______________________________________________________________________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/ X / Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended April 20, 1997 Commission File Number 1-8881
SBARRO, INC.
(Exact name of registrant as specified in its Charter)
NEW YORK 11-2501939
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
763 Larkfield Road, Commack, New York 11725
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (516) 864-0200
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class Outstanding at May 30, 1997
Common Stock, $.01 par value 20,492,906
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______________________________________________________________________<PAGE>
SBARRO, INC.
FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION PAGES
Consolidated Financial Statements:
Balance Sheets - April 20, 1997 (unaudited) and
December 29, 1996. . . . . . . . . . . . . . . . . . . . . . 3-4
Statements of Income (unaudited) - Sixteen Weeks
ended April 20, 1997 and April 21, 1996 . . . . . . . . . . .5
Statements of Cash Flows (unaudited) - Sixteen
Weeks ended April 20, 1997 and April 21, 1996 . . . . . . . .6-7
Notes to Unaudited Consolidated Financial Statements -
April 20, 1997. . . . . . . . . . . . . . . . . . . .8
Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . 9-11
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . 12
Pg. 2<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
April 20, 1997 December 29, 1996
(unaudited)
Current assets:
Cash and cash equivalents $ 89,905 $104,818
Marketable securities 2,500 2,500
Receivables:
Franchisees 720 743
Other 1,256 1,122
1,976 1,865
Inventories 2,579 2,841
Prepaid expenses 3,247 1,409
Total current assets 100,207 113,433
Marketable securities 7,500 7,500
Property and equipment, net 134,404 130,993
Other assets:
Deferred charges, net of
accumulated amortization
of $1,851,000 at April 20,
1997 and $1,436,000 at
December 29, 1996 1,686 1,633
Other 5,194 5,100
6,880 6,733
$248,991 $258,659
(continued)
Pg. 3<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands)
April 20, 1997 December 29, 1996
(unaudited)
Current liabilities:
Accounts payable $6,598 $7,173
Accrued expenses 19,658 22,663
Dividend payable - 4,691
Income taxes 1,152 5,287
Total current liabilities 27,408 39,814
Deferred income taxes 13,546 13,645
Shareholders' equity:
Preferred stock, $1 par value;
authorized 1,000,000 shares;
none issued
Common stock, $.01 par value;
authorized 40,000,000 shares;
issued and outstanding 20,413,491
shares at April 20, 1997 and
20,392,909 shares at
December 29, 1996 204 204
Additional paid-in capital 31,681 31,219
Retained earnings 176,152 173,777
208,037 205,200
$248,991 $258,659
See notes to unaudited consolidated financial statements
Pg. 4<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share data)
For the sixteen weeks ended:
April 20, April 21,
1997 1996
Revenues:
Restaurant sales $92,259 $85,283
Franchise related income 1,793 1,672
Interest income 1,312 1,102
Total revenues 95,364 88,057
Costs and expenses:
Cost of food and paper products 18,935 18,561
Restaurant operating expenses:
Payroll and other employee
benefits 24,255 22,388
Occupancy and other 27,807 24,864
Depreciation and amortization 7,037 6,736
General and administrative 5,142 4,617
Other income (530) (432)
Total costs and expenses 82,646 76,734
Income before income taxes 12,718 11,323
Income taxes 4,833 4,348
Net income $ 7,885 $ 6,975
Per share data:
Earnings per common and common
equivalent share $0.39 $0.34
Weighted average number of shares
used in the computation 20,401,538 20,348,179
See notes to unaudited consolidated financial statements
Pg. 5<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
For the sixteen weeks ended:
April 20, April 21,
1997 1996
Operating activities:
Net income $7,885 $6,975
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 7,037 6,736
Provision for deferred income
taxes (99) (1,204)
Changes in operating assets
and liabilities:
Increase in receivables (111) (335)
Decrease in inventories 262 290
Increase in prepaid expenses (1,838) (1,274)
Increase in deferred charges (468) (434)
Increase in other assets (172) (202)
Decrease in accounts payable
and accrued expenses (3,580) (6,185)
Decrease in income taxes
payable (4,135) (2,037)
Net cash provided by operating
activities 4,781 2,330
Investing activities:
Purchases of property and equipment (9,955) (4,977)
Net cash used in investing
activities (9,955) (4,977)
(continued)
Pg. 6<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(In thousands)
For the sixteen weeks ended:
April 20, April 21,
1997 1996
Financing activities:
Proceeds from exercise of
stock options 462 184
Cash dividends paid (10,201) (8,546)
Net cash used in financing
activities (9,739) (8,362)
Decrease in cash and cash
equivalents (14,913) (11,009)
Cash and cash equivalents at
beginning of period 104,818 93,501
Cash and cash equivalents at
end of period $89,905 $82,492
Supplemental disclosure of cash flow information:
Cash paid during the period
for income taxes $8,991 $7,578
See notes to unaudited consolidated financial statements
Pg. 7<PAGE>
SBARRO, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
1. The accompanying unaudited consolidated financial statements
have been prepared in accordance with the instructions for
Form 10-Q and Regulation S-X related to interim period
financial statements and, therefore, do not include all
information and footnotes required by generally accepted
accounting principles. However, in the opinion of
management, all adjustments (consisting of normal recurring
adjustments and accruals) considered necessary for a fair
presentation of the consolidated financial position of the
Company and its subsidiaries at April 20, 1997 and their
consolidated results of operations and cash flows for the
sixteen weeks ended April 20, 1997 and April 21, 1996 have
been included. The results of operations for the interim
periods are not necessarily indicative of the results that
may be expected for the entire year. Reference should be
made to the annual financial statements, including footnotes
thereto, included in the Company's Annual Report on Form 10-
K for the fiscal year ended December 29, 1996.
2. In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS)
No. 128, Earnings Per Share. SFAS No. 128 simplifies the
standards for computing earnings per share previously found
in APB Opinion No. 15, Earnings Per Share and is effective
for financial statements issued for periods ending after
December 15, 1997, including interim periods; earlier
adoption is not permitted. The Company does not expect the
adoption of SFAS No. 128 to have a significant impact to its
reported results.
Pg. 8<PAGE>
SBARRO, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The Company's business is subject to seasonal fluctuations,
the effects of weather and economic conditions. Earnings have been
highest in its fourth quarter due primarily to increased traffic in
shopping malls during the holiday shopping season. Normally, the
fourth fiscal quarter accounts for approximately 40% of net income for
the year. In 1996, the fourth fiscal quarter accounted for 39% of net
income for the year The length of the holiday shopping period between
Thanksgiving and Christmas and the number of weeks in the fourth
quarter can produce changes in the fourth quarter earnings
relationship from year to year.
The following table provides information concerning the
number of Company-owned and franchised restaurants in operation during
each indicated period:
16 Weeks 16 Weeks
Ended Ended Fiscal Year
04/20/97 04/21/96 1996 1995
Company-owned restaurants:
Opened during period 11 9 29 44
Acquired from (sold to)
franchisees during
period-net - - 1 -
Closed during period (2) (3) (4) (40)
Open at end of period 606 577 597 571
Franchised restaurants:
Opened during period 7 7 36 40
Purchased from (sold to)
Company during period-net - - (1) -
Closed or terminated
during period (12) (5) (16) (2)
Open at end of period 214 202 219 200
All restaurants:
Opened during period 18 16 65 84
Closed or terminated
during period (14) (8) (20) (42)
Open at end of period 820 779 816 771
In addition, franchisees operate seven kiosk/cart units.
Pg. 9<PAGE>
Restaurant sales from Company-owned units increased 8.2% to
$92,259,000 for the sixteen weeks ended April 20, 1997 from
$85,283,000 for the sixteen weeks ended April 21, 1996. This
increase resulted primarily from an increase in the number of
units in operation during the sixteen weeks ended April 20, 1997
and a .9% increase (from $84,148,000 in 1996 to $84,914,000 in
1997) in comparable unit sales. Another factor affecting sales
was the selective menu price increases of approximately .5% and
1% effective in mid April 1996 and mid July 1996. Comparable
unit sales are made up of sales at locations that were open
during the entire current period and prior fiscal year.
Franchise related income increased 7.2% to $1,793,000 for the
sixteen weeks ended April 20, 1997 from $1,672,000 for the
sixteen weeks ended April 21, 1996. This increase resulted from
higher continuing royalties due to a higher number of franchise
units in operation in 1997 and an increase in initial franchise
fees due to opening more international franchise units in 1997
than in the comparable period in 1996.
Interest income increased to $1,312,000 for the sixteen weeks
ended April 20, 1997 from $1,102,000 for the sixteen weeks ended
April 21, 1996. This increase was primarily due to larger
amounts of cash invested at similar interest rates in the current
period over the comparable period in 1996.
Cost of food and paper products as a percentage of restaurant
sales decreased to 20.5% for the sixteen weeks ended April 20,
1997 from 21.8% for the sixteen weeks ended April 21, 1996. This
improvement resulted from lower food prices, primarily cheese,
lower prices of various paper products and the selective menu
price increases effective in 1996.
Restaurant operating expenses - payroll and other employee
benefits, as a percentage of restaurant sales, were 26.3% for the
sixteen weeks ended April 20, 1997 and April 21, 1996.
Restaurant operating expenses - occupancy and other increased, as
a percentage of restaurant sales, to 30.1% for the sixteen weeks
ended April 20, 1997 from 29.2% for the period ended April 21,
1996. This increase is principally attributable to rent and
lease related charges which increased at a faster rate than
sales.
Depreciation and amortization expenses increased to $7,037,000
for the sixteen weeks ended April 20, 1997 from $6,736,000 for
the sixteen weeks ended April 21, 1996. This increase was
primarily the result of the number of additional Company-owned
units in operation during the sixteen weeks ended April 20, 1997
over the number of units in operation during the comparable
period in fiscal 1996.
For the sixteen weeks ended April 20, 1997, general and
administrative expenses were $5,142,000 or 5.4% of total
revenues, compared to $4,617,000 or 5.2% of total revenues in the
sixteen weeks ended April 21, 1996. This increase was
Pg. 10<PAGE>
principally the result of salary increases and increased costs
associated with supervising and administering the additional
restaurants in operations.
The effective income tax rate was 38.0% for the sixteen weeks
ended April 20, 1997 and 38.4% for the sixteen weeks ended April
21, 1996.
Liquidity and Capital Resources
At April 20, 1997, the Company had cash, cash equivalents and
marketable securities of $99,905,000 and its working capital was
$72,799,000. Cash and cash equivalents are at their peak at
year-end, following the holilday season, and decline during the
first quarter when accounts payable and accrued expenses (which
are also at their peak during the fourth quarter) and two
quarterly cash dividends are paid. Cash provided by operations
for the sixteen weeks ended April 20, 1997 of $4,781,000 and a
portion of the available working capital was used to purchase
restaurant property and equipment of $9,955,000 and to pay the
two quarterly dividends aggregating $10,201,000. The Company
believes, based on current projections, that its liquid assets
presently on hand, together with cash generated from operations,
should be sufficient for its presently contemplated operations,
dividends and the purchase of property and equipment relating to
its development of restaurants, as well as renovating and
equipping the Company's new headquarters building.
Dividends
On February 20, 1997, the Company increased its quarterly cash
dividend to $.27 per share, or an aggregate annual rate of $1.08
per share. This dividend was paid on April 2, 1997 to
shareholders of record on March 18, 1997, and amounted to
$5,510,113.
On May 22, 1997, the Company declared a quarterly cash dividend
of $.27 per share. The cash dividend will be paid on July 8,
1997 to shareholders of record on June 18, 1996.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders
At the Company's 1997 Annual Meeting of Shareholders held on May
21, 1997, shareholders:
(a) Elected the following to serve as Class 2 directors until
the Company's 1999 Annual Meeting of Shareholders to be held iln
the year 2000 and until their respective successors are elected
and qualified, by the following vote:
Pg. 11<PAGE>
For Withheld
Richard A. Mandell 18,316,973 189,345
Joseph Sbarro 18,324,473 181,845
Terry Vince 18,317,373 188,945
(b) Approved amendments to the Company's 1991 Stock Incentive
Plan (the ``1991 Plan'') to (i) increase the number of shares of
the Company's Common Stock reserved for issuance under the 1991
Plan by an aggregate of 2,000,000 shares and (ii) change the
limit on the number of shares of the Company's Common Stock that
may be subject to options or stock appreciation rights that may
be granted under the 1991 Plan to any one individual in any
fiscal year of the Company from 100,000 to 250,000 shares, by the
following vote:
For Against Abstain Non-Votes
13,194,434 3,246,260 192,414 1,873,210
(c) Approved an amendment to the Company's 1993 Non-Employee
Director Stock Option Plan (the ``1993 Non-Employee Director
Plan'') to provide that the term of all previously granted
options and all options to be granted in the future under the
1993 Non-Employee Director Plan be ten years in lieu of five
years, by the following vote:
For Against Abstain Non-Votes
17,927,132 338,540 181,704 58,942
(d) Approved the Company's Performance Incentive Plan by the
following vote:
For Against Abstain Non-Votes
16,984,333 1,300,753 181,180 40,052
(e) Ratified the action of the Board of Directors in appointing
Arthur Andersen LLP as the Company's independent public
accountants for the Company's fiscal year ending December 28,
1997, by the following vote:
For Against Abstain Non-Votes
18,310,637 6,639 189,042 0
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
No. Description
3 By-Laws, amended. Incorporated by reference to
Exhibit 3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended April 21, 1996.
(File No. 1-8881).
10.1 The Company's 1991 Stock Incentive Plan, as
amended.
Pg. 12<PAGE>
10.2 The Company's 1993 Non-Employee Director Stock
Option Plan, as amended.
10.3 The Company's Performance Incentive Plan.
Incorporated by reference to Exhibit A to the
Company's Proxy Statement dated April 29, 1997.
(File No. 1-8881).
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the quarter for
which this Report is filed.
Pg. 13<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.
SBARRO, INC.
Registrant
Date: June 4, 1997 By: /s/ MARIO SBARRO
Mario Sbarro
Chairman of the Board and President
Date: June 4, 1997 By: /s/ ROBERT S. KOEBELE
Robert S. Koebele
Vice President-Finance
Pg. 14<PAGE>
EXHIBIT INDEX
Exhibit Number Description Page
3 By-Laws, as amended. Incorporated by
reference to Exhibit 3 to the Company's
Quarterly Report on Form 10-Q for the
quarter ended April 21, 1996.
(File No. 1-8881).
10.1 The Company's 1991 Stock Incentive Plan,
as amended. 16
10.2 The Company's 1993 Non-Employee Director
Stock Option Plan, as amended 25
10.3 The Company's Performance Incentive Plan.
Incorporated by reference to Exhibit A
to the Company's Proxy Statement dated
April 29, 1997. (File No. 1-8881).
27 Financial Data Schedule 34<PAGE>
SBARRO, INC.
1991 STOCK INCENTIVE PLAN
(as amended through May 21, 1997 and adjusted to reflect
3-for-2 stock split distributed September 22, 1994)
1. Purpose of the Plan
The purpose of this 1991 Stock Incentive Plan (the
"Plan") of Sbarro, Inc., a New York corporation (the
"Corporation"), is to promote the interests of the Corporation in
attracting and retaining employees, consultants and advisors by
enabling them to acquire or increase a proprietary interest in
the Corporation, benefit from appreciation in the value of the
Corporation's Common Stock, par value $.01 per share (the "Common
Stock") and, thus, participate in the long-term growth of the
Corporation. The Plan provides for the grant of "incentive stock
options" ("ISOs") within the meaning of Section 422 (formerly
Section 422A) of the Internal Revenue Code of 1986, as amended
(the "Code"), stock options which do not qualify as ISOs
("NQSOs") and stock appreciation rights ("SARs"), which may be
free standing or granted in tandem with an option. The words
"Parent" and "Subsidiary", as used in the Plan, shall mean a
parent corporation or a subsidiary corporation of the
Corporation, respectively, as defined in Section 424 of the Code.
The word "disability", as used in the Plan, shall mean a
"permanent and total disability" under Section 22(e)(3) of the
Code. A "Reporting Person" shall mean any holder of an option or
SAR who is subject to the reporting requirements under Section
16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
2. Stock Subject to the Plan
Subject to the provisions of Article 11, the total
number of shares of Common Stock with respect to which options or
SARs may be granted under the Plan shall not exceed 3,500,000.
Shares issued under the Plan may consist either in whole or in
part of authorized but unissued shares, or shares which shall
have been purchased or acquired by the Corporation for this or
any other purpose which are held in the treasury. In the event
any option or SAR granted under the Plan shall expire, be
canceled or terminate for any reason without it (and without any
related tandem SAR or option) having been exercised in full or
shall cease for any reason to be exercisable in whole or in part,
the shares relating to the expired, canceled or terminated
portion of the option or SAR shall again be available for grant
under the Plan. The number of shares of Common Stock underlying
that portion of an option or SAR which is exercised shall not
again become available for grant under the Plan.
3. Administration of the Plan<PAGE>
(a) The Plan shall be administered by the Board of
Directors of the Corporation or such committee of directors as
the Board of Directors may establish or designate (the
"Committee"), such committee is to be composed of not less than
two members, each of whom must be "non-employee directors" within
the meaning of Rule 16b-3 of the rules and regulations of the
Securities and Exchange Commission promulgated under the Exchange
Act ("Rule 16b-3"). References in the Plan to determinations or
actions of the Committee shall be deemed to include
determinations and actions by the Committee or the Board of
Directors.
(b) The Committee shall determine, within the limits
of the Plan, (i) the individuals to whom, and the time or times
at which, options and SARs shall be granted, (ii) the type of
options (ISOs or NQSOs) and SARs (free standing or in tandem with
ISOs or NQSOs) to be granted and whether SARs are to be granted
before, simultaneously with or subsequent to the grant of an
option, (iii) the number of shares to be subject to each option
or SAR, (iv) the term of each option and SAR, (v) the exercise
price of each option and the base price of each SAR, (vi) the
time or times within which (during the term of the option or SAR)
and conditions, if any, under which all or portions of each
option or SAR may be exercised (including whether and the
conditions, if any, under which all or a portion of an option or
SAR exercisable in installments which is not exercised in any one
period may be exercised in a subsequent period during the term of
the term of the option or SAR) and (vii) such other terms as are
not inconsistent with the Plan and as the Committee may deem
appropriate. In making such determinations, the Committee may
take into account the nature of the services rendered by such
individuals, their present and potential contributions to the
Corporation's success and such other factors as the Committee in
its discretion may deem relevant. Each employee, consultant or
advisor to whom an option or SAR is granted shall enter into a
written agreement with the Corporation, dated as of the date the
option or SAR is granted, setting forth the terms and conditions
of the option or SAR granted, which agreement shall contain such
further terms and conditions, which shall not be inconsistent
with the Plan, as the Committee shall approve or authorize.
(c) The Committee may (with the consent of the holder
of the option or SAR) cancel or modify an option or SAR or grant
an option and/or SAR in substitution for any canceled option or
SAR, provided that any substituted option or SAR and any option
or SAR as modified would be permitted to be granted on such date
under the terms of the Plan and the Code and, in connection
therewith, the Committee may give credit toward any required
vesting period for the period during which the holder held the
canceled option or SAR.
2<PAGE>
(d) Subject to the express provisions of the Plan, the
Committee may interpret the Plan; correct any defect, supply any
omission or reconcile any inconsistency in the Plan; prescribe,
amend and rescind rules and regulations relating to the Plan;
determine the terms and provisions of the respective option and
SAR agreements (which need not be identical); and make all other
determinations necessary or advisable for the administration of
the Plan.
(e) The determination of the Committee on the matters
referred to in this Article 3 shall be conclusive.
4. Eligibility
(a) Options and SARs may be granted only to employees
of, or consultants or advisors to, the Corporation or of any
Subsidiary. A director or officer of the Corporation or of a
Subsidiary who is not also serving the Corporation or a
Subsidiary as an employee, consultant or advisor shall not be
eligible to receive an option or an SAR. Notwithstanding the
foregoing, ISOs may only be granted to employees (including
directors and officers who are employees) of the Corporation or
of a Subsidiary.
(b) The aggregate fair market value (determined at the
time the option is granted) of stock with respect to which ISOs
may be granted under the Plan and any other plan of the
Corporation or of a Subsidiary or of a Parent which are
exercisable for the first time by such optionee during any
calendar year shall not exceed $100,000. Should it be determined
that any ISO granted under the Plan exceeds such maximum, the
excess shall be treated as a separate NQSO.
(c) The maximum number of shares of Common Stock
subject to options and SARs which may be granted to any optionee
under the Plan in any fiscal year of the Corporation shall not
exceed 250,000.
5. Exercise Price and Base Price
(a) The exercise price at which shares of the Common
Stock may be purchased pursuant to options granted under the Plan
and the base price for each SAR granted under the Plan shall be
as determined by the Committee, but shall not be less than 100%
of the fair market value of the Common Stock on the date of
grant; provided, however, that if, at the time an ISO is granted,
the optionee owns (or is deemed to own under applicable
provisions of the Code and regulations promulgated thereunder)
stock possessing more than 10% of the total combined voting power
of all classes of stock of the Corporation or of a Subsidiary or
of a Parent, the exercise price with respect to such ISO shall
3<PAGE>
not be less than 110% of the fair market value of the Common
Stock on the date the option is granted.
(b) Unless otherwise required by the Code and the
applicable regulations promulgated thereunder, if the principal
market for the Common Stock is a national securities exchange,
the fair market value of the Common Stock on any day shall be the
closing price of the Common Stock on such day (or last day of
trade prior to such day, if not traded on such day) as reported
by such exchange or on a consolidated tape reflecting
transactions on such exchange, or, if the principal market for
the Common Stock is not a national securities exchange, the fair
market value will be as determined by the Committee.
(c) The date on which the Committee approves the
granting of an option or SAR (or the later date specified in such
approval) shall be considered the date on which such option or
SAR is granted; provided, however, that any grant of an option or
SAR that is conditioned upon the occurrence or non occurrence of
an event shall not be considered granted until such occurrence or
non occurrence.
6. Term of Each Option and SAR
The term of each option and of each SAR shall be for
such period as the Committee shall determine; provided, however,
that the term of each ISO granted under the Plan shall not be for
a period exceeding ten years from the date of the granting
thereof; and further provided that if, at the time an ISO is
granted, the optionee owns (or is deemed to own under applicable
provisions of the Code and regulations promulgated thereunder)
stock possessing more than 10% of the total combined voting power
of all classes of stock of the Corporation or of a Subsidiary or
of a Parent, the term of such ISO shall be no more than five
years. Options and SARs shall be subject to earlier termination
as provided in the Plan or in the agreement.
7. Exercise of Options and SARs
(a) No option or SAR shall be exercisable at any time
in an amount less than 100 shares (or the remaining shares then
covered by the option or SAR if less than 100 shares). No option
or SAR may be exercised in respect of a fraction of a share.
(b) Any option granted in tandem with an SAR shall no
longer be exercisable to the extent the SAR is exercised and the
exercise of the related option shall cancel the SAR to the extent
of such exercise.
(c) The Corporation shall not be required to issue any
shares pursuant to any such option or SAR exercise until all
required payments have been made by the holder. A person
4<PAGE>
entitled to receive Common Stock upon the exercise of an option
or SAR shall not have the rights of a shareholder with respect to
such shares until the date of issuance of a stock certificate to
him for such shares; provided, however, that until such stock
certificate is issued, any optionee using previously acquired
shares in payment of an option exercise price shall continue to
have the rights of a shareholder with respect to such previously
acquired shares.
8. Payment upon Exercise of an Option or SAR
(a) An option or SAR (or any part or installment
thereof) to the extent exercisable shall be exercised by giving
written notice to the Corporation at its principal office
(currently 763 Larkfield Road, Commack, New York 11725)
Attention: Chief Financial Officer, stating which ISO, NQSO or
SAR is being exercised, specifying the number of shares as to
which such option or SAR is being exercised and, in the case of
an option, accompanied by payment in full of the aggregate
exercise price thereof (or the amount due on exercise if the
option permits installment payments). The Committee may,
however, in its discretion, permit payment of the exercise price
of options by delivery of a properly executed exercise notice,
together with a copy of irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan
proceeds to pay such exercise price. To facilitate the
foregoing, the Company may enter into agreements for coordinated
procedures with one or more brokerage firms.
(b) The exercise price of an option may be paid (i) in
cash or by certified check, (ii) by transferring to the
Corporation previously acquired shares of Common Stock having an
aggregate fair market value on the date of exercise equal to the
aggregate exercise price of all options being exercised, or (iii)
any combination thereof, as determined by the Committee. The
fair market value of the shares so transferred to the Corporation
shall be determined in accordance with Article 5, but shall be
determined as of the date of exercise of the option.
(c) Upon the exercise of an SAR, the holder shall be
entitled to receive an amount equal to the excess of the fair
market value on the date of exercise of the number of shares of
Common Stock as to which the SAR is exercised over the base price
of the portion of the SAR exercised. Such amount shall be paid
(i) in cash or by check, (ii) with Common Stock having an
aggregate fair market value on the date of exercise equal to such
amount, or (iii) any combination thereof, as determined in the
sole discretion of the Committee. The fair market value of such
shares shall be determined in accordance with Article 5, but
shall be determined as of the date of exercise of the SAR.
5<PAGE>
(d) The Corporation may withhold cash and/or, with the
specific authorization of the Committee in the written agreement
granting the option or otherwise, shares of Common Stock to be
issued with respect thereto (the fair market value of which shall
be determined in accordance with Article 5, but shall be
determined as of the date of exercise) in the amount which it
determines is necessary to satisfy the Corporation's obligation
to withhold federal, state or local income taxes or other taxes
incurred by reason of the grant or exercise of an option or SAR,
the disposition of an option or SAR or the disposition of the
underlying shares. Alternatively, the Corporation may require
the holder to pay to the Corporation such amount, in cash,
promptly upon demand.
9. Non-Transferability of Options and SARs
No option or SAR shall be transferable otherwise than
by will or the laws of descent and distribution, and an option or
SAR may be exercised, during the lifetime of the holder thereof,
only by such holder. Except to the extent provided above,
options and SARs may not be assigned, transferred, pledged,
hypothecated or disposed of in any way (whether by operation of
law or otherwise) and shall not be subject to execution,
attachment or similar process.
10. Termination of Relationship with Corporation
(a) Except as provided in the remaining provisions of
this Article 10, an option or SAR shall terminate immediately if
the holder is no longer an employee, consultant or advisor of the
Corporation, a Subsidiary or a Parent.
(b) In the event that such relationship shall be
terminated by reason of the option or SAR holder's disability,
the remaining portion of such option or SAR (to the extent
exercisable on the date of termination) may be exercised by the
holder at any time within one year after such termination, but
not thereafter and in no event after the expiration of the term
of the option or SAR.
(c) In the event that such relationship shall be
terminated by the death of the holder or the holder dies within
one year after such relationship was terminated by reason of his
disability, the remaining portion of such option or SAR (to the
extent exercisable on the date of termination) may be exercised
by a legatee or legatees of such option or such SAR under the
holder's last will, or by the holder's personal representatives
or distributees, at any time within one year after the earlier of
the date of termination by reason of disability or the date of
such holder's death, but not thereafter and in no event after the
expiration of the term of the option or SAR.
6<PAGE>
(d) Nothing in the Plan or in any option or SAR
granted under the Plan shall confer on any individual any right
to continue as an employee, consultant or advisor of the
Corporation or a Subsidiary or a Parent or a corporation or a
parent or subsidiary corporation of the corporation issuing or
assuming the option or SAR, or limit or restrict in any way the
right of any such corporation to terminate the relationship with
the holder of the option or SAR at any time for any reason
whatsoever.
11. Adjustment of and Changes in Common Stock
(a) Notwithstanding any other provisions of the Plan,
in the event of changes in the Common Stock by reason of any
stock dividend, stock split, stock combination, recapitalization,
merger, consolidation, reorganization or the like, the aggregate
number and kind of shares available under the Plan and subject to
each outstanding option and SAR, and the exercise price and base
price of such options and SARs, respectively, and the limitation
under Article 4(c) shall be appropriately adjusted by the Board
of Directors, whose determination shall be conclusive.
(b) In the event of: (1) a dissolution or liquidation
of the Corporation; (2) a merger or consolidation in which the
Corporation is not the surviving corporation; or (3) other
capital reorganization in which more than 50% of the shares of
the Corporation entitled to vote are exchanged, any outstanding
options and SARs hereunder shall terminate, unless other
provision is made therefor in the transaction.
12. Compliance with Securities Laws
It is a condition to the exercise of any option or SAR
that either (a) a Registration Statement under the Securities Act
of 1933, as amended (the " Securities Act"), with respect to such
shares shall be effective at the time of exercise or (b) there is
an exemption from registration under the Securities Act for the
issuance of shares of Common Stock upon such exercise. Nothing
herein shall be construed as requiring the Corporation to
register the shares subject to any option or SAR under the
Securities Act. Each option and SAR shall be subject to the
further requirement that, if at any time the Committee shall
determine, in its discretion, that the listing or qualification
of the shares subject to such option or SAR on any securities
exchange or under any applicable law, or the consent or approval
of any governmental regulatory body, is necessary or desirable as
a condition of, or in connection with, the granting of such
option or SAR, or the issue of shares thereunder, such option or
SAR may not be exercised in whole or in part unless such listing,
qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Committee.
7<PAGE>
13. Termination and Amendment
No options or SARs may be granted under the Plan after
February 12, 2001. The Board of Directors or the Committee may
amend, suspend or terminate the Plan or any portion thereof at
any time but may not, without the requisite approval of the
Corporation's shareholders make any alteration or amendment
thereof which (a) makes any change in the class of eligible
participants as described in Article 4 hereof, (b) increases the
total number of shares of Common Stock subject to the Plan,
except as provided in Article 11 hereof or (c) materially
increases the benefits accruing to participants under the Plan.
Rights and obligations under any option or SAR granted prior to
an amendment, suspension or termination of the Plan or any
portion thereof shall not be altered or impaired by such
amendment, suspension or termination, except with the consent of
the holder of the option or SAR.
14. Shareholder Approval
The Plan was adopted by the Board of Directors on
February 12, 1991 and approved by shareholders at a meeting held
on May 30, 1991.
8<PAGE>
SBARRO, INC.
1993 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(as amended through May 21, 1997 and adjusted to reflect
the 3-for-2 stock split distributed September 22, 1994)
1. Purpose of the Plan
The purpose of this 1993 Non-Employee Director Stock Option
Plan (the "Plan") of Sbarro, Inc., a New York corporation (the
"Company"), is to make available shares of the Common Stock, par
value $.01 per share, of the Company (the "Common Stock") for
purchase by Directors who are not common law employees of the
Company ("Outside Directors") and thus to attract and retain the
services of experienced and knowledgeable Outside Directors for
the benefit of the Company and its shareholders and to provide
additional incentive for such Outside Directors to continue to
work for the best interests of the Company and its shareholders
through continuing ownership of its Common Stock.
2. Stock Subject to the Plan
Subject to the provisions of Article 10, the total number
of shares of Common Stock for which options may be granted under
the Plan shall be 300,000. Shares issued under the Plan may be
either authorized but unissued shares or shares which shall have
been purchased or acquired by the Company for this or any other
purpose. Such shares are from time to time to be allotted for
option and sale to Outside Directors in accordance with the
Plan. In the event any option granted under the Plan shall
expire, be cancelled or terminate for any reason without having
been exercised in full or shall cease for any reason to be
exercisable in whole or in part, the unpurchased shares subject
thereto shall again be available for grant under the Plan.
3. Administration of the Plan
The Plan shall be administered by the Board of Directors of
the Company (the "Board"). The Board shall, subject to the
express provisions of the Plan, grant options pursuant to the
terms of the Plan; have the power to interpret the Plan; correct
any defect, supply any omission or reconcile any inconsistency
in the Plan; prescribe, amend and rescind rules and regulations
relating to, but not inconsistent with, the Plan; determine the
terms and provisions of the respective option agreements (which
need not be identical); and make determinations necessary or
advisable for the administration of the Plan. The determination
of the Board on the matters referred to in this Article 3 shall
be conclusive. No member of the Board shall be liable for any
action or determination made in good faith with respect to the
Plan or any options granted hereunder.<PAGE>
4. Option Grants
Each individual who is an Outside Director on February 16,
1993 shall, effective as of such date, be granted an option to
purchase 3,750 shares of Common Stock. Each individual who
subsequent to February 16, 1993 becomes an Outside Director
shall, on the date of his or her initial election to the Board,
be granted an option to purchase 3,750 shares of Common Stock.
In addition, immediately following each annual meeting of
shareholders at which directors are elected, commencing with the
Company's 1994 Annual Meeting of Shareholders, each Outside
Director then in office immediately following the conclusion of
such meeting (whether or not elected at such meeting) shall,
effective as of the date such meeting is held, be granted an
option to purchase 3,750 shares of Common Stock; provided that
an individual who becomes an Outside Director for the first time
at such meeting shall be granted only one option to purchase an
aggregate of 3,750 shares of Common Stock under this sentence
and the preceding sentence. An employee Director who ceases to
be an employee but remains a Director shall not be deemed to
become an Outside Director unless and until he or she is serving
as an Outside Director immediately following the conclusion of
the next meeting of shareholders at which Directors are elected
(whether or not such person is elected as a Director at such
meeting).
5. Option Price
The exercise price at which shares of the Common Stock may
be purchased pursuant to options granted under the Plan shall be
100% of the fair market value of the Common Stock on the date an
option is granted, but not less than the par value of the Common
Stock. The fair market value of the Common Stock on any day
shall be (a) if actual sales price information is generally
reported for the Common Stock on its principal market, the mean
between the highest and lowest quoted selling prices, regular
way, of the Common Stock on such day (or last day of trade prior
to such day if not traded on such day) as reported by such
market or on a consolidated tape reflecting transactions on such
market, (b) if actual sales price information is not generally
reported for the Common Stock on its principal market, the mean
between the highest bid and lowest asked prices for the Common
Stock on such day (or the last day quoted prior to such day if
not quoted on such day) as reported by on the National
Association of Securities Dealers (including under its OTC
Bulletin Board Service), National Quotation Bureau Incorporated
or a similar organization, or (c) if neither of the above are
applicable, the mean between the then current highest
independent bid and lowest independent asked prices for the
Common Stock, determined by the Board (the determination of
which shall be conclusive) on the basis of reasonable inquiry.
2<PAGE>
6. Term of Each Option
The term of each option (regardless of whether granted
prior to, on or after May 21, 1997) shall be ten years, subject
to earlier termination as provided in the Plan.
7. Exercise of Options
(a) Subject to the provisions of Article 9, no option
granted under the Plan shall be exercisable for a period of one
year after the date of grant, at which time the option shall
become exercisable as to the full number of shares subject to
the option.
(b) The option shall not be exercisable at any time in an
amount less than 500 shares (or the remaining shares then
covered by and purchasable under the option if less than 500
shares). In no case may a fraction of a share be exercised,
purchased or issued under the Plan.
(c) The purchase price of the shares as to which an option
shall be exercised shall be paid in full in cash or by check at
the time of exercise. In addition, the Outside Director shall
pay to the Company in cash or by check, upon demand, the amount,
if any, which the Company determines is necessary to satisfy its
obligation to withhold federal, state and local income and other
taxes or other amounts incurred by reason of the grant or
exercise of the option.
(d) An option (or any part thereof), to the extent then
exercisable, shall be exercised by giving written notice to the
Company at its principal office (Attention: Vice President -
Finance), specifying the number of shares of Common Stock as to
which such option is being exercised and accompanied by payment
in full of the aggregate exercise price therefor.
(e) An Outside Director entitled to receive shares of
Common Stock upon the exercise of an option shall not have the
rights of a shareholder with respect to such shares of Common
Stock until the date of issuance of a stock certificate to him
or her for such shares.
(f) Nothing in the Plan or in any option granted under the
Plan shall confer on any Outside Director any right to continue
as a director of the Company.
8. Non-Transferability of Options.
3<PAGE>
No option granted under the Plan shall be transferable
other than by will or the laws of descent and distribution by
the Outside Director or his or her legal representatives, and
may be exercised during the Outside Director's lifetime only by
him or her. Except to such extent, options may not be assigned,
transferred, pledged, hypothecated or disposed of in any way
(whether by operation of law or otherwise) and shall not be
subject to execution, attachment or similar process.
9. Termination of Services on the Board of Directors.
(a) In the event that an Outside Director to whom an
option has been granted under the Plan shall cease to serve on
the Board for any reason (including as a result of not being re-
elected to the Board), other than by reason of his or her death
or disability (as that term is defined in paragraph (d) of this
Article 9), such option may be exercised, to the extent that the
Outside Director was entitled to do so at the time of cessation
of service, at any time within three months after such cessation
of service but not thereafter, and in no event after the date on
which, except for such cessation of service, the option would
otherwise expire; provided, however, that if his or her service
on the Board shall have been terminated for cause, his or her
options shall terminate immediately.
(b) If an Outside Director to whom an option has been
granted under the Plan shall cease to serve on the Board by
reason of disability, the option may be exercised in whole or in
part by the Outside Director as to the remaining unexercised
portion of the option (notwithstanding that the option had not
yet become exercisable with respect to all or any part of such
shares at the date of cessation of service on the Board) at any
time within nine months after such cessation of service on the
Board but (except as provided in paragraph (c) of this Article
9) not thereafter, and in no event after the date on which the
option would otherwise expire.
(c) If an Outside Director to whom an option has been
granted under the Plan shall die (i) while he or she is serving
on the Board, (ii) within three months after cessation of
service on the Board (other than by virtue of the proviso in
paragraph (a) of this Article 9), or (iii) within nine months
after cessation of service on the Board by reason of disability,
such option may be exercised in whole or in part by the legatee
or legatees of such option under the Outside Director's last
will, or by his or her personal representatives or distributees
within one year after the date of his or her death as to the
remaining unexercised portion of the option (notwithstanding
that the option had not yet become exercisable with respect to
all or any part of such shares at the date of death), but in no
event after the date on which the option would otherwise expire.
4<PAGE>
(d) For the purpose of this Article 9, "disability" shall
mean permanent mental or physical disability as reasonably
determined by the Board. The Outside Director as to whom such
determination is being made shall not participate in the Board's
deliberation or vote in making such determination.
10. Adjustment of and Changes in Common Stock.
(a) In the event of any change in the outstanding Common
Stock by reason of a stock dividend, stock split, stock
combination, recapitalization, merger in which the Company is
the surviving corporation, reorganization or the like, the
aggregate number and kind of shares subject to the Plan, the
aggregate number and kind of shares subject to each outstanding
option and the exercise price thereof shall be adjusted by the
Board in a manner similar to which antidilution adjustments are
made pursuant to other Company agreements, plans (including
stock option plans for employees of the Company) and
arrangements.
(b) In the event of (i) the liquidation or dissolution of
the Company, (ii) a merger or consolidation in which the Company
is not the surviving corporation, or (iii) any other capital
reorganization in which more than 50% of the shares of Common
Stock of the Company entitled to vote in the election of
directors are exchanged, outstanding options shall terminate,
unless other provision is made therefor in the transaction.
11. Compliance with Securities Laws.
(a) It is a condition to the exercise of any option that
either (i) a Registration Statement under the Securities Act of
1933, as amended, or any succeeding act (collectively, the
"Securities Act"), with respect to its underlying shares shall
be effective and current at the time of exercise of the option
or (ii) in the opinion of counsel to the Company, there shall be
an exemption from registration under the Securities Act for the
issuance of shares of Common Stock upon such exercise. Nothing
herein shall be construed as requiring the Company to register
shares subject to the Plan for issuance or for resale.
(b) In connection with fulfilling the condition set forth
in paragraph (a)(ii) of this Article 11, the Company may require
an Outside Director, as a condition to the exercise of an
option, to execute and deliver to the Company representations
and warranties, in form and substance satisfactory to counsel to
the Company, that (i) the shares of Common Stock to be issued
upon the exercise of the option are being acquired by the
Outside Director for his or her own account, for investment only
and not with a view to the resale or distribution thereof, all
within the meaning of the Securities Act, and (ii) any
subsequent resale or distribution of shares of Common Stock by
5<PAGE>
such Outside Director will be made only pursuant to (x) a
Registration Statement under the Securities Act which is
effective and current with respect to the shares of Common Stock
being sold at the time of sale or (y) a specific exemption from
the registration requirements of the Securities Act, but in
claiming such exemption, the Outside Director shall, prior to
any offer or sale or distribution of such shares of Common
Stock, provide the Company with a favorable written opinion of
counsel, in form and substance satisfactory to counsel to the
Company, as to the applicability of such exemption to the
proposed sale or distribution. The Company may endorse such
legend or legends upon the certificates for shares of Common
Stock issued upon exercise of an option under the Plan, and may
issue such "stop transfer" instructions to its transfer agent in
respect of such shares, as it determines, in its discretion, to
be necessary or appropriate to prevent a violation of, or to
perfect an exemption from, the registration requirements of the
Securities Act.
(c) The Company may also require, as a further condition
to the exercise of an option, in whole or in part, that the
shares of Common Stock underlying such option or the Plan be
specifically listed on the securities markets on which the Com-
pany's Common Stock is traded and be registered or qualified
under any applicable state securities laws, and that the consent
or approval of any governmental regulatory body, which the
Company deems necessary or desirable as a condition to the
exercise of such option or the issue of shares thereunder, shall
have been effected or obtained free of any conditions requiring
the Company to qualify as a foreign corporation or to execute a
general consent to service of process in any jurisdiction
wherein it has not already done so and free of any other
conditions not customarily imposed by a securities exchange, law
or governmental regulatory body in connection with such listing,
qualification, consent or approval.
12. Amendment and Termination.
The Board may amend, suspend or terminate the Plan or any
portion thereof at any time except that, to the extent required
by Rule 16b-3 ("Rule 16b-3") promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act") or applicable law: (a)
no provision of the Plan relating to the amount or exercise
price of shares of Common Stock subject to options to be granted
under the Plan or the timing of grants may be amended more than
once every six months other than to comport with changes in the
Internal Revenue Code of 1986, as amended, the Employee
Retirement Income Security Act of 1974, as amended, or the rules
and regulations under either statute (including successor
statutes and rules and regulations thereunder) and (b) the Board
may not, without the approval of the Company's shareholders
within 12 months after the date of adoption of any such
6<PAGE>
amendment or amendments, make any alteration or amendment
thereof which (i) makes any change in the class of eligible
participants as determined in accordance with Articles 1 and 4
hereof; (ii) increases the total number of shares of Common
Stock for which options may be granted under the Plan except as
provided in Article 10 hereof; (iii) decreases the option
exercise price provided in Article 5 hereof except as provided
in Article 10 hereof; or (iv) materially increases the benefits
accruing to participants under the Plan within the meaning of
Rule 16b-3. No amendment shall adversely affect the rights
under any then outstanding option without the consent of the
holder thereof.
13. Stock Option Contracts
Each option shall be evidenced by an appropriate contract
which shall be duly executed by the Company and the Outside
Director, and shall contain such terms and conditions not
inconsistent with the Plan as may be determined by the Board.
14. Duties of the Company
The Company shall, at all times during the term of each
option, reserve and keep available for issuance or delivery such
number of shares of Common Stock as will be sufficient to
satisfy the requirements of all options at the time outstanding,
shall pay all original issue taxes with respect to the issuance
or delivery of shares pursuant to the exercise of such options
and all other fees and expenses necessarily incurred by the
Company in connection therewith.
15. Effective Period
The Plan shall become effective on February 16, 1993, the
date of its adoption by the Board of Directors; provided,
however that if the Plan is not approved within 12 months
thereof by the favorable vote then required for such action
under the New York Business Corporation Law at a meeting to be
held to consider such approval, the Plan and any options granted
under the Plan will be null and void and of no further effect.
No options may be granted under the Plan after February 15,
2003. Options outstanding on or prior to such date shall,
however, in all respects continue subject to the Plan.
7<PAGE>
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