        | $            | 6,369  |              |        | $              | 2,552  |        
|                                                   |                                                                                           |                                                                     |                                           |                                           |        |              |        |              |        |                |        |        

See notes to the consolidated financial statements

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OCHARLEYS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

OCharleys Inc.(the Company) owns and operates 182 (at December 29,
2002) full-service restaurant facilities in 15 southeastern and midwestern
states under the trade name of OCharleys and six full-service restaurant
facilities under the trade name of Stoney River Legendary Steaks. The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated. The Companys fiscal year ends on the last
Sunday in December. Fiscal 2002 was comprised of 52 weeks, which ended
December 29, 2002. Fiscal 2001 was comprised of 52 weeks, which ended December
30, 2001. Fiscal 2000 was comprised of 53 weeks, which ended December 31,
2000. The prior years consolidated statement of earnings has been
reclassified to conform to the current year presentation. Also see Note 18.

Cash Equivalents. For purposes of the consolidated statements of cash
flows, the Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. The Company had
cash equivalents of $8.5 million and $2.1 million at December 29, 2002 and
December 30, 2001, respectively. These cash equivalents consist entirely of
overnight repurchase agreements of government securities.

Inventoriesare valued at the lower of cost (first-in, first-out method)
or market and consist primarily of food, beverages and supplies.

Preopening Costsrepresent costs incurred prior to a restaurant opening
and are expensed as incurred.

Investments. The Company owns certain marketable securities that are
accounted for in accordance with Statement of Financial Accounting Standards
No. 115 Accounting for Certain Debt and Equity Securities. Marketable
securities are classified as available for sale securities and are carried at
fair value, with the unrealized gains and losses recorded in a separate
component of shareholders equity, net of tax unless there is a decline in
value which is considered to be other than temporary, in which case the cost of
such security is written down to fair value and the amount of the write down is
reflected in earnings. At December 29, 2002 and December 30, 2001, the fair
value and cost of such securities was approximately $256,000.

Property and Equipmentare stated at cost and depreciated on a
straight-line method over the following estimated useful lives: buildings and
improvements30 years; furniture, fixtures and equipment3 to 10 years.
Leasehold improvements are amortized over the lesser of the assets estimated
useful life or the expected lease term. Equipment under capitalized leases is
amortized to its expected value to the Company at the end of the lease term.
Gains or losses are recognized upon the disposal of property and equipment, and
the asset and related accumulated depreciation and amortization are removed
from the accounts. Maintenance, repairs and betterments that do not enhance
the value of or increase the life of the assets are expensed as incurred.

Excess of Cost Over Fair Value of Net Assets Acquired
(goodwill),represents the excess of costs over fair value of assets of
businesses acquired. The Company adopted the provisions of SFAS No. 142,
Goodwill and Other Intangible Assets, as of December 31, 2001. Goodwill and
intangible assets acquired in a purchase business combination and determined to
have an indefinite useful life are not amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
SFAS No. 142 also requires that intangible assets with estimated useful lives
be amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 144,
Accounting for Impairment or Disposal of Long-Lived Assets.

In connection with SFAS No. 142s transitional goodwill impairment
evaluation, the Statement required the Company to perform an assessment of
whether there was an indication that goodwill is impaired as of the date of
adoption. To accomplish this, the Company was required to identify its
reporting units and determine the carrying value of each reporting unit by
assigning the assets and liabilities, including the existing goodwill and
intangible assets, to those reporting units as of December 31, 2001. The
Company was required to determine the fair value of each reporting unit and
compare it to the carrying amount of the reporting unit within six months of
December 31, 2001. To the extent the carrying amount of a reporting unit
exceeded the fair value of the reporting unit, the Company would be required to
perform the second step of the transitional impairment test, as this is an
indication that the reporting unit goodwill may be

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impaired. In this step, the
Company compared the implied fair value of the reporting unit goodwill with the
carrying amount of the reporting unit
goodwill, both of which were measured as of the date of adoption. The implied
fair value of goodwill was determined by allocating the fair value of the
reporting unit to all of the assets (recognized and unrecognized) and
liabilities of the reporting unit in a manner similar to a purchase price
allocation, in accordance with SFAS No. 141, Business Combinations. The
residual fair value after this allocation was the implied fair value of the
reporting unit goodwill. Because the first step of the transitional impairment
test indicated that all the goodwill was impaired, the second step was not
necessary and the Company recorded a non-cash pre-tax charge of $9.9 million,
or $0.31 per diluted share, as a cumulative effect of a change in accounting
principle effective December 31, 2001 for the goodwill associated with the
Stoney River reporting unit.

Prior to the adoption of SFAS No. 142, goodwill was amortized on a
straight-line basis over 20 years, and assessed for recoverability by
determining whether the amortization of the goodwill balance over its remaining
life could be recovered through undiscounted future operating cash flows of the
acquired operation. All other intangible assets were amortized on a
straight-line basis over 5 years.

Impairment of Long-Lived Assets. The Company adopted SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, as of
December 30, 2001. Prior to the adoption of SFAS No. 144, the Company
accounted for long-lived assets in accordance with SFAS No. 121, Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of. SFAS No. 144 provides a single accounting model for long-lived assets to
be disposed of. SFAS No. 144 also changes the criteria for classifying an
asset held for sale, broadens the scope of business to be disposed of that
qualify for reporting as discontinued operations and changes the timing of
recognizing losses on such operations. The Company adopted SFAS No. 144 in the
first quarter of 2002. The adoption of SFAS No. 144 did not affect the
Companys financial statements.

In accordance with SFAS No. 144, long-lived assets, such as property and
equipment, and purchased intangibles subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to estimated undiscounted future cash flows expected to be generated by
the asset. If the carrying amount of an asset exceeds its estimated future
cash flows, an impairment charge is recognized by the amount by which the
carrying amount of the asset exceeds the fair value of the asset. Assets to be
disposed of would be separately presented in the consolidated balance sheet and
reported at the lower of carrying amount or fair value less costs to sell, and
would no longer be depreciated. The assets and liabilities of a disposed group
classified as held for sale would be presented separately in the appropriate
asset and liability sections of the consolidated balance sheet.

Revenuesconsist of restaurant sales and to a lesser extent commissary
sales. Restaurant sales include food and beverage sales and are net of
applicable state and local sales taxes. Restaurant sales are recognized upon
delivery of services. Proceeds from the sale of gift cards and certificates are
deferred and recognized as revenue as they are redeemed. Commissary sales
represent sales to outside parties consisting primarily of sales of OCharleys
branded food items, primarily salad dressings, to retail grocery chains, mass
merchandisers and wholesale clubs. Commissary sales are recognized when
delivery occurs, the revenue amount is determinable and when collection is
reasonably assured.

Advertising Costs.The Company expenses advertising costs as incurred,
except for certain advertising production costs that are expensed the first
time the advertising takes place. Advertising expense for fiscal years 2002,
2001 and 2000, totaled $17.0 million, $13.3 million, and $9.5 million,
respectively.

Income Taxesare accounted for in accordance with the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax basis.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the
statement of earnings in the period that includes the enactment date.

Stock Option Plan. The Company applies the intrinsic-value-based method
of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees,and related interpretations including
FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation, and interpretation of APB Opinion No. 25,issued in March 2000,
to account for its fixed-plan stock options. Under this method, compensation
expense is recorded on the date of grant only if the current market price of
the underlying stock exceeded the exercise price. SFAS No. 123, Accounting for
Stock-Based Compensation,established

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accounting and disclosure requirements
using a fair-value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic-value-based method of accounting described
above, and has adopted only the disclosure requirements of SFAS No. 123. The
following table illustrates the effect on net earnings if the fair-value-based
method had been applied to all outstanding and unvested awards in each period.

|                                                                                                                            |                     |   |        |      |      |   |                |      |  |   |        |      | 
|--------------------------------------------------------------------------------------------------------------------------- | ------------------- | - | ------ | ---- | ---- | - | -------------- | ---- |  | - | ------ | ---- | 
|                                                                                                                            |                     |   | 2002   |      | 2001 |   | 2000          
|                                                                                                                            |                     |   |        |      |      |   |               
|                                                                                                                            |                     |   |        |      |      |   | (in thousands) |      |  |   |       
|Net earnings, as reported                                                                                                   |                     | $ | 20,668 |      |      | $ | 17,552         |      |  | $ | 19,360 |     
|Add stock-based employee
compensation
expense included in
reported net
earnings, net of
tax                                 |                     |   | 366    |      |      |   |               |      |  |   |       |     
|Deduct total stock-based
employee
compensation expense
determined
under fair-value-based
method for all
rewards, net of tax |                     |   | (1,980 | )    |      |   | (1,572         | )    |  |   | (1,611 | )   
|                                                                                                                            |                     |   |        |      |      |   |                |      |  |   |        |     
|Pro forma net earnings                                                                                                      |                     | $ | 19,054 |      |      | $ | 15,980         |      |  | $ | 17,749 |     
|                                                                                                                            |                     |   |        |      |      |   |                |      |  |   |        |     
|Earnings per share:                                                                                                         |                     |   |        |      |      |   |                |      |  |   |        |     
|                                                                                                                            | Basic-as reported   |   | $      | 1.11 |      |   | $              | 0.99 |  |   | $      | 1.24 | 
|                                                                                                                            | Basic-pro forma     |   | $      | 1.02 |      |   | $              | 0.89 |  |   | $      | 1.14 | 
|                                                                                                                            | Diluted-as reported |   | $      | 1.04 |      |   | $              | 0.93 |  |   | $      | 1.17 | 
|                                                                                                                            | Diluted-pro forma   |   | $      | 0.96 |      |   | $              | 0.84 |  |   | $      | 1.07 | 

Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1997, the resulting pro forma compensation
cost may not be representative of that to be expected in future years. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. The weighted average assumptions used for
grants in each respective year is as follows:

|                                          |  |      |       |      |  |      |      |   |  |   |      |  
|----------------------------------------- |  | ---- | ----- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                          |  | 2002 |       | 2001 |  | 2000
|                                          |  |      |       |      |  |     
|Risk-free investment interest             |  |      | 4.7   | %    |  |      | 5.5  | % |  |   | 5.6  | %
|Expected life in years                    |  |      | 4.9   |      |  |      | 6.1  |   |  |   | 6.8  |  
|Expected volatility                       |  |      | 50.7  | %    |  |      | 49.6 | % |  |   | 50.8 | %
|Fair value of options granted (per share) |  | $    | 10.69 |      |  | $    | 9.78 |   |  | $ | 7.32 |  

Per Share Data. Basic earnings per common share have been computed by
dividing net earnings by the weighted average number of common shares
outstanding during each year presented. Diluted earnings per common share have
been computed by dividing net earnings by the weighted average number of common
shares outstanding plus the dilutive effect of options outstanding during the
applicable periods.

Stock Repurchase. Under Tennessee law, when a corporation purchases its
common stock in the open market, such repurchased shares become authorized but
unissued. The Company reflects the purchase price of any such repurchased
shares as a reduction of additional paid-in capital and common stock.

Fair Value of Financial Instruments. SFAS No. 107, Disclosures about
Fair Value of Financial Instruments, requires disclosure of the fair values of
most on-and-off balance sheet financial instruments for which it is practicable
to estimate that value. The scope of SFAS No. 107 excludes certain financial
instruments such as trade receivables and payables when the carrying value
approximates the fair value, employee benefit obligations, lease contracts, and
all nonfinancial instruments such as land, buildings, and equipment. The fair
values of the financial instruments are estimates based upon current market
conditions and quoted market prices for the same or similar instruments as of
December 29, 2002 and December 30, 2001. Book value approximates fair value
for substantially all of the Companys assets and liabilities that fall under
the scope of SFAS No. 107.

Derivative Instruments and Hedging Activities.All derivatives are
recognized on the consolidated balance sheet at their fair value. On the date
the derivative contract is entered into, the Company designates the derivative
as a hedge of the variability of cash flows to be paid related to a recognized
liability. The Company assesses, both at the hedges inception and on an
ongoing basis, whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in cash flows of the hedged items.
The Company also determines how ineffectiveness will be measured. Changes in
the fair value of a derivative that is highly effective and that is designated
and qualifies as a cash-flow hedge are recorded in other comprehensive income,
until earnings are affected by the variability in cash flows of the designated
hedged item. If it is determined that a derivative is ineffective as a hedge,
the Company discontinues hedge accounting prospectively.

During fiscal 2001, the Company entered into interest rate swap agreements
to reduce its exposure to market risks from changing interest rates. These
agreements were designated as cash flow hedges. For interest rate swaps, the
differential to be paid or received is accrued and recognized in interest
expense and may change as market interest rates change. If the swaps were to
be terminated prior to their maturity, the gain or loss would be recognized
over the

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remaining original life of the swap if the item hedged remained
outstanding, or immediately if the item hedged did not remain outstanding.

Comprehensive Income. SFAS No. 130, Reporting Comprehensive Income,
establishes rules for the reporting of comprehensive income and its components.
Comprehensive income, presented in the Consolidated Statement of
Shareholders Equity and Comprehensive Income, consists of net income and
unrealized gains (losses) on available for sale securities and interest rate
swaps. Other comprehensive loss, net of tax, for 2002 was $441,000. The
accumulated other comprehensive loss is comprised of an unrealized loss on
derivative financial instruments of $931,000, net of tax at December 29, 2002.

Operating Segments. Due to similar economic characteristics, as well as a
single type of product, production process, distribution system and type of
customer, the Company reports the operations of its two concepts on an
aggregated basis and does not separately report segment information. Revenues
from external customers are derived principally from food and beverage sales.
The Company does not rely on any major customers as a source of revenue. As a
result, separate segment information is not disclosed.

Use of Estimates. Management of the Company has made certain estimates
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with accounting principles generally
accepted in the United States of America. Actual results could differ from
these estimates.

Accounting Changes and Recent Accounting Pronouncements. In July 2001,
the Financial Accounting Standards Board (FASB) issued SFAS No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. SFAS No. 141 also
specifies criteria which intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
SFAS No. 142 also requires that intangible assets with definite useful lives
be amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 144,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of.

The Company adopted the provisions of SFAS No. 141 on July 1, 2001, except
with regard to business combinations initiated prior to July 1, 2001. SFAS No.
142 was adopted by the Company effective December 31, 2001. Goodwill and
intangible assets acquired in business combinations completed before July 1,
2001 continued to be amortized prior to the adoption of SFAS No. 142.

As of the date of adoption, the Company had unamortized goodwill in the
amount of $10.0 million, which was subject to the transition provisions of SFAS
No. 142. Amortization expense related to goodwill was $544,000 for the year
ended December 30, 2001. During the second quarter of 2002, the Company
completed the required goodwill transitional impairment tests under SFAS No.
142 as of December 31, 2001 and recorded a non-cash pretax charge of $9.9
million ($6.1 million after tax or $0.31 per diluted share). This charge is
recorded in the consolidated statement of earnings for the year ended December
29, 2002 as a cumulative effect of a change in accounting principle. The
Company identified the reporting units as required by SFAS No. 142 and
determined the carrying value of each reporting unit by assigning the assets
and liabilities, including existing goodwill and intangible assets, to the
reporting units at December 31, 2001. The impaired goodwill was related to the
Stoney River reporting unit. The amount of the charge was determined by
comparing the fair value of the Stoney River reporting unit to the fair value
of its net assets, exclusive of goodwill, at December 30, 2001. The fair value
of the Stoney River reporting unit was determined by a combination of two
approaches: the market approach and the income approach. The market approach
values the reporting unit by comparing market multiples of revenue and cash
flow for similar concepts. The market approach also uses comparable purchase
transactions of similar concepts. The income approach values the reporting
unit by discounting the expected future cash flows of the reporting unit. The
table below sets forth the adjusted 2001 and 2000 fiscal years assuming no
goodwill amortization was recognized during that time (in thousands).

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|                                      |  |      |        |      |  |   |        | 
|------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                      |  | 2001 |        | 2000
|                                      |  |      |        |     
|Earnings before income taxes          |  | $    | 26,899 |      |  | $ | 29,785 | 
|Goodwill amortization                 |  |      | 544    |      |  |   | 335    | 
|                                      |  |      |        |      |  |   |        | 
|Adjusted earnings before income taxes |  |      | 27,443 |      |  |   | 30,120 | 
|Adjusted taxes                        |  |      | 9,536  |      |  |   | 10,542 | 
|                                      |  |      |        |      |  |   |        | 
|Net earnings                          |  | $    | 17,907 |      |  | $ | 19,578 | 
|                                      |  |      |        |      |  |   |        | 
|Basic earnings per share              |  | $    | 1.01   |      |  | $ | 1.26   | 
|                                      |  |      |        |      |  |   |        | 
|Diluted earnings per share            |  | $    | 0.95   |      |  | $ | 1.18   | 
|                                      |  |      |        |      |  |   |        | 

In November 2001, the EITF issued EITF Issue 01-09, Accounting for
Consideration Given by a Vendor to a Customer or a Reseller of the Vendors
Products. This standard deals with how a company recognized the effect of
discounts and coupons in the financial statements and requires companies to
show revenues net of any sales generated by these discounts and coupon
redemptions. The Company adopted this standard in the first quarter of 2002.
The adoption had no impact on the consolidated financial statements.

In June 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires the Company to record the fair value of an
asset retirement obligation as a liability in the period in which it incurs a
legal obligation associated with the retirement of tangible long-lived assets
that result from the acquisition, construction, development, and/or normal use
of the assets. The Company also records a corresponding asset that is
depreciated over the life of the asset. Subsequent to the initial measurement
of the asset retirement obligation, the obligation will be adjusted at the end
of each period to reflect the passage of time and changes in the estimated
future cash flows underlying the obligation. The Company is required to adopt
SFAS No. 143 on December 30, 2002. The adoption of SFAS No. 143 is not expected
to have a material effect on the Companys financial statements.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendments of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 amends existing guidance on reporting gains and
losses on the extinguishments of debt to prohibit the classification of the
gain or loss as extraordinary, as the use of such extinguishments have become
part of the risk management strategy of many companies. SFAS No. 145 also
amends SFAS No. 13 to require sale-leaseback accounting for certain lease
modifications that have economic effects similar to sale-leaseback
transactions. The provisions of the Statement related to the rescission of
SFAS No. 4 is applied in fiscal years beginning after May 15, 2002. Earlier
application of these provisions is encouraged. The provisions of the Statement
related to SFAS No. 13 were effective for transactions occurring after May 15,
2002, with early application encouraged. The adoption of SFAS No. 145 is not
expected to have a material effect on the Companys consolidated financial
statements.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity. The provisions of this Statement are effective for exit or
disposal activities that are initiated after December 31, 2002, with early
applications encouraged.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken. The initial recognition and measurement provisions
of the

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Interpretation are applicable to guarantees issued or modified after
December 31, 2002 and are not expected to have a material effect on the
Companys financial statements. The disclosure requirements are effective for
financial statements of interim and annual periods ending after December 15,
2002.
The Company has no guarantees that would be required to be disclosed under
FASB Interpretation No. 45.

In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment of FASB Statement No.
123. This Statement amends SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements
of SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002 and are included in the notes to
these consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, and interpretation of ARB No. 51. This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. It applies in the first fiscal year, or
interim period beginning after June 15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. The application of this Interpretation is not expected to
have a material effect on the Companys consolidated financial
statements.

2. Acquisition

On May 26, 2000, the Company
purchased two existing Stoney River Legendary
Steaks restaurants and all associated trademarks and intellectual property for
approximately $15.8 million in cash. In addition, the transaction includes an
earn-out provision pursuant to which the sellers may receive up to $1.25
million at the end of 2002, $1.25 million at the end of 2003, and $2.5 million
at the end of 2004. The potential earn-out is based on the Stoney River concept
achieving certain performance thresholds (income before taxes and preopening
costs) for such year. The performance thresholds were not satisfied as of the
end of 2002 and, accordingly, no earnout was paid in 2002. In the event that
these performance thresholds are met in future years, the Company would
recognize an expense related to the earn-out provision as all of the goodwill
related to the acquisition has been written off. The transaction was accounted
for using the purchase method of accounting and, accordingly, the results of
operations of Stoney River have been included in the Companys consolidated
financial statements from the date of acquisition. The Stoney River concept is
being operated as a wholly-owned subsidiary of the Company. Through December
30, 2001, goodwill resulting from the acquisition was being amortized on a
straight-line basis over 20 years. The allocation of the purchase price to the
acquired net assets is as follows (in thousands):

|                                                               |  |   |        |  
|-------------------------------------------------------------- |  | - | ------ | -
|Estimated fair value of assets acquired                        |  | $ | 5,166  |  
|Purchase price in excess of the net assets acquired (goodwill) |  |   | 10,701 |  
|Non-compete agreements                                         |  |   | 119    |  
|Estimated fair value of liabilities assumed                    |  |   | (131   | )
|                                                               |  |   |        |  
|Cash paid                                                      |  |   | 15,855 |  
|Less cash acquired                                             |  |   | (6     | )
|                                                               |  |   |        |  
|Net cash paid for acquisition                                  |  | $ | 15,849 |  
|                                                               |  |   |        |  

The following unaudited pro forma condensed results of operations give
effect to the acquisition of Stoney River Legendary Steaks as if such
transaction had occurred at the beginning of fiscal 2000:

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|                                                   |  |   |         | 
|-------------------------------------------------- |  | - | ------- | 
|Fiscal Year 2000 Pro Forma Earnings                |  |   |         | 
|(in thousands, except per share data)              |  |   |         | 
|Total revenues                                     |  | $ | 381,108 | 
|Earnings before income taxes                       |  |   | 28,930  | 
|Net earnings                                       |  |   | 18,804  | 
|Basic earnings per share                           |  | $ | 1.21    | 
|Basic weighted average common shares outstanding   |  |   | 15,584  | 
|Diluted earnings per share                         |  | $ | 1.14    | 
|Diluted weighted average common shares outstanding |  |   | 16,525  | 

The foregoing unaudited pro forma amounts are based upon certain
assumptions and estimates, including, but not limited to the recognition of
interest expense on debt incurred to finance the acquisition and amortization
of goodwill over 20 years. The unaudited proforma amounts do not necessarily
represent results which would have occurred if the acquisition had taken place
on the basis assumed above, nor are they indicative of the results of future
combined operations.

The Company has entered into an arrangement with the general manager of
each Stoney River restaurant pursuant to which the general manager has acquired
a 6% interest in a subsidiary that owns the restaurant that the general manager
manages in exchange for a capital contribution to such subsidiary. The Company
has also entered into a five-year employment agreement with each general
manager. During the five-year employment term, each general manager is
prohibited from selling or otherwise transferring his or her 6% interest. Upon
the fifth anniversary of the general managers capital contribution to the
subsidiary, the Company has the option, but not the obligation, to purchase the
general managers 6% interest for fair market value. In the event the general
managers employment with the Company terminates prior to the expiration of the
five-year term of his employment agreement, the Company has the option, but not
the obligation, to purchase the general managers 6% interest on the terms set
forth in the operating agreement governing the subsidiary. In addition, the
general managers 6% interest is subject to forfeiture based on certain events
set forth in the operating agreement. The Company has entered into a
management agreement with the subsidiary whereby the Company provides
management services to the subsidiary.

See Note 18 for a discussion of the Companys acquisition of Ninety
Restaurant and Pub (Ninety Nine).

3. Property and Equipment

Property and equipment consist of
the following at year-end:

|                                               |  |                |          |              |  |   |         |  
|---------------------------------------------- |  | -------------- | -------- | ------------ |  | - | ------- | -
|                                               |  | December 29,   |          | December 30,
|                                               |  | 2002           |          | 2001        
|                                               |  |                |          |             
|                                               |  | (in thousands)
|Land and improvements                          |  | $              | 91,237   |              |  | $ | 81,275  |  
|Buildings and improvements                     |  |                | 157,542  |              |  |   | 133,108 |  
|Furniture, fixtures and equipment              |  |                | 106,323  |              |  |   | 88,514  |  
|Leasehold improvements                         |  |                | 87,856   |              |  |   | 73,074  |  
|Equipment under capitalized leases             |  |                | 56,218   |              |  |   | 47,866  |  
|Property leased to others                      |  |                | 802      |              |  |   | 1,140   |  
|                                               |  |                |          |              |  |   |         |  
|                                               |  |                | 499,978  |              |  |   | 424,977 |  
|Less accumulated depreciation and amortization |  |                | (118,425 | )            |  |   | (94,424 | )
|                                               |  |                |          |              |  |   |         |  
|                                               |  | $              | 381,553  |              |  | $ | 330,553 |  
|                                               |  |                |          |              |  |   |         |  

Depreciation and amortization of property and equipment was $25.5 million,
$21.6 million and $17.9 million for the years ended December 29, 2002,
December 30, 2001, and December 31, 2000, respectively.

4. Other Assets

Other assets consist of the following at year-end:

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|                                                                                                                                     |  |                |       |              |  |   |        | 
|------------------------------------------------------------------------------------------------------------------------------------ |  | -------------- | ----- | ------------ |  | - | ------ | 
|                                                                                                                                     |  | December 29,   |       | December 30,
|                                                                                                                                     |  | 2002           |       | 2001        
|                                                                                                                                     |  |                |       |             
|                                                                                                                                     |  | (in thousands)
|Excess of cost over fair value of net assets acquired
(goodwill), net of accumulated amortization of
$163 in 2002 and $1,010 in 2001 |  | $              | 159   |              |  | $ | 10,013 | 
|Cash surrender value of life insurance, deferred compensation                                                                        |  |                | 2,514 |              |  |   | 2,588  | 
|Marketable securities available for sale                                                                                             |  |                | 256   |              |  |   | 256    | 
|Notes receivable                                                                                                                     |  |                | 917   |              |  |   | 1,176  | 
|Other assets                                                                                                                         |  |                | 2,488 |              |  |   | 2,289  | 
|                                                                                                                                     |  |                |       |              |  |   |        | 
|                                                                                                                                     |  | $              | 6,334 |              |  | $ | 16,322 | 
|                                                                                                                                     |  |                |       |              |  |   |        | 

Amortization of goodwill was $0, $544,000 and $335,000 for the years ended
December 29, 2002, December 30, 2001 and December 31,
2000, respectively. Included in the notes receivable shown above are
notes from related parties. (See note 14)

5. Accrued Expenses

Accrued expenses include the following at year-end:

|                       |  |                |        |              |  |   |       | 
|---------------------- |  | -------------- | ------ | ------------ |  | - | ----- | 
|                       |  | December 29,   |        | December 30,
|                       |  | 2002           |        | 2001        
|                       |  |                |        |             
|                       |  | (in thousands)
|Insurance expenses     |  | $              | 5,033  |              |  | $ | 4,058 | 
|Employee benefits      |  |                | 1,543  |              |  |   | 1,969 | 
|Other accrued expenses |  |                | 3,811  |              |  |   | 3,463 | 
|                       |  |                |        |              |  |   |       | 
|                       |  | $              | 10,387 |              |  | $ | 9,490 | 
|                       |  |                |        |              |  |   |       | 

6. Long-Term Debt

Long-term debt consists of the following at year-end:

|                                       |  |                |        |              |  |   |        |  
|-------------------------------------- |  | -------------- | ------ | ------------ |  | - | ------ | -
|                                       |  | December 29,   |        | December 30,
|                                       |  | 2002           |        | 2001        
|                                       |  |                |        |             
|                                       |  | (in thousands)
|Revolving line of credit               |  | $              | 98,000 |              |  | $ | 89,000 |  
|Secured mortgage note payable          |  |                | 181    |              |  |   | 196    |  
|Installment note payable               |  |                |       |              |  |   | 110    |  
|                                       |  |                |        |              |  |   |        |  
|                                       |  |                | 98,181 |              |  |   | 89,306 |  
|Less current portion of long-term debt |  |                | (17    | )            |  |   | (125   | )
|                                       |  |                |        |              |  |   |        |  
|Long-term debt, net of current portion |  | $              | 98,164 |              |  | $ | 89,181 |  
|                                       |  |                |        |              |  |   |        |  

On January 31, 2000, the Company entered into an amended and restated
revolving credit agreement (the Third Amendment) which increased its
unsecured line of credit facility to $135.0 million from $100.0 million. At December 29, 2002, the $98.0 million
outstanding balance carried interest rates from 2.2% to 2.3%. At December 30,
2001, the $89.0 million outstanding balance carried interest rates from 2.7% to
4.3%. At December 29, 2002, the Company was in compliance with
all covenants associated with this credit facility. The Company was required to pay commitment fees on the $135 million
revolving line of credit. The commitment fees in 2002 ranged from 0.125% to
0.15% depending upon the Companys performance in meeting certain financial and
other covenants. The total amount paid in 2002 for commitment fees was
approximately $195,000.

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The secured mortgage note payable at December 29, 2002, bears interest at
10.5% and is payable in monthly installments, including interest, through June
2010. This debt is collateralized by land and buildings having a depreciated
cost of approximately $1.0 million at December 29, 2002.

The installment note payable at December 30, 2001 was paid in full in
February 2002.

The annual maturities of long-term debt as of December 29, 2002, were:
$17,000-2003; $19,000-2004; $21,000-2005; $98.0 million-2006; $25,000-2007;
and $77,000 thereafter.

See Note 18 for a discussion of the Ninety Nine acquisition, the Companys
new credit facility and related impact on the Companys debt agreements.

7. Lease Commitments

The Company has various leases for certain restaurant land and buildings
under operating lease agreements. Under these leases, the Company pays taxes,
insurance and maintenance costs in addition to the lease payments. Certain
leases also provide for additional contingent rentals based on a percentage of
sales in excess of a minimum rent. The Company leases certain equipment and
fixtures under capital lease agreements having lease terms from five to seven
years. The Company expects to exercise its options under these agreements to
purchase the equipment in accordance with the provisions of the lease
agreements.

As of December 29, 2002, approximately $36.3 million net book value of the
Companys property and equipment is under capitalized lease obligations.
Interest rates on capitalized lease obligations range from 4.0% to 7.5%.
Future minimum lease payments at December 29, 2002, are as follows:

|                                                      |                       |   |                |        |           |   |        |        | 
|----------------------------------------------------- | --------------------- | - | -------------- | ------ | --------- | - | ------ | ------ | 
|                                                      |                       |   | Capitalized    |        |           |   |       
|                                                      |                       |   | Equipment      |        | Operating
|                                                      |                       |   | Leases         |        | Leases   
|                                                      |                       |   |                |        |          
|                                                      |                       |   | (in thousands)
|2003                                                  |                       | $ | 9,389          |        |           | $ | 7,689  |       
|2004                                                  |                       |   | 8,911          |        |           |   | 7,386  |       
|2005                                                  |                       |   | 8,978          |        |           |   | 7,169  |       
|2006                                                  |                       |   | 5,844          |        |           |   | 7,138  |       
|2007                                                  |                       |   | 3,276          |        |           |   | 6,885  |       
|Thereafter                                            |                       |   | 2,392          |        |           |   | 48,881 |       
|                                                      |                       |   |                |        |           |   |        |       
|                                                      | Total minimum rentals |   |                | 38,790 |           |   | $      | 85,148 | 
|                                                      |                       |   |                |        |           |   |        |       
|Less amount representing interest                     |                       |   | (4,869         | )      |           |   |        |       
|                                                      |                       |   |                |        |           |   |        |       
|Net minimum lease payments                            |                       |   | 33,921         |        |           |   |        |       
|Less current maturities                               |                       |   | (7,998         | )      |           |   |        |       
|                                                      |                       |   |                |        |           |   |        |       
|Capitalized lease obligations, net of current portion |                       | $ | 25,923         |        |           |   |        |       
|                                                      |                       |   |                |        |           |   |        |       

Rent expense for 2000, 2001 and 2002 for operating leases is as follows:

|                   |  |      |       |      |  |                |       |  |  |   |       | 
|------------------ |  | ---- | ----- | ---- |  | -------------- | ----- |  |  | - | ----- | 
|                   |  | 2002 |       | 2001 |  | 2000          
|                   |  |      |       |      |  |               
|                   |  |      |       |      |  | (in thousands) |       |  |  |  
|Minimum rentals    |  | $    | 8,104 |      |  | $              | 7,429 |  |  | $ | 6,272 | 
|Contingent rentals |  |      | 302   |      |  |                | 602   |  |  |   | 614   | 
|                   |  |      |       |      |  |                |       |  |  |   |       | 
|                   |  | $    | 8,406 |      |  | $              | 8,031 |  |  | $ | 6,886 | 
|                   |  |      |       |      |  |                |       |  |  |   |       | 

See Note 18.

8.     Derivative Instruments and Hedging Activities.

The Company uses variable-rate debt to help finance its operations. The
debt obligations expose the Company to variability in interest payments due to
changes in interest rates. Management believes it is prudent to limit the

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variability of a portion of its interest payments. To meet this objective,
management periodically enters into interest rate swap agreements to manage
fluctuations in cash flows resulting from interest rate risk. These swaps
change the variable-rate cash flow exposure on the debt obligations to
fixed-rate cash flows. Under the terms of the interest rate swaps, the Company
receives variable interest rate payments and makes fixed interest rate
payments, thereby creating the equivalent of fixed-rate debt. The swaps have
been designated as cash flow hedges.

Changes in the fair value of interest rate swaps designated as hedging
instruments that effectively offset the variability of cash flows associated
with variable-rate, long-term debt obligations are reported in accumulated
other comprehensive income, net of tax. These amounts subsequently are
reclassified into interest expense as a yield adjustment of the hedged debt
obligation in the same period in which the related interest affects earnings.

As of December 29, 2002, the Company had in effect $20.0 million in swaps
at an average fixed rate of 5.6%, $10.0 million of which matures in January
2004 and $10.0 million of which matures in January 2006. As of December 29,
2002, $931,000 of deferred losses, net of tax, on the swaps were included in
accumulated other comprehensive income.

9. Income Taxes

The total income tax expense (benefit) for each respective year is as
follows:

|                                                                                     |  |                |        |      |  |      |        |   |  |   |        |  
|------------------------------------------------------------------------------------ |  | -------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                                     |  | 2002           |        | 2001 |  | 2000
|                                                                                     |  |                |        |      |  |     
|                                                                                     |  | (in thousands)
|Earnings before cumulative effect
of accounting change                               |  | $              | 14,268 |      |  | $    | 9,347  |   |  | $ | 10,425 |  
|Tax effect of cumulative effect of
accounting change                                 |  |                | (3,731 | )    |  |      |       |   |  |   |       |  
|Shareholders equity, tax benefit on
market value loss on derivative
instruments     |  |                | (235   | )    |  |      | (260   | ) |  |   |       |  
|Shareholders equity, tax benefit
derived from non-statutory stock
options exercised |  |                | (1,100 | )    |  |      | (1,816 | ) |  |   | (387   | )
|                                                                                     |  |                |        |      |  |      |        |   |  |   |        |  
|                                                                                     |  | $              | 9,202  |      |  | $    | 7,271  |   |  | $ | 10,038 |  
|                                                                                     |  |                |        |      |  |      |        |   |  |   |        |  

Income tax expense (benefit) related to earnings before cumulative effect
of a change in accounting principle for each respective year is as follows:

|         |  |      |        |      |  |                |        |   |  |   |        | 
|-------- |  | ---- | ------ | ---- |  | -------------- | ------ | - |  | - | ------ | 
|         |  | 2002 |        | 2001 |  | 2000          
|         |  |      |        |      |  |               
|         |  |      |        |      |  | (in thousands) |        |   |  |  
|Current  |  | $    | 12,423 |      |  | $              | 10,683 |   |  | $ | 8,373  | 
|Deferred |  |      | 1,845  |      |  |                | (1,336 | ) |  |   | 2,052  | 
|         |  |      |        |      |  |                |        |   |  |   |        | 
|         |  | $    | 14,268 |      |  | $              | 9,347  |   |  | $ | 10,425 | 
|         |  |      |        |      |  |                |        |   |  |   |        | 

Income tax expense (benefit) attributable to earnings before cumulative
effect of a change in accounting principle differs from the amounts computed by
applying the applicable U.S. federal income tax rate to pretax earnings from
operations as a result of the following:

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|                                     |                                                |  |      |      |      |  |      |      |   |  |      |      |  
|------------------------------------ | ---------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | ---- | ---- | -
|                                     |                                                |  | 2002 |      | 2001 |  | 2000
|                                     |                                                |  |      |      |      |  |     
|Federal statutory rate               |                                                |  | 35.0 | %    |      |  | 35.0 | %    |   |  | 35.0 | %   
|Increase (decrease) in taxes due to: |                                                |  |      |      |      |  |      |      |   |  |      |     
|                                     | State income taxes, net of
federal tax benefit |  |      | 3.1  |      |  |      | 3.2  |   |  |      | 3.0  |  
|                                     | Tax credits and other                          |  |      | (3.3 | )    |  |      | (3.4 | ) |  |      | (3.0 | )
|                                     |                                                |  |      |      |      |  |      |      |   |  |      |     
|                                     |                                                |  | 34.8 | %    |      |  | 34.8 | %    |   |  | 35.0 | %   
|                                     |                                                |  |      |      |      |  |      |      |   |  |      |     

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at each of the
respective year ends are as follows:

|                          |                                                                                                                  |  |                                      |                            |  |                |       |        |  |        |       | 
|------------------------- | ---------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | -------------------------- |  | -------------- | ----- | ------ |  | ------ | ----- | 
|                          |                                                                                                                  |  |                                      |                            |  | 2002           |       | 2001  
|                          |                                                                                                                  |  |                                      |                            |  |                |       |       
|                          |                                                                                                                  |  |                                      |                            |  | (in thousands)
|Deferred tax assets:      |                                                                                                                  |  |                                      |                            |  |                |       |       
|                          | Inventories, principally due to
uniform capitalization                                                           |  | $                                    | 714                        |  |                | $     | 56     | 
|                          | Goodwill impairment                                                                                              |  |                                      | 3,364                      |  |                |       |       | 
|                          | Accrued expenses, principally due to
accruals for workers
compensation, employee health and
retirement benefits |  |                                      | 2,446                      |  |                |       | 2,606  | 
|                          | Asset impairment and exit cost                                                                                   |  |                                      | 2,135                      |  |                |       | 2,242  | 
|                          | Other                                                                                                            |  |                                      | 705                        |  |                |       | 195    | 
|                          |                                                                                                                  |  |                                      |                            |  |                |       |       
|                          |                                                                                                                  |  | Total gross deferred tax assets      |                            |  | 9,364          |       |        |  | 5,099  |      
|Deferred tax liabilities: |                                                                                                                  |  |                                      |                            |  |                |       |       
|                          | Property and equipment, principally
due to differences in
depreciation and capitalized
lease amortization        |  |                                      | 12,905                     |  |                |       | 10,658 | 
|                          | Other                                                                                                            |  |                                      |                           |  |                |       | 103    | 
|                          |                                                                                                                  |  |                                      |                            |  |                |       |       
|                          |                                                                                                                  |  | Total gross deferred tax liabilities |                            |  | 12,905         |       |        |  | 10,761 |      
|                          |                                                                                                                  |  |                                      |                            |  |                |       |       
|                          |                                                                                                                  |  |                                      | Net deferred tax liability |  | $              | 3,541 |        |  | $      | 5,662 | 
|                          |                                                                                                                  |  |                                      |                            |  |                |       |       

The net deferred tax liability (asset) at year-end is recorded as
follows:

|                                           |  |                |        |      |  |   |        |  
|------------------------------------------ |  | -------------- | ------ | ---- |  | - | ------ | -
|                                           |  | 2002           |        | 2001
|                                           |  |                |        |     
|                                           |  | (in thousands)
|Deferred income taxes, long-term liability |  | $              | 7,796  |      |  | $ | 9,576  |  
|Deferred income taxes, current asset       |  |                | (4,255 | )    |  |   | (3,914 | )
|                                           |  |                |        |      |  |   |        |  
|                                           |  | $              | 3,541  |      |  | $ | 5,662  |  
|                                           |  |                |        |      |  |   |        |  

There was no valuation allowance for deferred tax assets recorded as of
December 29, 2002, December 30, 2001 and December 31, 2000. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of historical
taxable income and projections for future taxable income over the periods in
which the deferred tax assets are deductible, management believes it is more
likely than not that the Company will realize the benefits of these deductible
differences.

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10. Shareholders Equity

The Companys charter authorizes 100,000 shares of preferred stock of
which the Board of Directors may, without shareholder approval, issue with
voting or conversion rights upon the occurrence of certain events. At December
29, 2002, no preferred shares had been issued.

On December 8, 2000, the Companys Board of Directors adopted a
Shareholders Rights Plan (the Rights Plan) to protect the interests of the
Companys shareholders if the Company is confronted with coercive or unfair
takeover tactics by third parties. Pursuant to the Rights Plan, a dividend of
one Right for each share of outstanding share of the Companys Common Stock was
issued to shareholders of record on December 27, 2000. Under certain
conditions, each Right may be
exercised to purchase one-thousandth of a share of a new Series A Junior
Preferred Stock at an exercise price of $80 per Right. Each Right will become
exercisable following the tenth day after a persons or groups acquisition of,
or commencement of a tender exchange offer for 18% or more of the Companys
Common Stock. If a person or group acquires 18% or more of the Companys Common
Stock, each right will entitle its holder (other than the person or group whose
action has triggered the exercisability of the Rights) to purchase common stock
of either OCharleys Inc. or the acquiring company (depending on the form of
the transaction) having a value of twice the exercise price of the Rights. The
Rights will also become exercisable in the event of certain mergers or asset
sales involving more than 50% of the Companys assets or earning power. The
Rights may be redeemed prior to becoming exercisable, subject to approval by
the Companys Board of Directors, for $0.001 per Right. The Rights expire on
December 8, 2010. The Company has reserved 50,000 shares of Series A Junior
Preferred Stock for issuance upon exercise of the Rights.

11. Earnings Per Share

The following is a reconciliation of the weighted average shares used in
the calculation of basic and diluted earnings per share.

|                                              |  |                |        |      |  |      |        |  |  |  |        | 
|--------------------------------------------- |  | -------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                              |  | 2002           |        | 2001 |  | 2000
|                                              |  |                |        |      |  |     
|                                              |  | (in thousands)
|Weighted average shares outstanding -
basic   |  |                | 18,683 |      |  |      | 17,772 |  |  |  | 15,584 | 
|Incremental stock option shares
outstanding   |  |                | 1,103  |      |  |      | 1,101  |  |  |  | 941    | 
|                                              |  |                |        |      |  |      |        |  |  |  |        | 
|Weighted average shares outstanding -
diluted |  |                | 19,786 |      |  |      | 18,873 |  |  |  | 16,525 | 
|                                              |  |                |        |      |  |      |        |  |  |  |        | 

For the fiscal years 2002, 2001, and 2000, the number of anti-dilutive
shares excluded from the weighted average shares calculation were approximately
233,000, 73,000, and 1,016,000, respectively.

12. Stock Compensation and Purchase Plans

The Company has various incentive stock option plans that provide for the
grant of both statutory and nonstatutory stock options to officers, key
employees, nonemployee directors and consultants of the Company. The Company
has reserved 5,545,924 shares of common stock for issuance pursuant to these
plans. Options are granted at 100% of the fair market value of common stock on
the date of the grant, expire ten years from the date of the grant and are
exercisable at various times as previously determined by the Board of
Directors. The Company adopted the OCharleys 2000 Stock Incentive Plan (the
2000 Plan) in May 2000. The Company has reserved 3,000,000 shares of common
stock for issuance pursuant to the 2000 Plan. At December 29, 2002, options to
purchase 939,525 shares of common stock were outstanding under the 2000 Plan.
Following adoption of the 2000 Plan, no additional options may be granted
pursuant to previously adopted stock option plans. At December 30, 2001,
options to purchase 2,583,799 shares of common stock were outstanding under
those previously adopted plans. The Company applies APB Opinion No. 25 in
accounting for its plan; and, accordingly, no compensation cost has been
recognized.

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A summary of stock option activity during the past three years is as
follows:

|                             |           |  |                  |          |                |   |                  |       | 
|---------------------------- | --------- |  | ---------------- | -------- | -------------- | - | ---------------- | ----- | 
|                             |           |  |                  |          |                |   | Weighted-Average
|                             |           |  | Number of Shares |          | Exercise Price
|                             |           |  |                  |          |               
|Balance at December 26,1999  |           |  | 3,679,895        |          |                | $ | 9.21             |      
|                             | Granted   |  |                  | 544,400  |                |   |                  | 12.50 | 
|                             | Exercised |  |                  | (195,884 | )              |   |                  | 5.69  | 
|                             | Forfeited |  |                  | (177,539 | )              |   |                  | 13.08 | 
|                             |           |  |                  |          |                |   |                  |      
|Balance at December 31,2000  |           |  | 3,850,872        |          |                |   | 9.67             |      
|                             | Granted   |  |                  | 514,550  |                |   |                  | 17.84 | 
|                             | Exercised |  |                  | (593,285 | )              |   |                  | 6.64  | 
|                             | Forfeited |  |                  | (173,919 | )              |   |                  | 14.49 | 
|                             |           |  |                  |          |                |   |                  |      
|Balance at December 30, 2001 |           |  | 3,598,218        |          |                |   | 11.11            |      
|                             | Granted   |  |                  | 392,500  |                |   |                  | 21.67 | 
|                             | Exercised |  |                  | (366,101 | )              |   |                  | 8.51  | 
|                             | Forfeited |  |                  | (101,293 | )              |   |                  | 13.67 | 
|                             |           |  |                  |          |                |   |                  |      
|Balance at December 29, 2002 |           |  | 3,523,324        |          |                | $ | 12.43            |      
|                             |           |  |                  |          |                |   |                  |      

At the end of 2002, 2001 and 2000, the number of options exercisable was
approximately 2,180,000, 2,267,000 and 2,362,000, respectively, and the
weighted average exercise price of those options was $9.81, $8.82, and $7.48,
respectively.

The following table summarizes information about stock options outstanding
at December 29, 2002.

|                    |  |                     |           |                  |  |                |  |        |               |                |                  |  |        |           |  |   |                  |       |  |  |  |  | 
|------------------- |  | ------------------- | --------- | ---------------- |  | -------------- |  | ------ | ------------- | -------------- | ---------------- |  | ------ | --------- |  | - | ---------------- | ----- |  |  |  |  | 
|Options Outstanding |  | Options Exercisable
|                    |  |                    
|                    |  |                     |           |                  |  |                |  |        | Weighted-Avg. |                |                  |  |        |           |  |   |                  |       |  |  | 
|                    |  |                     |           |                  |  |                |  |        | Remaining     |                | Weighted-Average |  |        |           |  |   | Weighted-Average
|Exercise Price      |  | Number              |           | Contractual Life |  | Exercise Price |  | Number |               | Exercise Price
|                    |  |                     |           |                  |  |                |  |        |               |               
|$1.00 to 4.99       |  |                     | 50,775    |                  |  | 0.2 years      |  | $      | 4.25          |                |                  |  | 50,775 |           |  | $ | 4.25             |      
|$5.00 to 5.99       |  |                     | 699,102   |                  |  | 0.8            |  |        |               | 5.61           |                  |  |        | 699,102   |  |   |                  | 5.61  | 
|$6.00 to 7.99       |  |                     | 331,238   |                  |  | 2.0            |  |        |               | 7.53           |                  |  |        | 330,035   |  |   |                  | 7.53  | 
|$8.00 to 10.99      |  |                     | 269,261   |                  |  | 3.6            |  |        |               | 8.95           |                  |  |        | 247,598   |  |   |                  | 8.85  | 
|$11.00 to 13.99     |  |                     | 575,967   |                  |  | 6.1            |  |        |               | 12.18          |                  |  |        | 335,080   |  |   |                  | 12.19 | 
|$14.00 to 15.99     |  |                     | 811,806   |                  |  | 6.3            |  |        |               | 15.08          |                  |  |        | 370,640   |  |   |                  | 15.07 | 
|$16.00 to 18.99     |  |                     | 400,675   |                  |  | 8.3            |  |        |               | 17.84          |                  |  |        | 98,925    |  |   |                  | 17.89 | 
|Over $18.99         |  |                     | 384,500   |                  |  | 9.3            |  |        |               | 21.69          |                  |  |        | 48,250    |  |   |                  | 23.63 | 
|                    |  |                     |           |                  |  |                |  |        |               |                |                  |  |        |           |  |   |                  |       | 
|$1.00 to 24.19      |  |                     | 3,523,324 |                  |  | 5.0            |  |        | $             | 12.43          |                  |  |        | 2,180,405 |  |   | $                | 9.81  | 
|                    |  |                     |           |                  |  |                |  |        |               |                |                  |  |        |           |  |   |                  |       | 

In the first quarter of 2002, the Company granted approximately 84,000
restricted stock units to certain of its executive officers and senior
management in order to provide retention incentives and to encourage them to
meet and exceed budgeted increases in targeted performance criteria. Each
restricted stock unit represents the right to receive one share of the
Companys common stock. For each of fiscal years 2002, 2003 and 2004, the
compensation committee of the board of directors will establish performance
criteria related to targeted earnings per share. If the annual performance
targets are achieved, one-third of the restricted stock units will vest in that
year and the Company will issue the corresponding number of common shares. In
the event the performance criteria are not achieved, the restricted stock units
that would have vested related to that fiscal year shall not vest and all
rights thereto shall forfeit. In the event that

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the employment of the
individual by the Company is terminated for any reason, no further vesting of
restricted stock units shall occur. Compensation cost related to these
restricted stock unit awards recognized by the Company during the fiscal year
ended December 29, 2002 approximated $560,000.

The Company has established the CHUX Ownership Plan for the purpose of
providing an opportunity for eligible employees of the Company to become
shareholders in OCharleys. The Company has reserved 675,000 common shares
for this plan. The CHUX Ownership Plan is intended to be an employee stock
purchase plan, which qualifies for favorable tax treatment under Section 423 of
the Internal Revenue Code. The Plan allows participants to purchase common
shares at 85% of the lower of 1) the closing market price per share of the
Companys Common Stock on the last trading date of the plan period or 2) the
average of the closing market price of the Companys Common Stock on the first
and the last trading day of the plan period. Contributions of up to 15% of
base salary are made by each participant through payroll deductions. As of
December 29, 2002, 353,955 shares have been issued under this plan.

During the first quarter of 2003, the Company granted options to purchase
approximately 1.1 million shares of common stock to certain senior
management, operations management and support staffs of all three restaurant
concepts. In addition, the Company granted approximately 134,000 restricted
stock units under the 2000 Plan.

13. Employee Benefit Plans

The Company has a 401(k) salary reduction and profit-sharing plan called
the CHUX Savings Plan (the Plan). Under the Plan, employees can make
contributions up to 15% of their annual compensation. The Company contributes
annually to the Plan an amount equal to 50% of employee contributions, subject
to certain limitations. Additional contributions are made at the discretion of
the Board of Directors. Company contributions vest at the rate of 20% each
year beginning after the employees initial year of employment. Company
contributions were approximately $500,000 in 2002, $550,000 in 2001 and
$439,000 in 2000.

The Company maintains a deferred compensation plan for a select group of
management employees to provide supplemental retirement income benefits through
deferrals of salary, bonus and deferral of contributions which cannot be made
to the Companys 401(k) Plan due to Internal Revenue Code limitations.
Participants in this plan can contribute, on a pre-tax basis, up to 50% of
their base pay and 100% of their bonuses. The Company contributes annually to
this plan an amount equal to a matching formula of each participants
deferrals. Company contributions were $203,000 in 2002, $248,000 in 2001 and
$214,000 in 2000. The amount of the deferred compensation liability payable to
the participants is recorded as other liabilities on the consolidated balance
sheets.

14. Related-Party Transactions

At the beginning of
2000, the Company leased two of its restaurants from
CWF Associates, Inc., an entity that was controlled by certain directors and
Gregory L. Burns, the Companys chairman of the board and chief executive
officer. During 2000, the Company purchased the
leased properties for an aggregate of $1.9 million.

At the beginning of
2000, the Company leased the land and building of four
of its restaurants from Two Mile Partners, a partnership whose partners were
David K. Wachtel, Jr., who owned 75% and was the managing partner of
the partnership and a former director and

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executive officer of the Company, and
Gregory L. Burns, the Companys chairman of the board and chief executive
officer, who owns 25% of the partnership. During 2000, the Company terminated
one of the leases. The three remaining leases were to expire at various times
through 2007, with options to renew for a term of 10 years. The Company
purchased the land and buildings for three of its restaurant sites from Two
Mile Partners during January 2002 for $4.3 million.

The aforementioned related-party transactions are reflected in the
consolidated financial statements as follows:

|                                      |                    |  |                |    |      |  |      |     |  |  |   |     | 
|------------------------------------- | ------------------ |  | -------------- | -- | ---- |  | ---- | --- |  |  | - | --- | 
|                                      |                    |  | 2002           |    | 2001 |  | 2000
|                                      |                    |  |                |    |      |  |     
|                                      |                    |  | (in thousands)
|Consolidated Statements of Operations |                    |  |                |    |      |  |      |     |  |  |   |    
|Restaurant operating costs:           |                    |  |                |    |      |  |      |     |  |  |   |    
|                                      | Rent expense       |  | $              | 29 |      |  | $    | 330 |  |  | $ | 448 | 
|                                      | Contingent rentals |  |                | 15 |      |  |      | 160 |  |  |   | 327 | 

During 2001, the Company paid a portion of the cash bonuses to its
executive officers on a quarterly basis as an advance on the cash bonuses that
the Company expected to pay for 2001. The Company did not achieve the targeted
level of earnings during 2001 necessary for the payment of cash bonuses to
these executive officers. Each of the executive officers has agreed to repay
the amounts paid to such officer as a cash bonus during 2001. The total amount
of the loans to these executive officers was approximately $495,000. The loans
have a three-year term with principal and accrued interest, at the rate of 5%
per annum, payable at the end of the term.

15. Consolidated Statements of Cash Flows

Supplemental disclosure of cash flow information is as follows:

|                                           |  |                |        |      |  |      |        |  |  |   |        | 
|------------------------------------------ |  | -------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                           |  | 2002           |        | 2001 |  | 2000
|                                           |  |                |        |      |  |     
|                                           |  | (in thousands)
|Cash paid for interest                     |  | $              | 5,828  |      |  | $    | 7,552  |  |  | $ | 8,003  | 
|Additions to capitalized lease obligations |  |                | 8,749  |      |  |      | 10,559 |  |  |   | 10,871 | 
|Income taxes paid (net of refunds)         |  |                | 11,048 |      |  |      | 7,242  |  |  |   | 10,203 | 

16. Asset Impairment and Exit Costs

During the 2001 third quarter, the Company decided to close five stores.
This decision followed a review of historical and projected cash flows of the
Companys stores in view of the difficult economic environment in which the
Company was operating. As a result of this decision, the Company recognized a
charge during the third quarter of 2001 for asset impairment and exit costs
totaling $5.8 million. This amount includes an asset impairment charge of
approximately $5.0 million related to building, leasehold improvement and
equipment write-downs, and an exit cost accrual of approximately $800,000
relating primarily to minimum property lease payments from the post-closure
date to the projected sublease date, if applicable, otherwise to the end of the
lease term. With respect to the asset impairment charge, fair value was
determined by discounting projected cash flow for each location, which is the
lowest level of identifiable cash flows largely independent of the cash flows
of other groups of assets, over its remaining operating period, including the
estimated proceeds from the disposition of such assets. The exit cost accrual
is reflected in accrued expenses on the accompanying consolidated balance sheet
at December 29, 2002. The balance in the exit cost accrual at December 29,
2002 was approximately $686,000.

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17. Litigation

The Company is also involved in various other legal actions incidental to
its business. In the opinion of management, the ultimate outcome of these
matters will not have a material impact on the Companys operating results,
liquidity or financial position.

18. Subsequent Events

On January 27,
2003, the Company acquired Ninety Nine Restaurant and Pub (Ninety
Nine), a casual dining chain based in Woburn, Massachusetts. The Company acquired
Ninety Nine for $116 million in cash and approximately 2.35
million shares of its common stock, plus the assumption of certain liabilities.
In addition to the purchase price, the Company has agreed to pay a total of $1.0
million per year, plus accrued interest, on each of January 1, 2004, 2005, 2006
and 2007, to certain key employees of Ninety Nine who the Company
continues to employ at
the time of such payments. Of the stock portion of the purchase price, the Company
delivered approximately 941,000 shares at closing, and will deliver
approximately 408,000 shares on each of the first, second, and third
anniversaries of the closing and 94,000 shares on each of the fourth and fifth
anniversaries of the closing.

The transaction will be accounted for using the purchase method of
accounting as required by SFAS No. 141 and, accordingly, the results of
operations of Ninety Nine will be included in the Companys consolidated
financial statements from the date of acquisition. The Ninety Nine concept is
being operated as a wholly owned subsidiary of the Company. The
Company is in the process of determining the preliminary allocation
of the purchase price to the acquired net assets, but such process
has not been completed.

On January 27, 2003, the Company entered into a new credit facility for
the purpose of purchasing Ninety Nine, retiring the previous revolving credit
facility and providing capital for future growth. The new credit facility is
comprised of a revolving credit facility in the maximum principal amount of
$200 million and a term loan in the original principal amount of $100 million.
The revolving credit facility matures on January 27, 2007 and the term loan
matures on January 27, 2009. The term loan provides for scheduled quarterly
principal amortization of $2.5 million commencing June 30, 2003 and ending
March 31, 2008 and quarterly principal amortization of $16.5 million commencing
June 30, 2008, with a final payment of $17.0 million due at maturity.

Amounts outstanding under the new revolving credit facility bear interest,
at the Companys option, at either LIBOR plus a specified margin ranging from
2.25% to 3.0% based on certain financial ratios or the base rate, which is the
higher of the lenders prime rate and the federal funds rate plus 0.5%, plus a
specified margin ranging from 1.0% to 1.75% based on certain financial ratios.
Amounts outstanding under the term loan bear interest, at the Companys option,

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at either LIBOR plus 4.0% or the base rate plus 2.75%. The new credit facility imposes restrictions on the
Company with
respect to the incurrence of additional indebtedness, sales of assets, mergers,
acquisitions, joint ventures, investments, repurchases of stock and the payment
of dividends. In addition, the credit facility requires the Company to comply with
certain specified financial covenants, including covenants relating to maximum
adjusted debt to EBITDAR (earnings before interest, taxes, depreciation,
amortization and rent) ratio, maximum leverage, minimum fixed charge coverage
ratio, minimum asset coverage ratio and minimum capital expenditures ratio.

Future minimum
operating lease payments for the Company, including lease obligations
of Ninety Nine, are as follows: (in thousands)



|           |  |   |         | 
|---------- |  | - | ------- | 
|2003       |  | $ | 11,088  | 
|2004       |  |   | 10,905  | 
|2005       |  |   | 10,684  | 
|2006       |  |   | 10,710  | 
|2007       |  |   | 10,549  | 
|Thereafter |  |   | 92,305  | 
|           |  |   |         | 
|           |  | $ | 146,241 | 
|           |  |   |         | 

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.




PART III

Item 10. Directors and Executive Officers of the Registrant.

The Proxy Statement issued in connection with the shareholders meeting to
be held on May 15, 2003, to be filed with the Securities and Exchange Commission
pursuant to Rule 14a-6(b), contains under the caption Election of Directors
information required by Item 10 of Form 10-K as to directors and executive
officers of the Company and is incorporated herein by reference. Pursuant to
General Instruction G(3), certain information concerning executive officers of
the Company is included in Part I of this Form 10-K, under the caption
Executive Officers.

Item 11. Executive Compensation.

The Proxy Statement issued in connection with the shareholders meeting to
be held on May 15, 2003, to be filed with the Securities and Exchange Commission
pursuant to Rule 14a-6(b), contains under the caption Executive Compensation
information required by Item 11 of Form 10-K and is incorporated herein by
reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The Proxy Statement issued in connection with the shareholders meeting to
be held on May 15, 2003, to be filed with the Securities and Exchange Commission
pursuant to Rule 14a-6(b), contains under the captions Security Ownership of
Certain Beneficial Owners, Election of Directors
and Executive Compensation information required by
Item 12 of Form 10-K and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

The Proxy Statement issued in connection with the shareholders meeting to
be held on May 15, 2003, to be filed with the Securities and Exchange Commission
pursuant to Rule 14a-6(b), contains under the caption Certain Transactions
information required by Item 13 of Form 10-K and is incorporated herein by
reference.

Item 14. Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial
Officer, have reviewed and evaluated the effectiveness of our disclosure
controls and procedures (as defined in Exchange Act Rule 13a-14(c)) as of a
date within ninety days before the filing date of this report. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that the disclosure controls and procedures are effective in ensuring that all
material information required to be filed in this report has been made known to
them in a timely fashion. There have been no significant changes in internal
controls, or in other factors that could significantly affect internal controls
subsequent to the date the Chief Executive Officer and Chief Financial Officer
completed their evaluation. There were no significant deficiencies or material
weaknesses identified, and therefore no corrective actions were taken.

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)  1. Financial Statements: See Item 8

2.     Financial Statement Schedules: Not Applicable

3.     Management Contracts and Compensatory Plans and Arrangements



| |  |  | OCharleys Inc. 1990 Employee Stock Plan
(included as Exhibit 10.7)                   
| | - |  | ---------------------------------------------------------------------------------------
|
| |  |  | First Amendment to OCharleys Inc. 1990 Employee
Stock Plan (included as Exhibit 10.8)

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| |  |  | Second Amendment to OCharleys Inc. 1990
Employee Stock Plan (included as Exhibit 10.9)                                                           
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Third Amendment to OCharleys Inc. 1990 Employee
Stock Plan (included as Exhibit 10.10)                                                           
|
| |  |  | Fourth Amendment to OCharleys Inc. 1990
Employee Stock Plan (included as Exhibit 10.11)                                                          
|
| |  |  | OCharleys 1991 Stock Option Plan for Outside
Directors, as amended (included as Exhibit 10.12)                                                   
|
| |  |  | CHUX Ownership Plan, as amended (included as Exhibit 10.13)                                                                                        
|
| |  |  | OCharleys 2000 Stock Incentive Plan (included as Exhibit 10.14)                                                                                  
|
| |  |  | Severance Compensation Agreement, dated February
19, 2003, by and between OCharleys Inc. and Gregory L. Burns
(included as Exhibit 10.15)        
|
| |  |  | Severance Compensation Agreement, dated as of
April 5, 2001, by and between OCharleys Inc. and A. Chad
Fitzhugh (included as Exhibit 10.16)      
|
| |  |  | Severance Compensation Agreement, dated as of
April 5, 2001, by and between OCharleys Inc. and Steven J.
Hislop (included as Exhibit 10.17)      
|
| |  |  | Severance Compensation Agreement, dated as of
August 30, 2000, by and between OCharleys Inc. and William
E. Hall, Jr. (included as Exhibit 10.18)
|
| |  |  | Restricted Stock Unit Agreement, dated February
13, 2002, between OCharleys Inc. and Gregory L. Burns
(included as Exhibit 10.19)                
|
| |  |  | Restricted Stock Unit Agreement, dated February
13, 2002, between OCharleys Inc. and Steven J. Hislop
(included as Exhibit 10.20)                
|
| |  |  | Restricted Stock Unit Agreement, dated February
13, 2002, between OCharleys Inc. and A. Chad Fitzhugh
(included as Exhibit 10.21)                
|
| |  |  | Restricted Stock Unit Agreement, dated February
13, 2002, between OCharleys Inc. and William E. Hall, Jr.
(included as Exhibit 10.22)            
|
| |  |  | Restricted Stock Unit Agreement, dated February
13, 2002, between OCharleys Inc. and Herman A. Moore, Jr.
(included as Exhibit 10.23)            
|
| |  |  | Secured Promissory Note, dated February 13, 2002,
by Gregory L. Burns, as maker, and OCharleys Inc., as payee
(included as Exhibit 10.24)        
|
| |  |  | Secured Promissory Note, dated February 13, 2002,
by Steven J. Hislop, as maker, and OCharleys Inc., as payee
(included as Exhibit 10.25)        
|
| |  |  | Secured Promissory Note, dated February 13, 2002,
by A. Chad Fitzhugh, as maker, and OCharleys Inc., as payee
(included as Exhibit 10.26)        
|
| |  |  | Secured Promissory Note, dated February 13, 2002,
by William E. Hall, Jr., as maker, and OCharleys Inc., as
payee (included as Exhibit 10.27)    
|
| |  |  | Secured Promissory Note, dated February 13, 2002,
by Herman A. Moore, Jr., as maker, and OCharleys Inc., as
payee (included as Exhibit 10.28)    

4.     Exhibits:

|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Number  |  |   |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|2.1     |  |  |  | Asset Purchase Agreement by and among OCharleys Inc.,
99 Boston, Inc., 99 Boston of Vermont, Inc., Doe Family
II LLC, and each of William A. Doe, III, Dana G. Doe and
Charles F. Doe, Jr. (Pursuant to Item 601(b)(2) of
Regulation S-K, the schedules and exhibits to this
agreement are omitted, but will be provided
supplementally to the Commission upon request.)
(Incorporated herein by reference to Exhibit 2.1 to the
Companys Current Report on Form 8-K filed with the
Commission on November 1, 2002)
|2.2     |  |  |  | Merger Agreement by and among OCharleys Inc.,
Volunteer Acquisition Corporation, 99 West, Inc., and
each of William A. Doe, III, Dana G. Doe and Charles F.
Doe, Jr. (Pursuant to Item 601(b)(2) of Regulation S-K,
the schedules and exhibits to this agreement are
omitted, but will be provided supplementally to the
Commission upon request.) (Incorporated herein by
reference to Exhibit 2.2 to the Companys Current Report
on Form 8-K filed with the Commission on November 1,
2002)                      

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|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                   
|------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                   
|Number  |  |   |  | Description                                                                                                                                                                                                                                                                                                                                                                                       
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                   
|3.1     |  |  |  | Restated Charter of the Company (restated electronically
for SEC filing purposes only and incorporated by
reference to Exhibit 3 to the Companys Current Report
on Form 8-K filed with the Commission on December 27,
2000)                                                                                                                                                                      
|3.2     |  |  |  | Amended and Restated Bylaws of the Company (incorporated
by reference to Exhibit 3 of the Companys Quarterly
Report on Form 10-Q for the quarter ended April 22,
2001)                                                                                                                                                                                                                           
|4.1     |  |  |  | Form of Certificate for the Common Stock (incorporated
by reference to Exhibit 4.1 to the Companys
Registration Statement on Form S-1, Registration No.
33-35170)                                                                                                                                                                                                                                
|4.2     |  |  |  | Rights Agreement, dated December 8, 2000, between the
Company and First Union National Bank, as Rights Agent
(incorporated by reference to Exhibit 4 to the Companys
Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 27, 2000)                                                                                                                          
|4.3     |  |  |  | Registration Rights Agreement, dated January 27, 2003,
between OCharleys Inc., 99 Boston, Inc., Doe Family
II, LLC, William A. Doe, III, Dana G. Doe and Charles F.
Doe, Jr. (incorporated by reference to Exhibit 4.1 to
the Companys Current Report on Form 8-K filed with the
Commission on January 29, 2003)                                                                               
|10.1    |  |  |  | Participation Agreement, dated as of October 10, 2000,
among OCharleys Inc., as Lessee, First American
Business Capital, Inc., as Lessor, AmSouth Bank, as
Agent, Bank of America, Firstar Bank, N.A., First Union
National Bank and SunTrust Bank (incorporated by
reference to Exhibit 10.13 of the Companys Annual
Report on Form 10-K for the year ended December 31,
2000)                
|10.2    |  |  |  | First Amendment to Participation Agreement, dated July
9, 2001, among OCharleys Inc., as lessee, First
American Business Capital, Inc., as lessor, AmSouth
Bank, as agent, Bank of America, N.A., Firstar Bank,
N.A., First Union National Bank and SunTrust Bank
(incorporated by reference to Exhibit 10.2 of the
Companys Quarterly Report on Form 10-Q for the quarter
ended July 15, 2001)
|10.3    |  |  |  | Lease, dated as of October 10, 2000, by and between
First American Business Capital, Inc., as Lessor, and
OCharleys Inc., as Lessee (incorporated by reference
to Exhibit 10.14 of the Companys Annual Report on Form
10-K for the year ended December 31, 2000)                                                                                                                               
|10.4    |  |  |  | Lease, dated October 10, 2000, by and between First
American Business Capital, Inc., as Lessor, and
OCharleys Inc., as Lessee (incorporated by reference
to Exhibit 10.15 of the Companys Annual Report on Form
10-K for the year ended December 31, 2000)                                                                                                                                     
|10.5    |  |  |  | First Amendment to Lease, dated July 9, 2001, by and
between First American Business Capital, Inc., as
lessor, and OCharleys Inc., as lessee (incorporated by
reference to Exhibit 10.3 of the Companys Quarterly
Report on Form 10-Q for the quarter ended July 15, 2001)                                                                                                                     
|10.6    |  |  |  | OCharleys Inc. 1985 Stock Option Plan (incorporated by
reference to Exhibit 10.27 of the Companys Registration
Statement on Form S-1, Registration No. 33-35170)                                                                                                                                                                                                                               
|10.7    |  |  |  | OCharleys Inc. 1990 Employee Stock Plan (incorporated
by reference to Exhibit 10.26 of the Companys
Registration Statement on Form S-1, Registration No.
33-35170)                                                                                                                                                                                                                             
|10.8    |  |  |  | First Amendment to OCharleys Inc. 1990 Employee Stock
Plan (incorporated by reference to Exhibit 10.24 of the
Companys Annual Report on Form 10-K for the year ended
December 29, 1991)                                                                                                                                                                                                        
|10.9    |  |  |  | Second Amendment to OCharleys Inc. 1990 Employee Stock
Plan (incorporated by reference to Exhibit 10.23 of the
Companys Annual Report on Form 10-K for the year ended
December 26, 1993)                                                                                                                                                                                                       

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|        |  |   |  |                                                                                                                                                                                                                                                                 
|------- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                 
|Number  |  |   |  | Description                                                                                                                                                                                                                                                     
|        |  |   |  |                                                                                                                                                                                                                                                                 
|10.10   |  |  |  | Third Amendment to OCharleys Inc. 1990 Employee Stock
Plan (incorporated by reference to Exhibit 10.14 of the
Companys Annual Report on Form 10-K for the year ended
December 27, 1998)                                                                      
|10.11   |  |  |  | Fourth Amendment to OCharleys Inc. 1990 Employee Stock
Plan (incorporated by reference to Exhibit 10.1 of the
Companys Quarterly Report on Form 10-Q for the quarter
ended October 1, 2000)                                                                  
|10.12   |  |  |  | OCharleys Inc. 1991 Stock Option Plan for Outside
Directors, as amended (incorporated by reference to
Exhibit 10.2 of the Companys Quarterly Report on Form
10-Q for the quarter ended October 1, 2000)                                                      
|10.13   |  |  |  | CHUX Ownership Plan, as amended (incorporated by
reference to Exhibit 10.2 of the Companys Quarterly
Report on Form 10-Q for the quarter ended July 9, 2000)                                                                                                   
|10.14   |  |  |  | OCharleys 2000 Stock Incentive Plan (incorporated by
reference to Exhibit 10.1 of the Companys Quarterly
Report on Form 10-Q for the quarter ended July 9, 2000)                                                                                             
|10.15   |  |  |  | Severance Compensation Agreement, dated February 19,
2003, by and between OCharleys Inc. and Gregory L.
Burns                                                                                                                                                 
|10.16   |  |  |  | Severance Compensation Agreement, dated April 5, 2001,
by and between OCharleys Inc. and A. Chad Fitzhugh
(incorporated by reference to Exhibit 10.2 of the
Companys Quarterly Report on Form 10-Q for the quarter
ended April 22, 2001)                     
|10.17   |  |  |  | Severance Compensation Agreement, dated April 5, 2001,
by and between OCharleys Inc. and Steven J. Hislop
(incorporated by reference to Exhibit 10.1 of the
Companys Quarterly Report on Form 10-Q for the quarter
ended April 22, 2001)                     
|10.18   |  |  |  | Severance Compensation Agreement, dated August 30, 2000,
by and between OCharleys Inc. and William E. Hall, Jr.
(incorporated by reference to Exhibit 10.3 of the
Companys Quarterly Report on Form 10-Q for the quarter
ended October 1, 2000)              
|10.19   |  |  |  | Restricted Stock Unit Agreement, dated February 13,
2002, between OCharleys Inc. and Gregory L. Burns.
(Incorporated herein by reference to Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q for the
Quarterly Period Ended April 21, 2002)        
|10.20   |  |  |  | Restricted Stock Unit Agreement, dated February 13,
2002, between OCharleys Inc. and Steven J. Hislop.
(Incorporated herein by reference to Exhibit 10.2 to the
Companys Quarterly Report on Form 10-Q for the
Quarterly Period Ended April 21, 2002)        
|10.21   |  |  |  | Restricted Stock Unit Agreement, dated February 13,
2002, between OCharleys Inc. and A. Chad Fitzhugh.
(Incorporated herein by reference to Exhibit 10.3 to the
Companys Quarterly Report on Form 10-Q for the
Quarterly Period Ended April 21, 2002)        
|10.22   |  |  |  | Restricted Stock Unit Agreement, dated February 13,
2002, between OCharleys Inc. and William E. Hall, Jr.
(Incorporated herein by reference to Exhibit 10.4 to the
Companys Quarterly Report on Form 10-Q for the
Quarterly Period Ended April 21, 2002)     
|10.23   |  |  |  | Restricted Stock Unit Agreement, dated February 13,
2002, between OCharleys Inc. and Herman A. Moore, Jr.
(Incorporated herein by reference to Exhibit 10.5 to the
Companys Quarterly Report on Form 10-Q for the
Quarterly Period Ended April 21, 2002)     
|10.24   |  |  |  | Secured Promissory Note, dated February 13, 2002, by
Gregory L. Burns, as maker, and OCharleys Inc., as
payee. (Incorporated herein by reference to Exhibit
10.6 to the Companys Quarterly Report on Form 10-Q for
the Quarterly Period Ended April 21, 2002)

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|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Number  |  |   |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.25   |  |  |  | Secured Promissory Note, dated February 13, 2002, by
Steven J. Hislop, as maker, and OCharleys Inc., as
payee. (Incorporated herein by reference to Exhibit
10.7 to the Companys Quarterly Report on Form 10-Q for
the Quarterly Period Ended April 21, 2002)                                                                                                                                                                                    
|10.26   |  |  |  | Secured Promissory Note, dated February 13, 2002, by A.
Chad Fitzhugh, as maker, and OCharleys Inc., as payee.
(Incorporated herein by reference to Exhibit 10.8 to
the Companys Quarterly Report on Form 10-Q for the
Quarterly Period Ended April 21, 2002)                                                                                                                                                                                    
|10.27   |  |  |  | Secured Promissory Note, dated February 13, 2002, by
William E. Hall, Jr., as maker, and OCharleys Inc., as
payee. (Incorporated herein by reference to Exhibit
10.9 to the Companys Quarterly Report on Form 10-Q for
the Quarterly Period Ended April 21, 2002)                                                                                                                                                                                
|10.28   |  |  |  | Secured Promissory Note, dated February 13, 2002, by
Herman A. Moore, Jr., as maker, and OCharleys Inc., as
payee. (Incorporated herein by reference to Exhibit
10.10 to the Companys Quarterly Report on Form 10-Q for
the Quarterly Period Ended April 21, 2002)                                                                                                                                                                               
|10.29   |  |  |  | Credit Agreement, dated as of January 27, 2003, by and
among OCharleys Inc., as Borrower, the Lenders
referred to therein, Wachovia Bank, National
Association, as Administrative Agent, Bank of America,
N.A., as Syndication Agent, and SunTrust Bank and
AmSouth Bank, as Co-Documentation Agents. (Incorporated
herein by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed with the Commission on
January 29, 2003)
|10.30   |  |  |  | Form of Revolving Credit Note. (Incorporated herein by
reference to Exhibit 10.2 to the Companys Current
Report on Form 8-K filed with the Commission on January
29, 2003)                                                                                                                                                                                                                                                                         
|10.31   |  |  |  | Form of Swingline Note. (Incorporated herein by
reference to Exhibit 10.3 to the Companys Current
Report on Form 8-K filed with the Commission on January
29, 2003)                                                                                                                                                                                                                                                                                
|10.32   |  |  |  | Form of Term B Note. (Incorporated herein by
reference to Exhibit 10.4 to the Companys Current
Report on Form 8-K filed with the Commission on January
29, 2003)                                                                                                                                                                                                                                                                                   
|10.33   |  |  |  | Master Lease, dated December 4, 2001, by and between
Double 9 Property I LLC and Doe Family II LLC                                                                                                                                                                                                                                                                                                                                                  
|10.34   |  |  |  | Assignment and Assumption of Lease and Acknowledgement
of Master Lease Assignment and Subordination,
Nondisturbance and Attornment Agreement, dated January
27, 2003, by and among Doe Family II LLC, 99 West, Inc.,
Double 9 Property I LLC, 99 Remainder I LLC and GE
Capital Franchise Finance Corporation                                                                                                                                       
|10.35   |  |  |  | Master Lease, dated December 4, 2001, by and between
Double 9 Property II LLC and Doe Family II LLC                                                                                                                                                                                                                                                                                                                                                 
|10.36   |  |  |  | First Amendment to Master Lease, dated February 1, 2002,
by and between Double 9 Property II LLC and Doe Family
II LLC                                                                                                                                                                                                                                                                                                                              
|10.37   |  |  |  | Assignment and Assumption of Lease and Acknowledgement
of Master Lease Assignment and Subordination,
Nondisturbance and Attornment Agreement, dated January
27, 2003, by and among Doe Family II LLC, 99 West, Inc.,
Double 9 Property II LLC, 99 Remainder II LLC and GE
Capital Franchise Finance Corporation                                                                                                                                     
|10.38   |  |  |  | Master Lease, dated December 4, 2001, by and between
Double 9 Property III LLC and Doe Family II LLC                                                                                                                                                                                                                                                                                                                                                

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|        |  |   |  |                                                                                                                                                                                                                                                                                                                  
|------- |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                                                                  
|Number  |  |   |  | Description                                                                                                                                                                                                                                                                                                      
|        |  |   |  |                                                                                                                                                                                                                                                                                                                  
|10.39   |  |  |  | Assignment and Assumption of Lease and Acknowledgement
of Master Lease Assignment and Subordination,
Nondisturbance and Attornment Agreement, dated January
27, 2003, by and among Doe Family II LLC, 99 West, Inc.,
Double 9 Property III LLC, 99 Remainder III LLC and GE
Capital Franchise Finance Corporation
|10.40   |  |  |  | Master Lease, dated December 4, 2001, by and between
Double 9 Property IV LLC and Doe Family II LLC                                                                                                                                                                                                              
|10.41   |  |  |  | First Amendment to Master Lease, dated February 1, 2002,
by and between Double 9 Property IV LLC and Doe Family
II LLC                                                                                                                                                                                           
|10.42   |  |  |  | Assignment and Assumption of Lease and Acknowledgement
of Master Lease Assignment and Subordination,
Nondisturbance and Attornment Agreement, dated January
27, 2003, by and among Doe Family II LLC, 99 West, Inc.,
Double 9 Property IV LLC, 99 Remainder IV LLC and GE
Capital Franchise Finance Corporation  
|21      |  |  |  | Subsidiaries of the Company                                                                                                                                                                                                                                                                                      
|23      |  |  |  | Consent of KPMG LLP                                                                                                                                                                                                                                                                                              
|99.1    |  |  |  | Certification of Gregory L. Burns (Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002)                                                                                                                                                                     
|99.2    |  |  |  | Certification of A. Chad Fitzhugh (Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002)                                                                                                                                                                     



|(b) |  | A Current Report on Form 8-K dated November 1, 2002 was filed during the
quarter ended December 29, 2002 reporting under Item 5 that the Company
had entered into a definitive agreement to acquire the business of Ninety
Nine Restaurant and Pub.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

|                     |  |                 |  |                                                                   
|-------------------- |  | --------------- |  | ------------------------------------------------------------------
|                     |  | OCHARLEYS INC
|                     |  |                 |  |                                                                   
|Date: March 12, 2003 |  | By:             |  | /s/ Gregory L. Burns                                              
|                     |  |                 |  |                                                                   
|                     |  |                 |  | Gregory L. Burns
Chief Executive Officer and Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

|                                             |  |                                                                                                |  |               
|-------------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | --------------
|Signature                                    |  | Title                                                                                          |  | Date          
|                                             |  |                                                                                                |  |               
|/s/ Gregory L. Burns(Gregory L. Burns)       |  | Chief Executive Officer and Chairman
of the Board (Principal Executive Officer)                |  | March 12, 2003
|                                            
|/s/ Steven J. Hislop(Steven J. Hislop)       |  | President, Chief Operating Officer and
Director                                                |  | March 12, 2003
|                                            
|/s/ A. Chad Fitzhugh(A. Chad Fitzhugh)       |  | Chief Financial Officer, Secretary, and
Treasurer (Principal Financial and
Accounting Officer) |  | March 12, 2003
|                                            
|/s/ John W. Stokes, Jr.(John W. Stokes, Jr.) |  | Director                                                                                       |  | March 12, 2003
|                                            
|/s/ Richard Reiss, Jr.(Richard Reiss, Jr.)   |  | Director                                                                                       |  | March 12, 2003
|                                            
|/s/ G. Nicholas Spiva(G. Nicholas Spiva)     |  | Director                                                                                       |  | March 12, 2003
|                                            
|/s/ H. Steve Tidwell(H. Steve Tidwell)       |  | Director                                                                                       |  | March 12, 2003
|                                            
|/s/ Samuel H. Howard(Samuel H. Howard)       |  | Director                                                                                       |  | March 12, 2003
|                                            
|/s/ Shirley A. Zeitlin(Shirley A. Zeitlin)   |  | Director                                                                                       |  | March 12, 2003
|                                            
|/s/ Robert J. Walker(Robert J. Walker)       |  | Director                                                                                       |  | March 12, 2003
|                                            
|/s/ Dale W. Polley(Dale W. Polley)           |  | Director                                                                                       |  | March 12, 2003

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Certification of Chief Executive Officer

I, Gregory L. Burns, certify that:

1.     I have reviewed this annual report on Form 10-K of OCharleys Inc;

2.     Based on my knowledge, this annual 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 annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures 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 annual report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and

c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

|               |  |                        
|-------------- |  | -----------------------
|March 12, 2003 |  |                        
|               |  |                        
|               |  | /s/ Gregory L. Burns   
|               |  |                        
|               |  | Chief Executive Officer

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Certification of Chief Financial Officer

I, A. Chad Fitzhugh, certify that:

1.     I have reviewed this annual report on Form 10-K of OCharleys Inc;

2.     Based on my knowledge, this annual 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 annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures 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 annual report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and

c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

|               |  |                        
|-------------- |  | -----------------------
|March 12, 2003 |  |                        
|               |  |                        
|               |  | /s/ A. Chad Fitzhugh   
|               |  |                        
|               |  | Chief Financial Officer

69