The liquid crystal (-)7S5 spreads as a two-terraced droplet on an oxide covered (100) Si wafer. The thickness of the upper and lower terraces are respectively approximately 200 and approximately 40 A. This is the simplest system for which the de Gennes and Cazabat (dGC) terraced spreading model [C. R. Acad. Sci. II 310, 1601 (1990)] is applicable. We find that soon after the upper terrace acquires a flat top a hole develops in the center of this terrace. The hole propagates down to the depth of the first terrace. In this contribution we demonstrate that the dGC model is unstable to the formation of a hole in the center of the upper terrace for a two-terraced droplet. Our extended dGC model, which includes a hole in the upper terrace, provides a reasonable description of the average spreading dynamics for this system. However, this model has difficulties quantitatively accounting for all of the features exhibited by the dynamics, perhaps because experimentally the inner and outer borders of the upper terrace become irregular with time. These irregularities in the borders have not been included within the model.