FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended April 2, 1995
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-10291
Spaghetti Warehouse, Inc.
(Exact name of registrant as specified in its charter)
Texas 75-1393176
(State or other jurisdiction of (IRS Employer
Identification
incorporation or organization) Number)
402 West I-30, Garland, Texas 75043
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 214/226-6000
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of April 2, 1995: 5,612,194 shares of
common stock, par value $.01.
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
SPAGHETTI WAREHOUSE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
Assets 7/3/94 4/2/95
(Unaudited)
<CAPTION>
Current assets:
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 1,917,679 $ 2,724,133
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 520,470 729,099
Note receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,000 21,882
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,068,935 808,645
Income taxes refundable . . . . . . . . . . . . . . . . . . . . . . . . 514,189 641,079
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442,496 512,330
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 4,509,769 5,437,168
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . 68,594,438 67,536,617
Assets scheduled for divestiture . . . . . . . . . . . . . . . . . . . . . . 384,468 381,651
Trademark and franchise rights, net . . . . . . . . . . . . . . . . . . . . . 3,321,645 3,193,633
Pre-opening costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 406,120 95,966
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,109 122,273
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,418,110 1,352,288
$ 78,647,659 $ 78,119,596
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . $ 36,000 $ 36,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,436,807 2,914,450
Accrued payroll and bonuses . . . . . . . . . . . . . . . . . . . . . . 2,995,487 1,325,249
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 155,676 57,618
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 993,210 1,743,961
Total current liabilities . . . . . . . . . . . . . . . . . . . . 7,617,180 6,077,278
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . 18,548,000 18,771,000
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 13,971
Stockholders' equity:
Preferred stock of $1.00 par value; authorized 1,000,000 shares;
no shares issued . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock of $.01 par value; authorized 20,000,000 shares;
issued 6,374,454 shares at 7/3/94 and 6,407,151 shares
at 4/2/95 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,745 64,071
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 35,586,418 35,745,656
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . (585,296 ) (640,906)
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Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,178,355 24,219,964
58,243,222 59,388,785
Less cost of 734,157 shares at 7/3/94 and 794,957 shares at 4/2/95
of common stock held in treasury . . . . . . . . . . . . . . . . . 5,760,743 6,131,438
52,482,479 53,257,347
$ 78,647,659 $ 78,119,596
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<TABLE>
SPAGHETTI WAREHOUSE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
39-Week Period 39-Week Period 13-Week Period 13-Week Period
Ended 4/3/94 Ended 4/2/95 Ended 4/3/94 Ended 4/2/95
<CAPTION>
Revenues:
<S> <C> <C> <C> <C>
Restaurant sales . . . . . . . . . . . . $57,051,980 $ 58,476,822 $ 19,559,319 $ 19,106,843
Franchise . . . . . . . . . . . . . . . 431,243 459,130 127,558 142,529
Other . . . . . . . . . . . . . . . . . 433,732 410,482 146,174 116,329
Total revenues . . . . . . . . . . . 57,916,955 59,346,434 19,833,051 19,365,701
Costs and expenses:
Cost of sales . . . . . . . . . . . . . 14,421,203 15,155,923 4,944,461 4,779,568
Operating expenses . . . . . . . . . . . 32,192,558 33,691,577 11,211,557 10,824,999
General and administrative expenses . . 4,173,040 4,198,291 1,433,273 1,517,473
Depreciation and amortization . . . . . 4,400,785 4,009,948 1,523,624 1,267,649
Loss on assets scheduled for
divestiture . . . . . . . . . . . . 50,000 -- -- --
Total costs and expenses . . . . . . 55,237,586 57,055,739 19,112,915 18,389,689
Income from operations . . . . . . . 2,679,369 2,290,695 720,136 976,012
Net interest expense . . . . . . . . . . . 596,423 924,812 263,085 315,782
Income before income tax expense . . . . . 2,082,946 1,365,883 457,051 660,230
Income tax expense (benefit) . . . . . . . 504,950 324,274 (5,217) 164,535
Net income . . . . . . . . . . . . . . . . $ 1,577,996 $1,041,609 $ 462,268 $ 495,695
Net income per common share:
Primary . . . . . . . . . . . . . . . . $.25 $.18 $.08 $.09
Fully diluted . . . . . . . . . . . . . $.25 $.18 $.08 $.09
Weighted average common and common share equivalents outstanding:
Primary . . . . . . . . . . . . . . . . 6,197,702 5,686,517 5,869,046 5,729,745
Fully diluted . . . . . . . . . . . . . 6,206,760 5,692,124 5,869,049 5,732,396
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</TABLE>
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<TABLE>
SPAGHETTI WAREHOUSE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
39-Week
Periods Ended
<CAPTION>
4/3/94 4/2/95
Cash flows from operating activities:
<S> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,577,996 $ 1,041,609
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization expense . . . . . . . . . . . . . . . 4,400,785 4,009,948
Loss on sale of property and equipment . . . . . . . . . . . . . . 139,952 15,222
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,274 47,972
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . 141,714 (209,235)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 643,481 282,029
Income taxes refundable . . . . . . . . . . . . . . . . . . . . (328,417) (126,783)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . (111,992) (69,891)
Pre-opening costs . . . . . . . . . . . . . . . . . . . . . . . (754,834) (133,397)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . (604,052) 47,581
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . (29,231) (522,032)
Accrued payroll and bonuses . . . . . . . . . . . . . . . . . . (115,515) (1,670,309)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . (190,672) (206,915)
Other accrued liabilities . . . . . . . . . . . . . . . . . . . 144,471 750,751
Net cash provided by operating activities . . . . . . . . . 4,967,960 3,256,550
Cash flows from investing activities:
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . (11,525,044) (2,591,339)
Proceeds from sales of property and equipment . . . . . . . . . . . . . . 71,079 106,379
Collection of notes receivable . . . . . . . . . . . . . . . . . . . . . 34,500 59,721
Net cash used in investing activities . . . . . . . . . . . (11,419,465) (2,425,239)
Cash flows from financing activities:
Borrowings from long-term debt . . . . . . . . . . . . . . . . . . . . . 10,700,000 250,000
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . (27,000) (27,000)
Purchase of treasury shares . . . . . . . . . . . . . . . . . . . . . . . (5,150,867) (370,695)
Proceeds from sale of common stock and exercise of employee
stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326,617 144,564
Net cash provided by (used in) financing activities . . . . 5,848,750 (3,131)
Effects of exchange rate changes on cash and cash equivalents . . . . . . . . (69,960) (21,726)
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . (672,715) 806,454
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . 1,600,291 1,917,679
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . $ 927,576 $ 2,724,133
Interest paid (net of amounts capitalized) . . . . . . . . . . . . . . . . . $ 671,929 $ 653,224
Income taxes paid (net of refunds collected) . . . . . . . . . . . . . . . . $ 981,414 $ 657,871
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</TABLE>
<PAGE>
SPAGHETTI WAREHOUSE, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of the Company, the accompanying condensed
consolidated financial statements contain all adjustments
(consisting only of normal recurring accruals) necessary
for a fair presentation of the consolidated financial
position as of April 2, 1995 and the consolidated results
of operations and cash flows for the 39-week and 13-week
periods ended April 2, 1995 and April 3, 1994. The
condensed consolidated statements of income for the 13-
week and 39-week periods ended April 2, 1995 are not
necessarily indicative of the results to be expected for
the full year.
2. Accounting Policies
During the interim periods the Company follows the
accounting policies set forth in its consolidated
financial statements in its Annual Report (Form 10-K)
(File No.1-10291). Reference should be made to such
financial statements for information on such accounting
policies and further financial details.
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenues
Revenues decreased $0.5 million, or 2.4% for the quarter
ended April 2, 1995 in comparison to the same quarter in the
preceding year. This decrease is due primarily to a $0.6
million (3.6%) decline in sales experienced by the 31
restaurants opened prior to July 5, 1993 ("annual same-
stores"). These sales declines were the result of declining
customer counts which were down 4.0% in annual same-stores.
Management attributes the decline in annual same-store
customer counts to the rapid growth of competitors in the
casual dining and Italian restaurant segments, to the normal
decline in customer counts for stores in their second and
third year of operation, and to a substantial reduction in
marketing expenditures in comparison to the same quarter in
the preceding year.
The Company introduced a new menu in late January 1995.
The objective of this new menu was to increase check
averages through an expanded appetizer section, increased
emphasis on "pasta topper" sales, and an expanded variety of
pastas available to the customer for a nominal additional
charge. This new menu also included a modest price increase
on selected menu items to help offset increases in raw
material costs. As a result of the new menu, check averages
increased approximately $.40 per customer compared to levels
achieved just prior to the introduction of the new menu, and
check averages in annual same-stores increased 0.5% in the
third quarter in comparison to the same quarter last year.
Revenues for the nine months ended April 2, 1995
increased $1.4 million, or 2.5%, compared to the same period
last year. This increase is due entirely to the Company's
six new restaurants opened after July 5, 1993 which have
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produced incremental revenue of $4.2 million in the current
nine-month period. The increase in revenue was offset by a
$2.8 million (5.3%) decline in annual same-store sales.
This decline in annual same-store sales was the result of a
4.1% decline in customer counts coupled with a 1.3% decline
in check averages during the current nine-month period.
Costs and Expenses
Cost of Sales
Cost of sales decreased 0.2% as a percentage of revenues
to 24.7% for the quarter ended April 2, 1995 from 24.9% in
the same quarter last year. This decrease as a percentage
of revenues is due to the modest price increase included in
the new menu and improved inventory controls.
Cost of sales as a percentage of revenues for the nine
months ended April 2, 1995 increased 0.6% to 25.5% as
compared to 24.9% for the same period last year. This
increase as a percentage of revenues is due to price
reductions made on selected menu items in the fourth quarter
of fiscal 1994 and to increases in certain raw material
costs during the past 12 months.
Operating Expenses
Operating expenses as a percentage of revenues decreased
to 55.9% for the current quarter as compared to 56.5% for
the same quarter last year. This 0.6% decrease as a
percentage of revenues is primarily due to cost reduction
programs initiated by the Company during the current year.
Savings obtained in the third quarter as a result of these
programs include reductions in cashier labor, workman's
compensation insurance and security costs. Additionally,
group medical costs, marketing expenditures, general
liability insurance and property taxes were also lower in
the current fiscal quarter.
Operating expenses as a percentage of revenues for the
nine-month period ended April 2, 1995 were 56.8% as compared
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to 55.6% for the comparable period last year. Much of this
1.2% increase as a percentage of revenues is attributed to
the relatively fixed nature of certain operating costs,
including management labor, occupancy costs, and repair and
maintenance expenses, relative to the nine-month decline in
annual same-store sales volumes. The remaining increase in
operating costs for the current nine-month period is
attributed to increases in server labor, employee training,
and media advertising expenditures.
General and Administrative Expenses (G&A)
G&A expenses as a percentage of revenues increased 0.6%
from 7.2% in the third quarter of fiscal 1994 to 7.8% in the
current quarter. Management attributes much of this
increase to the addition of several corporate level
positions including a new president, vice president of
operations, director of food and beverage, regional director
and two information systems employees. Also contributing to
the increase in G&A expenses were increases in corporate
bonus expense, resulting from the improvement in the
Company's operating results, professional fees and
management relocation expenses.
G&A expenses as a percentage of revenues for the current
nine months were 7.1% as compared to 7.2% for the same nine
months last year. The write-off of foreign trademark
registration costs, severance packages and the write-off of
costs incurred in searching for potential sites in markets
which were excluded from expansion consideration contributed
to the higher G&A costs in the prior year. Although the
Company did not incur such expenses in the current year, the
savings was largely offset by increased employee costs
resulting from the addition of several corporate level
positions mentioned above.
8
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Depreciation and Amortization (D&A)
D&A as a percentage of revenues decreased to 6.5% for the
current quarter as compared to 7.7% in the same quarter last
year. D&A for the current nine months decreased to 6.8%
from 7.6% for the same nine months last year. These
decreases are due to declining pre-opening expense
amortization on new stores resulting from a reduction in the
Company's new restaurant expansion rate. The decline in
pre-opening expense amortization as a percentage of revenues
was partially offset by an increase in depreciation on the
Company's new information systems and by the fixed nature of
depreciation relative to the decline in annual same-store
sales volumes.
Net Interest Expense
The Company incurred net interest expense of $315,782
during the quarter ended April 2, 1995 compared to $263,085
during the same quarter in the prior fiscal year. During the
current nine-month period, the Company incurred net interest
expense of $924,811 as compared to $596,423 for the same
nine months last year. These increases are attributed to
increases in average debt outstanding under the Company's
debt facilities and to increases in short-term borrowing
rates on the Company's revolving credit facility.
Management intends to incur additional long-term debt to the
extent that future cash flow from operations is insufficient
to cover planned expansion, capital expenditures and
possible further repurchases of the Company's stock.
Income Taxes
The Company's effective tax rate for the quarter ended
April 2, 1995 was 24.9% compared to (1.1%) for the quarter
ended April 3, 1994. The significantly lower rate in the
prior year was the result of increased prior year estimates
in the amount of FICA tip credits and targeted jobs tax
credits that were available to the Company coupled with
prior year pre-tax net income levels that were lower than
initially projected.
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The effective rate for the nine months ended April 2,
1995 was 23.7% compared to 24.2% for the same nine-month
period last year. Effective rates in both years are below
statutory rates due to the utilization of the FICA tip
credit and targeted jobs tax credit. The Company is only
projecting a six-month benefit from the targeted jobs tax
credit in fiscal 1995 due to the fact that the credit
expired on December 31, 1994, and has not been reinstated by
Congress at this time. In addition to these credits, lower
Canadian tax rates also help to reduce the Company's overall
effective rate below statutory levels.
Liquidity and Capital Resources
The Company's working capital deficit decreased from $3.1
million at July 3, 1994 to $0.6 million at April 2, 1995.
This $2.5 million decrease is due to the payout of fiscal
1994 bonuses during the first quarter of fiscal 1995, the
timing of period-end payments of salaries and wages and a
$0.8 million increase in cash and cash equivalents. The
Company is currently operating with a working capital
deficit which is common in the restaurant industry since
restaurant companies do not normally require significant
investment in either accounts receivable or inventory.
Net cash provided by operating activities decreased from
$5.0 million for the nine months ended April 3, 1994 to $3.3
million for the current nine months. This decrease is due
primarily to changes in certain components of working
capital, including decreases in accounts payable and accrued
payroll and bonuses, and to a decrease in net income.
Long-term debt outstanding at April 2, 1995 consisted
primarily of a $15.0 million fixed rate term loan and $3.75
million borrowed against the Company's floating rate
revolving credit facility. The Company had an additional
$11.25 million available under this revolving credit
facility at April 2, 1995.
Capital expenditures were $2.6 million for the nine
months ended April 2, 1995 as compared to $11.5 million for
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the same period last year. Fiscal 1995 expenditures consist
primarily of Bedford restaurant construction costs,
purchases of new and replacement equipment and decor for the
Company's existing restaurants, and costs of replacing
point-of-sale (POS) equipment in 10 Company restaurants.
The decline in capital expenditures from fiscal 1994 is the
result of the reduction in the Company's expansion rate.
In addition to these capital expenditures, the Company
repurchased 60,800 shares of its common stock during the
first nine months of fiscal 1995 under a program authorized
by its Board of Directors. Under this program, the Company
may repurchase up to 1,000,000 shares of its common stock
subject to price and other market considerations. The
repurchase program will continue as long as the Company
views its common stock as an attractive investment
opportunity. The Company has repurchased a total of 733,657
shares of its common stock since the inception of this
program in January 1994.
The Company did not open any new restaurants during the
current quarter. Management expects to open one or two
Company-owned restaurants during the next 12 months and to
continue to make any necessary replacements and upgrades to
its existing restaurants as considered necessary. The
Company will also complete updating POS equipment in the
remaining 13 restaurants with older equipment. The Company
estimates that the costs of these planned capital
expenditures during the next 12 months will be approximately
$6.0 million. Management believes that cash from operations
and current cash balances, together with the $11.25 million
undrawn balance on the Company's revolving credit facility,
will be sufficient to fund the Company's planned capital
expenditures and share repurchase program for the next 12
months.
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PART II - OTHER INFORMATION
Item 5. OTHER INFORMATION
On February 2, 1995, the Board of Directors
of the Company adopted a shareholder rights plan
(the "Rights Plan") and declared a dividend
distribution of one preferred share purchase right
(a "Right") for each outstanding share of the
Company's Common Stock to shareholders of record
as of the close of business on February 14, 1995.
Each Right entitles the registered holder to
purchase from the Company a unit consisting of
one-thousandth of a share (a "Unit") of the
Company's Series A Preferred Stock, $1.00 par
value (the "Preferred Stock"), at a purchase price
of $40 per Unit, subject to adjustment. The
description and terms of the Rights are set forth
in that certain Rights Agreement dated February 2,
1995 (the "Rights Agreement"), between the Company
and Chemical Bank, as Rights Agent.
The Rights Agreement, as well as certain
other documents related to the Rights Plan, are
filed as exhibits to the Company's registration
statement on Form 8-A, filed with the Securities
and Exchange Commission on February 8, 1995, and
as amended under cover of Form 8-A/A (Amendment
No. 1) filed with the Commission on February 27,
1995 (as so amended, the "Form 8-A"). For a more
complete description of the terms and provisions
of the Rights and the Rights Plan, see the Form 8-
A.
Item 6. EXHIBITS
12
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Exhibit
Number: Document Description
3.1 Second Amended and Restated
Articles of Incorporation of the
Company, as amended.
4.1 Rights Agreement, dated February
2, 1995 between the Company and
Chemical Bank (incorporated by
reference to Exhibit 1 of the
Company's Registration Statement
on Form 8-A/A (Amendment No. 1),
filed by the Company with the
Securities and Exchange Commission
on February 27, 1995).
27.1 Financial Data Schedule
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EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Document Description Page
3.1 -Second Amended and Restated
Articles of Incorporation of the
Company, as amended.
4.1 -Rights Agreement, dated February 2,
1995 between the Company and
Chemical Bank (incorporated by
reference to Exhibit 1 of the
Company's Registration
Statement on Form 8-A, filed by the
Company with
the Securities and Exchange
Commission on
February 27, 1995).
27.1- Financial Data Schedule
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EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
ARTICLE ONE
Old Spaghetti Warehouse, Inc., pursuant to the
provisions of Article 4.07 of the Texas Business Corporation
Act, hereby adopts, authorizes, executes and files Amended
and Restated Articles of Incorporation and all amendments
thereof that are in effect to date and as further amended by
such Amended and Restated Articles of Incorporation as
hereinafter set forth and which contain no other change in
any provision thereof.
ARTICLE TWO
The Articles of Incorporation of the corporation are
amended by the Amended and Restated Articles of
Incorporation as follows:
Article III - Deletes old Article III, and adds a new
Article III; the full text of new Article III
is as follows:
ARTICLE III
The purpose for which the corporation is
organized is the transaction of any and all lawful
business for which corporations may be
incorporated under the Texas Business Corporation
Act.
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Article IV - Deletes old Article IV, and adds a new
Article IV, which increases the authorized
Common Stock of the corporation and
authorizes the issuance of Preferred Stock.
The full text of new Article IV is as
follows:
ARTICLE IV
The aggregate number of shares of all classes
which the corporation shall have authority to
issue is seven and one-half million (7,500,000)
shares of Common Stock with the par value of one
cent ($0.01) per share and one million (1,000,000)
shares of Preferred Stock with par value of one
dollar ($1.00) per share.
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<PAGE>
The designations and the powers, preferences,
rights, qualifications, limitations and
restrictions of the Preferred Stock and the Common
Stock of the corporation are as follows:
A. Provisions Relating to the Preferred
Stock.
1. The Preferred Stock may be issued from
time to time in one or more classes or series, the
share of each class or series to have such
designations and powers, preferences and rights,
and qualifications, limitations and restrictions
thereof as are stated and expressed herein and in
the resolution or resolutions providing for the
issue of such class or series adopted by the Board
of Directors as hereinafter prescribed.
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2. Authority is hereby expressly granted to
and vested in the Board of Directors to authorize
the issuance of the Preferred Stock from time to
time in one or more classes or series, to
determine and take necessary proceedings fully to
effect the issuance and redemption of any such
Preferred Stock, and, with respect to each class
or series of the Preferred Stock, and with respect
to each class or series of the Preferred Stock, to
fix and state by the resolution or resolutions
from time to time adopted providing for the
issuance thereof the following:
(i) whether or not the class or series
is to have voting rights, full or limited, or is
to be without voting rights;
- 9 -
<PAGE>
(ii) the number of shares to constitute
the class or series and the designations thereof;
(iii) the preferences and relative,
participating, optional or other special rights,
if any, and the qualifications, limitations or
restrictions thereof, if any, with respect to any
class or series;
(iv) whether or not the shares of any
class or series shall be redeemable and if
redeemable the redemption price or prices, and the
time or times at which and the terms and
conditions upon which, such shares shall be
redeemable and the manner of redemption;
10
<PAGE>
(v) whether or not the shares of a
class or series shall be subject to the operation
of retirement or sinking funds to be applied to
the purchase or redemption of such shares for
retirement, and if such retirement or sinking fund
or funds be established, the annual amount thereof
and the terms and provisions relative to the
operation thereof;
(vi) the dividend rate, whether
dividends are payable in cash, stock of the
corporation, or other property, the conditions
upon which and the time when such dividends are
payable, the preference to or the relation to the
payment of the dividends payable on any other
class or classes or series of stock, whether or
not such dividend shall be cumulative or
- 11 -
<PAGE>
noncumulative, and if cumulative, the date or
dates from which such dividends shall accumulate;
(vii) the preferences, if any, and
the amounts thereof which the holders of any class
or series thereof shall be entitled to receive
upon the voluntary or involuntary dissolution of,
or upon any distribution of the assets of, the
corporation;
(viii) whether or not the shares of
any class or series shall be convertible into, or
exchangeable for, the shares of any other class or
classes or of any other series of the same or any
other class or classes of stock of the corporation
and the conversion price or prices or ratio or
ratios or the rate or rates at which such exchange
12
<PAGE>
may be made, with such adjustments, if any, as
shall be stated and expressed or provided for in
such resolution or resolutions; and
(ix) such other special rights and
protective provisions with respect to any class or
series as the Board of Directors may deem
advisable.
The shares of each class or series of the
Preferred Stock may vary from the shares of any
other series thereof in any or all of the
foregoing respects. The Board of Directors may
increase the number of shares of the Preferred
Stock designed for any existing class or series by
a resolution adding to such class or series
authorized and unissued shares of the Preferred
- 13 -
<PAGE>
Stock not designated for any other class or
series. The Board of Directors may decrease the
number of shares of the Preferred Stock designated
for any existing class or series by a resolution,
subtracting from such series unissued shares of
the Preferred Stock designated for such class or
series, and the shares so subtracted shall become
authorized, unissued and undesignated shares of
the Preferred Stock.
B. Provisions Relating to the Common Stock.
1. Except as otherwise required by law or
as may be provided by the resolutions of the Board
of Directors authorizing the issuance of any class
or series of Preferred Stock, as hereinabove
provided, all rights to vote and all voting power
14
<PAGE>
shall be vested exclusively in the holders of the
Common Stock.
2. Subject to the rights of the holders of
the Preferred Stock, the holders of the Common
Stock shall be entitled to receive when, as and if
declared by the Board of Directors, out of funds
legally available therefor, dividends payable in
cash, stock or otherwise.
3. Upon any liquidation, dissolution or
winding-up of the corporation, whether voluntary
or involuntary, and after the holders of the
Preferred Stock shall have been paid in full the
amounts to which they shall be entitled (if any)
or a sum sufficient for such payment in full shall
have been set aside, the remaining net assets of
- 15 -
<PAGE>
the corporation shall be distributed pro rate to
the holders of the Common Stock in accordance with
their respective rights and interests to the
exclusion of the holders of the Preferred Stock.
Article VI - Amends old Article VI by changing the
registered office and registered agent of the corporation.
The full text of new Article VI is as follows:
ARTICLE VI
The post office address of its registered office
is 1815 North Market Street, Dallas, Texas 75202
and the name of its registered agent at such
address is William B. Rea, Jr.
16
<PAGE>
Article VII - Deletes old Article VII, and adds a new
Article VII; the full text of new Article VII
is as follows:
ARTICLE VII
The number of directors of this corporation
shall be not less than three (3) nor more than
nine (9), the exact number to be fixed from time
to time in the manner provided in the Bylaws of
the corporation.
The names and addresses of the present Board
of Directors who are to serve as directors until
the next annual meeting of shareholders or until
their successors are elected and qualified are:
- 17 -
<PAGE>
Robert R. Hawk 1815 North Market Street
Dallas, Texas 75202
William B. Rea, Jr. 1815 North Market
Street
Dallas, Texas 75202
Victor Petta, Jr. 1815 North Market
Street
Dallas, Texas 75202
John Ellis 1815 North Market
Street
Dallas, Texas 75202
18
<PAGE>
T. E. Jaeb 5232 Forest Lane
Dallas, Texas 75234
Richard Weisheit 1815 North Market
Street
Dallas, Texas 75202
C. Cleave Buchanan, Jr. 1815 North Market
Street
Dallas, Texas 75202
Frank X. Cuellar, Jr. 1815 North Market
Street
Dallas, Texas 75202
- 19 -
<PAGE>
Article XI - Adds as a new Article XI the authorization to
indemnity directors, officers, employees and
agents of the corporation to the fullest
extent permissible by law. The full text of
Article XI is as follows:
ARTICLE XI
The corporation shall indemnify any person
who was or is a party or is threatened to be made
a party to any threatened, pending or completed
action, suit or proceeding whether civil,
criminal, administrative or investigative (other
than an action by or in the right of the
corporation) by reason of the fact that he is or
was a director, officer, employee or agent of the
corporation or is or was serving at the request of
20
<PAGE>
the corporation as a director, officer, employee
or agent of another corporation, partnership,
joint venture, trust or other enterprise to the
fullest extent permitted by law. The corporation
may purchase insurance for such indemnification
purposes.
ARTICLE XII - Adds as a new Article XII the denial of
cumulative voting. The full text of new
Article XII is as follows:
ARTICLE XII
The right to accumulate votes in the election of
directors and/or cumulative voting by any shareholder
is hereby expressly denied.
- 21 -
<PAGE>
ARTICLE THREE
Each such amendment made by these Amended and Restated
Articles of Incorporation has been effected in conformity
with the provisions of the Texas Business Corporation Act
and such Amended and Restated Articles of Incorporation and
each such amendment made by the Amended and Restated
Articles of Incorporation were duly adopted by the
shareholders of the corporation on the 16th day of August,
1985.
ARTICLE FOUR
The number of shares outstanding was 139,350; the number
of shares entitled to vote on the Amended and Restated
Articles of Incorporation as so amended was 139,350; the
number of shares voted for such Restated and Amended
22
<PAGE>
Articles of Incorporation was so amended was 115,750; the
number of shares voted against such Restated and Amended
Articles of Incorporation as so amended was 0.
ARTICLE FIVE
The Articles of Incorporation and all amendments and
supplements thereto are hereby superseded by the following
Amended and Restated Articles of Incorporation which
accurately copy the entire text thereof and as amended as
above set forth:
- 23 -
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
OLD SPAGHETTI WAREHOUSE, INC.
ARTICLE I
The name of the corporation is Old Spaghetti
Warehouse, Inc. (herein the "corporation").
24
<PAGE>
ARTICLE II
The period of its duration is perpetual.
ARTICLE III
The purpose for which the corporation is organized
is the transaction of any and all lawful business for
which corporations may be incorporated under the Texas
Business Corporation Act.
ARTICLE IV
The aggregate number of shares of all classes
which the corporation shall have authority to issue is
- 25 -
<PAGE>
seven and one-half million (7,500,000) shares of Common
Stock with the par value of one cent ($0.01) per share
and one million (1,000,000) shares of Preferred Stock
with par value of one dollar ($1.00) per share.
The designations and the powers, preferences,
rights, qualifications, limitations and restrictions of
the Preferred Stock and the Common Stock of the
corporation are as follows:
A. Provisions Relating to the Preferred Stock.
1. The Preferred Stock may be issued from time
to time in one or more classes or series, the share of
each class or series to have such designations and
powers, preferences and rights, and qualifications,
limitations and restrictions thereof as are stated and
26
<PAGE>
expressed herein and in the resolution or resolutions
providing for the issue of such class or series adopted
by the Board of Directors as hereinafter prescribed.
2. Authority is hereby expressly granted to and
vested in the Board of Directors to authorize the
issuance of the Preferred Stock from time to time in
one or more classes or series, to determine and take
necessary proceedings fully to effect the issuance and
redemption of any such Preferred Stock, and, with
respect to each class or series of the Preferred Stock,
to fix and state by the resolution or resolutions from
time to time adopted providing for the issuance thereof
the following:
- 27 -
<PAGE>
(i) whether or not the class or series is to
have voting rights, full or limited, or is to be
without voting rights;
(ii) the number of shares to constitute the
class or series and the designations thereof;
(iii) the preferences and relative,
participating, optional or other special rights, if
any, and the qualifications, limitations or
restrictions thereof, if any, with respect to any class
or series;
(iv) whether or not the shares of any class
or series shall be redeemable and if redeemable the
redemption price or prices, and the time or times at
which and the terms and conditions upon which, such
28
<PAGE>
shares shall be redeemable and the manner of
redemption;
(v) whether or not the shares of a class or
series shall be subject to the operation of retirement
or sinking funds to be applied to the purchase or
redemption of such shares for retirement, and if such
retirement or sinking fund or funds be established, the
annual amount thereof and the terms and provisions
related to the operation thereof;
(vi) the dividend rate, whether dividends are
payable in cash, stock of the corporation, or other
property, the conditions upon which and the times when
such dividends are payable, the preference to or the
relation to the payment of the dividends payable on any
other class or classes or series of stock, whether or
- 29 -
<PAGE>
not such dividend shall be cumulative or noncumulative,
and if cumulative, the date or dates from which such
dividends shall accumulate;
(vii) the preferences, if any, and the
amounts thereof which the holders of any class or
series thereof shall be entitled to receive upon the
voluntary or involuntary dissolution of, or upon any
distribution of the assets of, the corporation;
(viii) whether or not the shares of any
class or series shall be convertible into, or
exchangeable for, the shares of any other class or
classes or of any other series of the same or any other
class or classes of stock of the corporation and the
conversion price or prices or ratio or ratios or the
rate or rates at which such exchange may be made, with
30
<PAGE>
such adjustments, if any, as shall be stated and
expressed or provided for in such resolution or
resolutions; and
(ix) such other special rights and protective
provisions with respect to any class or series as the
Board of Directors may deem advisable.
The shares of each class or series of the
Preferred Stock may vary from the shares of any other
series thereof in any or all of the foregoing respects.
The Board of Directors may increase the number of
shares of the Preferred Stock designated for any
existing class or series by a resolution adding to such
class or series authorized and unissued shares of the
Preferred Stock not designated for any other class or
series. The Board of Directors may decrease the number
- 31 -
<PAGE>
of shares of the Preferred Stock designated for any
existing class or series by a resolution, subtracting
from such series unissued shares of the Preferred Stock
designated for such class or series, and the shares so
subtracted shall become authorized, unissued and
undesignated shares of the Preferred Stock.
B. Provisions Relating to the Common Stock.
1. Except as otherwise required by law or as may
be provided by the resolutions of the Board of
Directors authorizing the issuance of any class or
series of Preferred Stock, as hereinabove provided, all
rights to vote and all voting power shall be vested
exclusively in the holders of the Common Stock.
32
<PAGE>
2. Subject to the rights of the holders of the
Preferred Stock, the holders of the Common Stock shall
be entitled to receive when, as and if declared by the
Board of Directors, out of funds legally available
therefor, dividends payable in cash, stock or
otherwise.
3. Upon any liquidation, dissolution or winding-
up of the corporation, whether voluntary or
involuntary, and after the holders of the Preferred
Stock shall have been paid in full the amounts to which
they shall be entitled (if any) or a sum sufficient for
such payment in full shall have been set aside, the
remaining net assets of the corporation shall be
distributed pro rata to the holders of the Common Stock
in accordance with their respective rights and
interests to the exclusion of the holders of the
Preferred Stock.
- 33 -
<PAGE>
ARTICLE V
The corporation will not commence business until
it has received for the issuance of its shares
consideration of the value of not less than $1,000.00,
consisting of money, labor done or property actually
received.
ARTICLE VI
The post office address of its registered office
is 1815 North Market Street, Dallas, Texas 75202 and
the name of its registered agent at such address is
William B. Rea, Jr.
ARTICLE VII
34
<PAGE>
The number of directors of this corporation shall
be not less than three (3) nor more than nine (9), the
exact number to be fixed from time to time in the
manner provided in the Bylaws of the corporation.
The names and addresses of the present Board of
Directors who are to serve as directors until the next
annual meeting of shareholders or until their
successors are elected and qualified are:
Robert R. Hawk 1815 North Market Street
Dallas, Texas 75202
William B. Rea, Jr. 1815 North Market
Street
Dallas, Texas 75202
- 35 -
<PAGE>
Victor Petta, Jr. 1815 North Market
Street
Dallas, Texas 75202
John Ellis 1815 North Market
Street
Dallas, Texas 75202
T. E. Jaeb 5232 Forest Lane
Dallas, Texas 75234
Richard Weisheit 1815 North Market
Street
Dallas, Texas 75202
36
<PAGE>
C. Cleave Buchanan, Jr. 1815 North Market
Street
Dallas, Texas 75202
Frank X. Cuellar, Jr. 1815 North Market
Street
Dallas, Texas 75202
ARTICLE IX
No holder of shares of any class of the
corporation shall have any pre-emptive right to
subscribe for or acquire additional shares of the
corporation of the same or any other class, whether
such shares shall be hereby or hereafter authorized;
and no holder of shares of any class of the corporation
- 37 -
<PAGE>
shall have any right to acquire any shares which may be
held in the treasury of the corporation; all such
additional or treasury shares may be sold for such
consideration, at such time and to such person or
persons as the board of directors may from time to time
determine.
ARTICLE X
The shareholders of the corporation hereby
delegate to the Board of Directors the power to adopt,
alter, amend or repeal the bylaws of the corporation,
and such power shall be deemed to be vested exclusively
in the Board of Directors and shall not be exercised by
the shareholders.
ARTICLE XI
38
<PAGE>
The corporation shall indemnify any person who was
or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or
investigative (other than an action by or in the right
of the corporation) by reason of the fact that he is or
was a director, officer, employee or agent of the
corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture,
trust or other enterprise to the fullest extent
permitted by law. The corporation may purchase
insurance for such indemnification purposes.
ARTICLE XII
- 39 -
<PAGE>
The right to accumulate votes in the election of
directors and/or cumulative voting by any shareholder
is hereby expressly denied.
IN WITNESS WHEREOF, we have hereunto set our hands
this 16th day of August, 1985.
OLD SPAGHETTI WAREHOUSE, INC.
By: /s/ Robert R. Hawk
Robert R. Hawk, President
40
<PAGE>
By: /s/ Linda Crabtree
Linda Crabtree, Secretary
- 41 -
<PAGE>
STATE OF TEXAS |
|
COUNTY OF DALLAS |
I, B.E. Macdonough, a Notary Public do hereby certify
that on this 16th day of August, 1935, personally appeared
before me Robert R. Hawk, who being by me first duly sworn,
declared that he is the president of Old Spaghetti
Warehouse, Inc., that he signed the foregoing documents as
president of said corporation, and that the statements
therein contained are true.
IN WITNESS THEREOF, I have hereunto set my hand and seal
the day and year written.
42
<PAGE>
/s/ B.E. Macdonough
Notary Public in and for
Dallas County, Texas
My Commission Expires:
1/6/88
- 43 -
<PAGE>
Articles of Amendment
to the
Restated Articles of Incorporation
of
OLD SPAGHETTI WAREHOUSE, INC.
Pursuant to the provisions of Article 4.04 of the Texas
Business Corporation Act, the undersigned corporation adopts
the following Articles of Amendment to the corporation's
Restated Articles of Incorporation (the "Articles of
Incorporation"):
Articles of Amendment - Page 1 of 3 Pages
<PAGE>
Article I
The name of the corporation is OLD SPAGHETTI WAREHOUSE,
INC.
Article II
The following amendment to the Articles of Incorporation
was adopted by the shareholders of the corporation on
October 17, 1989. The amendment adds a new Article XIII to
the corporation's Articles of Incorporation, the full text
of which is as follows:
Articles of Amendment - Page 2 of 3 Pages2
<PAGE>
Article XIII
No director of the Corporation shall be liable to
the corporation or its shareholders for monetary damages
for an act or omission in the director's capacity as
director, except as otherwise provided by statute as such
statute may be amended from time to time. Any repeal or
modification of this Article XIII shall be prospective
only and shall not adversely affect any limitation of
personal liability of a director of the corporation
existing at the time of such repeal or modification.
Article III
Articles of Amendment - Page 3 of 3 Pages
<PAGE>
The number of shares of the corporation outstanding at
the time of such adoption was 1,883,694; and the number of
shares entitled to vote thereon was 1,883,694.
Article IV
The holders of 1,433,126 of the shares outstanding and
entitled to vote on said amendment voted for the amendment;
and the holders of 40,397 of such shares voted against the
amendment.
Dated: November 15, 1989
Articles of Amendment - Page 4 of 3 Pages4
<PAGE>
OLD SPAGHETTI WAREHOUSE, INC.
By: /s/ William B. Rea, Jr.
William B. Rea, Jr.,
Secretary
Articles of Amendment - Page 5 of 3 Pages
<PAGE>
The State of Texas |
|
County of Dallas |
BEFORE ME, the undersigned, a Notary Public in and for
said County and State, on this day personally appeared
WILLIAM B. REA, JR., who being first by me duly sworn, and,
known to me to be the person and officer whose name is
subscribed to the foregoing instrument, acknowledged to me
that the same was the act of the said OLD SPAGHETTI
WAREHOUSE, INC., a Texas corporation, and that he executed
the same as the act of said corporation for the purposes and
consideration therein expressed, and in the capacity therein
stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 18th day
of November, 1989.
Articles of Amendment - Page 6 of 3 Pages6
<PAGE>
/s/ Julie A. Brachle
Notary Public in and for
the State of Texas
My Commission Expires: Julie A. Brachle
12-12-92 Printed Name of Notary
Public
Articles of Amendment - Page 7 of 3 Pages
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
OLD SPAGHETTI WAREHOUSE, INC.
Pursuant to the provisions of Article 4.04 of the Texas
Business Corporation Act, the undersigned corporation adopts
the following Articles of Amendment to its Articles of
Incorporation.
ARTICLE I
Articles of Amendment - Page 1 of 2 Pages
<PAGE>
The name of the corporation is Old Spaghetti Warehouse,
Inc.
ARTICLE 2
The shareholders of the corporation adopted the following
amendment to the corporation's Amended and Restated Articles
of Incorporation on October 16, 1990 to change the name of
the corporation to "Spaghetti Warehouse, Inc."
The amendment alters or changes Article I of the
corporation's Amended and Restated Articles of Incorporation
Articles of Amendment - Page 2 of 2 Pages2
<PAGE>
and the full text of Article I as altered reads in its
entirety as follows:
ARTICLE I
The name of the corporation is Spaghetti
Warehouse, Inc. (herein the "corporation").
ARTICLE 3
The number of shares of the corporation outstanding on
September 11, 1990, the record date for such adoption, was
3,175,536 shares of the corporation's common stock; and the
Articles of Amendment - Page 3 of 2 Pages
<PAGE>
number of shares entitled to vote thereon was 3,175,536
shares of the corporation's common stock.
ARTICLE 4
The number of outstanding shares of the corporation's
common stock that voted for the amendment was 2,726,883; and
the number of shares of the corporation's common stock that
voted against the amendment was 8,809.
ARTICLE 5
Articles of Amendment - Page 4 of 2 Pages4
<PAGE>
Such amendment does not effect a change in the capital of
the corporation.
Dated: October 25, 1990
OLD SPAGHETTI WAREHOUSE,
INC.
By: /s/ William B. Rea, Jr.
William B. Rea, Jr.,
Secretary
Articles of Amendment - Page 5 of 2 Pages
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
SPAGHETTI WAREHOUSE, INC.
Pursuant to the provisions of Article 4.04 of the Texas
Business Corporation Act, the undersigned corporation adopts
the following Articles of Amendment to its Articles of
Incorporation.
ARTICLE I
The name of the corporation is Spaghetti Warehouse, Inc.
Articles of Amendment - Page 1 of 2 Pages
<PAGE>
ARTICLE 2
The shareholders of the corporation adopted the following
amendment to the corporation's Amended and Restated Articles
of Incorporation on October 15, 1991 to increase the
corporation's authorized common stock, par value $0.01 per
share, from 7,500,000 shares to 20,000,000 shares.
The amendment alters or changes only the first paragraph
of Article IV of the corporation's Amended and Restated
Articles of Incorporation, and the full text of the first
paragraph of Article IV as altered reads in its entirety as
follows:
ARTICLE IV
Articles of Amendment - Page 2 of 2 Pages2
<PAGE>
The aggregate number of shares of all classes
which the corporation shall have authority to issue is
twenty million (20,000,000) shares of Common Stock with
the par value of One Cent ($0.01) per share and one
million (1,000,000) shares of Preferred Stock with the
par value of One Dollar ($1.00) per share.
ARTICLE 3
The number of shares of the corporation outstanding on
September 6, 1991, the record date for such adoption, was
6,206,893 shares of the corporation's common stock; and the
number of shares entitled to vote thereon was 6,206,893
shares of the corporation's common stock.
ARTICLE 4
Articles of Amendment - Page 3 of 2 Pages
<PAGE>
The number of outstanding shares of the corporation's
common stock that voted for the amendment was 4,673,099 and
the number of shares of the corporation's common stock that
voted against the amendment was 487,042.
ARTICLE 5
Such amendment does not effect a change in the capital of
the corporation.
Dated: October 18, 1991
SPAGHETTI WAREHOUSE, INC.
Articles of Amendment - Page 4 of 2 Pages4
<PAGE>
By: /s/ William B. Rea, Jr.
William B. Rea, Jr.,
Secretary
Articles of Amendment - Page 5 of 2 Pages
<PAGE>
STATEMENT OF RESOLUTION
ESTABLISHING AND DESIGNATING SERIES A
PREFERRED STOCK OF
SPAGHETTI WAREHOUSE, INC.
To the Secretary of State
of the State of Texas:
Pursuant to the provisions of Article 2.13 of the Texas
Business Corporation Act, the undersigned corporation
submits the following statement for the purpose of
establishing and designating series of its preferred stock
and fixing and determining the relative rights and
preferences thereof:
Designation - Page 1 of 8 Pages
<PAGE>
1. The name of the corporation is Spaghetti Warehouse,
Inc.
2. The following resolution establishing and
designating the Series A Preferred Stock and fixing and
determining the relative rights and preferences thereof was
duly adopted by the Board of Directors of the Corporation on
February 2, 1995:
RESOLVED, that pursuant to the authority vested in the
Board of Directors of this Company in accordance with the
provisions of its Articles of Incorporation, a series of
Preferred Stock of the Corporation be and it hereby is
created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating,
optional and other special rights of the shares of such
Designation - Page 2 of 8 Pages2
<PAGE>
series, and the qualifications, limitations or restrictions
thereof are as follows:
Section 1. Designation and Amount. The shares of
such series shall be designated as "Series A Preferred
Stock," shall have $1.00 par value per share, and the number
of shares constituting such series shall be 150,000.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the
holders of any shares of any series of Preferred Stock
ranking prior and superior to the shares of Series A
Preferred Stock with respect to dividends, if any, the
holders of shares of Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the last
Designation - Page 3 of 8 Pages
<PAGE>
day of March, June, September and December in each year
(each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Series A Preferred
Stock, in an amount per share (rounded to the nearest
cent) equal to 1,000 times the aggregate per share amount
of all cash dividends, and 1,000 times the aggregate per
share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification
or otherwise), declared on the Common Stock, par value
$.01 per share, of the Corporation (the "Common Stock")
subject to the provision for adjustment hereinafter set
forth, since the immediately preceding Quarterly Dividend
Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock.
Designation - Page 4 of 8 Pages4
<PAGE>
In the event the Corporation shall at any time after
February 2, 1995 (the "Rights Declaration Date"), (i)
declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into
a smaller number of shares, then in each such case the
amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event shall
be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such
event.
(B) The Corporation shall declare a dividend or
distribution on the Series A Preferred Stock as provided
in paragraph (A) above immediately after it declares a
dividend or distribution on the Common Stock (other than
a dividend payable in shares of Common Stock).
Designation - Page 5 of 8 Pages
<PAGE>
(C) Dividends shall begin to accrue (if payable
pursuant to paragraph (A) above) and be cumulative on
outstanding shares of Series A Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date
of issue of such shares of Series A Preferred Stock,
unless the date of issue of such shares is prior to the
record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the
determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before
such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series A Preferred Stock
in an amount less than the total amount of such dividends
Designation - Page 6 of 8 Pages6
<PAGE>
at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to
receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 30 days
prior to the date fixed for the payment thereof.
3. Voting Rights. The holders of shares of
Series A Preferred Stock shall have the following voting
rights:
(A) Subject to the provisions for adjustment here-
inafter set forth, each share of Series A Preferred Stock
shall entitle the holder thereof to one vote on all
matters submitted to a vote of the shareholders of the
Corporation. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any
Designation - Page 7 of 8 Pages
<PAGE>
dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock or
(iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the number of
votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a
fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to
such event.
(B) Except as otherwise provided herein or by law,
the holders of shares of Series A Preferred Stock and the
holders of Common Stock shall vote together as one class
on all matters submitted to a vote of shareholders of the
Corporation.
Designation - Page 8 of 8 Pages8
<PAGE>
(C) (i) If at any time dividends on any Series A
Preferred Stock shall be in arrears in an amount equal to
four (4) quarterly dividends thereon (whether or not
consecutive), the occurrence of such contingency shall
mark the beginning of a period (herein called a "default
period") which shall extend until such time when all
accrued and unpaid dividends for all previous quarterly
dividend periods on all shares of Series A Preferred
Stock then outstanding shall have been declared and paid
or set apart for payment. During each default period,
all holders of Preferred Stock (including holders of the
Series A Preferred Stock) with dividends in arrears in an
amount equal to four (4) quarterly dividends thereon,
voting as a class, irrespective of series, shall have the
right to elect two (2) Directors.
(ii) During any default period, such voting
right of the holders of Series A Preferred Stock may
be exercised initially at a special meeting called
pursuant to subparagraph (iii) of this Section 3(C)
Designation - Page 9 of 8 Pages
<PAGE>
or at any annual meeting of shareholders, and
thereafter at annual meetings of shareholders
provided that neither such voting right nor the
right of the holders of any other series of
Preferred Stock, if any, to increase, in certain
cases, the authorized number of Directors shall be
exercised unless the holders of ten percent (10%) in
number of shares of Preferred Stock outstanding
shall be present in person or by proxy. The absence
of a quorum of the holders of Common Stock shall not
affect the exercise by the holders of Preferred
Stock of such voting right. At any meeting at which
the holders of Preferred Stock shall exercise such
voting right initially during an existing default
period, they shall have the right, voting as a
class, to elect Directors to fill such vacancies, if
any, in the Board of Directors as may then exist up
to two (2) Directors or, if such right is exercised
at an annual meeting, to elect two (2) Directors.
Designation - Page 10 of 8 Pages10
<PAGE>
If the number which may be so elected at any special
meeting does not amount to the required number, the
holders of the Preferred Stock shall have the right
to make such increase in the number of Directors as
shall be necessary to permit the election by them of
the required number. After the holders of the
Preferred Stock shall have exercised their right to
elect Directors in any default period and during the
continuance of such period, the number of Directors
shall not be increased or decreased except by vote
of the holders of Preferred Stock as herein provided
or pursuant to the rights of any equity securities
ranking senior to or pari passu with the Series A
Preferred Stock.
(iii) Notwithstanding anything to the contrary
contained in the Corporation's Articles of Incorpo-
ration or Bylaws, unless the holders of Preferred
Stock shall, during an existing default period, have
previously exercised their right to elect Directors,
Designation - Page 11 of 8 Pages
<PAGE>
the Board of Directors may order, or any shareholder
or shareholders owning in the aggregate not less
than ten percent (10%) of the total number of shares
of Preferred Stock outstanding, irrespective of
series, may request, the calling of a special
meeting of the holders of Preferred Stock, which
meeting shall thereupon be called by the President,
a Vice-President or the Secretary of the
Corporation. Notice of such meeting and of any
annual meeting at which holders of Preferred Stock
are entitled to vote pursuant to this subparagraph
(C)(iii) shall be given to each holder of record of
Preferred Stock by mailing a copy of such notice to
him at his last address as the same appears on the
books of the Corporation. Such meeting shall be
called for a time not earlier than 10 days and not
later than 60 days after such order or request or in
default of the calling of such meeting within 60
days after such order or request, such meeting may
Designation - Page 12 of 8 Pages12
<PAGE>
be called on similar notice by any shareholder or
shareholders owning in the aggregate not less than
ten percent (10%) of the total number of shares of
Preferred Stock outstanding. Notwithstanding the
provisions of this subparagraph (C)(iii), no such
special meeting shall be called during the period
within 60 days immediately preceding the date fixed
for the next annual meeting of the shareholders.
(iv) In any default period, the holders of
Common Stock, and other classes of stock of the
Corporation, if applicable, shall continue to be
entitled to elect the whole number of Directors
until the holders of Preferred Stock shall have
exercised their right to elect two (2) Directors
voting as a class, after the exercise of which right
(x) the Directors so elected by the holders of
Preferred Stock shall continue in office until their
successors shall have been elected by such holders
or until the expiration of the default period, and
Designation - Page 13 of 8 Pages
<PAGE>
(y) the Common Stock and Preferred Stock, voting
together as a class, shall be entitled to elect the
remaining directors.
(v) Immediately upon the expiration of a
default period, (x) the right of the holders of
Preferred Stock as a class to elect directors shall
cease, (y) the term of any directors elected by the
holders of Preferred Stock as a class shall
terminate, and (z) the number of Directors shall be
such number as may be provided for in the Articles
of Incorporation or Bylaws irrespective of any
increase made pursuant to the provisions of
subparagraph (C)(ii) of this Section 3 (such number
being subject, however, to change thereafter in any
manner provided by law or in the Articles of
Incorporation or Bylaws). Any vacancies in the
Board of Directors effected by the provisions of
Designation - Page 14 of 8 Pages14
<PAGE>
clauses (y) and (z) in the preceding sentence may be
filled by a majority of the remaining Directors.
(D) Except as set forth herein, holders of Series A
Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends
or distributions payable on the Series A Preferred Stock,
as provided in Section 2 hereof, are in arrears,
thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid
in full, the Corporation shall not:
Designation - Page 15 of 8 Pages
<PAGE>
(i) declare or pay dividends on, make any
other distributions on, or redeem or purchase or
otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the
Series A Preferred Stock;
(ii) declare or pay dividends on or make any
other distributions on any shares of stock ranking
on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the
Series A Preferred Stock, except dividends paid
ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable, or in
arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
Designation - Page 16 of 8 Pages16
<PAGE>
(iii) redeem or purchase or otherwise acquire
for consideration shares of any stock ranking on a
parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A
Preferred Stock, provided that the Corporation may
at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for
shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Preferred
Stock; or
(iv) purchase or otherwise acquire for
consideration any shares of Series A Preferred
Stock, or any shares of stock ranking on a parity
with the Series A Preferred Stock, except in
accordance with a purchase offer made in writing or
by publication (as determined by the Board of
Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration
Designation - Page 17 of 8 Pages
<PAGE>
of the respective annual dividend rates and other
relative rights and preferences of the respective
series and classes, shall determine in good faith
will result in fair and equitable treatment among
the respective series or classes.
(B) The Corporation shall not permit any subsidiary
of the Corporation to purchase or otherwise acquire for
consideration any shares of stock of the Corporation
unless the Corporation could, under subsection (A) of
this Section 4, purchase or otherwise acquire such shares
at such time and in such manner.
Section 5. Reacquired Shares. Any shares of
Series A Preferred Stock purchased or otherwise acquired by
the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All
Designation - Page 18 of 8 Pages18
<PAGE>
such shares shall upon their cancellation become authorized
but unissued shares of Preferred Stock and may be reissued
as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors subject
to the conditions and restrictions on issuance set forth
herein.
Section 6. Liquidation, Dissolution or
Winding-Up.
(A) Upon any liquidation (voluntary or otherwise),
dissolution or winding-up of the Corporation, no distri-
bution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon
liquidation, dissolution or winding-up) to the Series A
Preferred Stock unless prior thereto, the holders of
shares of Series A Preferred Stock shall have received
$10 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not
Designation - Page 19 of 8 Pages
<PAGE>
declared, to the date of such payment (the "Series A
Liquidation Preference"). Following the payment of the
full amount of the Series A Liquidation Preference, no
additional distributions shall be made to the holders of
shares of Series A Preferred Stock unless, prior thereto,
the holders of shares of Common Stock shall have received
an amount per share (the "Common Adjustment") equal to
the quotient obtained by dividing (i) the absolute value
of the Series A Liquidation Preference by (ii) 1,000 (as
appropriately adjusted as set forth in subsection C below
to reflect such events as stock splits, stock dividends
and recapitalizations with respect to the Common Stock)
(such number in clause (ii), the "Adjustment Number").
Following the payment of the full amount of the Series A
Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Series A Preferred
Stock and Common Stock, respectively, holders of Series A
Preferred Stock and holders of shares of Common Stock
shall receive their ratable and proportionate share of
Designation - Page 20 of 8 Pages20
<PAGE>
the remaining assets to be distributed in the ratio of
the Adjustment Number to l with respect to such Preferred
Stock and Common Stock on a per share basis,
respectively.
(B) In the event, however, that there are not
sufficient assets available to permit payment in full of
the Series A Liquidation Preference and the liquidation
preferences of all other series of Preferred Stock, if
any, which rank on a parity with the Series A Preferred
Stock, then such remaining assets shall be distributed
ratably to the holders of such parity shares in
proportion to their respective liquidation preferences.
In the event, however, that there are not sufficient
assets available to permit payment in full of the Common
Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
Designation - Page 21 of 8 Pages
<PAGE>
(C) In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or
(iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the Adjustment
Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a
fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to
such event.
Section 7. Consolidation, Merger, Etc. In case
the Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock
Designation - Page 22 of 8 Pages22
<PAGE>
or securities, cash and/or any other property, then in any
such case the shares of Series A Preferred Stock shall at
the same time be similarly exchanged or changed in an amount
per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate
amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for
which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each
such case the amount set forth in the preceding sentence
with respect to the exchange or change of shares of Series A
Preferred Stock shall be adjusted by multiplying such amount
by a fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
Designation - Page 23 of 8 Pages
<PAGE>
Section 8. No Redemption. The shares of
Series A Preferred Stock shall not be redeemable.
Section 9. Ranking. The Series A Preferred
Stock shall rank junior to all other series of the
Corporation's Preferred Stock as to the payment of dividends
and the distribution of assets, unless the terms of any such
series shall provide otherwise.
Section 10. Amendment. The Articles of Incor-
poration of the Corporation shall not be further amended in
any manner which would materially alter or change the
powers, preferences or special rights of the Series A
Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the
outstanding shares of Series A Preferred Stock, voting
separately as a class.
Designation - Page 24 of 8 Pages24
<PAGE>
Section 11. Fractional Shares. Series A
Preferred Stock may be issued in fractions of a share which
shall entitle the holder thereof, in proportion to such
holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have
the benefit of all of the rights of holders of shares of
Series A Preferred Stock.
Dated: February 9, 1995 SPAGHETTI WAREHOUSE, INC.
By: /s/ Phillip Ratner
Phillip Ratner, President
Designation - Page 25 of 8 Pages
<PAGE>
By: /s/ H. G. Carrington, Jr.
H. G. Carrington, Jr.,
Secretary
Designation - Page 26 of 8 Pages26
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-02-1995
<PERIOD-END> APR-02-1995
<CASH> 2,724,133
<SECURITIES> 0
<RECEIVABLES> 750,981
<ALLOWANCES> 0
<INVENTORY> 808,645
<CURRENT-ASSETS> 5,437,168
<PP&E> 90,801,600
<DEPRECIATION> 23,264,983
<TOTAL-ASSETS> 78,119,596
<CURRENT-LIABILITIES> 6,077,278
<BONDS> 18,771,000
<COMMON> 64,071
0
0
<OTHER-SE> 53,193,276
<TOTAL-LIABILITY-AND-EQUITY> 78,119,596
<SALES> 58,476,822
<TOTAL-REVENUES> 59,346,434
<CGS> 15,155,923
<TOTAL-COSTS> 48,847,500
<OTHER-EXPENSES> 8,208,239
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 924,812
<INCOME-PRETAX> 1,365,883
<INCOME-TAX> 324,274
<INCOME-CONTINUING> 1,041,609
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,041,609
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
