SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 4
TO
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
Sbarro, Inc.
(Name of Issuer)
Sbarro, Inc.
Sbarro Merger LLC
Mario Sbarro
Joseph Sbarro
Anthony Sbarro
Joseph Sbarro (1994) Family Limited Partnership
Mario Sbarro and Franklin Montgomery, not individually
but as trustees under that certain Trust Agreement
dated April 28, 1984 for the benefit of Carmela Sbarro
and her descendants
(Name of Person(s) Filing Statement)
Common Stock, par value $.01 per share
(Title of Class of Securities)
805844-10-7
(Cusip Numbers of Class of Securities)
----------------
Mario Sbarro, Chairman and President
Sbarro, Inc.
401 Broadhollow Road
Melville, New York 11747
Telephone Number: (516) 715-4100
Copies To:
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Richard A. Rubin, Esq. Steven J. Gartner, Esq. Arthur A. Katz, Esq.
Parker Chapin Flattau & Klimpl, LLP Willkie Farr & Gallagher Warshaw Burstein Cohen
1211 Avenue of the Americas 787 Seventh Avenue Schlesinger & Kuh, LLP
New York, New York 10036 New York, New York 10019 555 Fifth Avenue
(212) 704-6000 (212) 728-8000 New York, New York 10017
(212) 984-7700
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<PAGE>
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf Of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the Securities
Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act
of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies. [X]
Calculation of Filing Fee
Transaction Amount of Filing Fee*
Valuation* $79,129.93
$395,649,643
[X] Check Box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously
paid. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
The entire filing fee was paid in connection with the original filing of
the Schedule 13E-3 which was filed on February 26, 1999.
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* Determined by multiplying 13,467,649 (the number of outstanding shares of
Common Stock of Sbarro, Inc. not owned by the persons filing this Schedule
13E-3) by $28.85 per share and adding the aggregate amount anticipated to
be paid to persons holding options to purchase shares of Common Stock
issued by the Company in consideration of cancellation of such options.
** Determined pursuant to Rule 0-11(b)(1) by multiplying $395,649,643 by 1/50
of 1%.
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<PAGE>
INTRODUCTION
This Amendment No. 4 ("Amendment No. 4") to the Rule 13e-3 Transaction
Statement on Schedule 13E-3 (the "Original Schedule 13E-3" and, as amended
through this Amendment No. 4, this "Schedule 13E-3") is being filed by Sbarro,
Inc., a New York corporation (the "Company"), Sbarro Merger LLC, a New York
limited liability company ("Mergeco"), and Mario Sbarro, Joseph Sbarro, Anthony
Sbarro, the Joseph Sbarro (1994) Family Limited Partnership and Mario Sbarro and
Franklin Montgomery, not individually but as trustees under that certain Trust
Agreement dated April 28, 1984 (the "Trust of Carmela Sbarro") for the benefit
of Carmela Sbarro and her descendants (collectively, the "Continuing
Shareholders"), pursuant to Section 13(e) of the Securities Exchange Act of
1934, as amended, and Rule 13e-3 thereunder, in connection with the proposed
merger (the "Merger") of Mergeco with and into the Company, with the Company as
the surviving corporation in the Merger (the "Surviving Corporation"). The
Merger is to be effected pursuant to an Amended and Restated Agreement and Plan
of Merger dated as of January 19, 1999, among the Company, Mergeco and the
Continuing Shareholders (the "Restated Merger Agreement"). Mergeco was formed by
the Continuing Shareholders in connection with the Merger and is owned solely by
the Continuing Shareholders. Pursuant to the terms and conditions set forth in
the Restated Merger Agreement, if the Merger is consummated, each outstanding
share of Common Stock other than (i) shares of Common Stock then owned of record
by the Continuing Shareholders or Mergeco and (ii) shares of Common Stock in the
Company's treasury, if any, will be converted into the right to receive $28.85
per share in cash, without interest. As a result of the Merger, the Continuing
Shareholders will own 100% of the capital stock of the Surviving Corporation.
There is attached to this Amendment No. 4 a cross reference sheet supplied
pursuant to Instruction F to Schedule 13E-3 to show the location in the
preliminary Proxy Statement filed with Amendment No. 3 to the Schedule 13E-3 of
the information required to be included in response to the items of Schedule
13E-3. The information in the preliminary Proxy Statement is hereby expressly
incorporated herein by reference and capitalized terms used but not defined
herein shall have the meanings ascribed thereto in the preliminary Proxy
Statement. This Amendment No. 4 is filed solely to file a complete copy of
Exhibit (b)(6) to this Schedule 13E-3.
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SCHEDULE 13E-3
ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT
- --------------------------------------------- ------------------------------------------------------------------
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Item 1. Issuer and Class of Security
Subject to the Transaction.
(a) .............................. Front Cover Page;
"SUMMARY - Certain Definitions";
"SUMMARY - The Merger Parties; The Company";
"MANAGEMENT - Directors and Executive Officers
of the Company".
(b) .............................. Front Cover Page;
"SUMMARY - Certain Definitions";
"SUMMARY - Information Concerning the Meeting;
Record Date for the Meeting; Quorum Requirements";
"SUMMARY - Market Prices of and Dividends on the
Common Stock".
(c) .............................. "SUMMARY - Market Prices of and Dividends on the
Common Stock".
(d) .............................. "SUMMARY - Market Prices of and Dividends on the
Common Stock";
"SPECIAL FACTORS - Financing
of the Merger"; "SPECIAL
FACTORS - Plans for the
Company after the Merger".
(e) .............................. Not Applicable.
(f) .............................. "CERTAIN TRANSACTIONS IN THE COMMON
STOCK".
Item 2. Identity and Background.
(a)-(d) .......................... "SUMMARY - Certain Definitions";
"SUMMARY - The Merger Parties";
"BUSINESS OF THE COMPANY";
"MANAGEMENT";
"SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT".
(e) and (f) ...................... Not Applicable.
(g) ..............................
"SUMMARY - The Merger Parties";
"MANAGEMENT".
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<PAGE>
SCHEDULE 13E-3
ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT
- --------------------------------------------- ------------------------------------------------------------------
Item 3. Past Contacts, Trans
actions or Negotiations.
(a) (1) .......................... Not Applicable.
(a) (2) and (b) .................. "SPECIAL FACTORS - Background of the
Transaction";
"MANAGEMENT - Directors and Executive Officers
of the Company";
"CERTAIN TRANSACTIONS IN THE COMMON
STOCK".
Item 4. Terms of the Transaction.
(a) .............................. "CERTAIN QUESTIONS AND ANSWERS ABOUT
VOTING AND THE MERGER";
"SUMMARY - Information Concerning the Meeting;
Purpose of the Meeting";
"SUMMARY - Special Factors; Certain Effects of the
Merger";
"SUMMARY - Special Factors; Litigation Pertaining to
the Merger";
"SUMMARY - Special Factors;
Financing of the Merger";
"SUMMARY - The Restated
Merger Agreement"; "SPECIAL
FACTORS - Interests of
Certain Persons in the Merger
and the Company"; "SPECIAL
FACTORS - Certain Effects of
the Merger"; "SPECIAL FACTORS
- Financing of the Merger";
"SPECIAL FACTORS - Regulatory
Approvals"; "LITIGATION
PERTAINING TO THE MERGER";
"THE RESTATED MERGER
AGREEMENT".
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<PAGE>
SCHEDULE 13E-3
ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT
- --------------------------------------------- ------------------------------------------------------------------
(b) .............................. "SUMMARY - Information Concerning the Meeting;
Purpose of the Meeting";
"SUMMARY - Information Concerning the Meeting;
Voting Requirements";
"SUMMARY - Special Factors; Certain Effects of the
Merger";
"SUMMARY - Special Factors;
Litigation Pertaining to the
Merger"; "SUMMARY - The
Restated Merger Agreement;
The Merger Consideration";
"SPECIAL FACTORS - Interests
of Certain Persons in the
Merger and the Company";
"SPECIAL FACTORS - Certain
Effects of the Merger";
"LITIGATION PERTAINING TO THE
MERGER Current Shareholder
Litigation"; "THE RESTATED
MERGER AGREEMENT - The
Merger; Merger
Consideration"; "THE RESTATED
MERGER AGREEMENT Treatment of
Options".
Item 5. Plans or Proposals of the
Issuer or Affiliate.
(a) and (b) ...................... "SUMMARY - Special Factors; Plans for the Company
after the Merger";
"SPECIAL FACTORS - Plans for the Company after
the Merger".
(c) .............................. "SPECIAL FACTORS - Interests of Certain Persons in
the Merger and the Company; Directors and Officers of
the Surviving Corporation";
"THE RESTATED MERGER AGREEMENT -
Directors and Officers, Certificate of Incorporation and
By-Laws Following the Merger".
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<PAGE>
SCHEDULE 13E-3
ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT
- --------------------------------------------- ------------------------------------------------------------------
(d)-(e) .......................... "SUMMARY - Special Factors; Plans for the Company
after the Merger";
"SUMMARY - Special Factors; Financing of the
Merger";
"SUMMARY - Market Prices of
and Dividends on the Common
Stock"; "SPECIAL FACTORS -
Plans for the Company after
the Merger"; "SPECIAL FACTORS
- Financing of the Merger".
(f)-(g) .......................... "SUMMARY - Special Factors; Certain Effects of the
Merger";
"SPECIAL FACTORS - Certain Effects of the Merger".
Item 6. Source and Amount of
Funds or Other
Consideration.
(a) .............................. "SUMMARY - Special Factors; Financing of the
Merger";
"SPECIAL FACTORS - Financing of the Merger".
(b) .............................. "SPECIAL FACTORS - Interests of Certain Persons in
the Merger and the Company; Compensation of Special
Committee Members"; "SPECIAL
FACTORS - Fees and Expenses";
"SPECIAL FACTORS - Financing
of the Merger; Terms of Bear
Stearns' Engagement";
"LITIGATION PERTAINING TO THE
MERGER Current Shareholder
Litigation"; "THE RESTATED
MERGER AGREEMENT - Fees and
Expenses".
(c) .............................. "SUMMARY - Special Factors; Financing of the
Merger";
"SPECIAL FACTORS - Certain Financial Projections";
"SPECIAL FACTORS - Plans for the Company after
the Merger";
"SPECIAL FACTORS - Financing of the Merger".
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<PAGE>
SCHEDULE 13E-3
ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT
- --------------------------------------------- ------------------------------------------------------------------
(d) .............................. "SUMMARY - Special Factors; Financing of the
Merger";
"SPECIAL FACTORS - Financing of the Merger".
Item 7. Purpose(s), Alternatives,
Reasons and Effects.
(a) and (c) ...................... "SUMMARY - Special Factors; Continuing Share
holders' Purpose and Reasons for the Merger";
"SPECIAL FACTORS - Background of the
Transaction";
"SPECIAL FACTORS - The Continuing Shareholders'
Purpose and Reasons for the Merger".
(b) .............................. "SPECIAL FACTORS - Background of the
Transaction";
"SPECIAL FACTORS - The Continuing Shareholders
Purpose and Reasons for the Merger".
(d) .............................. "CERTAIN QUESTIONS AND ANSWERS ABOUT
VOTING AND THE MERGER";
"SUMMARY - Information Concerning the Meeting;
Purpose of the Meeting";
"SUMMARY - Special Factors; Plans for the Company
after the Merger";
"SUMMARY - Special Factors; Interests of Certain
Persons in the Merger and the Company";
"SUMMARY - Special Factors; Certain Effects of the
Merger";
"SUMMARY - Special Factors; Certain U.S. Federal
Income Tax Consequences";
"SUMMARY - Special Factors; Accounting
Treatment";
"SUMMARY - Special Factors;
Financing of the Merger";
"SUMMARY - The Restated
Merger Agreement; The Merger
Consideration"; "SPECIAL
FACTORS - The Continuing
Shareholders Purpose and
Reasons for the Merger";
"SPECIAL FACTORS - Certain
Financial Projections";
"SPECIAL FACTORS - Plans for
the Company after the
Merger";
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<PAGE>
SCHEDULE 13E-3
ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT
- --------------------------------------------- ------------------------------------------------------------------
"SPECIAL FACTORS - Interests of Certain Persons in
the Merger and the Company";
"SPECIAL FACTORS - Certain Effects of the Merger";
"SPECIAL FACTORS - Certain U.S. Federal Income
Tax Consequences";
"SPECIAL FACTORS - Fees and Expenses";
"SPECIAL FACTORS - Accounting Treatment";
"SPECIAL FACTORS - Risk of Insolvency";
"THE RESTATED MERGER AGREEMENT - The
Merger; Merger Consideration";
"THE RESTATED MERGER AGREEMENT - The
Exchange Fund; Payment for Shares of Common
Stock";
"THE RESTATED MERGER AGREEMENT -
Treatment of Options";
"THE RESTATED MERGER AGREEMENT - Tax
Withholding".
Item 8. Fairness of the
Transaction.
(a) ..............................
Front Cover Page; "CERTAIN
QUESTIONS AND ANSWERS ABOUT
VOTING AND THE MERGER";
"SUMMARY - Special Factors;
Recommendation of the Special
Committee and the Board of
Directors"; "SUMMARY -
Special Factors; Presentation
and Fairness Opinion of
Prudential Securities";
"SPECIAL FACTORS - Background
of the Transaction"; "SPECIAL
FACTORS - Recommendations of
the Special Committee and the
Board of Directors"; "SPECIAL
FACTORS - The Continuing
Shareholders' Purpose and
Reasons for the Merger";
"SPECIAL FACTORS -
Presentation and Fairness
Opinion of Prudential
Securities".
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<PAGE>
SCHEDULE 13E-3
ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT
- --------------------------------------------- ------------------------------------------------------------------
(b) .............................. "CERTAIN QUESTIONS AND ANSWERS ABOUT
VOTING AND THE MERGER";
"SUMMARY - Special Factors;
Recommendation of the Special
Committee and the Board of
Directors"; "SUMMARY -
Special Factors; Factors
Considered by the Special
Committee and the Board of
Directors"; "SUMMARY -
Special Factors; Presentation
and Fairness Opinion of
Prudential Securities";
"SPECIAL FACTORS - Background
of the Transaction"; "SPECIAL
FACTORS - Recommendation of
the Special Committee and the
Board of Directors"; "SPECIAL
FACTORS - The Continuing
Shareholders' Purpose and
Reasons for the Merger";
"SPECIAL FACTORS -
Presentation and Fairness
Opinion of Prudential
Securities"; "SPECIAL FACTORS
- Certain Financial
Projections"; "LITIGATION
PERTAINING TO THE MERGER
Current Shareholder
Litigation"; "THE RESTATED
MERGER AGREEMENT - No
Solicitation; Fiduciary
Obligation of Directors";
"THE RESTATED MERGER
AGREEMENT Conditions"; "THE
RESTATED MERGER AGREEMENT
Termination"; "THE RESTATED
MERGER AGREEMENT Amendment
and Waiver".
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<PAGE>
SCHEDULE 13E-3
ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT
- --------------------------------------------- ------------------------------------------------------------------
(c) .............................. "CERTAIN QUESTIONS AND ANSWERS ABOUT
VOTING AND THE MERGER";
"SUMMARY - Information
Concerning the Meeting;
Voting Requirements";
"SUMMARY - The Restated
Merger Agreement; Conditions
to, and Termination of, the
Merger"; "SPECIAL FACTORS -
Recommendations of the
Special Committee and the
Board of Directors"; "THE
RESTATED MERGER AGREEMENT -
The Merger; Merger
Consideration; "THE RESTATED
MERGER AGREEMENT Covenants";
"THE RESTATED MERGER
AGREEMENT Conditions"; "THE
RESTATED MERGER AGREEMENT
Termination".
(d) .............................. "CERTAIN QUESTIONS AND ANSWERS ABOUT
VOTING AND THE MERGER";
"SUMMARY - Special Factors; Fairness Opinion of
Prudential Securities";
"SPECIAL FACTORS - Background of the
Transaction";
"SPECIAL FACTORS - Recommendation of the
Special Committee and the Board of Directors";
"SPECIAL FACTORS - The Continuing Shareholders'
Purpose and Reasons for the Merger";
"SPECIAL FACTORS - Presentation and Fairness
Opinion of Prudential Securities".
(e) .............................. "CERTAIN QUESTIONS AND ANSWERS ABOUT
VOTING AND THE MERGER";
"SPECIAL FACTORS - Background of the
Transaction";
"SPECIAL FACTORS - Recommendation of the
Special Committee and the Board of Directors";
"SPECIAL FACTORS - The Continuing Shareholders'
Purpose and Reasons for the Merger".
(f) .............................. "SPECIAL FACTORS - Background of the
Transaction".
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<PAGE>
SCHEDULE 13E-3
ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT
- --------------------------------------------- ------------------------------------------------------------------
Item 9. Reports, Opinions,
Appraisals and Certain
Negotiations.
(a) and (b)....................... "CERTAIN QUESTIONS AND ANSWERS ABOUT
VOTING AND THE MERGER";
"SUMMARY - Special Factors; Factors Considered by
the Special Committee and the Board of Directors";
"SUMMARY - Special Factors; Fairness Opinion of
Prudential Securities";
"SPECIAL FACTORS - Background of the
Transaction";
"SPECIAL FACTORS -
Recommendation of the Special
Committee and the Board of
Directors"; "SPECIAL FACTORS
- The Continuing
Shareholders' Purpose and
Reasons for the Merger";
"SPECIAL FACTORS -
Presentation and Fairness
Opinion of Prudential
Securities".
(c) .............................. "AVAILABLE INFORMATION".
Item 10. Interest in Securities of the
Issuer.
(a) .............................. "SUMMARY - Information Concerning the Meeting;
Voting Requirements";
"SPECIAL FACTORS - Interests
of Certain Persons in the
Merger and the Company";
"SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT"
(b) .............................. "CERTAIN TRANSACTIONS IN THE COMMON
STOCK".
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<PAGE>
SCHEDULE 13E-3
ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT
- --------------------------------------------- ------------------------------------------------------------------
Item 11. Contracts, Arrangements
or Understandings With
Respect to the Issuer's
Securities........................ "SUMMARY - Information Concerning the Meeting;
Voting Requirements";
"SUMMARY - The Restated Merger Agreement";
"SPECIAL FACTORS - Interests of Certain Persons in
the Merger and the Company";
"SPECIAL FACTORS - Fees and Expenses";
"SPECIAL FACTORS - Financing of the Merger";
"THE RESTATED MERGER AGREEMENT".
Item 12. Present Intention and
Recommendation of
Certain Persons with
Regard to the Transaction.
(a) .............................. "SUMMARY - Information Concerning the Meeting;
Voting Requirements";
"SPECIAL FACTORS -
Recommendation of the Special
Committee and the Board of
Directors"; "THE RESTATED
MERGER AGREEMENT Covenants";
"CERTAIN TRANSACTIONS IN THE
COMMON STOCK".
(b) .............................. "SUMMARY - Special Factors; Recommendation of
the Special Committee and the Board of Directors";
"SPECIAL FACTORS - Background of the
Transaction";
"SPECIAL FACTORS - Recommendation of the
Special Committee and the Board of Directors".
Item 13. Other Provisions of the
Transaction.
(a) .............................. "CERTAIN QUESTIONS AND ANSWERS ABOUT
VOTING AND THE MERGER";
"SUMMARY - No Right of
Appraisal"; "LITIGATION
PERTAINING TO THE MERGER
Current Shareholder
Litigation".
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<PAGE>
SCHEDULE 13E-3
ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT
- --------------------------------------------- ------------------------------------------------------------------
(b)-(c)........................... Not Applicable.
Item 14. Financial Information.
(a) .............................. "WHERE YOU CAN FIND MORE INFORMATION";
"CONSOLIDATED FINANCIAL STATEMENTS".
(b) .............................. Not Applicable.
Item 15. Persons and Assets
Employed, Retained or
Utilized.
(a) .............................. Front Cover Page;
"SUMMARY - Special Factors; Plans for the Company
after the Merger";
"SUMMARY - Special Factors;
Financing of the Merger";
"SPECIAL FACTORS - Plans for
the Company after the
Merger"; "SPECIAL FACTORS -
Interests of Certain Persons
in the Merger and the
Company"; "SPECIAL FACTORS -
Fees and Expenses"; "SPECIAL
FACTORS - Financing of the
Merger"; "THE RESTATED MERGER
AGREEMENT Indemnification and
Insurance"; "THE RESTATED
MERGER AGREEMENT - Fees and
Expenses".
(b) .............................. Front Cover Page;
"CERTAIN QUESTIONS AND ANSWERS ABOUT
VOTING AND THE MERGER";
"SPECIAL FACTORS - Interests of Certain Persons in
the Merger and the Company; Compensation of the
Special Committee Members".
Item 16. Additional Information. "SUMMARY - Information Concerning the Meeting";
Proxy Statement, together with the proxy card.
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<PAGE>
SCHEDULE 13E-3
ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT
- --------------------------------------------- ------------------------------------------------------------------
Item 17. Material to be Filed as
Exhibits.
(a) (1) .......................... Debt Financing Letter, dated as of January 19, 1999.*
(b) (1) ........................ Presentation by Prudential Securities Incorporated to the
Special Committee, dated January 19, 1999.*
(b) (2) ........................ Opinion of Prudential Securities Incorporated, dated
January 19, 1999 (set forth as Annex II to the Proxy
Statement).*
(b) (3) ........................ Presentation by Bear, Stearns & Co. Inc. to certain
Continuing Shareholders, dated October 10, 1996 (in
accordance with Rule 202 of Regulation S-T, Section II
of the presentation is filed in paper pursuant
to a continuing hardship exemption).*
(b) (4) ........................ Presentation by Bear, Stearns & Co. Inc. to the
Company's Board of Directors, dated January 15,
1997.*
(b) (5) ........................ Presentation by Bear, Stearns & Co. Inc. to the
Company's Board of Directors, dated January 23, 1997
(in accordance with Rule 202 of Regulation S-T, the
financial models of this presentation are filed in
paper pursuant to a continuing hardship exemption).*
(b) (6) ........................ Presentation by Bear, Stearns & Co. Inc. to the
Company's Board of Directors, dated July 20, 1998
(including Appendices G, H, I and J). +
(b) (7) ........................ List of potential purchasers of the Company prepared in
August 1998.*
(b) (8) ........................ August 1998 confidential information memorandum sent
to potential purchasers of the Company.*
- --------
* Filed with Amendment No. 3 to this Schedule 13E-3.
+ Filed herewith.
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<PAGE>
SCHEDULE 13E-3
ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT
- --------------------------------------------- ------------------------------------------------------------------
(b) (9) ........................ Presentation by Prudential Securities Incorporated to the
Special Committee, dated March 3, 1998.*
(c) (1) ........................ Amended and Restated Agreement and Plan of Merger
between Sbarro, Inc., Sbarro Merger LLC, Mario
Sbarro, Joseph Sbarro, Anthony Sbarro, the Joseph
Sbarro (1994) Family Limited Partnership and Mario
Sbarro and Franklin Montgomery, not individually but as
trustees under that certain Trust Agreement dated April
28, 1984 for the benefit of Carmela Sbarro, dated as of
January 19, 1999 (as amended June 17, 1999) (set forth
as Annex I to the Proxy Statement).*
(d) (1) ........................ Proxy Statement (including Annexes I and II), together
with the proxy card.*
(e) ............................ Not applicable.
(f) ............................ As of the date of this Schedule 13E-3, no written
instruction, form or other material has been furnished to
any person making the actual oral solicitation or other
recommendation for such person's use, directly or
indirectly, in connection with this Rule 13e-3
transaction.
(g) (1) ........................ Memorandum of Understanding, dated January 19,
1999.*
(g) (2) ........................ Stipulation of Settlement dated April 7, 1999 among
counsel to the plaintiffs and counsel to the defendants in
the Current Shareholder Litigation (as defined in the
Proxy Statement filed as Exhibit (d)(1).*
</TABLE>
- --------
* Filed with Amendment No. 3 to this Schedule 13E-3.
+ Filed herewith.
-16-
<PAGE>
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The information set forth on the Front Cover Page and in "SUMMARY -
Certain Definitions"; "SUMMARY - The Merger Parties; The Company"; and
"MANAGEMENT Directors and Executive Officers of the Company" of the Proxy
Statement is incorporated herein by reference.
(b) The information set forth on the Front Cover Page and in "SUMMARY -
Certain Definitions"; "SUMMARY - Information Concerning the Meeting; Record Date
for the Meeting; Quorum Requirements"; and "SUMMARY - Market Prices of and
Dividends on the Common Stock" of the Proxy Statement is incorporated herein by
reference.
(c) The information set forth in "SUMMARY - Market Prices of and
Dividends on the Common Stock" of the Proxy Statement is incorporated herein by
reference.
(d) The information set forth in "SUMMARY - Market Prices of and
Dividends on the Common Stock"; "SPECIAL FACTORS - Financing of the Merger"; and
"SPECIAL FACTORS Plans for the Company after the Merger" of the Proxy Statement
is incorporated herein by reference.
(e) Not applicable.
(f) The information set forth in "CERTAIN TRANSACTIONS IN THE COMMON
STOCK" of the Proxy Statement is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
This Statement is being filed jointly by the Company (which is the
issuer of the class of equity securities that is the subject of the Rule 13e-3
transaction), Mergeco and the Continuing Shareholders.
(a) - (d) The information set forth in "SUMMARY - Certain Definitions";
"SUMMARY The Merger Parties"; "BUSINESS OF THE COMPANY"; "MANAGEMENT"; and
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" of the Proxy
Statement is incorporated herein by reference.
(e) During the last five years, neither the Company, nor, to the best
of its knowledge, any of its directors, executive officers or controlling
persons has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors). During the last five years, neither
Mergeco, nor any of its members has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors). During the last five
years, none of the individual Continuing Shareholders has been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors).
During the last five years, the sole general partner of the Joseph Sbarro (1994)
Family Limited Partnership has not been convicted in a criminal proceeding
(excluding traffic violations or similar
-17-
<PAGE>
misdemeanors). During the last five years, neither of the trustees of the Trust
of Carmela Sbarro has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors).
(f) During the last five years, neither the Company, nor, to the best
of its knowledge, any of its directors, executive officers or controlling
persons, was a party to a civil proceeding of a judicial or administrative body
of competent jurisdiction and as a result of such proceeding was or is subject
to a judgment, decree or final order enjoining further violations of, or
prohibiting activities, subject to, federal or state securities laws or finding
any violation of such laws. During the last five years, neither Mergeco, nor any
of its members was a party to a civil proceeding of a judicial or administrative
body of competent jurisdiction and as a result of such proceeding was or is
subject to a judgment, decree or final order enjoining further violations of, or
prohibiting activities, subject to, federal or state securities laws or finding
any violations of such laws. During the last five years, none of the individual
Continuing Shareholders was a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining further
violations of, or prohibiting activities, subject to, federal or state
securities laws or finding any violations of such laws. During the last five
years, the sole general partner of the Joseph Sbarro (1994) Family Limited
Partnership was not a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining further
violations of, or prohibiting activities, subject to, federal or state
securities laws or finding any violations of such laws. During the last five
years, neither of the trustees of the Trust of Carmela Sbarro was a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was or is subject to a judgment, decree or
final order enjoining further violations of, or prohibiting activities, subject
to, federal or state securities laws or finding any violations of such laws.
(g) The information set forth in "SUMMARY - The Merger Parties"; and
"MANAGEMENT" of the Proxy Statement is incorporated herein by reference.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a) (1) Not applicable.
(a) (2) and (b) The information set forth in "SPECIAL FACTORS -
Background of the Transaction"; "MANAGEMENT - Directors and Executive Officers
of the Company"; and "CERTAIN TRANSACTIONS IN THE COMMON STOCK" of the Proxy
Statement is incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in "CERTAIN QUESTIONS AND ANSWERS ABOUT
VOTING AND THE MERGER"; "SUMMARY - Information Concerning the Meeting; Purpose
of the Meeting"; "SUMMARY - Special Factors; Certain Effects of the Merger";
"SUMMARY Special Factors; Litigation Pertaining to the Merger"; "SUMMARY -
Special Factors; Financing of
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<PAGE>
the Merger"; "SUMMARY - The Restated Merger Agreement"; "SPECIAL FACTORS -
Interests of Certain Persons in the Merger and the Company"; "SPECIAL FACTORS -
Certain Effects of the Merger"; "SPECIAL FACTORS - Financing of the Merger";
"SPECIAL FACTORS - Regulatory Approvals"; "LITIGATION PERTAINING TO THE MERGER";
and "THE RESTATED MERGER AGREEMENT" of the Proxy Statement is incorporated
herein by reference.
(b) The information set forth in "SUMMARY - Information Concerning the
Meeting; Purpose of the Meeting"; "SUMMARY - Information Concerning the Meeting;
Voting Require ments"; "SUMMARY - Special Factors; Certain Effects of the
Merger"; "SUMMARY - Special Factors; Litigation Pertaining to the Merger";
"SUMMARY - The Restated Merger Agreement; The Merger Consideration"; "SPECIAL
FACTORS - Interests of Certain Persons in the Merger and the Company"; "SPECIAL
FACTORS - Certain Effects of the Merger"; "LITIGATION PERTAINING TO THE MERGER -
Current Shareholder Litigation"; "THE RESTATED MERGER AGREEMENT - The Merger;
Merger Consideration"; and "THE RESTATED MERGER AGREEMENT - Treatment of
Options" of the Proxy Statement is incorporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a) and (b) The information set forth in "SUMMARY - Special Factors;
Plans for the Company after the Merger"; and "SPECIAL FACTORS - Plans for the
Company after the Merger" of the Proxy Statement is incorporated herein by
reference.
(c) The information set forth in "SPECIAL FACTORS - Interests of
Certain Persons in the Merger and the Company; Directors and Officers of the
Surviving Corporation"; and "THE RESTATED MERGER AGREEMENT - Directors and
Officers, Certificate of Incorporation and By-Laws Following the Merger" of the
Proxy Statement is incorporated herein by reference.
(d) - (e) The information set forth in "SUMMARY - Special Factors;
Plans for the Company after the Merger"; "SUMMARY - Special Factors; Financing
of the Merger"; "SUMMARY - Market Prices of and Dividends on the Common Stock";
"SPECIAL FACTORS - Plans for the Company after the Merger"; and "SPECIAL FACTORS
- - Financing of the Merger" of the Proxy Statement is incorporated herein by
reference.
(f) - (g) The information set forth in "SUMMARY - Special Factors;
Certain Effects of the Merger"; and "SPECIAL FACTORS - Certain Effects of the
Merger" of the Proxy Statement is incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth in "SUMMARY - Special Factors; Financing
of the Merger"; and "SPECIAL FACTORS - Financing of the Merger" of the Proxy
Statement is incorporated herein by reference.
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<PAGE>
(b) The information set forth in "SPECIAL FACTORS - Interests of
Certain Persons in the Merger and the Company; Compensation of Special Committee
Members"; "SPECIAL FACTORS Fees and Expenses"; "SPECIAL FACTORS - Financing of
the Merger; Terms of Bear Stearns' Engagement"; "LITIGATION PERTAINING TO THE
MERGER - Current Shareholder Litigation"; and "THE RESTATED MERGER AGREEMENT -
Fees and Expenses" of the Proxy Statement is incorporated herein by reference.
(c) The information set forth in "SUMMARY - Special Factors; Financing
of the Merger"; "SPECIAL FACTORS - Certain Financial Projections"; "SPECIAL
FACTORS - Plans for the Company after the Merger"; and "SPECIAL FACTORS -
Financing of the Merger" of the Proxy Statement is incorporated herein by
reference.
(d) The information set forth in "SUMMARY - Special Factors; Financing
of the Merger"; and "SPECIAL FACTORS - Financing of the Merger" of the Proxy
Statement is incorporated herein by reference.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) and (c) The information set forth in "SUMMARY - Special Factors;
Continuing Share holders' Purpose and Reasons for the Merger"; "SPECIAL FACTORS
- - Background of the Transaction"; and "SPECIAL FACTORS - The Continuing
Shareholders' Purpose and Reasons for the Merger" of the Proxy Statement is
incorporated herein by reference.
(b) The information set forth in "SPECIAL FACTORS - Background of the
Transaction" and "SPECIAL FACTORS - The Continuing Shareholders Purpose and
Reasons for the Merger" of the Proxy Statement is incorporated herein by
reference.
(d) The information set forth in "CERTAIN QUESTIONS AND ANSWERS ABOUT
VOTING AND THE MERGER"; "SUMMARY - Information Concerning the Meeting; Purpose
of the Meeting"; "SUMMARY - Special Factors; Plans for the Company after the
Merger"; "SUMMARY - Special Factors; Interests of Certain Persons in the Merger
and the Company"; "SUMMARY - Special Factors; Certain Effects of the Merger";
"SUMMARY - Special Factors; Certain U.S. Federal Income Tax Consequences";
"SUMMARY - Special Factors; Accounting Treatment"; "SUMMARY - Special Factors;
Financing of the Merger"; "SUMMARY - The Restated Merger Agreement; The Merger
Consideration"; "SPECIAL FACTORS - The Continuing Shareholders Purpose and
Reasons for the Merger"; "SPECIAL FACTORS - Certain Financial Projections";
"SPECIAL FACTORS - Plans for the Company after the Merger"; "SPECIAL FACTORS -
Interests of Certain Persons in the Merger and the Company"; "SPECIAL FACTORS
Certain Effects of the Merger"; "SPECIAL FACTORS - Certain U.S. Federal Income
Tax Consequences"; "SPECIAL FACTORS - Fees and Expenses"; "SPECIAL FACTORS -
Accounting Treatment"; "SPECIAL FACTORS - Risk of Insolvency"; "THE RESTATED
MERGER AGREEMENT - The Merger; Merger Consideration"; "THE RESTATED MERGER
AGREEMENT - The Exchange Fund; Payment for Shares of Common Stock"; "THE
RESTATED
-20-
<PAGE>
MERGER AGREEMENT - Treatment of Options"; and "THE RESTATED MERGER
AGREEMENT - Tax Withholding" of the Proxy Statement is incorporated herein by
reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a) The information set forth on the Front Cover Page and in "CERTAIN
QUESTIONS AND ANSWERS ABOUT VOTING AND THE MERGER"; "SUMMARY - Special Factors;
Recom mendation of the Special Committee and the Board of Directors"; "SUMMARY -
Special Factors; Presentation and Fairness Opinion of Prudential Securities";
"SPECIAL FACTORS - Background of the Transaction"; "SPECIAL FACTORS -
Recommendations of the Special Committee and the Board of Directors"; "SPECIAL
FACTORS - The Continuing Shareholders' Purpose and Reasons for the Merger"; and
"SPECIAL FACTORS - Presentation and Fairness Opinion of Prudential Securities"
of the Proxy Statement is incorporated herein by reference.
(b) The information set forth in "CERTAIN QUESTIONS AND ANSWERS ABOUT
VOTING AND THE MERGER"; "SUMMARY - Special Factors; Recommendation of the
Special Committee and the Board of Directors"; "SUMMARY - Special Factors;
Factors Considered by the Special Committee and the Board of Directors";
"SUMMARY - Special Factors; Presentation and Fairness Opinion of Prudential
Securities"; "SPECIAL FACTORS - Background of the Transaction"; "SPECIAL FACTORS
- - Recommendation of the Special Committee and the Board of Directors"; "SPECIAL
FACTORS - The Continuing Shareholders' Purpose and Reasons for the Merger";
"SPECIAL FACTORS - Presentation and Fairness Opinion of Prudential Securities";
"SPECIAL FACTORS - Certain Financial Projections"; "LITIGATION PERTAINING TO THE
MERGER Current Shareholder Litigation"; "THE RESTATED MERGER AGREEMENT - No
Solicitation; Fiduciary Obligation of Directors"; "THE RESTATED MERGER AGREEMENT
- - Conditions"; "THE RESTATED MERGER AGREEMENT - Termination" and "THE RESTATED
MERGER AGREEMENT - Amendment and Waiver" of the Proxy Statement is incorporated
herein by reference.
(c) The information set forth in "CERTAIN QUESTIONS AND ANSWERS ABOUT
VOTING AND THE MERGER"; "SUMMARY - Information Concerning the Meeting; Voting
Requirements"; "SUMMARY - The Restated Merger Agreement; Conditions to, and
Termination of, the Merger"; "SPECIAL FACTORS - Recommendations of the Special
Committee and the Board of Directors"; "THE RESTATED MERGER AGREEMENT - The
Merger; Merger Consideration; "THE RESTATED MERGER AGREEMENT - Covenants"; "THE
RESTATED MERGER AGREEMENT - Conditions"; and "THE RESTATED MERGER AGREEMENT -
Termination" of the Proxy Statement is incorporated herein by reference.
(d) The information set forth in "CERTAIN QUESTIONS AND ANSWERS ABOUT
VOTING AND THE MERGER"; "SUMMARY - Special Factors; Fairness Opinion of ;
"SPECIAL FACTORS - Background of the Transaction"; "SPECIAL FACTORS -
Recommendation of the Special Committee and the Board of Directors"; "SPECIAL
FACTORS - The Continuing
-21-
<PAGE>
Shareholders' Purpose and Reasons for the Merger"; and "SPECIAL FACTORS -
Presentation and Fairness Opinion of of the Proxy Statement is incorporated
herein by reference.
(e) The information set forth in "CERTAIN QUESTIONS AND ANSWERS ABOUT
VOTING AND THE MERGER"; "SPECIAL FACTORS - Background of the Transaction";
"SPECIAL FACTORS - Recommendation of the Special Committee and the Board of
Directors"; and "SPECIAL FACTORS - The Continuing Shareholders' Purpose and
Reasons for the Merger" of the Proxy Statement is incorporated herein by
reference.
(f) The information set forth in "SPECIAL FACTORS - Background of the
Transaction" of the Proxy Statement is incorporated herein by reference.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) and (b) The information set forth in "CERTAIN QUESTIONS AND ANSWERS
ABOUT VOTING AND THE MERGER"; "SUMMARY - Special Factors; Factors Considered by
the Special Committee and the Board of Directors"; "SUMMARY - Special Factors;
Fairness Opinion of ; "SPECIAL FACTORS - Background of the Transaction";
"SPECIAL FACTORS Recommendation of the Special Committee and the Board of
Directors"; "SPECIAL FACTORS The Continuing Shareholders' Purpose and Reasons
for the Merger"; and "SPECIAL FACTORS Presentation and Fairness Opinion of of
the Proxy Statement is incorporated herein by reference.
(c) The information set forth in "AVAILABLE INFORMATION" of the Proxy
Statement is incorporated herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The information set forth in "SUMMARY - Information Concerning the
Meeting; Voting Requirements"; "SPECIAL FACTORS - Interests of Certain Persons
in the Merger and the Company"; and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT" of the Proxy Statement is incorporated herein by
reference.
(b) The information set forth in "CERTAIN TRANSACTIONS IN THE COMMON
STOCK" of the Proxy Statement is incorporated herein by reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT
TO THE ISSUER'S SECURITIES.
The information set forth in "SUMMARY - Information Concerning the
Meeting; Voting Requirements"; "SUMMARY - The Restated Merger Agreement";
"SPECIAL FACTORS - Interests of Certain Persons in the Merger and the Company";
"SPECIAL FACTORS - Fees and Expenses"; "SPECIAL FACTORS - Financing of the
Merger"; and "THE RESTATED MERGER AGREEMENT" of the Proxy Statement is
incorporated herein by reference.
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<PAGE>
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS
WITH REGARD TO THE TRANSACTION.
(a) The information set forth in "SUMMARY - Information Concerning the
Meeting; Voting Requirements"; "SPECIAL FACTORS - Recommendation of the Special
Committee and the Board of Directors"; "THE RESTATED MERGER AGREEMENT -
Covenants"; and "CERTAIN TRANSACTIONS IN THE COMMON STOCK" of the Proxy
Statement is incorporated herein by reference.
(b) The information set forth in "SUMMARY - Special Factors;
Recommendation of The Special Committee and the Board of Directors"; "SPECIAL
FACTORS - Background of the Transaction"; "SPECIAL FACTORS - Recommendation of
the Special Committee and the Board of Directors" of the Proxy Statement is
incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in "CERTAIN QUESTIONS AND ANSWERS ABOUT
VOTING AND THE MERGER"; "SUMMARY - No Right of Appraisal"; and "LITIGATION
PERTAINING TO THE MERGER - Current Shareholder Litigation" of the Proxy
Statement is incorporated herein by reference.
(b) - (c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in "WHERE YOU CAN FIND MORE INFORMATION";
and "CONSOLIDATED FINANCIAL STATEMENTS" of the Proxy Statement is incorporated
herein by reference.
(b) Not Applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAIN OR UTILIZED.
(a) The information set forth on the Front Cover Page and in "SUMMARY -
Special Factors; Plans for the Company after the Merger"; "SUMMARY - Special
Factors; Financing of the Merger"; "SPECIAL FACTORS - Plans for the Company
after the Merger; "SPECIAL FACTORS - Interests of Certain Persons in the Merger
and the Company"; "SPECIAL FACTORS - Fees and Expenses"; "SPECIAL FACTORS -
Financing of the Merger"; "THE RESTATED MERGER AGREEMENT Indemnification and
Insurance"; and "THE RESTATED MERGER AGREEMENT - Fees and Expenses" of the Proxy
Statement is incorporated herein by reference.
(b) The information set forth on the Front Cover Page and in "CERTAIN
QUESTIONS AND ANSWERS ABOUT VOTING AND THE MERGER"; and "SPECIAL FACTORS -
Interests of
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<PAGE>
Certain Persons in the Merger and the Company; Compensation of the Special
Committee Members" of the Proxy Statement is incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION.
The information set forth in "SUMMARY - Information Concerning the
Meeting" of the Proxy Statement is incorporated herein by reference.
Proxy Statement, together with the proxy card.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Debt Financing Letter, dated as of January 19, 1999.*
(b)(1) Presentation by Prudential Securities Incorporated to the
Special Committee, dated January 19, 1999.*
(b)(2) Opinion of Prudential Securities Incorporated, dated January
19, 1999 (set forth as Annex II to the Proxy Statement).*
(b)(3) Presentation by Bear, Stearns & Co. Inc. to certain Continuing
Shareholders, dated October 10, 1996 (in accordance with Rule
202 of Regulation S-T, Section II of the presentation is filed
in paper pursuant to a continuing hardship exemption).*
(b)(4) Presentation by Bear, Stearns & Co. Inc. to the Company's
Board of Directors, dated January 15, 1997.*
(b)(5) Presentation by Bear, Stearns & Co. Inc. to the Company's
Board of Directors, dated January 23, 1997 (in accordance with
Rule 202 of Regulation S-T, the financial models of this
presentation are filed in paper pursuant to a continuing
hardship exemption).*
(b)(6) Presentation by Bear, Stearns & Co. Inc. to the Company's
Board of Directors, dated July 20, 1998 (including Appendices
G, H, I and J). +
(b)(7) List of potential purchasers of the Company prepared in August
1998.*
(b)(8) August 1998 confidential information memorandum sent to
potential purchasers of the Company.*
(b)(9) Presentation by Prudential Securities Incorporated to the
Special Committee, dated March 3, 1998.*
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<PAGE>
(c) (1) Amended and Restated Agreement and Plan of Merger between
Sbarro, Inc., Sbarro Merger LLC, Mario Sbarro, Joseph Sbarro,
Anthony Sbarro, the Joseph Sbarro (1994) Family Limited
Partnership and Mario Sbarro and Franklin Montgomery, not
individually but as trustees under that certain Trust
Agreement dated April 28, 1984 for the benefit of Carmela
Sbarro, dated as of January 19, 1999 (as amended June 17,
1999) (set forth as Annex I to the Proxy Statement).*
(d) (1) Proxy Statement (including Annexes I and II), together with
the proxy card.*
(e) Not applicable.
(f) As of the date of this Schedule 13E-3, no written instruction,
form or other material has been furnished to any person making
the actual oral solicitation or other recommendation for such
person's use, directly or indirectly, in connection with this
Rule 13e-3 transaction.
(g)(1) Memorandum of Understanding, dated January 19, 1999.*
(g)(2) Stipulation of Settlement dated April 7, 1999 among counsel to
the plaintiffs and counsel to the defendants in the Current
Shareholder Litigation (as defined in the Proxy Statement
filed as Exhibit (d)(1).*
- ---------------------
* Filed with Amendment No. 3 to this Schedule 13E-3.
+ Filed herewith.
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<PAGE>
SIGNATURES
After due inquiry and to the best of my knowledge and belief, the
undersigned certify that the information set forth in this statement is true,
complete and correct.
SBARRO, INC.
By: /s/ Mario Sbarro
--------------------------------------------
Name: Mario Sbarro
Title: President and Chief Executive Office
SBARRO MERGER LLC
By: /s/ Mario Sbarro
--------------------------------------------
Name: Mario Sbarro
Title: Member
/s/ Mario Sbarro
--------------------------------------------
Mario Sbarro
/s/ Joseph Sbarro
--------------------------------------------
Joseph Sbarro
/s/ Anthony Sbarro
--------------------------------------------
Anthony Sbarro
JOSEPH SBARRO (1994)
FAMILY LIMITED PARTNERSHIP
/s/ Joseph Sbarro
--------------------------------------------
Name: Joseph Sbarro
Title: General Partner
/s/ Mario Sbarro
--------------------------------------------
Mario Sbarro, as trustee under that certain
Trust Agreement dated April 28, 1984 for the
benefit of Carmela Sbarro
/s/ Franklin Montgomery
--------------------------------------------
Franklin Montgomery, as trustee under that
certain Trust Agreement dated April 28, 1984
for the benefit of Carmela Sbarro
Dated: June 29, 1999
-26-
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT DESCRIPTION
- ------- -----------
(a)(1) Debt Financing Letter, dated as of January 19, 1999.*
(b)(1) Presentation by Prudential Securities Incorporated to the
Special Committee, dated January 19, 1999.*
(b)(2) Opinion of Prudential Securities Incorporated, dated January
19, 1999 (set forth as Annex II to the Proxy Statement).*
(b)(3) Presentation by Bear, Stearns & Co. Inc. to certain Continuing
Shareholders, dated October 10, 1996 (in accordance with Rule
202 of Regulation S-T, Section II of the presentation is filed
in paper pursuant to a continuing hardship exemption).*
(b)(4) Presentation by Bear, Stearns & Co. Inc. to the Company's
Board of Directors, dated January 15, 1997.*
(b)(5) Presentation by Bear, Stearns & Co. Inc. to the Company's
Board of Directors, dated January 23, 1997 (in accordance with
Rule 202 of Regulation S-T, the financial models of this
presentation are filed in paper pursuant to a continuing
hardship exemption).*
(b)(6) Presentation by Bear, Stearns & Co. Inc. to the Company's
Board of Directors, dated July 20, 1998 (including Appendices
G, H, I and J). +
(b)(7) List of potential purchasers of the Company prepared in August
1998.*
(b)(8) August 1998 confidential information memorandum sent to
potential purchasers of the Company.*
(b)(9) Presentation by Prudential Securities Incorporated to the
Special Committee, dated March 3, 1998.*
(c)(1) Amended and Restated Agreement and Plan of Merger between
Sbarro, Inc., Sbarro Merger LLC, Mario Sbarro, Joseph Sbarro,
Anthony Sbarro, the Joseph Sbarro (1994) Family Limited
Partnership and Mario Sbarro and Franklin Montgomery, not
individually but as trustees under that certain Trust
Agreement dated April 28, 1984 for the benefit of Carmela
Sbarro, dated as of January 19, 1999 (as amended June 17,
1999) (set forth as Annex I to the Proxy Statement).*
(d)(1) Proxy Statement (including Annexes I and II), together with
the proxy card.*
(e) Not applicable.
(f) As of the date of this Schedule 13E-3, no written instruction,
form or other material has been furnished to any person making
the actual oral solicitation or other recommendation for such
person's use, directly or indirectly, in connection with this
Rule 13e-3 transaction.
(g)(1) Memorandum of Understanding, dated January 19, 1999.*
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<PAGE>
(g)(2) Stipulation of Settlement dated April 7, 1999 among counsel to
the plaintiffs and counsel to the defendants in the Current
Shareholder Litigation (as defined in the Proxy Statement
filed as Exhibit (d)(1).*
- --------
* Filed with Amendment No. 3 to this Schedule 13E-3.
+ Filed herewith.
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<PAGE>
PROJECT WONTON
PRESENTATION TO THE BOARD OF DIRECTORS
STRATEGIC ALTERNATIVES
HIGHLY CONFIDENTIAL
NOT TO BE REPRODUCED OR DISCUSSED WITH OUTSIDERS
July 20, 1998
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
I Situation Assessment
II Summary of Alternatives to Increase Shareholder Value
III Leveraged Recapitalization
A Company Sponsored Recapitalization
B Financial Investor Sponsored Recapitalization
IV Sale of the Company
V Conclusion
Appendices
A Summary Transaction Timetables
B Ownership Summary and Traded Volume Analysis
C Discounted Cash Flow Analysis
D Comparable Public Companies
E Comparable Mergers and Acquisitions Transactions
F Precedent Leveraged Recapitalization Transactions
G Illustrative Company Sponsored Leveraged Recapitalization Model
H Illustrative Financial Investor Sponsored Leveraged Recapitalization
Model
I Illustrative Leveraged Buyout Model
J Illustrative Merger Model
<PAGE>
SECTION I
SITUATION ASSESSMENT
<PAGE>
SITUATION ASSESSMENT
- --------------------------------------------------------------------------------
BEAR STEARNS IS PLEASED TO HAVE THIS OPPORTUNITY TO AGAIN DISCUSS WITH WONTON'S
BOARD OF DIRECTORS OUR EVALUATION OF ALTERNATIVES TO ENHANCE SHAREHOLDER VALUE
FOR THE BENEFIT OF ALL SHAREHOLDERS.
OUR EVALUATION OF ALTERNATIVES IS IMPACTED BY THE FOLLOWING KEY CONSIDERATIONS:
o HIGH QUALITY RESTAURANT COMPANY: Proven concept with high operating
margins and consistent financial performance are very unusual within
restaurant sector.
o ROBUST CAPITAL MARKETS: Ready liquidity and financing available at rates
near to historic lows.
o VERY SIGNIFICANT ACQUISITION ACTIVITY: Record levels of acquisition
activity driven by desire for core earnings growth for corporate
acquirers and the significant capital available for financial buyers.
o COMPANY SHAREHOLDER BASE FOCUSED ON VALUE CREATION: The attempted
going-private transaction has focused shareholders' attention on the
Company's effort to enhance shareholder value.
THE FOLLOWING INFORMATION PROVIDES AN ASSESSMENT OF THE CURRENT SITUATION AS IT
RELATES TO THE COMPANY FOLLOWED BY A DISCUSSION OF THE COMPANY'S STRATEGIC
ALTERNATIVES.
Page 1
<PAGE>
SITUATION ASSESSMENT - PUBLIC EQUITY MARKETS
- --------------------------------------------------------------------------------
THE PUBLIC EQUITY MARKETS HAVE ENJOYED RECORD RETURNS OVER THE LAST SEVERAL
YEARS AND ARE AT RECORD HIGHS IN TERMS OF VALUATION:
o SHARE PRICE GAINS: S&P 500 has gained 108% over the last 3 years.
o HIGH VALUATION MULTIPLES: Current P/E multiples for expected 1998
earnings of the S&P 500 are 27.8x.
o LOW DIVIDEND YIELDS: Current dividend yield for S&P 500 companies is
1.35%.
AS THE MARKETS HAVE MOVED TO THESE RECORD LEVELS, HOWEVER, INVESTORS HAVE
FOCUSED ON SEVERAL KEY THEMES:
o GROWTH EMPHASIS: The equity market has a bias toward strong growth
stories.
o DEPLOYING CASH: Excess cash is not highly valued by investors.
o SELECTIVE INDUSTRIES: Restaurants are a relatively out-of-favor sector
in the equity markets.
o LEVERAGABLE BRAND: Investors value the ability to apply an existing
brand and business model into new markets.
Page 2
<PAGE>
SITUATION ASSESSMENT - DEBT CAPITAL MARKETS
- --------------------------------------------------------------------------------
THE DEBT CAPITAL MARKETS ARE CURRENTLY VERY ATTRACTIVE FOR ISSUERS DUE TO RECORD
LIQUIDITY AT RATES NEAR HISTORIC LOWS:
o LOW TREASURY YIELDS: The 10-year Treasury bond yield has decreased from
a yield of 6.49% in January 1997 to 5.49% today.
o TIGHTENING SPREADS: The average spread to worst for corporate high yield
issues decreased from 9.8% to 9.2%.
o RECORD HIGH YIELD ISSUANCE: YTD issuance of high yield bonds totals
$101.2 billion, 80% greater than the 1997 period.
BEAR STEARNS HIGH YIELD INDEX - YIELD TO WORST
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
Page 3
<PAGE>
SITUATION ASSESSMENT - RESTAURANT INDUSTRY
- --------------------------------------------------------------------------------
OVERALL, THE RESTAURANT INDUSTRY HAS BEEN AN OUT-OF-FAVOR SECTOR IN RECENT YEARS
WITH PUBLIC EQUITY INVESTORS DUE TO:
o SLOWING GROWTH: Industry growth has slowed to 4.5% from 8.0% in the
1980s.
o COMPETITION: Increased competition from new entrants.
o HIGHER COSTS: Increasing labor costs.
o EXCESS CAPACITY: General overcapacity after over-expansion in the early
1990s.
THOSE RESTAURANT CONCEPTS THAT HAVE ACHIEVED AND SUSTAINED HIGH MARKET
VALUATIONS POSSESS:
o CONSISTENT EARNINGS GROWTH
o HIGH VISIBILITY OF EARNINGS
o SAME STORE SALES GROWTH
o STRONG ROI PERFORMANCE
RECENTLY, FINANCIAL INVESTORS HAVE BEGUN INVESTING AGGRESSIVELY IN THIS SECTOR
AS IT PRESENTS ATTRACTIVE RELATIVE VALUATIONS TO OTHER INDUSTRY SECTORS.
Page 4
<PAGE>
SITUATION ASSESSMENT - THE COMPANY
- --------------------------------------------------------------------------------
WONTON IS A UNIQUE AND VERY ATTRACTIVE RESTAURANT COMPANY WITH A WIDE RANGE OF
STRATEGIC ALTERNATIVES.
THE FOLLOWING FACTORS ARE THE KEY CONSIDERATIONS IN EVALUATING THE COMPANY'S
STRATEGIC ALTERNATIVES:
o MARKET LEADER: Leading provider of quick service specialty foods in the
U.S. and abroad. Unique franchise in serving the "captive" customer.
o STABLE CASH FLOW: Proven format provides strong and stable cash flow.
o INTERNAL GROWTH CONSTRAINTS: Lack of availability of desirable locations
for Wonton core business may constrain new stores to 25-35 per year.
o NO BORROWINGS: Cash flow generation in excess of capital expenditures
results in over "equitized" balance sheet.
o LIMITED ACQUISITION OPPORTUNITIES: Preference for internal development;
few similar good concepts.
o SIGNIFICANT EXCESS CASH: Currently approximately $120 million in excess
cash.
o ABILITY TO EXTEND CONCEPT: Limited track record of extending concept to
"non-captive" customer base.
Page 5
<PAGE>
SITUATION ASSESSMENT - GROWTH INITIATIVES
- --------------------------------------------------------------------------------
WONTON MANAGEMENT HAS DEVELOPED SEVERAL RESTAURANT CONCEPTS TO PROVIDE FUTURE
GROWTH OUTSIDE OF ITS WONTON CORE BUSINESS:
o UMBERTO'S (80% OWNED): Upscale pizzeria and family-style Italian
restaurant.
o 3,500 - 4,000 square foot typical size in higher quality strip malls in
suburban locations.
o 70% take-out / self-service; 30% dine-in.
o 5 existing locations.
o Competes with neighborhood Italian restaurants and upscale family
pizzerias.
o BOULDER CREEK STEAKS & SALOON (40% OWNED): Family-style steakhouse.
o 7,000 square foot typical size in standalone suburban locations.
o 100% dine-in.
o 4 existing locations.
o Competes with family-style steak house restaurants (Outback, Lone Star)
Page 6
<PAGE>
SITUATION ASSESSMENT - GROWTH INITIATIVES
- --------------------------------------------------------------------------------
o BICE (70% OWNED): Upscale Italian restaurant.
o Typically urban locations.
o 100% dine-in.
o 3 existing locations.
o Competes with wide variety of upscale Italian restaurants.
o BAJA GRILL (PENDING ACQUISITION - WOULD BE 50% OWNED): South of the
border cuisine.
o 1,500 - 2,000 square foot typical size in strip malls in suburban
locations.
o In process of acquiring 2-store established business.
o Competes with upscale, health conscience Mexican restaurants.
Page 7
<PAGE>
<TABLE>
<CAPTION>
SITUATION ASSESSMENT - HISTORICAL FINANCIAL REVIEW
- --------------------------------------------------------------------------------
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
ACTUAL 6 YEAR 3 YEAR
1991 1992 1993 1994 1995 1996 1997 CAGR CAGR
---- ---- ---- ---- ---- ---- ---- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $208.0 $236.2 $264.0 $294.0 $316.1 $325.7 $345.1 8.8% 5.5%
% GROWTH 9.4% 13.6% 11.8% 11.4% 11.3% 3.0% 6.0%
% COMP GROWTH (0.5%) (0.3%) 2.5% 3.1% 0.5% (0.2%) (0.4%)
EBITDA $51.4 $53.7 $64.0 $73.0 $71.3(1) $79.5 $81.1(4) 7.9% 3.6%
% OF REVENUES 24.7% 22.7% 24.8% 24.4% 22.6% 24.4% 23.5%
NET INCOME $21.8 $24.1 $28.3 $33.0 $31.4(1) $37.4 $38.1(4) 9.8% 4.9%
DILUTED EARNINGS PER SHARE $1.07 $1.18 $1.45 $1.63 $1.55(1) $1.84 $1.87(4) 9.8% 4.7%
DIVIDENDS PER SHARE -- -- $0.52 $0.64 $0.76 $0.92 $1.08
FORWARD P/E MULTIPLE(2) 20.5x 17.3x 19.5x 14.0x 14.2x 14.8x 15.6x
CAPITAL EXPENDITURES $23.9 $28.8 $31.9 $32.1 $17.5 $25.9 $28.6
STORES ANALYSIS
OWNED STORE OPENINGS 63 58 59 53 44 29 30
NET OWNED STORE OPENINGS(3) 64 44 59 52 4 26 26
OWNED STORES (EOP) 412 456 515 567 571 597 623 7.1% 3.2%
FRANCHISED STORES (EOP) 118 131 134 162 200 219 239 12.5% 13.8%
</TABLE>
- --------------------
(1) Excludes pre-tax provision of $16.4MM ($10.2MM after-tax) for closing of
approximately 40 stores.
(2) Calculated using closing stock price and estimated EPS at respective year
end.
(3) Owned store openings, plus stores acquired from franchisees, less owned
store closings.
(4) Excludes pre-tax provision of $3.3 million ($2.0 million after-tax) for
closing of several joint venture units.
Page 8
<PAGE>
<TABLE>
<CAPTION>
SITUATION ASSESSMENT - PROJECTED FINANCIAL PERFORMANCE
- --------------------------------------------------------------------------------
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
PROJECTED FISCAL YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 1999 2000 2001 2002 CAGR
---- ---- ---- ---- ---- ----
REVENUES
<S> <C> <C> <C> <C> <C> <C>
Core Business $360.4 $386.0 $417.5 $451.2 $485.9 7.8%
Umberto's $4.3 $15.7 $34.4 $59.4 $91.3
Other Concepts(1) $12.6 $31.1 $55.1 $90.1 $135.8
------ ------ ------ ------ ------- -----
Total $377.2 $432.8 $507.0 $600.8 $713.0 17.2%
% GROWTH 9.5% 14.7% 17.1% 18.5% 18.7%
% COMP GROWTH CORE BUSINESS 0.5% 1.5% 1.5% 1.5% 1.5%
EBITDA
Core Business $84.8 $91.1 $98.9 $107.2 $115.6 8.1%
Umberto's $0.3 $2.6 $6.4 $11.6 $18.4
Other Concepts(1) $1.5 $4.2 $8.0 $14.0 $22.0
------ ------ ------ ------ ------- -----
Total $86.7 $98.0 $113.3 $132.8 $156.1 15.8%
% OF REVENUES CORE BUSINESS 23.5% 23.6% 23.7% 23.7% 23.8%
% OF REVENUES UMBERTO'S 7.5% 16.7% 18.7% 19.6% 20.1%
NET INCOME $41.1 $48.6 $59.3 $73.2 $90.6 21.9%
DILUTED EARNINGS PER SHARE $1.97 $2.33 $2.85 $3.51 $4.35 21.9%
CAPITAL EXPENDITURES
Core Business $23.4 $21.7 $23.7 $24.3 $24.9
Umberto's $2.2 $5.4 $7.2 $9.0 $10.8
Other Concepts $4.1 $5.7 $9.5 $12.1 $15.3
------ ------ ------ ------ ------
Total $29.6 $32.7 $40.4 $45.4 $51.0
</TABLE>
- -------------------
Source: Company projections.
(1) Consists of BICE, Boulder Creek and Baja Grill concepts.
Page 9
<PAGE>
<TABLE>
<CAPTION>
SITUATION ASSESSMENT - PROJECTED FINANCIAL PERFORMANCE
- --------------------------------------------------------------------------------
ACTUAL PROJECTED FISCAL YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1997 1998 1999 2000 2001 2002 CAGR
-------- -------- -------- ------ ------ ------ -----
CORE BUSINESS STORE ASSUMPTIONS
<S> <C> <C> <C> <C> <C> <C> <C>
OWNED STORE OPENINGS (NET) 26 28 40 45 45 45
OWNED STORES (EOP) 623 651 691 736 781 826 5.8%
FRANCHISED STORE OPENINGS (NET) 20 35 50 60 60 60
FRANCHISED STORES (EOP) 239 274 324 384 444 504 16.1%
NEW CONCEPTS STORE ASSUMPTIONS
UMBERTO'S OWNED STORES (EOP) 3 9 24 44 69 99
BOULDER CREEK OWNED STORES (EOP) 3 8 14 24 36 51
BICE OWNED STORES (EOP) 2 4 7 11 16 22
BAJA GRILL OWNED STORES (EOP) 0 2 7 17 32 52
</TABLE>
- ----
Source: Company projections.
Page 10
<PAGE>
HISTORICAL 5 YEAR STOCK PRICE PERFORMANCE
- --------------------------------------------------------------------------------
WONTON VS. S&P 500 AND RESTAURANT COMPOSITE INDEX (1)
JULY 16, 1993 THROUGH JULY 17, 1998
[GRAPHIC OMITTED]
- ----
(1) Restaurant Composite Index includes: Buffet's, Consolidated Products,
Foodmaker, Lonestar, Luby's, Piccadilly, Ryan's and Ruby's.
Page 11
<PAGE>
HISTORICAL 12 MONTH STOCK PRICE PERFORMANCE
- --------------------------------------------------------------------------------
WONTON VS. S&P 500 AND RESTAURANT COMPOSITE INDEX (1)
JULY 16, 1997 THROUGH JULY 17, 1998
[GRAPHIC OMITTED]
- ----
(1) Restaurant Composite Index includes: Buffet's, Consolidated Products,
Foodmaker, Lonestar, Luby's, Piccadilly, Ryan's and Ruby's.
Page 12
<PAGE>
<TABLE>
<CAPTION>
SITUATION ASSESSMENT - COMPARABLE PUBLIC COMPANIES
- --------------------------------------------------------------------------------
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FIVE YEAR
LATEST TWELVE MONTHS PROJECTED % CHANGE IN
------------------------------ EARNINGS STOCK PRICE
PRICE ON VALUE OF 1998 1999 GROWTH FROM
17-JUL-98 EQUITY EPS(1) EPS(1) RATE(2) 1/1/98
--------- ------- ------ ------ --------- ------------
REVENUES EBIT NET INCOME
-------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Project Wonton $26.31 $540.08 $351.47 $57.13 $38.20 $1.97 $2.05 13.50% 0.005
LIMITED SERVICE & CASUAL DINING
- -------------------------------
RESTAURANTS
- -----------
Buffets Inc. $15.06 $685.70 $824.62 $43.05 $32.25 $0.82 $0.95 16.50% 60.7%
Consolidated Products $20.69 $432.34 $290.37 $31.29 $18.05 $0.96 $1.19 19.83% 26.3%
Foodmaker, Inc. $16.38 $641.88 $1,154.95 $84.35 $37.21 $1.20 $1.41 19.57% 8.7%
Lone Star Steakhouse $12.88 $530.42 $608.62 $99.24 $65.32 $1.01 $1.21 19.00% (26.4%)
Luby's Cafeterias, Inc. $17.56 $408.69 $502.21 $54.93 $32.73 $1.32 - 9.00% 0.0%
Piccadilly Cafeterias Inc. $13.06 $137.53 $312.49 $18.19 $10.07 $1.01 - - (0.5%)
Ruby Tuesday $17.06 $281.23 $695.19 $72.37 $43.68 $0.90 $1.06 16.22% 32.5%
Ryan's Family Steakhouse $10.94 $486.86 $605.95 $65.35 $38.31 $0.87 $0.96 12.33% 27.7%
</TABLE>
- ----
(1) Source: First Call Calendar EPS Estimates.
(2) Source: Bloomberg.
Page 13
<PAGE>
SITUATION ASSESSMENT - COMPARABLE PUBLIC COMPANIES' FINANCIAL RATIOS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(ALL ESTIMATES ARE LATEST TWELVE MONTHS UNLESS NOTED)
VALUATION MULTIPLES CREDIT STATISTICS
-------------------------------------------------------- -----------------------------------------
ENTERPRISE VALUE
-----------------
LTM LTM PRICE TO PRICE TO PRICE TO EBITDA/ TOTAL DEBT/ DEBT/
EBITDA EBIT LTM EPS 1998 EPS(1) 1999 EPS(1) INTEREST EBITDA MKT. CAP
Project Wonton 5.2x 7.4x 14.1x 13.4x 12.8x NM 0.0 x 0.0%
LIMITED SERVICE & CASUAL DINING
- --------------------------------
RESTAURANTS
- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Buffets Inc. 8.0x 15.6x 21.2x 18.4x 15.9x 23.7x 0.5 x 6.8%
Consolidated Products 10.1x 15.0x 25.5x 21.5x 17.4x 15.2 x 0.8 x 8.4%
Foodmaker, Inc. 7.3x 10.8x 17.6x 13.6x 11.6x 3.3 x 2.8 x 38.3%
Lone Star Steakhouse 3.0x 4.0x 8.3x 12.7x 10.6x NM 0.0 x 0.0%
Luby's Cafeterias, Inc. 6.5 x 8.9 x 12.5 x 13.3 x - 15.3 x 1.1 x 17.5%
Piccadilly Cafeterias Inc. 5.4x 9.0x 13.6x 12.9x - 14.2 x 0.9 x 16.0%
Ruby Tuesday 3.2 x 5.0 x 13.7x 19.0x 16.1x 30.6 x 0.8 x 25.1%
Ryan's Family Steakhouse 6.7x 9.4x 13.3x 12.6x 11.4x 16.0 x 1.4 x 21.2%
Harmonic Mean 5.3x 8.0x 14.1x 14.9x 13.3x
</TABLE>
- ----
(1) Source: First Call Calendar EPS Estimates.
Page 14
<PAGE>
SITUATION ASSESSMENT - OTHER RESTAURANT COMPANIES
- --------------------------------------------------------------------------------
($ IN MILLIONS)
<TABLE>
<CAPTION>
THE MARKET HAS REWARDED CERTAIN RESTAURANT COMPANIES BASED ON A VARIETY OF
FACTORS:
P/E MULTIPLES
------------------------------------------------------------
EQUITY MARKET PRICE TO LTM PRICE TO 1998 PRICE TO 1999
RESTAURANT COMPANY CAPITALIZATION EPS EPS(1) EPS(1) COMMENTS
------------------ -------------- ------------- ------------- ------------- ------------------------------------------------
<S> <C> <C> <C> <C>
CKE $2,051 34.4x 25.8x 20.5x o Turning around operating and financial
performance of once troubled concepts
o Growth through acquisition
McDonald's $50,354 31.4x 29.2x 25.7x o Strength of brand franchise
o Global presence
Papa John's $1,170 39.3x 32.4x 25.4x o High historical and projected growth
in sales and earnings
</TABLE>
- ----
(1) Source: First Call Calendar EPS Estimates.
Page 15
<PAGE>
SITUATION ASSESSMENT - M&A ACTIVITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IN THE LAST TWELVE MONTHS THERE HAS BEEN A SIGNIFICANT INCREASE IN ACQUISITION
ACTIVITY IN THE RESTAURANT SECTOR.
($ IN MILLIONS)
ENTERPRISE VALUE EQUITY VALUE
DATE ------------------------- ---------------------
ANNOUNCED / EQUITY ENTERPRISE REMIUM LTM LTM LTM NET BOOK
COMPLETED Target/Acquiror VALUE VALUE PAID(1) REVENUE EBITDA EBIT INCOME VALUE
----------- --------------- ------ ---------- ------ ------- -------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4/3/98 / Bertucci's Inc./ $96.5 $104.3 35.5% 0.76x 6.7x 16.0x 27.5x 1.4x
Pending Investor Group
4/2/98 / Spaghetti Warehouse/ $51.2 $56.4 26.1% 0.87x 7.8x 16.3x 25.3x 1.1x
Pending Conquest partners
3/13/98 / Pollo Tropical, Inc./ $94.0 $97.2 38.6% 1.50x 9.6x 12.4x 21.4x 3.3x
Pending Management
1/15/98 / Hardee's (Advantica Restaurant Group)/ $381.0 $427.0 NA 0.78x 6.6x 14.5x NA NA
4/1/98 CKE Restaurants, Inc.
10/21/97 / International Dairy Queen Inc./ $596.3 $548.8 10.1% 1.30x 8.3x 9.2x 15.6x 3.1x
1/7/98 Berkshire Hathaway Inc.
9/23/97 / El Chico Restaurants, Inc./ $49.3 $59.4 21.4% 0.58x 5.8x 12.9x 17.1x 1.8x
1/22/98 Cracken, Harkey, Street & Co., L.L.C.
9/5/97 / DavCo Restaurants Inc./ $137.6 $186.5 49.5% 0.81x 7.5x 11.7x 21.7x 2.7x
4/3/98 Citicorp Venture Capital Ltd.
8/4/97 / Perkins Family Restaurant, L.P./ $146.7 $206.6 28.7% 0.80x 5.8x 10.5x 10.0x 2.4x
12/23/97 The Restaurant Company
HARMONIC MEAN OF TRANSACTION MULTIPLES 0.85X 7.1X 12.5X 17.9X 1.9X
</TABLE>
- ----
(1) Over stock price on day prior to announcement.
Page 16
<PAGE>
SECTION II
SUMMARY OF ALTERNATIVES TO INCREASE
SHAREHOLDER VALUE
<PAGE>
ALTERNATIVES TO INCREASE SHAREHOLDER VALUE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WONTON HAS THE ABILITY TO PURSUE A WIDE VARIETY OF POSSIBLE STRATEGIC
ALTERNATIVES.
<S> <C>
ALTERNATIVES CONSIDERATIONS
Status Quo o Cash continues to build without attractive use
o Earnings growth continues to slow
o Likely continued public valuation issue
o Significant pressure from shareholders
Acquisition o Strong strategic preference for developing new concepts and JVs internally
o Company has not historically made acquisitions
o Few concepts with strong business fit
Management Buyout o Family pursued previously but could not reach agreement
Open Market Purchase o Moderate repurchase would not have significant EPS impact
o Not generally effective for purchasing large percentages of public float
Special Dividend o Not tax efficient from individual shareholder standpoint
Leveraged Recapitalization o Use of excess cash combined with borrowing
o Potential to provide significant liquidity to all shareholders while retaining equity
ownership upside
o Potential capital gains treatment for shareholders
o Use of leverage provides for accelerated earnings growth
Sale of Company o Opportunity for very attractive valuation given strength of the company and acquisition
market
o Only practical if Wonton family interested in selling
o Presents significant issues including ongoing management
</TABLE>
Page 17
<PAGE>
ALTERNATIVES TO INCREASE SHAREHOLDER VALUE
- --------------------------------------------------------------------------------
BEAR STEARNS BELIEVES THE TWO ALTERNATIVES THAT WOULD CREATE THE MOST
SHAREHOLDER VALUE FOR ALL WONTON SHAREHOLDERS ARE:
o SIGNIFICANT LEVERAGED RECAPITALIZATION
o Can deliver significantly greater value than status quo scenario to all
shareholders based on earnings projections
- Shareholders can monetize a portion of their holdings at a premium price
- Efficient use of cash on hand and reduces Company's cost of capital
- New debt "supercharges" remaining equity going forward
o Takes advantage of current robust debt markets
o Can be done in conjunction with new equity investor
o Consistent operating performance and modest levels of capital spending
mitigate risk of significant debt
o SALE OF COMPANY
o Delivers immediate value to all shareholders
o Likelihood of significant premium to current valuation
o Significant interest on the part of strategic and financial buyers
THE FOLLOWING INFORMATION SUMMARIZES OUR EVALUATION OF THESE TWO ALTERNATIVES.
Page 18
<PAGE>
Section III
LEVERAGED RECAPITALIZATION
<PAGE>
OVERVIEW OF LEVERAGED RECAPITALIZATION
- --------------------------------------------------------------------------------
A LEVERAGED RECAPITALIZATION COULD BE CONDUCTED BY THE COMPANY EXCLUSIVELY OR IN
CONJUNCTION WITH A FINANCIAL INVESTOR.
o Bear Stearns believes if a leveraged recapitalization is pursued, it should
be significant thus maximizing the immediate value delivered to
shareholders. The size of a recapitalization is also dependent on the
family's desire for liquidity.
o A leveraged recapitalization allows existing investors to receive
substantial cash and retain ownership in ongoing entity.
o A new Financial Investor should be considered if existing Family management
wishes to exit and/or a very significant recapitalization is contemplated.
o A new Financial Investor structure is typically used when a company seeks to
execute a recapitalization that is very close to a sale in terms of shares
repurchased and repurchase price, but allows existing owners to retain a
small percentage of the still public company.
o Financial Investors prefer this structure over a 100% sale because:
o By qualifying for recapitalization accounting (typically requires
existing owners to retain 7-10% of pro forma ownership), goodwill is
avoided
o Potential for liquidity increased due to company remaining public
THE FOLLOWING PAGES PROVIDE AN ILLUSTRATIVE EXAMPLES OF EACH TYPE OF LEVERAGED
RECAPITALIZATION.
Page 19
<PAGE>
Section III-A
COMPANY SPONSORED RECAPITALIZATION
<PAGE>
OVERVIEW OF COMPANY SPONSORED RECAPITALIZATION
- --------------------------------------------------------------------------------
THE FOLLOWING EXAMPLE ILLUSTRATES THE VALUE A COMPANY SPONSORED RECAPITALIZATION
COULD DELIVER TO SHAREHOLDERS (EXAMPLE ASSUMES THE FAMILY WOULD PARTICIPATE):
o The Company would tender for 14 million common shares at a price of
approximately $32.00 per share (premium of 19% to current price).
o Tender funded with:
o Excess cash and marketable securities on hand (approximately $125 million)
o New debt raised of approximately $340 million from banks and/or bond market
o The tender would also be subject to certain conditions including financing
and possibly a minimum number of shares being tendered.
Page 20
<PAGE>
COMPANY SPONSORED RECAPITALIZATION: $450 MILLION
- --------------------------------------------------------------------------------
($ IN MILLIONS)
Sources of Funds Uses of Funds
- ---------------- -------------
Excess Cash on Balance Sheet(1) $125.0 Purchase Price of Equity $450.0
Bank Debt / Senior Notes 340.0 Transaction Fees and Expenses 15.0
Total Sources $465.0 Total Uses $465.0
- ----------------------------------------- -------------------------------------
========================================= =====================================
Pro Forma Capitalization (1)
----------------------------------------
Cash and Equivalents $6.0
Bank Debt / Senior Notes $340.0
Shareholders Equity ($228.1)
========================================
- ----
(1) Estimated as of 10/4/98.
Page 21
<PAGE>
COMPANY SPONSORED RECAPITALIZATION: $450 MILLION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRO FORMA INCOME STATEMENT: ($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA PROJECTED FYE DECEMBER 31,
--------- ------------------------------------------
MANAGEMENT PROJECTIONS(1) 1998 1999 2000 2001 2002 CAGR
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
REVENUES $365.7 $405.7 $460.4 $525.5 $600.0 13.2%
EBITDA 85.2 94.4 106.9 121.7 138.6 12.9%
EBIT 58.5 66.4 76.9 89.6 105.2 15.8%
NET INCOME $15.0 $20.1 $27.1 $35.6 $46.1 32.3%
DILUTED EARNINGS PER SHARE $2.22 $2.96 $4.00 $5.25 $6.80 32.3%
POSSIBLE FUTURE STOCK PRICE(2) $30.36 $40.57 $54.76 $72.01 $93.17
PRESENT VALUE OF POSSIBLE FUTURE STOCK PRICE(3) $28.25 $32.27 $37.22 $41.84 $46.27
PROJECTED FYE DECEMBER 31,
-------------------------------------------
SUMMARY CREDIT STATISTICS @ CLOSE 1999 2000 2001 2002
-------- ---- ---- ---- ----
TOTAL DEBT $340.0 $340.0 $340.0 $340.0 $340.0
NET DEBT $334.0 $308.1 $274.9 $232.0 $178.0
NET DEBT / EBITDA 3.92x 3.26x 2.57x 1.91x 1.28x
EBITDA / INTEREST EXPENSE(4) 2.49x 2.76x 3.13x 3.56x 4.06x
</TABLE>
- ----
(1) Includes projected results of Umberto, but excludes projected results of
Boulder Creek, BICE and Baja Grill.
(2) Assumes P/E multiple of 13.7x (same as current 1998 estimated multiple).
(3) Present value of future stock price discounted at Wonton's assumed pro forma
cost of equity of 17%.
(4) Assumes all bond financing structure and interest rate of 9.75%.
Page 22
<PAGE>
COMPANY SPONSORED RECAPITALIZATION: SUMMARY
- --------------------------------------------------------------------------------
BENEFITS
- --------
o A large recapitalization can monetize a significant portion of investors'
holdings at a premium to the market price. Based on $450 million
recapitalization:
o Approximately 68% of shares would receive $32 per share $22 weighted value
o Approximately 32% of shares would have possible value of $30 (based on
current multiple) $10 weighted value
o Allows existing investors to participate in the equity upside on a
"supercharged" basis due to leverage
o Combined value of immediate cash and remaining ownership may exceed value
obtained in a sale over a medium term time horizon
ISSUES
- ------
o Company must operate under significant debt load (4.1x trailing EBITDA based
on $450 million recapitalization)
o Trading characteristics of stock
negatively impacted May lead to trading at a decreased multiple of earnings:
o Significant decrease in liquidity
o Likely reduction in research coverage
o Negative net worth will preclude certain Institutions from ownership
o Composition of institutional shareholder base will change income oriented
funds will sell
Page 23
<PAGE>
Section III-B
FINANCIAL INVESTOR SPONSORED RECAPITALIZATION
<PAGE>
OVERVIEW OF FINANCIAL INVESTOR SPONSORED RECAPITALIZATION
- --------------------------------------------------------------------------------
TO MAXIMIZE THE UPFRONT CASH PROCEED AVAILABLE TO CURRENT INVESTORS IN A
RECAPITALIZATION, THE COMPANY COULD SELL A CONTROLLING OWNERSHIP TO A NEW
FINANCIAL INVESTOR.
THE FOLLOWING IS AN EXAMPLE OF A STRUCTURE BEAR STEARNS BELIEVES COULD BE
EXECUTED AND WOULD PROVIDE SHAREHOLDERS WITH SIGNIFICANT VALUE:
o Wonton tenders for 18.9 million shares (90% of diluted shares) for $35.00
per share ($661 million recapitalization). Assumes the Wonton Family tenders
90% of their aggregate shares (tender amounts among different family
constituencies may differ).
o Tender is funded by:
o $123 million excess cash
o $430 new bank/bond debt
o $125 million of new common equity from a Financial Investor
(3.6 million new shares at $35.00 per share)
o Pro forma ownership is as follows
o Wonton Family 0.7 million shares (12.3%)
o Existing Investors 1.4 million shares (24.6%)
o Financial Investor 3.6 million shares (63.2%)
---
5.7
Page 24
<PAGE>
FINANCIAL INVESTOR SPONSORED RECAPITALIZATION: $661 MILLION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRO FORMA INCOME STATEMENT: ($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA PROJECTED FYE DECEMBER 31,
-----------------------------------------------------
MANAGEMENT PROJECTIONS(1) 1998 1999 2000 2001 2002 CAGR
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
REVENUES $365.7 $405.7 $460.4 $525.5 $600.0 13.2%
EBITDA 85.2 94.4 106.9 121.7 138.6 12.9%
EBIT 58.5 66.4 76.9 89.6 105.2 15.8%
NET INCOME $8.1 $13.3 $20.5 $29.3 $39.8 49.0%
DILUTED EARNINGS PER SHARE $1.42 $2.34 $3.61 $5.17 $7.02 49.0%
PROJECTED FYE DECEMBER 31,
SUMMARY CREDIT STATISTICS @ CLOSE 1999 2000 2001 2002
TOTAL DEBT $430.0 $408.6 $380.9 $350.0 $350.0
NET DEBT $421.6 $401.6 $373.9 $335.9 $286.3
NET DEBT / EBITDA 4.95x 4.25x 3.50x 2.76x 2.07x
EBITDA / INTEREST EXPENSE 1.88x 2.12x 2.52x 3.03x 3.57x
</TABLE>
- -----------------
(1) Includes projected results of Umberto, but excludes projected results of
Boulder Creek, BICE and Baja Grill.
Page 25
<PAGE>
FINANCIAL INVESTOR SPONSORED RECAPITALIZATION ISSUES
THE FOLLOWING ADDITIONAL ISSUES ARE PRESENT IN A FINANCIAL INVESTOR SPONSORED
RECAPITALIZATION:
o CONTROL: The Financial Investor will likely require control of the board and
final authority on business strategy and operating issues.
o ONGOING EQUITY OWNERSHIP OF MANAGEMENT: If the Wonton Family desires to
continue to manage Company, Financial Investor will want a "significant"
continuing equity investment in Company.
o RISK ASSOCIATED WITH REMAINING EQUITY "STUB": The more significant level of
leverage magnifies the positive and negative issues associated with a
leveraged recapitalization as discussed in the introduction.
Page 26
<PAGE>
Section IV
SALE OF THE COMPANY
<PAGE>
SALE OF THE COMPANY
BEAR STEARNS BELIEVES A SALE OF THE COMPANY COULD PROVIDE SHAREHOLDERS WITH A
MONETIZATION OF ALL SHARES AT A SIGNIFICANT PREMIUM TO THE CURRENT MARKET PRICE
IF THE WONTON FAMILY IS INTERESTED IN SELLING THEIR OWNERSHIP.
BASED ON OUR REVIEW OF THE LIKELY INTERESTED BUYERS AND CURRENT MARKET
CONDITIONS, BEAR STEARNS BELIEVES A SALE COULD PROVIDE SHAREHOLDERS WITH VALUES
BETWEEN $34 AND $37 PER SHARE. THIS VALUATION ASSUMES THE FOLLOWING:
o GROWTH POTENTIAL: Buyers are confident regarding the Company's growth
prospects beyond its existing "captive customer" venues
o MANAGEMENT: Buyers either have management or can retain new management to
run the Company if Wonton Family management wants to leave Company
o EXISTING LOCATIONS: Buyers are comfortable that existing leases will
generally continue to be available on comparable terms
o MARKET CONDITIONS: Assumes a continuation of the currently robust capital
markets, especially for debt financings
FOLLOWING IS A DISCUSSION OF SALE CONSIDERATIONS AND PROCESS.
Page 27
<PAGE>
POSITIONING OF COMPANY
BEAR STEARNS BELIEVES THE MOST EFFECTIVE WAY TO MAXIMIZE SHAREHOLDER VALUE IN A
SALE IS TO POSITION THE COMPANY IN THE FOLLOWING MANNER:
o DOMINANT IN ATTRACTIVE CORE BUSINESS: Dominant position in quick service
to the "captive customer" with a business model that is unusually stable
and possesses high margins
o SIGNIFICANT GROWTH POTENTIAL BEYOND CORE BUSINESS: Due to the strength
of the Wonton brand and related new concepts (e.g. Umberto's), there are
significant additional growth opportunities away from existing venues
TO ACHIEVE A VALUATION AT THE HIGH END OF THE ESTIMATED PRICE RANGE, BEAR
STEARNS BELIEVES A BUYER MUST BE CONFIDENT REGARDING THE COMPANY'S GROWTH
POTENTIAL BEYOND ITS EXISTING "CAPTIVE" CUSTOMER BASE.
o Primary growth vehicles to be emphasized:
o Expansion to nontraditional venues without a "captive" customer base
o "CoBranding" with other QSRs
o Franchising
o Expansion of Umberto's upscale concept under Umberto's or Wonton name
o Increased international franchising
Page 28
<PAGE>
MARKETING PROCESS
DUE TO THE QUALITY AND STRENGTH OF WONTON'S BUSINESS, BEAR STEARNS ANTICIPATES
SIGNIFICANT INTEREST ON THE PART OF STRATEGIC AND FINANCIAL INVESTORS.
IF THE WONTON BOARD OF DIRECTORS AUTHORIZES A SALE PROCESS, BEAR STEARNS
RECOMMENDS A LIMITED AUCTION WITH THE FOLLOWING CHARACTERISTICS:
o ONLY QUALIFIED BUYERS: All potential strategic and financial buyers
would be qualified as to financial capability and demonstrated interest
o TWO STAGE PROCESS: Initial bids based on Offering Memorandum would be
used to further qualify buyers. Only buyers with significant and
credible interest would be allowed to meet with management and have
access to additional confidential information
o TIMING: Bear Stearns believes a definitive agreement could be signed
within 10 weeks of the Board's authorization of a sale process
FOLLOWING IS A LIST OF THE TIER 1 FINANCIAL AND STRATEGIC BUYERS ALONG WITH
ILLUSTRATIVE ACQUISITION MODELS (ADDITIONAL INTERESTED BUYERS LOCATED IN
APPENDIX).
Page 29
<PAGE>
<TABLE>
<CAPTION>
OVERVIEW OF FINANCIAL BUYERS: TIER 1
NAME RESTAURANT INVESTMENTS SIZE OF FUND(1)
<S> <C> <C>
APOLLO o Family Restaurants, Inc. (80%)
o Koo Koo Roo (pending) $3.6 billion
CVC o Davco Restaurants, Inc. Internal(2)
MCCOWN DE LEEUW o Papa Ginos
o D'Angelos $750 million
BRUCKMAN, ROSSER, SHERRILL o California Pizza Kitchen
o Acapulco Restaurants
o (formerly owned Restaurant Associates) $400 million
CASTLE HARLAN o Charlie Brown's Steakhouse
o (currently seeking restaurant investment) $610 million
SAUNDERS KARP o California Cafe Corporation
o Marie Callender Pie Shops
o Souper Salad $600 million
BOSTON VENTURES o Motown Cafe
o Ground Round $800 million
</TABLE>
- -------------
(1) Reflects recent fund raisings which are generally uninvested.
(2) Funds for investment sourced from internal allocations within Citicorp.
Current funds available unknown.
Page 30
<PAGE>
OVERVIEW OF STRATEGIC BUYERS: TIER 1
<TABLE>
<CAPTION>
Company Existing Brands Financial Flexibility Comments
- ------- --------------- --------------------- --------
<S> <C> <C> <C> <C>
CKE RESTAURANTS Carl's Jr. Equity Market Cap: $1.9 billion o Most acquisitive company in
Hardee's Debt / EBITDA: 2.4x(1) restaurant sector
Taco Bueno o Large percentage of
companyowned locations
o CEO plays active role in
acquisition process
Church's Chicken Restaurants
Popeye's Chicken & Biscuits Equity Market Cap: NM o Recent restaurant acquisitions
AFC ENTERPRISES Seattle's Best Coffee Debt / EBITDA: 4.2x o Demonstrated interest in
franchise concepts
o Freeman Spogli (LBO firm)
Arby's Inc. major shareholder
Mistic Brands
Cable Car Beverage Corp.
Royal Crown Co.
Snapple Beverage Corp. Equity Market Cap: $676 million o Currently evaluating several
TRIARC COMPANIES National Propane Corp. Debt / EBITDA: 6.6x(2) potential restaurant acquisitions
o Sold all companyowned Arby's
locations in 1997
o Prior interest in Wonton
o Significant leverage reduces
ability to consummate acquisition
</TABLE>
- -----------------------
(1) Based on 1Q98 annualized EBITDA.
(2) Pro forma for acquisitions and divestitures of assets which took place in
1997.
Page 31
<PAGE>
ILLUSTRATIVE LBO ANALYSIS: $36.00 PRICE PER SHARE(1)
ASSUMING A $36 PURCHASE PRICE (7.7X TRAILING EBITDA), BEAR STEARNS HAS
SUMMARIZED AN AGGRESSIVE TRANSACTION STRUCTURE THAT COULD BE EXECUTED BY A
FINANCIAL BUYER IN TODAY'S MARKET.
<TABLE>
<CAPTION>
Uses of Funds Credit Statistics
- ------------- -----------------
<S> <C> <C> <C>
Purchase Price of Equity (at $36)(2) $756.3 AT CLOSE
Transaction Fees and Expenses 20.0 Total Debt / EBITDA 6.0x
Total Uses ------ EBITDA / Cash Interest Expense 1.9x
$776.3 EBITDA / Total Interest Expense(4) 1.5x
====== Total Debt / Total Capitalization 78.5%
</TABLE>
<TABLE>
<CAPTION>
Sources of Funds Shareholder Returns: 4-Year IRR
- ---------------- -------------------------------
<S> <C> <C> <C>
Excess Cash on Balance Sheet (3) $126.3 IRR
Bank Credit Facility 75.0 6.0x Exit EBITDA Multiple 29.5%
Senior Notes 350.0 6.5x Exit EBITDA Multiple 34.6%
Senior Discount Notes 85.0 7.0x Exit EBITDA Multiple 39.1%
Common Equity 140.0
-----
Total Sources $776.3
=====
</TABLE>
- ----------------
(1) Uses management projections which include results of Umberto but exclude
results of Boulder Creek, BICE and Baja Grill.
(2) Includes dilutive impact of 1.8 million options.
(3) Estimated as of 10/4/98(including marketable securities).
(4) Assumes interest rate on financing is 8.19% for bank loans, 10.75% for
Senior Notes and 13.00% for Sr. Disc. Notes with 5% equity.
Page 32
<PAGE>
ILLUSTRATIVE ACQUISITION ANALYSIS: CKE'S PURCHASE AT $36.00 PER SHARE
ASSUMING A $36 PURCHASE PRICE (7.7X TRAILING EBITDA), BEAR STEARNS HAS
SUMMARIZED THE PRO FORMA IMPACT TO CKE FOR FISCAL YEAR 1999.
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
CKE(1) Wonton Adjust- Combined
FYE 1/00 FYE 12/99 ments(3)
Revenue $2,170.9 $405.7 $2,576.6
Cost Synergies(4) $5.0 $5.0
EBITDA $294.5 $94.4 $5.0 $393.9
MARGIN 13.6% 23.2% 15.3%
EBIT $213.7 $66.4 ($8.4) $271.7
MARGIN 9.8% 16.3% 10.6%
Goodwill Amortization $13.4 $13.4
Net Interest Expense $39.1 ($7.2) $59.9(5) $91.8
Net Income $106.9 $44.6 ($46.9) $104.6
- --------------------------------------------------------------------------------
Diluted EPS $2.16 $2.12 $2.11
- --------------------------------------------------------------------------------
% ACCRETION (2.1%)
Total Debt $628.4(6) $0.0 $642.9 $1,271.3
Debt / EBITDA 2.1x NM 3.2x
EBITDA / Interest Expense 7.5x NM 4.2x
- ------------------
(1) Source: Merrill Lynch research report dated 3/19/98. EPS estimates from
First Call.
(2) Management projections including results of Umberto but excluding results of
Boulder Creek, BICE and Baja Grill
(3) Assumes purchase accounting treatment for 100% debtfinanced acquisition.
(4) Preliminary estimate of possible cost synergies related to a strategic
buyer.
(5) Assumes 8.00% interest expense.
(6) Actual as of 5/18/98.
Page 33
<PAGE>
ILLUSTRATIVE POOLING ANALYSIS: CKE'S PURCHASE AT $36.00 PER SHARE
ASSUMING A $36 PURCHASE PRICE (7.7X TRAILING EBITDA), BEAR STEARNS HAS
SUMMARIZED THE PRO FORMA IMPACT TO CKE FOR FISCAL YEAR 1999.
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
CKE(1) Wonton Adjust- Combined
FYE 1/00 FYE 12/99 ments(3)
Revenue $2,170.9 405.7 $2,576.6
Cost Synergies(4) $5.0 $5.0
EBITDA $294.5 $94.4 $5.0 $393.9
MARGIN 13.6% 23.2% 15.3%
EBIT $213.7 $66.4 $5.0 $285.1
MARGIN 9.8% 16.3% 11.1%
Goodwill Amortization $0.0 $0.0
Net Interest Expense $39.1 ($7.2) $0.3(5) $32.2
Net Income $106.9 $44.6 $2.9 $154.4
- --------------------------------------------------------------------------------
EPS $2.16 $2.12 $2.31
- --------------------------------------------------------------------------------
% ACCRETION 6.8%
Total Debt $628.4(6) $0.0 $0.0 $628.4
Debt / EBITDA 2.1x NM 1.6x
EBITDA / Interest Expense 7.5x NM 12.3x
- ---------------
(1) Source: Merrill Lynch research report dated 3/19/98. EPS estimates from
First Call.
(2) Management projections including results of Umberto but excluding results of
Boulder Creek, BICE and Baja Grill.
(3) Assumes pooling accounting treatment for 100% equityfinanced acquisition.
(4) Preliminary estimate of possible cost synergies related to a strategic
buyer.
(5) Assumes 8.00% interest expense.
(6) Actual as of 5/18/98.
Page 34
<PAGE>
ILLUSTRATIVE ACQUISITION ANALYSIS: CKE'S PURCHASE AT $36.00 PER SHARE
THE FOLLOWING MATRICES REFLECT THE ACCRETION / DILUTION TO CKE BASED ON THE
FOLLOWING SHARE PURCHASE PRICE AND COST SYNERGIES:
Purchase Accounting Pooling Accounting
Cost Synergies Cost Synergies
$0MM $5MM $10MM $15MM $0MM $5MM $10MM $15MM
-------------------------------- ----------------------------
$34 |(1.8%) | 1.1% | 3.9% | 6.8% $34 |6.4%| 8.5%|10.7% | 12.8%
-------------------------------- -----------------------------
Share $36 |(5.0%) |(2.1%)| 0.7% | 3.6% $36 |4.7%| 6.8%| 9.0% | 11.1%
Purchase -------------------------------- -----------------------------
Price $38 |(8.1%) |(5.3%)|(2.4%)| 0.4% $38 |3.2%| 5.2%| 7.3% | 9.4%
-------------------------------- -----------------------------
$40 |(11.3%)|(8.5%)|(5.6%)|(2.8%) $40 |1.6%| 3.7%| 5.7% | 7.8%
Page 35
<PAGE>
KEY ISSUES RELATED TO A POSSIBLE SALE
o DESIRE OF FAMILY RELATED TO SALE OF SHARES
o MANAGEMENT ISSUES
o Potential departure of key Family executives after transaction (issue is
mitigated if it is a strategic buyer)
o Depth of second tier management team
o Buyer's need for key Family executives during transition period
o UMBERTO'S OWNERSHIP STRUCTURE
o Primary growth vehicle not whollyowned
o NONCOMPETE AGREEMENT
o Buyer's need for some form of noncompete agreement from Family
o LISANTI (SUPPLIER) ISSUES
o Absence of formal contract
o Nature of relationship after departure of key senior managers
Page 36
<PAGE>
OTHER CONSIDERATIONS
FOLLOWING ARE OTHER KEY CONSIDERATIONS RELEVANT TO THE BOARD'S EVALUATION OF A
POSSIBLE SALE:
o TYPE OF CONSIDERATION: Do shareholders receive cash, stock or a combination
of both
o TRANSACTION STRUCTURE: Is transaction structured as a taxfree
reorganization or a taxable transaction (form of consideration is an
integral part of this)
o DISRUPTIVE PROCESS: While every effort will be made to limit dissemination
of information and control process, a sale process will impact management,
employees and suppliers. In addition, trading activity in the stock may
necessitate Company comment / announcement
Page 37
<PAGE>
Section V
CONCLUSION
<PAGE>
CONCLUSION
IF THE WONTON FAMILY IS INTERESTED IN SELLING ITS ENTIRE OWNERSHIP, BEAR STEARNS
BELIEVES THE MOST ATTRACTIVE ALTERNATIVE FOR ALL SHAREHOLDERS CAN BE OBTAINED
THROUGH A SALE OF THE COMPANY.
o IMMEDIATE MONETIZATION: All shareholders receive cash (or possibly liquid
securities) for their ownership interest.
o ATTRACTIVE VALUATION: Value estimates of $34 $37 per share represent
significant premium to current valuation
o HIGH LIKELIHOOD OF SUCCESS: Attractiveness of Company and strength of
current market makes quick and successful sale highly likely
IF THE WONTON FAMILY WISHES TO RETAIN ALL OR A PORTION OF ITS OWNERSHIP, BEAR
STEARNS RECOMMENDS THE COMPANY PURSUE A LEVERAGED RECAPITALIZATION.
Page 38
<PAGE>
Appendix A
SUMMARY TRANSACTION TIMETABLES
<PAGE>
PROCESS & TIMETABLE FOR SALE OF WONTON
STEPS
KEY
SUCCESS
FACTORS
STEPS [GRAPHIC OMITTED][GRAPHIC OMITTED]
Page 39
<PAGE>
ILLUSTRATIVE TIMETABLE -- LEVERAGED RECAPITALIZATION (TENDER OFFER)
- --------------------------------------------------------------------------------
JULY 1998 AUGUST 1998 SEPTEMBER 1998
- --------------------------------------------------------------------------------
S M T W T F S S M T W T F S S M T W T F S
- --------------------------------------------------------------------------------
1 2 3 4 1 1 2 3 4 5
5 6 7 8 9 10 11 2 3 4 5 6 7 8 6 7 8 9 10 11 12
12 13 14 15 16 17 18 9 10 11 12 13 14 15 13 14 15 16 17 18 19
19 20 21 22 23 24 25 16 17 18 19 20 21 22 20 21 22 23 24 25 26
26 27 28 29 30 31 23 24 25 26 27 28 29 27 28 29 30
30 31
- --------------------------------------------------------------------------------
-Begin confidential discussions with possible bank lenders
WEEK 1: -Draft of internal financial statements available
WEEK 2: -Legal counsel drafts tender offer documentation
-Legal counsel begins drafting debt Offering Circular and
description of Notes
-Public information package sent to debt Rating Agencies
-Begin preparation of Rating Agency presentation
WEEK 3: -Continue preparation of Rating Agency presentation
-Continue discussions with bank lenders
-Accountants sign-off on financial results
WEEK 4: -Company issues press release announcing self tender
-Company commences tender offer
-Drafting of debt offering circular and description of notes
continues
-Continue discussions with bank lenders
-Presentations to rating agencies
-Draft of GAAP financial statements available (excluding
footnotes)
-Regularly scheduled dividend announcement
Page 40
<PAGE>
ILLUSTRATIVE TIMETABLE LEVERAGED RECAPITALIZATION (TENDER OFFER)
- --------------------------------------------------------------------------------
JULY 1998 AUGUST 1998 SEPTEMBER 1998
- --------------------------------------------------------------------------------
S M T W T F S S M T W T F S S M T W T F S
- --------------------------------------------------------------------------------
1 2 3 4 1 1 2 3 4 5
5 6 7 8 9 10 11 2 3 4 5 6 7 8 6 7 8 9 10 11 12
12 13 14 15 16 17 18 9 10 11 12 13 14 15 13 14 15 16 17 18 19
19 20 21 22 23 24 25 16 17 18 19 20 21 22 20 21 22 23 24 25 26
26 27 28 29 30 31 23 24 25 26 27 28 29 27 28 29 30
30 31
- --------------------------------------------------------------------------------
WEEK 5: -Receive bank financing commitment and begin negotiating bank
loan agreements(1)
-Audited financial statements with footnotes available
-Finalize debt Offering Circular and description of Notes
-Debt offering circular printed and distributed to investors
WEEK 6: -Presentation to debt sales force
-Receive credit ratings from Rating Agencies
-Begin roadshow for debt offering
WEEK 7: -Complete roadshow for debt offering
-Finalize bank loan agreements(1)
WEEK 8: -Price debt offering
-Close debt offering
-Close bank financing
-Consummate tender offer
- -------------------
(1) Assumes bank lenders do not require syndication prior to closing. If
syndication is required, additional time needed to syndicate is 3 to 4
weeks.
Page 41
<PAGE>
Appendix B
OWNERSHIP SUMMARY AND TRADED VOLUME ANALYSIS
<PAGE>
OWNERSHIP SUMMARY
TOP FIFTEEN INSTITUTIONAL OWNERS BY HOLDINGS(1)
Shares %
------ ---
First Chicago NBD Corp. 1,096,500 5.4%
Furman Selz LLC 961,700 4.7%
Moody Aldrich & Sullivan 808,700 4.0%
Wedge Capital Management LLP 602,400 3.0%
Perry Corp. 546,400 2.7%
Dalton Greiner Hartman 468,100 2.3%
Travelers Inc. 424,800 2.1%
Hughes Investment Management 389,600 1.9%
Barclays Bank 378,600 1.9%
Equitable Companies 370,400 1.8%
Chase Manhattan Corp. 308,400 1.5%
MH Davidson & Co. Inc. 251,400 1.2%
College Retire Equities 250,600 1.2%
Dimensional Fund Advs. 232,800 1.1%
Florida St. Board/Administration 225,000 1.1%
----------- -----
TOP FIFTEEN INSTITUTIONS 7,315,400 35.8%
Total Shares Outstanding 20,525,477 100.0%
- --------------------------
(1) Source: CDA / Spectrum: as of March 31, 1998.
Page 42
<PAGE>
TRADED VOLUME ANALYSIS
PROJECT WONTON
JULY 10, 1997 TO JULY 10, 1998
[GRAPHIC OMITTED]
- ------------------------
Source: FactSet.
Page 43
<PAGE>
Appendix C
DISCOUNTED CASH FLOW ANALYSIS
<PAGE>
DISCOUNTED CASH FLOW ANALYSIS CORE BUSINESS(1)
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Present Vvalue of Equity
- --------------------------------------------------------------------------------
PROJECTED
------------------------------------------------------------
Fiscal years ended December 31, 1999 2000 2001 2002
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $386.0 $417.5 $451.2 $485.9
EBITDA 91.1 98.9 107.2 115.6
EBIT 63.7 70.2 77.3 85.6
Taxes @ 40% (25.5) (28.1) (30.9) (34.2)
Unlevered Net Income 38.2 42.1 46.4 51.3
Plus: Depreciation & Amortization 27.4 28.8 29.9 30.1
Less: Capital Expenditures (21.7) (23.7) (24.3) (24.9)
Less: Working Capital (Increase) Decrease 2.4 2.9 3.2 3.3
Unlevered Free Cash Flow 46.4 50.1 55.1 59.7
======== ======== ======== =========
</TABLE>
Present Value of Equity @ 12/31/98
- -----------------------------------
Present Value of 1999 2002 Free Cash Flows $158.6
Present Value of Terminal Value 440.9
Present Value of Total Enterprise $599.5
Plus: Cash and Cash Equivalents 131.0
Plus: Option Exercise Proceeds 46.2
Less: Total Debt --
Present Value of Gross Equity Value 776.7
-----
Present Value of Equity Per Share @ 12/31/98 $34.84
=====
DCF Assumptions
- -----------------
Weighted Average Cost of Capital 12.0%
Terminal EBITDA exit multiple 6.0x
Fully Diluted shares outstanding 22.3
- -----------------
(1) Based on Wonton management projections.
Page 44
<PAGE>
DISCOUNTED CASH FLOW ANALYSIS UMBERTO(1)
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Present Value of Equity
- --------------------------------------------------------------------------------
PROJECTED
-------------------------------
Fiscal years ended December 31, 1999 2000 2001 2002
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues $15.7 $34.4 $59.4 $91.3
EBITDA 2.6 6.4 11.6 18.4
EBIT 2.2 5.4 9.9 15.7
Taxes @ 40% (0.9) (2.2) (3.9) (6.3)
Unlevered Net Income 1.3 3.2 5.9 9.4
Plus: Depreciation & Amortization 0.5 1.0 1.8 2.7
Less: Capital Expenditures (5.4) (7.2) (9.1) (10.8)
Less: Working Capital (Increase) Decrease 0.0 0.0 0.0 0.0
Unlevered Free Cash Flow (3.6) (2.9) (1.3) 1.3
====== ===== ===== ======
</TABLE>
Present Value of Equity @ 12/31/98
- -------------------------------------
Present Value of 1999 2002 Free Cash Flows $(5.3)
Present Value of Terminal Value 66.4
-----
Present Value of Total Enterprise 61.0
Plus: Cash and Cash Equivalents --
Plus: Option Exercise Proceeds --
Less: Total Debt --
Present Value of Gross Equity Value 61.0
-----
Present Value of Equity Per Share @ 12/31/98 $2.74
-----
DCF Assumptions
- --------------------
Weighted Average Cost of Capital 18.0%
Terminal EBITDA exit multiple 7.0x
Fully Diluted shares outstanding 22.3
- -------------------
(1) Based on Wonton management projections.
<PAGE>
Appendix D
COMPARABLE PUBLIC COMPANIES
<PAGE>
DESCRIPTION OF COMPARABLE COMPANIES
o BUFFETS, INC.
The Company operates 364 restaurants under the names Old Country Buffet,
Hometown Buffet, and Roadhouse Grill in 34 states. In addition, the Company
has 24 franchised restaurants in operation in ten states. The Company also
has a number of restaurants under franchise.
o CONSOLIDATED PRODUCTS, INC.
The Company is engaged primarily in the ownership, operation and franchising
of Steak n Shake restaurants through its whollyowned subsidiary, Steak n
Shake, Inc. Steak n Shake has 194 Companyoperated restaurants and 55
franchised restaurants, located in 14 midwestern and southeastern states.
o FOODMAKER INC.
The Company owns, operates and franchises 76 restaurants under the Jack In
The Box restaurant concept. The company has restaurants located principally
in the Western and Southwestern United States. In addition, the Company owns
approximately 40% of Family Restaurants, Inc., the operator of full service
family restaurants located primarily in California and parts of the
Southwest under the Carrow's and Coco's formats and full service Mexican
restaurants nationwide operated under the ChiChi's, El Torito and Casa
Gallardo names.
o LONE STAR STEAKHOUSE & SALOON, INC
The company owns and operates a chain of 267 midpriced, full service,
casual dining restaurants located in the United States which operate under
the trade name Lone Star Steakhouse and Saloon. In addition, the Company
owns and operates eight upscale steakhouse restaurants, three operating as
Del Frisco's Double Eagle Steak House restaurants and five operating as
Sullivan's Steakhouse restaurants. Internationally, the Company owns a 65%
interest in a joint venture which operates 34 restaurants in Australia (the
"Australian Joint Venture"), thirteen of which were opened in 1997.
Page 46
<PAGE>
DESCRIPTION OF COMPARABLE COMPANIES
o LUBY'S CAFETERIAS, INC.
The Company operates 232 cafeterias under the name "Luby's" located in
suburban shopping areas in Arizona, Arkansas, Florida, Kansas, Louisiana,
Mississippi, Missouri, New Mexico, Oklahoma, Tennessee, and Texas. Of the
232 cafeterias operated by the Company, 135 are at locations owned by the
Company and 97 are on leased premises
o PICCADILLY CAFETERIAS INC.
The Company operates 129 cafeterias in 15 states. Of these, 56 are in
suburban malls, 22 are in suburban strip centers, and 51 are freestanding
suburban locations. Up to six new cafeterias are expected to be opened
before the fiscal year end.
o RUBY TUESDAY INC.
The Company operates three separate and distinct casual dining concepts
comprised of Ruby Tuesday, Mozzarella's and Tia's. As of May 31, 1997, the
Company operated 393 casual dining restaurants in 33 states.
o RYAN'S FAMILY STEAK HOUSES, INC.
The Company is a South Carolina corporation that operates a chain of 272
Companyowned and 25 franchised Ryan's Family Steakhouse restaurants located
principally in the southern and midwestern United States.
Page 47
<PAGE>
Appendix E
COMPARABLE MERGERS AND ACQUISITIONS TRANSACTIONS
<PAGE>
COMPARABLE MERGERS AND ACQUISITIONS TRANSACTIONS
($ IN MILLIONS)
<TABLE>
<CAPTION>
ENTERPRISE VALUE EQUITY VALUE
DATE ------------------------- -------------
ANNOUNCED / EQUITY ENTERPRISE PREMIUM LTM LTM TM NET BOOK
EFFECTIVE TARGET/ACQUIROR VALUE VALUE PAID(1) REVENUE EBITDA EBIT INCOME VALUE
- ------------- --------------- ------- -------- --------- ------- -------- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4/3/98 / Bertucci's Inc./ $96.5 $104.3 35.5% 0.76x 6.7x 16.0x 27.5x 1.4x
Pending Investor Group
4/2/98 / Spaghetti Warehouse/ $51.2 $56.4 26.1% 0.87x 7.8x 16.3x 25.3x 1.1x
Pending Conquest partners
3/13/98 / Pollo Tropical, Inc./ $94.0 $97.2 38.6% 1.50x 9.6x 12.4x 21.4x 3.3x
Pending Management
1/15/98 / Hardee's (Advantica Restaurant Group)/ $381.0 $427.0 NA 0.78x 6.6x 14.5x NA NA
4/1/98 CKE Restaurants, Inc.
10/21/97 / International Dairy Queen Inc./ $596.3 $548.8 10.1% 1.30x 8.3x 9.2x 15.6x 3.1x
1/7/98 Berkshire Hathaway Inc.
9/23/97 / El Chico Restaurants, Inc./ $49.3 $59.4 21.4% 0.58x 5.8x 12.9x 17.1x 1.8x
1/22/98 Cracken, Harkey, Street & Co.,L.L.C.
9/5/97 / DavCo Restaurants Inc./ $137.6 $186.5 49.5% 0.81x 7.5x 11.7x 21.7x 2.7x
Pending Citicorp Venture Capital Ltd.
8/4/97 / Perkins Family Restaurant, L.P./ $146.7 $206.6 28.7% 0.80x 5.8x 10.5x 10.0x 2.4x
12/23/97 The Restaurant Company
6/4/96 / HomeTown Buffet Inc./ $175.5 $214.5 3.3% 1.22x 8.9x 16.8x 25.4x 2.4x
9/20/96 Buffets Inc.
5/2/96 / Houlihan's Restaurant Group, Inc./ $85.2 $158.6 33.3% 0.59x 5.2x 10.1x 20.7x 1.2x
Terminated Zapata Corporation
3/4/96 / Cocos Restaurants, Jojos Restaurants,
Carrow Restaurants, Inc./ $275.0 $306.5 NA 0.61x 5.0x 9.1x NM NA
5/23/96 Flagstar Companies, Inc.
- ------------------------------------
(1) Over stock price on day prior to announcement.
Page 48
<PAGE>
COMPARABLE MERGERS AND ACQUISITIONS TRANSACTIONS (CONT.)
($ IN MILLIONS)
ENTERPRISE VALUE EQUITY VALUE
DATE -------------------- -------------
ANNOUNCED / EQUITY ENTERPRISE PREMIUM LTM LTM LTM NET BOOK
EFFECTIVE TARGET/ACQUIROR VALUE VALUE PAID(1) REVENUE EBITDA EBIT INCOME VALUE
- -------------- --------------- ------ ---------- -------- ------- ------ ---- ------ -------
11/6/95 / NPC International Inc./ $228.4 $306.1 44.0% 0.97x 6.7x 11.9x 32.0x 2.8x
Withdrawn Management
9/5/95 / TPI Enterprises/ $73.4 $170.6 25.0% 0.60x 8.1x NM NM 1.1x
9/9/96 Shoney's
8/23/94 / Ground Round Restaurants, Inc./ $101.7 $156.6 41.2% 0.65x 6.0x 12.2x 17.0x 1.6x
Terminated 399 Ventures Inc.
HIGH 1.50X 9.55X 16.84X 32.00X 3.35X
LOW 0.58X 4.99X 9.13X 9.96X 1.10X
HARMONIC MEAN OF TRANSACTION MULTIPLES 0.79X 6.7X 12.1X 19.3X 1.8X
</TABLE>
- ---------------------
(1) Over stock price on day prior to announcement.
Page 49
<PAGE>
OVERVIEW OF STRATEGIC BUYERS: TIER 2
<TABLE>
<CAPTION>
Company Existing Brands Financial Flexibility Comments
- ----------------- ----------------- ----------------------- ------------------
<S> <C> <C> <C>
INTERNATIONAL INC. Wendy's Equity Mkt Cap: $2.9 billion o Not historically acquisitive
Tim Horton's Debt / EBITDA: 0.8x o Wall St. pressure for new growth initiatives
o Family ownership of Wonton is a positive
MCDONALD'S McDonald's Equity Mkt Cap: $50.2 billion o Wonton is relatively small
Debt / EBITDA: 1.8x o No demonstrated interest outside core concept
TRICON GLOBAL Pizza Hut Equity Mkt Cap: $5.0 billion o Currently focusing on existing businesses
Taco Bell Debt / EBITDA: 5.7x o Looking to reduce company-owned restaurant
Kentucky Fried Chicken count
GRAND METROPOLITAN Burger King Equity Mkt Cap: NA o Adding restaurants unlikely a priority
Pillsbury Debt / EBITDA: NA o Future ownership of Burger King unclear
Haagen Dazs
Green Giant
J&B Rare Scotch
Smirnoff Vodka
Equity Mkt Cap: $670 million o High company-owned restaurant percentage
FOODMAKER INC. Jack In The Box Debt / EBITDA: 2.0x o Limited financial flexibility
Equity Mkt Cap: $1.0 billion o Highest growth in pizza sector
PAPA JOHN'S Papa John's Debt / EBITDA: NA o Focusing on franchise expansion
</TABLE>
Page 50
<PAGE>
OVERVIEW OF FINANCIAL BUYERS: TIER 2
NAME RESTAURANT INVESTMENTS SIZE OF FUND(1)
- ---- ---------------------- ---------------
T.H. LEE o Cinnabon International, Inc. $3.0 billion
o NY Restaurant Group (Smith & Wollensky)
FREEMAN SPOGLI o AFC Enterprises 55% ownership $900 million
Popeye's, Church's)
J.H. WHITNEY o Briazz, Inc. $425 million
J.W. CHILDS o Chevy's Restaurants $500 million
CENTRE PARTNERS o Johnny Rockets Group $450 million
SEAVER KENT o Bojangles Restaurants $110 million
o Cafe Valley
MADISON DEARBORN o Peter Piper, Inc.
o Carrols (Burger King) $925 million
LEONARD GREEN o Family Restaurants, Inc. (20%) $750 million
BLACKSTONE o Expressed Interest in Wonton $3.8 billion
HAMPSTEAD GROUP o Houlihan's Not specified
QUAD C o Huddle House $300 million
Page 51
<PAGE>
OVERVIEW OF FINANCIAL BUYERS: TIER 2
OTHERS WITH EXPRESSED INTEREST IN RESTAURANT INVESTMENTS:
- ----------------------------------------------------------
EVERCORE $195 million
FENWAY $527 million
STONINGTON $1.0 billion
AMERICAN SECURITIES PARTNERS $100 million
ODYSSEY PARTNERS $700 million
- -------------------------------
(1) Reflects recent fund raisings which are generally uninvested.
Page 52
<PAGE>
Appendix F
PRECEDENT LEVERAGED RECAPITALIZATION TRANSACTIONS
<PAGE>
UNITED STATIONERS MERGER WITH ASSOCIATED STATIONERS
ASSOCIATED HOLDINGS ACQUIRED ON MARCH 30, 1995 A MAJORITY INTEREST IN UNITED
STATIONERS WHICH MERGED WITH ASSOCIATED STATIONERS, A WHOLLYOWNED SUBSIDIARY OF
ASSOCIATED HOLDINGS
o Associated Holdings offered to purchase up to 17.2 million shares
(approximately 92.5% of the common shares outstanding) of United
Stationers
o Posttransaction, the shares not purchased by Associated Holdings
comprised approximately 23% of the new common stock
o The new Company expected to generate approximately $26.0 million in
annual cost savings
o Cash offer price of $15.50 per share, totaling $267 million offered in
the purchase of United Stationer's shares. This price represented a
12.7% premium over the closing price of the Company's common stock
($13.75), on the day prior to the transaction's announcement
o The Company's current stock price as of July 17, 1998 was $71.63 (362%
appreciation over the purchase price)
Page 53
<PAGE>
UNITED STATIONERS TENDER OFFER SUMMARY
($ IN MILLIONS)
Sources of Funds Uses of Funds
- ---------------------------------- -----------------------------------
Senior Credit Facilities $426.7 Purchase of Shares $266.6
Subordinated Bridge Facility 130.0 Debt Refinancing 268.6
Equity Investment 12.0 Fees, Expenses and Other(1) 33.5
------- ------
Total Sources $568.7 Total Uses $568.7
======= ======
Pro Forma Capitalization
-----------------------------
Cash and Equivalents $ 6.7
Bank Debt $550.2 90.6%
Shareholder's Equity $ 57.2 9.4%
------ ------
Total Capitalization $607.4 100.0%
====== ======
- ------------------------
(1) Includes $1,469 of other liabilities paid at offer closing.
(2) Pro forma for the tender offer and subsequent merger of Associated Holdings
and United Stationers.
Page 54
<PAGE>
UNITED STATIONERS OWNERSHIP SUMMARY
(SHARES IN MILLIONS)
Pre-Transaction Ownership Post-Transaction Ownership
- ------------------------------------- ----------------------------------
|
SHARES % | SHARES %
------ ---- | ------ ----
|
Management and Directors 0.4 2.3% |Buying Group(2) 4.6 76.8%
|
HW Associates(1) 4.7 25.3% |HW Associates(1) 0.4 6.0%
|
Other Public Shareholders 13.5 72.4% |Management, Directors
----- ----- | and Other Public
| Shareholders of
| United(3) 1.0 17.2%
| ---- ------
Total 18.6 100.0% | Total 6.0 100.0%
===== ====== | ==== ======
|
- -----------------
(1) General partnership consisting of members of the Hecktman and Wolf families.
(2) Includes Wingate Partners, ASI Partners, Cumberland Capital, Good Capital
and former management of Associated Stationers.
(3) Pro forma for tender offering.
Page 55
<PAGE>
UNITED STATIONERS SUMMARY FINANCIAL PERFORMANCE
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1995 1996 1997 LTM 1998(1)
------- -------- -------- ------- -----------
REVENUE $470.19 $1,751.46 $2,298.17 $2,558.14 $2,635.63
EBITDA(2) $23.51 $91.00 $139.05 $160.97 $167.86
EBIT(2) $18.12 $67.32 $113.00 $134.93 $140.92
NET INCOME(2) $4.21 $10.08 $30.25 $45.36 $50.90
DILUTED EPS(2) $0.51 $0.79 $2.03 $2.95 $3.18
Y/E SHARE PRICE $6.63 $27.75 $19.50 $48.13 $62.25
- -------------
(1) Period ended March 31, 1998.
(2) Excludes the following pretax non recurring charges and extraordinary
items: (i) a $9.7 million restructuring charge in 1995 related to the
merger, (ii) a $59.4 million noncash charge in 1997 as a result of the
vesting of certain incentive options, (iii) a $5.3 million charge in 1997
associated with the termination of certain management agreements, and (iv) a
$5.9 million extraordinary loss in 1997 from the early extinguishment of
debt.
Page 56
<PAGE>
UNITED STATIONERS
TRADING HISTORY POSTTRANSACTION
MARCH 30, 1995 TO JULY 17, 1998
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
Page 57
<PAGE>
HAYES WHEELS INTERNATIONAL MERGER WITH MOTOR WHEEL CORP.
MWC HOLDINGS MERGER WITH HAYES WHEELS INTERNATIONAL ON AUGUST 2, 1996
o MWC Holdings, a public company engaged in the business of manufacturing
brakes and steel wheels for the automotive industry, and controlled by
Joseph Littlejohn & Levy, offered in consideration for each Hayes Wheels
International common share $28.80 in cash and .1 shares of the Company's new
common stock. The total consideration per share of approximately $32.00
represented a 29.3% premium over the closing price of the Company's stock on
the day prior to the announcement of the transaction ($24.75)
o Posttransaction, the original shareholders of Hayes Wheels International
stock owned approximately 15.8% of the Company's new common stock
o Cash consideration of $28.80 per share, totaling $506 million offered in the
purchase of Hayes Wheels International shares
o The Company's current stock price as of July 17, 1998 was $76.63(1) (139%
appreciation over the purchase price)
- -----------------------
(1) Current price adjusted for 2:1 split on 1/7/97 (actual price was $38.31
on 7/17/98).
Page 58
<PAGE>
HAYES WHEELS INTERNATIONAL
($ IN MILLIONS)
Sources of Funds Uses of Funds
- -------------------------------- -----------------------------------------
Revolving Credit Facility $26.4 Purchase of Shares $506.1
Senior Term Debt 425.0 Debt Refinancing 274.1
Senior Subordinated Notes 250.0 Retirement of Mgt. Options 5.2
New Investors' Equity 200.0 Working Capital 75.0
Fees and Expenses 41.0
------ ------
Total Sources $901.4 Total Uses $901.4
====== ======
Pro-Forma Capitalization(1)
------------------------------------
Cash $78.2
Bank Debt 451.5 62.8%
Senior Subordinated Notes 250.0 34.8%
Shareholder's Equity 17.7 2.4%
------- ------
Total Capitalization $719.2 100.0%
======= ======
- ----------------------
(1) Pro forma for the merger of Hayes Wheels and MWC Holding.
Page 59
<PAGE>
HAYES WHEELS INTERNATIONAL OWNERSHIP SUMMARY
(SHARES IN MILLIONS)
Pre-Transaction Ownership Post-Transaction Ownership
- --------------------------------------- --------------------------------------
SHARES % SHARES %
------ --- ------ ---
Management, Directors
and Other Public Shares 9.4 53.7% New Equity Investors(1) 8.1 2.7%
Varity Corporation 8.1 46.3% Former Public Share-
holders of MWC 1.3 11.5%
Management, Directors and
Other Public Shareholders
of Hayes 0.9 8.5%
Varity Corporation 0.8 7.3%
----- ------ ----- ------
Total 17.6 100.0% Total 11.1 100.0%
===== ====== ===== ======
- ----------------
(1) Includes Joseph Littlejohn & Levy, TSG Capital, CIBC WG Argosy and Chase
Equity Partners.
Page 60
<PAGE>
HAYES WHEELS INTERNATIONAL - SUMMARY FINANCIAL PERFORMANCE
- --------------------------------------------------------------------------------
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED JANUARY 31,
-------------------------------------
PRO FORMA (1)
1996 1997 1998 LTM 1998(2)
----------- -------- ---------- -----------
REVENUE $968.30 $778.20 $1,262.80 $1,426.50
EBITDA(3) $133.20 $109.50 $216.70 $222.20
EBIT(3) $84.30 $61.90 $145.50 $170.20
NET INCOME(3) $5.60 $8.58 $31.40 $42.30
DILUTED EPS(3) $0.50 $0.31 $1.12 $1.40
Y/E STOCK PRICE $24.25 $20.25 $23.88 $38.44
- ---------------
(1) Pro forma for the merger of Hayes Wheels and MWC Holdings as if it occurred
on January 31, 1995.
(2) Period ended April 30, 1998.
(3) Excludes pre-tax non recurring charges in fiscal 1996 of $36.6 million in
connection with a plant restructuring at
MWC Holdings and the following non recurring charges in fiscal 1997: (i) a
$109 million charge in connection with the closing of a fabricated wheel
facility, and (ii) a $6.4 million charge in connection with the merger with
MWC Holdings.
Page 61
<PAGE>
HAYES WHEELS INTERNATIONAL
- --------------------------------------------------------------------------------
TRADING HISTORY POST-TRANSACTION(1)
AUGUST 2, 1996 TO JULY 17, 1998
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
- --------------
(1) Historical prices adjusted for 2:1 split on January 7, 1997.
Page 62
<PAGE>
SWING-N-SLIDE CORP. LEVERAGED RECAPITALIZATION
- --------------------------------------------------------------------------------
SWING-N-SLIDE COMMENCED A TENDER OFFER FOR APPROXIMATELY 37.5% OF ITS COMMON
SHARES OUTSTANDING ON NOVEMBER 14, 1994.
o Cash offer price of $11.00 per share represented a 22% premium over the
closing price of the Company's common stock ($9.00), on the day prior to the
tender announcement.
o On January 6, 1995, the Company announced that it had accepted 3.6 million
shares for purchase at $11.00. On the same day, the closing price of the
Company's stock was $7.50. An investor lawsuit was filed alleging management
fraud and a scheme to enrich certain shareholders.
o On January 5, 1996, GreenGrass Holdings, a partnership organized by
institutional investors and senior management of the Company announced a
tender offer to purchase 3.51 million shares (approximately 58.5% of total
common shares outstanding) at a price of $6.50, a 44% premium to the closing
price of the common stock ($4.50) on the previous day.
o The tender was successfully completed on February 15, 1996. The closing
price of the Company's common stock on this date was $5.44.
o On April 29, 1998, the Company's name was changed to Playcore Inc. The
Company's current stock price as of July 17, 1998 was $3.75 (a 66% decrease
from the original recap tender price).
Page 63
<PAGE>
SWING-N-SLIDE - 1995 TENDER OFFER SUMMARY
- --------------------------------------------------------------------------------
($ IN MILLIONS)
Sources of Funds Uses of Funds
- --------------------------------- -----------------------------
Bank Debt $48.5 Purchase of Shares $42.0
-----
Dept Repayment 4.0
Total Sources $48.5 Fees and Expenses 2.5
===== =====
Total Uses $48.5
Pro Forma Capitalization
--------------------------------
Cash and Equivalents $0.0
Bank Debt $37.0
Shareholders' Equity ($1.3)
-------
$35.7
=======
Page 64
<PAGE>
SWING-N-SLIDE CORP.
- --------------------------------------------------------------------------------
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
----------------------------------------------
1993 1994 1995 1996 1997 LTM 1998(1)
------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUE $51.07 $51.82 $45.08 $41.87 $89.49 $103.90
EBITDA(2) $16.94 $14.68 $13.47 $12.06 $15.14 $15.60
EBIT(2) $13.79 $7.91 $11.13 $9.62 $11.57 $12.95
NET INCOME(2) $7.96 $4.59 $4.13 $1.57 $1.18 $2.43
DILUTED EPS(2) $0.83 $0.48 $0.67 $0.26 $0.29 $0.48
Y/E STOCK PRICE $13.00 $8.50 $4.00 $3.25 $4.00 $3.88
</TABLE>
- ----------------------------
(1) Period Ended March 31,1998.
(2) Excludes nonrecurring charges and extraordinary items.
Page 65
<PAGE>
SWING-N-SLIDE CORP.
- --------------------------------------------------------------------------------
TRADING HISTORY POST-TRANSACTION
NOVEMBER 15, 1994 TO JULY 17, 1998
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
Page 66
<PAGE>
PROJECT WONTON Project Wonton
APPENDIX G
ILLUSTRATIVE COMPANY SPONSORED LEVERAGED
RECAPITALIZATION MODEL
BEAR STEARNS
<PAGE>
PROJECT WONTON
C-CORP. MODEL
$450 MILLION RECAPITALIZATION TRANSACTION
<TABLE>
<CAPTION>
ASSUMPTIONS: PURCHASE OF APPROX. $450 MILLION IN EQUITY (14.063 MILLION
SHARES PLUS OPTIONS)
TENDER PRICE OF $32.00 PER SHARE.
<S> <C> <C> <C> <C> <C>
SOURCES AND USES OF FUNDS PRO FORMA CAPITALIZATION
($ in millions) ($ in millions) PRO FORMA(2) % OF TOTAL
ESTIMATED 12/31/98 CAPITALIZATIONS INTEREST RATE
------------------------------------------------------
SOURCES OF FUNDS Cash & Cash Equivalent (incl.
Marketable Securities) $6.0 -- 5.50%(3)
- ----------------------------------
Senior Bank Debt:
Excess Cash on Balance Sheet (1) $125.0 Revolving Credit Facility 0.0 0.0% 8.19%
Senior Bank Debt: Senior Unsecured Notes 340.0 303.8% 9.75%
Revolving Credit Facility 0.0 Other Long Term Debt 0.0 0.0% 9.00%
Senior Unsecured Notes 340.0
--------
Total New Long Term Debt 340.0
TOTAL SOURCES OF FUNDS $465.0 TOTAL LONG TERM DEBT 340.0 303.8%
======== --------- ---------
Common Equity (228.1) -203.8%
--------- ---------
TOTAL SHAREHOLDERS' EQUITY (228.1) -203.8%
--------- ---------
TOTAL CAPITALIZATION $111.9 100.0%
========= =========
Goodwill $0.0
USES OF FUNDS
- ---------------------------------- ----------------------------------------------------------------------------------
ACQUISITION PRICE - $32.00 PER SHARE
Number of shares outstanding 20.447 ($ in millions)
Number of Shares to be Repurchased 14.063 68.8%
PURCHASE PRICE PER SHARE $32.00 Implied Equity Value: $667.1
--------
Implied Enterprise Value(4) $536.1
Purchase Price of Equity $450.0
Purchase Price of Options 0.0 Goodwill: $0.0
Repayment of Existing Debt 0.0 Period (Years): 30
--------
Total Purchase Price 450.0
</TABLE>
<TABLE>
<CAPTION>
---------- ----------- -----------
FYE 1997A FYE 1998P FYE 1999P
----------- ----------- -----------
Multiple of:
<S> <C> <C> <C> <C> <C>
Financing Costs $10.2 Revenues 1.56x 1.47x 1.32x
Non-Financing Costs 4.8
--------
EBITDA 6.60x 6.29x 5.68x
TOTAL USES OF FUNDS $465.0
========
EBITA 9.36x 9.17x 8.07x
</TABLE>
- ---------------------
Footnotes
(1) Includes $7.5 million of marketable securities
(2) Reflects proposed recapitalization. Assumes transaction closes on 12/31/98.
(3) Interest is earned on cash balance above $7 million.
(4) Reflects estimated 12/31/98 balance sheet.
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
OPERATING COMPANY COVERAGE RATIOS
FISCAL YEAR ENDED DECEMBER 31,
ACTUAL
PF 1997 1998 1999 2000 2001 2002
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
EBITDA/TOTAL INTEREST EXPENSE 2.38x 2.49x 2.76x 3.13x 3.56x 4.06x
EBITDAR/TOTAL INTEREST EXPENSE PLUS RENT EXPENSE 1.53x 1.55x 1.62x 1.71x 1.80x 1.90x
EBITDAR - CapEx/TOTAL INTEREST EXPENSE PLUS RENT EXPENSE 1.21 1.27 1.33 1.39 1.48 1.57
EBITDA - CapEx/TOTAL INTEREST EXPENSE 1.5x 1.73x 1.93x 2.17x 2.52x 2.93x
EBITDA - CapEx/TOTAL INTEREST EXP. + REQ. AMORT. OF DEBT 1.54x 1.73x 1.93x 2.17x 2.52x 2.93x
EBITDAR - CapEx/TOTAL INTEREST EXP. + REQ. AMORT. OF DEBT + RENT 1.21 1.27 1.33 1.39 1.48 1.57
TOTAL DEBT + CAPITALIZED LEASES (1) /EBITDAR 5.32x 5.21x 4.96x 4.67x 4.40x 4.15x
TOTAL DEBT/EBITDA 4.19x 3.99x 3.60x 3.18x 2.79x 2.45x
NET DEBT/EBITDA 4.11x 3.92x 3.26x 2.56x 1.88x 1.25x
BANK DEBT/EBITDA 0.00x 0.00x 0.00x 0.00x 0.00x 0.00x
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS
($ IN MILLIONS)
FISCAL YEAR ENDED DECEMBER 31,
ACTUAL ACTUAL
PF 1996 PF 1997 1998 1999 2000 2001 2002
------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $325.7 $344.4 $365.7 $405.7 $460.4 $525.5 $600.0
EBITDA 79.5 81.2 85.2 94.4 106.9 121.7 138.6
Rent Expense 49.6 54.5 57.9 62.6 68.5 75.1 82.2
Bank Interest Expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total Interest Expense 34.2 34.2 34.2 34.2 34.2 34.2 34.2
Interest Income 0.0 0.0 0.0 0.7 2.3 4.5 7.2
Capital Expenditures 25.9 28.6 26.1 28.4 32.7 35.6 38.4
Capitalized Leases(1) 346.9 381.3 405.5 438.4 479.8 526.0 575.2
Total Debt 340.0 340.0 340.0 340.0 340.0 340.0 340.0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FOOTNOTES
(1) Leases capitalized at 7.0x Rent Expense for the relevant period.
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
PRO FORMA BALANCE SHEET ADJUSTMENTS
- -----------------------------------
($ in millions)
ACTUAL ESTIMATED TRANSACTION PRO FORMA
12/31/97 12/31/98 ADJUSTMENTS 12/31/98
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
CASH & CASH EQUIVALENTS
(INCL. LONG-TERM MARKETABLE SECURITIES) $127.3 $131.0 ($125.0) $6.0
ACCOUNTS RECEIVABLE 2.4 2.5 2.5
INVENTORY 3.0 3.1 3.1
PREPAID EXPENSES 1.8 1.9 1.9
OTHER CURRENT ASSETS 0.0 0.0 0.0
--------- ------------ ---------
TOTAL CURRENT ASSETS 134.4 138.5 13.5
GROSS PROPERTY, PLANT & EQUIPMENT 287.0 313.1 313.1
LESS ACCUMULATED DEPRECIATION 150.2 177.0 177.0
--------- ------------ ---------
NET PROPERTY, PLANT & EQUIPMENT 136.8 136.1 136.1
GOODWILL 0.0 0.0 0.0 0.0
DEFERRED FINANCING FEES 0.0 0.0 10.2 10.2
DEFERRED CHARGES 1.6 1.6 1.6
OTHER ASSETS 5.8 5.8 5.8
TOTAL ASSETS 278.6 282.1 167.3
========= ============ =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
ACCOUNTS PAYABLE $10.1 $10.7 $10.7
ACCRUED LIABILITIES 26.0 27.5 27.5
DIVIDENDS PAYABLE 5.5 0.0 0.0
OTHER CURRENT LIABILITIES 4.8 5.0 5.0
--------- ------------ ---------
TOTAL CURRENT LIABILITIES 46.4 43.2 43.2
LONG-TERM DEBT
SENIOR BANK DEBT: 0.0 0.0 0.0 0.0
REVOLVING CREDIT FACILITY 0.0 0.0 340.0 340.0
SENIOR UNSECURED NOTES: 0.0 0.0 0.0
--------- ------------ ---------
OTHER LONG TERM DEBT 0.0 0.0 340.0
TOTAL LONG TERM DEBT
DEFERRED TAXES 11.8 11.8 11.8
OTHER LIABILITIES 0.0 0.0 0.0
MINORITY INTEREST 0.0 0.4 0.4
STOCKHOLDERS' EQUITY
COMMON EQUITY 220.4 226.7 (454.8) (228.1)
--------- ------------ ----------
TOTAL STOCKHOLDERS' EQUITY 220.4 226.7 (228.1)
TOTAL LIABILITIES AND EQUITY $278.6 $282.1 $167.3
========= ============ ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Project Wonton
PROJECTED CAPITALIZATION FISCAL YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
($ IN MILLIONS) PROJECTED
-----------------------------------------------------------------
1998 1999 2000 2001 2002
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
CASH & CASH EQUIVALENTS (INCL. MARKETABLE SECURITIES): $6.0 $ 32.6 $66.7 $110.9 $166.6
=========== ========== ========== =========== ==========
SENIOR BANK DEBT:
REVOLVING CREDIT FACILITY 0.0 0.0 0.0 0.0 0.0
SENIOR UNSECURED NOTES 340.0 340.0 340.0 340.0 340.0
OTHER LONG TERM DEBT 0.0 0.0 0.0 0.0 0.0
----------- ---------- ---------- ----------- ----------
TOTAL LONG TERM DEBT 340.0 340.0 340.0 340.0 340.0
STOCKHOLDERS' EQUITY
COMMON EQUITY (228.1) (208.0) (180.9) (145.2) (99.1)
----------- ---------- ---------- ----------- ----------
TOTAL STOCKHOLDERS' EQUITY (228.1) (208.0) (180.9) (145.2) (99.1)
----------- ---------- ---------- ----------- ----------
TOTAL CAPITALIZATION $111.9 $132.0 $159.1 $194.8 $240.9
========== ========== ========== =========== ==========
CASH & CASH EQUIVALENTS (INCL. MARKETABLE SECURITIES) 5.4% 24.7% 41.9% 56.9% 69.2%
LONG TERM DEBT
SENIOR BANK DEBT:
REVOLVING CREDIT FACILITY 0.0% 0.0% 0.0% 0.0% 0.0%
SENIOR UNSECURED NOTES 303.8% 257.6% 213.7% 174.6% 141.2%
OTHER LONG TERM DEBT 0.0% 0.0% 0.0% 0.0% 0.0%
---------- ---------- ---------- ----------- ----------
TOTAL LONG TERM DEBT 303.8% 257.6% 213.7% 174.6% 141.2%
STOCKHOLDERS' EQUITY -203.8% -157.6% -113.7% -74.6% -41.2%
---------- ----------- ---------- ---------- ----------
COMMON EQUITY
TOTAL STOCKHOLDERS' EQUITY -203.8% -157.6% -113.7% -74.6% -41.2%
---------- ----------- ---------- ---------- ----------
TOTAL CAPITALIZATION 100.0% 100.0% 100.0% 100.0% 100.0%
========== =========== ========== ========== ==========
</TABLE>
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
SBARRO INCOME STATEMENT ASSUMPTIONS
FISCAL YEAR ENDED DECEMBER 31,
---------------------------------------
ACTUAL FISCAL YEAR ENDED DECEMBER 31, PROJECTED
-------------------------------------- ACTUAL ---------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue Growth Rate -- 11.39% 7.49% 3.04% 5.74% 6.20% 10.92% 13.50% 14.13% 14.17%
Gross Profit Growth Rate -- 11.33% 7.13% 3.34% 7.05% 6.35% 10.72% 13.17% 13.74% 13.77%
EBITDA Growth Rate -- 14.09% -2.36% 11.49% 2.20% 4.94% 10.79% 13.27% 13.80% 13.89%
EBITA Growth Rate -- 13.09% -7.17% 18.70% 1.30% 2.05% 13.62% 15.76% 16.57% 17.42%
EBIT Growth Rate -- 13.09% -7.17% 18.70% na 2.05% 13.62% 15.76% 16.57% 17.42%
GROSS MARGIN(1) 78.61% 78.59% 78.27% 78.50% 79.43% 79.72% 79.72% 79.72% 79.72% 79.72%
Payroll & Other Employee Benefits(1) 24.94% 24.54% 25.26% 24.51% 25.14% 25.40% 25.40% 25.40% 25.40% 25.40%
Rent Expense(1) 15.07% 15.24% 15.82% 15.52% 16.18% 16.30% 16.30% 16.30% 16.30% 16.30%
Occupancy and Other Expenses(1) 11.25% 11.20% 11.38% 11.27% 11.51% 11.60% 11.60% 11.60% 11.60% 11.60%
General & Administrative 4.98% 4.61% 5.19% 4.68% 5.15% 5.30% 5.30% 5.30% 5.30% 5.30%
-------- ------- ------- --------- ------- ------ ------ ------ ------ ------
Other Income (incl. startup costs) 0.47% 0.46% 0.43% 0.36% 0.48% 0.82% 0.68% 0.54% 0.43% 0.33%
EBITDA MARGIN 24.24% 24.82% 22.55% 24.40% 23.58% 23.30% 23.27% 23.23% 23.16% 23.10%
Depreciation & Amortization 7.05% 7.37% 7.48% 7.03% 6.95% 7.32% 6.90% 6.53% 6.10% 5.56%
-------- ------- ------- --------- ------- ------ ------ ------ ------ ------
EBITA 17.19% 17.45% 15.07% 17.36% 16.64% 15.99% 16.37% 16.70% 17.06% 17.54%
Amortization of Goodwill 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
-------- ------- ------- --------- ------- ------ ------ ------ ------ ------
EBIT MARGIN 17.19% 17.45% 15.07% 17.36% 16.64% 15.99% 16.37% 16.70% 17.06% 17.54%
</TABLE>
<TABLE>
<CAPTION>
WORKING CAPITAL ASSUMPTIONS FISCAL YEAR ENDED DECEMBER 31,
-----------------------------------------------------
ACTUAL PROJECTED(2)
-------------- ACTUAL --------------------------------------------
1995 1996 1997(2) 1998 1999 2000 2001 2002
----- ----- -------- ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Days Receivable of Sales 3.0 2.1 2.5 2.5 2.5 2.5 2.5 2.5
Days Inventory of Cost of Goods Sold 15.0 15.1 15.6 15.6 15.6 15.6 15.6 15.6
Days Prepaid Expenses of Sales 2.0 1.6 1.9 1.9 1.9 1.9 1.9 1.9
Other Current Assets as a % of Sales 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Days Payable of Cost of Goods Sold 40.1 38.1 53.2 53.2 53.2 53.2 53.2 53.2
Days Accrued Liabilities of Cost of Goods Sold 146.3 120.5 137.2 137.2 137.2 137.2 137.2 137.2
Days Other Current Liabilities of Cost of Goods Sold 46.5 53.0 25.2 25.2 25.2 25.2 25.2 25.2
</TABLE>
- ------------------------
FOOTNOTES
(1) As a percentage of Company-owned restaurant revenue.
(2) Years 1998-2002 assume same working capital ratios as pro forma year end
1997.
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
SBARRO REVENUE DERIVATION Fiscal Year Ended December 31,
- -------------------------
--------------------------------------------------------
($ in millions) Actual Fiscal Year Ended December 31, Projected
------------------------------------ Actual -------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000 2001 20002
----- ----- ----- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NUMBER OF COMPANY-OWNED RESTAURANTS
Beginning Balance 456 515 567 571 597 623 651 691 736 781
Restuarants Opened 59 53 44 29 30 35 40 45 45 45
Acquired (Sold) Franchisees 7 2 0 1 4 1 0 0 0 0
Restaurants Closed 7 3 40 4 8 8 0 0 0 0
------ -------- -------- ------ ------ --------- --------- -------- ------ -------
Ending Balance 515 567 571 597 623 651 691 736 781 826
NUMBER OF FRANCHISED RESTAURANTS
Beginning Balance 131 134 162 200 219 239 274 324 384 444
Restuarants Opened 24 38 40 36 47 40 50 60 60 60
Purchased (Sold) Company (7) (2) 0 (1) (4) (1) 0 0 0 0
Restaurants Closed 14 8 2 16 23 4 0 0 0 0
------ -------- -------- -------- ------- --------- --------- -------- --------------
Ending Balance 134 162 200 219 239 274 324 384 444 504
TOTAL NUMBER OF RESTAURANTS
Beginning Balance 587 649 729 771 816 862 925 1,015 1,120 1,225
Restuarants Opened 83 91 84 65 77 75 90 105 105 105
Restaurants Closed 21 11 42 20 31 12 0 0 0 0
------ -------- -------- -------- ------- --------- --------- -------- --------------
Ending Balance 649 729 771 816 862 925 1,015 1,120 1,225 1,330
====== ======= ======= ======= ======= ======== ======== ======= ==============
SAME STORE SALES GROWTH - -0.04% 2.12% 0.31% 0.93% 0.50% 1.50% 1.50% 1.50% 1.50%
AVERAGE SALES PER RESTAURANT $0.534 $0.534 $0.545 $0.547 $0.552 $0.555 $0.563 $0.571 $0.580 $0.589
TOTAL SYSTEMWIDE SALES
Company-Owned $259.2 $288.8 $310.2 $319.3 $336.6 $353.3 $377.7 $407.7 $439.9 $473.0
Franchised 70.8 79.0 98.7 118.3 123.1 142.3 168.3 202.3 240.1 279.0
------ ------- ------- ------- ------ ------- ------- ------- ------ -------
Total Systemwide Sales $330.0 $367.8 $408.8 $437.6 $459.7 $495.5 $546.0 $609.9 $680.0 $752.0
TOTAL REVENUE FROM FRANCHISEES
FRANCHISE ROYALTY FEE (NEW STORES 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
FRANCHISE ROYALTY FEE (EXISTING) 5.5% 4.9% 4.9% 4.5% 5.7% 4.8% 4.8% 4.8% 4.8% 4.8%
INITIAL FRANCHISE FEE PER STORE $0.035 $0.035 $0.035 $0.033 $0.032 $0.020 $0.020 $0.020 $0.020 $0.020
Total Initial Franchise Fee $0.8 $1.3 $1.4 $1.2 $1.5 $0.8 $1.0 $1.2 $1.2 $1.2
Total Franchise Royalty Fee 3.9 3.9 4.9 5.2 6.2 6.3 7.3 8.6 10.2 11.7
------ ------- ------ -------- ------- ------- ------ ------- ------ -------
Total Revenue from Franchisees $4.8 $5.2 $5.9 $6.4 $7.8 $7.1 $8.3 $9.8 $11.4 $12.9
TOTAL REVENUE $259.2 $288.8 $310.2 $319.3 $336.6 $353.3 $377.7 $407.7 $439.9 $473.0
Company-Owned 4.8 5.2 5.9 6.4 7.8 7.1 8.3 9.8 11.4 12.9
------ -------- -------- --------- -------- --------- -------- ------ ------ -------
Franchised $264.0 $294.0 $316.1 $325.7 $344.4 $360.4 $386.0 $417.5 $451.2 $485.9
====== ======== ======= ======== ======== ========= ======== ====== ====== =======
Total Revenue
TOTAL CAPITAL EXPENDITURES
CapEx per New Restaurant $0.54 $0.60 $0.40 $0.40 $0.41 $0.41 $0.41 $0.41 $0.41 $0.41
Restaurant CapExp $31.9 $32.1 $17.5 $11.5 $12.3 $14.4 $16.5 $18.5 $18.5 $18.5
Other Capital Expenditures $0.0 $0.0 $0.0 $7.0 $6.2 $4.0 $0.0 $0.0 $0.0 $0.0
</TABLE>
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
SBARRO INCOME STATEMENT
- -----------------------
($ in millions)
FISCAL YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
PROJECTED
----------------------------------------------------------------------
1998 1999 2000 2001 2002
--------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES $360.4 $386.0 $417.5 $451.2 $485.9
Cost of Goods Sold 71.6 76.6 82.7 89.2 95.9
--------- ---------- ---------- ---------- --------
GROSS PROFIT 288.7 309.4 334.8 362.0 390.0
GROSS PROFIT MARGIN 80.1% 80.2% 80.2% 80.2% 80.3%
Payroll & Other Employee Benefits 89.7 95.9 103.5 111.7 120.1
Rent Expense 57.6 61.6 66.4 71.7 77.1
Other Operating Expenses 41.0 43.8 47.3 51.0 54.9
General & Administrative 19.1 20.5 22.1 23.9 25.8
--------- ---------- ---------- ---------- --------
Other Income 3.5 3.5 3.5 3.5 3.5
EBITDA 84.8 91.1 98.9 107.2 115.6
EBITDA MARGIN 23.5% 23.6% 23.7% 23.7% 23.8%
Depreciation 26.6 27.4 28.8 29.9 30.1
--------- ---------- ---------- ---------- --------
EBITA 58.2 63.7 70.2 77.3 85.6
EBITA MARGIN 16.2% 16.5% 16.8% 17.1% 17.6%
</TABLE>
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
UMBERTO INCOME STATEMENT
- ------------------------
($ in millions) FISCAL YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
PROJECTED
---------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002
-------------- ------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
REVENUES $5.4 $19.7 $42.9 $74.3 $114.1
Cost of Goods Sold 1.5 5.1 11.2 19.3 29.7
--- --- ---- ---- ----
GROSS PROFIT 3.9 14.5 31.8 55.0 84.4
Gross Profit Margin 72.4% 74.0% 74.0% 74.0% 74.0%
Payroll & Other Employee Benefits 1.8 6.6 14.5 25.3 39.0
Rent Expense 0.3 1.1 2.1 3.4 5.1
Other Operating Expenses 0.5 1.8 3.9 6.5 9.8
General & Administrative 0.3 1.0 2.3 3.9 6.0
--- --- --- --- ---
Other Income (incl. startup costs) (0.5) (0.8) (1.0) (1.3) (1.5)
EBITDA 0.4 3.3 8.0 14.5 23.0
EBITDA Margin 7.5% 16.7% 18.7% 19.6% 20.1%
Depreciation 0.1 0.6 1.3 2.2 3.3
--- --- --- --- ---
EBITA 0.3 2.7 6.7 12.3 19.7
EBITA Margin 4.8% 13.8% 15.7% 16.6% 17.2%
Income Taxes @ 38% 0.1 1.0 2.5 4.7 7.5
Net Income 0.2 1.7 4.2 7.7 12.2
Net Income Margin 2.9% 8.5% 9.7% 10.3% 10.7%
</TABLE>
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
CONSOLIDATED INCOME STATEMENT
- ----------------------------- FISCAL YEAR ENDED DECEMBER 31,
($ IN MILLIONS)
-------------------------------------
ACTUAL FISCAL YEAR ENDED DECEMBER 31, FULL YEAR PRO FORMA PROJECTED
------------------------------------ ------------------- -------------------------------------
1993 1994 1995 1996 1997A 1998E 1999 2000 2001 2002
----- ----- --------- ------ ------ -------- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $264.0 $294.0 $316.1 325.7 $344.4 $365.7 $405.7 $460.4 $525.5 $600.0
Cost of Goods Sold 55.4 61.9 67.4 68.7 69.2 73.1 81.7 93.8 108.5 125.6
------ ------ --------- ------ ------- -------- ------- ------- ------- --------
GROSS PROFIT 208.5 232.2 248.7 257.0 275.1 292.6 324.0 366.6 417.0 474.4
Payroll & Other Employee Benefits 64.7 70.8 78.3 78.3 84.6 91.5 102.5 118.1 137.0 159.2
Rent Expense 39.1 44.0 49.1 49.6 54.5 57.9 62.6 68.5 75.1 82.2
Other Operating Expenses 29.2 32.4 35.3 36.0 38.7 41.5 45.7 51.1 57.5 64.6
General & Administrative 12.9 13.3 16.1 14.9 17.7 19.4 21.5 24.4 27.9 31.8
------ ------- -------- ----- ------- ------- ------ ------ ------ -------
Other Income (incl. startup costs) 1.2 1.4 1.4 1.2 1.7 3.0 2.8 2.5 2.3 2.0
EBITDA 64.0 73.0 71.3 79.5 81.2 85.2 94.4 106.9 121.7 138.6
Depreciation 18.6 21.7 23.6 22.9 23.9 26.8 28.0 30.1 32.1 33.4
------ -------- -------- ------ ------- -------- ------- ------- ------- --------
EBITA 45.4 51.3 47.6 56.6 57.3 58.5 66.4 76.9 89.6 105.2
Amortization of Goodwill 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------ --------- ------- ------ ------- -------- ------- ------- ------- --------
EBIT 45.4 51.3 47.6 56.6 57.3 58.5 66.4 76.9 89.6 105.2
Interest Income (5.50%) 0.0 0.0 0.7 2.3 4.5 7.2
Interest Expense:
Revolving Credit Facility 0.0 0.0 0.0 0.0 0.0 0.0
Senior Unsecured Notes 33.2 33.2 33.2 33.2 33.2 33.2
Other Long Term Debt 0.0 0.0 0.0 0.0 0.0 0.0
Amortization of Deferred Debt Exp. 1.0 1.0 1.0 1.0 1.0 1.0
--- --- --- --- --- ---
Total Interest Expense 34.2 34.2 34.2 34.2 34.2 34.2
------- ------- ------ ------ ------ -------
PRETAX INCOME 23.1 24.3 32.9 45.1 60.0 78.3
Income Taxes @ 38% 8.8 9.2 12.5 17.1 22.8 29.8
Minority Interest @ 20% 0.0 0.0 0.3 0.8 1.5 2.4
NET INCOME TO COMMON $14.3 $15.0 $20.1 $27.1 $35.6 $46.1
======= ======= ====== ====== ====== =======
FULLY DILUTED EARNINGS PER SHARE $0.69 $2.22 $2.96 $4.00 $5.25 $6.80
======= ======= ====== ====== ====== =======
POSSIBLE FUTURE STOCK PRICE @ 13.7X(1) $30.36 $40.57 $54.76 $72.01 $93.17
======= ====== ====== ====== =======
PRESENT VALUE OF POSSIBLE FUTURE
STOCK PRICE @ 17% $28.25 $32.27 $37.22 $41.84 $46.27
======= ======= ====== ====== =======
</TABLE>
FOOTNOTES
(1) Based on 1998 First Call estimate of $1.97 and stock price of $27.00.
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
CONSOLIDATED CASH FLOW STATEMENT
- --------------------------------
($ IN MILLIONS) PROJECTED FISCAL YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999 2000 2001 2002
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATIONS
NET INCOME TO COMMON $20.1 $27.1 $35.6 $46.1
DEPRECIATION 28.0 30.1 32.1 33.4
AMORTIZATION OF GOODWILL AND DEFERRED FINANCING FEES 1.0 1.0 1.0 1.0
DEFERRED INCOME TAXES 0.0 0.0 0.0 0.0
MINORITY INTEREST 0.3 0.8 1.5 2.4
CHANGE IN NET WORKING CAPITAL 4.2 6.0 7.3 8.5
-------- -------- -------- ----------
TOTAL CASH FLOW FROM OPERATIONS $53.7 $65.0 $77.5 $91.4
CASH FLOW FROM INVESTING ACTIVITIES
CAPITAL EXPENDITURES (NEW SBARRO STORES) ($16.5) ($18.5) ($18.5) ($18.5)
CAPITAL EXPENDITURES (MAINTENANCE OF EXISTING SBARRO STORES) (5.2) (5.2) (5.8) (6.4)
CAPITAL EXPENDITURES (UMBERTO) (6.8) (9.0) (11.3) (13.5)
CONTRIBUTION TO CAPITAL BY MINORITY INTEREST 1.4 1.8 2.3 2.7
COST TO COMPLETE BUILDING 0.0 0.0 0.0 0.0
-------- -------- -------- ----------
TOTAL CASH FLOW FROM INVESTING ACTIVITIES ($27.1) ($30.9) ($33.3) ($35.7)
CASH FLOW FROM FINANCING ACTIVITIES
BORROWINGS/(REPAYMENT) OF OTHER LONG TERM DEBT 0.0 0.0 0.0 0.0
-------- -------- -------- ----------
TOTAL CASH FLOW FROM FINANCING ACTIVITIES $0.0 $0.0 $0.0 $0.0
-------- -------- -------- ----------
INCREASE IN CASH BEFORE SWEEP $26.6 $34.1 $44.2 $55.7
======== ======== ======== ==========
BORROWINGS/(REPAYMENT) OF SENIOR BANK DEBT: REVOLVING CREDIT FACILITY 0.0 0.0 0.0 0.0
BORROWINGS/(REPAYMENT) OF SENIOR UNSECURED NOTES 0.0 0.0 0.0 0.0
NET INCREASE IN CASH (INCLUDES MARKETABLE SECURITIES) $26.6 $34.1 $44.2 $55.7
BEGINNING BALANCE OF CASH 6.0 32.6 66.7 110.9
-------- -------- -------- ----------
ENDING BALANCE OF CASH $32.6 $66.7 $110.9 $166.6
======== ======== ======== ==========
MINIMUM CASH BALANCE 7.0 7.0 7.0 7.0
</TABLE>
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
- --------------------------
($ IN MILLIONS) FISCAL YEAR ENDED DECEMBER 31,
---------------------------------------------
ACTUAL ESTIMATED PROJECTED
---------------------------------------------
1997 1998 1999 2000 2001 2002
---------- --------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash & Cash Equivalents (incl. Marketable Securities) $127.3 $6.0 $32.6 $66.7 $110.9 $166.6
Accounts Receivable 2.4 2.5 2.8 3.2 3.6 4.1
Inventory 3.0 3.1 3.5 4.0 4.6 5.4
Prepaid Expenses 1.8 1.9 2.1 2.4 2.7 3.1
Other Current Assets 0.0 0.0 0.0 0.0 0.0 0.0
---------- -------- -------- -------- --------- ---------
Total Current Assets 134.4 13.5 41.0 76.2 121.9 179.2
GROSS PROPERTY, PLANT & EQUIPMENT 287.0 313.1 341.5 374.2 409.8 448.2
Less Accumulated Depreciation 150.2 177.0 205.0 235.0 267.1 300.5
---------- -------- -------- -------- --------- ---------
NET PROPERTY, PLANT & EQUIPMENT 136.8 136.1 136.5 139.2 142.7 147.7
GOODWILL 0.0 0.0 0.0 0.0 0.0 0.0
DEFERRED FINANCING FEES 0.0 10.2 9.2 8.2 7.1 6.1
DEFERRED CHARGES 1.6 1.6 1.6 1.6 1.6 1.6
OTHER ASSETS 5.8 5.8 5.8 5.8 5.8 5.8
---------- -------- -------- -------- --------- ---------
TOTAL ASSETS $278.6 $167.3 $194.1 $231.0 $279.1 $340.5
========== ======== ======== ======== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts Payable $10.1 $10.7 $11.9 $13.7 $15.8 $18.3
Accrued Liabilities 26.0 27.5 30.7 35.3 40.8 47.2
Dividends Payable 5.5 0.0 0.0 0.0 0.0 0.0
Other Current Liabilities 4.8 5.0 5.6 6.5 7.5 8.7
---------- -------- -------- -------- --------- ---------
Total Current Liabilities 46.4 43.2 48.3 55.4 64.1 74.2
LONG-TERM DEBT
Senior Bank Debt:
Revolving Credit Facility 0.0 0.0 0.0 0.0 0.0 0.0
Senior Unsecured Notes 0.0 340.0 340.0 340.0 340.0 340.0
Other Long Term Debt 0.0 0.0 0.0 0.0 0.0 0.0
---------- -------- -------- -------- --------- ---------
Total Long Term Debt 0.0 340.0 340.0 340.0 340.0 340.0
DEFERRED TAXES 11.8 11.8 11.8 11.8 11.8 11.8
OTHER LIABILITIES 0.0 0.0 0.0 0.0 0.0 0.0
MINORITY INTEREST 0.0 0.4 2.1 4.7 8.5 13.6
STOCKHOLDERS' EQUITY
Common Equity 220.4 (228.1) (208.0) (180.9) (145.2) (99.1)
---------- -------- -------- -------- --------- ---------
Total Stockholders' Equity 220.4 (228.1) (208.0) (180.9) (145.2) (99.1)
TOTAL LIABILITIES AND EQUITY $278.6 $167.3 $194.1 $231.0 $279.1 $340.5
========== ======== ======== ======== ========= =========
</TABLE>
<PAGE>
PROJECT WONTON
APPENDIX H
ILLUSTRATIVE FINANCIAL INVESTOR SPONSORED
LEVERAGED RECAPITALIZATION MODEL
BEAR STEARNS
<PAGE>
PROJECT WONTON
C-CORP. MODEL
$661 MILLION RECAPITALIZATION TRANSACTION
ASSUMPTIONS PURCHASE OF APPROX. $661 MILLION IN EQUITY (18.873 MILLION
SHARES PLUS OPTIONS)
TENDER PRICE OF $35.00 PER SHARE.
<TABLE>
<CAPTION>
SOURCES AND USES OF FUNDS PRO FORMA CAPITALIZATION
($ IN MILLIONS) ($ IN MILLIONS)
PRO FORMA (2)
SOURCES OF FUNDS ESTIMATED % OF TOTAL INTEREST
- ---------------- 12/31/98 CAPITALIZATION RATE
------------ -------------- --------
<S> <C> <C>
Excess Cash on Balance Sheet (1) $122.6 Cash & Cash Equivalents <C> <C> <C>
(incl. Marketable Securities) $8.4 -- 5.50%(3)
Senior Bank Debt: Senior Bank Debt:
Senior Credit Facility 80.0 Senior Credit Facility 80.0 68.8% 8.19%
Senior Unsecured Notes 350.0
-----------
Total New Long Term Debt 430.0 Senior Unsecured Notes 350.0 300.8% 10.75%
Other Long Term Debt 0.0 0.0% 9.00%
New Common Equity 125.0
TOTAL SOURCES OF FUNDS $677.6 TOTAL LONG TERM DEBT 430.0 369.5%
=========== -------- ------------
Common Equity (313.6) -269.5%
--------- ------------
TOTAL SHAREHOLDERS' EQUITY (313.6) -269.5%
--------- ------------
TOTAL CAPITALIZATION $116.4 100.0%
========= ============
USES OF FUNDS GOODWILL $0.0
-----------------------------------------------------------------------------
ACQUISITION PRICE - $35.00 PER SHARE
Number of Diluted Shares Outstanding 20.970 ($ in millions)
Number of Shares to be Repurchased 18.873 90.0%
PURCHASE PRICE PER SHARE $35.00 Implied Equity Value: $752.3
---------
Implied Enterprise Value: (4) $621.3
Purchase Price of Equity $660.6 Goodwill: $0.0
Repayment of Existing Debt 0.0 Period (Years): 30
----------- --------- --------- ---------
Total Purchase Price $660.6 FYE 1997A FYE 1998P FYE 1999P
Financing Costs $12.2 Multiple of: --------- --------- ---------
Non-Financing Costs 4.8 Revenues 1.80x 1.70x 1.53x
-----------
EBITDA 7.65x 7.29x 6.58x
TOTAL USES OF FUNDS $677.6 EBITA 10.85x 10.63x 9.35x
===========
Footnotes
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes $7.5 million of marketable securities.
(2) Reflects proposed recapitalization. Assumes transaction closes on 12/31/98.
(3) Interest is earned on cash balance above $7 million.
(4) Reflects estimated 12/31/98 balance sheet.
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
OPERATING COMPANY COVERAGE RATIOS
FISCAL YEAR ENDED DECEMBER 31,
ACTUAL -----------------------------------
1997 1998 1999 2000 2001 2002
----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
EBITDA/TOTAL INTEREST EXPENSE 1.79x 1.88x 2.12x 2.52x 3.03x 3.57x
EBITDAR/TOTAL INTEREST EXPENSE PLUS RENT EXPENSE 1.36x 1.39x 1.47x 1.58x 1.71x 1.82x
EBITDAR - CAPEX/TOTAL INTEREST EXPENSE PLUS RENT EXPENSE 1.07 1.13 1.20 1.29 1.40 1.51
EBITDA - CAPEX/TOTAL INTEREST EXPENSE 1.16x 1.30x 1.48x 1.75x 2.15x 2.58x
EBITDA - CAPEX/TOTAL INTEREST EXP. + REQ. AMORT. OF DEBT 1.16x 1.30x 1.48x 1.75x 2.15x 2.58x
EBITDAR - CAPEX/TOTAL INTEREST EXP. + REQ. AMORT. OF DEBT + RENT 1.13 1.20 1.29 1.40 1.51
1.07 1.57
TOTAL DEBT + CAPITALIZED LEASES (1) /EBITDAR 5.98x 5.84x 5.39x 4.90x 4.45x 4.19x
TOTAL DEBT/EBITDA 5.29x 5.05x 4.33x 3.56x 2.88x 2.52x
NET DEBT/EBITDA 5.19x 4.95x 4.25x 3.50x 2.76x 2.07x
BANK DEBT/EBITDA 0.99x 0.94x 0.62x 0.29x 0.00x 0.00x
- --------------------------------------------------------------------------- ------- ------- ------ ------- ------
</TABLE>
SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
($ IN MILLIONS) FISCAL YEAR ENDED DECEMBER 31,
ACTUAL ACTUAL
PF 1996 PF 1997 1998 1999 2000 2001 2002
------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $325.7 $344.4 $365.7 $405.7 $460.4 $525.5 $600.0
EBITDA 79.5 81.2 85.2 94.4 106.9 121.7 138.6
Rent Expense 49.6 54.5 57.9 62.6 68.5 75.1 82.2
Bank Interest Expense 6.6 6.6 6.6 5.7 3.7 1.3 0.0
Total Interest Expense 45.4 45.4 45.4 44. 5 42.5 40.1 38.8
Interest Income 0.0 0.0 0.0 0.0 0.0 0.2 1.8
Capital Expenditures 25.9 28.6 26.1 28.4 32.7 35.6 38.4
Capitalized Leases(1) 346.9 381.3 405.5 438.4 479.8 526.0 575.2
Total Debt 430.0 430.0 430.0 408.6 380.9 350.0 350.0
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF HYPOTHETICAL EQUITY RETURNS EXIT YEAR
--------- ---------- ---------
ASSUMED EXIT MULTIPLE OF TRAILING EBITDA 2000 2001 2002
--------- ---------- ---------
<S> <C> <C> <C>
6.0x 15.1% 24.8% 28.0%
6.5x 26.3% 31.1% 31.9%
7.0x 36.6% 36.8% 35.6%
7.5x 46.1% 42.0% 39.0%
8.0x 55.0% 46.9% 42.1%
- ----------------------------------------------------------------- --------- -------- ---------
</TABLE>
FOOTNOTES
(1) Leases capitalized at 7.0x Rent Expense for the relevant period.
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
PRO FORMA BALANCE SHEET ADJUSTMENTS
- ----------------------------------- ACTUAL ESTIMATED TRANSACTION PRO FORMA
($ in millions) 12/31/97 12/31/98 ADJUSTMENTS 12/31/98
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
- ------
Current Assets
Cash & Cash Equivalent
(incl. Long-term Marketable Securities) $127.3 $131.0 ($122.6) $8.4
Accounts Receivable 2.4 2.5 2.5
Inventory 3.0 3.1 3.1
Prepaid Expenses 1.8 1.9 1.9
Other Current Assets 0.0 0.0 0.0
-------- --------- --------
Total Current Assets 134.4 138.5 15.9
Gross Property, Plant & Equipment 287.0 313.1 313.1
Less Accumulated Depreciation 150.2 177.0 177.0
-------- --------- ---------
Net Property, Plant & Equipment 136.8 136.1 136.1
Goodwill 0.0 0.0 0.0 0.0
Deferred Financing Fees 0.0 0.0 12.2 12.2
Deferred Charges 1.6 1.6 1.6
Other Assets 5.8 5.8 5.8
TOTAL ASSETS $278.6 $282.1 $171.7
======== ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable $10.1 $10.7 $10.7
Accrued Liabilities 26.0 27.5 27.5
Dividends Payable 5.5 0.0 0.0
Other Current Liabilities 4.8 5.0 5.0
-------- --------- ---------
Total Current Liabilities 46.4 43.2 43.2
Long-Term Debt
Senior Bank Debt:
Senior Credit Facility 0.0 0.0 80.0 80.0
Senior Unsecured Notes 0.0 0.0 350.0 350.0
Other Long Term Debt 0.0 0.0 0.0
-------- --------- ---------
Total Long Term Debt 0.0 0.0 430.0
Deferred Taxes 11.8 11.8 11.8
Other Liabilities 0.0 0.0 0.0
Minority Interest 0.0 0.4 0.4
Stockholders' Equity
Common Equity 220.4 226.7 (540.4) (313.6)
-------- --------- ---------
Total Stockholders' Equity 220.4 226.7 (313.6)
TOTAL LIABILITIES AND EQUITY $278.6 $282.1 $171.7
======== ======== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROJECT WONTON
C-CORP. MODEL
PROJECTED CAPITALIZATION
- ------------------------
($ in millions) FISCAL YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
PROJECTED
---------------------------------------------------------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash & Cash Equivalents (incl. Marketable Securities) $8.4 $7.0 $7.0 $14.1 $63.7
========= ============ ========= ============= ============
Senior Bank Debt:
Senior Credit Facility 80.0 58.6 30.9 0.0 0.0
Senior Unsecured Notes 350.0 350.0 350.0 350.0 350.0
Other Long Term Debt 0.0 0.0 0.0 0.0 0.0
--------- ------------ --------- ---------------- ------------
TOTAL LONG TERM DEBT 430.0 408.6 380.9 350.0 350.0
STOCKHOLDERS' EQUITY
Common Equity (313.6) (300.4) (279.9) (250.6) (210.8)
--------- ------------ --------- ------------- ------------
TOTAL STOCKHOLDERS EQUITY (313.6) (300.4) (279.9) (250.6) (210.8)
--------- ------------ --------- ------------- ------------
TOTAL CAPITALIZATION $116.4 $108.2 $101.0 $99.4 $139.2
========= ============ ========= ============= ============
Cash & Cash Equivalents (incl. Marketable Securities) 7.2% 6.5% 6.9% 14.2% 45.8%
Long Term Debt:
Senior Bank Debt:
Senior Credit Facility 68.8% 54.1% 30.6% 0.0% 0.0%
Senior Unsecured Notes 300.8% 323.4% 346.4% 352.1% 251.4%
Other Long Term Debt 0.0% 0.0% 0.0% 0.0% 0.0%
--------- ------------ --------- ------------- ------------
TOTAL LONG TERM DEBT 369.5% 377.5% 377.0% 352.1% 251.4%
STOCKHOLDERS' EQUITY
Common Equity -269.5% -277.5% -277.0% -252.1% -151.4%
--------- ------------ --------- ------------- ------------
TOTAL STOCKHOLDERS' EQUITY -269.5% -277.5% -277.0% -252.1% -151.4%
--------- ------------ --------- ------------- ------------
TOTAL CAPITALIZATION 100.0% 100.0% 100.0% 100.0% 100.0%
========= ============ ========== ============= ============
</TABLE>
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
SBARRO INCOME STATEMENT ASSUMPTIONS
- -----------------------------------
ACTUAL FISCAL YEAR ENDED DECEMBER 31, FISCAL YEAR ENDED DECEMBER 31,
------------------------------------ ------------------------------------------------------
ACTUAL PROJECTED
---------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
------- ------- ------- ------- ------ ------ -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue Growth Rate -- 11.39% 7.49% 3.04% 5.74% 6.20% 10.92% 13.50% 14.13% 14.17%
Gross Profit Growth Rate -- 11.33% 7.13% 3.34% 7.05% 6.35% 10.72% 13.17% 13.74% 13.77%
EBITDA Growth Rate -- 14.09% -2.36% 11.49% 2.20% 4.94% 10.79% 13.27% 13.80% 13.89%
EBITA Growth Rate -- 13.09% -7.17% 18.70% 1.30% 2.05% 13.62% 15.76% 16.57% 17.42%
EBIT Growth Rate -- 13.09% -7.17% 18.70% na 2.05% 13.62% 15.76% 16.57% 17.42%
Gross Margin (1) 78.61% 78.59% 78.27% 78.50% 79.43% 79.72% 79.72% 79.72% 79.72% 79.72%
Payroll & Other Employee Benefits(1) 24.94% 24.54% 25.26% 24.51% 25.14% 25.40% 25.40% 25.40% 25.40% 25.40%
Rent Expense (1) 15.07% 15.24% 15.82% 15.52% 16.18% 16.30% 16.30% 16.30% 16.30% 16.30%
Occupancy and Other Expenses(1) 11.25% 11.20% 11.38% 11.27% 11.51% 11.60% 11.60% 11.60% 11.60% 11.60%
General & Administrative 4.98% 4.61% 5.19% 4.68% 5.15% 5.30% 5.30% 5.30% 5.30% 5.30%
------- ------- ------- ------- ------ ------ -------- -------- -------- --------
Other Income (incl. startup costs) 0.47% 0.46% 0.43% 0.36% 0.48% 0.82% 0.68% 0.54% 0.43% 0.33%
EBITDA MARGIN 24.24% 24.82% 22.55% 24.40% 23.58% 23.30% 23.27% 23.23% 23.16% 23.10%
Depreciation & Amortization 7.05% 7.37% 7.48% 7.03% 6.95% 7.32% 6.90% 6.53% 6.10% 5.56%
------- ------- ------- ------- ------ ------ -------- -------- -------- --------
EBITA 17.19% 17.45% 15.07% 17.36% 16.64% 15.99% 16.37% 16.70% 17.06% 17.54%
Amortization of Goodwill 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
------- ------- ------- ------- ------ ------ -------- -------- -------- --------
EBIT MARGIN 17.19% 17.45% 15.07% 17.36% 16.64% 15.99% 16.37% 16.70% 17.06% 17.54%
WORKING CAPITAL ASSUMPTIONS
- ---------------------------
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------------------------------
ACTUAL ACTUAL PROJECTED(2)
------------------ -------------------------------------------
1995 1996 1997(2) 1998 1999 2000 2001 2002
--------- -------- ------- ------- ------ ------ ----- ------
Days Receivable of Sales 3.0 2.1 2.5 2.5 2.5 2.5 2.5 2.5
Days Inventory of Cost of Goods Sold 15.0 15.1 15.6 15.6 15.6 15.6 15.6 15.6
Days Prepaid Expenses of Sales 2.0 1.6 1.9 1.9 1.9 1.9 1.9 1.9
Other Current Assets as a % of Sales 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Days Payable of Cost of Goods Sold 40.1 38.1 53.2 53.2 53.2 53.2 53.2 53.2
Days Accrued Liabilities of Cost of Goods Sold 146.3 120.5 137.2 137.2 137.2 137.2 137.2 137.2
Days Other Current Liabilities of Cost of Goods Sold 46.5 53.0 25.2 25.2 25.2 25.2 25.2 25.2
</TABLE>
Footnotes
- ---------------
(1) As a percentage of Company-owned restaurant revenue.
(2) Years 1998-2002 assume same working capital ratios as pro forma year end
1997.
<PAGE>
PROJECT WONTON
C-CORP. MODEL
SBARRO REVENUE DERIVATION
($ in millions)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
---------------------------------------------------
ACTUAL FISCAL YEAR ENDED DECEMBER 31, PROJECTED
------------------------------------- ACTUAL -------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
NUMBER OF COMPANY-OWNED RESTAURANTS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning Balance 456 515 567 571 597 623 651 691 736 781
Restaurants Opened 59 53 44 29 30 35 40 45 45 45
Acquired (Sold) Franchisees 7 12 0 1 4 1 0 0 0 0
Restaurants Closed 7 3 40 4 8 8 0 0 0 0
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ending Balance 515 567 571 597 623 651 691 736 781 826
NUMBER OF FRANCHISED RESTAURANTS
Beginning Balance 131 134 162 200 219 239 274 324 384 444
Restaurants Opened 24 38 40 36 47 40 50 60 60 60
Purchased (Sold) Company (7) (2) 0 (1) (4) (1) 0 0 0 0
Restaurants Closed 14 8 2 16 23 4 0 0 0 0
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ending Balance 134 162 200 219 239 274 324 384 444 504
TOTAL NUMBER OF RESTAURANTS
Beginning Balance 587 649 729 771 816 862 925 1,015 1,120 1,225
Restaurants Opened 83 91 84 65 77 75 90 105 105 105
Restaurants Closed 21 11 42 20 31 12 0 0 0 0
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ending Balance 649 729 771 816 862 925 1,015 1,120 1,225 1,330
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
SAME STORE SALES GROWTH - -0.04% 2.12% 0.31% 0.93% 0.50% 1.50% 1.50% 1.50% 1.50%
AVERAGE SALES PER RESTAURANT $0.534 $0.534 $0.545 $0.547 $0.552 $0.555 $0.563 $0.571 $0.580 $0.589
TOTAL SYSTEMWIDE SALES
Company-Owned $259.2 $288.8 $310.2 $319.3 $336.6 $353.3 $377.7 $407.7 $439.9 $473.0
Franchised 70.8 79.0 98.7 118.3 123.1 142.3 168.3 202.3 240.1 279.0
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Systemwide Sales $330.0 $367.8 $408.8 $437.6 $459.7 $495.5 $546.0 $609.9 $680.0 $752.0
TOTAL REVENUE FROM FRANCHISEES
FRANCHISE ROYALTY FEE (NEW STORES) 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
FRANCHISE ROYALTY FEE (EXISTING) 5.5% 4.9% 4.9% 4.5% 5.7% 4.8% 4.8% 4.8% 4.8% 4.8%
INITIAL FRANCHISE FEE PER STORE $0.035 $0.035 $0.035 $0.033 $0.032 $0.020 $0.020 $0.020 $0.020 $0.020
Total Initial Franchise Fee $0.8 $1.3 $1.4 $1.2 $1.5 $0.8 $1.0 $1.2 $1.2 $1.2
Total Franchise Royalty Fee 3.9 3.9 4.9 5.2 6.2 6.3 7.3 8.6 10.2 11.7
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Revenue From Franchisees $4.8 $5.2 $5.9 $6.4 $7.8 $7.1 $8.3 $9.8 $11.4 $12.9
TOTAL REVENUE
Company-Owned $259.2 $288.8 $310.2 $319.3 $336.6 $353.3 $377.7 $407.7 $439.9 $473.0
Franchised 4.8 5.2 5.9 6.4 7.8 7.1 8.3 9.8 11.4 12.9
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Revenue $264.0 $294.0 $316.1 $325.7 $344.4 $360.4 $386.0 $417.5 $451.2 $485.9
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL CAPITAL EXPENDITURES
CapEx per New Restaurant $0.54 $0.60 $0.40 $0.40 $0.41 $0.41 $0.41 $0.41 $0.41 $0.41
Restaurant CapExp $31.9 $32.1 $17.5 $11.5 $12.3 $14.4 $16.5 $18.5 $18.5 $18.5
Other Capital Expenditures $0.0 $0.0 $0.0 $7.0 $6.2 $4.0 $0.0 $0.0 $0.0 $0.0
</TABLE>
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
SBARRO INCOME STATEMENT
- -----------------------
($ in millions)
FISCAL YEAR ENDED DECEMBER 31
--------------------------------------------------------
PROJECTED
--------------------------------------------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
REVENUES $360.4 $386.0 $417.5 $451.2 $485.9
COST OF GOODS SOLD 71.6 76.6 82.7 89.2 95.9
----- ------ ------ ------ ------
GROSS PROFIT 288.7 309.4 334.8 362.0 390.0
GROSS PROFIT MARGIN 80.1% 80.2% 80.2% 80.2% 80.3%
PAYROLL & OTHER EMPLOYEE BENEFITS 89.7 95.9 103.5 111.7 120.1
RENT EXPENSE 57.6 61.6 66.4 71.7 77.1
OTHER OPERATING EXPENSES 41.0 43.8 47.3 51.0 54.9
GENERAL & ADMINISTRATIVE 19.1 20.5 22.1 23.9 25.8
----- ------ ------ ------ ------
OTHER INCOME 3.5 3.5 3.5 3.5 3.5
EBITDA 84.8 91.1 98.9 107.2 115.6
EBITDA MARGIN 23.5% 23.6% 23.7% 23.7% 23.8%
DEPRECIATION 26.6 27.4 28.8 29.9 30.1
----- ------ ------ ------ ------
EBITA 58.2 63.7 70.2 77.3 85.6
EBITA MARGIN 16.2% 16.5% 16.8% 17.1% 17.6%
</TABLE>
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
UMBERTO INCOME STATEMENT
- ------------------------
($ IN MILLIONS) FISCAL YEAR ENDED DECEMBER 31,
------------------------------------------------------
PROJECT
------------------------------------------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
REVENUES $5.4 $19.7 $42.9 $74.3 $114.1
COST OF GOODS SOLD 1.5 5.1 11.2 19.3 29.7
---------- ------- ------- ------- ------
GROSS PROFIT 3.9 14.5 31.8 55.0 84.4
GROSS PROFIT MARGIN 72.4% 74.0% 74.0% 74.0% 74.0%
PAYROLL & OTHER EMPLOYEE BENEFITS 1.8 6.6 14.5 25.3 39.0
RENT EXPENSE 0.3 1.1 2.1 3.4 5.1
OTHER OPERATING EXPENSES 0.5 1.8 3.9 6.5 9.8
GENERAL & ADMINISTRATIVE 0.3 1.0 2.3 3.9 6.0
---------- ------- -------- ------- ------
OTHER INCOME (INCL. STARTUP COSTS) (0.5) (0.8) (1.0) (1.3) (1.5)
EBITDA 0.4 3.3 8.0 14.5 23.0
EBITDA MARGIN 7.5% 16.7% 18.7% 19.6% 20.1%
DEPRECIATION 0.1 0.6 1.3 2.2 3.3
---------- ------- --------- ------- ------
EBITA 0.3 2.7 6.7 12.3 19.7
EBITA MARGIN 4.8% 13.8% 15.7% 16.6% 17.2%
INCOME TAXES @ 38% 0.1 1.0 2.6 4.7 7.5
NET INCOME
NET INCOME MARGIN 0.2 1.7 4.2 7.7 12.2
2.9% 8.5% 9.7% 10.3% 10.7%
</TABLE>
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
CONSOLIDATED INCOME STATEMENT
- -----------------------------
($ in millions)
FISCAL YEAR ENDED DECEMBER 31,
---------------------------------
ACTUAL FISCAL YEAR ENDED DECEMBER 31, FULL YEAR PRO FORMA PROJECTED
------------------------------------- ------------------- ---------------------------------
1993 1994 1995 1996 1997A 1998E 1999 2000 2001 2002
---- ---- ---- ---- ----- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $264.0 $294.0 $316.1 $325.7 $344.4 $365.7 $405.7 $460.4 $525.5 $600.0
Cost of Goods Sold 55.4 61.9 67.4 68.7 69.2 73.1 81.7 93.8 108.5 125.6
------ ------ ------ ------ ------ ------ ------ ------ ------- ------
GROSS PROFIT 208.5 232.2 248.7 257.0 275.1 292.6 324.0 366.6 417.0 474.4
PAYROLL & OTHER EMPLOYEE BENEFITS 64.7 70.8 78.3 78.3 84.6 91.5 102.5 118.1 137.0 159.2
RENT EXPENSE 39.1 44.0 49.1 49.6 54.5 57.9 62.6 68.5 75.1 82.2
OTHER OPERATING EXPENSES 29.2 32.4 35.3 36.0 38.7 41.5 45.7 51.1 57.5 64.6
GENERAL & ADMINISTRATIVE 12.9 13.3 16.1 14.9 17.7 19.4 21.5 24.4 27.9 31.8
------ ------ ------ ------ ------ ------ ------ ------ ------- ------
OTHER INCOME (INCL. STARTUP COSTS) 1.2 1.4 1.4 1.2 1.7 3.0 2.8 2.5 2.3 2.0
EBITDA 64.0 73.0 71.3 79.5 81.2 85.2 94.4 106.9 121.7 138.6
DEPRECIATION 18.6 21.7 23.6 22.9 23.9 26.8 28.0 30.1 32.1 33.4
------ ------ ------ ------ ------ ------ ------ ------ ------- ------
EBITA 45.4 51.3 47.6 56.6 57.3 58.5 66.4 76.9 89.6 105.2
AMORTIZATION OF GOODWILL 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------ ------ ------ ------ ------ ------ ------ ------ ------- ------
EBIT 45.4 51.3 47.6 56.6 57.3 58.5 66.4 76.9 89.6 105.2
INTEREST INCOME (5.50%) 0.0 0.0 0.0 0.0 0.2 1.8
INTEREST EXPENSE:
SENIOR CREDIT FACILITY 6.6 6.6 5.7 3.7 1.3 0.0
SENIOR UNSECURED NOTES 37.6 37.6 37.6 37.6 37.6 37.6
OTHER LONG TERM DEBT 0.0 0.0 0.0 0.0 0.0 0.0
AMORTIZATION OF DEFERRED DEBT EXP. 1.2 1.2 1.2 1.2 1.2 1.2
------ ------ ------ ------ ------- ------
TOTAL INTEREST EXPENSE 45.4 45.4 44.5 42.5 40.1 38.8
------ ------ ------ ------ ------- ------
PRETAX INCOME 11.9 13.1 21.9 34.4 49.7 68.2
INCOME TAXES @ 38% 4.5 5.0 8.3 13.1 18.9 25.9
MINORITY INTEREST @20% 0.0 0.0 0.3 0.8 1.5 2.4
NET INCOME TO COMMON $7.4 $8.1 $13.3 $20.5 $29.3 39.8
======= ====== ======= ====== ====== ======
FULLY DILUTED EARNINGS PER SHARE $0.35 $1.42 $2.34 $3.61 $5.17 $7.02
======= ====== ======= ====== ====== ======
POSSIBLE FUTURE STOCK PRICE @ 13.7X (1) $19.51 $32.08 $49.51 $70.82 $96.27
====== ======= ====== ====== ======
PRESENT VALUE OF POSSIBLE FUTURE STOCK PRICE @ 18% $18.08 $25.20 $32.96 $39.96 $46.03
====== ======= ====== ====== ======
</TABLE>
FOOTNOTES
- -------------------
(1) BASED ON 1998 FIRST CALL ESTIMATE OF $1.97 AND STOCK PRICE OF $27.00
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
CONSOLIDATED CASH FLOW STATEMENT
- --------------------------------
($ in millions)
PROJECTED FISCAL YEAR ENDED DECEMBER 31,
-----------------------------------------------------
CASH FLOW FROM OPERATIONS 1999 2000 2001 2002
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income to Common $13.3 $20.5 $29.3 $39.8
Depreciation 28.0 30.1 32.1 33.4
Amortization of Goodwill and Deferred Financing Fees 1.2 1.2 1.2 1.2
Deferred Income Taxes 0.0 0.0 0.0 0.0
Minority Interest 0.3 0.8 1.5 2.4
Change in Net Working Capital 4.2 6.0 7.3 8.5
------- ------- ------- -------
TOTAL CASH FLOW FROM OPERATIONS $47.0 $58.6 $71.4 $85.3
CASH FLOW FROM INVESTING ACTIVITIES
Capital Expenditures (New Sharro Stores) ($16.5) ($18.5) ($18.5) ($18.5)
Capital Expenditures (Maintenance of Existing Sbarro Stores) (5.2) (5.2) (5.8) (6.4)
Capital Expenditures (Umberto) (6.8) (9.0) (11.3) (13.5)
Contribution to Capital by Minority Interest 1.4 1.8 2.3 2.7
Cost to Complete Building 0.0 0.0 0.0 0.0
------- ------- ------- -------
TOTAL CASH FLOW FROM INVESTING ACTIVITIES ($27.1) ($30.9) ($33.3) ($35.7)
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings/ (Repayment) of Other Long Term Debt 0.0 0.0 0.0 0.0
------- ------- ------- -------
TOTAL CASH FLOW FROM FINANCING ACTIVITIES $0.0 $0.0 $0.0 $0.0
------- ------- ------- -------
INCREASE IN CASH BEFORE SWEEP $20.0 $27.7 $38.1 $49.6
======= ======= ======= =======
Borrowings/ (Repayment) of Senior Bank Debt:
Revolving Credit Facility (21.4) (27.7) (30.9) 0.0
Borrowings/ (Repayment) of Senior Unsecured Notes 0.0 0.0 0.0 0.0
NET INCREASE IN CASH (INCLUDES MARKETABLE SECURUTIES) ($1.4) $0.0 $7.1 $49.6
Beginning Balance of Cash 8.4 7.0 7.0 14.1
------- ------- ------- -------
Ending Balance of Cash $7.0 $7.0 $14.1 $63.7
======= ======= ======= =======
Minimum Cash Balance 7.0 7.0 7.0 7.0
</TABLE>
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET FISCAL YEAR ENDED DECEMBER 31,
--------------------------------------------------
($ in millions) PROJECTED
ACTUAL ESTIMATED --------------------------------------------------
1997 1998 1999 2000 2001 2002
--------- ----------- -------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash & Cash Equivalents
(incl. Marketable Securities) $127.3 $8.4 $7.0 $7.0 $14.1 $63.7
Accounts Receivable 2.4 2.5 2.8 3.2 3.6 4.1
Inventory 3.0 3.1 3.5 4.0 4.6 5.4
Prepaid Expenses 1.8 1.9 2.1 2.4 2.7 3.1
Other Current Assets 0.0 0.0 0.0 0.0 0.0 0.0
-------- ----------- ------- -------- -------- ----------
Total Current Assets 134.4 15.9 15.4 16.6 25.1 76.3
GROSS PROPERTY, PLANT & EQUIPMENT 287.0 313.1 341.5 374.2 409.8 448.2
Less Accumulated Depreciation 150.2 177.0 205.0 235.0 267.1 300.5
-------- ----------- ------- -------- -------- ----------
NET PROPERTY, PLANT & EQUIPMENT 136.8 136.1 136.5 139.2 142.7 147.7
GOODWILL 0.0 0.0 0.0 0.0 0.0 0.0
DEFERRED FINANCING FEES 0.0 12.2 11.0 9.8 8.6 7.3
DEFERRED CHARGES 1.6 1.6 1.6 1.6 1.6 1.6
OTHER ASSETS 5.8 5.8 5.8 5.8 5.8 5.8
-------- ----------- ------- -------- -------- ----------
TOTAL ASSETS $278.6 $171.7 $170.4 $173.0 $183.8 $238.8
======== =========== ======= ======== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts Payable $10.1 $10.7 $11.9 $13.7 $15.8 $18.3
Accrued Liabilities 26.0 27.5 30.7 35.3 40.8 47.2
Dividends Payable 5.5 0.0 0.0 0.0 0.0 0.0
Other Current Liabilities 4.8 5.0 5.6 6.5 7.5 8.7
-------- ----------- ------- -------- -------- ----------
Total Current Liabilities 46.4 43.2 48.3 55.4 64.1 74.2
LONG-TERM DEBT
Senior Bank Debt:
Senior Credit Facility 0.0 80.0 58.6 30.9 0.0 0.0
Senior Unsecured Notes 0.0 350.0 350.0 350.0 350.0 350.0
Other Long Term Debt 0.0 0.0 0.0 0.0 0.0 0.0
-------- ----------- ------- -------- -------- ----------
Total Long Term Debt 0.0 430.0 408.6 380.9 350.0 350.0
DEFERRED TAXES 11.8 11.8 11.8 11.8 11.8 11.8
OTHER LIABILITIES 0.0 0.0 0.0 0.0 0.0 0.0
MINORITY INTEREST 0.0 0.4 2.1 4.7 8.5 13.6
STOCKHOLDERS' EQUITY
Common Equity 220.4 (313.6) (300.4) (279.9) (250.6) (210.8)
-------- ----------- ------- -------- -------- ----------
Total Stockholders' Equity 220.4 (313.6) (300.4) (279.9) (250.6) (210.8)
TOTAL LIABILITIES AND EQUITY $278.6 $171.7 $170.4 $173.0 $183.8 $238.8
======== =========== ======= ======== ======== ==========
</TABLE>
<PAGE>
PROJECT WONTON
C-CORP. MODEL
EQUITY INTERNAL RATE OF RETURN
- ------------------------------
<TABLE>
<CAPTION>
2 YEAR EXIT CASE
<S> <C> <C> <C> <C> <C> <C>
2000 EBITDA $ 106.9
EBITDA Exit Multiple 6.0x 6.5x 7.0x 7.5x 8.0x
TEV 641.7 695.1 748.6 802.1 855.6
Plus: Cash 7.0 7.0 7.0 7.0 7.0
Less: Debt 380.9 380.9 380.9 380.9 380.9
Less: Minority Interest 4.7 4.7 4.7 4.7 4.7
------------- ------------- ------------- ------------- -------------
Total Equity 263.0 316.5 370.0 423.4 476.9
63% of Equity 165.7 199.4 233.1 266.8 300.5
12/31/98 12/31/99 12/31/00 IRR
----
6.0x (125.0) 0.0 165.7 15.1%
6.5x (125.0) 0.0 199.4 26.3%
7.0x (125.0) 0.0 233.1 36.6%
7.5x (125.0) 0.0 266.8 46.1%
8.0x (125.0) 0.0 300.5 55.0%
- ------------------------------------------ ------------- ------------- --------------- ---------------- ---------------------------
3 YEAR EXIT CASE
2001 EBITDA $ 121.7
EBITDA Exit Multiple 6.0x 6.5x 7.0x 7.5x 8.0x
TEV 730.2 791.1 851.9 912.8 973.6
Plus: Cash 14.1 14.1 14.1 14.1 14.1
Less: Debt 350.0 350.0 350.0 350.0 350.0
Less: Minority Interest 8.5 8.5 8.5 8.5 8.5
------------- ------------- -------------- -------------- -------------
Total Equity 385.8 446.7 507.6 568.4 629.3
63% of Equity 243.1 281.4 319.8 358.1 396.5
12/31/98 12/31/99 12/31/00 12/31/01 IRR
----
6.0x (125.0) 0.0 0.0 243.1 24.8%
6.5x (125.0) 0.0 0.0 281.4 31.1%
7.0x (125.0) 0.0 0.0 319.8 36.8%
7.5x (125.0) 0.0 0.0 358.1 42.0%
8.0x (125.0) 0.0 0.0 396.5 46.9%
- ------------------------------------------ ------------- ------------- --------------- -------------- -----------------------------
4 YEAR EXIT CASE
2002 EBITDA $ 138.6
EBITDA Exit Multiple 6.0x 6.5x 7.0x 7.5x 8.0x
TEV 831.7 901.0 970.3 1039.6 1108.9
Plus: Cash 63.7 63.7 63.7 63.7 63.7
Less: Debt 350.0 350.0 350.0 350.0 350.0
Less: Minority Interest 13.6 13.6 13.6 13.6 13.6
----------- ----------- ------------- ------------ ------------
Total Equity 531.8 601.1 670.4 739.7 809.0
63% of Equity 335.0 378.7 422.4 466.0 509.7
12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 IRR
----
6.0x (125.0) 0.0 0.0 0.0 335.0 28.0%
6.5x (125.0) 0.0 0.0 0.0 378.7 31.9%
7.0x (125.0) 0.0 0.0 0.0 422.4 35.6%
7.5x (125.0) 0.0 0.0 0.0 466.0 39.0%
8.0x (125.0) 0.0 0.0 0.0 509.7 42.1%
- ----------------------------------------- ------------- ------------ -------------- -------------- ----------------------------
</TABLE>
<PAGE>
PROJECT WONTON
C-CORP. MODEL
EQUITY OWNERSHIP
- -----------------
OWNERSHIP SUMMARY
- -----------------
<TABLE>
<CAPTION>
PURCHASE (REPURCHASE) AFTER PURCHASE OF OWNERSHIP
PRE-TRANSACTION OF COMMON SHARES COMMON EQUITY REDUCTION
----------------------- -------------------------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
INSIDERS:
Mario 1,532,130 6.9% (1,371,504) -6.2% 160,626 89.5%
Joseph 1,807,914 8.1% (1,618,375) -7.3% 189,539 89.5%
Anthony 1,233,800 5.5% (1,104,450) -5.0% 129,350 89.5%
---------- --------- ------- -------- -------
Control Group (Mario, Joseph, and Anthony) 4,573,844 20.5% (4,094,329) -18.4% 479,515 89.5%
Trust of Carmela 2,497,884 11.2% (2,236,010) -10.0% 261,874 89.5%
Options Outstanding (Control Group) 1,185,000 5.3% (1,185,000) -5.3% - 100.0%
Options Outstanding 659,589 3.0% (659,589) -3.0% - 100.0%
FINANCIAL SPONSOR - 3,571,429 16.0% 3,571,429 -
PUBLIC SHAREHOLDERS 13,374,926 60.0% (12,019,270) -53.9% 1,355,656 89.9%
----------- -------- ------------ ------ --------- -------
Shares outstanding 22,291,243 100.0% (16,622,770) -74.6% 5,668,473 74.6%
</TABLE>
<PAGE>
PROJECT WONTON
APPENDIX I
ILLUSTRATIVE LEVERAGED BUYOUT MODEL
BEAR STEARNS
<PAGE>
PROJECT WONTON
C-CORP. MODEL
$756 MILLION LEVERAGED BUYOUT TRANSACTION
ASSUMPTIONS Purchase of approx. $756 million in equity (20,447 milllion shares
plus options); Purchasing Accounting
Tender Price of $36.00 per share.
<TABLE>
<CAPTION>
SOURCES AND USES OF FUNDS PRO FORMA CAPITALIZATION
($ IN MILLIONS) ($ IN MILLIONS)
PRO FORMA(2)
ESTIMATED % OF TOTAL INTEREST
12/31/98 CAPITALIZATION RATE
------------ -------------- --------
SOURCES OF FUNDS
- ------------------------------------
<S> <C> <C> <C> <C> <C>
Excess Cash on Balance Sheet(1) $125.7 Cash & Cash Equivalents
(incl. Marketable Securities) $5.3 -- 5.50%(3)
Senior Bank Debt: Senior Bank Debt:
Bank Credit Facility 75.0 Bank Credit Facility 75.0 11.5% 8.19%
Senior Notes 350.0
Senior Discount Notes 85.0 Senior Notes 350.0 53.8% 10.75%
--------
Total New Long Term Debt 510.0
Senior Discount Notes 85.0 13.1% 13.00%
New Common Equity 140.0
-------- ---------
TOTAL LONG-TERM DEBT 510.0 78.5%
TOTAL SOURCES OF FUNDS $775.7
========
Common Equity 140.0 21.5%
-------- ---------
TOTAL SHAREHOLDER'S EQUITY 140.0 21.5%
-------- ---------
TOTAL CAPITALIZATION $650.0 100.0%
======== =========
USES OF FUNDS GOODWILL $ 534.3
- ------------------------------------ ---------------------------------------------------------------------------------
ACQUISITION PRICE - $36.00 PER SHARE
Number of Shares Outstanding 20.447 ($ IN MILLIONS)
Number of Shares to be Repurchased 20.447 100.0%
Purchase Price per Share $36.00 Implied Equity Value: $756.3
--------
Implied Enterprise Value: (4) $625.3
Purchase Price of Equity $736.1
Purchase Price of Options 20.2 Goodwill: $534.3
Repayment of Existing Debt 0.0 Period (Years): 30
--------
Total Purchase Price $756.3 ---------- ------------ -----------
FYE FYE FYE
1997A 1998P 199P
----------- ------------ -----------
Financing Costs $14.7 Multiple of:
Non-financing Costs 4.8 Revenues 1.82x 1.71x 1.54x
--------
TOTAL USES OF FUNDS $775.7 EBITDA 7.70x 7.34x 6.62x
========
EBITA 10.91x 10.70x 9.42x
====================================================================================================================================
</TABLE>
FOOTNOTES
- -----------------------
(1) Includes $7.5 million of marketable securities.
(2) Reflects leveraged buyout. Assumes transaction closes on 12/31/98.
(3) Interest is earned on cash balance above $7 million.
(4) Reflects estimated 12/31/98 balance sheet.
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
OPERATING COMPANY COVERAGE RATIOS
FISCAL YEAR ENDED DECEMBER 31,
ACTUAL ------------------------------------------------
PF 1997 1998 1999 2000 2001 2002
-------- ----- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
EBITDA/TOTAL INTEREST EXPENSE 1.43x 1.50x 1.69x 1.95x 2.23x 2.49x
EBITDAR/TOTAL INTEREST EXPENSE PLUS RENT EXPENSE 1.22x 1.25x 1.33x 1.42x 1.52x 1.60x
EBITDAR-CAPEX/TOTAL INTEREST EXPENSE PLUS RENT EXPENSE 0.96 1.02 1.09 1.16 1.24 1.32
EBITDA-CAPEX/TOTAL INTEREST EXPENSE 0.93x 1.04x 1.18x 1.35x 1.58x 1.80x
EBITDA-CAPEX/TOTAL INTEREST EXP.+REQ. AMORT. OF DEBT 0.93x 1.04x 1.18x 1.35x 1.58x 1.80x
EBITDAR-CAPEX/TOTAL INTEREST EXP.+REQ. AMORT. OF DEBT +RENT 0.96 1.02 1.09 1.16 1.24 1.32
TOTAL DEBT +CAPITALIZED LEASES (1)/ EBITDAR 6.57x 6.40x 5.97x 5.46x 5.08x 4.83x
TOTAL DEBT/EBITDA 6.28x 5.98x 5.28x 4.47x 3.90x 3.54x
NET DEBT/EBITDA 6.22x 5.92x 5.21x 4.41x 3.63x 2.90x
BANK DEBT/EBITDA 0.92x 0.88x 0.55x 0.18x 0.00x 0.00x
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS
($ in millions) FISCAL YEAR ENDED DECEMBER 31,
-----------------------------------------------
ACTUAL ACTUAL
PF 1996 PF 1997 1998 1999 2000 2001 2002
-------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES $325.7 $344.4 $365.7 $405.7 $460.4 $525.5 $600.0
EBITDA 79.5 81.2 85.2 94.4 106.9 121.7 138.6
RENT EXPENSE 49.6 54.5 57.9 62.6 68.5 75.1 82.2
BANK INTEREST EXPENSE 6.1 6.1 6.1 5.2 2.9 0.8 0.0
TOTAL INTEREST EXPENSE 56.6 56.6 56.6 55.7 54.9 54.5 55.7
INTEREST INCOME 0.0 0.0 3.3 0.0 0.0 0.7 3.0
CAPITAL EXPENDITURES 25.9 28.6 26.1 28.4 32.7 35.6 38.4
CAPITALIZED LEASES (1) 346.9 381.3 405.5 438.4 479.8 526.0 575.2
TOTAL DEBT 510.0 510.0 510.0 498.5 478.3 474.0 490.7
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF HYPOTHETICAL EQUITY RETURNS EXIT YEAR
----------------------------------
Assumed Exit Multiple of Trailing EBITDA 2000 2001 2002
---- ---- ----
<S> <C> <C> <C>
6.0x 6.0% 23.8% 29.6%
6.5x 21.9% 32.2% 34.7%
7.0x 35.9% 39.7% 39.3%
7.5x 48.7% 46.4% 43.5%
8.0x 60.4% 52.6% 47.3%
- ----------------------------------------------------------------------------------------------
</TABLE>
Footnotes
- -----------------
(1) Leases capitalized at 7.0x Rent Expense for the relevant period.
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
PRO FORMA BALANCE SHEET ADJUSTMENTS
- -----------------------------------
($ in millions)
ACTUAL ESTIMATED TRANSACTION PRO FORMA
12/31/97 12/31/98 ADJUSTMENTS 12/31/98
-------- --------- ----------- ---------
ASSETS
- ------
<S> <C> <C> <C> <C>
CURRENT ASSETS $127.3 $131.0 ($125.7) $5.3
Cash & Cash Equivalents
(incl. Long-term Marketable Securities)
Accounts Receivable 2.4 2.5 2.5
Inventory 3.0 3.1 3.1
Prepaid Expenses 1.8 1.9 1.9
Other Current Assets 0.0 0.0 0.0
-------- ------- --------
TOTAL CURRENT ASSETS 134.4 138.5 12.8
Gross Property, Plant & Equipment 287.0 313.1 313.1
Less Accumulated Depreciation 150.2 177.0 177.0
-------- ------- --------
NET PROPERTY, PLANT & EQUIPMENT 136.8 136.1 136.1
Goodwill 0.0 0.0 534.3 534.3
Deferred Financing Fees 0.0 0.0 14.7 14.7
Deferred Charges 1.6 1.6 1.6
Other Assets 5.8 5.8 5.8
TOTAL ASSETS $278.6 $282.1 $705.4
======== ======= ========
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------
Current Liabilities
Accounts Payable $10.1 $10.7 $10.7
Accrued Liabilities 26.0 27.5 27.5
Dividends Payable 5.5 0.0 0.0
Other Current Liabilities 4.8 5.0 5.0
-------- ------- --------
TOTAL CURRENT LIABILITIES 46.4 43.2 43.2
LONG-TERM DEBT
Senior Bank Debt:
Bank Credit Facility 0.0 0.0 7.5 7.5
Senior Notes 0.0 0.0 350.0 350.0
Senior Discount Notes 0.0 0.0 85.0 85.0
-------- ------- --------
TOTAL LONG TERM DEBT 0.0 0.0 510.0
Deferred Taxes 11.8 11.8 11.8
Other Liabilities 0.0 0.0 0.0
Minority Interest 0.0 0.4 0.4
Stockholders' Equity
Common Equity 220.4 226.7 (86.7) 140.0
-------- ------- --------
Total Stockholders' Equity 220.4 226.7 140.0
TOTAL LIABILITIES AND EQUITY $278.6 $282.1 $705.4
======== ======= ========
</TABLE>
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
PROJECTED CAPITALIZATION
($ in millions)
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------------------------------
PROJECTED
-------------------------------------------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash & Cash Equivalents (incl. Marketable Securities) $5.3 $7.0 $7.0 $32.4 $89.1
====== ======= ======== ======= ======
Senior Bank Debt:
Bank Credit Facility 75.0 52.1 18.9 0.0 0.0
Senior Notes 350.0 350.0 350.0 350.0 350.0
Senior Discount Notes 85.0 96.4 109.3 124.0 140.7
----- ------ ----- ----- ------
Total Long Term Debt 510.0 498.5 478.3 474.0 490.7
Stockholders' Equity
Common Equity 140.0 128.5 123.4 126.2 138.5
----- ----- ----- ----- -----
Total Stockholders' Equity 140.0 128.5 123.4 126.2 138.5
----- ----- ----- ----- -----
TOTAL CAPITALIZATION $650.0 $627.0 $601.7 $600.3 $629.2
====== ======= ======== ======= ======
Cash & Cash Equivalents(incl. Marketable Securities) 0.8% 1.1% 1.2% 5.4% 14.2%
Long Term Debt:
Senior Bank Debt: 11.5% 8.3% 3.1% 0.0% 0.0%
Bank Credit Facility
Senior Notes 5.38% 55.8% 58.2% 58.3% 55.6%
Senior Discount Notes 13.1% 15.4% 18.2% 20.7% 22.4%
----- ----- ----- ----- -----
Total Long Term Debt 78.5% 79.5% 79.5% 79.0% 78.0%
Stockholders' Equity
Common Equity 21.5% 20.5% 20.5% 21.0% 22.0%
----- ----- ----- ----- -----
Total Stockholders' Equity 21.5% 20.5% 20.5% 21.0% 22.0%
----- ----- ----- ----- -----
TOTAL CAPITALIZATION 100.0% 100.0% 100.0% 100.0% 100.0%
====== ======= ======== ======= =======
</TABLE>
<PAGE>
PROJECT WONTON
C-CORP. MODEL
SBARRO INCOME STATEMENT ASSUMPTIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
----------------------------------------------------
ACTUAL FISCAL YEAR ENDED DECEMBER 31, PROJECTED
--------------------------------------- ACTUAL -------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
--------- -------- -------- ------ ------- ----- ----- ----- ---- -----
<S> <C>' <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue Growth Rate -- 11.39% 7.49% 3.04% 5.74% 6.20% 10.92% 13.50% 14.13% 14.17%
Gross Profit Growth Rate -- 11.33% 7.13% 3.34% 7.05% 6.35% 10.72% 13.17% 13.74% 13.77%
EBITDA Growth Rate -- 14.09% -2.36% 11.49% 2.20% 4.94% 10.74% 13.27% 13.81% 13.90%
EBITA Growth Rate -- 13.09% -7.17% 18.70% 1.30% 2.05% 13.55% 15.77% 16.58% 17.43%
EBIT Growth Rate -- 13.09% -7.17% 18.70% na 2.97% 19.49% 21.55% 21.58% 21.75%
Gross Margin(1) 78.61% 78.59% 78.27% 78.50% 79.43% 79.72% 79.72% 79.72% 79.72% 79.72%
Payroll & Other Employee Benefit(1) 24.94% 24.54% 25.26% 24.51% 25.14% 25.40% 25.40% 25.40% 25.40% 25.40%
Rent Expense(1) 15.07% 15.24% 15.82% 15.52% 16.18% 16.30% 16.30% 16.30% 16.30% 16.30%
Occupancy and Other Expenses(1) 11.25% 11.20% 11.38% 11.27% 11.51% 11.60% 11.60% 11.60% 11.60% 11.60%
General & Administrative 4.98% 4.61% 5.19% 4.68% 5.15% 5.30% 5.30% 5.30% 5.30% 5.30%
--------- -------- -------- ------- ------- ------ -------- ------- ------- --------
Other Income (incl. startup costs) 0.47% 0.46% 0.43% 0.36% 0.48% 0.82% 0.68% 0.54% 0.43% 0.33%
EBITDA Margin 24.24% 24.82% 22.55% 24.40% 23.58% 23.30% 23.26% 23.22% 23.15% 23.10%
Depreciation & Amortization 7.05% 7.37% 7.48% 7.03% 6.95% 7.32% 6.90% 6.53% 6.10% 5.56%
--------- -------- -------- ------- ------- ------ -------- ------- ------- --------
EBITA 17.19% 17.45% 15.07% 17.36% 16.64% 15.99% 16.36% 16.69% 17.05% 17.53%
Amortization of Goodwill 0.00% 0.00% 0.00% 0.00% 5.17% 4.87% 4.39% 3.87% 3.39% 2.97%
--------- -------- -------- ------- ------- ------ -------- ------- ------- --------
EBIT Margin 17.19% 17.45% 15.07% 17.36% 11.46% 11.11% 11.97% 12.82% 13.66% 14.57%
WORKING CAPITAL ASSUMPTIONS
FISCAL YEAR ENDED DECEMBER 31,
-----------------------------------------------------
ACTUAL PROJECTED(2)
---------------- ACTUAL --------------------------------------------
1995 1996 1997(2) 1998 1999 2000 2001 2002
----- ------ ------- ------ ------ ------- ------- --------
Days Receivable of Sales 3.0 2.1 2.5 2.5 2.5 2.5 2.5 2.5
Days Inventory of Cost of Goods Sold 15.0 15.1 15.6 15.6 15.6 15.6 15.6 15.6
Days Prepaid Expenses of Sales 2.0 1.6 1.9 1.9 1.9 1.9 1.9 1.9
Other Current Assets as a % of Sales 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Days Payable of Cost of Good Sold 40.1 38.1 53.2 53.2 53.2 53.2 53.2 53.2
Days Accrued Liabilities of Cost of Goods Sold 146.3 120.5 137.2 137.2 137.2 137.2 137.2 137.2
Days Other Current Liabilities of Cost of Goods Sold 46.5 53.0 25.2 25.2 25.2 25.2 25.2 25.2
</TABLE>
Footnotes
- -------------------------------
(1) As a percentage of Company-owned restaurant revenue.
(2) Years 1998-2002 assume same working capital ratios as pro forma year end
1997.
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
SBARRO REVENUE DERIVATION Fiscal Year Ended December 31,
- ------------------------- -------------------------------------------------
($ in millions) Actual Fiscal Year Ended December 31, Projected
------------------------------------ Actual ------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
----- ----- ----- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NUMBER OF COMPANY-OWNED RESTAURANTS
Beginning Balance 456 515 567 571 597 623 651 691 736 781
Restuarants Opened 59 53 44 29 30 35 40 45 45 45
Acquired (Sold) Franchisees 7 2 0 1 4 1 0 0 0 0
Restaurants Closed 7 3 40 4 8 8 0 0 0 0
------ -------- -------- ------ ------ --------- --------- -------- ------ -------
Ending Balance 515 567 571 597 623 651 691 736 781 826
NUMBER OF FRANCHISED RESTAURANTS
Beginning Balance 131 134 162 200 219 239 274 324 384 444
Restuarants Opened 24 38 40 36 47 40 50 60 60 60
Purchased (Sold) Company (7) (2) 0 (1) (4) (1) 0 0 0 0
Restaurants Closed 14 8 2 16 23 4 0 0 0 0
------ -------- -------- -------- ------- --------- --------- -------- ---------------
Ending Balance 134 162 200 219 239 274 324 384 444 504
TOTAL NUMBER OF RESTAURANTS
Beginning Balance 587 649 729 771 816 862 925 1,015 1,120 1,225
Restuarants Opened 83 91 84 65 77 75 90 105 105 105
Restaurants Closed 21 11 42 20 31 12 0 0 0 0
------ -------- -------- -------- ------- --------- --------- -------- ---------------
Ending Balance 649 729 771 816 862 925 1,015 1,120 1,225 1,330
====== ======= ======= ======= ======= ======== ======== ======= ===============
SAME STORE SALES GROWTH - -0.04% 2.12% 0.31% 0.93% 0.50% 1.50% 1.50% 1.50% 1.50%
AVERAGE SALES PER RESTAURANT $0.534 $0.534 $0.545 $0.547 $0.552 $0.555 $0.563 $0.571 $0.580 $0.589
TOTAL SYSTEMWIDE SALES
Company-Owned $259.2 $288.8 $310.2 $319.3 $336.6 $353.3 $377.7 $407.7 $439.9 $473.0
Franchised 70.8 79.0 98.7 118.3 123.1 142.3 168.3 202.3 240.1 279.0
------ ------- ------- ------- ------ ------- ------- ------- ------ -------
Total Systemwide Sales $330.0 $367.8 $408.8 $437.6 $459.7 $495.5 $546.0 $609.9 $680.0 $752.0
TOTAL REVENUE FROM FRANCHISEES
FRANCHISE ROYALTY FEE (NEW STORES 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
FRANCHISE ROYALTY FEE (EXISTING) 5.5% 4.9% 4.9% 4.5% 5.7% 4.8% 4.8% 4.8% 4.8% 4.8%
INITIAL FRANCHISE FEE PER STORE $0.035 $0.035 $0.035 $0.033 $0.032 $0.020 $0.020 $0.020 $0.020 $0.020
Total Initial Franchise Fee $0.8 $1.3 $1.4 $1.2 $1.5 $0.8 $1.0 $1.2 $1.2 $1.2
Total Franchise Royalty Fee 3.9 3.9 4.9 5.2 6.2 6.3 7.3 8.6 10.2 11.7
------ ------- ------ -------- ------- ------- ------ ------- ------ -------
Total Revenue from Franchisees $4.8 $5.2 $5.9 $6.4 $7.8 $7.1 $8.3 $9.8 $11.4 $12.9
TOTAL REVENUE $259.2 $288.8 $310.2 $319.3 $336.6 $353.3 $377.7 $407.7 $439.9 $473.0
Company-Owned 4.8 5.2 5.9 6.4 7.8 7.1 8.3 9.8 11.4 12.9
------ -------- -------- ------- -------- --------- -------- ------ ------ -------
Franchised $264.0 $294.0 $316.1 $325.7 $344.4 $360.4 $386.0 $417.5 $451.2 $485.9
====== ======== ======= ======= ======== ========= ======== ====== ====== =======
Total Revenue
TOTAL CAPITAL EXPENDITURES
CapEx per New Restaurant $0.54 $0.60 $0.40 $0.40 $0.41 $0.41 $0.41 $0.41 $0.41 $0.41
Restaurant CapExp $31.9 $32.1 $17.5 $11.5 $12.3 $14.4 $16.5 $18.5 $18.5 $18.5
Other Capital Expenditures $0.0 $0.0 $0.0 $7.0 $6.2 $4.0 $0.0 $0.0 $0.0 $0.0
</TABLE>
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
SBARRO INCOME STATEMENT
- -----------------------
($ in millions)
FISCAL YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
PROJECTED
---------------------------------------------------------------------
1998 1999 2000 2001 2002
--------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES $360.4 $386.0 $417.5 $451.2 $485.9
Cost of Goods Sold 71.6 76.6 82.7 89.2 95.9
--------- ---------- ---------- ---------- --------
GROSS PROFIT 288.7 309.4 334.8 362.0 390.0
GROSS PROFIT MARGIN 80.1% 80.2% 80.2% 80.2% 80.3%
Payroll & Other Employee Benefits 89.7 95.9 103.5 111.7 120.1
Rent Expense 57.6 61.6 66.4 71.7 77.1
Other Operating Expenses 41.0 43.8 47.3 51.0 54.9
General & Administrative 19.1 20.5 22.1 23.9 25.8
--------- ---------- ---------- ---------- --------
Other Income 3.5 3.5 3.5 3.5 3.5
EBITDA 84.8 91.1 98.9 107.2 115.6
EBITDA MARGIN 23.5% 23.6% 23.7% 23.7% 23.8%
Depreciation 26.6 27.4 28.8 29.9 30.1
--------- ---------- ---------- ---------- --------
EBITA 58.2 63.7 70.2 77.3 85.6
EBITA MARGIN 16.2% 16.5% 16.8% 17.1% 17.6%
</TABLE>
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
UMBERTO INCOME STATEMENT
- ------------------------
($ in millions) FISCAL YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
PROJECTED
------------------------------------------------------------------------------------
1998 1999 2000 2001 2002
-------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES $5.4 $19.7 $42.9 $74.3 $114.1
Cost of Goods Sold 1.5 5.1 11.2 19.3 29.7
--- --- ---- ---- ----
GROSS PROFIT 3.9 14.5 31.8 55.0 84.4
Gross Profit Margin 72.4% 74.0% 74.0% 74.0% 74.0%
Payroll & Other Employee Benefits 1.8 6.6 14.5 25.3 39.0
Rent Expense 0.3 1.1 2.1 3.4 5.1
Other Operating Expenses 0.5 1.8 3.9 6.5 9.8
General & Administrative 0.3 1.0 2.3 3.9 6.0
--- --- --- --- ---
Other Income (incl. startup costs) (0.5) (0.8) (1.0) (1.3) (1.5)
EBITDA 0.4 3.3 8.0 14.5 23.0
EBITDA Margin 7.5% 16.7% 18.7% 19.6% 20.1%
Depreciation 0.1 0.6 1.3 2.2 3.3
--- --- --- --- ---
EBITA 0.3 2.7 6.7 12.3 19.7
EBITA Margin 4.8% 13.8% 15.7% 16.6% 17.2%
Income Taxes @ 38% 0.1 1.0 2.5 4.7 7.5
Net Income 0.2 1.7 4.2 7.7 12.2
Net Income Margin 2.9% 8.5% 9.7% 10.3% 10.7%
</TABLE>
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
CONSOLIDATED INCOME STATEMENT
($ in millions)
FISCAL YEAR ENDED DECEMBER 31,
------------------------------------
ACTUAL FISCAL YEAR ENDED DECEMBER 31, FULL YEAR PRO FORMA PROJECTED
--------------------------------------- -------------------- ------------------------------------
1993 1994 1995 1996 1997A 1998E 1999 2000 2001 2002
------ ------ ------ ------ ----- ------- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $264.0 $294.0 $316.1 $325.7 344.4 $365.7 $405.7 $460.4 $525.5 600.0
Cost of Goods Sold 55.4 61.9 67.4 68.7 69.2 73.1 81.7 93.8 108.5 125.6
------ ------ ------- ------ ----- ------ ------- ------- ------- -----
GROSS PROFIT 208.5 232.2 248.7 257.0 275.1 292.6 324.0 366.6 417.0 474.4
Payroll & Other Employee Benefits 64.7 70.8 78.3 78.3 84.6 91.5 102.5 118.1 137.1 159.2
Rent Expense 39.1 44.0 49.1 49.6 54.5 57.9 62.6 68.5 75.1 82.2
Other Operating Expenses 29.2 32.4 35.3 36.0 38.7 41.5 45.7 51.1 57.5 64.6
General & Administrative 12.9 13.3 16.1 14.9 17.7 19.4 21.5 24.4 27.9 31.8
------ ------ ------- ------ ----- ------ ------- ------- ------- -----
Other Income (incl. startup costs) 1.2 1.4 1.4 1.2 1.7 3.0 2.8 2.5 2.3 2.0
EBITDA 64.0 73.0 71.3 79.5 81.2 85.2 94.4 106.9 121.7 138.6
Depreciation 18.6 21.7 23.6 22.9 23.9 26.8 28.0 30.1 32.1 33.4
------ ------ ------- ------ ----- ------ ------- ------- ------- -----
EBITA 45.4 51.3 47.6 56.6 57.3 58.5 66.4 76.9 89.6 105.2
Amortization of Goodwill 0.0 0.0 0.0 0.0 17.8 17.8 17.8 17.8 17.8 17.8
------ ------ ------- ------ ----- ------ ------- ------- ------- -----
EBIT 45.4 51.3 47.6 56.6 39.5 40.6 48.6 59.0 71.8 87.4
Interest Income (5.50%) 0.0 3.3 0.0 0.0 0.7 3.0
Interest Expense:
Bank Credit Facility 6.1 6.1 5.2 2.9 0.8 0.0
Senior Notes 37.6 37.6 37.6 37.6 37.6 37.6
Senior Discount Notes(1) 11.4 11.4 11.4 12.9 14.7 16.6
Amortization of Deferred Debt Exp. 1.5 1.5 1.5 1.5 1.5 1.5
--- --- --- --- --- ---
Total Interest Expense 56.6 56.6 55.7 54.9 54.5 55.7
------- ------- -------- -------- -------- ------
PRETAX INCOME (17.2) (12.7) (7.1) 4.1 17.9 34.6
Income Taxes @ 38% 0.2 1.9 4.1 8.3 13.6 19.9
Minority Interest @ 20% 0.0 0.0 0.3 0.8 1.5 2.4
Net Income to Common ($17.4) ($14.7) ($11.5) ($5.1) $2.8 $12.3
======= ======== ======== ======== ========= ======
</TABLE>
Footnotes
- -------------------------------------
(1) Assumes an interest rate of 13.0% compounded semi-annually.
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
CONSOLIDATED CASHFLOW STATEMENT
- -------------------------------
($ in millions) PROJECTED FISCAL YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 2000 2001 2002
--------- --------- --------- --------
<S>
CASH FLOW FROM OPERATIONS <C> <C> <C> <C>
Net Income to Common ($11.5) ($5.1) $2.8 $12.3
Depreciation 28.0 30.1 32.1 33.4
Amortization of Goodwill and Deferred Financing Fees 19.3 19.3 19.3 19.3
Deferred Income Taxes 0.0 0.0 0.0 0.0
Non-cash Interest 11.4 12.9 14.7 16.6
Minority Interest 0.3 0.8 1.5 2.4
Change in Net Working Capital 4.2 6.0 7.3 8.5
--------- --------- --------- --------
TOTAL CASH FLOW FROM OPERATIONS $51.7 $64.0 $77.6 $92.4
CASH FLOW FROM INVESTING ACTIVITIES
Capital Expenditures (New Sbarro Stores) ($16.5) ($18.5) ($18.5) ($18.5)
Capital Expenditures (Maintenance of Existing Sbarro Stores) (5.2) (5.2) (5.8) (6.4)
Capital Expenditures (Umberto) (6.8) (9.0) (11.3) (13.5)
Contribution to Capital by Minority Interest 1.4 1.8 2.3 2.7
Cost to Complete Building 0.0 0.0 0.0 0.0
--------- --------- --------- --------
TOTAL CASH FLOW FROM INVESTING ACTIVITIES ($27.1) ($30.9) ($33.3) ($35.7)
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings/(Repayment) of Senior Discount Notes 0.0 0.0 0.0 0.0
--------- --------- --------- --------
TOTAL CASH FLOW FROM FINANCING ACTIVITIES $0.0 $0.0 $0.0 $0.0
--------- --------- --------- --------
INCREASE IN CASH BEFORE SWEEP $24.7 $33.1 $44.3 $56.7
========= ========= ========= ========
Borrowings/(Repayment) of Senior Bank Debt: Bank Credit Facility (22.9) (33.1) (18.9) 0.0
Borrowings/(Repayment) of Senior Notes 0.0 0.0 0.0 0.0
NET INCREASE IN CASH (INCLUDES MARKETABLE SECURITIES) $1.7 $0.0 $25.4 $56.7
Beginning Balance of Cash 5.3 7.0 7.0 32.4
--------- --------- --------- --------
Ending Balance of Cash $7.0 $7.0 $32.4 $89.1
========= ========= ========= ========
Minimum Cash Balance 7.0 7.0 7.0 7.0
</TABLE>
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET FISCAL YEAR ENDED DECEMBER 31,
- -------------------------- -----------------------------------
($ in millions) PROJECTED
ACTUAL ESTIMATED -----------------------------------
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash & Cash Equivalents (incl. Marketable Securities) $127.3 $5.3 $7.0 $7.0 $32.4 $89.1
Accounts Receivable 2.4 2.5 2.8 3.2 3.6 4.1
Inventory 3.0 3.1 3.5 4.0 4.6 5.4
Prepaid Expenses 1.8 1.9 2.1 2.4 2.7 3.1
Other Current Assets 0.0 0.0 0.0 0.0 0.0 0.0
Total Current Assets 134.4 12.8 15.4 16.6 43.3 101.7
------- ------ ------ ------ ------ ------
GROSS PROPERTY, PLANT & EQUIPMENT 287.0 313.1 341.5 374.2 409.8 448.2
Less Accumulated Depreciation 150.2 177.0 205.0 235.0 267.1 300.5
------- ------ ------ ------ ------ ------
NET PROPERTY, PLANT & EQUIPMENT 136.8 136.1 136.5 139.2 142.7 147.7
GOODWILL 0.0 534.3 516.5 498.7 480.9 463.1
DEFERRED FINANCING FEES 0.0 14.7 13.2 11.7 10.3 8.8
DEFERRED CHARGES 1.6 1.6 1.6 1.6 1.6 1.6
OTHER ASSETS 5.8 5.8 5.8 5.8 5.8 5.8
------- ------ ------ ------ ------ ------
TOTAL ASSETS $278.6 $705.4 $689.1 $673.6 $684.6 $728.8
======= ====== ====== ====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts Payable $10.1 $10.7 $11.9 $13.7 $15.8 $18.3
Accrued Liabilities 26.0 27.5 30.7 35.3 40.8 47.2
Dividends Payable 5.5 0.0 0.0 0.0 0.0 0.0
Other Current Liabilities 4.8 5.0 5.6 6.5 7.5 8.7
Total Current Liabilities 46.4 43.2 48.3 55.4 64.1 74.2
------- ------ ------ ------ ------ ------
LONG-TERM DEBT
Senior Bank Debt:
Bank Credit Facility 0.0 75.0 52.1 18.9 0.0 0.0
Bank Credit Facility
Senior Notes 0.0 350.0 350.0 350.0 350.0 350.0
Senior Discount Notes 0.0 85.0 96.4 109.3 124.0 140.7
------- ------ ------ ------ ------ ------
Total Long Term Debt 0.0 510.0 498.5 478.3 474.0 490.7
DEFERRED TAXES 11.8 11.8 11.8 11.8 11.8 11.8
OTHER LIABILITIES 0.0 0.0 0.0 0.0 0.0 0.0
MINORITY INTEREST 0.0 0.4 2.1 4.7 8.5 13.6
STOCKHOLDERS' EQUITY
Common Equity 220.4 140.0 128.5 123.4 126.2 138.5
------- ------ ------ ------ ------ ------
Total Stockholders' Equity 220.4 140.0 128.5 123.4 126.2 138.5
TOTAL LIABILITIES AND EQUITY $278.6 $705.4 $689.1 $673.6 $684.6 $728.8
======= ====== ====== ====== ====== ======
</TABLE>
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
EQUITY OWNERSHIP
- ----------------
OWNERSHIP SUMMARY
- -----------------
PURCHASE (REPURCHASE) AFTER PURCHASE OF OWNERSHIP
PRE-TRANSACTION OF COMMON SHARES COMMON EQUITY REDUCTION
----------------------- ------------------------ ---------------- ----------
INSIDERS:
<S> <C> <C> <C> <C> <C> <C>
Mario 1,532,130 6.9% (1,532,130) -6.9% - 100.0%
Joseph 1,807,914 8.1% (1,807,914) -8.1% - 100.0%
Anthony 1,233,800 5.5% (1,233,800) -5.5% - 100.0%
--------- ---------- ----------- ---------- ---
Control Group (Mario, Joseph and Anthony) 4,573,844 20.5% (4,573,844) -20.5% - 100.0%
Trust of Carmela 2,497,884 11.2% (2,497,884) -11.2% - 100.0%
Options outstanding (Control Group) 1,185,000 5.3% (1,185,000) -5.3% - 100.0%
Options outstanding 659,589 3.0% (659,589) -3.0% - 100.0%
PUBLIC SHAREHOLDERS 13,374,926 60.0% (13,374,926) -60.0% - 100.0%
---------- ---------- ------------ --------- ---
Shares outstanding 22,291,243 100.0% (22,291,243) -100.0% - 100.0%
</TABLE>
<PAGE>
PROJECT WONTON
C-CORP. MODEL
EQUITY INTERNAL RATE OF RETURN
- ------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
2 YEAR EXIT CASE
2000 EBITDA $ 106.9
EBITDA Exit Multiple 6.0x 6.5x 7.0x 7.5x 8.0x
TEV 641.4 694.9 748.3 801.8 855.2
Plus: Cash 7.0 7.0 7.0 7.0 7.0
Less: Debt 478.3 478.3 478.3 478.3 478.3
Less: Minority Interest 4.7 4.7 4.7 4.7 4.7
------------- ------------- -------------------------- -------------
Total Equity 165.4 218.9 272.3 325.8 379.2
95% of Equity 157.2 207.9 258.7 309.5 360.3
12/31/98 12/31/99 12/31/00 IRR
----
6.0x (140.0) 0.0 157.2 6.0%
6.5x (140.0) 0.0 207.9 21.9%
7.0x (140.0) 0.0 258.7 35.9%
7.5x (140.0) 0.0 309.5 48.7%
8.0x (140.0) 0.0 360.3 60.4%
- ----------------- ------------------------ ------------ ------------- ----------------------------------------------------------
3 YEAR EXIT CASE
2001 EBITDA $ 121.7
EBITDA Exit Multiple 6.0x 6.5x 7.0x 7.5x 8.0x
TEV 730.0 790.8 851.6 912.5 973.3
Plus: Cash 32.4 32.4 32.4 32.4 32.4
Less: Debt 474.0 474.0 474.0 474.00 474.0
Less: Minority Interest 8.5 8.5 8.5 8.5 8.5
------------- ------------------------------------------ --------------
Total Equity 279.9 340.7 401.5 462.3 523.2
95% of Equity 265.9 323.7 381.4 439.2 497.0
12/31/98 12/31/99 12/31/00 12/31/01 IRR
----
6.0x (140.0) 0.0 0.0 265.9 23.8%
6.5x (140.0) 0.0 0.0 323.7 32.2%
7.0x (140.0) 0.0 0.0 381.4 39.7%
7.5x (140.0) 0.0 0.0 439.2 46.4%
8.0x (140.0) 0.0 0.0 497.0 52.6%
- ----------------- ------------------------ ------------ ------------- ------------- ---------------------------------------------
4 YEAR EXIT CASE
2002 EBITDA $ 138.6
EBITDA Exit Multiple 6.0x 6.5x 7.0x 7.5x 8.0x
TEV 831.4 900.7 970.0 1039.3 1108.6
Plus: Cash 89.1 89.1 89.1 89.1 89.1
Less: Debt 490.7 490.7 490.7 490.7 490.7
Less: Minority Interest 13.6 13.6 13.6 13.6 13.6
----------- -------- -------- -------- --------
Total Equity 416.2 485.5 554.8 624.1 693.4
95% of Equity 395.4 461.3 527.1 592.9 658.7
12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 IRR
----
6.0x (140.0) 0.0 0.0 0.0 395.4 29.6%
6.5x (140.0) 0.0 0.0 0.0 461.3 34.7%
7.0x (140.0) 0.0 0.0 0.0 527.1 39.3%
7.5x (140.0) 0.0 0.0 0.0 592.9 43.5%
8.0x (140.0) 0.0 0.0 0.0 658.7 47.3%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SENIOR DISCOUNT NOTES INTERNAL RATE OF RETURN
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
2 YEAR EXIT CASE
2000 Senior Discount $ 109.3
Notes
EBITDA Exit Multiple 6.0x 6.5x 7.0x 7.5x 8.0x
5% of Equity 8.3 10.9 13.6 16.3 19.0
Notes plus Equity 117.6 120.3 123.0 125.6 128.3
12/31/98 12/31/99 12/31/00 IRR
----
6.0x (85.0) 0.0 117.6 17.6%
6.5x (85.0) 0.0 120.3 19.0%
7.0x (85.0) 0.0 123.0 20.3%
7.5x (85.0) 0.0 125.6 21.6%
8.0x (85.0) 0.0 128.3 22.9%
- ------------------------------------------------------------------------------------------------------------------------------------
3 YEAR EXIT CASE
2001 Senior Discount $ 124.0
Notes
EBITDA Exit Multiple 6.0x 6.5x 7.0x 7.5x 8.0x
5% of Equity 14.0 17.0 20.1 23.1 26.2
Notes plus Equity 138.0 141.1 144.1 147.1 150.2
12/31/98 12/31/99 12/31/00 12/31/01 IRR
----
6.0x (85.0) 0.0 0.0 138.0 17.5%
6.5x (85.0) 0.0 0.0 141.1 18.4%
7.0x (85.0) 0.0 0.0 144.1 19.2%
7.5x (85.0) 0.0 0.0 147.1 20.1%
8.0x (85.0) 0.0 0.0 150.2 20.9%
- ------------------------------------------------------------------------------------------------------------------------------------
4 YEAR EXIT CASE
2002 Senior Discount $ 140.7
Notes
EBITDA Exit Multiple 6.0x 6.5x 7.0x 7.5x 8.0x
5% of Equity 20.8 24.3 27.7 31.2 34.7
Notes plus Equity 161.5 165.0 168.4 171.9 175.3
12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 IRR
----
6.0x (85.0) 0.0 0.0 0.0 161.5 17.4%
6.5x (85.0) 0.0 0.0 0.0 165.0 18.0%
7.0x (85.0) 0.0 0.0 0.0 168.4 18.6%
7.5x (85.0) 0.0 0.0 0.0 171.9 19.2%
8.0x (85.0) 0.0 0.0 0.0 175.3 19.8%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PROJECT WONTON
APPENDIX J
ILLUSTRATIVE MERGER MODEL
BEAR STEARNS
<PAGE>
PROJECT WONTON
C-CORP. MODEL
<TABLE>
<CAPTION>
SUMMARY PRO FORMA MERGER ANALYSIS: CKE CKE ACQUIRES WONTON FOR $36.00 PER SHARE, 100% CASH, PURCHASE ACCOUNTING
(in millions except per share data)
SOURCES USES WONTON VALUATION
- -------------------------- -------------------------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PRICE PER SHARE $36.00
Wonton Cash(a) $131.0 Purchase of Wonton Equity $756.3 Val. of Outst. Shares (20.4 mil.) + Options (1.8 mil.) 802.5
New Debt @ 8.00% $642.9 Transaction Costs $17.7 Less: Option Proceeds 46.2
-------------------------------------------------------------
New Common Equity $0.0 EQUITY PURCHASE PRICE $756.3
- ------------------------- --------------------------------
TOTAL SOURCES $773.9 TOTAL USES $773.9 Plus: Total Debt $0.0
Less: Cash (131.0)
-------------------------------------------------------------
ENTERPRISE VALUE $625.3
- ------------------------- ---------------------------------- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA PROJECTED INCOME STATEMENT PRO FORMA BALANCE SHEET
- ---------------------------------------------------------------- -------------------------------------------------------------------
1999 1999
------------------- -------------------
COMBINED
CKE(B) WONTON(C) ADJ.(D) COMBINED CKE(G) WONTON(H) ADJ. BALANCE SHEET
--- ------ ---- -------- --- ------ ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE $2,170.9 $405.7 $2,576.6 ASSETS
Synergies Assumed 5.0 5.0 Cash(a) 51.7 131.0 (131.0) 51.7
-------- ------ ---------
EBITDA 294.5 94.4 5.0 393.9 Accounts Receivable 23.2 2.5 25.7
Depreciation
& Amortization 80.8 28.0 13.4 122.1 Inventory 23.1 3.1 26.2
-------- ------ ---------
EBIT 213.7 66.4 (8.4) 271.7 Prepaid Expenses 11.0 1.9 12.9
Net Interest Expense 39.1 (7.2) 59.9 91.8 Other Current Assets 3.2 0.0 3.2
-------- ------ --------- ------- ----- -------
Pre-Tax Income 175.2 73.6 (68.3) 179.9 TOTAL CURRENT ASSETS 112.1 138.5 119.6
Income Taxes(f) 68.3 28.7 (21.4) 75.6 Net PP&E 1,026.6 136.1 1,162.7
Minority Income 0.0 0.3 0.3 Goodwill 200.4 0.0 534.5 734.9
-------- ------ ---------
NET INCOME $106.9 $44.6 ($46.9) $104.6 Deferred Charges 0.0 1.6 1.6
</TABLE>
<TABLE>
<CAPTION>
CKE(B) WONTON(C) COMBINED
- ------------------------ --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EPS $2.16 $2.12 $2.11 Deferred Financing Fees(j) 0.0 0.0 12.9 12.9
% ACCRETION (2.12%) Other Assets 108.5 5.8 114.3
------- ------ ---------
SHARES OUTSTANDING(I) 49.49 21.01 0.00 49.49 TOTAL ASSETS $1,447.7 $282.1 $2,146.1
- ------------------------ --------- -------- ------- ------- ======= ====== =========
Operating Statistics LIABILITIES
- ------------------------ --------- -------- ------- -------
Accounts Payable 83.5 10.7 94.2
EBITDA MARGIN 13.56% 23.27% 15.29% Accrued Expenses 0.0 27.6 27.6
Deferred Income Taxes 5.7 0.0 5.7
EBIT MARGIN 9.84% 16.37% 10.55%
Other Current Liabilities 111.5 5.1 116.6
------ ------ ---------
NET INCOME MARGIN 4.92% 10.99% 4.06% TOTAL CURRENT LIABILITIES 200.7 43.3 244.0
- ------------------------ --------- -------- ------- -------
Long Term Debt 628.4 0.0 642.9 1,271.3
Other Liabilities 98.6 11.8 110.4
------ ------ ---------
Credit Statistics TOTAL LIABILITIES 927.6 55.1 1,625.6
- ------------------------ --------- -------- ------- -------
SHAREHOLDERS EQUITY
EBITDA/INTEREST EXPENSE 7.53x NM 4.29x Minority Interst 0.0 0.4 0.4
Preferred Stock 0.0 0.0 0.0
DEBT/EBITDA 2.13x NM 3.23x Common Equity 520.1 226.6 (226.6) 520.1
- ------------------------ --------- -------- ------- ------- ------ ------ ---------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $1,447.7 $282.1 $2,146.1
</TABLE>
<PAGE>
FOOTNOTES
(a) Includes $7.5m of marketable securities.
(b) Source: First Call estimates and Merrill Lynch research dated 3/19/98.
Fiscal year end 1/00.
(c) Source: Wonton management estimates. Fiscal year end 12/99.
(d) Adjustments for new debt interest, new shares issued (stock transactions),
and new goodwill (under purchase accounting only). Assumes non tax-
deductible amortization of new goodwill over 40 years. Also, assumes a
forgone interest on cash used of 5.5%
(e) CKE D&A based on historical percentage of revenues.
(f) Assumes a tax rate of 39.0%.
(g) Actual as of 5/18/98.
(h) Estimated balance sheet as of 9/98.
(i) Based on current fully diluted shares outstanding.
(j) Based on 2.0% of new debt.
<PAGE>
Summary Pro Forma Merger Analysis: CKE
<TABLE>
<CAPTION>
($ in millions except per share data) CKE Acquires Wonton for $36.00 per share, all stock, pooling-of-interest
- ------------------------------------------------------------------------------------------------------------------------------------
Sources Uses Wonton Valuation
<S> <C> <C> <C> <C> <C>
Wonton Cash (a) $4.8 Purchase of Wonton Equity $756.3 Price per Share $36.00
New Debt @ $8.00% $0.0 Transaction Costs $4.8 Val. of Outst. Shares
New Common Equity a2 $43.43 per share $756.3 (20.4 mil.) + Options (1.8 mil.) 802.5
Total Sources $761.1 Total Uses $761.1 Less: Option Proceeds 46.2
Equity Purchase Price $456.3
- -------------------------------------------- ---------------------------------- -----------------------------------------------
Plus: Total Debt $0.0
Less: Cash (131.0)
Enterprise Value $625.3
Pro Forma Projected Income Statement Pro Forma Balance Sheet
1999 1999
CKE (b) Wonton (c) Adj(d) Combined Assets CKE (g) Wonton (h) Adj. Combined Balance Sheet
------- ---------- ------ -------- ------ --------- ---- ----------------------
Revenue $2,170.9 $405.7 $2,576.6 Cash (a) 51.7 131.0 (4.8) 177.9
Synergies Assumed 5.0 5.0 Accounts
----------------------- -------- Receivable 23.2 2.5 25.7
EBITDA 294.5 94.4 5.0 393.9 Inventory 23.1 3.1 26.2
Depreciation & Prepared
Amortization 80.8 28.8 0.0 108.8 Expenes 11.0 1.9 12.9
----------------------- -------- Other Current
EBIT 213.7 66.4 5.0 285.1 Assets 3.2 0.0 3.2
Net Interest ---------------------- ----------------------
Expense 39.1 (7.2) 0.3 32.2 Total Current
----------------------- -------- Assets 112.1 138.5 245.8
Pre-tax Income 175.2 73.6 4.7 252.9 Net PP&E 1,026.6 136.1 1,162.7
Income Taxes (f) 68.3 28.7 1.8 98.9 Goodwill 200.4 0.0 0.0 200.4
Minority Income 0.0 0.3 0.3 Deferred
----------------------- -------- Charges 0.0 1.6 1.6
Net Income $106.9 $44.6 $2.9 $154.4 Deferred
Financing Fees 0.0 0.0 0.0 0.0
CKE Wonton Combined Other Assets 108.5 5.8 114.3
- ------------------------------------------------------------------ ----------------------- ----------------------
EPS $2.16 $2.12 $2.31 Total Assets $1,447.7 $282.1 $1,724.9
% Accretion 6.84% ---------------------- ----------------------
Shares outstanding(j)49.49 21.01 17.41 66.92 Liabilities
- ------------------------------------------------------------------ Accounts
Operating Statistics Payable 83.5 10.7 94.2
EBITDA Margin 13.56% 23.27% 15.29% Accrued
EBIT Margin 9.84% 16.37% 11.06% Expenses 0.0 27.6 27.6
Net Income Margin 4.925 10.99% 5.99% Deferred
- ------------------------------------------------------------------ Income Taxes 5.7 0.0 5.7
Credit Statistics Other Current
EBITDA/Interest Liabilities 111.5 5.1 116.6
Expense 7.53x NM 12.25x ---------------------- ----------------------
Debt/EBITDA 2.13x NM 1.60x Total Current
- ------------------------------------------------------------------ Liabiliites 200.7 43.3 244.0
Long Term
Debt 628.4 0.0 0.0 628.4
Other
Liabilities 98.6 11.8 110.4
---------------------- ----------------------
927.6 55.1 982.7
Total
Liabilities
Shareholders Equity
Minority
Interest 0.0 0.4 0.4
Preferred
Stock 0.0 0.0 0.0
Common
Equity 520.1 226.6 (4.8) 741.9
---------------------- ----------------------
Total Liabilities and Shareholders Equity
$1,447.7 $282.1 $1,725.0
====================== ======================
Footnotes
- -------------------
(a) Includes $7.5m of marketable securities
(b) Source: First Call estimates and Merrill Lynch reseach dated 3/19/98. Fiscal year end 1/00.
(c) Source: Wonton managements estimates. Fiscal year end 12/99,.
(d) Adjustments for new shares issued (stock transactons). Also, assumes a forgone intest on cash used of 5.5%.
(e) CKE D&A based on historical pecentage of revenues
(f) Assumes a tax rate of 39.0%
(g) Actual as of 5/18/98.
(h) Estimated balance sheet as of 9/98.
(i) Based on current fully diluted shares outstanding.
(j) Based on 2.0% of new debt.
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