<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] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] 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:
[_] Fee paid previously by written preliminary materials.
[_] 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 27, 1998
To the Shareholders of Spaghetti Warehouse, Inc.:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Shareholders (the
"Annual Meeting") of Spaghetti Warehouse, Inc., a Texas corporation (the
"Company"), will be held at 1815 N. Market Street, Dallas, Texas on the second
floor on the 27th day of October, 1998, at 10:00 a.m. (local time) for the
following purposes:
1. To elect eight (8) 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 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 11,
1998 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
Robert E. Bodnar, Secretary
September 23, 1998
<PAGE>
SPAGHETTI WAREHOUSE, INC.
402 WEST I-30
GARLAND, TEXAS 75043
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 27, 1998
---------------------------
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 1998 Annual Meeting of Shareholders of the Company (the "Annual Meeting") to
be held on October 27, 1998, 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 AND THE PROXIES WILL USE THEIR DISCRETION WITH RESPECT TO ANY MATTERS
REFERRED TO IN PROPOSAL 2 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, 1998. 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 28, 1998, 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 Robert E.
Bodnar, 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, will 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 11,
1998 (the "Record Date"). On the Record Date, there were 5,662,085 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 Third 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. 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.
Pursuant to the provisions of the Texas Business Corporation Act, the Third
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.
BENEFICIAL OWNERSHIP (1)
---------------------------------------
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENTAGE
------------------------ ---------------- ----------
Private Capital Management, Inc. (2) 644,600 (3) 11.4%
Wachovia Corporation (4) 353,300 6.2%
Dimensional Fund Advisors Inc. (5) 453,552 (6) 8.0%
Fleet Financial Group, Inc. (7) 355,100 6.3%
First Manhattan Co. (8) 309,735 (9) 5.5%
Franklin Resources, Inc. (10) 550,000 9.7%
Robert R. Hawk 8,300 *
Robert E. Bodnar 18,269 (11) *
K. Dieter Esch 49,896 (12) *
Garry J. Gay 26,147 (13) *
C. Cleave Buchanan, Jr. 6,036 (14) *
Frank Cuellar, Jr. 16,005 (15) *
John T. Ellis 175,581 (16)(17) 3.1%
Peter L. Hnatiw 13,037 (18) *
James F. Moore 6,036 (19) *
Cynthia I. Pharr 12,067 (20) *
William B. Rea, Jr. 28,761 (21) *
Phillip Ratner 110,780 2.0%
H.G. Carrington, Jr. 776 (22) *
Gary L. Suit 0 *
All executive officers and directors
as a group (16 persons)
525,212 (16)(23) 9.0%
*Less than 1%
3
<PAGE>
(1) Unless otherwise indicated, each person or group has sole voting and
investment power with respect to all such shares.
(2) 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 North, Suite 360,
Naples, Florida 34102.
(3) Includes 644,600 shares of which Private Capital Management, Inc. shares
investment power with Mr. Bruce S. Sherman.
(4) The business address of Wachovia Corporation is 301 North Main Street,
Winston-Salem, North Carolina 27150-3099.
(5) The business address of Dimensional Fund Advisors Inc. ("Dimensional") is
1299 Ocean Avenue, 11th Floor, Santa Monica, California 90401.
Dimensional, a registered investment advisor, is deemed to have beneficial
ownership of 453,552 shares of the Company's Common Stock as of June 30,
1998, all of which shares are held in portfolios of DFA Investment
Dimensions Group Inc., a registered open-end investment company, or in
series of The DFA Investment Trust Company, a Delaware business trust, or
the DFA Group Trust and the DFA Participating Group Trust, investment
vehicles for qualified employee benefit plans, all of which Dimensional
Fund Advisors Inc. serves as investment manager. Dimensional disclaims
beneficial ownership of all such shares.
(6) Persons who are officers of Dimensional also serve as officers of DFA
Investment Dimensions Group Inc. (the "Fund"), and The DFA Investment Trust
Company (the "Trust"), each an open-end management investment company
registered under the Investment Company Act of 1940. In their capacity as
officers of the Fund and the Trust, these persons vote 52,400 shares which
are owned by the Fund and 101,100 shares which are owned by the Trust.
(7) The business address of Fleet Financial Group, Inc. ("Fleet") is One
Federal Street, Boston, Massachusetts 02211.
(8) The business address of First Manhattan Co. is 437 Madison Avenue, New
York, New York 10022.
(9) Includes 4,000 shares owned by family members of General Partners of First
Manhattan Co.
(10) Franklin Resources, Inc. forms a group consisting of Franklin Resources,
Inc. and Franklin Advisory Services, Inc. The business address of Franklin
Resources, Inc. is 777 Mariners Island Boulevard, San Mateo, California
94404 and the address of Franklin Advisory Services, Inc. is One Parker
Plaza, 16th Floor, Fort Lee, New Jersey 07024.
(11) Includes 15,834 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(12) Includes 47,025 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(13) Includes 25,200 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(14) Includes 6,036 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(15) Includes 14,537 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(16) 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 Mr. John T.
Ellis is trustee.
(17) Includes 10,839 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(18) Includes 11,037 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
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<PAGE>
(19) Includes 6,036 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(20) Includes 12,037 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(21) Includes 8,761 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(22) Includes 276 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(23) Includes an aggregate of 206,033 shares issuable pursuant to the exercise
of stock options exercisable within 60 days of the Record Date.
ELECTION OF DIRECTORS
(PROPOSAL 1)
The Third 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 18, 1998, the number of directors comprising
the Board of Directors has been set at eight (8).
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.
5
<PAGE>
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>
Robert R. Hawk 71 Chairman of the Board, 1972 Chairman of the
President, Chief Executive Board, President,
Officer and Director Chief Executive
Spaghetti Warehouse, Inc. Officer and Director
402 West I-30
Garland, Texas 75043
C. Cleave Buchanan, Jr. 53 President 1995 Director
Southbrook Capital
13111 North Central Expressway
Suite 300
Dallas, Texas 75243
Frank Cuellar, Jr. 68 President and Director 1985 Director
Frank Cuellar & Sons, Inc.
8315 Inwood Drive
Dallas, Texas 75209
John T. Ellis 74 Personal Investments 1981 Director
4488 S. Atlantic Ave.
Ponce Inlet, Florida 32127
Peter L. Hnatiw 50 President 1992 Director
Esplanade Restaurants Ltd.
54 The Esplanade, Suite 201
Toronto, Ontario M5E 1A6
CANADA
James F. Moore 63 President 1995 Director
Moore Idea's, Inc.
1012 Creek Crossing
Coppell, Texas 75019
Cynthia I. Pharr 49 President 1991 Director
C. Pharr & Company
3030 LBJ Freeway
Suite 1670
Dallas, Texas 75234
William B. Rea, Jr. 53 Chief Financial Officer 1984 Director
Texas Roadhouse Holdings, LLC
9000 Wessex Place, Suite 301
Louisville, Kentucky 40222
</TABLE>
6
<PAGE>
Mr. Robert R. Hawk, founder of the Company, has served as President, Chief
Executive Officer and Chairman of the Board of the Company since May 1998. He
served as Chairman of the Board from the Company's organization in 1972 until
October 1993. At the 1993 Annual Meeting in October 1993, Mr. Hawk retired as
Chairman of the Board. In January 1994 he was reappointed Chairman of the Board
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 January 1994 until
August 1994. Mr. Hawk was one of the founders of Pier One Imports and served in
various capacities from Merchandising Manager to Vice President from 1962 to
1973. From January 1996 until May 1998, Mr. Hawk was engaged as a consultant to
the Company.
Mr. C. Cleave Buchanan, Jr., a director since July 1995, has served as
President of Southbrook Capital, a privately-held investment company, since
August 1996. In June 1997, Mr. Buchanan became Chairman and Chief Executive
Officer of USA Connect, a privately-held company that provides internet services
to the public. 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 and Gilchrist,
a Professional Corporation, a Dallas-based law firm from 1971 through 1993.
Since 1993 Mr. Buchanan has served as a managing member of FF Tower L.C., a
Texas limited liability company that owns and manages commercial real estate in
Dallas, Texas. Since 1985, Mr. Buchanan has served as 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 trade name 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.
Cuellar served as Senior Vice President, Secretary and Treasurer of El Chico
Corporation from 1966 to 1977.
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. Mr.
Ellis, a founding investor of the Company, has a total of 16 years of retail
management experience with Tandy Corporation and Pier One Imports. Since the
time of his retirement, Mr. Ellis has been engaged in personal investments as
his principal occupation. Mr. Ellis has been engaged as a consultant to the
Company since October 1996.
Mr. Peter L. Hnatiw, a director since 1992, has been, since 1981, 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 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 restaurants.
Ms. Cynthia I. Pharr, a director since August 1991, has been President of
C. Pharr & Company since February 1993. Ms. Pharr was President of Tracy
Locke/Pharr Public Relations from April 1989 to January 1993. Through her
current firm and other public relations firms of which she has served as
7
<PAGE>
President, Ms. Pharr has provided communications, marketing, financial relations
and issues management counseling to numerous restaurant companies, as well as
clients in other industries. Ms. Pharr is a director of Showbiz Pizza Time, Inc.
Mr. William B. Rea, Jr., a director since 1984, has been, since August
1997, Chief Financial Officer for Texas Roadhouse Holdings, LLC, which operates
Texas Roadhouse restaurants. He served as Controller of Main Waters Management,
Inc., a restaurant and outdoor advertising company, from January 1996 to July
1997. 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 of 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
1999, 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 Mr. Frank Cuellar, Jr., Ms. Cynthia I. Pharr and Mr. William B. Rea, Jr. The
Audit Committee is responsible for consulting with the Company's independent
auditors 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 28, 1998.
The Board of Directors has a standing Compensation/Incentive Stock Option
Committee currently comprised of Mr. Frank Cuellar, Jr., Mr. C. Cleave Buchanan,
Jr., Mr. Peter L. Hnatiw, Ms. Cynthia I. Pharr, Mr. William B. Rea, Jr. and Mr.
James F. Moore. The Compensation/Incentive Stock Option 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 succession issues and any
related matters for the Company. The Compensation/Incentive Stock Option
Committee is also responsible for the granting of stock options under the 1990
Incentive Stock Option Plan and the Spaghetti Warehouse, Inc. 1992 Bonus Stock
Option Plan (the "1992 Bonus Plan"), as well as the interpretation of such
plans. The Compensation/Incentive Stock Option Committee held six meetings
during the fiscal year ended June 28, 1998.
The Board of Directors does not have a standing Nominating Committee.
The Board of Directors held 18 meetings during the fiscal year ended June
28, 1998, including five meetings attended in person and 13 special telephonic
meetings. During fiscal 1998, each director attended all of the meetings of the
Board of Directors during the time that he or she served as director with the
exceptions of Mr. C. Cleave Buchanan, Jr., Mr. James F. Moore, Ms. Cynthia I.
Pharr and
8
<PAGE>
Mr. Frank Cuellar, Jr. who each attended 17 of the 18 meetings, Mr. Peter L.
Hnatiw who attended 16 of the 18 meetings and Mr. William B. Rea, Jr. who
attended 15 of the 18 meetings. All directors attended all meetings of the Board
Committees on which they served except for Mr. Frank Cuellar, Jr. who attended
five of the six Compensation/Incentive Stock Option Committee meetings and Ms.
Cynthia I. Pharr who attended one of the two Audit Committee meetings.
DIRECTOR COMPENSATION
The Company pays each nonemployee director a $3,000 annual retainer, plus a
$3,000 fee for any meeting of the Board of Directors attended in person, and a
$200 fee per hour for work performed outside of meetings attended in person
including special telephonic meetings, and reimburses such persons for their
out-of-pocket expenses. Mr. Robert R. Hawk is not compensated for his service
as a director. Mr. John T. Ellis is not compensated for attending the four
regularly scheduled quarterly meetings attended in person. All directors are
reimbursed for travel expenses incurred in attending meetings.
Pursuant to the 1991 Nonemployee Director Plan of Spaghetti Warehouse,
Inc., 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 the Company have entered into an employment
agreement. Under such agreement, Mr. Hawk is paid an annual salary of
approximately $27,150, and pursuant to which he provides certain advisory and
consulting services to the Company. The agreement expires on 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.
Mr. John T. Ellis and the Company have entered into an employment
agreement. Under such agreement, Mr. Ellis is paid an annual salary of $7,000.
Pursuant to such agreement, Mr. Ellis provides certain advisory and consulting
services to the Company. This agreement terminates upon (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.
Under such agreement, Mr. Ellis agreed not to 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.
Mr. Phillip Ratner's Separation Agreement and Release
Effective May 27, 1998, Mr. Phillip Ratner resigned his positions as
Chairman of the Board, President and Chief Executive Officer of the Company to
pursue other opportunities. Pursuant to the terms of Mr. Ratner's Employment
Agreement and Separation Agreement and Release, Mr. Ratner is to receive from
the Company his current rate of compensation of $24,166.67 per month, less
appropriate withholding and deductions. In addition, after the expiration of
six (6) consecutive months beginning on
9
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May 27, 1998, and continuing thereafter until the earlier to occur of (i)
commencement by Mr. Ratner of employment with any other employer, or (ii) six
(6) consecutive months, Mr. Ratner will continue to receive from the Company his
current rate of compensation of $24,166.67 per month, less appropriate
withholding and deductions. However, if Mr. Ratner should commence employment
with any other employer during the subsequent six (6) consecutive month period
that pays him less than $24,166.67 gross per month, beginning on the date of
such commencement of employment, the normal monthly payment shall be reduced by
the requisite amount so that when combined with his normal gross-monthly pay at
the new place of employment, such gross-monthly pay equals $24,166.67.
Pursuant to the terms of Mr. Ratner's Separation Agreement and Release, Mr.
Ratner's medical benefits and life and disability insurance shall continue to be
paid by the Company, less Mr. Ratner's standard contributions, for a period of
twelve (12) months beginning on May 27, 1998, unless Mr. Ratner shall become
eligible for coverage under another group medical, dental or life insurance
plan, at such time, the Company shall cease to pay for such benefits.
At the time of Mr. Ratner's resignation, Mr. Ratner held 400,000 stock
options to purchase the Company's common stock. Pursuant to the terms of Mr.
Ratner's Separation Agreement and Release, 300,000 of these stock options vested
in their entirety on May 27, 1998.
Additionally, pursuant to the terms of Mr. Ratner's Separation Agreement
and Release, the Company (i) shall compensate Mr. Ratner for two (2) weeks of
vacation time, (ii) shall transfer to Mr. Ratner, the ownership interest in the
automobile that was partially paid for with funds from the Company, (iii) shall
continue to indemnify Mr. Ratner for any acts or conduct taken in his capacity
as an officer and director of the Company, (iv) shall release Mr. Ratner from
any non-compete restrictions contained in his Employment Agreement, (v) shall
reimburse Mr. Ratner for any outplacement expenses incurred during the severance
period, up to but not exceeding $7,500, and (vi) shall release Mr. Ratner from
any claims of liability.
In return for the above, Mr. Ratner agreed (i) to refrain from filing for
unemployment compensation, (ii) to enter into a non-hire agreement with the
Company for a period of twelve (12) months beginning on May 27, 1998, (iii) to
release the Company from any claims of liability, (iv) to cooperate with the
Company in the relinquishment of any positions that Mr. Ratner held with the
Company, and (v) to keep confidential all Company proprietary information,
including financial information and strategic plans of the Company.
Mr. H. G. Carrington Jr.`s Separation Agreement and Release
Effective February 20, 1998, Mr. H. G. Carrington, Jr. resigned his
position as a member of the Board of Directors of the Company. Also effective
February 20, 1998, Mr. Carrington resigned his positions as the Chief Financial
Officer and Secretary of the Company. Pursuant to the terms of Mr. Carrington's
Separation Agreement and Release, beginning on February 20, 1998, for a period
of thirteen (13) consecutive weeks, Mr. Carrington received from the Company his
then current rate of compensation of $3,173.08 per week, less appropriate
withholding and deductions.
Pursuant to the terms of Mr. Carrington's Separation Agreement and Release,
Mr. Carrington's medical benefits and life and disability insurance continued to
be paid by the Company, less Mr. Carrington's standard contributions, for a
period of six (6) months beginning on February 20, 1998.
Additionally, pursuant to the terms of Mr. Carrington's Separation
Agreement and Release, the Company (i) paid a bonus to Mr. Carrington of
$10,000, less appropriate withholding and deductions, (ii)
10
<PAGE>
made two (2) post-resignation payments of Mr. Carrington's automobile allowance,
(iii) continued to indemnify Mr. Carrington for any acts or conduct taken in his
capacity as an officer and director of the Company, and (iv) released Mr.
Carrington from any claims of liability.
In return for the above, Mr. Carrington agreed (i) to refrain from filing
for unemployment compensation, (ii) to make a decision within thirty (30) days
of February 20, 1998, with respect to the exercise of any stock options held by
Mr. Carrington, (iii) to cooperate with the Company in the relinquishment of any
positions that Mr. Carrington held with the Company, (iv) to release the Company
from any claims of liability, and (v) to keep confidential all Company
proprietary information, including financial information and strategic plans of
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 who is not a nominee for the Board of
Directors, and the year he or she first became an executive officer of the
Company.
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER PRINCIPAL OCCUPATION
NAME AGE CURRENT POSITION SINCE DURING LAST FIVE YEARS
---- --- ---------------- ------- ----------------------
<S> <C> <C> <C> <C>
Robert E. Bodnar 31 Vice President, 1996 Vice President, Chief
Chief Financial Financial Officer and
Officer and Secretary. Previously
Secretary Treasurer and Controller of
the Company (1996-1998),
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).
Peter Buckley 42 President - OSF 1992 President - OSF Canada.
Canada Previously, President of
Old Spaghetti Factory
(Western), Ltd. (1990-1992).
K. Dieter Esch 60 Vice President - 1995 Vice President -
Operations, Operations, Purchasing &
Purchasing & Development. Previously,
Development Vice President of
Purchasing & Development of
the Company (1996-1998),
Vice President - Operations
of the Company (1995-1996),
Director of Operations of
the Company (1994-1995),
and Director of Old
Merchandise Company
(1992-1994).
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER PRINCIPAL OCCUPATION
NAME AGE CURRENT POSITION SINCE DURING LAST FIVE YEARS
---- --- ---------------- ------- ----------------------
<S> <C> <C> <C> <C>
Garry J. Gay 43 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).
Wendy W. Hackemack 41 Treasurer, 1998 Treasurer, Controller and
Controller and Assistant Secretary.
Assistant Secretary Previously Director of
Taxation (1991-1998).
Kathlene E. Pyle 33 Vice President - 1998 Vice President - Marketing.
Marketing Previously, Vice President
of Business Development at
Berry* Brown Advertising
(1992-1998).
David Seebeck 41 Vice President - 1998 Vice President -
Information Systems Information Systems.
Previously Director of
Information Systems of the
Company (1994-1998),
Director of Information
Systems at Wyatts
Cafeterias, Inc.
(1993-1994) and Director of
Information Systems at
Romacorp (1985-1993.)
</TABLE>
12
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The total compensation paid for each of the three fiscal years ended June
28, 1998, June 29, 1997, and June 30, 1996 (i) to the President and Chief
Executive Officer as of the Record Date, Mr. Robert R. Hawk, (ii) to the
President and Chief Financial Officer who served in such capacities during a
portion of the last completed fiscal year, Mr. Phillip Ratner and Mr. H.G.
Carrington, Jr., respectively, and (iii) to the other most highly paid executive
officers who received cash compensation in excess of $100,000 for the fiscal
year ended June 28, 1998 (collectively, the "Named Executive Officers"), is set
forth below in the following Summary Compensation Table:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------ --------------
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME & PRINCIPAL POSITION YEAR SALARY BONUS (1) COMPENSATION OPTIONS(#) (2) COMPENSATION
- ------------------------- ------ ---------- --------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert R. Hawk (4) 1998 $27,157 $ -0- (3) -0- $ -0-
Chairman of the Board, 1997 26,390 -0- (3) -0- -0-
President, Chief 1996 26,000 -0- (3) -0- -0-
Executive Officer and
Director
Phillip Ratner (5) 1998 290,000 -0- (3) -0- 30,354 (7)
Chairman of the Board, 1997 254,200 79,068 (3) 100,000 20,800 (7)
President, Chief 1996 239,200 33,000 (3) 300,000 (6) 20,800 (7)
Executive Officer and
Director
Robert E. Bodnar (8)
Vice President, Chief 1998 87,780 15,000 (3) 16,000 5,075 (10)
Financial Officer and 1997 69,735 18,000 (3) 1,500 3,290 (10)
Secretary 1996 59,170 8,000 (3) 17,000 (9) 1,150 (10)
K. Dieter Esch (11) 1998 115,480 9,800 (3) 1,000 11,750 (13)
Vice President - 1997 104,900 18,000 (3) -0- 5,100 (13)
Operations, 1996 101,100 9,000 (3) 47,025 (12) 3,900 (13)
Purchasing and
Development
Garry J. Gay (14) 1998 101,860 9,600 (3) 1,000 -0-
Vice President - 1997 94,231 20,000 (3) 6,500 -0-
Human Resources 1996 90,000 9,000 (3) 22,700 (15) -0-
H.G. Carrington, Jr. (16) 1998 122,580 10,000 (3) -0- 52,499 (18)
Chief Financial 1997 127,000 51,000 (3) 7,500 23,000 (18)
Officer, 1996 122,315 17,000 (3) 80,000 (17) 15,700 (18)
Secretary and Director
Gary L. Suit (19) 1998 122,115 10,000 (3) 1,000 18,012 (20)
Vice President - 1997 97,600 43,000 (3) 15,000 2,400 (20)
Operations 1996 70,658 22,320 (3) 18,000 2,400 (20)
</TABLE>
_______________________
(1) Pursuant to the 1992 Bonus Plan, each employee of the Company that is
eligible for a bonus under the Company's bonus plan may elect, generally
prior to the fiscal year during which the bonus accrues, to receive
nonqualified stock options with a "spread" value of up to 50% of the bonus
such employee becomes entitled to receive in lieu of the bonus amount equal
to the "spread" value. The eligible employee receives in cash the balance
of the annual bonus that is not foregone as a result of the grant of the
stock option. The exact percentage, up to 50%, of the bonus that an
eligible employee forgoes to receive a stock option is in the discretion of
the eligible employee. The "spread" value of a stock option is the number
of shares subject to such option multiplied by the difference between the
fair market value of the Common Stock on the date of grant and the exercise
price per share of the stock option. The Company's Board of Directors
adopted the 1992 Bonus Plan on August 20, 1992 and on October 27, 1992 the
Company's shareholders approved the 1992 Bonus Plan.
(2) The column for 1996 includes all options repriced for such Named Executive
Officer during fiscal 1996. As a result, the number of options shown as
granted during fiscal 1996 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.
(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) Mr. Robert R. Hawk assumed the responsibilities of Chairman of the Board,
President and Chief Executive Officer effective May 27, 1998.
(5) Effective May 27, 1998, Mr. Phillip Ratner resigned his positions as
Chairman of the Board, President and Chief Executive Officer of the Company
to pursue other opportunities. Pursuant to the terms of Mr. Ratner's
Employment Agreement and Separation Agreement and Release, Mr. Ratner is
13
<PAGE>
to receive from the Company his current rate of compensation of $24,166.67
per month, less appropriate withholding and deductions. In addition, after
the expiration of six (6) consecutive months beginning on May 27, 1998, and
continuing thereafter until the earlier to occur of (i) commencement by Mr.
Ratner of employment with any other employer, or (ii) six (6) consecutive
months, Mr. Ratner will continue to receive from the Company his current
rate of compensation of $24,166.67 per month, less appropriate withholding
and deductions. However, if Mr. Ratner should commence employment with any
other employer during the subsequent six (6) consecutive month period that
pays him less than $24,166.67 gross per month, beginning on the date of
such commencement of employment, the normal monthly payment shall be
reduced by the requisite amount so that when combined with his normal
gross-monthly pay at the new place of employment, such gross-monthly pay
equals $24,166.67. Pursuant to the terms of Mr. Ratner's Separation
Agreement and Release, Mr. Ratner's medical benefits and life and
disability insurance shall continue to be paid by the Company, less Mr.
Ratner's standard contributions, for a period of twelve (12) months
beginning on May 27, 1998, unless Mr. Ratner shall become eligible for
coverage under another group medical, dental or life insurance plan, at
such time, the Company shall cease to pay for such benefits. At the time of
Mr. Ratner's resignation, Mr. Ratner held 400,000 stock options to purchase
the Company's common stock. Pursuant to the terms of Mr. Ratner's
Separation Agreement and Release, 300,000 of these stock options vested in
their entirety on May 27, 1998. Additionally, pursuant to the terms of Mr.
Ratner's Separation Agreement and Release, the Company (i) shall compensate
Mr. Ratner for two (2) weeks of vacation time, (ii) shall transfer to Mr.
Ratner, the ownership interest in the automobile that was partially paid
for with funds from the Company, (iii) shall continue to indemnify Mr.
Ratner for any acts or conduct taken in his capacity as an officer and
director of the Company, (iv) shall release Mr. Ratner from any non-compete
restrictions contained in his Employment Agreement, (v) shall reimburse Mr.
Ratner for any outplacement expenses incurred during the severance period,
up to but not exceeding $7,500, and (vi) shall release Mr. Ratner from any
claims of liability.
(6) Includes options exercisable for 300,000 shares that were repriced during
fiscal 1996.
(7) Mr. Ratner contributed $20,800, $20,800 and $19,200 to the Company's
Deferred Compensation Plan in fiscal years 1996, 1997 and 1998,
respectively, which may be payable in stock at the time of retirement.
During fiscal 1998, the Company made a severance payment of $11,154 to Mr.
Ratner.
(8) Mr. Bodnar was elected Treasurer and Controller in January 1996 and Vice
President, Chief Financial Officer and Secretary in February 1998.
(9) Includes options exercisable for 5,000 shares that were granted during
fiscal 1996 and options exercisable for 12,000 shares that were repriced
during fiscal 1996.
(10) Mr. Bodnar contributed $1,150, $3,290 and $5,075 to the Company's Deferred
Compensation Plan in fiscal years 1996, 1997 and 1998, respectively, which
may be payable in stock at the time of retirement.
(11) Mr. Esch was elected Vice President-Operations in January 1995, Vice
President-Purchasing and Development in August 1996 and Vice President-
Operations, Purchasing and Development in June 1998.
(12) Includes options exercisable for 47,025 shares that were repriced during
fiscal 1996.
(13) Mr. Esch contributed $3,900, $5,100 and $11,750 to the Company's Deferred
Compensation Plan in fiscal years 1996, 1997 and 1998, respectively, which
may be payable in stock at the time of retirement.
(14) Mr. Gay was elected Vice President-Human Resources in August 1996.
(15) Includes options exercisable for 22,700 shares that were repriced during
fiscal 1996.
(16) Effective February 20, 1998, Mr. H. G. Carrington, Jr. resigned his
positions as a member of the Board of Directors, Chief Financial Officer
and Secretary of the Company. Pursuant to the terms of Mr. Carrington's
Separation Agreement and Release, beginning on February 20, 1998, for a
period of thirteen (13) consecutive weeks, Mr. Carrington received from
the Company his then current rate of compensation of $3,173.08 per week,
less appropriate withholding and deductions. Pursuant to the terms of Mr.
Carrington's Separation Agreement and Release, Mr. Carrington's medical
benefits and life and disability insurance continued to be paid by the
Company, less Mr. Carrington's standard contributions, for a period of six
(6) months beginning on February 20, 1998. Additionally, pursuant to the
terms of Mr. Carrington's Separation Agreement and Release, the Company
(i) paid a bonus to Mr. Carrington of $10,000, less appropriate
withholding and deductions, (ii) made two (2) post-resignation payments of
Mr. Carrington's automobile allowance, (iii) continued to indemnify Mr.
Carrington for any acts or conduct taken in his capacity as an officer and
director of the Company, and (iv) released Mr. Carrington from any claims
of liability.
(17) 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.
(18) Mr. Carrington contributed $15,700, $23,000 and $11,250 to the Company's
Deferred Compensation Plan in fiscal years 1996, 1997 and 1998,
respectively, which was paid in cash at the time Mr. Carrington resigned
from the Company. During fiscal 1998, the Company made severance payments
of $41,249 to Mr. Carrington.
(19) Mr. Suit was elected Vice President-Operations in August 1996 and resigned
from the Company in June 1998.
(20) Mr. Suit contributed $2,400, $2,400 and $10,800 to the Company's Deferred
Compensation Plan in fiscal years 1996, 1997 and 1998, respectively, which
was paid in the form of stock at the time Mr. Suit resigned from the
Company. During fiscal 1998, the Company made severance payments of
$7,212 to Mr. Suit.
14
<PAGE>
The following table discloses, for each of the Named Executive Officers,
options granted during the fiscal year ended June 28, 1998 and the potential
realizable values for such options:
OPTION 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 (3) DATE 5% 10%
- ---- ---------- -------------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert R. Hawk -0- -0- $ -0- -0- $ 0- $ 0-
Phillip Ratner (4) -0- -0- -0- -0- -0- -0-
Robert E. Bodnar 1,000 1.2% 5.750 2/2/08 3,616 9,164
15,000 18.2% 5.875 2/17/08 55,421 140,449
K. Dieter Esch 1,000 1.2% 5.750 2/2/08 3,616 9,164
Garry J. Gay 1,000 1.2% 5.750 2/2/08 3,616 9,164
H. G. Carrington, Jr. (5) -0- -0- -0- -0- -0- -0-
Gary L. Suit (6) 1,000 1.2% 5.750 2/2/08 3,616 9,164
</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 all employees during
fiscal 1998.
(3) 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.
(4) Effective May 27, 1998, Mr. Phillip Ratner resigned his positions as
Chairman of the Board, President and Chief Executive Officer of the Company
to pursue other opportunities.
(5) Effective February 20, 1998, Mr. H.G. Carrington, Jr. resigned his
positions as a member of the Board of Directors, Chief Financial Officer
and Secretary of the Company.
(6) Mr. Suit was elected Vice President-Operations in August 1996 and resigned
from the Company in June 1998.
15
<PAGE>
The following table describes for each of the Named Executive Officers
options and the potential realizable values for their options at June 28, 1998:
OPTION VALUES AT JUNE 28, 1998
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
JUNE 28, 1998 (#) JUNE 28, 1998 (1)
--------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Robert R. Hawk -0- -0- $ -0- $ -0-
Phillip Ratner (2) -0- -0- -0- -0-
Robert E. Bodnar 15,834 18,666 44,658 40,873
K. Dieter Esch 47,025 1,000 132,258 2,188
Garry J. Gay 25,200 5,000 71,417 13,896
H. G. Carrington, Jr. (3) 276 -0- -0- -0-
Gary L. Suit (4) -0- 17,000 -0- 50,104
</TABLE>
- --------------------
(1) Based on $7.9375 per share of Common Stock, which was the closing price per
share of Common Stock on June 28, 1998 on the New York Stock Exchange.
(2) Effective May 27, 1998, Mr. Phillip Ratner resigned his positions as
Chairman of the Board, President and Chief Executive Officer of the Company
to pursue other opportunities.
(3) Effective February 20, 1998, Mr. H.G. Carrington, Jr. resigned his
positions as a member of the Board of Directors, Chief Financial Officer
and Secretary of the Company.
(4) Mr. Suit was elected Vice President-Operations in August 1996 and resigned
from the Company in June 1998.
COMPENSATION/INCENTIVE STOCK OPTION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Board of Directors has established a Compensation/Incentive Stock
Option 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/Stock Option 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 as well by this 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.
16
<PAGE>
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.
An additional objective of the Compensation /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 Compensation/Incentive Stock
Option Committee to the number of options already held by such persons.
Incentive stock option awards in fiscal 1998 were used to reward eight 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 each executive's ability to influence the Company's
long term growth and profitability. The Compensation/Incentive Stock Option
Committee believes that the award of options represents an effective incentive
to create value for the shareholders.
See "Director Compensation" for a discussion of Mr. Hawk's compensation.
Mr. Hawk receives no additional compensation for his services to the Company as
Chairman of the Board, President and Chief Executive Officer.
Based on comparative industry data, and as the result of arm's-length
negotiations, on October 28, 1996, the Company entered into an Employment
Agreement with Mr. Phillip Ratner (which supplemented a previous employment
agreement dated as of June 25, 1994) that provided for the employment of Mr.
Ratner as President and Chief Executive Officer of the Company at an annual base
compensation of $275,000. The Employment Agreement also provided for the grant
to Mr. Ratner of a combination of incentive and nonqualified stock options to
acquire 100,000 shares of Common Stock. The Employment Agreement was unanimously
approved by the Board of Directors and the Compensation/Incentive Stock Option
Committee. Mr. Ratner resigned his positions as Chairman of the Board of
Directors, President and Chief Executive Officer of the Company on May 27, 1998.
See "Director Compensation" for a discussion of the terms of Mr. Ratner's
Separation Agreement and Release.
The Compensation/Incentive Stock Option 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 1998.
COMPENSATION/INCENTIVE STOCK OPTION COMMITTEE
Frank Cuellar, Jr. James F. Moore
C. Cleave Buchanan, Jr. Cynthia I. Pharr
Peter L. Hnatiw William B. Rea, Jr.
17
<PAGE>
COMPENSATION/INCENTIVE STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
During fiscal 1998, the Compensation/Incentive Stock Option Committee has
been comprised of Mr. Frank Cuellar, Jr., Mr. C. Cleave Buchanan, Jr., Mr. Peter
L. Hnatiw, Ms. Cynthia I. Pharr, Mr. William B. Rea, Jr. and Mr. James F. Moore.
No member of the Compensation/Incentive Stock Option Committee is, or was during
fiscal 1998, 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. No executive officer of the Company served as a member of the
Compensation/Incentive Stock Option 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/Incentive Stock Option Committee. No
executive officers of the Company served as a director of another corporation,
one of whose executive officers served on the Compensation/Incentive Stock
Option Committee. No executive officer of the Company served as a member of the
Compensation/Incentive Stock Option 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 July 4, 1993 and is calculated assuming quarterly reinvestment
of dividends and quarterly weighting by market capitalization.
COMPARATIVE FIVE-YEAR TOTAL RETURNS
SPAGHETTI WAREHOUSE, INC., PEER GROUP AND BROAD MARKET
(PERFORMANCE RESULTS THROUGH 6/28/98)
[PERFORMANCE GRAPH APPEARS HERE]
July 4, July 3, July 2, June 30, June 29, June 29,
Fiscal Year Ending 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
Spaghetti Warehouse, Inc. 100.00 58.00 42.00 43.00 47.00 63.50
- --------------------------------------------------------------------------------
Peer Group 100.00 89.04 78.01 81.19 77.28 91.55
- --------------------------------------------------------------------------------
Broad Market 100.00 103.48 123.53 154.54 201.87 257.25
- --------------------------------------------------------------------------------
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:
Brinker International, Inc. Frisch's Restaurants, Inc. Shoney's, Inc.
Buffets, Inc. Luby's Cafeterias, Inc. Uno Restaurant CP
Cracker Barrel Old Country Marcus Corp. Vicorp Restaurants,
Store Pancho's Mexican Buffet, Inc. Inc.
Cucos, Inc. Piccadilly Cafeterias, Inc.
Family Steak Houses of Ryans Family Steak Houses,
Florida, Inc. Inc.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no transactions during fiscal 1998 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 the 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 file reports 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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH
OF THE INDIVIDUALS NOMINATED FOR ELECTION AS A DIRECTOR.
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.
20
<PAGE>
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Company's independent public accountants since February 3, 1998, have
been the firm of KPMG Peat Marwick LLP. It is expected that one or more
representatives of such firm will attend the Annual Meeting and will 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.
Effective February 3, 1998, Arthur Andersen LLP resigned as auditors of the
Company. In connection with the audits for the fiscal years ended June 29,
1997, and June 30, 1996, and during the period from June 30, 1997 through
February 3, 1998, there were no disagreements with Arthur Andersen LLP on
matters of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure which would require disclosure under the
regulations. Arthur Andersen LLP's reports on the financial statements of the
Company for the years ended June 29, 1997, and June 30, 1996, 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 February 3, 1998, the Company notified KPMG Peat Marwick LLP of its
intention to retain such firm as independent public accountants for the audit of
its financial statements for the year ending June 28, 1998. Prior to its
engagement, the Company did not consult with KPMG Peat Marwick 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.
DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Shareholder proposals to be included in the proxy statement for the 1999
Annual Meeting must be received by the Company no later than August 29, 1999.
BY ORDER OF THE BOARD OF DIRECTORS
Robert E. Bodnar, Secretary
September 23, 1998
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.
21
<PAGE>
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PROXY
SPAGHETTI WAREHOUSE, INC.
402 West I-30
GARLAND, TEXAS 75043
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Robert R. Hawk and Robert E. Bodnar, and
each of them, as proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and vote, as designated on the reverse side,
all of the shares of the common stock of Spaghetti Warehouse, Inc. (the
"Company"), held of record by the undersigned on September 11, 1998, at the
Annual Meeting of Shareholders of the Company to be held on October 27, 1998,
and any adjournment(s) thereof.
THIS PROXY, WHEN PROPERLY EXECUTED AND DATED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES UNDER PROPOSAL 1
AND THE PROXIES WILL USE THEIR DISCRETION WITH RESPECT TO ANY MATTERS REFERRED
TO IN PROPOSAL 2.
[To Be Dated And Signed On Reverse Side]
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
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Please mark
your votes as [X]
indicated in
this example
1. PROPOSAL TO ELECT AS DIRECTORS OF THE COMPANY THE FOLLOWING PERSONS TO HOLD
OFFICE UNTIL THE NEXT ANNUAL ELECTION OF DIRECTORS BY SHAREHOLDERS OR UNTIL
THEIR SUCCESSORS HAVE BEEN DULY ELECTED AND HAVE QUALIFIED.
FOR all nominees WITHHOLD
listed to the right AUTHORITY
(except as marked) to vote for all nominees
to the contrary) listed to the right
[ ] [ ]
NOMINEES: C. Cleave Buchanan, Jr., Frank Cuellar, Jr., John T. Ellis, Robert R.
Hawk, Peter Hnatiw, James F. Moore, Cynthia I. Pharr, William B. Rea, Jr.
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
- ----------------------------------------------------------------------------
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
_____ Dated: , 1998
| -------------------------
|
| --------------------------------------
Signature
--------------------------------------
Signature, If Held Jointly
Please execute this proxy as your name
appears hereon. When shares are held by
joint tenants, both should sign. When
signing as attorney, executor,
administrator, trustee, or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person. PLEASE MARK, SIGN,
DATE AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
