<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / 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 Material Pursuant to Section.240.14a-11(c) or Section.240.14a-12
</TABLE>
SBARRO, INC.,
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with 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> 2
SBARRO, INC.
763 LARKFIELD ROAD
COMMACK, NEW YORK 11725
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 22, 1996
To the Shareholders:
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Shareholders (the
"Meeting") of Sbarro, Inc. (the "Company") will be held at Boulder Creek Steaks
& Saloon, 6321 Northern Boulevard (Route 25A) at the intersection of Route 106,
East Norwich, New York, on Wednesday, May 22, 1996, at 11:00 A.M., Eastern
Daylight Savings Time, to consider and act upon the following matters:
1. The election of three Class 1 directors to serve until the 1999 Annual
Meeting of Shareholders and until their respective successors are
elected and qualified;
2. A proposal to ratify the action of the Board of Directors in appointing
Arthur Andersen LLP as the Company's independent public accountants for
the fiscal year ending December 29, 1996; and
3. The transaction of such other business as may properly come before the
Meeting or any adjournment or postponement thereof.
Information regarding the matters to be acted upon at the Meeting is
contained in the accompanying Proxy Statement.
The close of business on April 19, 1996 has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
Meeting or any adjournment or postponement thereof.
By Order of the Board of Directors,
JOSEPH SBARRO,
Secretary
Commack, New York
April 26, 1996
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. EACH SHAREHOLDER
IS URGED TO SIGN, DATE AND RETURN THE ENCLOSED FORM OF PROXY WHICH IS BEING
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. AN ENVELOPE ADDRESSED TO THE
COMPANY'S TRANSFER AGENT IS ENCLOSED FOR THAT PURPOSE AND NEEDS NO POSTAGE IF
MAILED IN THE UNITED STATES.
<PAGE> 3
SBARRO, INC.
763 LARKFIELD ROAD
COMMACK, NEW YORK 11725
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
MAY 22, 1996
This Proxy Statement is furnished to the holders of Common Stock, par value
$.01 per share ("Common Stock"), of Sbarro, Inc. (the "Company") in connection
with the solicitation of proxies by the Board of Directors of the Company
("Proxy" or "Proxies") for use at the Annual Meeting of Shareholders (the
"Meeting") to be held on Wednesday, May 22, 1996, at 11:00 A.M., Eastern
Daylight Savings Time, at Boulder Creek Steaks & Saloon, 6321 Northern Boulevard
(Route 25A) at the intersection of Route 106, East Norwich, New York, and at any
adjournment or postponement thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting. The cost of preparing, assembling and
mailing the Notice of Annual Meeting, this Proxy Statement and Proxies is to be
borne by the Company. The Company will also reimburse brokers who are holders of
record of Common Stock for their expenses in forwarding Proxies and Proxy
soliciting material to the beneficial owners of such shares. In addition to the
use of the mails, Proxies may be solicited without extra compensation by
directors, officers and employees of the Company by telephone, telecopy,
telegraph or personal interview. The approximate mailing date of this Proxy
Statement is April 26, 1996.
Unless otherwise specified, all Proxies received will be voted for the
election of all nominees named herein to serve as directors and in favor of the
proposal to ratify the appointment of independent public accountants for the
Company's fiscal year ending December 29, 1996. A Proxy may be revoked at any
time before its exercise by filing with the Secretary of the Company an
instrument of revocation or a duly executed proxy bearing a later date, or by
attendance at the Meeting and electing to vote in person. Attendance at the
Meeting will not in and of itself constitute revocation of a Proxy.
The close of business on April 19, 1996 has been fixed by the Board of
Directors as the record date (the "Record Date") for the determination of
shareholders entitled to notice of, and to vote at, the Meeting and any
adjournment and postponement thereof. As of the Record Date, there were
20,350,235 shares of Common Stock outstanding. Each share of Common Stock
outstanding on the Record Date will be entitled to one vote on all matters to
come before the Meeting. A majority of the shares entitled to vote, represented
in person or by proxy, is required to constitute a quorum for the transaction of
business. Proxies submitted which contain abstentions or broker nonvotes will be
deemed present at the Meeting in determining the presence of a quorum.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides that the Board of
Directors shall be divided into three classes, with such classes to be as nearly
equal in number as the then total number of directors constituting the entire
Board permits. The Company's Board of Directors presently consists of eight
members with three members in each of Classes 1 and 2 and two members in Class
3. A vacancy was created in Class 3 with the death of Thomas J. Sandleitner on
March 10, 1996. The Board is currently reviewing potential candidates to fill
the vacancy. Any director elected by the Board to fill the vacancy will hold
office until the next meeting of shareholders at which the election of directors
is in the regular order of business and until his or her successor has been
elected and qualified. Each class is elected for a term of three years. The term
of office of the current Class 1, 2 and 3 directors is scheduled to expire at
the 1996, 1997 and 1998 annual
<PAGE> 4
meetings of shareholders, respectively. At each annual meeting, directors are
elected to succeed those in the class whose term expires at that annual meeting,
such newly elected directors to hold office until the third succeeding annual
meeting and the election and qualification of their respective successors.
At the Meeting, shareholders will elect three Class 1 directors to serve
until the 1999 annual meeting of shareholders and until their respective
successors are elected and qualified. Unless otherwise directed, the persons
named in the Proxy intend to cast all Proxies received for the election of
Messrs. Anthony Sbarro, Harold L. Kestenbaum and Paul A. Vatter (the "nominees")
to serve as Class 1 directors upon their nomination at the Meeting. Each nominee
and each other incumbent director was elected by shareholders. Each of the
nominees has advised the Company of his willingness to serve as a director of
the Company. In case any nominee should become unavailable for election to the
Board of Directors for any reason, the persons named in the Proxies have
discretionary authority to vote the Proxies for one or more alternative nominees
who will be designated by the Board of Directors.
The following is a description of the nominees and of each other member of
the Board of Directors:
INFORMATION ABOUT NOMINEES
Class 1 Directors
ANTHONY SBARRO, 50, has been an officer, a director and a principal
shareholder of the Company since its organization in 1977, serving as President
and Chief Operating Officer since December 1993. For more than five years prior
thereto, Mr. Sbarro was an Executive Vice President of the Company. He has also
served as Treasurer of the Company for more than the past five years. Mr. Sbarro
is a member of the Executive Committee of the Board.
HAROLD L. KESTENBAUM, 46, has been a practicing attorney in New York since
1976. He became a director of the Company in March 1985. Mr. Kestenbaum is
Chairman of the Stock Option Committee and a member of the Compensation
Committee of the Board.
PAUL A. VATTER, 71, has been, since his retirement in 1995, Professor
Emeritus and, from 1970 until his retirement, was Lawrence E. Fouraker Professor
of Business Administration, at Harvard University's Graduate School of Business
Administration, where he served as a Professor since 1958. He became a director
of the Company in March 1985. Professor Vatter is a member of the Audit and
Stock Option Committees of the Board.
INFORMATION ABOUT DIRECTORS WHOSE TERMS OF OFFICE CONTINUE AFTER THE MEETING
Class 2 Directors
JOSEPH SBARRO, 55, has been an officer, a director and a principal
shareholder of the Company since its organization in 1977, serving as Senior
Executive Vice President since December 1993. For more than five years prior
thereto, Mr. Sbarro was an Executive Vice President of the Company. He has also
served as Secretary of the Company for more than the past five years. Mr. Sbarro
is a member of the Executive Committee of the Board.
RICHARD A. MANDELL, 53, has been Vice President -- Private Investments of
Clariden Asset Management (NY) Inc., a subsidiary of Clariden Bank, a private
Swiss bank, since January 1996. From 1982 until June 1995, Mr. Mandell served as
a Managing Director of Prudential Securities Incorporated, an investment banking
firm. He became a director of the Company in March 1986. Mr. Mandell is a member
of the Audit Committee of the Board. Mr. Mandell is also a director of U.S.A.
Detergents, Inc. and Trend-Lines, Inc.
TERRY VINCE, 67, has been Chairman of the Board and President of Sovereign
Hotels (a company which operates hotels) since October 1991 and Chairman of the
Board of Fame Corp. (a food service management company) since January 1994. Mr.
Vince served as Chairman Emeritus (from November 1990 until October 1991) and
Chairman of the Board of Directors and President (from November 1988 until
November 1990) of daka International, Inc. (a food and restaurant service
company), prior to which
2
<PAGE> 5
Mr. Vince served as Chairman of the Board of Directors and President of daka,
Inc., the predecessor of daka International, Inc., from 1973 until November
1988. He became a director of the Company in December 1988. Mr. Vince is a
member of the Compensation and Stock Option Committees of the Board.
Class 3 Directors
MARIO SBARRO, 54, has been an officer, a director and a principal
shareholder of the Company since its organization in 1977, serving as Chairman
of the Board of Directors and Chief Executive Officer for more than the past
five years. In addition, for more than five years prior to December 1993, Mr.
Sbarro also served as President of the Company. Mr. Sbarro is Chairman of the
Executive Committee of the Board.
BERNARD ZIMMERMAN, 63, has been President of Bernard Zimmerman and Co.,
Inc. since October 1972 and Senior Vice President of The Zimmerman Group, Inc.
since January 1991, financial and management consulting firms. Mr. Zimmerman has
also served as President and a director of Beacon Hill Mutual Fund, Inc., a
publicly traded mutual fund, since December 1994. From September 1986 until
September 1993, Mr. Zimmerman also served as Chairman and President of St.
Lawrence Seaway Corp., an owner and manager of agricultural properties. Mr.
Zimmerman has been a certified public accountant in New York for more than the
past thirty years. He became a director of the Company in March 1985. Mr.
Zimmerman is Chairman of the Audit and Compensation Committees, and is a member
of the Executive Committee, of the Board.
BOARD MEETINGS AND COMMITTEES
The Board of Directors is responsible for the management of the Company.
During the Company's 1995 fiscal year, ended December 31, 1995, the Board of
Directors held ten meetings. Each incumbent director attended at least 75% of
all meetings of the Board and committees on which the person served which were
held during the year, except Mr. Vatter who attended 64% such meetings.
The Board of Directors has established Executive, Audit, Compensation and
Stock Option Committees. There is no standing nominating committee.
When the Board is not in session, the Executive Committee has, to the
extent permitted by law, all of the power and authority of the Board. The
Executive Committee held no formal meetings during fiscal 1995, but met
informally from time to time during the year.
The principal functions of the Audit Committee are to nominate independent
auditors for appointment by the Board; meet with independent auditors to review
and approve the scope of their audit engagement and the fees related to such
work; meet with the Company's financial management and independent auditors to
review matters relating to internal accounting controls, the Company's
accounting practices and procedures and other matters relating to the financial
condition of the Company; and report to the Board periodically with respect to
such matters. The Audit Committee held two formal meetings, and had informal
discussions from time to time, during fiscal 1995.
The Compensation and Stock Option Committees, described below under
"Executive Compensation -- Report of the Compensation and Stock Option
Committees", each held one formal meeting during fiscal 1995. In addition, the
Committees met informally from time to time during the year.
COMPENSATION OF DIRECTORS
Non-employee directors receive a retainer at the rate of $12,000 per annum
and $500 for each meeting of the Board of Directors attended and for each
meeting of a Committee of the Board attended if such meeting is not held on the
same day as a meeting of the Board of Directors. Directors are also reimbursed
for reasonable travel expenses incurred in attending Board and Committee
meetings.
The Company's 1993 Non-Employee Director Stock Option Plan, which was
approved by shareholders at the Company's 1993 Annual Meeting of Shareholders,
provides for the automatic grant of an option to purchase 3,750 shares of the
Company's Common Stock to each non-employee director in office immediately
3
<PAGE> 6
after each Annual Meeting of Shareholders. The term of each option granted under
the plan is five years. Each option is exercisable at an exercise price equal to
100% of the fair market value of the Company's Common Stock on the date of grant
commencing one year following the date of grant, subject to early termination in
certain instances.
Bernard Zimmerman and Company, Inc., of which Mr. Zimmerman is President
and a majority shareholder, renders financial and consulting assistance to the
Company, for which it received fees of $96,000 during the Company's fiscal year
ended December 31, 1995.
EXECUTIVE OFFICERS
The following is information concerning the executive officers of the
Company, other than those who also serve as directors (as to whom information is
provided above):
CARMELA SBARRO, 74, has been Vice President of the Company since March
1985. Mrs. Sbarro was a founder of the Company, together with her late husband,
Gennaro Sbarro. Mrs. Sbarro devotes a substantial portion of her time to recipe
and product development. Mrs. Sbarro served as a director of the Company from
March 1985 until December 1988 when she was elected Director Emeritus of the
Company.
GEORGE W. HERZ II, 40, joined the Company in November 1995 and was elected
Vice President and General Counsel in February 1996. Prior to joining the
Company, Mr. Herz served as General Counsel (from 1993) and Corporate Counsel
(from 1982 until 1992) of Minuteman Press International, Inc. (a franchisor of
printing centers).
ROBERT S. KOEBELE, 52, has served as Vice President -- Finance and Chief
Financial Officer of the Company for more than the past five years. Mr. Koebele
has been a certified public accountant in New York for more than the past
twenty-five years.
CARMELA N. MERENDINO, 31, was elected Vice President -- Administration in
October 1988. Ms. Merendino joined the Company in March 1985 and performed a
variety of corporate administrative functions for the Company prior to her
election as Vice President -- Administration.
ANTHONY J. MISSANO, 37, was elected Vice President -- Operations (West) in
February 1995, prior to which he served as a Zone Vice President since joining
the Company in June 1992. Mr. Missano served as a consultant to the Company from
June 1992 until he became a full time employee at the end of fiscal 1993. From
November 1988 until he joined the Company, Mr. Missano served as President of
Anaton Corp., a franchisee of the Company.
JAMES M. O'SHEA, 43, joined the Company in January 1995 and was elected
Vice President -- Human Resources in February 1995. Prior to joining the
Company, Mr. O'Shea served as Director of Human Resources and Administration of
Euro-Disney SCA (a theme park operator) from October 1991 through August 1994
and Staff Vice President -- Personnel of Cunard Line Ltd. (a cruise line and
hotel operator) from September 1986 through May 1991.
GENNARO A. SBARRO, 29, was elected Vice President -- Franchising in
February 1995. For more than five years prior thereto, Mr. Sbarro served in
various operational positions for the Company.
GENNARO J. SBARRO, 33, was elected Vice President -- Operations (East) in
February 1995. For more than five years prior thereto, Mr. Sbarro served in
various capacities for the Company.
LANCE H. STURGES, 50, joined the Company in November 1994 and was elected
Vice President -- Real Estate in February 1995. Mr. Sturges served as Vice
President of First Union Management Inc. (a real estate investment trust) from
June 1994 until he joined the Company; Division Head in the Leasing Department
of DeBartolo Corp. (a developer of commercial property) from November 1991 until
June 1994, and the principal of Lancer & Associates (a commercial real estate
company) from July 1990 until November 1991. In March 1993, Mr. Sturges filed a
voluntary petition of bankruptcy and received an order of discharge in August
1993.
4
<PAGE> 7
FAMILY RELATIONSHIPS
Mario, Anthony and Joseph Sbarro are the sons of Carmela Sbarro. Carmela N.
Merendino is the daughter and Gennaro A. Sbarro is the son of Mario Sbarro.
Gennaro J. Sbarro is the son and Anthony J. Missano is the son-in-law of Joseph
Sbarro.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of shares of the Company's Common Stock, as of March 31, 1996 (except as noted
below), with respect to (a) holders known to the Company to beneficially own
more than five percent of the outstanding Common Stock of the Company, (b) each
director and nominee, (c) each executive officer named in the Summary
Compensation Table under the caption "Executive Compensation" below and (d) all
directors and executive officers of the Company as a group. The Company
understands that, except as noted below, each beneficial owner has sole voting
and investment power with respect to all shares attributable to such owner.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS(2)
- ------------------------------------------------------------- ----------------------- ----------
<S> <C> <C>
Mario Sbarro(3).............................................. 1,936,920(4) 9.4%
Anthony Sbarro(3)............................................ 1,588,300(5) 7.7%
Joseph Sbarro(3)............................................. 2,157,914(6) 10.5%
Trust of Carmela Sbarro(3)................................... 2,497,884(7) 12.3%
Harold L. Kestenbaum......................................... 18,000(8) *
Richard A. Mandell........................................... 11,250(9) *
Paul A. Vatter............................................... 13,500(9) *
Terry Vince.................................................. 14,550(9) *
Bernard Zimmerman............................................ 48,750(10) *
Lance H. Sturges............................................. -- *
Robert S. Koebele............................................ 13,000(11) *
All directors and executive officers as a group (14
persons)................................................... 8,327,749(12) 39.6%
</TABLE>
- ---------------
(1) Shares subject to options are considered beneficially owned to the extent
currently exercisable or exercisable within 60 days after March 31, 1996.
(2) Asterisk indicates less than 1%. Shares subject to such options are
considered outstanding only for the purpose of computing the percentage of
outstanding Common Stock which would be owned by the optionee if such
options were exercised, but (except for the calculation of beneficial
ownership by all executive officers and directors as a group) are not
considered outstanding for the purpose of computing the percentage of
outstanding Common Stock owned by any other person.
(3) The business address of each of Mario Sbarro, Joseph Sbarro, Anthony Sbarro
and the Trust of Carmela Sbarro is 763 Larkfield Road, Commack, New York
11725.
(4) Includes (i) 2,490 shares owned by a child of Mr. Sbarro who resides in his
household (as to which shares Mr. Sbarro disclaims beneficial ownership),
(ii) 18,050 shares owned by a charitable foundation of which Mr. Sbarro and
his wife are two of the directors (and, as such, may be deemed to have
shared voting and dispositive power with respect to such shares) and (iii)
270,000 shares subject to options. Excludes the shares held by the Trust of
Carmela Sbarro, of which trust Mario Sbarro serves as a trustee and as to
which shares Mr. Sbarro may be deemed a beneficial owner with shared voting
and dispositive power.
(5) Includes 165,000 shares subject to options.
(6) Includes (i) 609,000 shares owned by a partnership of which Mr. Sbarro is
the sole general partner and (ii) 150,000 shares subject to options.
(7) The trust was created by Carmela Sbarro for her benefit and for the benefit
of her descendants, including Mario, Joseph and Anthony Sbarro. The
trustees of the trust are Franklin Montgomery, whose business address is
488 Madison Avenue, New York, New York 10022, and Mario Sbarro. As
trustees,
5
<PAGE> 8
Franklin Montgomery and Mario Sbarro may be deemed to be the beneficial
owners of these shares with shared voting and dispositive power.
(8) Represents (i) 6,750 shares owned by Mr. Kestenbaum's wife, as to which
shares Mr. Kestenbaum disclaims beneficial ownership, and (ii) 11,250
shares subject to options.
(9) Includes 11,250 shares subject to options.
(10) Represents 11,250 and 37,500 shares subject to options held respectively by
Mr. Zimmerman individually and Bernard Zimmerman and Company, Inc., a
company of which Mr. Zimmerman is President and a majority shareholder.
(11) Includes 2,500 shares subject to options.
(12) Includes (i) an aggregate of 13,530 shares owned by spouses and children
who reside in their households (as to which shares beneficial ownership is
disclaimed), (ii) 18,050 shares owned by a charitable foundation and (iii)
699,501 shares subject to options.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long-term compensation of the Company's chief executive officer and other four
most highly compensated persons who were serving as executive officers of the
Company at the end of the Company's 1995 fiscal year for services in all
capacities to the Company and its subsidiaries during the Company's 1995, 1994
and 1993 fiscal years:
<TABLE>
<CAPTION>
LONG TERM
NAME AND ANNUAL COMPENSATION COMPENSATION
PRINCIPAL --------------------- ------------
POSITION(1) YEAR SALARY BONUS OPTIONS
- ------------------------------------------------- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Mario Sbarro..................................... 1995 $400,000 $112,500 --
Chairman of the Board and Chief Executive Officer 1994 400,000 225,000 --
1993 400,000 225,000 120,000
Anthony Sbarro................................... 1995 300,000 87,500 --
President, Chief Operating Officer and Treasurer 1994 235,000 175,000 --
1993 235,000 175,000 90,000
Joseph Sbarro.................................... 1995 250,000 75,000 --
Senior Executive Vice President and Secretary 1994 235,000 150,000 --
1993 235,000 150,000 75,000
Lance H. Sturges................................. 1995 238,500 -- --
Vice President -- Real Estate 1994 36,716(2) -- 5,000
Robert S. Koebele................................ 1995 175,000 30,000 --
Vice President -- Finance and Chief Financial 1994 163,000 50,000 5,000
Officer 1993 155,000 46,500 7,500
</TABLE>
- ---------------
(1) Prior to December 21, 1993, Mario Sbarro served as Chairman of the Board of
Directors and President of the Company, Anthony Sbarro served as Executive
Vice President and Treasurer of the Company and Joseph Sbarro served as
Executive Vice President and Secretary of the Company.
(2) Mr. Sturges joined the Company in November 1994.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No options or stock appreciation rights were granted to any executive
officer named in the Summary Compensation Table during the Company's 1995 fiscal
year.
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<PAGE> 9
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END VALUES
The following table sets forth certain information concerning the number of
shares of Common Stock acquired upon the exercise of stock options during the
Company's fiscal year ended December 31, 1995 by, and the number and value at
December 31, 1995 of shares of Common Stock subject to unexercised options held
by, the executive officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
AT FISCAL AT FISCAL
YEAR-END YEAR-END
SHARES ACQUIRED VALUE (EXERCISABLE/ (EXERCISABLE/
NAME ON EXERCISE REALIZED(1) UNEXERCISABLE) UNEXERCISABLE)(2)
- ------------------------------------------- --------------- ----------- ---------------- -----------------
<S> <C> <C> <C> <C>
Mario Sbarro............................... -- -- 270,000/ 0 $124,995/ 0
Anthony Sbarro............................. -- -- 165,000/ 0 $ 62,498/ 0
Joseph Sbarro.............................. -- -- 150,000/ 0 $ 62,498/ 0
Lance H. Sturges........................... -- -- 0 / 5,000 $ 0 / 0
Robert S. Koebele.......................... 3,000 $25,937 4,000/11,500 $ 6,625/$10,125
</TABLE>
- ---------------
(1) Represents the closing price of the Company's Common Stock on the New York
Stock Exchange on the dates of exercise of the options, minus the applicable
option exercise prices.
(2) Represents the closing price of the Company's Common Stock on the New York
Stock Exchange on December 29, 1995, the last trading day of the Company's
1995 fiscal year, minus the respective exercise prices.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEES
This report is presented by the Compensation Committee of the Board of
Directors, except for the portion of the report under the caption "Long-Term
Incentive Compensation", which is presented by the Board's Stock Option
Committee. The Compensation Committee establishes the compensation for the
Company's three principal executive officers (Mario, Anthony and Joseph Sbarro)
and, with the recommendation of the Company's Chief Executive and Chief
Operating Officers, the compensation of the other executive officers of the
Company. The Stock Option Committee administers (including making grants under)
the Company's 1991 Stock Incentive Plan. Each Committee consists exclusively of
non-employee directors. This report describes the policies of the Committees as
in effect in fiscal 1995. As circumstances arise and the Committees deem it
appropriate, policies in effect from time to time may change.
It is the philosophy of the Committees to utilize a combination of salary
as a base for compensation, annual bonuses as a means of short-term incentive
and stock options to provide long-term incentive. Consequently, the Compensation
and Stock Option Committees coordinate their efforts to determine overall
compensation of executive officers, using information contained in surveys of
compensation levels at other restaurant companies to supplement objective and
subjective factors.
In establishing, at the outset of fiscal 1995, compensation levels for the
Company's executive officers for fiscal 1995, the Compensation Committee
reviewed, among other things, information contained in proxy statements of other
restaurant companies, the results and performance of which the Company regularly
reviews and monitors, proxy statements of various retailers and compensation
surveys published by consulting firms, major public accounting firms and others.
The Compensation Committee, in part, uses the information as a guideline in
considering how the Company's compensation compares to the compensation being
paid by the Company's competitors, as well as by others with whom the Company
may be competing for talent.
Base Salary. The Compensation Committee reviews the base salary of each
executive officer of the Company annually. In determining the base salaries to
be paid to executive officers, the Compensation Committee considers, among other
factors, the executive's level of responsibility, performance, experience and
expertise, compensation paid to executives performing similar duties for other
companies and general
7
<PAGE> 10
economic factors. The Compensation Committee, in consultation with the Company's
Chief Executive Officer, also reviewed the performance of each of the Company's
executive officers, as well as compensation of executives occupying comparative
positions in other restaurant and retail organizations derived from its informal
studies. The Committee's reviews have been qualitative in nature, without
specific weights being assigned to the various factors employed by it. In
determining base salary to be paid to executive officers for fiscal 1995, the
Committee considered the fact that the Company's revenues, earnings and
shareholders equity had increased in fiscal 1994. In determining the fiscal 1995
compensation of Messrs. Anthony Sbarro, the Company's President, and Joseph
Sbarro, the Company's Senior Executive Vice President, the Compensation
Committee also considered the fact that neither had received base salary
increases since early 1992. In light of the fact that the Company's performance
in fiscal 1995 did not meet management's expectations, the Compensation
Committee has determined to defer consideration of increases for all executive
officers until later in fiscal 1996 after it has reviewed the Company's and its
executive officers' performance as the year progresses.
Annual Incentive Compensation. The Company continues to place emphasis on
incentive compensation. The Chief Executive Officer of the Company sets
individual performance objectives and goals for each executive officer other
than himself. These goals may be based on specific performance related targets
(including the accomplishment of certain specific programs) established for the
particular executive, for his or her area of responsibility or on a corporate
basis, or may be subjective. Goals may be adjusted periodically throughout the
year. The Chairman of the Compensation Committee meets periodically with the
Chief Executive Officer to review the performance of executive officers. In
determining the amount of annual bonuses, at the end of the year, the Committee
examines, without assigning specific weight to any factor, such factors as the
Company's revenues and profitability for the year, the degree to which the
Company has fulfilled objectives developed at the beginning of the year, the
executive's contribution toward the Company's profitability and meeting
corporate goals, the degree to which the executive achieved his or her personal
performance goals for the year and information concerning bonuses paid by
competitors as indicated in the informal Committee surveys. Because the
Company's earnings in fiscal 1995 were below management's expectations, while
still seeking to recognize the Company's continued strong profitability and the
effort of the Company's executive officers, including its three principal
executive officers, in directing the Company's efforts to improve its earnings,
the Committee reduced the annual bonus payable to the Company's executive
officers for fiscal 1995.
Long-Term Incentive Compensation. The Company has utilized stock options
as the primary method of providing long-term incentive compensation. The Company
believes stock options foster the interest of key employees in seeking long-term
growth for the Company, as well as linking the interests of its executives with
the overall interests of stockholders. The Compensation Committee, in the case
of executive officers, and the Company's Chief Executive Officer and Chief
Operating Officer make recommendations to the Stock Option Committee from time
to time with respect to the grant of stock options to employees in light of
their level of responsibility, compensation level, prior contribution to the
Company's performance and the future goals and the performance expected of them.
However, the determination of the grant of options rests with the Stock Option
Committee. Although the Stock Option Committee does review the value of options
granted by other restaurant companies obtained from the informal surveys it
reviews, it does not target its grants of options to those granted by others.
The Stock Option Committee did not grant options to any executive officers in
fiscal 1995. Like the Compensation Committee, the Stock Option Committee intends
to review the Company's and its executive officers' performance, as well as the
other factors it utilizes in determining option grants, during the course of
fiscal 1996 to determine whether, and, if so, the extent to which, to grant
options to executive officers during fiscal 1996.
Chief Executive Officer Compensation. The compensation of Mario Sbarro,
the Company's Chief Executive Officer, is comprised of the same three components
as that of the Company's other executive officers. While it remains the belief
of the Compensation Committee that Mr. Sbarro's compensation should be in the
top quartile of the compensation levels of chief executive officers in the
Company's peer group, with the concurrence of Mr. Sbarro, the Compensation
Committee has not increased his base salary since early 1992, but rather has
emphasized incentive compensation. The incentive compensation paid to Mr. Sbarro
for
8
<PAGE> 11
1995 was 50% of his incentive compensation paid for fiscal 1993 and 1994, and no
stock options were granted to Mr. Sbarro by the Stock Option Committee in fiscal
1995.
Certain Tax Legislation. Section 162(m) of the Internal Revenue Code of
1986 (the "Code") precludes a public company from taking a federal income tax
deduction for annual compensation in excess of $1,000,000 paid to its chief
executive officer or any of its four other most highly compensated executive
officers. Certain "performance based compensation" is excluded from the
deduction limitation. In light of amendments adopted by shareholders in 1994 to
the Company's 1991 Stock Incentive Plan, any compensation resulting from the
exercise of stock options granted by the Company should be eligible for the
exclusion. Based upon Internal Revenue Service proposed regulations and present
compensation levels, the Compensation Committee believes that the limitations on
compensation deductibility under Section 162(m) of the Code will have no effect
on the Company in the foreseeable future.
Respectfully submitted,
<TABLE>
<S> <C>
Compensation Committee Stock Option Committee
Bernard Zimmerman, Chairman Harold L. Kestenbaum, Chairman
Harold L. Kestenbaum Paul A. Vatter
Terry Vince Terry Vince
</TABLE>
PERFORMANCE GRAPH
The following graph compares the cumulative return on investment to holders
of the Company's Common Stock for the five years ended December 31, 1995 with
the Standard & Poor's ("S&P") Restaurant Index and S&P 500 Index for the same
period. The comparison assumes $100 was invested on December 31, 1990 in the
Company's Common Stock and in each of the comparison groups, and assumes
reinvestment of dividends. In February 1993, the Company initiated a policy of
paying quarterly dividends. Dividends of $.13 1/3, $.16 and $.19 per share were
declared in each of the four quarters of fiscal 1993, 1994 and 1995,
respectively. In February 1996, the Company further increased its quarterly
dividend to $.23 per share.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG SBARRO, INC., THE S&P 500 INDEX
AND THE S&P RESTAURANTS INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD S&P RESTAU-
(FISCAL YEAR COVERED) SBARRO, INC. S&P 500 RANTS
<S> <C> <C> <C>
12/90 100 100 100
12/91 125 130 135
12/92 110 140 173
12/93 141 155 202
12/94 128 157 201
12/95 109 215 302
</TABLE>
9
<PAGE> 12
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is the sublessee of its headquarters office building (the
"Headquarters"), which is leased from the Suffolk County Industrial Development
Agency (the "Agency") by Sbarro Enterprises, L.P., a Delaware limited
partnership, and, in turn, subleased to the Company. The annual rent payable
pursuant to the sublease was $298,000 during fiscal 1995 and increased to
$337,000 in April 1996 for the remaining five years of the lease term. In
addition, the Company is obligated to pay real estate taxes, utilities,
insurance and certain other expenses for the facility. Management believes that
such rents are comparable to the rents that would be charged by an unaffiliated
third party. Payment of principal and interest and any premium on the bonds
issued by the Agency to fund construction of the headquarters is severally
guaranteed by Mario, Joseph and Anthony Sbarro. The limited partners of Sbarro
Enterprises, L.P. are Mario, Joseph, Anthony and Carmela Sbarro.
The mother of Mario, Anthony and Joseph Sbarro and Vice President, Director
Emeritus and a co-founder of the Company; a son of Mario Sbarro; a daughter of
Mario Sbarro; a son of Joseph Sbarro; and the son-in-law of Joseph Sbarro are
employed by the Company in various capacities, for which they received $100,000,
$130,000, $86,500, $173,000 and $173,000, respectively, for services rendered
during fiscal 1995. In addition, ten other members of the immediate family of
Mario, Anthony and Joseph Sbarro received an aggregate of $453,362 for services
rendered as employees during fiscal 1995.
The Company has purchased printing services from a corporation owned by a
son-in-law of Mario Sbarro in the amount of approximately $210,000 during fiscal
1995. The Company believes that these services were provided on terms comparable
to those that would have been available from unrelated third parties.
During fiscal 1995, companies owned by a son of Anthony Sbarro and a
company owned by the daughter of Joseph Sbarro paid royalties to the Company
aggregating approximately $59,000 and $41,000, respectively, under franchise
agreements containing terms similar to those in agreements entered into by the
Company with unrelated franchisees.
PROPOSAL 2
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Arthur Andersen LLP has audited the financial statements of the
Company for the past six years and the Board of Directors has, subject to
ratification by shareholders, appointed that firm to act as its independent
public accountants for the Company's fiscal year ending December 29, 1996.
Accordingly, management will present to the Meeting a resolution ratifying the
appointment of Arthur Andersen LLP as the Company's independent public
accountants for the fiscal year ending December 29, 1996.
A representative of Arthur Andersen LLP is expected to be present at the
Meeting with the opportunity to make a statement if the representative desires
to do so and is expected to be available to respond to appropriate questions
addressed by shareholders.
VOTING REQUIREMENTS
Directors are elected by a plurality of the votes cast at the Meeting
(Proposal 1). The affirmative vote of a majority of the votes cast at the
Meeting will be required to ratify the appointment of Arthur Andersen LLP as the
Company's independent public accountants for the Company's fiscal year ending
December 29, 1996 (Proposal 2). Abstentions and broker nonvotes with respect to
any matter are not considered as votes cast with respect to that matter. The
Board of Directors has unanimously recommended a vote in favor of each nominee
named in the Proxy and FOR Proposal 2.
10
<PAGE> 13
MISCELLANEOUS
SHAREHOLDER PROPOSALS
Any shareholder proposal intended to be presented at the 1997 Annual
Meeting of Shareholders must be received by the Company not later than December
31, 1996 for inclusion in the Company's proxy statement and form of proxy for
that meeting.
OTHER MATTERS
Management does not intend to bring before the Meeting for action any
matters other than those specifically referred to above and is not aware of any
other matters which are proposed to be presented by others. If any other matters
or motions should properly come before the Meeting, the persons named in the
Proxy intend to vote thereon in accordance with their judgment on such matters
or motions, including any matters or motions dealing with the conduct of the
Meeting.
PROXIES
All shareholders are urged to fill in their choices with respect to the
matters to be voted upon, sign and promptly return the enclosed form of Proxy.
By Order of the Board of Directors,
JOSEPH SBARRO,
Secretary
April 26, 1996
11
<PAGE> 14
PROXY PROXY
- ----- -----
SBARRO, INC.
(Solicited on Behalf of the Board of Directors)
The undersigned holder of Common Stock of SBARRO, INC., revoking all proxies
heretofore given, hereby constitutes and appoints Mario Sbarro and Anthony
Sbarro, and each of them, Proxies, with full power of substitution, for the
undersigned and in the name, place and stead of the undersigned, to vote all of
the undersigned's shares of said stock, according to the number of votes and
with all the powers the undersigned would possess if personally present, at the
Annual Meeting of Shareholders of SBARRO, INC., to be held at Boulder Creek
Steaks & Saloon, 6321 Northern Boulevard (Route 25A) at the intersection of
Route 106, East Norwich, New York on Wednesday, May 22, 1996 at 11:00 A.M.,
Eastern Daylight Savings time, and at any adjournments or postponements thereof.
The undersigned hereby acknowledges receipt of the Notice of Meeting and Proxy
Statement relating to the meeting and hereby revokes any proxy or proxies
heretofore given.
Each properly executed Proxy will be voted in accordance with the specifications
made on the reverse side of this Proxy and in the discretion of the Proxies on
any other matter that may properly come before the meeting. Where no choice is
specified, this Proxy will be voted FOR all listed nominees to serve as
directors and FOR Proposal 2.
PLEASE MARK, DATE AND SIGN THIS PROXY ON THE REVERSE SIDE
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 15
<TABLE>
<CAPTION>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL LISTED NOMINEES AND FOR PROPOSAL 2. Please mark
your votes as /X/
indicated in
this example.
<S> <C> <C>
1. Election of three Class 1 Directors
FOR all nominees listed WITHHOLD Nominees: Anthony Sbarro, Harold L. Kestenbaum and Paul A. Vatter
(except as marked to AUTHORITY
the contrary) to vote for all (Instruction: To withhold authority to vote for any individual
listed nominees nominee, circle that nominee's name in the list provided above.)
/ / / /
2. Ratify the appointment of Arthur Andersen LLP as
the Company's independent public accountants.
FOR AGAINST ABSTAIN
/ / / / / /
Will Attend the Meeting: / /
Date: , 1996
---------------------------------------------
---------------------------------------------
---------------------------------------------
Signatures(s)
(Signatures should conform to names as registered. For jointly owned shares,
each owner should sign. When signing as attorney, executor, administrator,
trustee, guardian or officer of a corporation, please give full title as such,
and, if signing for a corporation, please give title.)
PLEASE MARK AND SIGN ABOVE AND RETURN PROMPTLY
- ------------------------------------------------------------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
</TABLE>
