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 September 29, 1996
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: 972/226-6000
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 September 29, 1996: 5,632,140 shares of common stock, par
value $.01.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPAGHETTI WAREHOUSE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Assets 6/30/96 9/29/96
(Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents........................................................ $ 8,065,364 $ 2,028,640
Accounts receivable.............................................................. 659,069 669,260
Inventories...................................................................... 686,995 661,767
Income taxes receivable.......................................................... 399,764 321,480
Prepaid expenses................................................................. 341,711 380,123
-------------- ---------------
Total current assets...................................................... 10,152,903 4,061,270
-------------- ---------------
Property and equipment, net........................................................... 49,893,172 47,958,960
Assets scheduled for divestiture...................................................... 1,525,000 615,000
Trademark and franchise rights, net................................................... 3,113,472 3,084,781
Deferred income taxes................................................................. 5,735,128 6,070,177
Other assets ...................................................................... 948,514 873,339
-------------- ---------------
$ 71,368,189 $ 62,663,527
============== ===============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt................................................ $ 6,878,358 $ 1,481,127
Accounts payable................................................................. 1,932,648 1,763,547
Accrued payroll and bonuses...................................................... 1,450,812 1,172,100
Other accrued liabilities........................................................ 1,487,488 1,371,232
Accrued restructuring charges.................................................... 1,310,540 705,503
Deferred income taxes............................................................ 98,368 23,393
-------------- ---------------
Total current liabilities................................................. 13,158,214 6,516,902
-------------- ---------------
Long-term debt, less current portion.................................................. 12,883,642 11,633,353
Deferred compensation................................................................. 75,875 91,938
Commitments and contingencies......................................................... - -
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 6,475,375 shares at 6/30/96 and 9/29/96............................ 64,754 64,754
Additional paid-in capital............................................................ 36,012,761 36,012,761
Cumulative translation adjustment..................................................... (550,642) (544,702)
Retained earnings .................................................................. 16,094,924 15,264,653
-------------- ---------------
51,621,797 50,797,466
Less cost of 842,252 shares at 6/30/96 and 843,235 shares at 9/29/96 of
common stock held in treasury............................................. (6,371,339) (6,376,132)
-------------- ---------------
45,250,458 44,421,334
============== ===============
$ 71,368,189 $ 62,663,527
============== ===============
</TABLE>
<PAGE>
SPAGHETTI WAREHOUSE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Thirteen-Week
Periods Ended
10/1/95 9/29/96
Revenues:
<S> <C> <C>
Restaurant Sales.............................................................. $ 18,585,100 $ 16,578,067
Franchise..................................................................... 195,053 335,022
Other......................................................................... 138,829 143,439
---------------- ---------------
Total revenues......................................................... 18,918,982 17,056,528
---------------- ---------------
Costs and expenses:
Cost of sales................................................................. 4,570,579 4,361,770
Operating expenses............................................................ 10,814,821 9,573,763
General and administrative.................................................... 1,484,778 1,380,737
Depreciation and amortization................................................. 1,285,402 1,035,920
Impairment of long-lived assets............................................... - 1,759,526
---------------- ---------------
Total costs and expenses............................................... 18,155,580 18,111,716
---------------- ---------------
Income (loss) from operations.......................................................... 763,402 (1,055,188)
Net interest expense................................................................... 250,318 236,764
---------------- ---------------
Income (loss) before income tax expense (benefit)...................................... 513,084 (1,291,952)
Income tax expense (benefit)........................................................... 84,963 (461,681)
---------------- ---------------
Net income (loss)...................................................................... $ 428,121 $ (830,271)
=============== ===============
Net income (loss) per common share:
Primary....................................................................... $.08 ($.15)
==== ====
Fully diluted................................................................. $.08 ($.15)
==== ====
Weighted average common and common share equivalents outstanding:
Primary....................................................................... 5,684,000 5,626,570
================ ===============
Fully diluted................................................................. 5,684,090 5,626,570
================ ===============
</TABLE>
<PAGE>
SPAGHETTI WAREHOUSE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Thirteen-Week
Periods Ended
10/1/95 9/29/96
Cash flows from operating activities:
<S> <C> <C>
Net income (loss)................................................................ $ 428,121 $ (830,271)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization expense..................................... 1,285,402 1,035,920
Impairment of long-lived assets........................................... - 1,759,526
Loss on disposal of property and equipment................................ 4,900 -
Deferred income taxes..................................................... (29,273) (410,069)
Other, net................................................................ 16,130 19,402
Changes in assets and liabilities:
Accounts receivable................................................... 65,168 (10,138)
Inventories........................................................... (93,546) 25,228
Income taxes refundable............................................... 121,235 95,567
Prepaid expenses...................................................... 47,855 (38,412)
Other assets.......................................................... (102,416) (99,021)
Accounts payable...................................................... 245,468 (186,322)
Accrued payroll and bonuses........................................... (823,187) (278,712)
Other accrued liabilities............................................. (268,375) (116,255)
Accrued restructuring charges......................................... - (74,271)
-------------- --------------
Net cash provided by operating activities......................... 897,482 892,172
-------------- --------------
Cash flows from investing activities:
Purchase of property and equipment............................................... (1,145,113) (722,561)
Proceeds from sales of property and equipment.................................... 17,669 444,133
-------------- --------------
Net cash used in investing activities............................. (1,127,444) (278,428)
-------------- --------------
Cash flows from financing activities:
Net payments on long-term debt................................................... (259,000) (6,647,520)
Purchase of treasury shares...................................................... - (4,793)
-------------- --------------
Net cash provided by financing activities......................... (259,000) (6,652,313)
-------------- --------------
Effects of exchange rate changes on cash and cash equivalents......................... 25,315 1,845
-------------- --------------
Net decrease in cash and cash equivalents............................................. (463,647) (6,036,724)
Cash and cash equivalents at beginning of period...................................... 1,872,919 8,065,364
-------------- --------------
Cash and cash equivalents at end of period............................................ $ 1,409,272 $ 2,028,640
============== ==============
Supplemental information:
Interest paid.................................................................... $ 282,183 $ 458,780
============== ==============
Income taxes paid (net of refunds collected)..................................... $ (32,774) $ (155,133)
============== ==============
</TABLE>
<PAGE>
SPAGHETTI WAREHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of management, the accompanying condensed consolidated
financial statements contain all adjustments necessary for a fair
presentation of the consolidated financial position as of September 29,
1996 and the consolidated results of operations and cash flows for the
13-week periods ended September 29, 1996 and October 1, 1995. The condensed
consolidated statement of operations for the 13-week period ended September
29, 1996 is not necessarily indicative of the results to be expected for
the full fiscal 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.
3. New Financial Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." SFAS 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of.
The Company adopted SFAS 121 during the first quarter of fiscal 1997.
Adoption of SFAS 121 requires the Company to review its long-lived assets
and certain identifiable intangibles to be held and used for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset or group of assets may not be recoverable. As a result
of applying the provisions of SFAS 121, the Company groups and evaluates
its assets for impairment at the individual restaurant level. The Company
considers each restaurant's historical operating losses as a primary
indicator of potential impairment. The Company deems a restaurant's assets
to be impaired if a forecast of undiscounted future cash flows directly
related to the assets, including disposal value, if any, is less than its
carrying amount. If a restaurant's assets are deemed to be impaired, the
loss is measured as the amount by which the carrying amount of the assets
exceeds their estimated fair market value.
The Company recorded a pre-tax, non-cash charge of $1,759,526 during the
first quarter of fiscal 1997 as a result of adopting SFAS 121. This charge
relates to the write-down of the Company's Cappellini's restaurant in
Addison, Texas to its estimated fair market value.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table presents expenses as a percentage of total revenues for
certain selected financial data included in the Condensed Consolidated
Statements of Operations.
<TABLE>
<CAPTION>
Percentage of Total Revenues
Thirteen-Week Periods Ended
10/1/95 9/29/96
<S> <C> <C>
Revenues ............................................................ 100.0% 100.0%
--------- ---------------
Costs and expenses:
Cost of sales.................................................. 24.2 25.6
Operating expenses............................................. 57.2 56.1
General and administrative..................................... 7.8 8.1
Depreciation and amortization.................................. 6.8 6.1
Impairment of long-lived assets................................ 0.0 10.3
--------- ---------
Total costs and expenses............................. 96.0 106.2
--------- ---------
Income (loss) from operations........................................ 4.0 (6.2)
Net interest expense................................................. 1.3 1.4
--------- ---------
Income (loss) before income tax expense (benefit).................... 2.7 (7.6)
Income tax expense (benefit)......................................... 0.4 (2.7)
--------- ----------
Net income (loss).................................................... 2.3% (4.9%)
========= =========
</TABLE>
Results of Operations
Revenues
Revenues decreased $1.9 million, or 9.8%, during the quarter ended
September 29, 1996 in comparison to the same quarter in the preceding year. This
decrease in revenues was due to the closure of seven under-performing stores in
February of 1996. Same-store sales (stores open the full quarter in both fiscal
years) increased $0.2 million, or 1.2%, during the first quarter. The increase
in same-store sales was the result of a 3.4% increase in check averages offset
by a 2.1% decrease in customer counts.
Management attributes the increase in check averages to higher check
averages in the Company's repositioned "Spaghetti Warehouse Italian Grill"
(Italian Grill) units and to new menu items introduced over the last 18 months.
First quarter sales in the Company's five Italian Grill units, during current
year periods operating under the Italian Grill Format, increased 17.1% over
comparable periods in the prior year. Same-store sales in the Company's
traditional Spaghetti Warehouse concept declined 0.9% during the first quarter.
First quarter franchise income increased $139,969 in comparison to fiscal
1996 due primarily to franchise fees associated with the sale of the Company's
existing Richmond, Virginia restaurant and an exclusive territory agreement to
the Company's Virginia franchisee. The Virginia franchisee intends to convert
the Richmond unit into the Italian Grill format and has begun construction of a
second franchise restaurant in the Richmond market.
Costs and Expenses
Cost of Sales
Cost of sales as a percentage of total revenues were 25.6% for the first
quarter of fiscal 1997 as compared to 24.2% for the same quarter last year. This
increase was due to higher food costs at the Company's Italian Grill and
Cappellini's restaurants, and to recent price increases incurred on various raw
materials including certain dairy, meat and pasta products.
Operating Expenses
Operating expenses as a percentage of total revenues were 56.1% for the
first quarter of fiscal 1997 as compared to 57.2% for the same quarter last
year. Much of this decrease was due to the closure of the seven under-performing
units in February 1996, most which had higher operating expenses as a percentage
of revenues than the typical Company restaurant. These decreases as a percentage
of revenues were offset to a certain extent by higher marketing expenditures in
the current year.
General and Administrative Expenses (G&A)
G&A expenses as a percentage of total revenues were 8.1% for the first
quarter of fiscal 1997 as compared to 7.8% for the same quarter last year. This
increase as a percentage of revenues was due to the fixed nature of certain
corporate costs relative to the decline in total revenues. First quarter G&A
costs actually decreased by $104,041, or 7.0%, compared to the same quarter last
year. This decrease was primarily attributable to a decrease in corporate
compensation costs resulting from a reduction in six corporate positions, and to
reduced recruitment expenses.
Depreciation and Amortization (D&A)
D&A as a percentage of total revenues were 6.1% for the first quarter of
fiscal 1997 as compared to 6.8% for the same quarter last year. This reduction
was the result of the elimination of depreciation expense on the seven
under-performing units closed in February 1996.
<PAGE>
Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121 (SFAS 121), establishing accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
assets to be held and used. SFAS 121 also establishes accounting standards for
long-lived assets and certain identifiable intangibles to be disposed of.
The Company adopted SFAS 121 during the first quarter of fiscal 1997,
resulting in a pre-tax, non-cash impairment charge of $1,759,526. This charge
related to the write-down of the Company's Cappellini's restaurant in Addison,
Texas to its estimated fair market value.
Net Interest Expense
The Company incurred net interest expense of $236,764 during the first
quarter of fiscal 1997 compared to $250,318 during the same quarter last year.
This decrease was attributable to a decrease in average debt outstanding under
the Company's credit facilities in comparison to the same quarter last year.
Income Taxes
The Company's effective tax rate increased from a provision of 16.6% in the
first quarter of fiscal 1996 to a 35.7% benefit in the first quarter of fiscal
1997. The prior year rate was below statutory rates due primarily to the
utilization of the Federal FICA tax tip credit and to a benefit recorded for
Canadian income taxes. The change in the effective tax rate from the prior year
was primarily the result of the tax benefit relating to the current year
impairment charge that has been deferred for income tax purposes.
Liquidity and Capital Resources
The Company's working capital deficit decreased from $3.0 million at June
30, 1996 to $2.5 million on September 29, 1996, due to a reduction in accrued
restructuring charges and to the timing of period-end payments of salaries and
wages. 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 investments in either accounts receivable or inventory. Net
cash provided by operating activities was $0.9 million for both the quarter
ended September 29, 1996 and the quarter ended October 1, 1995.
Long-term debt outstanding on September 29, 1996 consisted primarily of
amounts borrowed under the Company's existing bank credit facility, including a
$9.1 million fixed rate term loan and $3.8 million borrowed against its floating
rate revolving credit facility. Subject to meeting a certain funded debt to cash
flow requirement prior to borrowing any additional funds, the Company had
approximately $1.2 million available under this revolving credit facility on
September 29, 1996.
Capital expenditures were $0.7 million for the quarter ended September 29,
1996 as compared to $1.1 million for the same quarter last year. Fiscal 1997
expenditures consisted primarily of the conversion of two Company restaurants to
the Italian Grill format and normal purchases of new and replacement restaurant
equipment and decor.
In fiscal 1994, the Company's Board of Directors authorized a program for
the repurchase of up to 1,000,000 shares of the Company's common stock for
investment purposes. As of September 29, 1996, the Company had repurchased
781,935 shares of common stock under this program since its inception, including
983 shares in the first quarter of fiscal 1997. Further repurchases with respect
to this program are dependent upon various business and financial
considerations.
The company continued its Italian Grill re-positioning strategy in the
first quarter of fiscal 1997, converting its Stafford (Houston), Texas and
Austin, Texas locations. This updated version of the existing Spaghetti
Warehouse concept features new decor, an expanded menu and even greater customer
value. The menu was broadened to include grilled entrees, sauteed pastas, new
sandwiches, appetizers and pizza. Additionally, traditional menu items were
improved and portion sizes increased to enhance the price/value relationship
offered to customers.
In addition to the five Italian Grill units in operation at the end of the
first quarter, the Company converted its Houston (Willowbrook), Texas location
to the new format in October 1996. Current plans call for the conversion of the
Company's Elk Grove Village, Illinois location in December 1996, plus the
conversion of an additional three units to the Italian Grill format during the
second half of fiscal 1997.
In addition to the conversion of five additional units to the Italian Grill
format during the remainder of fiscal 1997, the Company plans to continue to
make necessary replacements and upgrades to its existing restaurants and
information systems. Total planned capital expenditures relating to all projects
during the next 12 months are approximately $2.5 million. Cash flow from
operations, current cash balances and funds available under the Company's
revolving credit facility are expected to be sufficient to fund planned capital
expenditures, the payment of required debt maturities under the Company's bank
credit facility and possible further repurchases of Company stock during the
next 12 months.
Forward-Looking Information
Statements contained in this Form 10-Q for the quarter ended September 29,
1996 that are not historical facts, including but not limited to, statements
found in this Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, are forward-looking statements and involve
a number of risks and uncertainties. The actual results of the future events
described in such forward-looking statements in this Form 10-Q could differ
materially from those stated in such forward-looking statements. Among the
factors that could cause actual results to differ materially are: adverse
conditions in the restaurant industry and other competitive factors,
governmental regulation, pending and possible future litigation, seasonality of
business, loss of material suppliers or increases in the costs of raw materials
used in the Company's food products, termination of key franchise and/or license
agreements, as well as the risks and uncertainties discussed elsewhere in this
form 10-Q.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been named a defendant in a lawsuit filed by a former
employee in the United States District Court, Northern District of Oklahoma.
This lawsuit claims that the plaintiff was terminated by the Company based upon
his race and/or national origin in violation of Title VII of the Civil Rights
Act of 1964 and Oklahoma's public policy. Among other things, the plaintiff
claims to be entitled to compensatory and punitive damages, but has not
specified any specific dollar amount to which he believes he is entitled. The
Company intends to defend this lawsuit vigorously, but there can be no assurance
that an adverse judgment will not ultimately be rendered against the Company or,
if such an adverse judgment is rendered, that such adverse judgment would not
have a material adverse effect on the financial conditions or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on October 29, 1996. At
such meeting the shareholders (i) elected directors of the Company as follows:
<TABLE>
<CAPTION>
Broker
Name of Nominee For Withheld Non-Votes
<S> <C> <C> <C>
Phillip Ratner 4,723,844 173,638 0
H.G. Carrington, Jr. 4,724,019 173,463 0
C. Cleave Buchanan, Jr. 4,724,226 173,256 0
Frank Cuellar, Jr. 4,719,637 177,845 0
John T. Ellis 4,716,565 180,917 0
Robert R. Hawk 4,717,137 180,345 0
Peter Hnatiw 4,725,226 172,256 0
James F. Moore 4,724,226 173,256 0
Cynthia I. Pharr 4,724,226 173,256 0
William B. Rea, Jr. 4,725,226 172,256 0
</TABLE>
and (ii) approved an amendment to the Spaghetti Warehouse, Inc. Employee Stock
Purchase Plan (the "Purchase Plan") to extend the termination date of the
Purchase Plan to November 30, 1999 (4,483,515 shares voted for, 301,079 shares
voted against, 42,676 shares abstained, and 70,212 shares were broker
non-votes).
<PAGE>
ITEM 6. EXHIBITS
Exhibit
Number: Document Description
10.38 Amended Employment Agreement, dated
as of September 1, 1996, by and
between the Company and Robert R.
Hawk.
10.39 Employment Agreement, dated as of
October 1, 1996, by and between the
Company and John T. Ellis.
27.1 Financial Data Schedule
<PAGE>
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Spaghetti Warehouse, Inc.
Dated: November 8, 1996 By: /s/Phillip Ratner
------------- -----------------
Phillip Ratner
Chairman and
Chief Executive Officer
Dated: November 8, 1996 By: /s/ H. G. Carrington, Jr.
---------------- -------------------------
H.G. Carrington, Jr.
Executive Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number Document Description
10.38 - Amended Employment Agreement, dated as of
September 1, 1996, by and between the Company
and Robert R. Hawk.
10.39 - Employment Agreement, dated as of October 1, 1996, by and
between the Company and John T. Ellis.
27.1 - Financial Data Schedule
<PAGE>
EXHIBIT 10.38
<PAGE>
AMENDMENT - EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective September 1, 1996 by and between Spaghetti Warehouse,
Inc., a Texas Corporation, ("Company"), and Robert R. Hawk, a resident of the
State of Texas, ("Employee").
W I T N E S S E T H:
WHEREAS, effective January 30, 1996 Employee entered into an employment contract
with Company ("Agreement") under which Employee agreed to render certain
services for the benefit of Company in consideration of Company's obligations as
set forth in such Agreement; and
WHEREAS, due to a reorganization of Company, the services being rendered on
behalf of Company and its subsidiaries relate primarily (but not exclusively) to
matters for which responsibility has been assigned to Spaghetti Warehouse
Service Corporation ("Service Corp."); and
WHEREAS, Company, the Employee, and Service Corp. believe it is appropriate
that Service Corp. be substituted for Company under the Agreement; and
WHEREAS, in accordance with the provisions of the Agreement, in order to
accomplish such substitution, Company and Employee must enter into a written
agreement.
NOW THEREFORE, IT IS HEREBY AGREED by and between Company and Employee:
1. Except as otherwise required by the context, all references in the
Agreement to "Company" shall be deemed references to Service
Corp.
2. The last line of Section 6 shall be deleted in its entirety and the
following substituted therefor:
"This Agreement may not be amended or terminated except by
writing subscribed by Spaghetti Warehouse, Inc., Service
Corp., and the Employee.
3. Notwithstanding the provisions of Section 1 above, Spaghetti Warehouse, Inc.
shall remain secondarily liable to fulfill all conditions of the Agreement, as
now or hereafter amended, and, without limitation, shall remain primarily liable
for benefits under the Survivor Benefit Agreement with the Employee dated
January 30, 1996.
4. This Amendment shall be executed in one or more counterparts, each of which
shall be deemed an original but all of which together shall constitute a single
Amendment.
IN WITNESS whereof the parties have agreed to this Amendment as of this 1st day
of September, 1996.
--------------------------------------------------------
SPAGHETTI WAREHOUSE, INC. EMPLOYEE
By: /s/ Phillip Ratner By: /s/ Robert R. Hawk
Phillip Ratner, President Robert R. Hawk
402 W. I-30 5610 Cambria Drive
Garland, Texas 75043 Rockwall, TX 75087
--------------------------------------------------------
--------------------------------------------------------
-----------------------------------------------------------
ACKNOWLEDGMENT
Spaghetti Warehouse Service Corporation agrees that it shall be bound
by all of the terms of the Agreement as amended by the foregoing Amendment.
DATED as of the 1st day of September, 1996.
SPAGHETTI WAREHOUSE
SERVICE CORPORATION
By: /s/ Phillip Ratner
Phillip Ratner, President
402 W. I-30
Garland, Texas 75043
<PAGE>
EXHIBIT 10.39
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective October 1, 1996 by and between Spaghetti Warehouse
Service Corporation, a Delaware Corporation, ("Company"), and John T. Ellis, a
resident of the State of Florida, ("Employee").
W I T N E S S E T H:
WHEREAS, Employee has been a Director of Spaghetti Warehouse, Inc. ("SWI") for
15 years, and during such period, in addition to his duties as Director, has
given valuable business advise to SWI, which advise has been instrumental in the
SWI's success, and
WHEREAS, for a number of reasons, Employee has indicated to SWI that, in
consideration for the continued rendering of such nonDirectors services, he
wishes to formalize his relationship to SWI (and its appropriate
subsidiary(ies), in this case the Company) by entering into an employment
agreement and receiving an agreed upon level of compensation; and
WHEREAS, both SWI and the Company, and Employee, desire to have Employee
continue to serve the interest of SWI and the Company, when needed, on
nonDirector matters in which he has special expertise.
NOW THEREFORE, IT IS HEREBY AGREED by and between Company and Employee:
1. Company hereby employs Employee, and Employee accepts and agrees to
employment by the Company, thereby terminating any and all preexisting
agreements relating to the services described herein, commencing October 1,
1996, for a term that will continue until the earlier of (i) the date on which
Employee is no longer serving as a member of the Board of Directors, and (ii)
the last day of the fiscal year of the Company during which the Company notifies
Employee, in writing and not less than 30 days prior to the end of such fiscal
year, that it is terminating this Agreement effective as of the last day of such
fiscal year, and (iii) the date specified by Employee in a written notice to the
Company delivered not less than 30 days in advance of such specified date.
During such period of employment the Employee agrees that, upon the request and
direction of the Company, he will render up to 10 hours of service during any
month, and up to 124 hours of service during any year, with respect to such
matters as, in the reasonable judgement of the Company, his experience and skill
qualify him to render valuable assistance to the Company. Employee agrees to be
available for such assignments upon reasonable notice, at such times as Company
may desire, all in Company's reasonable discretion. Company will pay Employee a
fee of $100 per hour for each hour, if any, wherein Employee's services
hereunder are utilized by Company in excess of 10 hours per month or 120 hours
per year.
2. For and in consideration of his services hereunder, Employee shall be paid
(i) a one-time Five Thousand Dollar ($5,000) payment and (ii) a salary of Five
Hundred and Eighty-Three Dollars and Thirty-Three cents ($583.33) per month,
monthly in advance, commencing upon the effective date of this Agreement. All of
Employee's reasonable and necessary expenses incurred as a direct result of
rendering the services required hereunder shall be reimbursed to him monthly by
Company, upon presentation of the proper invoices or vouchers therefore.
3. Company will withhold from any amounts payable hereunder all Federal, State,
City or other taxes as shall be required pursuant to any law or governmental
regulation or ruling.
4. In addition to such benefits, if any, to which his status as an employee
entitle him, during the term of this Agreement the Company will insure that
Employee will have the same right, and on the same basis, as a full time officer
of the Company, to participate in the Company's group hospitalization and
medical insurance program.
5. During the term of this Agreement, Employee agrees that he will not become
employed in any capacity, for any period of time, whether part time or full
time, either as an employee, officer, director, independent contractor, agent or
servant for himself or any other person, partnership, corporation or other
entity which owns, operates, manages or has any material ownership interest in a
restaurant or food service operation open to the public, of whatsoever nature or
type.
6. This Agreement constitutes the sole agreement between the parties hereto with
respect to the subject matter, and all prior agreements are terminated, and all
discussions, negotiations and communications by and between the parties with
respect to the subject hereof are merged herein. This Agreement may not be
amended or terminated except by writing subscribed by each party hereto.
7. Any notice required or permitted under the terms hereof shall be effective
upon deposit in the United States Mails, properly addressed, postage prepaid, or
upon personal delivery, to each party at the addresses indicated hereinbelow.
IN WITNESS whereof the parties have entered into this Agreement as of this 1st
day of October, 1996.
SPAGHETTI WAREHOUSE SERVICE CORPORATION
By: /s/ H.G. Carrington, Jr.
H.G. Carrington, Jr.
402 W. I-30
Garland, Texas 75043
EMPLOYEE
By: /s/ John T. Ellis
John T. Ellis
4488 S. Atlantic Ave.
Ponce Inlet, Florida 32127
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying condensed consolidated financial statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000775298
<NAME> Spaghetti Warehouse 10-Q
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> jun-29-1996
<PERIOD-START> jul-01-1996
<PERIOD-END> sep-29-1996
<CASH> 2,028,640
<SECURITIES> 0
<RECEIVABLES> 669,260
<ALLOWANCES> 0
<INVENTORY> 661,767
<CURRENT-ASSETS> 4,061,270
<PP&E> 71,628,047
<DEPRECIATION> 23,669,087
<TOTAL-ASSETS> 62,663,527
<CURRENT-LIABILITIES> 6,516,902
<BONDS> 11,633,353
0
0
<COMMON> 64,754
<OTHER-SE> 50,732,712
<TOTAL-LIABILITY-AND-EQUITY> 62,663,527
<SALES> 16,578,067
<TOTAL-REVENUES> 17,056,528
<CGS> 4,361,770
<TOTAL-COSTS> 13,935,533
<OTHER-EXPENSES> 3,276,183
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 236,764
<INCOME-PRETAX> (1,291,952)
<INCOME-TAX> (461,681)
<INCOME-CONTINUING> (830,271)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (830,271)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
