<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by Registrant: [X]
Filed by a Party other than the Registrant: [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Materials Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
SPAGHETTI WAREHOUSE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
SPAGHETTI WAREHOUSE, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing is calculated and state how it was determined).
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
SPAGHETTI WAREHOUSE, INC.
402 WEST I-30
GARLAND, TEXAS 75043
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 29, 1996
To the Shareholders of Spaghetti Warehouse, Inc.:
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Shareholders
(the "Annual Meeting") of Spaghetti Warehouse, Inc., a Texas corporation (the
"Company"), WILL BE HELD AT THE COMPANY'S PLANO, TEXAS RESTAURANT LOCATED AT
1517 N. CENTRAL EXPRESSWAY, PLANO, TEXAS on the 29th day of October, 1996, at
10:00 a.m. (local time) for the following purposes:
1. To elect ten (10) directors to hold office until the next annual
election of directors by shareholders or until their respective successors
shall have been duly elected and shall have qualified;
2. To consider and act upon a proposal to amend Section 20 of the
Spaghetti Warehouse, Inc. Employee Stock Purchase Plan (the "Purchase
Plan") to extend the termination date of the Purchase Plan until November
30, 1999; and
3. To transact any and all other business that may properly come
before the meeting or any adjournment(s) thereof.
The Board of Directors has fixed the close of business on September 13,
1996 as the record date (the "Record Date") for the determination of
shareholders entitled to notice of and to vote at such meeting or any
adjournment(s) thereof. Only shareholders of record at the close of business on
the Record Date are entitled to notice of and to vote at such meeting. The stock
transfer books will not be closed. A list of shareholders entitled to vote at
the Annual Meeting will be available for examination at the offices of the
Company for ten (10) days prior to the Annual Meeting.
You are cordially invited to attend the meeting; WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING IN PERSON, HOWEVER, YOU ARE URGED TO MARK, SIGN,
DATE, AND MAIL THE ENCLOSED FORM OF PROXY PROMPTLY SO THAT YOUR SHARES OF STOCK
MAY BE REPRESENTED AND VOTED IN ACCORDANCE WITH YOUR WISHES AND IN ORDER THAT
THE PRESENCE OF A QUORUM MAY BE ASSURED AT THE MEETING. Your proxy will be
returned to you if you should be present at the meeting and should request its
return in the manner provided for revocation of proxies on the initial page of
the enclosed proxy statement.
BY ORDER OF THE BOARD OF DIRECTORS
H. G. Carrington, Jr., Secretary
September 23, 1996
<PAGE>
SPAGHETTI WAREHOUSE, INC.
402 WEST I-30
GARLAND, TEXAS 75043
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 29, 1996
___________________________
SOLICITATION AND REVOCABILITY
OF PROXIES
The accompanying proxy is solicited by the Board of Directors on behalf of
Spaghetti Warehouse, Inc., a Texas corporation (the "Company"), to be voted at
the 1996 Annual Meeting of Shareholders of the Company (the "Annual Meeting") to
be held on October 29, 1996, at the time and place and for the purposes set
forth in the accompanying Notice of Annual Meeting of Shareholders (the
"Notice") and at any adjournment(s) thereof. WHEN PROXIES IN THE ACCOMPANYING
FORM ARE PROPERLY EXECUTED AND RECEIVED, THE SHARES REPRESENTED THEREBY WILL BE
VOTED AT THE ANNUAL MEETING IN ACCORDANCE WITH THE DIRECTIONS NOTED THEREON; IF
NO DIRECTION IS INDICATED, SUCH SHARES WILL BE VOTED FOR THE ELECTION OF
DIRECTORS, IN FAVOR OF PROPOSAL 2 SET FORTH IN THE NOTICE AND THE PROXIES WILL
USE THEIR DISCRETION WITH RESPECT TO ANY MATTERS REFERRED TO IN PROPOSAL 3 SET
FORTH IN THE NOTICE.
The executive offices of the Company are located at, and the mailing
address of the Company is, 402 West I-30, Garland, Texas 75043.
Management does not intend to present any business at the Annual Meeting
for a vote other than the matters set forth in the Notice and has no information
that others will do so. If other matters requiring a vote of the shareholders
properly come before the Annual Meeting, it is the intention of the persons
named in the accompanying form of proxy to vote the shares represented by the
proxies held by them in accordance with their judgment on such matters.
This proxy statement (the "Proxy Statement") and accompanying form of proxy
are being mailed on or about September 23, 1996. The Company's Annual Report on
Form 10-K, which serves as the Annual Report to Shareholders, covering the
Company's fiscal year ended June 30, 1996, is enclosed herewith, but does not
form any part of the materials for solicitation of proxies.
Any shareholder of the Company giving a proxy has the unconditional right
to revoke his proxy at any time prior to the voting thereof either in person at
the Annual Meeting by delivering a duly executed proxy bearing a later date or
by giving written notice of revocation to the Company addressed to H. G.
Carrington, Jr., Secretary, Spaghetti Warehouse, Inc., 402 West I-30, Garland,
Texas 75043; no such revocation shall be effective, however, until such notice
of revocation has been received by the Company at or prior to the Annual
Meeting.
In addition to the solicitation of proxies by use of the mail, officers and
regular employees of the Company may solicit the return of proxies, either by
mail, telephone, telegraph, or through personal contact. Such officers and
employees will not be additionally compensated but will be reimbursed for out-
of-pocket expenses. Brokerage houses and other custodians, nominees, and
fiduciaries will, in connection with shares of Common Stock, par value $.01 per
share (the "Common Stock"), registered in their names, be requested to forward
solicitation material to the beneficial owners of such shares of Common Stock.
<PAGE>
The cost of preparing, printing, assembling, and mailing the Annual Report,
the Notice, this Proxy Statement, and the enclosed form of proxy, as well as the
cost of forwarding solicitation materials to the beneficial owners of shares of
the Common Stock, and other costs of solicitation, are to be borne by the
Company.
QUORUM AND VOTING
The record date for the determination of shareholders entitled to notice of
and to vote at the Annual Meeting was the close of business on September 13,
1996 (the "Record Date"). On the Record Date, there were 5,632,140 shares of
Common Stock issued and outstanding.
Each shareholder of Common Stock is entitled to one vote on all matters to
be acted upon at the meeting and neither the Company's Amended and Restated
Articles of Incorporation, as amended, nor its Second Amended and Restated
Bylaws, as amended, allow for cumulative voting rights. The presence, in person
or by proxy, of the holders of a majority of the issued and outstanding Common
Stock entitled to vote at the meeting is necessary to constitute a quorum to
transact business with respect to each proposal. If a quorum is not present or
represented at the Annual Meeting, the shareholders entitled to vote thereat,
present in person or by proxy, may adjourn the Annual Meeting from time to time
without notice or other announcement until a quorum is present or represented.
Assuming the presence of a quorum, the affirmative vote of the holders of a
plurality of the shares of Common Stock voting at the meeting is required for
the election of directors and the affirmative vote of the holders of a majority
of the outstanding shares of Common Stock present and voting at the meeting, in
person or by proxy, is necessary for approval of Proposal 2.
Pursuant to the provisions of the Texas Business Corporation Act, the
Second Amended and Restated Bylaws, as amended, of the Company provide that
abstentions and broker non-votes will be counted for purposes of determining a
quorum, but shall not be counted as voting for purposes of determining whether a
proposal has received the necessary number of votes for approval of the
proposal.
2
<PAGE>
PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of Common Stock as of the Record Date by (i) each director of the
Company; (ii) each Named Executive Officer (as defined in "Election of
Directors--Compensation of Executive Officers"); (iii) all present executive
officers and directors of the Company as a group; and (iv) each other person
known to the Company to own beneficially more than five percent (5%) of the
Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
----------------------------------
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENTAGE
- ------------------------ ---------------- ----------
<S> <C> <C>
College Retirement Equities Fund (2) 325,100 (3) 5.8%
Private Capital Management, Inc. (4) 286,700 5.1%
Salem Investment Counselors, Inc. (5) 329,156 (6) 5.8%
Dimensional Fund Advisors Inc. (7) 365,642 (8) 6.5%
Fleet Financial Group, Inc. (9) 365,100 (9) 6.5%
Ryback Management Corporation (10) 1,023,800 (11) 18.2%
Phillip Ratner 156,082 (12) 2.7%
H.G. Carrington, Jr. 58,812 (13)(14) 1.0%
K. Dieter Esch 35,753 (15) *
Robert L. Purple 10,000 (16) *
C. Cleave Buchanan, Jr. 2,171 (17) *
Frank Cuellar, Jr. 12,140 (18) *
John T. Ellis 175,414 (19)(20) 3.1%
Robert R. Hawk 8,100 *
Peter Hnatiw 8,171 (21) *
James F. Moore 2,171 (17) *
Cynthia I. Pharr 8,572 (22)(23) *
William B. Rea, Jr. 24,896 (24) *
All executive officers and directors
as a group (16 persons) 536,438 (14)(19) 9.0%
(22)(25)
</TABLE>
- -----------------
*Less than 1%
(1) Unless otherwise indicated, each person or group has sole voting and
investment power with respect to all such shares.
3
<PAGE>
(2) The business address of College Retirement Equities Fund is 730 Third
Avenue, New York, New York 10017-3206.
(3) Based on a Schedule 13G dated February 1, 1996, filed by College Retirement
Equities Fund with the Commission and the Company (the "CREF Schedule
13G"). The CREF Schedule 13G discloses that College Retirement Equities
Fund has sole voting power over 325,100 shares of Common Stock and sole
dispositive power over 325,100 shares of Common Stock.
(4) Private Capital Management, Inc. forms part of a group that consists of
Private Capital Management, Inc. and The Entrepreneurial Value Fund L.P.
The business address of both Private Capital Management, Inc. and The
Entrepreneurial Value Fund, L.P. is 3003 Tamiami Trail N, Naples, Florida
33940.
(5) The business address of Salem Investment Counselors, Inc. is P.O. Box
25427, Winston-Salem, North Carolina 27114-5427.
(6) Based on a Schedule 13G dated February 9, 1996, filed by Salem Investment
Counselors, Inc. with the Commission and the Company (the "Salem Schedule
13G"). The Salem Schedule 13G discloses that Salem Investment Counselors,
Inc. has sole voting and dispositive power over 329,156 shares of Common
Stock.
(7) The business address of Dimensional Fund Advisors Inc. ("Dimensional") is
1299 Ocean Avenue, 11th Floor, Santa Monica, California 90401.
(8) Based on a Schedule 13G dated February 7, 1996, filed by Dimensional with
the Commission and the Company. The Schedule 13G of Dimensional discloses
that Dimensional has sole dispositve power over 365,692 shares of Common
Stock and sole voting power over 265,042 shares of Common Stock.
(9) The business address of Fleet Financial Group, Inc. ("Fleet") is One
Federal Street, Boston, Massachusetts 02211. Fleet has informed the
Company that, as of September 9, 1996, Fleet had sole dispositive power
over 353,100 shares of Common Stock and sole voting power over 244,300
shares of Common Stock.
(10) The business address of Ryback Management Corporation ("Ryback") is 7711
Carondelet Avenue, Suite 700, Saint Louis, Missouri 63105.
(11) Based on a Schedule 13G dated August 28, 1996, filed by Ryback with the
Commission and the Company. The Schedule 13G of Ryback discloses that
Ryback, as investment advisor to Linder Growth Fund and Linder Bulwark
Fund, has sole dispositive and voting power over 1,023,800 shares of Common
Stock.
(12) Includes 150,000 shares issuable pursuant to the exercise of stock options
within 60 days of the Record Date.
(13) Includes 53,444 shares issuable pursuant to the exercise of stock options
within 60 days of the Record Date.
(14) Includes 4,768 shares of which Mr. Carrington shares both voting and
investment power with his wife, Ricki L. Carrington, and 300 shares held in
each of the individual retirement accounts for H.G. Carrington, Jr. and
Ricki L. Carrington, respectively.
(15) Includes 34,525 shares issuable pursuant to the exercise of stock options
within 60 days of the Record Date.
(16) Includes 10,000 shares issuable pursuant to the exercise of stock options
within 60 days of the Record Date.
(17) Includes 2,171 shares issuable pursuant to the exercise of stock options
within 60 days of the Record Date.
(18) Includes 10,672 shares issuable pursuant to the exercise of stock options
within 60 days of the Record Date.
(19) Includes 81,758 and 82,984 shares held by the John T. Ellis Trust of 1989
and the Nancy M. Ellis Trust of 1989, respectively, of which John T. Ellis
is trustee.
(20) Includes 10,672 shares issuable pursuant to the exercise of stock options
within 60 days of the Record Date.
4
<PAGE>
(21) Includes 6,172 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(22) Includes 300 shares held in the name of Cynthia I. Pharr as custodian for
Thomas C. Pharr under the Uniform Gifts to Minors Act.
(23) Includes 8,172 shares issuable pursuant to the exercise of stock options
within 60 days of the Record Date.
(24) Includes 4,896 shares issuable pursuant to the exercise of stock options
within 60 days of the Record Date.
(25) Includes an aggregate of 321,263 shares issuable pursuant to the exercise
of stock options within 60 days of the Record Date.
ELECTION OF DIRECTORS
(PROPOSAL 1)
The Second Amended and Restated Bylaws, as amended, of the Company provide
that the number of directors that shall constitute the whole board shall be not
less than three (3) nor more than ten (10). By resolution of the Board of
Directors, at its meeting on August 27, 1996, the number of directors comprising
the Board of Directors has been set at ten (10).
NOMINEES
Unless otherwise directed in the enclosed proxy, it is the intention of the
persons named in such proxy to nominate and to vote the shares represented by
such proxy for the election of the following named nominees for the office of
director of the Company, to hold office until the next annual meeting of
shareholders or until their respective successors shall have been duly elected
and shall have qualified. Each of the nominees is presently a director of the
Company.
Information regarding each nominee is set forth in the table and text
below:
<TABLE>
<CAPTION>
YEAR
PRINCIPAL FIRST
OCCUPATION & ELECTED PRESENT
NOMINEE AGE BUSINESS ADDRESS DIRECTOR OFFICE(S) HELD
- ------- --- --------------------------------- -------- -------------------
<S> <C> <C> <C> <C>
Phillip Ratner 52 Chairman of the Board, 1994 Chairman of the
President, Chief Executive Board, President,
Officer and Director Chief Executive
Spaghetti Warehouse, Inc. Officer and
402 West I-30 Director
Garland, Texas 75043
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
YEAR
PRINCIPAL FIRST
OCCUPATION & ELECTED PRESENT
NOMINEE AGE BUSINESS ADDRESS DIRECTOR OFFICE(S) HELD
- ------- --- --------------------------------- -------- -------------------
<S> <C> <C> <C> <C>
H. G. Carrington, Jr. 41 Executive Vice President, Chief 1990 Executive Vice
Financial Officer, Secretary and President, Chief
Director Financial Officer,
Spaghetti Warehouse, Inc. Secretary and
402 West I-30 Director
Garland, Texas 75043
C. Cleave Buchanan, Jr. 51 President 1995 Director
Southbrook Capital
13111 North Central Expressway
Suite 300
Dallas, Texas 75243
Frank Cuellar, Jr. 66 President and Director 1985 Director
Frank Cuellar & Sons, Inc.
8315 Inwood Drive
Dallas, Texas 75209
John T. Ellis 72 Personal Investments 1981 Director
4488 S. Atlantic Ave.
Ponce Inlet, Florida 32019
Robert R. Hawk 69 Personal Investments 1972 Director
402 West I-30
Garland, Texas 75043
Peter Hnatiw 48 President 1992 Director
Esplanade Restaurants Ltd.
54 The Esplanade, Suite 201
Toronto, Ontario M5E 1A6
CANADA
James F. Moore 61 President 1995 Director
Moore Idea's, Inc.
1012 Creek Crossing
Coppell, Texas 75019
Cynthia I. Pharr 47 President 1991 Director
C. Pharr & Company
3030 LBJ Freeway
Suite 1670
Dallas, Texas 75234
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
YEAR
PRINCIPAL FIRST
OCCUPATION & ELECTED PRESENT
NOMINEE AGE BUSINESS ADDRESS DIRECTOR OFFICE(S) HELD
- ------- --- --------------------------------- -------- -------------------
<S> <C> <C> <C> <C>
William B. Rea, Jr. 51 Controller 1984 Director
Main Waters Management, Inc.
3 Broad Street, Suite 300
Charleston, So. Carolina 29401
</TABLE>
Mr. Phillip Ratner entered into an employment agreement with the Company to
become President and Chief Executive Officer in June 1994. Mr. Ratner was
elected as a director of the Company in August 1994 and was elected Chairman of
the Board in January 1996. Prior to that time, Mr. Ratner served as President
(from 1985) and Chief Executive Officer (from 1987) of Acapulco Restaurants,
Inc. ("Acapulco"), a 50-unit casual Mexican dinner-house chain based in Long
Beach, California. Acapulco is a division of Restaurant Associates Corp. Mr.
Ratner served as Executive Vice President of Operations of Acapulco from 1984
until 1985. Prior to his association with Acapulco, Mr. Ratner was employed by
El Torito, a Mexican dinner-house chain, from 1979 until 1984, serving most
recently as Executive Vice President of Operations from 1982 to 1984. Mr.
Ratner is a director of Hometown Buffet, Inc., which operates and franchises
Home Town Buffet restaurants.
Mr. H. G. Carrington, Jr., a director since March 1990, became Senior Vice
President, Chief Financial Officer and Secretary of the Company in August 1993.
Mr. Carrington was elected Executive Vice President in March 1996. Mr.
Carrington was Senior Vice President of NationsBank Investment Banking from
January 1993 to August 1993. He was Managing Director-Corporate Finance of
Price Waterhouse, an accounting firm, from May 1990 to January 1993.
Mr. C. Cleave Buchanan, Jr., a director since 1995, has served as President
of Southbrook Capital, a privately held investment company, since August 1996.
From February 1993 to August 1996, Mr. Buchanan served as Executive Vice
President of FFSC, Inc., a privately held company that designs, manufactures and
sells consumer products to the wholesale market. FFSC, Inc. filed a petition
under Chapter 11 of the Bankruptcy Code in March 1996. Prior to joining FFSC,
Inc., Mr. Buchanan was a shareholder in Jenkens & Gilchrist, a Professional
Corporation, a Dallas-based law firm. Mr. Buchanan is also a General Partner of
Ogre Partners, Ltd., a limited partnership that owns and markets proprietary
computer software programs to the oil and gas industry under the tradename
DPC&A.
Mr. Frank Cuellar, Jr., a director since August 1985, has served as
President, since 1994, and as a director, since 1977, of Frank Cuellar & Sons,
Inc., a Dallas, Texas real estate investment company. From 1977 to 1994, Mr.
Cuellar served as Secretary and Treasurer of Frank Cuellar & Sons, Inc.
Mr. John T. Ellis, a director since September 1981, was the Director of
Leasing for the Tandy Center of Tandy Corporation, Fort Worth, Texas, a retail
and computer company, from August 1975 until his retirement in June 1983. Since
such time, Mr. Ellis has been engaged in personal investments as his principal
occupation.
Mr. Robert R. Hawk, founder of the Company, served as Chairman of the Board
from the Company's organization in 1972 until October 1993. Effective at the
1993 Annual Meeting in October 1993, Mr. Hawk retired as Chairman of the Board,
but was reappointed as Chairman of the Board in January 1994 and served in such
capacity until January 1996. Mr. Hawk served as President of the Company from
the Company's organization in 1972 until July 1991 and then as interim President
and interim Chief Executive Officer from
7
<PAGE>
January 1994 until August 1994 when Mr. Phillip Ratner was elected President and
Chief Executive Officer. Since January 1996, Mr. Hawk has been engaged in
personal investments as his principal occupation.
Mr. Peter Hnatiw, a director since 1992, has been, since 1981, the
President of Esplanade Restaurants Ltd., a Canadian restaurant corporation that
operates several restaurant concepts, one of which is The Old Spaghetti Factory
restaurant in Toronto, Canada, which is a franchisee of Old Spaghetti Factory
Canada Ltd, the Company's wholly owned Canadian subsidiary.
Mr. James F. Moore, a director since July 1995, has been the President of
Moore Idea's, Inc., a company that specializes in professional speaking and
leading seminars, since January 1994. Mr. Moore also serves as a consultant to
the hospitality industry. Prior to founding Moore Idea's Inc., Mr. Moore was
employed by Restaurant Enterprises Group, Inc. from 1980 to 1994, most recently
serving as President of its Far West concepts unit.
Ms. Cynthia I. Pharr, a director since August 1991, has been President of
C. Pharr & Company since February 1993. Ms. Pharr was President of Tracey
Locke/Pharr Public Relations from April 1989 to January 1993. In addition, Ms.
Pharr was owner and President of C. Pharr & Company, Inc., a public relations
firm, from August 1986 to March 1989. From August 1978 to July 1986, Ms. Pharr
was Co-Founder and President of Pharr Cox Communications.
Mr. William B. Rea, Jr., a director since 1984, has served as Controller of
Main Waters Management, Inc., a restaurant and outdoor advertising company,
since January 1996. From August 1993 to December 1995, Mr. Rea served as Vice
President, Chief Financial Officer and a director of Pollo Tropical, Inc., a
restaurant chain. Mr. Rea served as Vice President-Finance of the Company from
September 1984 to August 1993, and served as Secretary of the Company from
October 1985 to August 1993.
If elected as a director of the Company, each director will hold office
until next year's annual meeting of shareholders, expected to be held in October
1997, or until his or her respective successor is elected and has qualified.
The Board of Directors does not contemplate that any of the above-named
nominees for director will refuse or be unable to accept election as a director
of the Company, or be unable to serve as a director of the Company. Should any
of them become unavailable for nomination or election or refuse to be nominated
or to accept election as a director of the Company, then the persons named in
the enclosed form of proxy intend to vote the shares represented in such proxy
for the election of such other person or persons as may be nominated or
designated by the Board of Directors. No nominee is related by blood, marriage,
or adoption to another nominee or to any executive officer of the Company or its
subsidiaries or affiliates.
BOARD COMMITTEES AND MEETINGS
The Board of Directors has a standing Audit Committee currently comprised
of Frank Cuellar, Jr., Cynthia I. Pharr and William B. Rea, Jr. The Audit
Committee is responsible for consulting with the Company's independent public
accountants with regard to the adequacy of internal controls and the plan of
audit, and also for reviewing the audit report and management letter. The Audit
Committee held two meetings during the fiscal year ended June 30, 1996.
The Board of Directors has a standing Compensation Committee currently
comprised of Frank Cuellar, Jr., John T. Ellis, Peter Hnatiw, Cynthia I. Pharr
and William B. Rea, Jr. The Compensation Committee is responsible for the
review and approval of the compensation levels of executive officers of the
Company, the evaluation of the performance of the executive officers, the
consideration of senior management
8
<PAGE>
succession issues and any related matters for the Company. The Compensation
Committee held one meeting during the fiscal year ended June 30, 1996.
The Board of Directors has a standing Incentive Stock Option Committee
composed of John T. Ellis, Frank Cuellar, Jr. and Cynthia I. Pharr. The
Incentive Stock Option Committee is responsible for the granting of stock
options under the 1990 Incentive Stock Option Plan, the 1991 Nonemployee
Director Plan of Spaghetti Warehouse, Inc. (the "1991 Director Plan"), and the
Spaghetti Warehouse, Inc. 1992 Bonus Stock Option Plan (the "1992 Bonus Plan"),
as well as the interpretation of such plans. The Incentive Stock Option
Committee held five meetings during the fiscal year ended June 30, 1996.
The Board of Directors does not have a standing Nominating Committee.
The Board of Directors held five meetings during the fiscal year ended June
30, 1996. During fiscal 1996, each director attended all of the meetings of the
Board of Directors during the time that he or she served as director. All
directors attended all meetings of the Committees on which they served.
DIRECTOR COMPENSATION
The Company pays each nonemployee director a $3,000 annual retainer, plus a
$3,000 fee for each meeting of the Board of Directors attended, and a $150 fee
per hour for each meeting of a Board Committee attended (if such Board Committee
meeting is not on the same day as a Board of Directors meeting), and reimburses
such persons for their out-of-pocket expenses. Directors who are also employees
of the Company are not compensated for their services as directors, but are
reimbursed for travel expenses incurred in attending meetings.
Pursuant to the 1991 Director Plan, upon being elected a director to the
Company, each nonemployee director of the Company receives an initial
nonqualified stock option exercisable for 5,000 shares of Common Stock at the
fair market value thereof on the date of grant. Subsequently, on the date of
each annual meeting of shareholders after such directors' initial option shall
have fully vested, each such director shall receive a nonqualified option to
purchase 1,000 shares of Common Stock at the fair market value thereof on the
date of grant. Initial options vest 20% on the date of each annual meeting of
shareholders. Subsequent options vest in full on their date of grant.
Mr. Robert R. Hawk and a subsidiary of the Company entered into an
employment agreement. Under such agreement, Mr. Hawk is paid an annual salary
of approximately $26,000, and pursuant to which he provides certain advisory and
consulting services to the Company. The agreement expires upon the death of Mr.
Hawk and is otherwise terminable upon the agreement of Mr. Hawk and the Company.
Under the terms of such agreement, Mr. Hawk has agreed not to become, during the
term of the agreement, an employee, director, independent contractor or agent of
any entity that owns, operates or manages a restaurant business similar to the
Company.
It is anticipated that John T. Ellis will enter into an employment
agreement with the Company to be effective prior to the Annual Meeting. Under
such agreement, it is contemplated that Mr. Ellis will be paid a signing bonus
of $5,000 and an annual salary of $7,000. Pursuant to such agreement, Mr. Ellis
will provide certain advisory and consulting services to the Company. It is
also anticipated that this agreement will terminate upon the earlier of (i) the
date Mr. Ellis is no longer serving as a director of the Company, (ii) the end
of a given fiscal year of the Company, so long as the Company has given Mr.
Ellis at least 30 days' notice of such termination prior to the end of such
fiscal year, or (iii) immediately upon notice of termination of the agreement by
Mr. Ellis. The Company expects that, under such agreement, Mr. Ellis will agree
not to
9
<PAGE>
become, during the term of such agreement, an employee, director, independent
contractor or agent of any entity that owns, operates or manages a restaurant
business similar to the Company.
EXECUTIVE OFFICERS
The table below sets forth the name, age, current position with the
Company, and the principal occupation during the last five years of each
executive officer of the Company and the year he or she first became an
executive officer of the Company. Information with respect to Messrs. Phillip
Ratner and H. G. Carrington, Jr. is set forth above under the caption
"Nominees."
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER PRINCIPAL OCCUPATION
NAME AGE CURRENT POSITION SINCE DURING LAST FIVE YEARS
- ------------------ --- ---------------- --------- -------------------------------
<S> <C> <C> <C> <C>
Peter Buckley 40 President - OSF 1992 President - OSF Canada.
Canada Previously, President of Old
Spaghetti Factory (Western),
Ltd. (1990-1992), Vice
President of Eastern Spaghetti
Corporation (1985-1989).
K. Dieter Esch 58 Vice President 1995 Vice President-Purchasing and
- Development. Previously, Vice
Purchasing and President-Operations of the
Development Company (1995-1996),
Director of Operations of the
Company (1994-1995),
Director of Old Merchandise
Company (1992-1994), and
Director of Spaghetti
Warehouse Construction
Company (1989-1992).
Garry J. Gay 41 Vice President- 1996 Vice President-Human
Human Resources Resources. Previously,
Director of Human Resources
of the Company (1996),
Director of Operations of the
Company (1994-1996), and
Regional Operations Director
of the Company (1990-1994).
Robert L. Purple 49 Vice President - 1995 Vice President-Marketing.
Marketing Previously, Vice President of
Field Marketing for Long John
Silver's (1993-1995) and
Division Marketing Director
for Long John Silver's (1990-
1993).
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER PRINCIPAL OCCUPATION
NAME AGE CURRENT POSITION SINCE DURING LAST FIVE YEARS
- ------------------ --- ---------------- --------- -------------------------------
<S> <C> <C> <C> <C>
Gary L. Suit 46 Vice President- 1996 Vice President-Operations.
Operations Previously, Director of
Operations of the Company
(1996), Regional Operations
Director of the Company
(1995-1996), Regional
Director of Operations for
Acapulco Restaurants (1994-
1995), President of Lolie's
Restaurant (1989-1993), and
Regional Vice President for El
Torito (1985-1989).
Robert E. Bodnar 29 Treasurer and 1996 Treasurer and Controller.
Controller Previously, Director of
Financial Planning of the
Company (1993-1996),
Assistant Controller of the
Company (1992-1993), and
auditor for KPMG Peat
Marwick LLP (1989-1992).
</TABLE>
11
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The total compensation paid for each of the three fiscal years ended June
30, 1996, July 2, 1995, and July 3, 1994 to the Chief Executive Officer, Mr.
Phillip Ratner, and to the other most highly paid executive officers who
received cash compensation in excess of $100,000 for the fiscal year ended June
30, 1996 (collectively, the "Named Executive Officers"), is set forth below in
the following Summary Compensation Table:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
----------------
ANNUAL COMPENSATION SECURITIES
FISCAL ------------------- OTHER ANNUAL UNDERLYING ALL OTHER
NAME & PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS(#) (1) COMPENSATION
- ------------------------- ------ --------- -------- ----------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Phillip Ratner(2) 1996 $239,200 $33,000 (3) 300,000(4) $20,800(5)
Chairman of the Board, 1995 249,600 50,000 (3) 0 26,495(5)
President, Chief Executive 1994 0 0 (3) 300,000 0
Officer and Director
H.G. Carrington, Jr. 1996 122,315 17,000 (3) 80,000(6) 15,700(7)
Executive Vice President, Chief 1995 118,500 26,500 (3) 23,000 6,500(7)
Financial Officer and Director 1994 101,538 20,000 (3) 42,000 0
K. Dieter Esch(8) 1996 101,100 9,000 (3) 47,025(9) 3,900(10)
Vice President - 1995 79,433 22,000 (3) 23,000 1,950(10)
Purchasing and Development 1994 70,308 18,000 (3) 3,400(11) 0
Robert L. Purple(12) 1996 113,050 9,000 (3) 25,000(13) $26,950(14)
Vice President- 1995 15,481 0 (3) 25,000 0
Marketing 1994 0 0 (3) 0 0
</TABLE>
_______________________
(1) The column for 1996 includes all options repriced for such Named Executive
Officer during fiscal 1996, as described in the Ten-Year Option/SAR
Repricings Table set forth below. Likewise, the column for 1994 includes
all options repriced for such Named Executive Officer during fiscal 1994,
as described in the Ten-Year Option/SAR Repricings Table set forth below.
As a result, the number of options shown as granted during fiscal 1996 and
fiscal 1994, respectively, to such Named Executive Officer may be
duplicative since these numbers include options that are also reported as
being granted to such Named Executive Officer during prior fiscal years.
(2) Mr. Ratner became President and Chief Executive Officer in June 1994 and
was elected a director of the Company on August 23, 1994. Mr. Ratner
assumed his duties as President and Chief Executive Officer in August 1994.
(3) This executive officer received certain personal benefits in addition to
salary and bonus. The aggregate amounts of such personal benefits,
however, did not exceed the lesser of $50,000 or 10% of the total of the
annual salary and bonus of such executive officer.
(4) Includes options exercisable for 300,000 shares that were repriced during
fiscal 1996.
(5) The fiscal 1995 amount includes $16,095 of moving expenses reimbursed to
Mr. Ratner in connection with his relocation to Dallas. In addition, Mr.
Ratner contributed $10,400 and $20,800 to the Company's Deferred
Compensation Plan in fiscal 1995 and 1996, respectively, which may be
payable in stock at the time of retirement.
(6) Includes options exercisable for 15,000 shares that were granted during
fiscal 1996 and options exercisable for 65,000 shares that were repriced
during fiscal 1996.
(7) Mr. Carrington contributed $6,500 and $15,700 to the Company's Deferred
Compensation Plan in fiscal 1995 and fiscal 1996, respectively, which may
be payable in stock at the time of retirement.
(8) Mr. Esch was elected Vice President-Operations in January 1995 and Vice
President-Purchasing and Development in August 1996.
(9) Includes options exercisable for 47,025 shares that were repriced during
fiscal 1996.
(10) Mr. Esch contributed $1,950 and $3,900 to the Company's Deferred
Compensation Plan in fiscal 1995 and 1996, respectively, which may be
payable in stock at the time of retirement.
(11) Includes options exercisable for 1,900 shares that were repriced during
fiscal 1994 and options exercisable for 1,500 shares that were granted
during fiscal 1994, the latter of which were also repriced during fiscal
1996.
(12) Mr. Purple was elected Vice President-Marketing in May 1995.
(13) Includes options exercisable for 25,000 shares that were repriced during
fiscal 1996.
(14) This amount includes $25,000 of moving expenses reimbursed to Mr. Purple
in connection with his relocation to Dallas. In addition, Mr. Purple
contributed $1,950 to the Company's Deferred Compensation Plan which may be
payable in stock at the time of retirement.
12
<PAGE>
The following table discloses, for each of the Named Executive Officers,
options granted and/or repriced during the fiscal year ended June 30, 1996 and
the potential realizable values for such options:
OPTIONS GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (1)
------------------------------------------------------------- -------------------------------
% OF TOTAL
SECURITIES OPTIONS/SHARES
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN OR BASE EXPIRATION
NAME GRANTED (#) FISCAL YEAR(2) PRICE DATE 5% 10%
- ---------------------- ----------- --------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Phillip Ratner 300,000(3)(4) 45.4% $5.125(5) 6/25/04 $966,925 $2,450,379
H.G. Carrington, Jr. 65,000(4)(6) 9.8% 5.125(5) (6) 209,501 530,915
15,000 2.3% 4.875(7) 3/08/06 45,988 116,542
K. Dieter Esch 47,025(8) 7.1% 5.125(5) (8) 151,566 384,097
Robert L. Purple 25,000(9) 3.8% 5.125(5) (9) 80,577 204,198
</TABLE>
- -------------------
* Less than 1%
(1) These dollar amounts represent the value of the option assuming certain
rates of appreciation from the market price of the Common Stock at the date
of grant. Actual gains, if any, on stock option exercises are dependent on
the future performance of the Common Stock and overall market conditions.
There can be no assurance that the amounts reflected in this column will be
achieved.
(2) Represents the percentage of options/shares granted to or repriced for all
employees during fiscal 1996.
(3) Fifty percent of these options are currently exercisable and 25% of these
options will become exercisable on each of June 25, 1997 and 1998.
(4) The exercise price for these options may be paid with already owned shares
of Common Stock. The Company, in its sole discretion, may lend money to
the option holder to obtain the cash necessary to exercise all or a portion
of these options or to pay any tax liability of the option holder
attributable to such exercise.
(5) Represents the closing price of the Common Stock on the New York Stock
Exchange at the date of repricing.
(6) The options included in this column, all of which were repriced in fiscal
1996, become exercisable as follows: 35,668 are currently exercisable;
11,666 become exercisable in fiscal 1997; and 17,666 become exercisable in
fiscal 1998. These options expire on dates ranging from August 16, 2003 to
February 1, 2005.
(7) Pursuant to the option plan under which these options were granted, the
market price at the date of grant was the closing price of a share of
Common Stock on the New York Stock Exchange on the date of grant.
(8) The options included in this column, all of which were repriced during
fiscal 1996, become exercisable as follows: 31,192 are currently
exercisable; 8,166 become exercisable in fiscal 1997; and 7,667 become
exercisable in fiscal 1998. These options expire on dates ranging from
January 23, 2000 to February 2, 2005.
(9) The options included in this column, all of which were repriced during
fiscal 1996, become exercisable as follows: 10,000 are currently
exercisable and 7,500 become exercisable on each of May 8, 1997 and 1998.
These options expire on May 7, 2005.
13
<PAGE>
The following table describes for each of the Named Executive Officers
options and the potential realizable values for their options at June 30, 1996:
OPTION VALUES AT JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
JUNE 30, 1996 (#) JUNE 30, 1996 (1)
------------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Phillip Ratner 150,000 150,000 $37,500 $37,500
H.G. Carrington, Jr. 36,777 50,999 7,250 16,500
K. Dieter Esch 31,193 15,832 7,798 3,958
Robert L. Purple 10,000 15,000 2,500 3,750
</TABLE>
_____________
(1) Based on $5.375 per share of Common Stock, which was the closing price per
share of Common Stock on June 30, 1996 on the New York Stock Exchange.
14
<PAGE>
The following table sets forth certain information with respect to each of
the executive officers of the Company regarding the options that have been
repriced from July 1, 1986 through and including June 30, 1996. No SARs were
repriced by the Company during that period.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL OPTION
NUMBER OF SECURITIES MARKET PRICE OF EXERCISE PRICE TERM REMAINING
UNDERLYING OPTIONS STOCK AT TIME OF AT TIME OF NEW AND DATE OF
REPRICED REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE OR AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
- ---------------------- -------- -------------------- ---------------- -------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Phillip Ratner 2/5/96 300,000 $5.125 $ 7.250 $5.125 8.5 Years
H. G. Carrington, Jr 2/5/96 40,000 5.125 8.750 5.125 7.5
2/5/96 2,000 5.125 8.375 5.125 8.0
2/5/96 20,000 5.125 6.500 5.125 8.5
2/5/96 3,000 5.125 5.875 5.125 9.0
Peter Buckley 8/23/94 15,000 8.625 21.750 8.625 8.0
2/5/96 15,000 5.125 8.625 5.125 6.5
2/5/96 2,000 5.125 8.375 5.125 8.0
2/5/96 10,000 5.125 5.875 5.125 9.0
K. Deiter Esch 12/21/93 900 8.625 28.000 8.625 8.0
12/21/93 1,000 8.625 15.000 8.625 9.0
2/5/96 3,000 5.125 5.875 5.125 9.0
2/5/96 900 5.125 8.625 5.125 6.0
2/5/96 1,000 5.125 8.625 5.125 7.0
2/5/96 11,250 5.125 8.933 5.125 4.0
2/5/96 9,375 5.125 7.867 5.125 4.0
2/5/96 1,500 5.125 8.375 5.125 8.0
2/5/96 10,000 5.125 6.500 5.125 7.5
2/5/96 10,000 5.125 5.375 5.125 7.5
Garry J. Gay 12/21/93 1,200 8.625 28.000 8.625 8.0
12/21/93 1,200 8.625 15.000 8.625 9.0
12/21/93 1,300 8.625 9.000 8.625 9.5
2/5/96 1,200 5.125 8.625 5.125 6.0
2/5/96 1,200 5.125 8.625 5.125 7.0
2/5/96 1,300 5.125 8.625 5.125 6.5
2/5/96 2,000 5.125 8.375 5.125 8.0
2/5/96 10,000 5.125 5.375 5.125 8.5
2/5/96 3,000 5.125 5.875 5.125 9.0
Robert L. Purple 2/5/96 25,000 5.125 5.625 5.125 9.0
Robert E. Bodnar 12/21/93 1,000 8.625 9.000 8.625 9.5
2/5/96 1,000 5.125 8.625 5.125 6.5
2/5/96 1,500 5.125 8.375 5.125 8.0
2/5/96 7,500 5.125 6.500 5.125 8.5
2/5/96 2,000 5.125 5.875 5.125 9.0
</TABLE>
COMPENSATION AND EMPLOYMENT AGREEMENTS
On June 25, 1994, Mr. Phillip Ratner and the Company entered into an
Employment Agreement that provides for the employment of Mr. Ratner as President
and Chief Executive Officer at an annual base compensation of $260,000. The
agreement also provided for a bonus for the period ending July 2, 1995 of
$50,000 and provides Mr. Ratner with a car allowance of $18,000, which Mr.
Ratner may apply towards the purchase of an automobile. Under the terms of the
agreement, Mr. Ratner was reimbursed $16,095 for his reasonable and normal
relocation expenses to Dallas and received a $20,000 relocation payment upon the
sale of his former residence. The agreement also provided for the grant to Mr.
Ratner of stock options to acquire
15
<PAGE>
300,000 shares of Common Stock ("Options"). The Options consist of incentive
stock options and nonqualified stock options. The options vest in five
installments beginning June 25, 1994. Ten percent of the options vested on June
25, 1994, 20% vested on June 25, 1995 and 20% vested on June 25, 1996. Twenty-
five percent of the options will vest on each of June 25, 1997 and 1998. The
vesting of all or a portion of the options may be accelerated under certain
circumstances. Mr. Ratner may resign from the Company by providing 60 days'
advance written notice, in which event, the Company's sole obligation shall be
to pay him, in cash, an amount equal to his unreimbursed expenses, four weeks
base compensation and any specifically declared but unpaid bonuses. The Company
may terminate Mr. Ratner's employment without notice and without "cause" (as
defined in the agreement) and he may, with 60 days' notice, terminate his
employment for "good reason" (as defined in the agreement). In either event,
the Company's sole obligation shall be to pay him, in cash, the amounts
described above plus the greater of the product of $21,666.67 and the number of
full calendar months remaining between the date of the termination and the third
anniversary of the agreement.
Under the terms of a letter dated August 18, 1993, regarding the
compensation of Mr. H.G. Carrington, Jr., Mr. Carrington is entitled to payment
of six-month's salary upon the event of his resignation or termination of
employment within the six-month period immediately following a change of control
or sale of the Company. Mr. Carrington is not required to give any advance
notice to the Company of his intention to terminate employment, and the Company
is not required to give Mr. Carrington any advance notice of the Company's
intention to terminate his employment. The Company and Mr. Carrington
negotiated the terms of Mr. Carrington's employment with the Company at arm's
length.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION AND OPTION REPRICINGS
The Board of Directors has established a Compensation Committee to review
and approve the compensation levels of executive officers of the Company,
evaluate the performance of the executive officers, consider senior management
succession issues and any related matters for the Company. The Compensation
Committee is charged with reviewing with the Board of Directors in detail all
aspects of the cash compensation for the executive officers of the Company.
Stock option compensation for the executive officers is considered by the
Incentive Stock Option Committee.
The philosophy of the Company's compensation program is to employ, retain
and reward executives capable of leading the Company in achieving its business
objectives. These objectives include preserving a strong financial posture,
increasing the assets of the Company, positioning the Company's assets and
business operations in geographic markets and industry segments offering long
term growth opportunities, enhancing shareholder value and ensuring the survival
of the Company. The accomplishment of these objectives is measured against
conditions prevalent in the industry within which the Company operates. In
recent years these conditions reflect a highly competitive market environment
and rapidly changing regional, geographic and overall industry market
conditions.
The available forms of executive compensation include base salary, cash
bonus awards and incentive stock options. Performance of the Company is a key
consideration (to the extent that such performance can fairly be attributed or
related to such executive's performance), as well as the nature of each
executive's responsibilities and capabilities. The Company's compensation
policy recognizes, however, that stock price performance is only one measure of
performance and, given industry business conditions and the long term strategic
direction and goals of the Company, it may not necessarily be the best current
measure of executive performance. Therefore, the Company's compensation policy
also gives consideration to the Company's achievement of specified business
objectives when determining executive officer compensation. Compensation paid
to executive officers is based upon a Company-wide salary structure consistent
for each position relative to its authority and responsibility compared to
industry peers.
16
<PAGE>
An additional objective of the Compensation Committee and the Incentive
Stock Option Committee in determining compensation is to reward executive
officers with equity compensation in addition to salary in keeping with the
Company's overall compensation philosophy, which attempts to place equity in the
hands of its employees in an effort to further instill shareholder
considerations and values in the actions of all the employees and executive
officers. In making its determination, some consideration is given by the
Incentive Stock Option Committee to the number of options already held by such
persons. Incentive stock option awards in fiscal 1996 were used to reward three
executive officers and to retain them through the potential of capital gains and
equity buildup in the Company. The number of stock options granted was
determined by the subjective evaluation of these executives' abilities to
influence the Company's long term growth and profitability. The Compensation
Committee believes that the award of options represents an effective incentive
to create value for the shareholders.
During fiscal 1996, the Incentive Stock Option Committee repriced certain
options held by various Company officers and other personnel. Included in this
group were Phillip Ratner, Chairman of the Board, President and Chief Executive
Officer, H.G. Carrington, Jr., Executive Vice President and Chief Financial
Officer, K. Dieter Esch, Vice President - Purchasing and Development, and Robert
L. Purple, Vice President - Marketing, each of whom is a Named Executive
Officer. The Incentive Stock Option Committee believed that before such
repricing, the exercise prices for such options were so significantly above the
market value of the underlying Common Stock that such options did not represent
a meaningful incentive to such officers. The new exercise price for such
options was the fair market value of the Common Stock on the date of the
repricing. See "Election of Directors--Executive Compensation--Ten-Year Option
Repricings."
Based on comparative industry data, and as the result of arm's-length
negotiations, on June 25, 1994, the Company entered into an employment agreement
with Mr. Phillip Ratner that provides for the employment of Mr. Ratner as
President and Chief Executive Officer at an annual base compensation of
$260,000. The agreement also provided for a car allowance of $18,000 and the
grant to Mr. Ratner of a combination of incentive and nonqualified stock options
to acquire 300,000 shares of Common Stock. As described above, these options
were repriced during fiscal 1996. The agreement was unanimously approved by the
Board of Directors, and the Compensation Committee and the Incentive Stock
Option Committee.
The Compensation Committee believes that the compensation of the Company's
other executive officers was reasonably related to the performance of the
Company and those individuals during fiscal 1996.
COMPENSATION COMMITTEE INCENTIVE STOCK OPTION COMMITTEE
Frank Cuellar, Jr. Frank Cuellar, Jr.
John T. Ellis John T. Ellis
Peter Hnatiw Cynthia I. Pharr
Cynthia I. Pharr
William B. Rea, Jr.
17
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996, the Compensation Committee was comprised of Frank
Cuellar, Jr., John T. Ellis, Peter Hnatiw, Cynthia I. Pharr and William B. Rea,
Jr. No member of the Compensation Committee is, or was during fiscal 1996, an
officer or employee of the Company or any of its subsidiaries or had any
relationship requiring disclosure pursuant to Item 404 of Commission Regulation
S-K. William B. Rea, Jr. served as an officer of the Company until August 1993.
No executive officer of the Company served as a member of the Compensation
Committee (or other board committee performing similar functions or, in the
absence of any such committee, the entire Board of Directors) of another
corporation, one of whose executive officers served on the Compensation
Committee. No executive officers of the Company served as a director of another
corporation, one of whose executive officers served on the Compensation
Committee. No executive officer of the Company served as a member of the
Compensation Committee (or other board committee performing equivalent functions
or, in the absence of any such committee, the entire Board of Directors) of
another corporation, one of whose executive officers served as a director of the
Company.
18
<PAGE>
COMMON STOCK PERFORMANCE GRAPH
The following performance graph compares the five-year cumulative return of
the Common Stock with that of the Broad Market (New York Stock Exchange Market
Value Index) and a group of the Company's peer corporations. Each index assumes
$100 invested at June 29, 1991 and is calculated assuming quarterly reinvestment
of dividends and quarterly weighting by market capitalization.
COMPARATIVE FIVE-YEAR TOTAL RETURNS
SPAGHETTI WAREHOUSE, INC., BROAD MARKET AND PEER GROUP
(PERFORMANCE RESULTS THROUGH 6/30/96)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
June 29, July 4, July 4, July 3, July 2, June 30,
Fiscal Year Ending 1991 1992 1993 1994 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Spaghetti Warehouse, Inc. 100.00 107.93 60.98 35.37 25.61 26.22
- --------------------------------------------------------------------------------
Peer Group 100.00 125.69 158.57 147.87 133.67 132.50
- --------------------------------------------------------------------------------
Broad Market 100.00 113.82 129.08 133.58 159.45 199.49
- --------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
The Broad Market (New York Stock Exchange Market Value Index) comprises all
companies with common stock listed on the New York Stock Exchange. The Peer
Group is composed of the following companies:
<TABLE>
<S> <C> <C>
Brinker International, Inc. Frisch's Restaurants, Inc. Piccadilly Cafeterias,
Buffets, Inc. Luby's Cafeterias, Inc. Inc.
Ciatti's, Inc. Marcus Corp. Ryans Family Steak
Cracker Barrel Old Country Morrison Restaurants Inc. Houses, Inc.
Store, Inc. Pancho's Mexican Buffet, Shoney's, Inc.,
Cucos, Inc. Inc. Summit Family
El Chico Restaurants, Inc. Perkins Family Restaurants, Inc.
Family Steak Houses of Restaurants, L.P. Uno Restaurant CP
Florida, Inc. Vicorp Restaurants, Inc.
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no transactions during fiscal 1996 that are reportable under
this item.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires th Company's officers and directors, and persons who
own more than 10% of a registered class of the Company's equity securities (the
"10% Shareholders"), to filereports of ownership and changes of ownership with
the Commission and the New York Stock Exchange. Officers, directors and 10%
Shareholders of the Company are required by Commission regulation to furnish the
Company with copies of all Section 16(a) forms so filed.
Based solely on review of copies of such forms received, the Company
believes that, during the last fiscal year, all filing requirements under
Section 16(a) applicable to its officers, directors and 10% Shareholders were
timely, except that Mr. Bodnar, Mr. Buchanan, Mr. Carrington, Mr. Cuellar, Mr.
Ellis, Mr. Hnatiw, Mr. Moore, Ms. Pharr and Mr. Rea each filed one Form 4 late.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH
OF THE INDIVIDUALS NOMINATED FOR ELECTION AS A DIRECTOR.
AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN
(PROPOSAL 2)
GENERAL
In August 1993, the Board of Directors authorized the adoption of an
Employee Stock Purchase Plan (the "Purchase Plan") and reserved shares of Common
Stock for issuance thereunder, subject to approval by the shareholders of the
Company. The shareholders of the Company approved the Purchase Plan in October
1993. The purpose of the Purchase Plan is to provide eligible employees
(including officers and directors, if any, who are eligible employees and who do
not act as a member of the administrator of the Purchase Plan within a certain
period of time) of the Company and its designated majority owned subsidiaries
with an opportunity to purchase Common Stock ("Shares") from the Company through
payroll deductions.
20
<PAGE>
The Purchase Plan terminates, by its current terms, on November 30, 1996.
On August 27, 1996, the Board of Directors approved, subject to shareholder
approval, the extension of the termination of the Purchase Plan to November 30,
1999. If approved by the shareholders at the Annual Meeting, Section 20 of the
Purchase Plan would be amended (the "Amendment") to read as follows:
"20. TERM OF PLAN. The Plan shall become effective December 1, 1993
and shall terminate November 30, 1999."
The only effect of the Amendment will be to extend the period of operation of
the Purchase Plan.
PURPOSE AND EFFECT OF THE AMENDMENT
As of August 27, 1996, 164,663 shares of Common Stock remain reserved for
purchase pursuant to the Purchase Plan. Therefore, the Amendment is necessary
to enable participants in the Purchase Plan to purchase the remaining shares of
Common Stock originally allocated for purchase pursuant to the Purchase Plan,
but which have not yet been purchased. Shareholder approval of the Amendment is
required under certain provisions of the Internal Revenue Code of 1986, as
amended (the "Code").
Because the Company has filed a registration statement under the Securities
Act of 1933, as amended (the "1933 Act"), with respect to the Shares, the
250,000 shares of Common Stock purchased or which have been reserved for
purchase under the Purchase Plan may be resold immediately in the open market
subject, in the case of affiliates of the Company, to compliance with the
provisions of Rule 144 other than the holding period requirement.
DESCRIPTION OF THE PURCHASE PLAN
Offering Period. Offerings under the Purchase Plan have a duration
("Offering Period") of 12 months and commence on December 1 of each year.
Grant and Exercise of Purchase Right. On the first business day of an
Offering Period (the "Enrollment Date"), each eligible employee who chooses to
participate ("Participant") is granted the right to purchase ("Purchase Right")
on the last business day of such Offering Period ("Purchase Date"), a number of
whole Shares determined by dividing the Participant's total annual payroll
deductions accumulated during such Offering Period by the Purchase Price
described below.
However, the number of Shares subject to each Participant's Purchase Right
during such Offering Period shall in no event exceed the lesser of (i) the
maximum number of Shares which could be purchased with such Participant's total
payroll deductions for the Offering Period at a Purchase Price equal to 85% of
the fair market value of the Shares on the Enrollment Date, (ii) the number of
Shares determined by dividing $25,000 by the fair market value of the Shares on
the Enrollment Date, and (iii) the maximum number of Shares which would cause
the total owned by the Participant to exceed the 5% ownership limits described
below. For all purposes hereof, the fair market value of a Share shall be the
closing price of a share of Common Stock on the business day of reference.
Unless the Participant's participation is discontinued, his or her Purchase
Right will be exercised automatically on the Purchase Date (i.e. the last
business day of the Offering Period) at the Purchase Price. To the extent that a
Participant's payroll deductions exceed that amount required to purchase the
Shares subject to the Participant's Purchase Right, such excess amount shall be
repaid to the Participant without interest.
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Shares Available Under the Purchase Plan. The total number of Shares
issuable under the Purchase Plan, including the Shares issued prior to the date
hereof, is 250,000. As of August 27, 1996, a total of 85,337 shares had been
purchased under the Purchase Plan. Not less than 15 days prior to each Offering
Period, the Administrator (which is anticipated in most cases to be a committee
of the Board) will determine the total number of Shares that will be made
available for purchase during such Offering Period and will notify the eligible
employees. With respect to Shares that are made available with respect to an
Offering Period, but which are not purchased during such Offering Period, the
Administrator may again make them available for purchase with respect to any
subsequent Offering Period.
In the event that on the Purchase Date of reference the aggregate amount of
payroll deductions during the corresponding Offering Period exceed the aggregate
Purchase Price of all Shares available for purchase during such Offering Period,
each Participant's Purchase Right shall be reduced to that percentage of
available Shares as the accumulated payroll deductions in his or her account is
of the aggregate accumulated payroll deductions in the accounts of all
Participants. Each Participant's right to purchase Shares is further limited as
described above.
Eligibility and Participation. Any employee who (i) is customarily
employed for at least 20 hours per week and more than five months per calendar
year by the Company or its designated majority owned subsidiaries, (ii) who is
employed on September 1st preceding the Enrollment Date of reference, and (iii)
who continues to be employed on the Enrollment Date, is eligible to participate
in offerings under the Purchase Plan during the Offering Period which includes
such Enrollment Date. Employees become Participants by delivering to the
Company an agreement authorizing payroll deductions at any time during the 45
days immediately preceding the Enrollment Date of reference.
No employee is permitted to purchase Shares under the Purchase Plan if such
employee owns 5% or more of the total combined voting power or value of all
classes of shares of stock of the Company, including as owned by such employee
all Shares subject to his Purchase Right, as adjusted, shares subject to any
other options, or shares whose ownership is attributable to the employee by
reason of ownership by certain members of his or her family. In addition, no
Participant is entitled to purchase during the Offering Period of reference more
than the maximum number of Shares subject to such Participant's Purchase Right
during such Offering Period.
Purchase Price. The price at which Shares are sold under the Purchase Plan
("Purchase Price") is eighty-five percent (85%) of the lower of the fair market
value per Share of Common Stock on the Enrollment Date (i.e. first business day
of the Offering Period) or the Purchase Date (i.e. the last business day of the
Offering Period).
Payroll Deductions. The Purchase Price of the Shares is accumulated by
payroll deductions made during the Offering Period. The total payroll
deductions of a Participant for an Offering Period may not be greater than the
lesser of (i) $21,250, and (ii) 25% of the Participant's annualized "considered
pay" as determined at the beginning of the Offering Period, nor may such payroll
deductions be less than an aggregate of $500. For Participant's who are
salaried employees, their "considered pay" shall be their basic rate of pay
(i.e. exclusive of bonuses and other special payments), and for Participant's
who are hourly employees, their "considered pay" will be the amount of their
total pay (including tips, but excluding noncash payments, reimbursements,
special awards etc.) for services rendered for the months of September and
October immediately preceding the Offering Period of reference, annualized by
multiplying that amount by six (6).
A Participant must designate a specific amount (subject to the limits
described above) to be withheld from his pay during the Offering Period, and
that designated amount will be withheld in equal pro-rata amounts from each
paycheck during the Offering Period and, to the extent that the designated
amount to be withheld
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on a payday exceeds the amount of the employee's pay on such payday, the
employee must make up the difference on or before the next payday, or be deemed
to have withdrawn from the Plan effective on such next payday.
A Participant may neither increase nor decrease payroll deductions during
an Offering Period, although a Participant may totally withdraw from the Plan as
described below.
If the total amount of payroll deductions would purchase more than the
shares available for purchase for the offering period of reference (as set
annually by the Board), the Administrator proportionately will reduce the
payroll deductions of each Participant to the extent necessary to eliminate such
excess deductions.
All payroll deductions of a Participant are credited to his or her account
under the Purchase Plan and are deposited with the general funds of the Company.
Such funds may be used for any corporate purpose. No charges for administrative
or other costs may be made by the Company against the accounts of Participants.
Administration. The Purchase Plan is administered by the Board of
Directors, or, as is more likely, by a committee of the Board appointed by the
Board (herein such persons being referred to collectively as the
"Administrator"). Any members of the Board who are not members of the
Administrator for at least 12 months prior to the Offering Period of reference,
and who also are eligible employees, are permitted to participate in the
Purchase Plan during such Offering Period; provided, however, that members of
the Administrator may not participate in the Plan during an Offering Period that
commences within 12 months of the most recent date on which they were a member
of the Administrator.
Withdrawal from the Plan. A Participant may terminate his or her right to
purchase Shares with respect to a particular Offering Period by notifying the
Administrator at any time prior to the last 15 days of the Offering Period that
the Participant is withdrawing all, but not less than all, of the accumulated
payroll deductions credited to such Participant's account. The withdrawal of
accumulated payroll deductions automatically terminates the Participant's
Purchase Right with respect to that Offering Period. As soon as practicable
after notice of such withdrawal, the payroll deductions credited to a
Participant's account will be returned to the Participant without interest.
A Participant's withdrawal with respect to an Offering Period does not have
any effect upon such Participant's eligibility to participate in subsequent
Offering Periods.
Termination of Employment. Termination of a Participant's employment for
any reason, including retirement or death, immediately terminates his or her
participation in the Offering Period during which such termination of employment
occurs. In such event, the payroll deductions credited to the Participant's
account will be returned to the Participant as soon as practicable, or in the
case of death, to the person or persons entitled thereto, in either case without
interest.
Capital Changes. In the event of changes in the Common Stock of the
Company due to stock dividends or other changes in capitalization, or in the
event of any merger, sale or any other reorganization, appropriate adjustments
will be made by the Company to the Shares subject to purchase, to the price per
Share and, where necessary, to the conditions relating to the exercise of the
Purchase Right, so that, to the extent reasonably possible, such events do not
adversely affect the rights of Participants. Notwithstanding the forgoing, if
there is a proposed dissolution or liquidation of the Company, the Offering
Period during which such event occurs will be deemed terminated upon the
occurrence of such event, with the result described below.
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Nonassignability. No rights or accumulated payroll deductions of an
Participant under the Plan may be pledged, assigned or transferred for any
reason.
Amendment and Termination of the Plan. The Plan, if amended, will
terminate automatically on November 30, 1999, and prior to that date the Board
of Directors of the Company may at any time amend or terminate the Purchase
Plan, except that, in general, such termination or amendment cannot reduce the
rights a Participant would have if the Purchase Date for the Offering Period in
which the effective date of such termination or amendment occurred were the day
immediately prior to the effective date of the termination and amendment, and
the Participants were afforded the opportunity to complete their payroll
deductions for the entire Offering Period of reference by paying such additional
amounts to the Administrator from their own assets. No amendment may be made to
the Purchase Plan without approval of the shareholders of the Company if such
amendment would increase the number of Shares that may be issued under the
Purchase Plan, change the designation of the employees eligible for
participation in the Purchase Plan, or constitute an amendment for which
shareholder approval is required in order to comply with Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor rule.
Tax Information. The Purchase Plan and the right of Participants to make
purchases thereunder is intended to qualify under the provisions of Sections 421
and 423 of the Code. Under these provisions, no income will be taxable to a
Participant at the time he or she commences participation or upon the purchase
of Shares. Upon disposition of the Shares, the Participant will generally be
subject to tax and the amount and character of the tax will depend upon the
holding period. If the Shares have been held by the Participant until the later
of (i) two years after the Enrollment Date, and (ii) one year after the Purchase
Date, of the Offering Period with respect to which he or she acquired the
Shares, then upon disposition of Shares, the lesser of (a) the excess of the
fair market value of the Shares at the time of such disposition over the
Purchase Price, or (b) the excess of the fair market value of the Shares on the
Enrollment Date over the purchase price, will be treated as ordinary income, and
any further gain will be treated as long-term capital gain. If the Shares are
disposed of before the expiration of the forgoing holding period, the excess of
the fair market value of the Shares on the Purchase Date over the Purchase Price
will be treated as ordinary income, and any further gain or loss on such
disposition will be long- or short-term capital gain or loss, depending on the
holding period of the Shares (which holding period commences on the Purchase
Date). The Company is not entitled to a deduction for amounts taxed as ordinary
income or capital gain to a Participant as a result of disposing of Shares after
meeting the holding period above, but will be entitled to a deduction for
ordinary income recognized by the Participant as a result of disposing of the
Shares prior to meeting the holding period requirements.
The foregoing is only a summary of the effect of federal income taxation
upon the Participant and the Company with respect to the Shares purchased under
the Purchase Plan. Reference should be made to the applicable provisions of the
Code. In addition, the summary does not discuss the tax consequences of a
Participant's death or the income tax laws of any state or foreign country in
which the Participant may reside.
REQUIRED VOTE
Assuming the presence of a quorum, the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock present and voting at the
meeting, in person or by proxy, is necessary to approve the Purchase Plan.
Proxies will be voted for or against such proposal in accordance with the
specifications marked thereon and, if no specification is made, will be voted in
favor of such proposal.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND
THE SPAGHETTI WAREHOUSE, INC. EMPLOYEE STOCK PURCHASE PLAN AS DESCRIBED ABOVE.
OTHER BUSINESS
The Board knows of no other business to be brought before the Annual
Meeting. If, however, any other business should properly come before the Annual
Meeting, the persons named in the accompanying proxy will vote the proxy as in
their discretion they may deem appropriate, unless they are directed by the
proxy to do otherwise.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Company's independent public accountants since October 26, 1994 have
been the firm of Arthur Andersen LLP. It is expected that one or more
representatives of such firm will attend the Annual Meeting and be available to
respond to any questions. Such representatives will be given an opportunity to
make statements at the Annual Meeting, if they so desire, and are expected to be
available to respond to appropriate questions.
On October 26, 1994, the Company notified KPMG Peat Marwick LLP of its
decision to retain another independent accountant for the audit of its financial
statements. In connection with the audit for the fiscal year ended July 3,
1994, and during the period from July 4, 1994, through October 26, 1994, there
were no disagreements with KPMG Peat Marwick LLP on matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which would require disclosure under the regulations. KPMG Peat
Marwick LLP's report on the financial statements of the Company for the year
ended July 3, 1994, did not contain any adverse opinion or disclaimer of opinion
nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles.
On October 26, 1994, the Company notified Arthur Andersen LLP of its
intention to retain such firm as independent accountant for the audit of its
financial statements. Prior to its engagement, the Company did not consult with
Arthur Andersen LLP on either the application of accounting principles to a
completed or proposed specific transaction, or the type of audit opinion that
might be rendered on the Company's financial statements. The change in the
independent accountants was approved by the Audit Committee of the Board of
Directors.
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DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Shareholder proposals to be included in the proxy statement for the
1997 Annual Meeting must be received by the Company no later than May 26, 1997.
BY ORDER OF THE BOARD OF DIRECTORS
H. G. Carrington, Jr., Secretary
September 23, 1996
Garland, Texas
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND THE ANNUAL MEETING AND WISH THEIR STOCK TO BE VOTED ARE URGED
TO DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED SELF-ADDRESSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
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SPAGHETTI WAREHOUSE, INC.
EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the Employee Stock Purchase Plan
of Spaghetti Warehouse, Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Stock of
the Company through accumulated payroll deductions under an "Employee Stock
Purchase Plan" as defined in Section 423 of the Code, and all provisions hereof
will be construed in accordance with those objectives.
2. DEFINITIONS.
(a) "ACCOUNT" shall mean the account established for each Participant
to record the amounts withheld from his or her Compensation during the Offering
Period of reference.
(b) "ADMINISTRATOR" shall mean the Board or a designated committee
of the Board.
(c) "BOARD" shall mean the Board of Directors of the Company.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(e) "COMPANY" shall mean Spaghetti Warehouse, Inc., a Texas
corporation.
(f) "COMPENSATION" shall mean the actual amounts paid to the
Participant of reference by his Employer during the Offering Period of
reference.
(g) "CONSIDERED COMPENSATION" shall be determined with respect to each
Offering Period, and shall mean (a) in the case of each salaried Participant,
such Participant's annualized basic rate of salary on the Enrollment Date of
reference; and (b) in the case of each hourly Participant, the amount of such
Participant's total compensation (including tips) paid with respect to services
rendered during the months of September and October immediately preceding the
Enrollment Date of reference, annualized by multiplying the two month total by
6.
(h) "DESIGNATED SUBSIDIARIES" shall mean the Subsidiaries that have
been designated by the Board from time to time in its sole discretion as
eligible to adopt this Plan for the benefit of their Employees.
(i) "DIRECTED WITHHOLDING" shall mean the amount that an Eligible
Employee directs his or her Employer to withhold from the Participant's
Compensation on each Payroll Date during the Offering Period of reference;
provided, however, that the aggregate amount of Directed Withholding for the
Offering Period of reference (i) may not exceed the lesser of (x) twenty-five
percent (25%) of such Participant's Considered Compensation for such Offering
Period, and (y) Twenty-one Thousand Two Hundred and Fifty Dollars ($21,250), and
(ii) may not be less than Five Hundred Dollars ($500).
(j) "DIRECTION TO WITHHOLD" shall mean the written notice to the
Administrator, in the form of Exhibit A attached hereto, which directs an
Eligible Employee's Employer to commence to deduct the Directed Withholding from
his Compensation on each Payroll Date during the Offering Period of reference.
(k) "ELECTION TO RESCIND" shall mean the written notice to the
Administrator, in the form of Exhibit B attached, which directs a Participant's
Employer to discontinue deductions of Directed Withholding, and to refund the
entire amount credited to such Participant's Account.
<PAGE>
(l) "ELIGIBLE EMPLOYEE" shall mean each Employee (i) who is employed
on the September 1 preceding the Offering Period of reference, (ii) who
continues to be employed as an Employee on the following Enrollment Date, and
(iii) in any case, on the Enrollment Date of reference owns Stock (within the
meaning of Section 423(b)(3) of the Code) possessing less than five percent (5%)
of the total combined voting power or value of all classes of stock of the
Company or of any Subsidiary and, without limiting the generality of the
foregoing, in computing the amount of such Stock owned by an Employee, there
shall be included the amount of Stock owned directly, the Stock subject to a
Purchase Right, the Stock which with respect to which the Employee has an option
to acquire, and the Stock owned by any other person whose stock is attributed to
such Employee pursuant to Section 425(d) of the Code.
(m) "EMPLOYEE" shall mean any person, including an officer and
director who is also an Employee, who, at the time of reference is customarily
employed for at least twenty (20) hours per week and for more than five (5)
months in the calendar year by the Employer.
(n) "EMPLOYER" shall mean, collectively, the Company and each
Designated Subsidiary.
(o) "ENROLLMENT DATE" shall mean the first business day of each
Offering Period.
(p) "FAIR MARKET VALUE" of a Share on the Enrollment Date or on the
Purchase Date shall be the closing price of Stock on such date, which shall be
(i) if the Stock is listed or admitted for trading on any United States national
securities exchange, the last reported sale price of Stock on such exchange as
reported in any newspaper of general circulation, (ii) if the Stock is quoted on
NASDAQ or any similar system of automated dissemination of quotations of
securities prices in common use, the mean between the closing high bid and low
asked quotations for such day of the Stock on such system or (iii) if neither
clause (i) nor (ii) is applicable, a value determined by any fair and reasonable
means prescribed by the Board.
(q) "OFFERING PERIOD" shall mean the period beginning on December 1st
and ending on the following November 30th.
(r) "PARTICIPANT" shall mean each Eligible Employee who is having an
amount withheld from his Compensation under Section 4 at the time of reference.
(s) "PAYROLL DATE" shall mean each date on which a Participant is paid
his or her Considered Compensation, exclusive of the portion of Considered
Compensation attributable to tips.
(t) "PLAN" shall mean this Spaghetti Warehouse, Inc. Employee Stock
Purchase Plan.
(u) "PURCHASE DATE" shall mean the last business day of each
Offering Period.
(v) "PURCHASE PRICE" shall mean the lesser of (i) 85% of the Fair
Market Value of the Shares on the Enrollment Date of reference, or (ii) 85% of
the Fair Market Value of the Shares on the Purchase Date of reference, but never
less than the par value of a Share.
(w) "PURCHASE RIGHT" shall mean the Participant's right to acquire the
number of Shares that may be purchased in accordance with Section 3(b) as
limited by Sections 3(c) and 8.
(x) "SHARES" shall mean the shares of Stock reserved for issuance
under this Plan.
(y) "STOCK" shall mean the common stock, $0.01 par value per share,
of the Company.
(z) "SUBSIDIARY" shall mean any corporation (other than the Company)
in any unbroken chain of corporations beginning with the Company if, at the time
of reference, each of the corporations other than the last
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corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
3. SHARES SUBJECT TO PURCHASE.
(a) Subject to adjustments provided in Section 15 hereof, a total of
Two Hundred Fifty Thousand (250,000) Shares shall be subject to the Plan. The
Shares subject to the Plan shall consist of unissued Shares or previously issued
Shares reacquired and held by the Company, or any Subsidiary, and such number of
Shares shall be and hereby is reserved for sale for such purpose. Any of such
Shares that may remain unsold at the termination of the Plan shall cease to be
reserved for the purpose of the Plan, but until termination of the Plan the
Company shall at all times reserve a sufficient number of Shares to meet the
requirements of the Plan. Should any Shares subject to Purchase Rights on the
Enrollment Date of an Offering Period fail to be purchased on the Purchase Date
for such Offering Period, such Shares may again be made available for purchase
with respect to a subsequent Offering Period.
(b) Not less than 15 days prior to each Offering Period, the
Administrator shall determine the maximum number of Shares (if any) that will be
available for purchase for such Offering Period. Each Participant will have a
Purchase Right to purchase the number of full Shares equal to the quotient of
(i) the amount in the Participant's Account on the Purchase Date, and (ii) the
Purchase Price of the Shares for the Offering Period, all subject to the maximum
amounts, and the adjustments, if any, in Section 8.
(c) In the event that as of the Enrollment Date of reference the
quotient of (i) the aggregate Directed Withholdings of all Participants for the
Offering Period, divided by (ii) the Purchase Price of a Share on such
Enrollment Date exceeds the number of Shares designated by the Board in the
first sentence of Section 3(b) by a percentage (not less than 100%) specified by
the Board at the time it determines the number of Shares under Section 3(b)
above, the Administrator will take reasonable steps to reduce, as nearly as
possible, each Participant's Directed Withholding to an amount equal to the
product of (x) his Directed Withholding, and (y) a fraction, the numerator of
which is the product of the percentage specified by the Administrator in (ii)
multiplied by the number of Shares designated by the Administrator in the first
sentence of Section 3(b), and the denominator of which is the quotient of (i)
and (ii) above.
4. PARTICIPATION AND DEDUCTION OF DIRECTED WITHHOLDING.
(a) During the 45 days ending on the Enrollment Date for the Offering
Period of reference, each Eligible Employee may become a Participant for such
Offering Period by filing with the Administrator a written Direction to Withhold
setting forth the amount of such Eligible Employee's Directed Withholding.
(b) All amounts deducted from a Participant's Compensation under this
Plan shall be credited to such Participant's Account, but shall remain the
unencumbered assets of the Employer.
5. RECISION, OR TERMINATION OF EMPLOYMENT.
(a) A Participant may not increase or decrease the amount of his
Directed Withholding during an Offering Period; except, however, (i) a
Participant may rescind his Direction to Withhold in its entirety at any time
prior to the Purchase Date for the Offering Period of reference by filing a
written Election to Rescind with the Administrator prior to November 15 of the
Offering Period of reference, (ii) a Participant will be deemed to have
rescinded his Direction to Withhold in its entirety in the event that his
Compensation payable on any Payroll Date is insufficient to fund the Directed
Withholding for such Payroll Date and such Participant fails to furnish the
Administrator with personal funds in an amount sufficient to complete the
Directed Withholding for such Payroll Date on or before the next Payroll Date,
and (iii) a Participant will be deemed to have rescinded his Direction to
Withhold in its entirety in the event of his termination of employment by an
Employer prior to the Purchase Date for the Offering Period of reference.
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(b) If either 5(a)(i), (ii) or (iii) occurs with respect to a
Participant before the Purchase Date of reference, the entire amount credited to
such Participant's Account will be paid to such Participant in a lump sum, in
cash, as soon as reasonably possible following such occurrence.
(c) The occurrence of an event described in 5(a)(i), (ii) or (iii)
with respect to a Participant during an Offering Period shall not limit such
Participant's right to file a Direction to Withhold with respect to any later
Offering Period provided that at such time Participant is an Eligible Employee.
6. EXERCISE OF PURCHASE RIGHT. The Participant's Purchase Right will be
exercised automatically on each Purchase Date by debiting his Account with the
Purchase Price of the Shares subject to his Purchase Right, and refunding (in a
lump sum, in cash) the amount, if any, credited to his Account that exceeds such
Purchase Price.
7. DELIVERY. As promptly as practicable after each Purchase Date, the
Administrator shall arrange the delivery to each Participant of a certificate
representing the Shares purchased on such Purchase Date.
8. MAXIMUM SHARES, AND REDUCTION IN SHARES, SUBJECT TO PURCHASE RIGHTS.
(a) Notwithstanding any provision hereof to the contrary, the maximum
number of Shares subject to each Participant's Purchase Right at any time during
the Offering Period shall be that number of Shares equal to the lesser of (i)
that number of Shares that has an aggregate Fair Market Value on the Enrollment
Date equal to $25,000, and (ii) that number of Shares that may be purchased with
the lesser of the maximum Directed Withholding amounts described in (x) and (y)
of Section 2(i) at the Purchase Price set forth in Section 2(v)(i), and (iii)
the maximum number of Shares (if any) that will not cause the Participant to
exceed the 5% ownership limitation of Section 2(l).
(b) If, on a Purchase Date, the maximum number of Shares available for
purchase as determined under Section 3(b) is less than the number of Shares
subject to all then existing Purchase Rights (as limited by Section 8(a), if
applicable), the Administrator will reduce the number of Shares subject to each
Participant's Purchase Right to an amount equal to the product of (i) the
maximum Shares available for purchase as determined under Section 3(b), and (ii)
a fraction, the numerator of which is the amount in such Participant's Account
(after such reductions, if any, required by the proviso of Section 2(i)), and
the denominator of which is the amount in the Accounts of all Participants
(after such reductions, if any, required by the proviso of Section 2(i)).
9. VOTING AND REGISTRATION.
(a) A Participant will have no interest or voting right in or other
privileges relating to Shares subject to a Purchase Right until delivery of the
certificate representing such Shares.
(b) Shares to be delivered to a Participant will be registered in
the name of the Participant.
10. ADMINISTRATION. The Plan shall be administered by the Administrator,
which will be the Board or a committee appointed by the Board. If a committee
of the Board is appointed by the Board to act as Administrator, such committee
shall have all of the powers of the Board with respect to the Plan except for
those powers set forth in Section 16 hereof. The administration, interpretation
or application of the Plan by the Administrator shall be final, conclusive and
binding upon all Participants. Eligible Employees with respect to the Offering
Period of reference may not serve as a Member of the Administrator with respect
to the Offering Period of reference or the succeeding Offering Period.
11. DESIGNATION OF BENEFICIARY.
(a) A Participant may file a written designation of a beneficiary who
is to receive any cash as a result of the Participant's death prior to a
Purchase Date, or to receive any Shares (and excess cash, if any) in the
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event of Participant's death subsequent to a Purchase Date but before delivery
of the Shares (and excess cash, if any).
(b) Such designation of beneficiary may be changed by the Participant
at any time by written notice. In the event of the death of a Participant
without a designated surviving beneficiary, the Administrator shall deliver such
cash and/or Shares to the spouse of the Participant or, if there is no surviving
spouse, then to the executor or administrator of the estate of the Participant.
12. TRANSFERABILITY. Neither payroll deductions credited to Participant's
Account, nor any rights with regard to the making or recision of a Directed
Withholding, nor the right to receive Shares (and excess cash, if any) may be
assigned, transferred, pledged or otherwise disposed of in any way (other than
as provided in Section 11) by the Participant. Any such attempt at assignment,
transfer, pledge or other disposition shall be without effect.
13. USE OF FUNDS. All payroll deductions received or held by the Employer
under the Plan may be used by the Employer for any corporate purpose, and the
Employer shall not be obligated to segregate such payroll deductions.
14. REPORTS AND WITHHOLDING.
(a) Statements will be given to all Participants within a reasonable
time following a Purchase Date, which statements will set forth the amounts of
payroll deductions, the per Share Purchase Price, the number of Shares purchased
(and an explanation of any reduction in the Shares subject to the Purchase
Right), and the remaining cash balance, if any.
(b) Each person who acquires Shares hereunder shall agree as a
condition of such acquisition that he shall notify his Employer in the event he
disposes of the Shares before the second anniversary of the Enrollment Date on
which he acquired the Purchase Right with respect to such Shares, and in the
event of such disposition while an employee of the Employer, and upon the
exercise of the Purchase Right, the Employer may withhold from such
Participant's current Compensation such amount as it reasonably determines to be
necessary to satisfy the Company's obligation to withhold for federal and state
taxes with respect to such events.
15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) If a stock dividend, stock split, spinoff, recapitalization,
merger, consolidation, exchange of shares or the like, occurs during an Offering
Period, as a result of which shares of any class shall be issued in respect of
the Shares subject to purchase with respect to such Offering Period, or such
Shares shall be changed into a different number of the same or another class or
classes, the number of Shares to which each Purchase Right shall be applicable
and the calculation of the Fair Market Value as of the Enrollment Date for such
Shares shall be appropriately adjusted by the Company in a manner that in its
sole discretion will keep this Plan qualified under Section 423 of the Code.
(b) In the event of the proposed dissolution or liquidation of the
Company, the Offering Period will close, and the Purchase Date will occur, 15
days immediately prior to the consummation of such proposed action, all
Participants will be notified in advance of such revised Purchase Date, and each
Participant will be entitled to complete all or any portion of the funding of
such Participant's Directed Withholding with personal funds. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, either (i) the event
will be deemed to constitute the dissolution or liquidation of the Company and
Participants shall have the rights set forth in the first sentence hereof, or
(ii) this Plan, and each Purchase Right shall be assumed or an equivalent plan
and right shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation.
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<PAGE>
16. AMENDMENT OR TERMINATION. The Board may at any time and for any
reason terminate or amend the Plan, provided, however, that the Plan may not be
amended without the consent (which may take the form of a ratification within 12
months of the effective date) of shareholders in accordance with Section 17 (as
though such Amendment were the adoption of the Plan) to either increase the
number of Shares reserved for issuance under the Plan, materially modify the
requirements for eligibility to participate in the Plan, or make such other
change(s) that requires shareholder approval in order to comply with Rule 16b-3
or any successor rule. Except as specifically provided in the Plan, no such
termination or amendment can reduce such rights as a Participant would have if
the effective date of the termination or amendment were deemed to be a
liquidation or dissolution of the Company, with the resulting rights, duties and
obligations set forth in Section 15(b).
17. SHAREHOLDER APPROVAL. Within 12 months after the effective date of
the Plan, the Company shall obtain the approval of a majority of the votes cast
at a duly held shareholders' meeting at which a quorum representing a majority
of all outstanding voting stock is, either in person, or by proxy, present and,
notwithstanding any other provision hereof to the contrary, in the absence of
such approval, this Plan and any Purchase Rights granted hereunder shall be null
and void.
18. NOTICES. All notices or other communications shall be deemed to have
been duly given (i) if by a Participant to the Administrator, when received in
the required form at the corporate home office of the Company, addressed to
"Administrator, Employee Stock Purchase Plan," and (ii) if by the Administrator
to the Participant, when mailed to the last known address of Participant shown
on the Employer's records.
19. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued unless
such issuance and delivery shall comply with all applicable provisions of law,
domestic or foreign, and the requirements of any stock exchange upon which the
Shares may then be listed, including, in each case the rules and regulations
promulgated thereunder, and shall be further subject to the approval of counsel
for the Company with respect to such compliance, which may include a
representation and warrants from the Participant that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares.
20. TERM OF PLAN. The Plan shall become effective December 1, 1993 and
shall terminate November 30, 1996.
21. MISCELLANEOUS.
(a) EXECUTION OF RECEIPTS AND RELEASES. Any payment or any issuance
or transfer of Shares to any person shall be in full satisfaction of all claims
hereunder against the Plan, and the Administrator may require such person, as a
condition precedent to receiving delivery of Shares, to execute a receipt and
release therefor in such form as it shall determine.
(b) PAYMENT OF EXPENSES. All expenses incident to the administration,
termination, or protection of the Plan, including, but not limited to, legal and
accounting fees, shall be paid by the Company.
(c) RECORDS. Records of the Company as to
any matters relating to this Plan will be conclusive on all persons.
(d) INTERPRETATIONS AND ADJUSTMENTS. To the extent permitted by law,
an interpretation of the Plan and a decision on any matter within the Board's or
Administrator's discretion made in good faith is binding on all persons. A
misstatement or other mistake of fact shall be corrected when it becomes known
and the person responsible shall make such adjustment on account thereof as he
considers equitable and practicable.
(e) NO RIGHTS IMPLIED. Nothing contained in this Plan or any
modification or amendment to the Plan or in the creation of any Account, or the
execution of any subscription agreement, or the issuance of any Shares under the
Plan, shall give any Employee any right to continue employment or any legal or
equitable right
-6-
<PAGE>
against the Company or any officer, director, or Employee of the Company, except
as expressly provided by the Plan.
(f) INFORMATION. The Company shall, upon request or as may be
specifically required hereunder, furnish or cause to be furnished, all of the
information or documentation which is necessary or required by the Board and/or
Administrator to perform its duties and functions under the Plan. The Company's
records as to the current information the Company furnishes to the Board and/or
Administrator shall be conclusive as to all persons.
(g) SEVERABILITY. In the event any provision of the Plan shall be
held to be illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining provisions of the Plan, but shall be fully severable
and the Plan shall be construed and enforced as if the illegal or invalid
provision had never been included herein.
(h) HEADINGS. The titles and headings are included for convenience of
reference only and are not to be considered in construction of the provisions
hereof.
(i) NO LIABILITY FOR GOOD FAITH DETERMINATIONS. Neither the members
of the Board nor the Administrator (nor their respective delegatees) shall be
liable for any act, omission, or determination taken or made in good faith with
respect to the Plan or any right to purchase Shares granted under it, and
members of the Board and the Administrator (and their delegatees) shall be
entitled to indemnification and reimbursement by the Company in respect of any
claim, loss, damage, or expense (including attorneys' fees, the costs of
settling any suit, provided such settlement is approved by independent legal
counsel selected by the Company, and amounts paid in satisfaction of a judgment,
except a judgment based on a finding of bad faith) arising therefrom to the full
extent permitted by law and under any directors and officers liability or
similar insurance coverage that may from time to time be in effect.
IN WITNESS WHEREOF, the undersigned has executed this Plan as of this
_________ day of ___________, 1993 to fully evidence the Company's adoption
thereof effective December 1, 1993.
SPAGHETTI WAREHOUSE, INC.
By
--------------------------------------------
H. G. Carrington, Jr., Senior Vice President
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<PAGE>
EXHIBIT A
---------
SPAGHETTI WAREHOUSE, INC.
EMPLOYEE STOCK PURCHASE PLAN
DIRECTION TO WITHHOLD
1. I, the undersigned, hereby elect to participate in the Spaghetti Warehouse,
Inc. Employee Stock Purchase Plan (the "Plan") for the "Offering Period"
beginning on December 1st and ending on the following November 30th, and
subscribe to purchase Shares of the Stock in accordance with this Direction
to Withhold and the Plan.
2. I hereby authorize payroll deductions on each of my Payroll Dates during
the Offering Period in the amount set forth below [YOU MUST FILL IN ALL OF
BLANKS [1], [2] AND [3]]:
[1] $________________ on each of the [2] ____________ Payroll Dates
during the Offering Period, for a total of [3] $__________________
{Multiply [1] and [2]
NOTE: the amount in [3] above cannot be less than $500, nor more than
25% of your Considered Compensation as determined at the beginning of
the Offering Period.
3. I direct the Administrator to use the amount in my Account on the Purchase
Date to purchase the maximum number of Shares that are available to me
under the terms of the Plan.
4. I understand and agree that my right to participate in the Plan is
governed by the Plan and the rules of the Administrator developed under the
Plan, and that, among other things, I understand and agree:
. That I may not change the amount of my withholding during the Offering
Period.
. That the amount of my withholding will be reduced by the Administrator
if it exceeds 25% of my Considered Compensation, and that in any case
it may not exceed $21,250.
. That the amount of my withholding may be reduced by the Administrator
if appears unlikely that I will need all of the withholding I have
elected in order to purchase the number of Shares that will be
available to me on the Purchase Date, and may also be reduced for
other reasons relating to the continued qualification of the Plan.
. That I may completely discontinue withholding, and receive a refund
---
of all amounts previously withheld from my pay by filing an Election
--------
To Rescind with the Administrator before next November 15.
----------
. That I automatically will be withdrawn from the Plan, and all amounts
previously withheld from my pay refunded to me, if my pay on any
Payroll Date is insufficient to satisfy my Directed Withholding and I
---
fail pay the amount of the insufficiency to the Administrator on or
before my next Payroll Date.
<PAGE>
. That I will automatically be withdrawn from the Plan, and all amounts
previously withheld from my pay refunded to me, if I terminate my
employment with the Company before the last business day in the
following November.
. That if I have not discontinued withholding before November 15 of the
Offering Period, the amounts withheld during Offering Period
automatically will be used to purchase the maximum number of Shares
available to me under the terms of the Plan.
5. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Plan is in all respects subject
---------------
to the terms of the Plan.
6. I hereby agree to be bound by the terms of the Plan. The effectiveness of
this Direction to Withhold is dependent upon my continued eligibility to
participate in the Plan.
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all refunds of my withholding (or Shares if I
die after the last business day in November) due me under the Plan, in
equal amounts if more than one person is named:
NAME(s): (Please print)
-------------------------------------------------------
- --------------------------------- ------------------------------------
Relationship(s) Telephone Number(s)
Name and Address of Participant [Print]: Signature:
- --------------------------
------------------------------
- --------------------------
Date:
- -------------------------- ---------------------
Acknowledgement
The undersigned, acting for the Administrator of the Plan, acknowledge
receipt of the above Direction To Withhold prior to the Enrollment Date of the
Offering Period of reference.
DATE RECEIVED:
-------------------
ADMINISTRATOR
--------------------------------
<PAGE>
EXHIBIT B
---------
SPAGHETTI WAREHOUSE, INC.
EMPLOYEE STOCK PURCHASE PLAN
ELECTION TO RESCIND
1. I, the undersigned, hereby elect to rescind my prior Direction to
Withhold and thereby to terminate my participation in the Spaghetti
Warehouse, Inc. Employee Stock Purchase Plan (the "Plan") for the
current "Offering Period".
2. I direct the Company to pay me, as promptly as possible, the payroll
deductions credited to my account during the current Offering Period.
3. I understand and agree that my termination of participation is
irrevocable, and that under no circumstances will I be entitled to
purchase any portion of the Shares available under the Plan for
purchase during the current Offering Period, although I continue to be
eligible to file a new Direction to Withhold with respect to any
future Offering Period(s) for which I otherwise qualify.
Name and Address of Participant [Print]: Signature:
- --------------------------
------------------------------
- --------------------------
Date:
- -------------------------- ---------------------
Acknowledgement
The undersigned, acting for the Administrator of the Plan, acknowledge
receipt of the above Election To Rescind prior to November 15 of the current
Offering Period.
DATE RECEIVED:
-------------------
ADMINISTRATOR
--------------------------------
