FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended September 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------- -----------------
Commission file number: 1-10291
Spaghetti Warehouse, Inc.
(Exact name of registrant as specified in its charter)
Texas 75-1393176
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
402 West I-30, Garland, Texas 75043
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 972/226-6000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X . No .
----- -----
- 1 -
CORPDAL:92926.1 08099-00002
<PAGE>
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of September 28, 1997: 5,655,494 shares of common stock, par
value $.01.
CORPDAL:92926.1 08099-00002
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPAGHETTI WAREHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS 6/29/97 9/28/97
------ ----------- -----------
(Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,916,983 $ 2,675,547
Accounts receivable 637,803 500,525
Inventories 616,253 565,036
Prepaid expenses 274,111 323,955
Deferred income taxes 469,145 48,564
----------- -----------
Total current assets 3,914,295 4,113,627
----------- -----------
Property and equipment, net 45,732,390 45,596,621
Assets scheduled for divestiture 1,534,714 1,149,188
Trademark and franchise rights, net 2,942,852 2,910,788
Deferred income taxes 3,961,274 4,160,159
Other assets 544,342 548,273
----------- -----------
$58,629,867 $58,478,656
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,478,127 $ 1,970,836
Accounts payable 2,082,150 1,719,977
- 2 -
CORPDAL:92926.1 08099-00002
<PAGE>
Accrued payroll and bonuses 1,673,336 1,269,461
Other accrued liabilities 915,226 998,284
----------- -----------
Total current liabilities 6,148,839 5,958,558
----------- -----------
Long-term debt, less current portion 6,405,226 5,912,517
Deferred compensation 141,901 167,108
Commitments and contingencies - -
Stockholders' equity:
Preferred stock of $1.00 par value;
authorized 1,000,000 shares;
no shares issued - -
Common stock of $.01 par value;
authorized 20,000,000 shares;
issued 6,527,835 shares at
6/29/97 and 9/28/97 65,278 65,278
Additional paid-in capital 36,246,849 36,246,849
Cumulative translation adjustment (611,499) (611,277)
Retained earnings 16,753,859 17,260,209
---------- ----------
52,454,487 52,961,059
Less cost of 872,341 shares at 6/29/97
and 9/28/97 of common
stock held in treasury (6,520,586) (6,520,586)
----------- -----------
45,933,901 46,440,473
=========== ===========
$58,629,867 $58,478,656
=========== ===========
</TABLE>
- 3 -
CORPDAL:92926.1 08099-00002
<PAGE>
<TABLE>
<CAPTION>
SPAGHETTI WAREHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Thirteen-Week
Periods Ended
-----------------------------
9/29/96 9/28/97
----------- -----------
Revenues:
<S> <C> <C>
Restaurant sales $16,578,067 $15,584,155
Franchise 335,022 175,134
Other 143,439 172,178
----------- -----------
Total revenues 17,056,528 15,931,467
----------- -----------
Costs and expenses:
Cost of sales 4,361,770 4,035,882
Operating expenses 9,573,763 8,717,783
General and administrative 1,380,737 1,377,812
Depreciation and amortization 1,035,920 928,708
Impairment of long-lived assets 1,759,526 -
----------- -----------
Total costs and expenses 18,111,716 15,060,185
----------- -----------
Income (loss) from operations (1,055,188) 871,282
Net interest expense 236,764 89,145
----------- -----------
Income (loss) before income tax expense
(benefit) (1,291,952) 782,137
Income tax expense (benefit) (461,681) 275,787
----------- -----------
Net income (loss) $ (830,271) $ 506,350
=========== ===========
Net income (loss) per common and common
equivalent share ($.15) $.09
===== ====
Weighted average common and common
equivalent shares outstanding 5,626,570 5,829,266
=========== ===========
</TABLE>
- 4 -
CORPDAL:92926.1 08099-00002
<PAGE>
<TABLE>
<CAPTION>
SPAGHETTI WAREHOUSE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen-Week
Periods Ended
-----------------------------
9/29/96 9/28/97
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ (830,271) $ 506,350
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization
expense 1,035,920 928,708
Impairment of long-lived assets 1,759,526 -
Loss on disposal of property and
equipment - 4,110
Deferred income taxes (314,502) 221,747
Other, net 19,402 (5,827)
Changes in assets and liabilities:
Accounts receivable (10,138) 137,295
Inventories 25,228 51,217
Prepaid expenses (38,412) (49,844)
Other assets (99,021) (10,122)
Accounts payable (186,322) (362,152)
Accrued payroll and bonuses (278,712) (403,875)
Other accrued liabilities (116,255) 83,058
Accrued restructuring charges (74,271) -
----------- -----------
Net cash provided by operating
activities 892,172 1,100,665
----------- -----------
- 5 -
CORPDAL:92926.1 08099-00002
<PAGE>
Cash flows from investing activities:
Purchase of property and equipment (722,561) (760,401)
Proceeds from sales of property and
equipment 444,133 418,105
----------- -----------
Net cash used in investing
activities (278,428) (342,296)
----------- -----------
Cash flows from financing activities:
Net payments on long-term debt (6,647,520) -
Purchase of treasury shares (4,793) -
----------- -----------
Net cash provided by
financing activities (6,652,313 -
----------- -----------
Effects of exchange rate changes on
cash and cash equivalents 1,845 195
----------- -----------
Net decrease in cash and cash equivalents (6,036,724) 758,564
Cash and cash equivalents at beginning of
period 8,065,364 1,916,983
----------- -----------
Cash and cash equivalents at end of period $ 2,028,640 $ 2,675,547
=========== ===========
Supplemental information:
Interest paid $ 458,780 $ 149,677
=========== ===========
Income taxes paid (net of refunds
collected) $ (155,133) $ 54,091
=========== ===========
</TABLE>
- 6 -
CORPDAL:92926.1 08099-00002
<PAGE>
SPAGHETTI WAREHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
In the opinion of management, the accompanying condensed consolidated
financial statements contain all adjustments necessary for a fair
presentation of the consolidated financial position as of September 28,
1997 and the consolidated results of operations and cash flows for the 13-
week periods ended September 28, 1997 and September 29, 1996. The condensed
consolidated statement of operations for the 13-week period ended September
28, 1997 is not necessarily indicative of the results to be expected for
the full fiscal year.
2. Accounting Policies
-------------------
During the interim periods the Company follows the accounting policies set
forth in its consolidated financial statements in its Annual Report (Form
10-K) (File No.1-10291). Reference should be made to such financial
statements for information on such accounting policies and further
financial details.
3. Impairment of Long-Lived Assets
-------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121 (the Statement) on accounting for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to assets to
be held and used. The Statement also establishes accounting standards for
long-lived assets and certain identifiable intangibles to be disposed of.
The Company adopted the Statement in the first quarter of fiscal 1997.
Adoption of the Statement requires the Company to review its long-lived
assets and certain identifiable intangibles to be held and used for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset or group of assets may not be recoverable. The
Company groups and evaluates its assets for impairment at the individual
restaurant level. The Company considers each restaurant's historical
operating losses a primary indicator of potential impairment. The Company
deems a restaurant's assets to be impaired if a forecast of undiscounted
future cash flows directly related to the assets, including disposal value,
if any, is less than their carrying amount. If a restaurant's assets are
deemed to be impaired, the loss is measured as the amount by which the
carrying amount of the assets exceeds their estimated fair market value.
The Company recorded a pre-tax, non-cash charge of $1,759,526 during the
first quarter of fiscal 1997 as a result of adopting the Statement. This
charge related to the write-down of the Company's Cappellini's restaurant
in Addison, Texas to its estimated fair market value. This restaurant was
subsequently closed in December 1996 due to unfavorable operating results.
- 7 -
CORPDAL:92926.1 08099-00002
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table presents expenses as a percentage of total revenues for
certain selected financial data included in the Condensed Consolidated
Statements of Operations.
<TABLE>
<CAPTION>
Percentage of Total Revenues
Thirteen-Week Periods Ended
----------------------------
9/29/96 9/28/97
------- -------
<S> <C> <C>
Revenues 100.0% 100.0%
----- -----
Costs and expenses:
Cost of sales 25.6 25.3
Operating expenses 56.1 54.7
General and administrative 8.1 8.7
Depreciation and amortization 6.1 5.8
Impairment of long-lived assets 10.3 -
---- -----
Total costs and expenses 106.2 94.5
----- -----
Income (loss) from operations (6.2) 5.5
Net interest expense 1.4 0.6
----- -----
Income (loss) before income tax expense (benefit) 7.6 4.9
Income tax expense (benefit) (2.7) 1.7
----- -----
Net income (loss) (4.9%) 3.2%
==== =====
</TABLE>
Results of Operations
- ---------------------
Revenues
--------
Revenues decreased $1.1 million, or 6.6%, during the quarter ended
September 28, 1997 in comparison to the same quarter in the preceding year. The
reduction of two stores over the last 12 months, a 1.4% decline in same-store
sales (stores open the full quarter in both fiscal years) and a $165,000
decrease in franchise income were responsible for the decline in revenues. The
decline in same-store sales was the result of a 2.9% decrease in customer counts
offset by a 1.6% check average increase. The decrease in franchise income is
attributable to prior year franchise fees relating to the sale of the Company's
previously owned and operated Richmond, Virginia restaurant and an exclusive
territory agreement to the Company's Virginia franchisee.
Management attributes the increase in check averages to new menu items
introduced over the past year, modest price increases and to increased check
averages in the Company's repositioned Spaghetti Warehouse Italian Grill
("Italian Grill") units. First quarter sales in the Company's nine Italian Grill
units, during current year periods operating under the Italian Grill format,
increased 2.9% over comparable periods in the prior year. Same-store sales in
the Company's traditional Spaghetti Warehouse concept declined 2.9% during the
first quarter.
- 8 -
CORPDAL:92926.1 08099-00002
<PAGE>
Costs and Expenses
- ------------------
Cost of Sales
-------------
Cost of sales as a percentage of total revenues were 25.3% for the current
quarter as compared to 25.6% for the same quarter last year. The decrease is due
to the closing of Cappellini's, lower commodity prices and tighter inventory
controls. Cappellini's food costs as a percentage of revenues were higher than
typical Company restaurants.
Operating Expenses
------------------
Operating expenses as a percentage of total revenues were 54.7% for the
current quarter as compared to 56.1% for the same quarter last year. The closure
of Cappellini's and the sale of the Richmond, Virginia location were responsible
for much of this decrease since these units had higher operating expenses as a
percentage of revenues than the remainder of the Company's restaurants.
Furthermore, reduced restaurant labor expenses, payroll taxes and marketing
expenditures also contributed to the current year decline in operating expenses
as a percentage of total revenues.
General and Administrative Expenses (G&A)
-----------------------------------------
G&A as a percentage of total revenues was 8.7% for the current quarter as
compared to 8.1% for the first quarter last year. This increase is attributable
to the fixed nature of certain G&A costs relative to the decline in total
revenues. First quarter G&A expenses actually showed a modest decline in
comparison to the same quarter last year.
Depreciation and Amortization (D&A)
-----------------------------------
D&A as a percentage of total revenues was 5.8% for the current quarter as
compared to 6.1% for the same quarter last year. Elimination of depreciation
expense at the two closed units and certain restaurant assets becoming fully
depreciated contributed to this decline in D&A as a percentage of total
revenues.
Impairment of Long-Lived Assets
-------------------------------
The Company adopted Financial Accounting Standards Board Statement No. 121
during the first quarter of fiscal 1997, resulting in a pre-tax, non-cash
impairment charge of $1,759,526. This charge related to the write-down of the
Company's Cappellini's restaurant in Addison, Texas to its estimated fair market
value. See Note 3 of Notes to Condensed Consolidated Financial Statements for
further information.
- 9 -
CORPDAL:92926.1 08099-00002
<PAGE>
Net Interest Expense
- --------------------
Net interest expense decreased from $236,764 during the first quarter of
fiscal 1997 to $89,145 during the current quarter. This decline is attributable
to decreased average debt outstanding under the Company's credit facilities in
comparison to the same quarter last year.
Income Taxes
- ------------
The Company's effective tax rate in the current quarter was a provision of
35.3% as compared to a benefit of 35.7% in the same quarter last year. The prior
year tax benefit is attributable to pre-tax losses incurred in the first quarter
of fiscal 1997 as a result of adopting FASB Statement No. 121.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital deficit decreased from $2.2 million at June
29, 1997 to $1.8 million on September 28, 1997. The Company is currently
operating with a working capital deficit, which is common in the restaurant
industry since restaurant companies do not normally require significant
investment in either accounts receivable or inventory.
Net cash provided by operating activities was $1.1 million during the
current quarter as compared to $0.9 million during the same quarter last year.
This increase is attributed to the improvement in current year earnings in
comparison to last year.
Long-term debt outstanding on September 28, 1997 consisted of a $7.9
million fixed rate term loan borrowed under the Company's existing bank credit
facility. The Company had an additional $5.0 million available under its bank
revolving credit facility on September 28, 1997.
Capital expenditures were $0.8 million for the quarter ended September 28,
1997 as compared to $0.7 million for the same period last year. Fiscal 1998
first quarter expenditures resulted primarily from the conversion of the
Company's Charlotte, North Carolina restaurant to the Italian Grill format and
normal purchases of replacement restaurant equipment and decor.
The Spaghetti Warehouse Italian Grill concept is an updated version of the
traditional Spaghetti Warehouse and features new decor, an expanded menu and
greater customer value. The menu was broadened to include grilled entrees,
sauteed pastas, new sandwiches, appetizers and pizza. Additionally, traditional
menu items were improved, and selected portion sizes increased to enhance the
price/value relationship offered to customers.
The Company will continue its Italian Grill re-positioning strategy during
the remainder of fiscal 1998. The Company converted its Oklahoma City, Oklahoma
location to the Italian Grill format in October 1997, and plans to convert an
additional four to six restaurants to the new format during the remainder of the
fiscal year.
In addition to Italian Grill conversions, the Company plans to open two to
three new Italian Grill units and to continue to make necessary replacements and
upgrades to existing restaurants and information systems during the remainder of
fiscal 1998. Total planned capital expenditures relating to all projects during
the next 12 months are approximately $5 million. Cash flow from operations,
current cash balances and amounts available under the Company's revolving credit
facility are expected to be sufficient to fund planned capital expenditures,
- 10 -
CORPDAL:92926.1 08099-00002
<PAGE>
payment of required term loan maturities and possible further repurchases of
Company stock for the next 12 months.
Forward-Looking Information
- ---------------------------
Statements contained in this Form 10-Q that are not historical facts,
including, but not limited to, statements found in this Item 2, Management's
Discussion and Analysis of Financial Condition and Results of Operations, are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 that involve a number of risks
and uncertainties. The actual results of the future events described in such
forward-looking statements in this Form 10-Q could differ materially from those
stated in such forward-looking statements. The following factors, among others,
could cause actual results to differ materially: adverse retail industry
conditions, industry competition and other competitive factors, government
regulation and possible future litigation, seasonality of business, as well as
the risks and uncertainties discussed in this Form 10-Q.
- 11 -
CORPDAL:92926.1 08099-00002
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on October 28, 1997. At
such meeting the shareholders elected directors of the Company as follows:
<TABLE>
<CAPTION>
Broker
Name of Nominee For Withheld Non-Votes
--------------- --- -------- ---------
<S> <C> <C> <C>
Phillip Ratner 4,523,195 46,587 0
H.G. Carrington, Jr. 4,523,195 46,587 0
C. Cleave Buchanan, Jr. 4,454,691 115,091 0
Frank Cuellar, Jr. 4,466,713 103,069 0
John T. Ellis 4,450,929 118,853 0
Robert R. Hawk 4,460,213 109,569 0
Peter Hnatiw 4,514,911 54,871 0
James F. Moore 4,470,475 99,307 0
Cynthia I. Pharr 4,472,075 97,707 0
William B. Rea, Jr. 4,453,889 115,893 0
</TABLE>
ITEM 6. EXHIBITS
Exhibit
Number Document Description
------- --------------------
10.1 Spaghetti Warehouse, Inc. Deferred Compensation Plan for
Key Employees, as Amended (Compensatory Benefit Plan)
27.1 Financial Data Schedule
- 12 -
CORPDAL:92926.1 08099-00002
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Spaghetti Warehouse, Inc.
Dated: November 6, 1997 By: /s/Phillip Ratner
---------------- -----------------
Phillip Ratner
Chairman and
Chief Executive Officer
Dated: November 6, 1997 By: /s/ H. G. Carrington, Jr.
---------------- -------------------------
H.G. Carrington, Jr.
Chief Financial Officer
- 13 -
CORPDAL:92926.1 08099-00002
EXHIBIT 10.1
CORPDAL:92926.1 08099-00002
<PAGE>
SPAGHETTI WAREHOUSE, INC.
DEFERRED COMPENSATION PLAN FOR KEY EMPLOYEES
This Agreement, entered into effective October 25, 1994, establishes the
Spaghetti Warehouse, Inc. Deferred Compensation Plan for Key Employees
(hereafter "Plan"), an unfunded, nonqualified, deferred compensation plan,
designed primarily to provide additional benefits to Eligible Employees (as
defined below) in order to attract and retain such employees.
SECTION ONE DEFINITIONS
- ----------- -----------
"Account" shall mean a Participant's Interest Account, and CSU Account,
individually and collectively, as the context requires, provided that the use of
the term Account hereunder shall not be construed as entitling such Participant
to an Accrued Benefit based on more than one of his two Accounts at the time of
reference and, without limitation, when it is necessary to distinguish among the
two types of his Accounts, reference shall be made to the specific type of
Account.
"Accrued Benefit" shall mean the Value of whichever of a Participant's
Interest Account or CSU Account has the greatest Value as of the Valuation Date
coincident with or next preceding the date of reference.
"Administrator" shall mean the person(s) designated to administer the Plan
pursuant to Section Two.
"Beneficiary" shall mean the person(s), entity or entities described in
Section Eleven.
"Change in Control" shall be deemed to occur on such date as any one person
(or group of persons which are acting in concert) shall own (directly or
indirectly) or control (directly or indirectly) 51% or more of the issued and
outstanding Stock of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Share Units" or "CSU" shall mean the hypothetical Shares credited
to each Participant's CSU Account at the time of reference.
"Company" shall mean Spaghetti Warehouse, Inc., a Texas corporation.
"Compensation" shall mean the amounts which would (but for the Pre-Tax
Contributions hereunder) be paid to the Participant by his Employer with respect
to the Payroll Period of reference (such payment customarily being paid on the
Friday after such Payroll Period), and from which the Pre-Tax Contributions will
be deducted.
CORPDAL:92926.1 08099-00002
<PAGE>
"Considered Compensation" shall mean the Quotient of a Participant's
annualized basic rate of salary (i.e. without limitation, excluding all special
payments including bonuses and without taking into account any actual or
potential reductions in such salary for any purpose, including without
limitation, any Pre-Tax Contributions hereunder) on the first day of the Plan
Year of reference, divided by twenty-six (26).
"CSU Account" shall mean the Account, established in the name of each
Participant on the Employer's books, which is credited with the Shares
attributable to such Participant's Pre-Tax Contributions, and reinvested
dividends, and debited with distributions, as provided herein.
"Declaration of Hardship" shall mean the written request, and sworn
declaration, filed by a Participant with the Administrator setting forth the
basis for such Participant's receipt of a Hardship Distribution.
"Deemed Dividends" shall mean, with respect to each Participant's CSU
Account, the product of (a) each cash dividend declared with respect to a Share,
multiplied by (b) the number of CSUs in such Participant's CSU Account as of the
Valuation Date occurring during the Payroll Period in which the dividend is
declared.
"Designated Subsidiaries" shall mean the Subsidiaries that have been
designated by the Governing Authority from time to time in its sole discretion
as eligible to adopt this Plan for the benefit of their Eligible Employees.
"Earnings" shall mean, and shall be credited to each Interest Account on
each Valuation Date occurring during the Plan Year of reference, an amount equal
to the product of (i) the Value of a Participant's Interest Account as of the
immediately preceding Valuation Date, and (ii) the quotient of (x) the one (1)
year London Interbank Offered Rate ("LIBOR") as reported in the Wall Street
Journal as of the first business day of the Plan Year during which occurs such
Valuation Date plus one percent (1%), divided by (y) twenty-six (26).
"Effective Date" shall mean January 1, 1995.
"Eligible Employee" shall mean an Employee who is either (a) a member of
management of the Employer or is a highly compensated employee of the Employer,
or (b) an officer of the Employer, and, is designated (in its sole discretion)
by the Administrator, in writing, as an Eligible Employee.
"Employee" shall mean an employee of the Employer as determined under the
books and records of the Employer.
"Employer" shall mean, collectively, the Company and each Designated
Subsidiary.
"Enrollment Form" shall mean a written agreement between the Company and
the Participant in which the Participant agrees to a reduction of his
Compensation, with such amounts to be credited to his Interest Account. The
Enrollment Form shall be in a form acceptable to the Administrator and shall be
entered into at least 30 days prior to the Entry Date to which it applies, and
shall thereafter remain in effect until changed in the manner provided herein.
2
CORPDAL:92926.1 08099-00002
<PAGE>
"Entry Date" shall mean the first day of each Quarter.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Fair Market Value" of a Share on the Valuation Date of reference 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 bid and 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 Governing Authority.
"Governing Authority" shall mean the Board of Directors of the Company.
"Hardship" shall mean an unforeseeable emergency that would result in
severe financial hardship to the Participant, if early withdrawal were not
permitted, and which results from (i) the purchase of a primary residence, (ii)
a sudden and unexpected illness or accident, (iii) loss of property (including
casualty loss, foreclosure of primary residence, and eviction from primary
residence), or (iv) other extraordinary events beyond the Participant's control.
"Hardship Withdrawal" shall mean the withdrawal made by reason of a
Hardship in accordance with the provisions of Section Ten.
"Interest Account" shall mean the Account, established in the name of each
Participant on the Employer's books, which is credited with Pre-Tax
Contributions and Earnings, and debited with distributions, all as provided
herein.
"Participant" shall mean each person who has an Accrued Benefit at the time
of reference.
"Payroll Period" shall mean each of the 26 two week periods during a Plan
Year with respect to which Participants are paid Compensation.
"Plan" shall mean this Spaghetti Warehouse, Inc. Deferred Compensation Plan
for Key Employees, as set forth in this document and subsequent amendments.
"Plan Year" shall mean the Company's fiscal year.
"Pre-Tax Contribution" shall mean the reductions in a Participant's
Compensation, and the crediting of such amounts hereunder.
3
CORPDAL:92926.1 08099-00002
<PAGE>
"Quarter" shall mean each of the fiscal quarters occurring during a Plan
Year.
"Separation" shall mean a person's ceasing to be an Eligible Employee by
reason of a termination of employment with the Employer for any reason
(including death or disability).
"Shares" shall mean shares of Stock.
"Stock" shall mean the common stock, $0.01 par value per share, of the
Company.
"Value" shall mean the value of an Account, determined as provided
hereunder, as reflected on the properly kept books of the Employer at the time
of reference.
"Valuation Date" shall mean the first Friday of each Payroll Period.
SECTION TWO ADMINISTRATION
- ----------- --------------
(a) Employer Duties. The Employer shall, upon request or as may be
specifically required under the Plan, furnish or cause to be furnished all of
the information or documentation in its possession or control which is necessary
or required by the Administrator to perform its duties and functions under the
Plan.
(b) Governing Authority Duties. The Governing Authority shall, upon request
by the Administrator or as may be specifically required under the Plan, furnish
or cause to be furnished all of the information or documentation in its
possession or control which is necessary or required by the Administrator to
perform its duties and functions under the Plan.
(c) Appointment of Administrator. The Governing Authority may appoint in
writing one or more persons to serve as Administrator.
Any Administrator appointed hereunder who shall be an Employee shall serve
without compensation; and such person shall automatically cease to be an
Administrator upon his or her termination of employment by the Employer. An
Administrator may resign at any time by giving thirty (30) days' prior written
notice to the Employer's Governing Authority. The Employer may remove an
Administrator at any time by written notice, and may appoint a successor
Administrator.
If at any time there shall be two (2) or more persons acting as
Administrator, such persons shall conduct the business of the Administrator by
meetings, held from time to time at their discretion, and the actions of the
Administrator shall be determined by majority vote, which may be made by
telephone, wire, cable or letter; and the Administrator may designate, in
writing, one (l) or more of its members who shall have authority to sign or
certify that any action taken by the Administrator represents the will of, and
is binding on, the Administrator.
4
CORPDAL:92926.1 08099-00002
<PAGE>
The Administrator shall acknowledge the assumption of his or her duties
hereunder in writing, or shall endorse a copy of this Plan.
In the event the Administrator has not been effectively appointed hereunder
at the time of reference, the Company shall act as the Administrator.
(d) Duties of Administrator. The Administrator shall be responsible for
establishing and carrying out the objectives of the Plan, in accordance with its
terms, for the exclusive benefit of its Participants.
(e) Powers of Administrator. The Administrator shall have sole and
exclusive authority and responsibility for administering, construing and
interpreting the Plan. The Administrator shall have all powers and discretion as
may be necessary to discharge its duties and responsibilities under this Plan,
including, but not by way of limitation, the power (i) to interpret or construe
the Plan, (ii) to make rules and regulations for the administration of the Plan,
(iii) to determine all questions of eligibility, status and other rights of
Participants, Beneficiaries and other persons, (iv) to determine the amount,
manner and time of the payment of any benefits under this Plan, and (v) to
resolve any dispute which may arise under this Plan involving Participants or
Beneficiaries. The Administrator may engage agents to assist it and may engage
legal counsel, who may be counsel for the Employer. The Administrator shall not
be responsible for any action taken or not taken on the advice of such counsel.
Any action on matters within the discretion of the Administrator shall be
final and conclusive as to all persons affected. The Administrator shall at all
times endeavor to exercise its discretion in a non-discriminatory manner.
No member of the Administrator shall vote or act upon any matter involving
his own rights, benefits or other participation under this Plan, and in such
case, the remaining member or members of the Administrator shall appoint a
member pro-tem to act in the place of the interested member; provided, however,
that if all members of the Administrator shall be disqualified under this
paragraph with regard to one or more matters, the Chief Financial Officer of the
Company shall appoint a qualifying person(s) to be the Administrator with regard
to such matters.
(f) Bond and Expenses of Administrator. The Administrator shall serve
without bond unless state or federal statutes require otherwise, in which event
the Employer shall pay the premium. The expenses of the Administrator shall be
paid by the Employer. Such expenses shall include all expenses incident to the
functioning of the Administrator, including, but not by way of limitation, fees
of accountants, counsel and other specialists and other costs of administering
the Plan.
(g) Administrator Records and Reports. The Administrator shall maintain
adequate records of all of its proceedings and acts and all such books of
account, records, and other data as may be necessary for administration of the
Plan. The Administrator shall make available to each Participant upon his
request such of the Plan's records as pertain to him for examination at
reasonable times during normal business hours.
5
CORPDAL:92926.1 08099-00002
<PAGE>
(h) Reliance on Tables. In administering the Plan, the Administrator shall
be entitled to the extent permitted by law to rely conclusively on all tables,
valuations, certificates, opinions and reports which are furnished by
accountants, legal counsel or other experts employed or engaged by the
Administrator.
SECTION THREE PARTICIPANTS
- ------------- ------------
(a) Eligibility. Only an Employee designated in writing as an Eligible
Employee on a list maintained by the Administrator (and communicated in writing
to the Employee in question) can become a Participant in this Plan.
(b) Participation. An Eligible Employee shall become a Participant
hereunder by completing an Enrollment Form and filing it with the Administrator.
(c) Agreement to Be Bound. By becoming a Participant, each Eligible
Employee shall for all purposes be deemed conclusively to have assented to the
provisions of this Plan and to all amendments to this Plan.
SECTION FOUR CONTRIBUTIONS
- ------------ -------------
(a) Election. An Eligible Employee, or Participant, may elect to make
Pre-Tax Contributions hereunder by filing an Enrollment Form with the
Administrator at least 30 days (or the at any time prior to the Entry Date if
employed less than 45 days prior to the Entry Date of reference) prior to the
Entry Date after which such Pre-Tax Contributions will be deducted from his
Compensation, and such election will remain in full effect until a new
Enrollment Form is properly filed with the Administrator. Only the last
Enrollment Form delivered to the Administrator on or before the required
delivery date will be considered the Enrollment Form of the Participant with
respect such Entry Date for purposes of the preceding sentence.
(b) Amount of Pre-Tax Contribution Elected. The Enrollment Form shall allow
a Participant to elect to reduce his Compensation (and make a Pre-Tax
Contribution) by an amount equal to the product of (x) any whole percentage
which does not exceed twenty-five percent (25%), and (y) his Considered
Compensation.
(c) Furnishing of Enrollment Forms. The Administrator automatically shall
provide an Enrollment Form to each Employee within a reasonable time after
becoming an Eligible Employee, and also shall provide an Enrollment Form to each
6
CORPDAL:92926.1 08099-00002
<PAGE>
Participant within a reasonable time after receiving a request for such
Enrollment Form.
SECTION FIVE ACCOUNTS
- ------------ --------
The Employer shall maintain an Interest Account and a CSU Account in the
name of each Participant, and to which shall be debited and credited the
following amounts and CSUs:
(a) Pre-Tax Contributions Credits to Interest Account. The Administrator
shall credit each Participant's Interest Account as of each Valuation Date with
a dollar amount equal to the Participant's Pre-Tax Contributions for the
immediately preceding Payroll Period.
(b) CSU Credits to CSU Account. The Administrator shall credit each
Participant's CSU Account as of each Valuation Date with that number of CSUs
which are equal to the quotient of (i) divided by (ii), where (i) is the amount
of the Participant's Pre-Tax Contributions with respect to, and any Deemed
Dividends credited during, the immediately preceding Payroll Period, and (ii) is
the Fair Market Value of a Share on such Valuation Date.
(c) Earnings Credited to Interest Account. The Administrator shall credit
each Participant's Interest Account as of each Valuation Date with its Earnings.
(d) Quarterly Statements. Within 30 days after the end of each Quarter, the
Administrator shall furnish each Participant with a statement of his Account
showing the Value of his Account as of the last Valuation Date occurring during
such Quarter.
SECTION SIX VESTING
- ----------- -------
A Participant shall always be one hundred percent (100%) vested in his
Accrued Benefit.
SECTION SEVEN PAYMENT
- ------------- -------
The Participant's Accrued Benefit shall be paid to the Participant by the
Employer within a reasonable time (not to exceed 30 days) after the first
Valuation Date following his Separation, and such distribution shall be in
Shares or in cash determined as follows:
(a) CSU Account Has Greater Value. In the event the Participant's CSU
Account has a greater Value than his Interest Account on the Valuation Date of
reference, then the distribution shall consist of the number of Shares equal to
the number of CSUs credited to his CSU Account on such Valuation Date.
(b) Interest Account Has Greater Value. In the event the Participant's
Interest Account has a greater Value than his CSU Account on the Valuation Date
of reference, then the distribution shall be in cash in an amount equal to the
Value of his Interest Account.
7
CORPDAL:92926.1 08099-00002
<PAGE>
SECTION EIGHT SOURCE OF PAYMENT
- ------------- -----------------
In the event a Participant's Accrued Benefit (including, without
limitation, a Hardship Withdrawal) shall be paid in the form of Shares, such
payment will be made using Shares from the Company's authorized but unissued, or
Treasury, Shares; provided, without limitation, that no special or separate fund
or segregation of Shares shall be made to assure such payments in such a way as
to make this Plan a "funded" plan for purposes of ERISA or the Code; provided,
however, that the Employer may, in its sole discretion, establish a bookkeeping
reserve to meet its obligations under the Plan.
Nothing contained in the Plan shall create or be construed to create a
trust of any kind, and nothing contained in the Plan nor any action taken
pursuant to the provisions of the Plan shall create or be construed to create a
fiduciary relationship between the Employer and a Participant, Beneficiary,
employee or other person. To the extent that any person acquires a right to
receive payments from the Employer under the Plan, such right shall be no
greater than the right of any unsecured general creditor of the Employer.
For purposes of the Code, the Employer intends this Plan to be an unfunded,
unsecured promise on the part of the Employer to pay in the future. For purposes
of ERISA, the Employer intends the Plan to be an unfunded plan primarily for the
benefit of a select group of management or highly compensated employees of the
Employer for the purpose of qualifying the Plan for the "top hat" plan exception
under sections 201(2), 301(a)(3) and 401(a)(1) of ERISA.
SECTION NINE PROVISIONS RELATING TO THE CSUs CREDITED TO THE CSU ACCOUNT
- ------------ -----------------------------------------------------------
(a) Adjustments Upon Changes in Capitalization. If a stock dividend, stock
split, spinoff, recapitalization, merger, consolidation, exchange of shares or
the like, occurs during any Payroll Period, as a result of which shares of any
class shall be issued in respect to Shares, or such Shares shall be changed into
a different number of the same or another class or classes, the number of CSUs
credited to the CSU Accounts of Participants and the calculation of the Fair
Market Value of such CSUs shall be appropriately adjusted by the Administrator
in a manner that in its sole discretion will make the CSUs have a Fair Market
Value after such event which is equal to the Fair Market Value of the Shares
immediately prior to such event.
(b) 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 warranty from the Participant that the Shares are being
acquired only for investment for his own account and without any present
intention to publicly sell or distribute such Shares without an exemption from
or compliance with applicable securities laws.
8
CORPDAL:92926.1 08099-00002
<PAGE>
(c) Voting and Registration. A Participant will have no beneficial or
record interest or voting right in or other privileges relating to Shares as a
result of the crediting of CSUs to his CSU Account, and will obtain such rights
and privileges only upon the issuance of a certificate representing the
equivalent Shares.
(d) 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.
SECTION TEN HARDSHIP WITHDRAWALS
- ----------- --------------------
(a) Amount of Hardship Withdrawal. A Participant who has a Hardship, as
established by the filing of a written Declaration of Hardship with the
Administrator, may make a Hardship Withdrawal of all, but not less than all, of
his Accrued Benefit.
(b) Penalty Limitation on Pre-Tax Contributions. In the event of a Hardship
Withdrawal, the withdrawing Participant's Pre-Tax Contributions automatically
will be discontinued effective with the Payroll Period immediately following the
filing of the Declaration of Hardship, and such Participant shall not be
entitled to recommence Pre-Tax Contributions until the first Entry Date
following the first anniversary of the filing of the Declaration of Hardship.
SECTION ELEVEN DESIGNATION OF BENEFICIARIES
- -------------- ----------------------------
(a) Designation by Participant. A Participant's written designation of one
or more persons or entities as his Beneficiary shall operate to designate the
Participant's Beneficiary under this Plan. The Participant shall file with the
Administrator a copy of his Beneficiary designation under the Plan on a form
supplied to the Participant by the Administrator. The last such designation
received by the Administrator shall be controlling, and no designation, or
change or revocation of a designation shall be effective unless received by the
Administrator prior to the Participant's death.
(b) Lack of Designation. If no Beneficiary designation is in effect at the
time of a Participant's death, if no designated Beneficiary survives the
Participant or if the otherwise applicable Beneficiary designation conflicts
with applicable law, the Participant's estate shall be the Beneficiary. The
Administrator may direct the Employer to retain any unpaid Accrued Benefit,
without liability for any interest, until all rights to the unpaid Accrued
Benefit are determined. Alternatively, the Administrator may direct the Employer
to pay such Accrued Benefit into any court of appropriate jurisdiction. Any such
payment shall completely discharge the Employer of any liability under the Plan.
9
CORPDAL:92926.1 08099-00002
<PAGE>
SECTION TWELVE AMENDMENT, TERMINATION AND CHANGE IN CONTROL
- -------------- --------------------------------------------
(a) Amendment or Termination. The Plan may without cause and without prior
notice be amended, suspended or terminated, in whole or in part, by the
Governing Authority, but no such action shall retroactively impair the rights of
any person to payment of their Accrued Benefit as determined immediately prior
to the later of the date of adoption, or the effective date, of such amendment,
suspension, or termination, provided further that the Plan may be amended by the
Administrator with respect to any matters which the Administrator reasonably
concludes involve primarily clarification of one or more provisions the Plan, or
relate primarily to Plan administration.
(b) Termination, Suspension or Change in Control. Without limiting the
generality of any other provision hereof, if either (i) the Plan is suspended
for more than six months, (ii) benefits under the Plan are substantially reduced
prospectively, or the Plan is terminated, or (iii) the Company experiences a
Change in Control, each Participant shall have the right, for a period
commencing on (x) the occurrence of any actions or occurrences described in (i)
through (iii), and ending on (y) the determined day following written receipt of
notice of the actions or occurrences described in (i) through (iii), to elect,
in a writing filed with the Administrator, to have the full amount of his
Accrued Benefit distributed to him in the same manner as it would be distributed
had he Separated on the date he files such election with the Administrator.
SECTION THIRTEEN GENERAL PROVISIONS
- ---------------- ------------------
(a) No Assignment. The right of any Participant or other person to the
payment of the Accrued Benefit shall not be assigned, transferred, pledged or
encumbered, either voluntarily or by operation of law, except as provided in
Section Eleven with respect to designations of Beneficiaries. If any person
shall attempt to assign, transfer, pledge or encumber any portion of his Accrued
Benefit, or if by reason of his bankruptcy or other event happening at any time
any such payment would be made subject to his debts or liabilities or would
otherwise devolve upon anyone else and not be enjoyed by him or his Beneficiary,
the Administrator may, in its sole discretion, terminate such person's interest
in any such payment and direct that the same be held and applied to or for the
benefit of such person, his spouse, children or other dependents, or any other
persons deemed to be the natural objects of his bounty, or any of them, in such
manner as the Administrator may deem proper.
(b) Incapacity. If the Administrator shall find that any person is unable
to care for his affairs because of illness or accident or is a minor, any
payment due (unless a prior claim for such payment shall have been made by a
10
CORPDAL:92926.1 08099-00002
<PAGE>
duly appointed guardian, committee or other legal representative) may be paid to
his spouse, a child, a parent, or a brother or sister, or any other person
deemed by the Administrator, in its sole discretion, to have incurred expenses
for such person otherwise entitled to payment, in such manner and proportions as
the Administrator may determine. Any such payment shall be a complete discharge
of the liabilities of the Employer under the Plan as to the amount paid.
(c) Information Required. Each Participant shall file with the
Administrator such pertinent information concerning himself and his Beneficiary
as the Administrator may specify, and no Participant or Beneficiary or other
person shall have any rights or be entitled to any benefits under the Plan
unless such information has been filed by, or with respect to, him.
(d) Election by Participant. All elections, designations, requests,
notices, instructions and other communications from a Participant, Beneficiary
or other person to the Administrator required or permitted under the Plan shall
be in such form as is prescribed from time to time by the Administrator, shall
be mailed by first-class mail or delivered to such location as shall be
specified by the Administrator and shall be deemed to have been given and
delivered only upon actual receipt by the Administrator at such location.
(e) Notices by Administrator. All notices, statements, reports and other
communications from the Administrator to any Employee, Eligible Employee,
Participant, Beneficiary or other person required or permitted under the Plan
shall be deemed to have been duly given when delivered to, or when mailed
first-class mail, postage prepaid and addressed to, such Employee, Eligible
Employee, Participant, Beneficiary or other person at his address last appearing
on the records of the Employer.
(f) No Employment Rights. Neither the Plan nor any action taken under the
Plan shall be construed as giving to any person the right to be retained in the
employ of the Employer or as affecting the right of the Employer to dismiss any
employee at any time, with or without cause.
(g) Withholding of Taxes. The Employer shall deduct (i) from the
Participant's nondeferred Compensation any amount required to be paid by the
Participant, as of the effective date of reducing his Compensation hereunder, as
a Federal or state tax; and (ii) from the Shares or cash distributed hereunder a
number of Shares or cash having a Fair Market Value (as determined hereunder) on
such distribution date equal to any amounts required to be paid or withheld by
the Employer or Administrator with respect to Federal or state taxes which has
not been reimbursed to the Employer or Administrator in cash by the Participant
on or before the date of distribution. By his participation in the Plan, each
Participant agrees to all such deductions.
(h) Waivers. Any waiver of any right granted pursuant to this Plan shall
not be valid unless the same is in writing and signed by the party waiving such
right. Any such waiver shall not be deemed to be a waiver of any other rights.
11
CORPDAL:92926.1 08099-00002
<PAGE>
(i) Benefit. This Plan and the rights and obligations under this Plan shall
be binding upon all parties and inure to the benefit of only the Participants,
Beneficiaries and their respective legal representatives.
(j) 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.
(k) Records. Records of the Company as to any matters relating to this Plan
will be conclusive on all persons.
(l) Interpretations and Adjustments. To the extent permitted by law, an
interpretation of the Plan and a decision on any matter within the Governing
Authority'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.
(m) No Rights Implied. All payroll deductions received or held by the
Employer as a result of participation in the Plan may be used by the Employer
for any corporate purpose, and the Employer shall not be obligated to segregate
such payroll deductions. Nothing contained in this Plan or any modification or
amendment to the Plan or in the creation of any Account, or the issuance of any
Shares under the Plan, shall give any Employee any right to continue employment
or any legal or equitable right against the Company or any officer, director, or
Employee of the Company, except as expressly provided by the Plan.
(n) 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 Governing Authority 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 Governing
Authority and/or Administrator shall be conclusive as to all persons.
(o) No Liability for Good Faith Determinations. Neither the members of the
Governing Authority nor the Administrator (nor their respective delegatee) shall
be liable for any act, omission, or determination taken or made with respect to
the Plan which is not judicially determined to be due to willful misconduct, and
members of the Governing Authority and the Administrator (and their delegatee)
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 willful misconduct) 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.
(p) Severability. In case any one or more of the provisions contained in
this Plan shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions in this Plan
shall not in any way be affected or impaired.
12
CORPDAL:92926.1 08099-00002
<PAGE>
(q) Captions and Gender. The captions preceding the Sections and
subsections of this Plan have been inserted solely as a matter of convenience
and in no way define or limit the scope or intent of any provisions of this
Plan. Where the context admits or requires, words used in the masculine gender
shall be construed to include the feminine and the neuter also, the plural shall
include the singular, and the singular shall include the plural.
(r) Choice of Law. The Plan and all rights under this Plan shall be
governed by and construed IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
except to the extent preempted by ERISA.
IN WITNESS WHEREOF, the Employer has executed this Plan as of this 25th day
of October, 1994.
SPAGHETTI WAREHOUSE, INC.
By: /s/H.G. Carrington, Jr.
---------------------------
Its: Senior Vice President
---------------------
ACKNOWLEDGEMENT
The undersigned hereby agrees to serve as Administrator of this Plan.
Dated as of this 25th day of October, 1994.
/s/Robert E. Bodnar
-----------------------------------------
Director - Budgeting & Financial Planning
-----------------------------------------
-----------------------------------------
13
CORPDAL:92926.1 08099-00002
<PAGE>
FIRST AMENDMENT
TO THE
SPAGHETTI WAREHOUSE, INC.
DEFERRED COMPENSATION PLAN FOR KEY EMPLOYEES
This First Amendment to the Spaghetti Warehouse, Inc. Deferred Compensation
Plan For Key Employees ("Plan") made and entered into effective as of the 30th
Day of December 1996.
W I T N E S S E T H:
WHEREAS, Spaghetti Warehouse, Inc. ("Company") established the Plan
effective October 25, 1994; and
WHEREAS, the Board of Directors ("Governing Authority") has the right under
Section Twelve (a) to amend the Plan at any time with respect to substantive
matters; and
WHEREAS, the Governing Authority has authorized the modification of the
definition of "Earnings" as set forth in Section I of the Plan; and
WHEREAS, the Governing Authority has authorized the proper officers of the
Company to sign this Second Amendment.
NOW THEREFORE, The Plan Is Hereby Amended As Follows:
I. Section I is amended effective January 1, 1997 by deleting the
definition of Earnings, and the following substituted therefore:
"Earnings" shall mean, and shall be credited to each Interest Account on
each Valuation Date occurring during the Plan Year of reference, an amount
equal to the product of (i) the Value of a Participant's Interest Account
as of the immediately preceding Valuation Date, and (ii) the quotient of
(x) (a) the one (1) year London Interbank Offered Rate ("LIBOR") as
reported in the Wall Street Journal as of the first business day of the
Plan Year during which occurs such Valuation Date ("First Business Day")
plus a spread equal to the Company's LIBOR based borrowing spread in effect
as of the First Business Day, less one-half percent, or (x) (b) the Prime
Rate as published in the Wall Street Journal as of the First Business Day
less one-half percent, divided by (y) twenty six (26), whichever is less.
IN WITNESS WHEREOF, the Employer has executed this First Amendment to the
Plan as of this 28 day of January, 1997.
SPAGHETTI WAREHOUSE, INC.
By: /s/H.G. Carrington, Jr.
--------------------------------
Title: Executive Vice President
CORPDAL:92926.1 08099-00002
<PAGE>
SECOND AMENDMENT
TO THE
SPAGHETTI WAREHOUSE, INC.
DEFERRED COMPENSATION PLAN FOR KEY EMPLOYEES
This Second Amendment to the Spaghetti Warehouse, Inc. Deferred
Compensation Plan For Key Employees ("Plan") made and entered into effective as
of the 30th day of December 1996.
W I T N E S S E T H:
WHEREAS, Spaghetti Warehouse, Inc. ("Company") established the Plan
effective October 25, 1994; and
WHEREAS, the Board of Directors ("Governing Authority") has the right under
Section Twelve (a) to amend the Plan at any time with respect to substantive
matters; and
WHEREAS, the Governing Authority has authorized the modification of the
distribution provisions to allow participants the opportunity to receive
installment payments of the amount deferred; and
WHEREAS, the Governing Authority has authorized the proper officers of the
Company to sign this First Amendment.
NOW THEREFORE, The Plan Is Hereby Amended As Follows:
I. Article I is amended effective January 1, 1997 by adding thereto the
following:
"Initial Deferral Election" shall mean the irrevocable election of the
Participant, filed with the Administrator at least 30 days prior to
the date of his Separation, to receive the payment of his Accrued
Benefit 90 days after the Valuation Date following his Separation."
"Installment Election" shall mean the irrevocable election of a
Participant who has timely filed the Initial Deferral Election, filed
with the Administrator not later than 30 days after Separation, to
receive the payment of his Accrued Benefit in a lump sum, or in equal
quarterly, semiannual, or annual, installments (as further described
in Section Seven (b)) as of the corresponding Valuation Date(s), over
the period, not to exceed Five (5) years, selected by the
Participant."
CORPDAL:92926.1 08099-00002
<PAGE>
II. Section Seven shall be deleted in its entirety, and the following
substituted therefore:
"SECTION SEVEN PAYMENT
(a) Immediate Lump Sum Payment. Except as provided under (b) of
this Section Seven, the Participant's Accrued Benefit shall be paid to
the Participant by the Employer within a reasonable time (not to
exceed 30 days) after the first Valuation Date following his
Separation, and such distribution shall be in Shares or in cash
determined as follows:
(1) CSU Account Has Greater Value. In the event the
Participant's CSU Account has a greater Value than his Interest
Account on the Valuation Date of reference, then the distribution
shall consist of the number of Shares equal to the number of CSUs
credited to his CSU Account on such Valuation Date.
(2) Interest Account Has Greater Value. In the event the
Participant's Interest Account has a greater Value than his CSU
Account on the Valuation Date of reference, then the distribution
shall be in cash in an amount equal to the Value of his Interest
Account.
(b) Installment Payments. Where a Participant has filed a timely
Initial Deferral Election, he shall be entitled to file an Installment
Election at any time prior to the 30th day following his Separation
designating the date(s) of distribution, and such distribution(s)
shall be made in the manner selected by the Participant, in Shares or
in cash, determined as follows:
(1) Date of Actual Distribution(s). The distribution(s)
shall be made by the Employer as soon as reasonably possible
following the Valuation Date as of which the distribution is
required to be made.
(2) Amount of Installment Payment(s). The amount which the
Participant shall receive on each of the payment dates described
in (1) shall be equal to the greater of:
(x) CSU Account Has Greater Value. In the event the
Participant's CSU Account has a greater Adjusted Value than
his Interest Account on the Valuation Date of reference,
then the distribution shall consist of the product of (i)
the number of CSUs credited to his CSU Account on such
Valuation Date multiplied by (ii) the Distribution Factor
for the distribution of reference.
CORPDAL:92926.1 08099-00002
<PAGE>
(y) Interest Account Has Greater Value. In the event
the Participant's Interest Account has a greater Adjusted
Value than his CSU Account on the Valuation Date of
reference, then the distribution shall be in cash in an
amount equal to the product of (i) the Adjusted Value of his
Interest Account, multiplied by (ii) the Distribution Factor
for the distribution of reference
"Adjusted Value" relates to the calculation of the Value of each
Account on each date of distribution under (b)(1) above, and shall be
calculated in the manner otherwise provided hereunder except, as of
the date of each distribution, such Accounts shall be reduced:
(i) in the case of the CSU Account, by the number of CSUs (i.e.
Shares) equal to the product of (w) the CSUs credited to
such CSU Account on such Valuation Date, multiplied by (x)
the Distribution Factor for such date of distribution; and
(ii) in the case of the Interest Account, by an amount equal to
the product of (y) the Value of the Interest Account on such
Valuation Date, multiplied by (z) the Distribution Factor
for such date of distribution.
"Distribution Factor" shall mean a fraction whose numerator is 1,
and whose denominator is (i) the number of payments elected by the
Participant on his Installment Election form, less (ii) the number of
payments which have previously been made to Participant.
Notwithstanding any other provision hereof, in the event of the death
of the Participant prior to the completion of all installment
payments, an immediate lump sum distribution of the Adjusted Value of
his Accounts shall be made as if such date of death was the date of
his Separation."
IN WITNESS WHEREOF, the undersigned has executed this Second Amendment as
of the date above written.
SPAGHETTI WAREHOUSE, INC.
By: /s/H.G. Carrington, Jr.
--------------------------------
Title: Executive Vice President
CORPDAL:92926.1 08099-00002
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> 10-K Quarterly Report for September 28, 1997
</LEGEND>
<CIK> 0000775298
<NAME> Spaghetti Warehouse, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.00
<CASH> 2,675,547
<SECURITIES> 0
<RECEIVABLES> 500,525
<ALLOWANCES> 0
<INVENTORY> 565,036
<CURRENT-ASSETS> 4,113,627
<PP&E> 72,608,882
<DEPRECIATION> 27,012,261
<TOTAL-ASSETS> 58,478,656
<CURRENT-LIABILITIES> 5,958,558
<BONDS> 5,912,517
0
0
<COMMON> 65,278
<OTHER-SE> 46,375,195
<TOTAL-LIABILITY-AND-EQUITY> 58,478,656
<SALES> 15,584,155
<TOTAL-REVENUES> 15,931,467
<CGS> 4,035,882
<TOTAL-COSTS> 12,753,665
<OTHER-EXPENSES> 2,306,520
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,145
<INCOME-PRETAX> 782,137
<INCOME-TAX> 275,787
<INCOME-CONTINUING> 506,350
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 506,350
<EPS-PRIMARY> $.09
<EPS-DILUTED> $.09
</TABLE>
