SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
[_] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant
to Rule 14a-11(c) or Rule 14a-12
SBARRO, INC.
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(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] No fee required.
[_] 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:
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2. Aggregate number of securities to which transaction applies:
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<PAGE>
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):
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
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[_] 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:
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2. Form, Schedule or Registration Statement No.:
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3. Filing Party:
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4. Date Filed:
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<PAGE>
SBARRO, INC.
763 Larkfield Road
Commack, New York 11725
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 19, 1998
To the Shareholders:
NOTICEIS HEREBY GIVEN that the 1998 Annual Meeting of Shareholders
(the "Meeting") of Sbarro, Inc. (the "Company") will be held at the Carriage
House at Milleridge Inn, 585 North Broadway on Routes 106 and 107 (Exit 41 North
on the Long Island Expressway), Jericho, New York, on Wednesday, August 19,
1998, at 9:30 a.m., Eastern Daylight Savings Time, to consider and act upon the
following matters:
1. The election of three Class 3 directors to serve until the
Company's Annual Meeting of Shareholders to be held in the
year 2001 and until their respective successors are elected
and qualified;
2. A proposal to implement 1998 New York legislation by
authorizing an amendment to the Company's By-laws with respect
to the size of the Company's Board of Directors;
3. 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 January 3, 1999;
and
4. 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 July 17, 1998 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
July 21, 1998
================================================================================
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>
SBARRO, INC.
763 Larkfield Road
Commack, New York 11725
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
AUGUST 19, 1998
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, August 19, 1998, promptly at 9:30 a.m.,
Eastern Daylight Savings Time, at at the Carriage House at Milleridge Inn, 585
North Broadway on Routes 106 and 107 (Exit 41 North on the Long Island
Expressway), Jericho, 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 personal interview, telephone, telegram, cablegram or other means of
electronic transmission. The approximate mailing date of this Proxy Statement is
July 21, 1998.
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
each of the other proposals set forth in the Notice of Annual Meeting
accompanying this Proxy Statement. 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 July 17, 1998 has been fixed by the Board of
Directors (the "Board of Directors" or the "Board") 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 20,528,309 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.
<PAGE>
======================================
PROPOSAL 1
ELECTION OF DIRECTORS
======================================
The Company's Certificate of Incorporation provides that the Board
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 nine members
with three members in each class. 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 annual meetings of shareholders to be held in the years 1999,
2000 and 1998, 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. Any director
elected by the Board to fill the existing vacancy in the Board 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.
At the Meeting, shareholders will elect three Class 3 directors to
serve until the annual meeting of shareholders scheduled to be held in the year
2001 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 Mr. Mario Sbarro, Mrs. Carmela Sbarro and Mr.
Bernard Zimmerman (the "nominees") to serve as Class 3 directors upon their
nomination at the Meeting. Each nominee (other than Carmela Sbarro, who was
elected by the Board of Directors) 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 3 DIRECTORS
MARIO SBARRO, 56, 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. Mr. Sbarro re-assumed the position of President of the Company in
May 1996 (a position he held for more than five years prior to December 1993).
Mr. Sbarro is Chairman of the Executive Committee of the Board.
CARMELA SBARRO, 76, has been Vice President of the Company since
March 1985. Mrs. Sbarro devotes a substantial portion of her time to recipe and
product development. Mrs. Sbarro was a founder of the Company, together with her
late husband, Gennaro Sbarro. The Board of Directors elected Mrs. Sbarro as a
director of the Company in January 1998. Mrs. Sbarro previously served as a
director of the Company from March 1985 until December 1988, when she was
elected Director Emeritus of the Company.
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<PAGE>
BERNARD ZIMMERMAN, 65, has been President of Bernard Zimmerman and
Co., Inc. since October 1972 and was Senior Vice President of The Zimmerman
Group, Inc. from January 1991 to November 1996, financial and management
consulting firms. Mr. Zimmerman has also served as President and a director of
Beacon Hill Mutual Fund, Inc. from December 1994 until October 1996. 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-five 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.
INFORMATION ABOUT DIRECTORS WHOSE TERMS OF OFFICE CONTINUE AFTER THE MEETING
CLASS 1 DIRECTORS
HAROLD L. KESTENBAUM, 48, 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 Audit and
Compensation Committees of the Board.
ANTHONY SBARRO, 52, has been an officer, a director and a principal
shareholder of the Company since its organization in 1977, serving as Vice
Chairman of the Board of Directors since May 1996 and as President and Chief
Operating Officer from December 1993 through May 1996. For more than five years
prior to December 1993, 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.
PAUL A. VATTER, 73, 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 Stock Option
Committee of the Board.
CLASS 2 DIRECTORS
RICHARD A. MANDELL, 56, a private investor, was Managing Director of
Bluestone Capital Partners, L.P., an investment banking firm, from February
through April 1998 and Vice President - Private Investments of Clariden Asset
Management (NY) Inc., a subsidiary of Clariden Bank, a private Swiss bank, from
January 1996 until February 1998. 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 and Compensation Committees of the Board. Mr. Mandell is
also a director of Trend-Lines, Inc. and U.S.A. Detergents, Inc.
JOSEPH SBARRO, 58, 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.
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<PAGE>
TERRY VINCE, 69, has been Chairman of the Board and President of
Sovereign Hotels (a company that 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 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.
BOARD MEETINGS AND COMMITTEES
The Board of Directors is responsible for the management of the
Company. During the Company's 1997 fiscal year, ended December 28, 1997, the
Board of Directors held seven 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 that fiscal year, except for Paul A. Vatter, who was
absent from two meetings of the Board.
The Board of Directors has established Executive, Audit, Compensation
(with a Performance Incentive Plan subcommittee) and Stock Option Committees.
There is no standing nominating committee. In January 1998, the Board of
Directors formed a special committee (the "Special Committee"), consisting of
Richard A. Mandell (Chairman), Harold L. Kestenbaum, Paul A. Vatter and Terry
Vince, to evaluate the terms of a merger proposed by certain members of the
Sbarro family pursuant to which the Company would be merged into a company
controlled by them. Negotiations concerning the proposed merger were terminated
in June 1998 and the Special Committee ceased functioning.
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 1997, 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 meetings during
fiscal 1997.
The Compensation Committee (including the Performance Incentive Plan
Subcommittee of the Compensation Committee) and Stock Option Committee, each
described below under "Executive Compensation-Report of the Compensation and
Stock Option Committees", held six and five formal meetings, respectively,
during fiscal 1997 (with the Performance Incentive Plan Subcommittee of the
Compensation Committee holding one additional formal meeting). In addition, such
Committees met informally from time to time during the year.
COMPENSATION OF DIRECTORS
Non-employee directors currently receive a retainer at the rate of
$16,000 per annum and $1,000 for each meeting of the Board of Directors attended
and $500 for each meeting of a Committee of the Board (other than meetings of
the Special Committee) attended if such meeting is not held on the same day as a
meeting of the
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<PAGE>
Board of Directors. Directors are also reimbursed for reasonable travel expenses
incurred in attending Board and Committee meetings.
Each member of the Special Committee was paid a daily fee of $1,250
or $2,500 for serving thereon, depending upon the time expended during such day
in performing such services. Each committee member was also reimbursed for
out-of-pocket expenses incurred in performing such services. In addition,
Richard A. Mandell received a fee of $10,000 for serving as Chairman of the
Special Committee.
The Company's 1993 Non-Employee Director Stock Option Plan, as
amended, 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 after each Annual Meeting of Shareholders. Each option has a ten
year term, subject to early termination in certain instances, and is exercisable
commencing one year following the date of grant at an exercise price equal to
100% of the fair market value of the Company's Common Stock on the date of
grant.
A corporation of which Bernard Zimmerman is President and a majority
shareholder renders financial and consulting assistance to the Company. See
"Executive Compensation -- Compensation Committee Interlocks and Insider
Participation," below, for information with respect to such arrangement.
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):
JOHN BERNABEO, 41, joined the Company in August 1992 and served in
various capacities prior to his election as Vice President - Architecture and
Engineering in May 1997.
GEORGE W. HERZ II, 43, 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, 54, 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, 33, 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, 39, was elected Corporate Vice
President-Operations in August 1996, prior to which he served as Vice
President-Operations (West) from February 1995, and as a Zone Vice President
from June 1992 until February 1995. 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 as an employee, Mr. Missano
served as President of Anaton Corp., a franchisee of the Company.
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<PAGE>
GENNARO A. SBARRO, 31, was elected Corporate Vice President -
Franchising in August 1996, prior to which he served as Vice President -
Franchising since February 1995. For more than five years prior thereto, Mr.
Sbarro served in various operational positions for the Company.
GENNARO J. SBARRO, 36, was elected Corporate Vice President -
Operations in August 1996, prior to which he served as Vice President -
Operations (East) since February 1995. For more than five years prior thereto,
Mr. Sbarro served in various capacities for the Company.
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 June 30, 1998 (except as
noted below) with respect to (i) holders known to the Company to beneficially
own more than five percent of the outstanding Common Stock of the Company, (ii)
each director of the Company, (iii) each current executive officer who is named
in the Summary Compensation Table under the caption "Executive Compensation" and
(iv) 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.
AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS (2)
---------------- ----------------------- ---------
Mario Sbarro(3).......................... 1,841,653(4) 8.8%
Anthony Sbarro(3)........................ 1,398,800(5) 6.8%
Joseph Sbarro(3)......................... 1,974,580(6) 9.5%
Trust of Carmela Sbarro(3)............... 2,497,884(7) 12.2%
Carmela Sbarro(3)........................ 400 *
Harold L. Kestenbaum..................... 25,500(8) *
Richard A. Mandell....................... 18,750(9) *
Paul A. Vatter........................... 21,000(9) *
Terry Vince.............................. 22,050(9) *
Bernard Zimmerman........................ 61,700(10) *
Robert S. Koebele........................ 21,833(11) *
Anthony J. Missano....................... 10,833(12) *
Gennaro A. Sbarro........................ 24,373(13) *
Gennaro J. Sbarro........................ 10,833(12) *
First Chicago NBD Corporation............ 1,096,490(14) 5.3%
All directors and executive officers
as a group (17) persons................ 7,942,727(15) 37.2%
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<PAGE>
(1) Shares subject to options are considered beneficially owned to the extent
currently exercisable or exercisable within 60 days after June 30, 1998.
(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, the Trust of Carmela Sbarro and Carmela Sbarro is 763 Larkfield
Road, Commack, New York 11725.
(4) Includes (i) 5,450 and 740 shares owned by a charitable foundation
supported by Mario Sbarro and his wife, of which Mr. Sbarro, his wife and
another director of the Company are the directors, and by Mr. Sbarro's
wife, respectively (as to all of which shares Mr. Sbarro disclaims
beneficial ownership), and (ii) 303,333 shares subject to options.
Excludes (i) the shares held by the Trust of Carmela Sbarro, of which
trust Mario Sbarro serves as a trustee (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) 166,666 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, 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) 18,750
shares subject to options.
(9) Includes 18,750 shares subject to options.
(10) Includes (i) 5,450 shares owned by a family foundation supported by Mario
Sbarro and Mario Sbarro's wife, of which Mr. Zimmerman is a director (as
to which shares Mr. Zimmerman disclaims beneficial ownership), and (ii)
18,750 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 10,833 shares subject to options.
(12) Represents shares subject to options.
(13) Includes (i) 2,400 shares owned by Mr. Sbarro's wife, as to which shares
Mr. Sbarro disclaims beneficial ownership, and (ii) 16,584 shares subject
to options.
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<PAGE>
(14) Based solely upon information as of December 31, 1997 contained in a
Schedule 13G filed by First Chicago NBD Corporation with the Securities
and Exchange Commission and the Company.
(15) Includes (i) 5,450 owned by a charitable foundation, of which a director
and executive officer of the Company, his wife and another director of the
Company are directors, as to which shares each disclaims beneficial
ownership, (ii) an aggregate of 15,720 shares owned by spouses, and as
custodian for minor children, of directors and executive officers, as to
which shares beneficial ownership is disclaimed and (iii) 823,499 shares
subject to options.
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<PAGE>
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 six
most highly compensation persons who were serving as executive officers of the
Company at the end of the Company's 1997 fiscal year for services in all
capacities to the Company and its subsidiaries during the Company's 1997, 1996
and 1995 fiscal years:
Annual Compensation Long Term
Name and Principal ------------------- Compensation
Position Year Salary Bonus Options(#)
-------- ---- ------ ----- ----------
Mario Sbarro................. 1997 $700,000 $160,000 250,000
Chairman of the Board, 1996 460,000 500,000 100,000
President and Chief 1995 400,000 112,500 --
Executive Officer (1)
Anthony Sbarro............... 1997 300,000 150,000 100,000
Vice Chairman of the 1996 300,000 -- --
Board and Treasurer (1) 1995 300,000 87,500 --
Joseph Sbarro................ 1997 300,000 150,000 100,000
Senior Executive Vice 1996 276,000 150,000 50,000
President and Secretary 1995 250,000 75,000 --
Leonard G. Skrosky........... 1997 260,000 60,000 --
Senior Vice President- Real 1996 181,000 -- 100,000
Estate (2) 1995 -- -- --
Anthony J. Missano........... 1997 200,000 75,000 80,000
Corporate Vice President- 1996 157,000 65,000 --
Operations 1995 144,000 30,000 --
Gennaro A. Sbarro............ 1997 200,000 75,000 80,000
Corporate Vice 1996 129,000 65,000 --
President-Franchising 1995 105,000 30,000 --
Gennaro J. Sbarro............ 1997 200,000 75,000 80,000
Corporate Vice President- 1996 155,000 65,000 --
Operations 1995 161,000 30,000 --
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(1) Prior to May 1996, Mario Sbarro Served as Chairman of the Board of
Directors and Chief Executive Officer of the Company and Anthony Sbarro
served as President and Treasurer of the Company.
(2) Mr. Skrosky, who had been employed by the Company from 1987 until 1993,
rejoined the Company in June 1996. Mr. Skrosky retired on June 26, 1998.
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<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The Company's 1991 Stock Incentive Plan permits the grant of options
and stock appreciation rights to employees of, and consultant and advisors to,
the Company and its subsidiaries, including officers and directors who are
serving in such capacities. The following table contains information concerning
options granted during the Company's 1997 fiscal year to the executive officers
named in the Summary Compensation Table. No stock appreciation rights have been
granted to date.
<TABLE>
<CAPTION>
Individual Options
------------------------------------------------
Percent of
Total Potential Realizable Value
Number of Options at Assumed Annual Rates of
Shares Granted to Stock Price Appreciation
Underlying Employees Exercise for Option Term(2)
Options in Fiscal Price Per Expiration --------------------------
Name Granted(1) Year Share Date 5% 10%
---- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Mario Sbarro............... 100,000 13.2% $25.125 2/18/07 $1,580,098 $4,004,278
150,000 19.8% $28.875 5/20/07 $2,723,300 $6,902,896
Anthony Sbarro............. 100,000 13.2% $25.125 2/18/07 $1,580,098 $4,004,278
Joseph Sbarro.............. 100,000 13.2% $25.125 2/18/07 $1,580,098 $4,004,278
Anthony J. Missano......... 80,000 10.6% $25.125 2/18/07 $1,264,078 $3,203,422
Gennaro A. Sbarro.......... 80,000 10.6% $25.125 2/18/07 $1,264,078 $3,203,422
Gennaro J. Sbarro.......... 80,000 10.6% $25.125 2/18/07 $1,264,078 $3,203,422
</TABLE>
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(1) These options are exercisable as to one-third of the number of shares
subject to the options annually, on a cumulative basis, commencing one
year following the date of grant.
(2) These are hypothetical values using assumed compound growth rates
prescribed by the Securities and Exchange Commission and are not intended
to forecast possible future appreciation, if any, in the market price of
the Company's Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END VALUES
No options to purchase shares of the Company's Common Stock were
exercised during the Company's fiscal year ended December 28, 1997 by the
executive officers named in the Summary Compensation Table. The following table
sets forth certain information concerning the number and value at December 28,
1997 of shares of Common Stock subject to unexercised options held by the
executive officers named in the Summary Compensation Table.
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Number of
Shares Value of
Underlying Unexercised
Unexercised In-the-Money
Options Options
at Fiscal at Fiscal
Year-End Year-End
(Exercisable/ (Exercisable/
Name Unexercisable) (Unexercisable) (1)
- --------------------------- -------------- -------------------
Mario Sbarro......................... 270,000/350,000 $912,495/362,500
Anthony Sbarro....................... 165,000/100,000 $456,248/162,500
Joseph Sbarro........................ 150,000/150,000 $456,248/262,500
Leonard G. Skrosky................... -- /100,000 $ -- /162,500
Anthony J. Missano................... 10,833/81,667 $ 17,498,138,752
Gennaro A. Sbarro.................... 16,584/81,667 $ 46,744/138,752
Gennaro J. Sbarro.................... 10,833/81,667 $ 17,498/138,752
- -----------------
(1) Represents the number of shares subject to the option multiplied by the
difference between the closing price of the Company's Common Stock on the
New York Stock Exchange on December 26, 1997, the last trading day of the
Company's 1997 fiscal year, and the respective exercise prices.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Bernard Zimmerman and Company, Inc. of which Bernard Zimmerman is
President and a majority shareholder, renders financial and consulting
assistance to the Company, for which it received fees of $116,400 during the
Company's fiscal year ended December 28, 1997. Mr. Zimmerman is Chairman of the
Compensation Committee of the Board of Directors, but does not serve on the
Performance Incentive Plan Subcommittee of the Compensation Committee nor on the
Stock Option Committee of the Board.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEES
This report is presented by the Compensation Committee and Stock
Option Committee of the Company's Board of Directors (the "Committees"). Except
for Mr. Zimmerman, who serves on the Compensation Committee, both Committees
consist exclusively of directors who are neither employees of, nor consultants
to, the Company. Except for stock option grants, the Compensation Committee
establishes the compensation (including annual base compensation and bonuses)
for the Company's three principal executive officers (Mario, Anthony and Joseph
Sbarro) and, with the recommendation of the Company's Chief Executive Officer,
the compensation of the other executive officers of the Company. The members of
the Compensation Committee are Harold L. Kestenbaum, Richard A. Mandell, Terry
Vince and Bernard Zimmerman. The Performance Incentive Plan Subcommittee of the
Compensation Committee (consisting of Messrs. Kestenbaum, Mandell and Vince)
administers and determines performance targets and awards under the Company's
Performance Incentive Plan, as well as determining participants in that plan,
targets for determining amounts a participant may earn under that plan and the
periods during which targets are measured). The Stock Option Committee
administers
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(including making grants under) the Company's 1991 Stock Incentive Plan. This
Committee consists of Messrs. Kestenbaum and Vince and Paul A. Vatter. This
report describes the policies of the Committees as in effect in fiscal 1997. 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 use 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 Committees
coordinate their efforts to determine the overall compensation of executive
officers.
To supplement subjective factors, in establishing compensation levels
for the Company's executive officers, the Committees review, 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 Committees use
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 on an annual and, at times, interim basis.
In determining the base salaries to be paid to executive officers, the Committee
considers, among other factors, the executive's level of responsibility,
experience and expertise, the compensation of executives occupying comparable
positions in other restaurant and retail organizations derived from its informal
studies, and general economic factors. The Committee, in consultation with the
Company's Chief Executive Officer, also reviews the performance of each of the
Company's executive officers. The Committee's reviews have been qualitative in
nature, without specific weights being assigned to the various factors employed
by it.
ANNUAL INCENTIVE COMPENSATION. The Company continues to place
emphasis on incentive compensation. Historically, the Company's Chief Executive
Officer has set individual performance objectives and goals for executive
officers other than himself. These goals have been 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 determined on a subjective basis. Goals, at times,
have been adjusted periodically during the year, and 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, the Compensation Committee examines the following factors,
without assigning specific weight to any one factor: the Company's revenues and
profitability for the year upon which the bonus is based; the degree to which
the Company had fulfilled objectives developed at the beginning of the year; the
executive's contribution toward the Company's profitability and meeting
corporate goals; the Chief Executive Officer's views concerning the executive's
performance, including 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 informal Committee surveys. Except for the bonus
to the Company's Chief Executive Officer, bonuses for fiscal 1997 were
determined through the use of the factors described above.
LONG-TERM INCENTIVE COMPENSATION. The Company has used 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 shareholders. The Company's Chief Executive Officer
makes recommendations to the Stock Option Committee from time to time with
respect to the grant of stock options to employees in light of the
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level of their responsibility, compensation level and prior contribution to the
Company's performance, as well as the future goals, the performance expected of
them and the number of options then held by the executive. 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. Like the
Compensation Committee, the Stock Option Committee reviews the Company's and its
executive officers' performance, as well as the other factors it utilizes in
determining option grants.
CHIEF EXECUTIVE OFFICER COMPENSATION. The compensation of Mario
Sbarro, the Company's Chief Executive Officer, consists of the same three
components as the Company's other executive officers. The Compensation Committee
believes 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.
However, with the concurrence of Mr. Sbarro, the Compensation Committee had not
increased his base salary from early 1992 until fiscal 1996. Based upon its
review of Mr. Sbarro's performance, his re-assuming the duties as President in
addition to his existing duties as Chairman of the Board and Chief Executive
Officer and his leadership, the Committee increased Mr. Sbarro's annual base
salary effective at the beginning of fiscal 1997 to $700,000. Following adoption
of the Performance Incentive Plan by the Company's shareholders in May 1997, the
Performance Incentive Plan Subcommittee of the Compensation Committee
established a formula, based upon a pre-determined earnings target for the
second half of fiscal 1997, under which Mr. Sbarro's incentive bonus award for
fiscal 1997 was determined. The Compensation Committee believes that determining
a bonus based strictly on objective targets may not adequately measure an
executive's performance and, therefore, intends to determine Mr. Sbarro's bonus
for fiscal 1998 outside the purview of the Performance Incentive Plan. In early
fiscal 1997, the Stock Option Committee determined to grant Mr. Sbarro options
to purchase 250,000 shares of Common Stock, under the Company's 1991 Stock
Incentive Plan, of which options to purchase 150,000 shares were subject to, and
granted following, shareholder approval of certain amendments to that plan.
CERTAIN TAX LEGISLATION. Section 162(m) of the Internal Revenue Code
of 1986, as amended, 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 1997, the Board of Directors adopted, and shareholders
approved, the Company's Performance Incentive Plan and amendments to the
Company's 1991 Stock Incentive Plan to enable compensation under each plan to be
considered qualified "performance-based compensation" and fully tax deductible
for Federal income tax purposes. While the Company intends to maximize
deductibility of compensation paid to executive officers, the Compensation
Committee recognizes that it may be appropriate to pay a bonus to executive
officers, including the Company's Chief Executive Officer, outside the
Performance Incentive Plan, which could cause some portion thereof to exceed the
deductibility limit.
Respectfully submitted,
Compensation Committee Stock Option Committee
Bernard Zimmerman, Chairman Harold L. Kestenbaum, Chairman
Harold L. Kestenbaum
Richard A. Mandell Paul A. Vatter
Terry Vince Terry Vince
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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, 1997
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, 1992 in
the Company's Common Stock and in each of the comparison groups, and assumes
reinvestment of dividends.
[GRAPHIC OMITTED]
At December 31
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
Sbarro, Inc. $100 $128 $116 $ 99 $122 $131
S&P 500 Index $100 $110 $112 $153 $189 $252
S&P Restaurant Index $100 $117 $117 $175 $172 $185
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 is $337,000 for the last five years of the sublease
term, which expires in 2001. 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
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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.
In addition to Mario, Anthony, Joseph, Gennaro A. and Gennaro J.
Sbarro and Anthony J. Missano, Carmela Sbarro, the mother of Mario, Anthony and
Joseph Sbarro, who was a co-founder of the Company and serves as Vice President
and a director of the Company, and a daughter of Mario Sbarro, who serves as
Vice President - Administration of the Company, each received $100,000 for
services rendered during fiscal 1997. In addition, nine other members of the
immediate families of Mario, Anthony, Joseph and Carmela Sbarro received an
aggregate of $467,823 for services rendered as employees of the Company during
fiscal 1997.
The Company and its subsidiaries have purchased printing services
from a corporation owned by a son-in-law of Mario Sbarro in the amount of
approximately $220,000 during fiscal 1997. The Company believes that these
services were provided on terms comparable to those that would have been
available from unrelated third parties.
During fiscal 1997, 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 $71,660 and $33,053, respectively, under franchise
agreements containing terms similar to those in agreements entered into by the
Company with unrelated franchisees.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires the Company's
executive officers and directors, and persons who beneficially own more than 10%
of the Company's Common Stock, to file initial reports of ownership, and reports
of changes of ownership, of the Company's equity securities with the Securities
and Exchange Commission and furnish copies of those reports to the Company.
Based solely on a review of the copies of the reports furnished to the Company
to date and written representations that no reports were required, the Company
believes that all reports required to be filed by such persons with respect to
the Company's fiscal year ended December 28, 1997 were timely filed.
=======================================
PROPOSAL 2
PROPOSAL TO AMEND THE COMPANY'S BY-LAWS
TO REDUCE THE MINIMUM SIZE OF THE
BOARD OF DIRECTORS
=======================================
As noted under the caption "Election of Directors", the Company's
Board of Directors is classified into three classes. Prior to February 22, 1998,
the New York Business Corporation Law (the "NYBCL") required that each class
consist of a minimum of three directors and, accordingly, the Company's By-laws
require a minimum of nine directors (three in each class). Therefore, in the
event of the death or resignation of a director, the Company must fill the
vacancy.
With the adoption by the New York legislature of amendments to the
NYBCL that became effective on February 22, 1998, the Company is no longer
required by the NYBCL to have any particular minimum number of directors in any
class.
To provide the Company with flexibility in the event of the
resignation or death of any director, the Board of Directors proposes that
shareholders adopt an amendment to the Company's By-laws to provide that the
minimum number of directors be six, while retaining the maximum limit of twelve
directors (subject to increase
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if any Preferred Stock that may be issued shall be entitled to elect directors).
If authorized by the shareholders, the first sentence of Section 3.2 of Article
III of the Company's By-laws would be amended to read as follows (with the
proposed addition italicized and the proposed deletion bracketed):
"Until changed by an amendment to these By-laws,
the number of directors shall be not less than [nine]
six nor more than twelve, the exact number to be
determined from time to time by resolution of a majority
of the entire Board of Directors; provided, however,
that the number of directors shall be increased beyond
the foregoing limit, to the extent required, in the
event that (and for so long as) the holders of any
Preferred Stock of the Corporation, voting as a separate
class or series under any provisions of the Certificate
of Incorporation, as it may be amended from time to
time, shall be entitled to elect directors. Such an
amendment to these By-laws shall require the affirmative
vote of a majority of the entire Board and of the
holders of at least 66 2/3% of the total number of
shares of Common Stock then outstanding."
No changes (which would require the approval of two-thirds of the
outstanding shares of Common Stock) are proposed to the existing provisions in
the Certificate of Incorporation and By-laws which classify the Board of
Directors or to the provisions in the Company's By-laws that provide that
directors may be removed only for cause by the holders of a majority of
outstanding stock of the Company entitled to vote or by the Board of Directors.
The Board believes that adoption of the proposed amendment will
afford the Board sufficient time to find a suitable replacement to fill any
vacancy that may occur, as well as an alternative to reduce the size of the
Board, should any director resign or die.
The Board of Directors unanimously recommends that shareholders vote
FOR this proposal.
=============================================
PROPOSAL 3
PROPOSAL TO RATIFY THE
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
=============================================
The firm of Arthur Andersen LLP has audited the financial statements
of the Company for the past eight 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 January 3, 1999.
Accordingly, management will present to the Meeting a resolution proposing the
ratification of the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending January 3, 1999.
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.
The Company's Board of Directors unanimously recommends a vote FOR
this proposal.
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VOTING REQUIREMENTS
Directors are elected by a plurality of the votes cast at the Meeting
(Proposal 1). The affirmative vote of two-thirds of the total number of the
outstanding shares of Common Stock is required to approve the proposal to amend
the Company's By-laws with respect to the size of the Company's Board of
Directors (Proposal 2). The affirmative vote of a majority of the votes cast at
the Meeting is required to ratify the appointment of Arthur Andersen LLP as the
Company's independent public accountants for the Company's fiscal year ending
January 3, 1999 (Proposal 3). Abstentions and broker nonvotes with respect to
any matter are not considered as votes cast with respect to that matter.
Accordingly, abstentions and broker nonvotes will have no effect on the outcome
of Proposals 1 or 3, but will effectively serve as votes against Proposal 2. THE
BOARD OF DIRECTORS HAS UNANIMOUSLY RECOMMENDED A VOTE IN FAVOR OF EACH NOMINEE
NAMED IN THE PROXY AND FOR PROPOSALS 2 AND 3.
MISCELLANEOUS
SHAREHOLDER PROPOSALS
Any shareholder proposal intended to be presented at the 1999 Annual
Meeting of Shareholders must be received by the Company not later than January
3, 1999 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
July 21, 1998
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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 the Carriage House
at Milleridge Inn, 585 North Broadway on Routes 106 and 107, Jericho, New York
on Wednesday, August 19, 1998 at 9:30 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 each of Proposals 2 and 3.
PLEASE MARK, DATE AND SIGN THIS PROXY ON REVERSE SIDE
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL LISTED PLEASE MARK |X|
NOMINEES AND FOR PROPOSALS 2 AND 3. YOUR CHOICE
LIKE THIS
IN BLACK OR
BLUE INK
(1) Election of three Class 1 Directors
FOR all nominees WITHHOLD AUTHORITY
listed (except as marked to vote for all listed
to the contrary) |_| nominees below |_|
Nominees: Mario Sbarro, Carmela Sbarro and Bernard Zimmerman
(Instruction: To withhold authority to vote for any individual nominee, circle
that nominee's name in the list provided above.)
(2) Authorize an amendment to the Company's By-laws with respect to the size
of the Company's Board of Directors
|_| FOR |_| AGAINST |_| ABSTAIN
(3) Ratify the appointment of Arthur Andersen LLP as the Company's independent
public accountants
|_| FOR |_| AGAINST |_| ABSTAIN
Signatures(s)_____________________________________ Dated __________, 1998
(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.)
