SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JUNE 17, 1999
SBARRO, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK
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(STATE OR OTHER JURISDICTION OF INCORPORATION)
1-8881 11-2501939
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(COMMISSION FILE NUMBER) (IRS EMPLOYER IDENTIFICATION NO.)
401 BROADHOLLOW ROAD, MELVILLE, NEW YORK 11747
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 864-0200
NOT APPLICABLE
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(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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Item 5. Other Events.
(a) Amended and Restated Agreement and Plan of Merger.
On June 17, 1999, the Company, Sbarro Merger LLC, a New York
limited liability company ("Mergeco"), and Mario Sbarro, Joseph Sbarro, Joseph
Sbarro (1994) Family Limited Partnership, Anthony Sbarro, 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 and her
descendants (collectively the "Continuing Shareholders") entered into an Amended
and Restated Agreement and Plan of Merger (the "Restated Merger Agreement"). The
Restated Merger Agreement made certain non-economic and, except to extend the
date after which either the Company or the Continuing Shareholders can terminate
the transactions solely by reason of the Merger not having been consummated from
June 30, 1999 to August 31, 1999, non-substantive changes to the Merger
Agreement, and restated the Merger Agreement as so amended.
The following is a brief discussion of the Restated Merger
Agreement and as qualified in its entirety by reference to the Restated Merger
Agreement, a copy of which is Exhibit 2 to this Report.
The Restated Merger Agreement provides for the merger of
Mergeco with and into the Company (the "Merger"), with each outstanding share of
the Company's Common Stock, par value $.01 per share, other than shares held of
record by Mergeco or the Continuing Shareholders or in the Company's treasury,
to be converted into the right to receive $28.85 in cash (the "Merger
Consideration"). The shares to be purchased comprise approximately 65.6% of the
Company's 20,534,313 presently outstanding shares of Common Stock. In addition,
all outstanding stock options, including those held by the Continuing
Shareholders, will be terminated. For each such option, the holder thereof will
be paid the difference between the Merger Consideration and the exercise price
per share, multiplied by the total number of shares of Common Stock subject to
such option.
On January 19, 1999, the Merger Agreement was approved and
adopted by the Board of Directors of the Company following the unanimous
recommendation by a special committee of independent directors. Prudential
Securities Incorporated, which has been acting as financial advisor to the
special committee, rendered its opinion dated January 19, 1999 to the special
committee that, as of the date of such opinion, the Merger Consideration is fair
from a financial point of view to the public shareholders. On June 17, 1999, the
changes to the Merger Agreement effected in the Restated Merger Agreement were
approved by the Company's Board of Directors, following approval thereof by the
special committee, and the Company's Board of Directors adopted the Restated
Merger Agreement.
The Restated Merger Agreement contains certain conditions to
closing, including, among other things, (i) approval by a majority of the votes
cast (excluding votes cast by the Continuing Shareholders, abstentions and
broker non-votes) at a meeting of the Company's shareholders to be called to
consider adoption of the Restated Merger Agreement, (ii) receipt of financing
for the transactions contemplated by the Restated Merger Agreement, (iii) the
continued
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suspension of dividends by the Company and (iv) the settlement of shareholder
class action lawsuits that have been filed relating to the Merger.
A Memorandum of Understanding, which contemplates the Merger
Consideration of $28.85, was entered into on January 19, 1999 with counsel to
the plaintiffs in the shareholder class actions arising from the proposed Merger
for the proposed settlement of such lawsuits and, on April 7, 1999, a
Stipulation of Settlement was entered into with counsel to the plaintiffs in
such litigation embodying (and superseding) the Memorandum of Understanding. The
settlement is subject to, among other things, (i) certification of the lawsuits
as a class action covering all record and beneficial owners of the Common Stock
during the period beginning on November 25, 1998 through the effective time of
the Merger (the "Class"), (ii) court approval of the settlement, and (iii)
consummation of the Merger. It is a condition to Mergeco's obligation under the
Restated Merger Agreement that holders of no more than an aggregate of 1,000,000
shares of Common Stock (approximately 4.9% of the Company's presently
outstanding shares) request exclusion from the settlement. A hearing was
scheduled to be held on June 29, 1999 to, among other things, determine whether
the Court should approve the settlement as fair, reasonable, adequate and in the
best interest of the Class. The foregoing is a brief discussion of the
Memorandum of Understanding and the Stipulation of Settlement and is qualified
in its entirety by reference to the Stipulation of Settlement, a copy of which
is Exhibit 99.01 to this Report.
Approximately $408 million will be required to pay the
aggregate Merger Consideration to shareholders of the Company (other than the
Continuing Shareholders) and to holders of options to purchase shares of the
Company's Common Stock (including Mario Sbarro, Anthony Sbarro and Joseph
Sbarro) at the closing of the Merger, as well as anticipated fees and expenses
of the contemplated transactions. It is anticipated that the sources of the
required funds will be $138 million of the Company's cash and marketable
securities and $300 million to be obtained through debt financing, including to
fund the Company's ongoing working capital needs, including capital
expenditures. The Continuing Shareholders have received a letter from Bear,
Stearns & Co. Inc. that, subject to certain conditions, Bear Stearns is highly
confident that the debt financing can be obtained. A copy of that letter is
annexed as Exhibit 99.02.
(b) Election of Vice President-Finance and Chief Financial Officer.
Robert S. Koebele, Vice President-Finance and Chief Financial
Officer of the Company has advised the Company that he intends to retire in the
early part of the summer of 1999, whether or not the Merger is consummated. On
June 17, 1999, Robert G. Rooney joined the Company and was elected Co-Vice
President-Finance and Co-Chief Financial Officer of the Company and will become
the Company's sole Vice President-Finance and Chief Financial Officer upon the
retirement of Mr. Koebele.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(a) Financial statements of business acquired:
Not applicable.
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(b) Pro forma financial information:
Not applicable.
(c) Exhibits:
2 Amended and Restated Agreement and Plan of Merger
dated as of January 19, 1999 among the Company,
Sbarro Merger LLC, a New York limited liability
company, Mario Sbarro, Joseph Sbarro, Joseph Sbarro
(1994) Family Limited Partnership, Anthony Sbarro,
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 and her descendants.
99.01 Stipulation of Settlement dated April 7, 1999 among
counsel to the plaintiffs and counsel to the
defendants in the various class action lawsuits
instituted by certain shareholders of the Company.
99.02 Letter dated as of January 19, 1999 from Bear,
Stearns & Co. Inc. to the Continuing Shareholders and
Mergeco.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SBARRO, INC.
Date: June 23, 1999 By: /s/ Mario Sbarro
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Mario Sbarro,
Chairman of the Board
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EXHIBIT INDEX
Exhibit
Number Description
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2 Amended and Restated Agreement and Plan of Merger dated as of
January 19, 1999 among the Company, Sbarro Merger LLC, a New
York limited liability company, Mario Sbarro, Joseph Sbarro,
Joseph Sbarro (1994) Family Limited Partnership, Anthony
Sbarro, 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 and her descendants.
99.01 Stipulation of Settlement dated April 7, 1999 among counsel to
the plaintiffs andcounsel to the defendants in the various
class action lawsuits instituted by certain shareholders of
the Company.
99.02 Letter dated as of January 19, 1999 from Bear, Stearns & Co.
Inc. to the Continuing Shareholders and Mergeco.
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
SBARRO MERGER LLC,
SBARRO, INC.,
Mario Sbarro,
Joseph Sbarro,
Joseph Sbarro (1994) Family Limited Partnership,
Anthony Sbarro
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 and her descendants
Dated as of January 19, 1999
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
SECTION Page
PARTIES................................................................1
PREAMBLE...............................................................1
ARTICLE I
THE MERGER
1.1 The Merger....................................................2
1.2 Certificate of Incorporation..................................2
1.3 By-Laws.......................................................2
1.4 Directors and Officers........................................2
1.5 Effective Time................................................2
ARTICLE II
CONVERSION OF SHARES
2.1 Company Common Stock..........................................3
2.2 Mergeco Membership Interests..................................3
2.3 Exchange of Shares............................................3
2.4 Stock Option Plans............................................5
2.5 Withholding Rights............................................5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 Organization..................................................5
3.2 Capitalization................................................6
3.3 Authorization of this Agreement; Recommendation of Merger.....6
3.4 Governmental Filings; No Conflicts............................7
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGECO
AND THE CONTINUING SHAREHOLDERS
4.1 Organization..................................................8
4.2 Membership Interests..........................................8
4.3 Authorization of this Agreement...............................8
4.4 Governmental Filings; No Violations...........................8
4.5 Financing Arrangements........................................9
ARTICLE V
COVENANTS
5.1 Conduct of the Business of the Company........................9
5.2 Activities of Mergeco........................................10
5.3 Access to Information........................................10
5.4 Financing....................................................10
5.5 Shareholders' Meeting........................................10
5.6 Proxy Statement and Schedule 13E-3...........................11
5.7 Best Efforts.................................................12
5.8 Consents.....................................................12
5.9 Public Announcements.........................................12
5.10 Indemnification..............................................13
5.11 No Solicitation..............................................15
5.12 Transfer Taxes...............................................16
ARTICLE VI
CLOSING CONDITIONS
6.1 Conditions to the Obligations of Each Party..................16
6.2 Conditions to the Obligations of Mergeco.....................17
6.3 Conditions to the Obligations of the Company.................18
ARTICLE VII
CLOSING
7.1 Time and Place...............................................19
7.2 Filings at the Closing.......................................19
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ARTICLE VIII
TERMINATION AND ABANDONMENT
8.1 Termination..................................................20
8.2 Procedure and Effect of Termination..........................21
ARTICLE IX
MISCELLANEOUS
9.1 Amendment; Modification and Approval of Special Committee....21
9.2 Waiver of Compliance; Consents...............................21
9.3 Non-Survival of Representations and Warranties...............22
9.4 Notices......................................................22
9.5 Assignment; Parties in Interest..............................23
9.6 Costs and Expenses...........................................23
9.7 Specific Performance.........................................24
9.8 Governing Law................................................24
9.9 Counterparts.................................................24
9.10 Interpretation...............................................25
9.11 Entire Agreement.............................................25
9.12 Severability.................................................25
9.13 Headings.....................................................25
SIGNATURES............................................................26
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this
"Agreement"), dated as of January 19, 1999 , among Sbarro Merger LLC, a New York
limited liability company ("Mergeco"), Sbarro, Inc., a New York corporation (the
"Company"), and Mario Sbarro, Joseph Sbarro, Joseph Sbarro (1994) Family Limited
Partnership, Anthony Sbarro, 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 and her descendants (collectively the
"Continuing Shareholders").
WHEREAS, the Continuing Shareholders have proposed to the
Board of Directors of the Company that Mergeco merge with and into the Company
(the "Merger"), with the holders of all of the outstanding shares of Common
Stock, par value $.01 per share, of the Company (the "Common Stock") not
currently owned by the Continuing Shareholders receiving a cash payment in
exchange for their shares of Common Stock;
WHEREAS, a Special Committee of the Board of Directors of the
Company (the "Special Committee") has determined that the Merger is fair to, and
in the best interests of, the Public Shareholders (as defined in Section
2.1(a)), and has recommended the approval and adoption of this Agreement to the
Board of Directors of the Company;
WHEREAS, the Board of Directors of the Company and the members
of Mergeco have approved and adopted this Agreement and approved the Merger upon
the terms and subject to the conditions set forth herein;
WHEREAS, the Board of Directors of the Company believes it is
in the best interests of the Company and its shareholders to consummate the
Merger upon the terms and subject to the conditions set forth in this Agreement;
and
WHEREAS, Mergeco, the Company and the Continuing Shareholders
entered into an Agreement and Plan of Merger, dated as of January 19, 1999, and
now desire to amend such agreement in certain respects, and, as so amended,
restate such agreement with the same effect as if executed on January 19, 1999;
NOW, THEREFORE, in consideration of the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
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ARTICLE I
THE MERGER
1.1 The Merger. (a) As promptly as practicable following the
satisfaction or waiver of the conditions set forth in Article VI hereof, and in
accordance with the provisions of this Agreement and the provisions of the New
York Business Corporation Law (the "NYBCL") and the New York Limited Liability
Company Law (the "NYLLCL"), the parties hereto shall cause Mergeco to be merged
with and into the Company. The Company shall be the surviving corporation
(hereinafter sometimes called the "Surviving Corporation") and shall continue
its corporate existence under the laws of the State of New York. At the
Effective Time (as hereinafter defined), the separate existence of Mergeco shall
cease.
(b) The Merger shall have the effects specified in Section 906 of the
NYBCL and Section 1004 of the NYLLCL. From and after the Effective Time, the
Surviving Corporation shall possess all the rights, privileges, immunities,
powers and purposes of Mergeco and the Company and shall assume and become
liable for all the liabilities, obligations and penalties of the Company and
Mergeco.
1.2 Certificate of Incorporation. The Certificate of Incorporation of
the Company, as amended and in effect immediately prior to the Effective Time,
shall be the Certificate of Incorporation of the Surviving Corporation until
thereafter amended in accordance with the provisions thereof and the NYBCL.
1.3 By-Laws. The By-Laws of the Company in effect immediately prior to
the Effective Time shall be the By-Laws of the Surviving Corporation until
thereafter amended, altered or repealed as provided therein and in the NYBCL.
1.4 Directors and Officers. The directors and officers of the Company
immediately prior to the Effective Time shall be the directors and officers,
respectively, of the Surviving Corporation, each to hold office in accordance
with the Certificate of Incorporation and the By-Laws of the Surviving
Corporation.
1.5 Effective Time. As soon as practicable following the Closing (as
defined in Section 7.1 of this Agreement), and provided that this Agreement
shall not have been terminated pursuant to Article VIII hereof, the Company and
Mergeco will cause certificates of merger (the "Certificates of Merger"),
together with any other documents required by law to effectuate the Merger, to
be executed, verified and delivered for filing by the New York Department of
State as provided in Section 904-a of the NYBCL and Section 1003 of the NYLLCL,
to the extent required. The Merger shall become effective on the date on which
the second of the two Certificates of Merger is filed by the New York Department
of State or such other date as shall be specified in the Certificates of Merger.
The date and time when the Merger shall become effective is herein referred to
as the "Effective Time."
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ARTICLE II
CONVERSION OF SHARES
2.1 Company Common Stock. (a) Each share of Common Stock issued and
outstanding immediately prior to the Effective Time, except for (i) shares of
Common Stock then owned of record by Mergeco or the Continuing Shareholders and
(ii) shares of Common Stock held in the Company's treasury, if any, shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into the right to receive $28.85 in cash, payable to the holder
thereof, without interest thereon, upon surrender of the certificate
representing such share of Common Stock (such cash amount is referred to herein
as the "Merger Consideration"; the shares of Common Stock for which the Merger
Consideration is to be paid are referred to herein as the "Public Shares"; and
the holders thereof are referred to herein as the "Public Shareholders").
(b) Each share of Common Stock issued and outstanding immediately prior
to the Effective Time that is then owned of record by Mergeco or the Continuing
Shareholders shall, by virtue of the Merger and without any action on the part
of the holder thereof, be canceled and retired and cease to exist, and no
payment shall be made with respect thereto.
(c) Each share of Common Stock issued and held in the Company's
treasury immediately prior to the Effective Time, if any, shall, by virtue of
the Merger, be canceled and retired and cease to exist, and no payment shall be
made with respect thereto.
(d) At the Effective Time, the Public Shareholders shall cease to have
any rights as shareholders of the Company except the right to receive the Merger
Consideration.
2.2 Mergeco Membership Interests. Each membership unit of Mergeco (the
"Mergeco Membership Interests") issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into one share of Common Stock of the
Surviving Corporation. The Common Stock issued pursuant to this Section 2.2
shall, immediately after the Effective Time, constitute the only issued or
outstanding shares of capital stock of the Surviving Corporation.
2.3 Exchange of Shares. (a) As of or as soon as reasonably practicable
following the Effective Time, the Surviving Corporation shall deposit in trust
with a bank or trust company that has offices in New York City and is designated
by the Surviving Corporation (the "Paying Agent"), cash in an aggregate amount
equal to the product of (x) the number of Public Shares issued and outstanding
immediately prior to the Effective Time and (y) the Merger Consideration (such
amount being hereinafter referred to as the "Exchange Fund"). The Paying Agent
shall, pursuant to irrevocable instructions, make the payments provided for in
Section 2.1(a) of this Agreement out of the Exchange Fund. The Paying Agent
shall invest the Exchange Fund, as the Surviving Corporation directs, in direct
obligations of the United States of America, obligations for which the full
faith and
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credit of the United States of America is pledged to provide for the payment of
all principal and interest or commercial paper obligations receiving the highest
rating from either Moody's Investors Service, Inc. or Standard & Poor's, a
division of The McGraw Hill Companies, or a combination thereof, provided that,
in any such case, no such instrument shall have a maturity exceeding three
months. Any net profit resulting from, or interest or income produced by, such
investments shall be payable to the Surviving Corporation. The Surviving
Corporation shall replace any monies lost through any investment made pursuant
to this Section 2.3(a). The Exchange Fund shall not be used for any other
purpose except as provided in this Agreement.
(b) Promptly after the Effective Time, the Surviving Corporation shall
cause the Paying Agent to mail to each record holder (as of the Effective Time)
of an outstanding certificate or certificates that immediately prior to the
Effective Time represented Public Shares (the "Certificates") a form letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Paying Agent) and instructions for use in effecting the
surrender of the Certificates for payment therefor. Upon surrender to the Paying
Agent of a Certificate, together with a properly completed and executed letter
of transmittal, the holder of such Certificate shall be entitled to receive in
exchange therefor cash in an amount equal to the product of the number of Public
Shares represented by such Certificate and the Merger Consideration, less any
applicable withholding tax, and such Certificate shall forthwith be canceled. In
the event any Certificate shall have been lost or destroyed, the Paying Agent,
subject to such other reasonable conditions as the Surviving Corporation may
impose (including the posting of an indemnity bond or other surety in favor of
the Surviving Corporation with respect to the Certificates alleged to be lost or
destroyed), shall be authorized to accept an affidavit from the record holder of
such Certificate in a form reasonably satisfactory to the Surviving Corporation.
No interest shall be paid or accrued on the cash payable upon the surrender of
the Certificates. If payment is to be made to a person other than the person in
whose name the Certificate surrendered is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment shall pay any transfer or other tax required by reason of the payment to
a person other than the registered holder of the Certificate surrendered or
establish to the satisfaction of the Paying Agent and the Surviving Corporation
that such tax has been paid or is not applicable. Until surrendered in
accordance with the provisions of this Section 2.3, each Certificate shall
represent for all purposes only the right to receive the Merger Consideration in
cash multiplied by the number of Public Shares evidenced by such Certificate,
without any interest thereon.
(c) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of Public Shares that were
outstanding immediately prior to the Effective Time.
(d) Any portion of the Exchange Fund that remains unclaimed by the
Public Shareholders of the Company for one year after the Effective Time
(including any interest, dividends, earnings or distributions received with
respect thereto) shall be repaid to the Surviving Corporation, upon demand. Any
Public Shareholders who have not theretofore satisfied the provisions of Section
2.3(b)
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shall thereafter look only to the Surviving Corporation for payment of their
claim for the Merger Consideration, without any interest thereon, but shall have
no greater rights against the Surviving Corporation than may be accorded to
general creditors of the Surviving Corporation under New York law.
Notwithstanding the foregoing, neither the Paying Agent nor any party hereto
shall be liable to any holder of Certificates formerly representing shares of
Common Stock for any amount paid with respect thereof to a public official
pursuant to any applicable abandoned property, escheat or similar law.
2.4 Stock Option Plans. At the Effective Time, all outstanding Stock
Options (as defined herein), including Stock Options held by the Continuing
Shareholders, shall be terminated and, promptly following the Effective Time,
the Surviving Corporation shall, to the extent permitted by the applicable Stock
Option Plan (as defined herein) or agreement between the Company and the
optionee related to the applicable Stock Option, subject to Section 2.5, pay to
the holder of each such Stock Option, in cash and as full settlement for such
Stock Option, whether or not then exercisable, the Stock Option Buyout Amount
(as defined herein) for the shares of Common Stock subject to such Stock Option.
As used herein: (i) with respect to any Stock Option, the "Stock Option Buyout
Amount" shall mean (A) the excess, if any, of the Merger Consideration over the
exercise price per share of such Stock Option, (B) multiplied by the total
number of shares of Common Stock subject to such Stock Option; (ii) the "1991
Plan" shall mean the Company's 1991 Stock Incentive Plan, as amended to date;
(iii) the "1993 Plan" shall mean the Company's 1993 Non-Employee Director Stock
Option Plan, as amended to date (the 1991 Plan and the 1993 Plan being
collectively referred to herein as the "Stock Option Plans"); and (iv) "Stock
Options" shall mean all options to purchase shares of Common Stock under the
Company's 1985 Incentive Stock Option Plan, the 1991 Plan and the 1993 Plan and
options held by any of the Continuing Shareholders that were not granted under
the Stock Option Plans.
2.5 Withholding Rights. The Surviving Corporation and the Paying Agent
shall be entitled to deduct and withhold from the amounts payable (including the
Merger Consideration) pursuant to this Agreement to any Public Shareholder or
holder of Stock Options such amounts as Mergeco, the Surviving Corporation or
the Paying Agent is required to deduct and withhold with respect to the making
of such payment under applicable tax law. To the extent that amounts are so
deducted and withheld by Mergeco, the Surviving Corporation or the Paying Agent,
such amounts shall be treated for all purposes of this Agreement as having been
paid to the relevant Public Shareholder or holder of Stock Options.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Mergeco as follows:
3.1 Organization. The Company is a corporation validly existing and in
good standing under the laws of the State of New York and has all requisite
power (corporate or otherwise) and
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authority to own, lease and operate its properties and to conduct its business
as now being conducted, except where the failure to be so organized, existing
and in good standing or to have such power and authority would not, individually
or in the aggregate, have a material adverse effect on the business, condition
(financial or otherwise), properties, assets or prospects of the Company and its
subsidiaries taken as a whole (a "Material Adverse Effect"). The Company was
formed under the name Sbarro Licensing Inc.
3.2 Capitalization. The authorized capital stock of the Company
consists of (i) 40,000,000 shares of Common Stock, of which, on January 15,
1999, there were 20,531,977 shares issued and outstanding, which number of
outstanding shares may change by virtue of the exercise of outstanding Stock
Options, and (ii) 1,000,000 shares of preferred stock, par value $1.00 per
share, of which there are no shares issued and outstanding. Except for the Stock
Option Plans, there are not now any existing stock option or similar plans and,
except for currently outstanding Stock Options, there are not now any
outstanding options, warrants, calls, subscriptions, preemptive rights or other
rights or other agreements or commitments whatsoever obligating the Company to
issue, transfer, deliver or sell, or cause to be issued, transferred, delivered
or sold, any shares of capital stock or equity interests, as the case may be, of
the Company or obligating the Company to grant, extend or enter into any such
agreement or commitment.
3.3 Authorization of this Agreement; Recommendation of Merger. (a) The
Company has all requisite corporate power and authority to execute and deliver
this Agreement and, subject to approval by the shareholders of the Company, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized and approved by the Company's Board of
Directors and, except for the adoption of this Agreement by the shareholders of
the Company, no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Company and, subject only to adoption hereof by its
shareholders (and assuming the due authorization, execution and delivery hereof
by Mergeco and the Continuing Shareholders), this Agreement constitutes a valid
and binding agreement of the Company, enforceable against the Company in
accordance with its terms.
(b) The Special Committee has received the opinion of Prudential
Securities Incorporated ("Prudential Securities") dated January 19, 1999 that,
as of the date of such opinion, the Merger Consideration to be received by the
Public Shareholders pursuant to this Agreement is fair, from a financial point
of view, to the Public Shareholders.
(c) The Special Committee (at a meeting duly called and held at which a
quorum was present) has determined that the Merger is fair to, and in the best
interests of, the Public Shareholders, and has recommended the adoption of this
Agreement to the Board of Directors of the Company, subject to the right of the
Special Committee to withdraw, modify or amend such recommendation if the
Special Committee determines, in good faith after consultation with legal
counsel, that failure
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to take such action would be reasonably likely to result in a breach of its
fiduciary duties to the Company's shareholders under applicable law.
(d) The Board of Directors of the Company (at a meeting duly called and
held at which a quorum was present) has determined that the Merger is fair to,
and in the best interests of, the shareholders of the Company, has adopted this
Agreement and has recommended the adoption of this Agreement by the shareholders
of the Company, subject to the right of the Board of Directors of the Company to
withdraw, modify or amend such recommendation to the extent that the Board of
Directors of the Company determines, in good faith after consultation with legal
counsel, that failure to take such action would be reasonably likely to result
in a breach of its fiduciary duties to the Company's shareholders under
applicable law.
3.4 Governmental Filings; No Conflicts. Except for (i) filings required
under the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (the "Exchange Act"), (ii) the filing and
recordation of appropriate merger documents as required by the NYBCL and, if
applicable, the laws of other states in which the Company is qualified to do
business, (iii) filings, if any, under securities or blue sky laws or takeover
statutes, (iv) filings to fulfill the delisting requirements of the New York
Stock Exchange, (v) regulatory filings relating to the operation of the
Company's business, (vi) filings in connection with any applicable transfer or
other taxes in any applicable jurisdiction and (vii) filings under applicable
alcohol and beverage laws and regulations, no filing with, and no permit,
authorization, consent or approval of, any public body or authority is necessary
for the consummation by the Company of the transactions contemplated by this
Agreement, the failure to make or obtain which would have, individually or in
the aggregate, a Material Adverse Effect or a material adverse effect on the
ability of the Company to consummate the transactions contemplated hereby.
Neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby nor compliance by the Company with any of the
provisions hereof will (x) conflict with or result in any violation of any
provision of the Certificate of Incorporation of the Company or By-Laws of the
Company, as in effect on the date hereof, or (y) assuming the truth of the
representations and warranties of Mergeco contained herein and its compliance
with all agreements contained herein and assuming the due making of all filings
and obtaining all permits, authorizations, consents and approvals referred to in
the preceding sentence, violate any statute, rule, regulation, order,
injunction, writ or decree of any public body or authority by which the Company
or any of its assets or properties is bound, excluding from the foregoing clause
(y) conflicts, violations, breaches or defaults which, either individually or in
the aggregate, would not have a Material Adverse Effect or a material adverse
effect on the Company's ability to consummate the transactions contemplated
hereby.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGECO
AND THE CONTINUING SHAREHOLDERS
Mergeco and the Continuing Shareholders, jointly and severally,
represent and warrant to the Company as follows:
4.1 Organization. Mergeco is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
New York and has all requisite power and authority to consummate the
transactions contemplated hereby. Mergeco was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement. As of the date
hereof and the Effective Time, except for obligations or liabilities incurred in
connection with its organization and the transactions contemplated by this
Agreement and, except for this Agreement, its Operating Agreement and any other
agreements or arrangements contemplated by this Agreement or in furtherance of
the transactions contemplated hereby, Mergeco has not and will not have
incurred, directly or indirectly, any obligations or liabilities or engaged in
any business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person whatsoever.
4.2 Membership Interests. All of the outstanding Mergeco Membership
Interests are owned by the Continuing Shareholders. There are not now, and, at
the Effective Time there will not be, any other outstanding membership interests
or rights or other agreements or commitments whatsoever obligating Mergeco or
any of its subsidiaries, if any, to issue, transfer, deliver or sell, or cause
to be issued, transferred, delivered or sold, to any other person any additional
membership interests of Mergeco, or obligating Mergeco to grant, extend or enter
into any such agreement or commitment.
4.3 Authorization of this Agreement. Mergeco and the Continuing
Shareholders have all requisite power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized and approved by the
holders of all the membership interests of Mergeco, and no other proceedings on
the part of Mergeco are necessary to authorize this Agreement or consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Mergeco and the Continuing Shareholders and adopted by
the members of Mergeco, and (assuming the due authorization, execution and
delivery hereof by the Company) constitutes a valid and binding agreement of
Mergeco and the Continuing Shareholders.
4.4 Governmental Filings; No Violations. Except for (i) filings
required by the applicable requirements of the Exchange Act, (ii) the filing and
recordation of appropriate merger documents as required by the NYLLCL, (iii)
filings, if any, under the securities or blue sky laws or takeover statutes,
(iv) filings in connection with any applicable transfer or other taxes in any
applicable jurisdiction and (v) filings under applicable alcohol and beverage
laws and regulations, no filing with, and no permit, authorization, consent or
approval of, any public body or authority is necessary for
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the consummation by Mergeco of the transactions contemplated by this Agreement,
the failure to make or obtain which is reasonably likely to impair the ability
of Mergeco to perform its obligations hereunder or to consummate the
transactions contemplated hereby. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby nor
compliance by Mergeco with any of the provisions hereof will (x) conflict with
or result in any violation of any provision of the articles of organization or
operating agreement of Mergeco, (y) result in a violation or breach of, or
constitute a default (or give rise to any right of termination, cancellation or
acceleration) under, any note, bond, mortgage, indenture, license, agreement or
other instrument or obligation to which Mergeco is a party, or by which it or
any of its properties or assets is bound or (z) assuming the truth of the
representations and warranties of the Company hereunder and its compliance with
all agreements contained herein and assuming the due making of all filings or
obtaining of all permits, authorizations, consents and approvals referred to in
the preceding sentence, violate any statute, rule, regulation, order,
injunction, writ or decree of any public body or authority by which Mergeco or
any of its properties or assets is bound, excluding from the foregoing clauses
(y) and (z) conflicts, violations, breaches or defaults which, either
individually or in the aggregate, are not reasonably likely to impair materially
the ability of Mergeco to perform its obligations hereunder or to consummate the
transactions contemplated hereby.
4.5 Financing Arrangements. Mergeco and the Continuing Shareholders
have received a "highly confident" letter (the "Debt Financing Letter") dated as
of January 19, 1999 from Bear, Stearns & Co. Inc. ("Bear Stearns"), a copy of
which has heretofore been delivered to the Special Committee, relating to
approximately $300 million of debt financing (the "Debt Financing"), which Debt
Financing Letter is currently in effect. It is contemplated that the Debt
Financing, together with the Company's cash and marketable securities
immediately prior to the Effective Time (collectively with the Debt Financing,
the "Financing"), will be sufficient to enable the Surviving Corporation to pay
the Merger Consideration to all Public Shareholders, make any payments
contemplated by Section 2.4 and otherwise to consummate the transactions
contemplated hereby and to fund all costs and expenses of the Company and
Mergeco incurred in connection with the Merger and the transactions contemplated
hereby. The revolving credit facility, or the excess cash, referred to in the
Debt Financing Letter is designed to fund the Surviving Corporation's ongoing
working capital needs.
ARTICLE V
COVENANTS
5.1 Conduct of the Business of the Company. During the period from the
date of this Agreement to the Effective Time, neither the Company nor any of its
subsidiaries will (i) carry on their respective businesses other than in the
usual, regular and ordinary course of business, consistent with past practice;
(ii) issue any options to purchase shares of Common Stock or other capital stock
or issue any shares of Common Stock (other than pursuant to the exercise of
currently outstanding Stock Options) or other capital stock; or (iii) declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock, or equity
interest, as the case may be, or repurchase or agree to repurchase any shares of
its
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capital stock, or agree to do any of the foregoing; provided, however, that (x)
any of the Company's wholly-owned direct or indirect subsidiaries may declare,
set aside or pay any dividend or other distribution with respect to their
capital stock, and (y) any other subsidiary of the Company may make a
distribution to the Company or other owners of such subsidiary if and to the
extent such subsidiary is required to do so by contract as in effect on the date
hereof.
5.2 Activities of Mergeco. From the date of this Agreement to the
Effective Time, Mergeco will not conduct any business or engage in any
activities of any nature other than activities in connection with this Agreement
or the transactions contemplated hereby.
5.3 Access to Information. During the period from the date of this
Agreement to the Effective Time, during normal business hours, upon reasonable
notice and in such a manner as will not unreasonably interfere with the conduct
of the business of the Company, the Company will (i) give Mergeco and its
authorized representatives, including representatives and advisors of persons
proposing to provide the Debt Financing, reasonable access to all stores,
offices and other facilities, and to all books and records, of the Company and
its subsidiaries, (ii) permit Mergeco and its authorized representatives to make
such inspections as it may reasonably require and (iii) cause its officers and
those of its subsidiaries to furnish Mergeco with a copy of each report,
schedule and other document filed or received by it during such period pursuant
to the requirements of federal and state securities laws and such financial and
operating data and other information with respect to the business and properties
of the Company and its subsidiaries as Mergeco may from time to time reasonably
request. Mergeco shall take reasonable steps to insure that any confidential
information provided to it or its representatives and advisors remains
confidential and is used for no purpose other than the transactions contemplated
hereby.
5.4 Financing. Mergeco and the Continuing Shareholders shall use their
best efforts to obtain the Debt Financing on terms and conditions no less
favorable to the Company than those described in Section 6.2(g). The Company
shall cooperate with, and use its best efforts to assist, Mergeco in obtaining
the Financing.
5.5 Shareholders' Meeting. (a) As soon as practicable, the Company,
acting through its Board of Directors, shall, in accordance with applicable law,
take all steps necessary to duly call, give notice of, convene and hold a
special or annual meeting of its shareholders (as same may be adjourned or
postponed from time to time, the "Shareholders' Meeting") for the purpose of
adopting this Agreement. The notice of such meeting shall contain the
information required to be included therein pursuant to the NYBCL.
(b) The Continuing Shareholders agree (i) to vote at the Shareholders'
Meeting all 7,064,328 shares of outstanding Common Stock owned of record by them
as of the date of this Agreement (the "Continuing Shareholder Shares") for
adoption of this Agreement but only if at least a majority of the votes cast at
the Shareholders' Meeting (excluding votes cast by the holders of the Continuing
Shareholder Shares, abstentions and broker non-votes) are cast in favor of
adoption of this Agreement, (ii) not to grant a proxy to vote any Continuing
Shareholder Shares other than to
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another Continuing Shareholder or to persons identified in a proxy card
distributed on behalf of the Company's Board of Directors to vote such
Continuing Shareholder Shares at the Shareholders' Meeting in the manner
provided in clause (i), and (iii) not to sell, transfer or otherwise dispose of
any Continuing Shareholder Shares (other than transfers of Continuing
Shareholder Shares to Mergeco or any family members of Mario Sbarro, Anthony
Sbarro or Joseph Sbarro or trusts for the benefit of such Continuing
Shareholders or such family members), which shares may be so transferred only if
the transferee agrees in writing to be bound by the terms of the agreements
contained in this Section 5.5(b). In the event of any transfer of Continuing
Shareholder Shares after the date hereof, such shares shall remain Continuing
Shareholder Shares and be deemed to be owned of record by the Continuing
Shareholders for purposes of Article II of this Agreement and this Section
5.5(b).
5.6 Proxy Statement and Schedule 13E-3. (a) The Company will, as soon
as practicable, prepare and file with the Securities and Exchange Commission
(the "Commission") a proxy statement and a form of proxy, in connection with the
vote of the Company's shareholders with respect to the Merger (such proxy
statement, together with any amendments thereof or supplements thereto, in each
case in the form or forms mailed to the Company's shareholders, being the "Proxy
Statement"). The Company, Mergeco and the Continuing Shareholders shall together
prepare and file a Transaction Statement on Schedule 13E-3 (the "Schedule
13E-3") under the Exchange Act. Each of Mergeco, the Company and the Continuing
Shareholders shall furnish all information required to be included about such
person (as defined in Section 9.10) in the Proxy Statement and the Schedule
13E-3 and, after consultation with each other, shall respond promptly to any
comments made by the Commission with respect to the Proxy Statement and any
preliminary version thereof and the Schedule 13E-3. The Company shall cause the
Proxy Statement to be mailed to its shareholders at the earliest practicable
time. The Proxy Statement shall include the recommendation of the Company's
Board of Directors to the shareholders of the Company (and reflect that the
Special Committee has made a similar recommendation to the Company's Board of
Directors), subject to the fiduciary duties under applicable law of such
directors (including the directors constituting the Special Committee), as
determined by such directors in good faith after consultation with counsel, in
favor of the adoption of this Agreement. The Company shall use its best efforts
to obtain the necessary adoption of this Agreement by its shareholders.
Notwithstanding anything to the contrary in this Agreement, if the Board of
Directors of the Company or the Special Committee determines, in good faith
after consultation with counsel that, in the exercise of its respective
fiduciary duties, under applicable law it is required to withdraw, modify or
amend its recommendation in favor of the Merger, such withdrawal, modification
or amendment shall not constitute a breach of this Agreement.
(b) The information supplied by the Company for inclusion in the Proxy
Statement or the Schedule 13E-3 shall not, at the time the Proxy Statement is
mailed, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading or, at the time of the Shareholders' Meeting, as then amended or
supplemented, omit to state any material fact necessary to correct any statement
originally supplied by the Company for inclusion in the Proxy Statement or the
Schedule 13E-3 which has become false or misleading. If, at any time prior to
the Effective Time, any event relating to the Company or any of its affiliates,
or
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relating to their respective officers, directors or shareholders, should be
discovered which should be set forth in an amendment of, or a supplement to,
such Proxy Statement or Schedule 13E-3, the Company shall promptly so inform
Mergeco and will furnish all necessary information to Mergeco relating to such
event. All documents that the Company is responsible for filing with the
Commission in connection with the transactions contemplated by this Agreement
shall comply in all material respects, both as to form and otherwise, with the
Exchange Act.
(c) The information supplied or to be supplied by Mergeco and the
Continuing Shareholders for inclusion in the Proxy Statement or the Schedule
13E-3 shall not, at the time the Proxy Statement is mailed, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading or, at the time of
the Shareholders' Meeting, as then amended or supplemented, omit to state any
material fact necessary to correct any statement originally supplied by Mergeco
and the Continuing Shareholders for inclusion in the Proxy Statement or the
Schedule 13E-3 which has become false or misleading. If, at any time prior to
the Effective Time, any event relating to Mergeco or any of its affiliates, or
relating to the respective officers, directors or shareholders of Mergeco or its
affiliates, as the case may be, should be discovered which should be set forth
in an amendment of, or a supplement to, such Proxy Statement or Schedule 13E-3,
Mergeco shall promptly so inform the Company and will furnish all necessary
information to the Company relating to such event. All documents that Mergeco is
responsible for filing with the Commission in connection with the transactions
contemplated by this Agreement shall comply in all material respects, both as to
form and otherwise, with the Exchange Act.
5.7 Best Efforts. Subject to the terms and conditions herein provided
and the fiduciary duties under applicable law of the directors of the Company,
including directors constituting the Special Committee, as determined by such
directors in good faith after consultation with counsel, each of the parties
hereto agrees to use its best efforts consistent with applicable legal
requirements to take, or cause to be taken, all action, and to do, or cause to
be done, all things necessary or proper and advisable (including, but not
limited to, executing any and all additional documents) under applicable laws
and regulations to ensure that the conditions set forth in Article VI hereof are
satisfied and to consummate and make effective, in a commercially reasonable
manner, the transactions contemplated by this Agreement. Without limiting the
generality of the foregoing, the Continuing Shareholders shall use their best
efforts to cause Mergeco to perform all of its obligations under this Agreement.
5.8 Consents. Mergeco and the Company each shall use their best efforts
to obtain all material consents of third parties and governmental authorities,
and to make all governmental filings, necessary for the consummation of the
transactions contemplated by this Agreement.
5.9 Public Announcements. Mergeco and the Company will consult with
each other before issuing any press release or otherwise making any public
statements with respect to the Merger, this Agreement and the transactions
contemplated hereby, and shall not issue any such press
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release or make any such public statement prior to such consultation, except as
may be required by law or in accordance with the Company's obligations incurred
pursuant to its listing agreement with the New York Stock Exchange.
5.10 Indemnification. (a) Until and for a period of six years after the
Effective Time, the provisions of the Certificate of Incorporation of the
Company limiting the personal liability of directors for damages and the
indemnification provisions of the Certificate of Incorporation and Bylaws of the
Company as they relate to those who have served as directors or officers of the
Company at any time through the Effective Time shall not be amended, repealed or
otherwise modified in any manner that would make any of such provisions less
favorable to the directors or officers of the Company or the Surviving
Corporation than those that pertain to directors and officers on the date
hereof. Until and for a period of six years after the Effective Time (provided
that if any claim or claims are asserted or made under this Section 5.10 within
such six-year period, all rights to indemnification in respect of each such
claim shall continue until final disposition of such claim), the Surviving
Corporation shall, (i) indemnify, defend and hold harmless the present and
former officers and directors of the Company and its subsidiaries, Mergeco and
the members of Mergeco (collectively, the "Indemnified Parties"), from and
against, and pay or reimburse the Indemnified Parties for, all losses,
obligations, expenses, claims, damages or liabilities (whether or not resulting
from third-party claims and including interest, penalties, out-of-pocket
expenses and attorneys' fees incurred in the investigation or defense of any of
the same or in asserting any of their rights hereunder) resulting from or
arising out of actions or omissions of such Indemnified Parties occurring on or
prior to the Effective Time (including, without limitation, the transactions
contemplated by this Agreement) to the fullest extent permitted or required, as
the case may be, under (A) applicable law, (B) the Certificate of Incorporation
or By-laws of the Company or the articles of organization or operating agreement
of Mergeco in effect on the date of this Agreement, including, without
limitation, provisions relating to advances of expenses incurred in the defense
of any action or suit, (C) any indemnification agreement between the Indemnified
Party and the Company, or (D) resolutions adopted by the shareholders or
directors of the Company or the members of Mergeco; and (ii) advance to any
Indemnified Parties expenses incurred in defending any action or suit with
respect to such matters upon receipt of an undertaking (which need not be
secured) by or on behalf of such Indemnified Party to repay such amount as, and
to the extent, it is not entitled to be indemnified, in each case to the fullest
extent such Indemnified Party is entitled to indemnification or advancement of
expenses under the Company's Certificate of Incorporation, By-laws or
indemnification agreements with its officers and directors or Mergeco's
operating agreement in effect on the date hereof and subject to the terms of
such Certificate of Incorporation, By-laws, indemnification agreements or
operating agreement; provided, however, that (i) no indemnification shall be
made to or on behalf of Mergeco or a member of Mergeco in his or its individual
capacity or in his or its capacity as a member of Mergeco which arises as a
result of the transactions contemplated herein if a judgment or other final
adjudication adverse to Mergeco or such member of Mergeco, as the case may be,
establishes that its or his acts constituted a breach of (x) its or his
fiduciary duties to the Company or the shareholders of the Company, or (y) any
of Mergeco's or such member's representations, warranties or obligations
hereunder which caused the Company to
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terminate this Agreement; and (ii) nothing herein shall be construed as
adversely affecting any such member's entitlement to indemnification from the
Company as an officer or director of the Company.
(b) The Surviving Corporation shall use its best efforts to maintain in
effect for one year after the Effective Time one or more policies of directors'
and officers' liability insurance covering (i) reimbursement of the Company for
any obligation it incurs as a result of indemnification of directors and
officers (the "Corporate Reimbursement Feature") and (ii) also providing
insurance for directors and officers individually in cases where the Corporate
Reimbursement Feature is not applicable, including in the event of the
insolvency of the Company (the "Individual Feature"), with an aggregate limit of
liability of not less than $5.0 million for the policy period for all such
policies; provided, however, that the Surviving Corporation shall not be
required to pay a premium therefor in excess of $100,000, but, if such premium
would exceed such amount, the Surviving Corporation shall purchase as much
coverage as possible for such amount. Such policy shall be on a "claims made"
basis and shall have a retention amount of not more than $250,000 and no
co-insurance with respect to the Corporate Reimbursement Feature, and retention
and co-insurance amounts not greater than the minimum amounts required by New
York state law with respect to the Individual Feature. The policies will cover
and relate to any individual who is, becomes or was a director or officer of the
Company. Such policies may be subject to additional customary conditions and
exclusions, including an exclusion for any lawsuits pending at the time such
policy is written or relating to the Merger.
(c) Any Indemnified Party wishing to claim indemnification under
Section 5.10(a) shall provide notice to the Surviving Corporation promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and the Indemnified Party shall permit the Surviving Corporation
(at its expense) to assume the defense of any claim or any litigation resulting
therefrom; provided, however, that (i) counsel for the Surviving Corporation,
who shall conduct the defense of such claim or litigation, shall be reasonably
satisfactory to the Indemnified Party and the Indemnified Party may participate
in such defense at such Indemnified Party's expense, and (ii) the omission by or
delay of any Indemnified Party to give notice as provided herein shall not
relieve the Surviving Corporation of its indemnification obligation under this
Agreement, except to the extent that such omission or delay results in a failure
of actual notice to the Surviving Corporation or the Surviving Corporation is
materially prejudiced as a result thereof. In the event that the Surviving
Corporation does not accept the defense of any matter as above provided, or
counsel for such Indemnified Party advises that there are issues that raise
conflicts of interest between the Surviving Corporation and the Indemnified
Party, the Indemnified Party may retain counsel satisfactory to it, and the
Surviving Corporation shall pay all reasonable fees and expenses of such counsel
for the Indemnified Party promptly as statements therefor are received;
provided, however, that the Surviving Corporation shall not be liable for any
settlement effected without its prior written consent (which consent shall not
be unreasonably withheld); and provided, further, that the Surviving Corporation
shall not be responsible for the fees and expenses of more than one counsel for
all of the Indemnified Parties, unless such Indemnified Party concludes (based
upon the written advice of counsel to such Indemnified Party) that there may be
legal defenses available to such Indemnified Party that are different from or
additional to those available to any other Indemnified Party, in which event the
Indemnified Party making such conclusion shall be entitled to select separate
counsel to
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assert such legal defenses and to otherwise participate in the defense of the
matter, and the Surviving Corporation shall be liable to the Indemnified Party
under this Section 5.10 for any such legal or other expenses incurred by the
Indemnified Party in connection with such defense. In any event, the Surviving
Corporation and the Indemnified Parties shall cooperate in the defense of any
action or claim. The Surviving Corporation shall not, in the defense of any such
claim or litigation, except with the consent of the Indemnified Party, consent
to entry of any judgment or enter into any settlement that provides for
injunctive or other nonmonetary relief affecting the Indemnified Party or that
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability with respect
to such claim or litigation.
(d) This Section 5.10 is intended for the benefit of, and to grant
third party rights to, persons entitled to indemnification under this Section
5.10 and/or the benefits of Article Seventh of the Certificate of Incorporation
of the Company as in effect on the date hereof, whether or not parties to this
Agreement, and each of such persons shall be entitled to enforce the covenants
contained in this Section 5.10.
(e) If the Surviving Corporation or any of its respective successors or
assigns (i) reorganizes or consolidates with or merges into any other person and
is not the resulting, continuing or surviving corporation or entity of such
reorganization, consolidation or merger, or (ii) liquidates, dissolves or
transfers all or substantially all of its properties and assets to any person or
persons, then, and in such case, proper provision will be made so that the
respective successors and assigns of the Surviving Corporation assume all of the
obligations of the Surviving Corporation referred to in this Section 5.10.
5.11 No Solicitation. (a) The Company and its subsidiaries shall not,
and shall not authorize or permit any of their officers, directors (including
but not limited to directors who are members of the Special Committee), agents,
representatives, advisors or affiliates (collectively, for the purposes of this
Section 5.11, "Representatives") to, in each case whether or not in writing and
whether or not communicated to the shareholders of the Company generally, (i)
take any action to solicit, initiate or encourage any Transaction Proposal (as
defined herein), or (ii) enter into negotiations with, or furnish information
to, any other party with respect to any Transaction Proposal; provided, however,
that the Company and the Representatives shall not be prohibited from taking any
action described in clause (ii) above to the extent such action is taken by, or
upon the authority of, the Board of Directors of the Company if, in the good
faith judgment of the Board of Directors, (x) such Transaction Proposal is
(after consultation with a financial advisor of a nationally recognized
reputation) (A) more favorable to the Company's shareholders than the Merger,
(B) achievable, and (C) supported by creditable financing, which may include a
"highly confident" letter from a nationally recognized investment banking firm
or nationally recognized lending institution, and (y) after consultation with
counsel, failure to take such action would breach its fiduciary duties to the
Company's shareholders under applicable law. For the purposes of this Agreement,
"Transaction Proposal" means any offer or proposal for, or any indication of
interest in, a merger or other business combination involving the Company or any
subsidiary of the Company or the acquisition of any equity
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interest in, or the sale of a substantial portion of the assets of, the Company
or any such subsidiary, except for the transactions contemplated hereby.
(b) The Company shall promptly provide Mergeco with a summary of the
material terms of any Transaction Proposal and of any negotiations or
communications between the Company or its subsidiaries or any of their
respective Representatives concerning any Transaction Proposal.
(c) The Company shall give Mergeco not less than three business days'
written notice before providing any confidential information to any person
(other than Mergeco, the prospective sources of the Debt Financing and their
respective representatives) concerning the business, properties or prospects of
the Company and/or its subsidiaries.
(d) Nothing contained in this Agreement shall prohibit the Company from
making a statement to its shareholders that is required by Rule 14e-2(a)
promulgated under the Exchange Act or from making any other disclosure to its
shareholders if, in the good faith judgment of the Board of Directors, after
consultation with counsel, failure to make such a statement would breach its
fiduciary duties to the Company's shareholders under applicable law or would
otherwise violate the Exchange Act, other applicable law or stock exchange
regulation.
5.12 Transfer Taxes. Except to the extent otherwise contemplated in
Section 2.3, the Surviving Corporation shall pay any transfer taxes (including
any interest and penalties thereon and additions thereto) payable in connection
with the Merger and shall be responsible for the preparation and filing of any
required tax returns, declarations, reports, schedules, terms and information
returns with respect to such transfer taxes.
ARTICLE VI
CLOSING CONDITIONS
6.1 Conditions to the Obligations of Each Party. The respective
obligations of each party hereto to effect the Merger shall be subject to the
satisfaction or waiver, at or prior to the Effective Time, of the following
conditions:
(a) the proposal to adopt this Agreement at the Shareholders' Meeting
shall have been approved and adopted by the affirmative vote of at least
two-thirds of the votes of all outstanding shares of Common Stock entitled to
vote thereon in accordance with the NYBCL;
(b) the proposal to adopt this Agreement shall have been approved and
adopted by the affirmative vote of at least a majority of the votes cast at the
Shareholders' Meeting excluding (i) votes cast by the holders of the Continuing
Shareholder Shares, (ii) abstentions and (iii) broker non- votes;
(c) there shall not have occurred (i) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States or (ii) a commencement of a war, armed hostilities or other international
or national calamity, directly involving the United States, that
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has a material adverse effect on the general economic conditions in the United
States such as to make it, in the judgment of a party hereto, inadvisable or
impractical to proceed with the Merger or the transactions contemplated hereby
or by the Debt Financing; and
(d) other than the filing of the Certificates of Merger as contemplated
in Section 1.5, each of the Company and Mergeco shall have obtained such
consents from third parties and approvals from government instrumentalities as
shall be required for the consummation of the transactions contemplated hereby,
except for such consents the failure to obtain which would not have a Material
Adverse Effect.
6.2 Conditions to the Obligations of Mergeco. The obligation of Mergeco
pursuant to this Agreement to consummate the Merger is also subject to the
satisfaction or waiver, at the Closing, of the following additional conditions:
(a) the representations and warranties of the Company contained herein
shall be true and correct in all respects (in the case of any representation or
warranty containing any materiality qualification) or in all material respects
(in the case of any representation or warranty without any materiality
qualification) as of the date of this Agreement and as of the Closing with the
same effect as though all such representations and warranties had been made as
of the Closing, except (i) for any such representations and warranties made as
of a specified date, which shall be true and correct as of such date, (ii) as
expressly contemplated by this Agreement, and (iii) for breaches of
representations or warranties that (x) would not have a Material Adverse Effect
or a material adverse effect on the ability of the Company to consummate the
transactions contemplated hereby, or (y) are known on the date hereof by any of
the Continuing Shareholders; and Mergeco shall have received from the Company an
officer's certificate to this effect at the Closing;
(b) each and all of the covenants and agreements of the Company to be
performed and complied with pursuant to this Agreement prior to the Closing
shall have been duly performed and complied with, except where the failure to
comply with such covenant or agreement (i) would not have a Material Adverse
Effect or a material adverse effect on the ability of the Company to consummate
the transactions contemplated hereby, or (ii) was the direct result of an act or
omission of any of the Continuing Shareholders; and Mergeco shall have received
from the Company an officer's certificate to this effect at the Closing;
(c) there shall have been no (i) material adverse change in the
business, condition (financial or otherwise), properties, assets or prospects of
the Company and its subsidiaries taken as a whole; (ii) death or disability of
any of Mario Sbarro, Anthony Sbarro, Joseph Sbarro or Carmela Sbarro or any
executive officer of the Company named in the Company's Annual Report on Form
10- K/A for the year ended December 28, 1997 as stated therein to have a family
relationship (as such term is defined in Item 401 of Regulation S-K promulgated
by the Commission) with a Continuing Shareholder; or (iii) material adverse
change, or event or occurrence that is reasonably likely to result in an adverse
change, in securities, financial or borrowing markets, or applicable tax or
other laws or regulations, such as to decrease in any material respect the
benefits of the Merger to the Continuing
-17-
<PAGE>
Shareholders or make it impractical to proceed with the Merger or the
transactions contemplated hereby or by the Debt Financing;
(d) no statute, rule, regulation, or temporary, preliminary or
permanent order or injunction shall have been proposed, promulgated, enacted,
entered, enforced or deemed applicable by any state, federal or foreign
government or governmental authority or court or governmental agency of
competent jurisdiction that (i) prohibits consummation of the Merger or the
transactions contemplated hereby or thereby, or (ii) imposes material
limitations on the ability of the Continuing Shareholders effectively to
exercise full rights of ownership with respect to the shares of Common Stock to
be issued to them pursuant to Section 2.2 of this Agreement;
(e) the seven class action lawsuits which have heretofore been
instituted with respect to the transactions contemplated hereby shall have been
consolidated into one action in the Supreme Court of the State of New York and
the settlement of such actions, as reflected in that certain Memorandum of
Understanding dated January 19, 1999 (the "Memorandum of Understanding") among
the parties to such actions, shall have been approved by the Supreme Court of
New York County, final judgment shall have been entered in accordance with the
Settlement Agreement contemplated in the Memorandum of Understanding and shall
have become final, such actions shall have been dismissed with prejudice and
without costs to any party (except as provided in the Memorandum of
Understanding) and no holders, or holders of no more than an aggregate of
1,000,000 shares of Common Stock, shall have requested exclusion from the
"Class", as such term is defined in the Memorandum of Understanding.
(f) neither (i) any action, suit or proceeding before any court or
governmental body relating to the Merger or the transactions contemplated hereby
shall be pending in which an unfavorable judgment or decree could prevent or
substantially delay the consummation of the Merger, or is reasonably likely to
(w) result in a material increase in the aggregate Merger Consideration, (x)
result in an award of material damages, (y) cause the Merger to be rescinded or
(z) result in a material amount of rescissory damages, nor (ii) any decision in
any action, suit or proceeding relating to the Merger or the transactions
contemplated hereby shall have been rendered by any court or governmental body
which has any such effect; and
(g) the Company shall have obtained the Debt Financing referred to in
Section 4.5: (i) in at least the amount set forth in the Financing Letter, (ii)
on the material terms and conditions no less favorable to the Surviving
Corporation than those set forth in the term sheet heretofore delivered to the
Special Committee, and (iii) having a yield to maturity not to exceed 11.25% per
annum.
6.3 Conditions to the Obligations of the Company. The obligation of the
Company pursuant to this Agreement to consummate the Merger is also subject to
the satisfaction or waiver, at the Closing, of the following additional
conditions:
(a) the representations and warranties of Mergeco contained herein
shall be true and correct in all respects (in the case of any representation or
warranty containing any materiality
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<PAGE>
qualification) or in all material respects (in the case of any representation or
warranty without any materiality qualification) as of the date of this Agreement
and as of the Closing with the same effect as though all such representations
and warranties had been made as of the Closing, except (i) for any such
representations and warranties made as of a specified date, which shall be true
and correct as of such date, (ii) as expressly contemplated by this Agreement,
and (iii) for breaches of representations or warranties that would not have a
material adverse effect on the ability of Mergeco to consummate the transactions
contemplated hereby; and the Company shall have received from Mergeco a member's
certificate to this effect at the Closing; and
(b) each and all of the covenants and agreements of Mergeco to be
performed and complied with pursuant to this Agreement prior to the Closing
shall have been duly performed and complied with in all material respects except
where the failure to comply with such covenant or agreement would not have a
material adverse effect on the ability of Mergeco to consummate the transactions
contemplated hereby; and the Company shall have received from Mergeco a member's
certificate to this effect at the Closing; and
(c) no statute, rule, regulation, or temporary, preliminary or
permanent order or injunction shall have been proposed, promulgated, enacted,
entered, enforced or deemed applicable by any state, federal or foreign
government or governmental authority or court or governmental agency of
competent jurisdiction that prohibits consummation of the Merger or the
transactions contemplated hereby or thereby.
ARTICLE VII
CLOSING
7.1 Time and Place. The closing of the Merger (the "Closing") shall
take place at the offices of Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of
the Americas, New York, New York, as soon as practicable following satisfaction
or waiver of the conditions set forth in Article VI. The date on which the
Closing actually occurs is herein referred to as the "Closing Date."
7.2 Filings at the Closing. Promptly following the Closing, the Company
and Mergeco shall cause Certificates of Merger, together with any other
documents required by law to effectuate the Merger, to be executed, verified and
delivered for filing by the New York Department of State as provided by Section
904-a of the NYBCL and Section 1003 of the NYLLCL, respectively, to the extent
required, and shall take any and all other lawful actions and do any and all
other lawful things necessary to cause the Merger to become effective.
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<PAGE>
ARTICLE VIII
TERMINATION AND ABANDONMENT
8.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval by the shareholders of the
Company:
(a) by mutual consent of the Board of Directors of the Company (by
action taken by the Company's Board of Directors) and the members of Mergeco;
(b) automatically, without action by any party hereto, if, at the
Shareholders' Meeting, the Company's shareholders shall have not voted to adopt
this Agreement in accordance with the requirements set forth in Sections 6.1(a)
and (b);
(c) by action of the Board of Directors of the Company or the members
of Mergeco if, without the fault of the terminating party, the Merger has not
been consummated on or prior to August 31, 1999;
(d) by action of the Board of Directors of the Company or the members
of Mergeco if the Special Committee shall have withdrawn or modified in a manner
adverse to Mergeco its approval or recommendation of the Merger, this Agreement
or the transactions contemplated hereby;
(e) by action of the Board of Directors of the Company or the members
of Mergeco if (i) any of the events set forth in Section 6.1(c) shall have
occurred or (ii) consents or approvals described in Section 6.1(d) shall not
have been obtained prior to the Closing or shall have become incapable of being
obtained, and, in the case of (i) or (ii), shall not have been, on or before the
date of such termination, permanently waived by the Board of Directors of the
Company or the members of Mergeco, as the case may be;
(f) by action of the members of Mergeco if (i) any of the conditions
set forth in Sections 6.2(a), (b), (e), or (g) that are required to be satisfied
at or prior to the Closing shall not have been satisfied prior to the Closing or
shall have become incapable of being satisfied or (ii) if any of the events set
forth in Sections 6.2(c), (d) or (f) shall have occurred prior to the Closing
and, in the case of (i) or (ii), shall not have been, on or before the date of
such termination, permanently waived by Mergeco; provided, however, that, in the
case of Sections 6.2(a) or (b), the Company shall not have cured such breach, in
all material respects, within ten (10) business days following the receipt of
written notice from Mergeco of such breach; and
(g) by action of the Board of Directors of the Company if (i) any of
the conditions set forth in Sections 6.3(a) or (b) that are required to be
satisfied at or prior to the Closing shall not have been satisfied prior to the
Closing or shall have become incapable of being satisfied or (ii) if any of the
events set forth in Section 6.3(c) shall have occurred prior to the Closing and,
in the case of (i)
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<PAGE>
or (ii), shall not have been, on or before the date of such termination,
permanently waived by the Board of Directors of the Company; provided, however,
that, in the case of Sections 6.3(a) and (b), Mergeco and the Continuing
Shareholders shall not have cured such breach, in all material respects, within
ten (10) business days following the receipt of written notice from the Company
of such breach.
8.2 Procedure and Effect of Termination. In the event of termination
and abandonment of the Merger by either Mergeco or the Company pursuant to
Section 8.1, written notice thereof shall forthwith be given to the other, and
this Agreement shall terminate and the Merger shall be abandoned, without
further action by any of the parties hereto. If this Agreement is terminated as
provided herein, no party hereto shall have any liability or further obligation
to any other party to this Agreement; provided, however, that (i) any
termination by the Company arising out of a breach by Mergeco or the Continuing
Shareholders of any representation, warranty, covenant or agreement contained in
this Agreement shall be without prejudice to the rights of the Company to seek
damages with respect thereto, and (ii) any termination by Mergeco arising out of
a breach by the Company of any representation, warranty, covenant or agreement
contained in this Agreement, other than a breach by the Company that is the
direct result of an act or omission of the Continuing Shareholders, shall be
without prejudice to the rights of Mergeco to seek damages with respect thereto;
and provided, further, however, that the obligations set forth in this Section
8.2 and Section 9.6 shall in any event survive any termination.
ARTICLE IX
MISCELLANEOUS
9.1 Amendment; Modification and Approval of Special Committee. Subject
to applicable law, this Agreement may be amended, modified or supplemented only
by written agreement of Mergeco and the Continuing Shareholders, on the one
hand, and the Company, on the other hand, at any time prior to the Effective
Time with respect to any of the terms contained herein; provided, however, that
(i) after this Agreement is adopted by the Company's shareholders pursuant to
Section 5.5, no such amendment or modification shall be made that reduces the
amount or changes the form of the Merger Consideration or otherwise materially
and adversely affects the rights of the Public Shareholders hereunder without
further approval by the holders of such number of votes of shares of Common
Stock that are required to approve this Agreement pursuant to Sections 6.1(a)
and (b), and (ii) the approval of the Special Committee shall be required for
any action that may be taken by the Board of Directors pursuant to this
Agreement, including without limitation, any determination to terminate this
Agreement, any amendment or modification of this Agreement, any extension by the
Company of the time for the performance of any obligations or other acts of
Mergeco and any waiver of any of the Company's rights under this Agreement.
9.2 Waiver of Compliance; Consents. Any failure of Mergeco or the
Company to comply with any obligation, covenant, agreement or condition herein
may be waived by the other party, only by a written instrument signed by the
party granting such waiver (and if required pursuant to Section 9.1(ii), by an
authorized member of the Special Committee), but such waiver or failure to
insist upon
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<PAGE>
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
9.2.
9.3 Non-Survival of Representations and Warranties. Each and every
representation and warranty made in this Agreement shall expire with, and be
terminated and extinguished by, the Merger. This Section 9.3 shall have no
effect upon any other obligation of the parties hereto, whether to be performed
before or after the Closing.
9.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if (i) delivered personally or by
nationally-recognized overnight courier, (ii) mailed by registered or certified
mail, return receipt requested, postage prepaid or (iii) transmitted by
facsimile, and in each case, addressed to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice:
(a) if to Mergeco or the Continuing Shareholders, to:
Sbarro Merger LLC
401 Broadhollow Road
Melville, New York 11747
Facsimile: (516) 715-4190
Attention: Mario Sbarro
with copies to
Warshaw Burstein Cohen Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, New York 10017
Facsimile: (212) 972-9150
Attention: Arthur A. Katz, Esq.
(b) if to the Company, to
Sbarro, Inc.
401 Broadhollow Road
Melville, New York 11747
Facsimile: (516) 715-4185
Attention: Robert S. Koebele, Vice President-Finance
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<PAGE>
with copies to
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Facsimile: (212) 704-6288
Attention: Richard A. Rubin, Esq.
and to
Special Committee of the Board of Directors of Sbarro, Inc.
c/o Steven J. Gartner, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Facsimile: (212) 728-8111
with copies to
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Facsimile: (212) 728-8111
Attention: Steven J. Gartner, Esq.
Any notice so addressed shall be deemed to be given (x) three business days
after being mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid and (y) upon delivery, if transmitted by personal
delivery, nationally-recognized overnight courier or facsimile; provided,
however, that notices of a change of address shall be effective only upon
receipt thereof.
9.5 Assignment; Parties in Interest. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns; but neither this
Agreement nor any of the rights, interests or obligations hereunder may be
assigned by any party without the prior written consent of the other parties.
Except for Section 5.10, which is intended for the benefit of the Indemnified
Parties, this Agreement is not intended to confer upon any person, except the
parties, any rights or remedies under or by reason of this Agreement.
9.6 Costs and Expenses. Each party represents and warrants that it has
not obligated either itself or any other party to incur any broker, finder or
investment banking fees or related expenses, except for fees and expenses
payable by the Company to Bear, Stearns and to Prudential Securities. In the
event that this Agreement is terminated for any reason, the Company, on the one
hand, and Mergeco and the Continuing Shareholders, on the other hand, shall each
pay their own fees
-23-
<PAGE>
and expenses, it being understood that (a) the fees and expenses of the Company
shall include (i) the fees and expenses of financial advisors (including Bear
Stearns and Prudential Securities), (ii) any fees and expenses involved in the
preparation, printing, mailing and filing of documents used in connection with
the Merger or the Debt Financing, and (iii) the fees and expenses of accountants
and counsel for the Company and the Special Committee, and (b) the fees and
expenses of Mergeco shall include (i) any commitment and other fees or expenses
payable to any person providing or proposing to provide the Debt Financing for
the Merger, and (ii) the fees and expenses of counsel for Mergeco; provided,
however, that in the event this Agreement is terminated for any reason other
than pursuant to (A) Section 8.1(g) due to a breach of this Agreement under
Sections 6.3(a) or (b), or (B) Section 8.1(f) by reason of the failure to obtain
the Debt Financing on the terms contemplated in Section 6.2(g) other than by
reason of circumstances described in Section 6.2(c)(iii), the Company shall pay
and reimburse Mergeco and the Continuing Shareholders for the fees and expenses
incurred by them in connection with the transactions contemplated hereby up to
$500,000 in the aggregate; and provided, further, however, that if this
Agreement is terminated pursuant to Section 8.1(f) by reason of the failure to
obtain the Debt Financing on the terms contemplated in Section 6.2(g) other than
by reason of circumstances described in Section 6.2(c)(iii), Mergeco and the
Continuing Shareholders shall, jointly and severally, be obligated to pay and
reimburse the Company for 50% of the fees and expenses incurred by the Company,
provided that Mergeco and the Continuing Shareholders, together, shall not be
obligated to so pay or reimburse the Company in excess of $500,000 in the
aggregate.
9.7 Specific Performance. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity. Notwithstanding the foregoing, and without
limiting the Company's obligations under Section 9.6, in the event of a breach
of this Agreement by the Company, the sole and exclusive remedy of Mergeco or
the Continuing Shareholders shall be to either (i) terminate this Agreement
pursuant to Section 8.1 (and seek any remedy provided them under Section 8.2),
or (ii) pursue specific performance pursuant to this Section 9.7.
9.8 Governing Law. This Agreement shall be governed by the laws of the
State of New York (regardless of the laws that might otherwise govern under
applicable principles of conflicts of law) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies.
9.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE>
9.10 Interpretation. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement. As used in this Agreement, (i) the term "person" shall mean and
include an individual, a partnership, a joint venture, a corporation, a limited
liability company, a trust, an unincorporated organization and a government or
any department or agency thereof; (ii) the terms "affiliate" and "associate"
shall have the meanings set forth in Rule 12b- 2 of the General Rules and
Regulations promulgated under the Exchange Act; (iii) the term "subsidiary" of
any specified corporation shall mean any corporation, limited liability company
or other entity that is controlled, directly or indirectly, by the Company; (iv)
"best efforts" shall mean the commercially reasonable efforts that a prudent
person desirous of achieving a result would use in similar circumstances to
ensure that such result is timely achieved; provided, however, that a person
required to use his best efforts under this Agreement will not be required to
take actions that would result in a materially adverse change in the benefits to
such person of this Agreement and the transactions contemplated hereby; and (v)
the words "hereunder," "herein," "hereof" and words or phrases of similar import
shall refer to each and every term and provision of this Agreement.
9.11 Entire Agreement. This Agreement, including the schedules hereto,
embodies the entire agreement and understanding of the parties in respect of the
subject matter contained herein and supersedes all prior agreements and the
understandings between the parties with respect to such subject matter.
9.12 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void, unenforceable or against its regulatory policy, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in effect and shall in no way be affected, impaired or invalidated.
9.13 Headings. The Article and Section headings contained in this
Agreement are for reference purposes only and will not affect in any way the
meaning or interpretation of any provision of this Agreement.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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<PAGE>
IN WITNESS WHEREOF, Mergeco, the Company and the Continuing
Shareholders have caused this Agreement to be signed, by their respective duly
authorized officers or directly, as of the date first above written.
SBARRO MERGER LLC
By: /s/ Mario Sbarro
-----------------------------------
Name: Mario Sbarro
Title: Member
SBARRO, INC.
By: /s/ Robert S. Koebele
----------------------------------
Name: Robert S. Koebele
Title: Vice President-Finance
The Continuing Shareholders:
/s/ Mario Sbarro
---------------------------------------
Mario Sbarro
/s/ Joseph Sbarro
---------------------------------------
Joseph Sbarro
JOSEPH SBARRO (1994) FAMILY
LIMITED PARTNERSHIP
By /s/ Joseph Sbarro
-----------------------------------
Joseph Sbarro, General Partner
/s/ Anthony Sbarro
---------------------------------------
Anthony Sbarro
Franklin Montgomery, not individually
but as trustee under that certain Trust
Agreement dated April 28, 1984 for the
benefit of Carmela Sbarro and her
descendants
Mario Sbarro, not individually but as
trustee under that certain Trust
Agreement dated April 28, 1984 for the
benefit of Carmela Sbarro and her
descendants
-26-
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- --------------------------------------------------)
LEE BRENIN, On Behalf of Himself ) Index No. 98-605796
and All Others Similarly Situated, )
)
Plaintiff, )
) STIPULATION OF SETTLEMENT
v. ) -------------------------
)
MARIO SBARRO, ANTHONY SBARRO, )
CARMELA SBARRO, JOSEPH SBARRO, )
and SBARRO, INC. )
)
Defendants. )
- --------------------------------------------------)
PETER SALIT, On Behalf of Himself ) Index No. 98-605801
and All Others Similarly Situated, )
)
Plaintiff, )
)
v. )
)
SBARRO, INC., JOSEPH SBARRO, ANTHONY )
SBARRO, MARIO SBARRO, CARMELLA )
SBARRO, TERRY VINCE, HAROLD )
KESTENBAUM, RICHARD A. MANDELL, )
PAUL A. VATTER AND BERNARD )
ZIMMERMAN, )
)
Defendants. )
- --------------------------------------------------)
<PAGE>
- ------------------------------------------------------)
DAVID FINKELSTEIN, On Behalf of Himself ) Index No. 98-605827
and All Others Similarly Situated, )
)
Plaintiff, )
)
v. )
)
SBARRO, INC., JOSEPH SBARRO, ANTHONY )
SBARRO, MARIO SBARRO, CARMELLA )
SBARRO, TERRY VINCE, HAROLD )
KESTENBAUM, RICHARD A. MANDELL, )
PAUL A. VATTER AND BERNARD )
ZIMMERMAN, )
)
Defendants. )
- ------------------------------------------------------)
BARRY ADELMAN, On Behalf of Himself ) Index No. 98-605847
and All Others Similarly Situated, )
)
Plaintiff, )
)
v. )
)
MARIO SBARRO, ANTHONY SBARRO, )
CARMELA SBARRO, JOSEPH SBARRO, )
and SBARRO, INC. )
)
Defendants. )
- ------------------------------------------------------)
<PAGE>
- ---------------------------------------------------------)
CHARTER CAPITAL CORP., GRUNTAL )
FINANCIAL LLC SAVINGS PLAN A/C )
NORMAN EPSTEIN, HARBOR FINANCE )
PARTNERS, LIST, INC. and WAYNE CRIMI, )
On Behalf of Themselves and All Others Similarly )
Situated, )
)
Plaintiffs, ) Index No. 99-100884
)
- against - )
)
JOSEPH SBARRO, ANTHONY SBARRO, )
MARIO SBARRO, BERNARD ZIMMERMAN, )
PAUL VATTER, HAROLD KESTENBAUM, )
JERRY VINCE, RICHARD A. MANDELL and )
SBARRO, INC. )
)
Defendants. )
- ---------------------------------------------------------)
The parties to the above-captioned actions (the "Actions"), by and
through their respective attorneys, have entered into this Stipulation of
Settlement (the "Stipulation") subject to the approval of the Supreme Court of
the State of New York, County of New York (the "Court").
WHEREAS,
A. Defendant Sbarro, Inc. ("Sbarro" or the "Company") is a New York
corporation with its principal executive offices located at 401 Broadhollow
Road, Melville, New York 11747. Sbarro operates a chain of family-style,
cafeteria-type Italian restaurants under the "Sbarro" and "Sbarro The Italian
Eatery" names. As of January 3, 1999, Sbarro had 630 Company-owned and 268
franchised restaurants in the United States and abroad.
<PAGE>
B. Defendants Mario Sbarro, Joseph Sbarro, Anthony Sbarro, Carmela
Sbarro, Terry Vince, Harold L. Kestenbaum, Richard A. Mandell, Paul A. Vatter
and Bernard Zimmerman (collectively, the "Individual Defendants" and together
with Sbarro, the other defendant in the Actions, the "Defendants") are, and were
at all times relevant to this litigation, officers and/or directors of Sbarro.
C. On January 20, 1998, Sbarro announced that it had received a
proposal from Defendants Mario Sbarro, Joseph Sbarro and Anthony Sbarro
(including Joseph Sbarro (1994) Family Limited Partnership and The Trust of
Carmela Sbarro (collectively, the "Sbarro Family") pursuant to which all other
holders of Sbarro common stock (the "Public Shareholders") would receive $28.50
cash per share for their Sbarro shares in a transaction structured as a cash
merger with a company to be owned by the Sbarro Family (the "Initial Merger
Proposal"). The Sbarro Family are the owners of approximately 34.4% of Sbarro's
presently outstanding common stock (Sbarro's only outstanding class of capital
stock) and the Public Shareholders own the remaining 65.6%. The Initial Merger
Proposal was terminated in June 1998.
D. Following the close of business on November 25, 1998, Sbarro
announced that it had received a proposal from the Sbarro Family pursuant to
which the Public Shareholders would receive $27.50 cash per share for their
Sbarro shares in a transaction to be structured as a cash merger of an entity to
be owned by the Sbarro Family with and into the Company (the "Revised Merger
Proposal"). Sbarro named a Special Committee of its Board of Directors,
consisting of Defendants Richard A. Mandell, Harold L. Kestenbaum, Paul A.
Vatter and Terry Vince, to consider the Revised Merger Proposal.
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<PAGE>
E. Following the announcement of the Revised Merger Proposal, the
following putative class actions challenging the Revised Merger Proposal were
filed by Sbarro shareholders in the Supreme Court of the State of New York,
County of New York: Lee Brenin v. Mario Sbarro, et al., Index No. 98-605796;
Peter Salit v. Sbarro, Inc. et al., Index No. 98-605801; David Finkelstein v.
Sbarro, Inc. et al., Index No. 98-605827; Barry Adelman v. Mario Sbarro, et al.,
Index No. 98-605847; Charter Capital et al. v. Joseph Sbarro et al., Index No.
99-100884. In addition, the following putative class actions challenging the
Revised Merger Proposal were filed by Sbarro shareholders in the Supreme Court
of the State of New York, County of Suffolk: Charter Capital Corp. v. Joseph
Sbarro et al., Index No. 98-27736; Harbor Finance Partners and List, Inc. v.
Mario Sbarro et al., Index No. 98-27723; and Gruntal Financial LLC Savings Plan
A/C Norman Epstein v. Richard A. Mandell et al., Index No. 98-27200. The actions
filed in the County of Suffolk were voluntarily discontinued in order to pursue
the litigation in the County of New York. The Actions challenged the Revised
Merger Proposal alleging, among other things, that the $27.50 per share merger
consideration to be paid to the Public Shareholders was inadequate. The Actions
sought, among other things, to enjoin the consummation of the proposed
transaction or, in the alternative, to rescind the transaction if it takes
place, unspecified money damages and attorney's fees and expenses.
F. Following the filing of the Actions, counsel for plaintiffs in the
Actions ("plaintiffs' counsel") and their financial expert met with the Special
Committee's Chairman, counsel and financial advisor, and conducted negotiations
with the Sbarro Family, in an effort to reach a settlement of the Actions.
-3-
<PAGE>
G. As a result of the discussions and negotiations that the Sbarro
Family had with plaintiffs' counsel and with the Special Committee, the Sbarro
Family agreed to raise the price to be paid to the Public Shareholders in the
proposed Merger to $28.85 per share (the "Increased Merger Consideration"), or
to an aggregate of approximately $388.6 million, representing an increase per
share of $1.35, or an aggregate increase of approximately $18.2 million, from
the Revised Merger Proposal announced on November 25, 1998 (the "Final Merger
Proposal"). The Final Merger Proposal was made expressly contingent upon the
adoption of the Agreement and Plan of Merger dated January 19, 1999 among the
Company, Sbarro Mergeco LLC ("Mergeco") and the Sbarro Family (the "Merger" or
"Merger Agreement") by the holders of a majority of the shares of Sbarro common
stock owned by the Public Shareholders (the "Public Shareholders Voting
Requirement"), as well as by two-thirds of all outstanding shares of Sbarro
common stock (the "Statutory Voting Requirement").
H. On January 19, 1999, the following events occurred:
1. After receiving a written opinion from its financial
advisor, Prudential Securities Incorporated ("Prudential"), that, as of the date
of the Merger Agreement, the Increased Merger Consideration was fair, from a
financial point of view, to the Public Shareholders, the Special Committee
concluded that the Merger, as reflected in a proposed Merger Agreement, was fair
to, and in the best interests of, the Company and the Public Shareholders, and
unanimously resolved to recommend that Sbarro's Board of Directors adopt the
Merger Agreement;
2. After a presentation by the Special Committee and based, in
part, on the recommendation of the Special Committee and the fairness opinion
received from Prudential,
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<PAGE>
Sbarro's Board of Directors also determined that the Merger was fair to, and in
the best interests of, the Company and the Public Shareholders and adopted the
Merger Agreement. Consummation of the Merger Agreement is conditioned upon,
among other things: (i) fulfillment of the Public Shareholder Voting
Requirement, as well as of the Statutory Voting Requirement; (ii) receipt of
financing for the transactions contemplated by the Merger Agreement; (iii) the
continued suspension of dividends by the Company; and (iv) settlement of the
Actions; and
3. The parties to the Actions executed a Memorandum of
Understanding (the "MOU"), which contemplates the settlement and dismissal of
the Actions pursuant to this Stipulation.
I. The Sbarro Family agreed to the Final Merger Proposal after
considering the existence of the Actions and the desirability of satisfactorily
addressing the claims set forth in the Actions.
J. Pursuant to the Merger Agreement and subject to the terms and
conditions thereof, Mergeco, a New York limited liability company formed by the
Sbarro Family for the purpose of the Merger, will be merged with and into Sbarro
with each then outstanding share of the Company's common stock, other than
shares held of record by Mergeco or the Continuing Shareholders or in the
Company's treasury, to be converted into the right to receive the Increased
Merger Consideration in cash, without interest. In addition, all outstanding
stock options, including those held by the Sbarro Family, will be terminated,
with the holders thereof to be paid the difference between the Increased Merger
Consideration and the applicable exercise price per share multiplied by the
total number of shares of Sbarro common stock subject to such option.
-5-
<PAGE>
K. Following execution of, and pursuant to, the MOU, plaintiffs'
counsel: (i) continued their investigation and legal analysis of the matters
alleged in the Actions and consulted with their financial advisor; (ii) engaged
in additional discovery, including documentary discovery and the depositions of
Defendant Mario Sbarro, Defendant Richard A. Mandell (Chairman of the Special
Committee), and Dennis Kelly (a Managing Director of Prudential); and (iii)
reviewed and commented upon a draft of the proxy statement which will be
provided to Sbarro shareholders in connection with the Merger (the "Proxy
Statement").
L. In light of the aforementioned investigation, the additional facts
developed in discovery, the events, negotiations and agreements described above,
and an analysis of applicable law, counsel for plaintiffs in the Actions have
concluded that the terms and conditions of the settlement provided for in this
Stipulation (the "Settlement") are fair, reasonable, adequate and in the best
interests of the plaintiffs and the Class (as defined in paragraph 5(c) below).
M. Plaintiffs are entering into this Stipulation after taking into
account: (i) the substantial benefits to the members of the Class from the
Merger Agreement, including the Increased Merger Consideration and the Public
Shareholder Voting Requirement; (ii) the risks of continued litigation; and
(iii) the conclusion of plaintiffs' counsel that the terms and conditions of the
Settlement are fair, reasonable, adequate and in the best interests of the
Public Shareholders. Plaintiffs and plaintiffs' counsel have agreed to the terms
of the Settlement because, in their view, the Settlement achieves plaintiffs'
principal objectives in the litigation, which are to maximize shareholder value
for the Company's shareholders and to provide additional representation for the
Public Shareholders.
-6-
<PAGE>
N. All the defendants in the Actions have denied and continue to deny
vigorously any liability with respect to any and all claims alleged in the
Actions, expressly deny having engaged in any wrongful or illegal activity, or
having violated any law or regulation or duty, and expressly deny that any
person or entity has suffered any harm or damages as a result of the Settled
Claims (as defined in paragraph 4 below). While denying any fault or wrongdoing,
and relying on the provision of this Stipulation that it shall in no event be
construed as or deemed to be evidence of an admission or concession on the part
of Defendants or any Released Person (as defined in paragraph 4 below) of any
fault or liability whatsoever, and without conceding any infirmity in their
defenses against the claims alleged in the Actions, Defendants consider it
desirable that the Actions be settled and dismissed, subject to the terms and
conditions of this Stipulation, because the Settlement will (i) halt the
substantial expense, inconvenience and distraction of continued litigation of
plaintiffs' claims; (ii) finally put to rest those claims; and (iii) dispel any
uncertainty that may exist as a result of this litigation.
NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED, subject to the
approval of the Court pursuant to Article 9 of the New York Civil Practice Law
and Rules ("CPLR"), as follows:
SETTLEMENT
1. In consideration for the full settlement, satisfaction, compromise
and release of the Settled Claims, and in furtherance of the Final Merger
Proposal and the Merger Agreement, the parties to the Actions have agreed to
settle the Actions upon the terms described below.
2. The Sbarro Family has agreed to the payment of the Increased Merger
Consideration upon consummation of the Merger as a result of the discussions and
negotiations
-7-
<PAGE>
described above, and after also considering the desirability of obtaining the
dismissal, release and discharge of the Released Persons of and from all Settled
Claims.
3. Plaintiffs' counsel have agreed to the Settlement after having
reviewed a draft of the Proxy Statement to satisfy themselves that the Proxy
Statement would fully and fairly disclose all material information. The
Increased Merger Consideration in the Final Merger Proposal, as reflected in the
terms of the Merger Agreement, together with the opportunity of plaintiffs'
counsel to review and comment on the Proxy Statement, furnishes consideration
for plaintiffs' agreement to release and discharge each of the defendants from
the Settled Claims. Plaintiffs and their counsel shall take all reasonable steps
necessary to support consummation of the Merger.
SETTLED CLAIMS
4. Subject to the Settlement becoming final as contemplated in
paragraph 8 below, any and all claims, demands, rights, actions or causes of
action, rights, liabilities, damages, losses, obligations, judgments, suits,
matters and issues of any kind or nature, known or unknown, that have been or
could have been asserted in the Actions or in any court, tribunal or proceeding
by or on behalf of any member of the Class (who has not elected to be excluded
from the Class), whether individual, class, representative, derivative, legal,
equitable or any other type or in any other capacity relating to the claims
asserted in the Actions (collectively, the "Settled Claims") against Defendants
in the Actions, Mergeco, the Sbarro Family or any of their families, parent
entities, associates, affiliates or subsidiaries, and each and all of the
foregoing's past, present or future officers, directors, shareholders, members,
employees, attorneys, financial or investment advisors, consultants,
accountants, investment bankers, commercial bankers, engineers, advisors or
agents, general or limited partners or partnerships, and the personal
representatives, heirs,
-8-
<PAGE>
estates, administrators, executors, trustees, predecessors in interest,
successors and assigns of each of the foregoing (collectively, the "Released
Persons") shall be fully, finally and forever compromised, settled, discharged
and dismissed with prejudice and on the merits and released pursuant to the
terms and conditions set forth herein, provided however, that the parties hereto
expressly reserve all rights and claims to enforce compliance with the terms of
this Stipulation. With respect to any and all claims being settled and released,
it is the intention of the parties hereto that, upon the Settlement becoming
final, plaintiffs and each member of the Class who has not elected to be
excluded from the Class, hereby expressly waive and relinquish, to the fullest
extent permitted by law, the provisions, rights, and benefits of Section 1542 of
the California Civil Code, which statute provides that:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
SUBMISSION AND APPLICATION TO COURT
5. As soon as practicable after the execution of this Stipulation, the
parties hereto shall jointly apply to the Court for an order substantially in
the form attached hereto as Exhibit A (the "Scheduling Order"), which shall
include, among other things, provisions that:
a. consolidate the Actions and appoint the signatories to this
Stipulation on behalf of plaintiffs as Co-Lead Counsel for plaintiffs.
b. preliminarily find the Settlement to be fair, reasonable,
adequate and in the best interests of the Class, subject to a final
determination based upon the record before the Court at the Settlement Hearing
(as defined below);
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<PAGE>
c. provide for the certification of the Actions, for
settlement purposes only, as a class action pursuant to CPLR Article 9 on behalf
of a class consisting of all record and beneficial owners of Sbarro common stock
during the period beginning on and including the close of business on November
25, 1998 through and including the date the Merger is consummated (the "Merger
Date"), including any and all of their personal representatives, heirs, estates,
administrators, executors, trustees, predecessors in interest, transferees,
successors and assigns, immediate and remote, and any person or entity acting
for or on behalf of, or claiming under, any of them, and each of them, but
excluding the Defendants in the Actions, Mergeco, the Sbarro Family and their
respective personal representatives, heirs, estates, administrators, executors,
trustees, predecessors in interest, successors and assigns (the "Class");
d. certify the named plaintiffs in the Actions, on whose
behalf the Stipulation has been executed, as representative parties for the
Class;
e. direct that a settlement hearing (the "Settlement Hearing")
be held to determine whether the Court should (i) approve the Settlement
pursuant to CPLR 908 as fair, reasonable, adequate and in the best interests of
the Class, (ii) enter an Order and Final Judgment substantially in the form
attached hereto as Exhibit B, dismissing the Actions with prejudice and on the
merits, and with each party to bear its own costs (except as provided herein),
and extinguish, release and enjoin prosecution of any and all Settled Claims,
(iii) approve an application of counsel for plaintiffs for an award of fees and
reimbursement of expenses, and (iv) hear such other matters as the Court may
deem necessary and appropriate; and
f. provide that (i) a copy of the Notice of Pendency of Class
Action, Proposed Settlement of Class Action and Settlement Hearing (the
"Notice"), substantially in the
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<PAGE>
form attached hereto as Exhibit A-1, is approved, (ii) a copy of the Summary
Notice (the "Summary Notice"), substantially in the form attached hereto as
Exhibit A-2, is approved, and (iii) the distribution of the Notice and Summary
Notice, substantially in the manner set forth in the Scheduling Order,
constitutes the best notice practicable under the circumstances, is due and
sufficient notice of the Settlement Hearing and of all matters relating to the
Settlement, and fully satisfies the requirements of due process, CPLR Article 9
and all other applicable law.
COSTS OF NOTICE
6. All costs incurred in identifying on the stock records maintained by
or on behalf of Sbarro and notifying the members of the Class of the Settlement,
including the printing and copying of the Notice and publication of the Summary
Notice as set forth in the Scheduling Order, will be paid by Sbarro.
ORDER AND FINAL JUDGMENT
7. If the Settlement (including any modification thereto made with the
consent of the parties as provided for herein) is approved by the Court, the
parties shall promptly request the Court to enter an Order and Final Judgment
substantially in the form attached hereto as Exhibit B, which will, among other
things:
a. determine that the Class has been adequately represented in
the Actions and the Settlement;
b. approve the Stipulation and the Settlement and adjudge the
terms thereof to be fair, reasonable, adequate and in the best interests of the
Class;
c. determine that the requirements of CPLR Article 9 and due
process have been satisfied in connection with notice to the Class;
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<PAGE>
d. dismiss, as to all Released Persons, the Actions with
prejudice and without costs, except as herein provided, and extinguish,
discharge and release any and all Settled Claims of each plaintiff and each
other Class member, except those persons who submit a valid and timely request
for exclusion from the Class in the manner described in the Notice ("Request for
Exclusion"), said dismissal to be subject only to the Settlement becoming final
as contemplated in paragraph 8 and compliance by the parties with the terms of
this Stipulation and any Order of the Court concerning this Stipulation, and
permanently enjoin plaintiffs and all other members of the Class, except those
persons who submit a valid and timely Request for Exclusion, from asserting,
commencing, prosecuting or continuing, either directly, individually,
representatively, derivatively or in any other capacity, any of the Settled
Claims against Mergeco, the Sbarro Family or any Released Person; and
e. without affecting the finality of the Order and Final
Judgment, reserve the Court's jurisdiction over all of the parties and the Class
members, except those persons who submit a valid and timely Request for
Exclusion, for the administration and consummation of the Settlement and this
Stipulation and the application of plaintiffs' counsel for an award of
attorneys' fees and expenses.
FINALITY OF SETTLEMENT
8. The approval of the Settlement shall be considered final when the
following three events have occurred: (i) entry of the Order and Final Judgment
approving the Settlement; (ii) expiration of any applicable period for the
appeal of the Order and Final Judgment without an appeal having been filed or,
if an appeal is filed, entry of an order affirming the Order and Final Judgment
appealed from and the expiration of any applicable period for the
reconsideration,
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<PAGE>
rehearing or appeal of such affirmance without any motion for reconsideration or
rehearing or further appeal having been filed; and (iii) consummation of the
Merger.
RIGHTS TO WITHDRAW FROM THE SETTLEMENT
9. Defendants, by action taken by a majority of Defendants Mario
Sbarro, Joseph Sbarro and Anthony Sbarro, or plaintiffs, by action taken by
plaintiffs' Co-Lead Counsel (as identified below), shall have the option to
withdraw from and terminate the Settlement in the event that: (i) either the
Scheduling Order or the Order and Final Judgment referred to above are not
entered substantially in the forms specified in Exhibits A and B hereto,
respectively, including such modifications thereto as may be ordered by the
Court with the consent of the parties; (ii) the Settlement is not approved by
the Court or is disapproved, or the Court or appellate court requests the
parties to make a material modification to the Settlement to which the parties
do not consent; (iii) the condition to finality of the Settlement set forth in
clause (ii) of paragraph 8 above shall not have been satisfied; or (iv) the
Merger Agreement is terminated. In order to exercise this option to withdraw
from and terminate this Settlement, a party shall provide, by hand or facsimile,
written notice of such withdrawal and the grounds therefor to all signatories to
this Stipulation as soon as is practicable.
10. In the event the Settlement is not approved by the Court, or the
Court approves the Settlement but such approval is reversed or vacated on
appeal, reconsideration or otherwise and such order reversing or vacating the
Settlement becomes final by lapse of time or otherwise, or in the event the
Merger is not consummated on or before September 30, 1999, or if any of the
conditions to such Settlement are not fulfilled, then the Settlement shall be of
no further force and effect, and this Stipulation and any amendment thereof, and
all negotiations, proceedings and
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<PAGE>
statements relating thereto, except for paragraph O, this paragraph and
paragraphs 6 and 14, shall be null and void and without prejudice to any party,
and each party shall be restored to his, her or its respective position as it
existed prior to the execution of the MOU.
ATTORNEYS' FEES
11. At or before the Settlement Hearing, plaintiffs' counsel will apply
for an award of attorneys' fees (inclusive of expenses), not to exceed
$2,100,000, subject to the Settlement becoming final, as contemplated in
paragraph 8. Defendants agree they will not object to such an application by
plaintiffs' counsel, but Defendants retain the right to oppose any other
application for fees or disbursements by plaintiffs, plaintiffs' counsel or any
other person. Any fee and expense award to plaintiffs' counsel shall be paid
exclusively by Sbarro on behalf of and for the benefit of all Defendants. The
fairness, reasonableness and adequacy of the Settlement, and whether the
Settlement is in the best interests of the Public Shareholders, may be
considered and ruled upon by the Court independently of its consideration of any
award of attorneys' fees and expenses. No counsel for plaintiffs shall apply to
any court for any fees and expenses except as provided for in this paragraph.
12. Subject to the terms and conditions of this Stipulation, such fees
and expenses shall be paid within five (5) business days of the later of (i) the
date on which the Settlement becomes final as provided in paragraph 8 above, or
(ii) the date when the Order granting the application of plaintiffs' counsel for
an award of fees and expenses ("Fee and Expense Order") has become final and, in
either case, upon expiration of any period to file an appeal of the Fee and
Expense Order without an appeal having been filed or, if an appeal is filed,
entry of an order affirming the Fee and Expense Order and the expiration of any
applicable period for the reconsideration, rehearing or
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<PAGE>
appeal of such affirmance without any motion for reconsideration or hearing or
further appeal having been filed. Except as expressly provided herein,
Defendants shall bear no other expenses, costs, damages or fees alleged or
incurred by the named plaintiffs, or any member of the Class, or by any of their
attorneys, experts, advisors, agents or representatives.
AUTHORITY
13. Each of the attorneys executing this Stipulation on behalf of any
party hereto warrants and represents that such attorney has been duly authorized
and empowered to execute this Stipulation on behalf of such party.
STIPULATION NOT AN ADMISSION
14. The provisions contained in this Stipulation and all negotiations,
statements and proceedings in connection therewith shall not be deemed a
presumption, a concession or an admission by any Defendant of any fault,
liability or wrongdoing as to any facts or claims alleged or asserted in the
Actions or any other action or proceeding, and shall not be interpreted,
construed, deemed, invoked, or offered in evidence or otherwise used by any
person in the Actions or in any other action or proceeding, whether civil,
criminal or administrative, except in a proceeding to enforce the terms or
conditions of this Stipulation.
COUNTERPARTS
15. This Stipulation may be executed in any number of actual or
telecopied counterparts and by each of the different parties thereto on several
counterparts, each of which when so executed and delivered shall be an original.
The executed signature page(s) from each actual or telecopied counterpart may be
joined together and attached to one such original and shall constitute one and
the same page and part of the same instrument.
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<PAGE>
WAIVER
16. The waiver by any party of any breach of any provision of this
Stipulation shall not be deemed or construed as a waiver of any other breach,
whether prior, subsequent or contemporaneous, or of any other provision of this
Stipulation.
ENTIRE AGREEMENT: AMENDMENTS
17. This Stipulation constitutes the entire agreement among the parties
with respect to the subject matter hereof, and may not be amended, except by a
writing executed by all of the parties hereto and no provision may be waived
except by a writing executed by the party to be charged.
18. This Stipulation, upon becoming operative, shall be binding upon
and inure to the benefit of the Released Persons, as well as the parties hereto
and their respective heirs, estates, administrators, executors, trustees,
successors and assigns and upon any corporation, partnership or entity into or
with which any party may merge or consolidate or which may otherwise assume its
obligations.
19. All of the exhibits hereto are incorporated herein by reference as
if set forth herein verbatim, and the terms of all exhibits are expressly made
part of this Stipulation.
GOVERNING LAW
20. This Stipulation shall be construed and enforced in accordance with
the laws of the State of New York, without regard to its principles of conflicts
of laws other than Section 5-1401 of New York's General Obligation Law.
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<PAGE>
BEST EFFORTS
21. The parties hereto and their attorneys agree to cooperate fully
with one another in seeking the Court's approval of this Stipulation and the
Settlement and to use their best efforts to effect the confirmation of this
Stipulation and the Settlement.
Dated: April 7, 1999
ABBEY GARDY & SQUITIERI, LLP PARKER CHAPIN FLATTAU
& KLIMPL, LLP
By: /s/ Arthur N. Abbey By: /s/ Joel M. Wolosky
-------------------------- ------------------------------
Arthur N. Abbey Joel M. Wolosky
212 East 39th Street 1211 Avenue of the Americas
New York, NY 10016 New York, NY 10036
(212) 889-3700 (212) 704-6000
BERNSTEIN LITOWITZ BERGER ATTORNEYS FOR DEFENDANTS
& GROSSMANN LLP SBARRO, INC. AND BERNARD
ZIMMERMAN
By: /s/ Jeffrey A. Klafter
---------------------------
Jeffrey A. Klafter WILLKIE FARR & GALLAGHER
1285 Avenue of the Americas
New York, NY 10019
(212) 554-1400
By: /s/ Stephen W. Greiner
--------------------------
Stephen W. Greiner
GOODKIND LABATON RUDOFF 787 Seventh Avenue
& SUCHAROW LLP New York, NY 10019
(212) 728-8000
By: /s/ Jonathan M. Plasse
----------------------------
Jonathan M. Plasse ATTORNEYS FOR DEFENDANTS
100 Park Avenue RICHARD A. MANDELL, HAROLD L.
New York, NY 10017 KESTENBAUM, PAUL A. VATTER AND
(212) 907-0700 TERRY VINCE
CO-LEAD COUNSEL FOR PLAINTIFFS
AND THE CLASS
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<PAGE>
ENTWHISTLE & CAPPUCCI LLP WARSHAW BURSTEIN COHEN
400 Park Avenue, 16th Floor SCHLESINGER & KUH, LLP
New York, NY 10022
(212) 894-7200
By: /s/ Arthur A. Katz
--------------------------
WECHSLER HANWOOD HALEBIAN Arthur A. Katz
& FEFFER, LLP 555 Fifth Avenue
488 Madison Avenue, 8th Floor New York, NY 10017
New York, NY 10022 (212) 984-7700
(212) 935-7400
ATTORNEYS FOR DEFENDANTS
WOLF POPPER LLP JOSEPH SBARRO, ANTHONY
845 Third Avenue SBARRO, MARIO SBARRO AND
New York, NY 10022 CARMELA SBARRO
(212) 759-4600
BERNSTEIN LIEBHARD & LIFSHITZ, LLP
10 East 40th Street
New York, NY 10016
(212) 779-1414
ATTORNEYS FOR PLAINTIFFS
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<PAGE>
PRESENT: HON. BEATRICE SHAINSWIT, JUSTICE At a ____ Term, Part _____,
Supreme Court of the State
of New York, County of New
York, at the Courthouse, 60
Centre Street, New York, NY
on the ___ day of May, 1999
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- -----------------------------------------------------)
LEE BRENIN, On Behalf of Himself ) Index No. 98-605796
and All Others Similarly Situated, )
)
Plaintiff, )
) SCHEDULING ORDER
v. ) ----------------
)
MARIO SBARRO, ANTHONY SBARRO, )
CARMELA SBARRO, JOSEPH SBARRO, )
and SBARRO, INC. )
)
Defendants. )
- -----------------------------------------------------)
PETER SALIT, On Behalf of Himself ) Index No. 98-605801
and All Others Similarly Situated, )
)
Plaintiff, )
)
v. )
)
SBARRO, INC., JOSEPH SBARRO, ANTHONY )
SBARRO, MARIO SBARRO, CARMELLA )
SBARRO, TERRY VINCE, HAROLD )
KESTENBAUM, RICHARD A. MANDELL, )
PAUL A. VATTER AND BERNARD )
ZIMMERMAN, )
)
Defendants. )
- -----------------------------------------------------)
EXHIBIT A
<PAGE>
- ------------------------------------------------------)
DAVID FINKELSTEIN, On Behalf of Himself ) Index No. 98-605827
and All Others Similarly Situated, )
)
Plaintiff, )
)
v. )
)
SBARRO, INC., JOSEPH SBARRO, ANTHONY )
SBARRO, MARIO SBARRO, CARMELLA )
SBARRO, TERRY VINCE, HAROLD )
KESTENBAUM, RICHARD A. MANDELL, )
PAUL A. VATTER AND BERNARD )
ZIMMERMAN, )
)
Defendants. )
- ------------------------------------------------------)
BARRY ADELMAN, On Behalf of Himself ) Index No. 98-605847
and All Others Similarly Situated, )
)
Plaintiff, )
)
v. )
)
MARIO SBARRO, ANTHONY SBARRO, )
CARMELA SBARRO, JOSEPH SBARRO, )
and SBARRO, INC. )
)
Defendants. )
- -------------------------------------------------------)
EXHIBIT A
<PAGE>
- ---------------------------------------------------------)
CHARTER CAPITAL CORP., GRUNTAL )
FINANCIAL LLC SAVINGS PLAN A/C )
NORMAN EPSTEIN, HARBOR FINANCE )
PARTNERS, LIST, INC. and WAYNE CRIMI, )
On Behalf of Themselves and All Others Similarly )
Situated, )
)
Plaintiffs, ) Index No. 99-100884
)
- against - )
)
JOSEPH SBARRO, ANTHONY SBARRO, )
MARIO SBARRO, BERNARD ZIMMERMAN, )
PAUL VATTER, HAROLD KESTENBAUM, )
JERRY VINCE, RICHARD A. MANDELL and )
SBARRO, INC. )
)
Defendants. )
- ---------------------------------------------------------)
The parties to the above-captioned actions (the "Actions") having
applied pursuant to Article 9 of the New York Civil Practice Law and Rules
("CPLR") for an Order, among other things, (1) consolidating the Actions for all
purposes and establishing an organizational structure for plaintiffs' counsel;
(2) preliminarily finding the proposed settlement of the Actions described in
the Stipulation of Settlement entered into by the parties, dated April 7, 1999
(the "Stipulation") to be fair, reasonable, adequate and in the best interests
of the Class defined below; (3) determining solely for purposes of the
Settlement that the Actions may be maintained as a class action; (4) certifying
the plaintiffs in the Actions, on whose behalf the Stipulation has been
executed, as representative parties for the Class; (5) scheduling a hearing to
consider, among other things, final approval of the Settlement (the "Settlement
Hearing"); and (6) directing notice of the Settlement
EXHIBIT A
<PAGE>
to the Class; and the Court having read and considered the Stipulation and
accompanying documents, the complaints filed, and the summons' served, in each
of the Actions and all parties having consented to the entry of this Order,
NOW, this day of May, 1999, upon application of all parties to the
Actions, IT IS HEREBY ORDERED as follows:
1. Each of the Actions shall be consolidated pursuant to Rule 602 of
the New York Civil Practice Law and Rules for all purposes.
2. Hereafter, the Actions shall bear Index No. 98-605796 and their
caption shall be as set forth as:
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- ---------------------------------------------------------)
PETER SALIT, BARRY ADELMAN, )
DAVID FINKELSTEIN, LEE BRENIN, CHARTER )
CAPITAL CORP., GRUNTAL FINANCIAL LLC )
SAVINGS PLAN A/C/ NORMAN EPSTEIN, HARBOR )
FINANCE PARTNERS, LIST, INC. and WAYNE )
CRIMI, On Behalf of Themselves and All Others )
Similarly Situated, )
) Consolidated
Plaintiffs, ) Index No. 98-605796
)
- against - )
)
SBARRO, INC., JOSEPH SBARRO, ANTHONY )
SBARRO, MARIO SBARRO, CARMELA SBARRO, )
TERRY VINCE, HAROLD KESTENBAUM, )
RICHARD A. MANDELL, PAUL A. VATTER )
and BERNARD ZIMMERMAN, )
)
Defendants. )
- ---------------------------------------------------------)
EXHIBIT A
-2-
<PAGE>
3. All papers previously filed and served to date in any of the actions
consolidated herein are hereby deemed as part of the record in the Actions
unless and to the extent otherwise provided for herein. Co-lead Counsel for
plaintiffs (identified below) shall serve a copy of this Order with notice of
entry upon the Clerk of the Court (Room 141B) and the Clerk of the Trial Support
Office (Room 158), who are directed to mark their records to reflect the
consolidation.
4. The organizational structure of plaintiffs' counsel established in
paragraph 5 hereof shall apply to all plaintiffs' counsel in the Actions and any
other related action filed subsequent to or transferred to this Court following
the date of this Order.
5. The law firms of Abbey, Gardy & Squitieri, LLP, Bernstein Litowitz
Berger & Grossmann LLP and Goodkind Labaton Rudoff & Sucharow LLP shall
constitute plaintiffs' Co- Lead Counsel and serve as Co-Lead Counsel for the
Class ("Class Counsel").
6. All motions and applications shall be made on behalf of all
plaintiffs jointly. Plaintiffs shall serve only joint and consolidated sets of
papers. Service on counsel for defendants shall be good and sufficient if made
by hand delivery, facsimile transmission, or overnight delivery.
7. All notices, proposed orders, pleadings, motions, and memoranda
shall be served upon Class Counsel.
8. Class Counsel are authorized to receive orders, notices,
correspondence and telephone calls from the Court and the Clerk of the Court on
behalf of all the plaintiffs.
9. The initial complaint filed in Lee Brenin v. Mario Sbarro, et al.,
Index No. 98- 605796, shall be the operative complaint of the Actions (the
"Consolidated Complaint") bearing the caption and index number as provided
above.
EXHIBIT A
-3-
<PAGE>
10. Service of the Consolidated Complaint on defendants who have been
served in any of the individual Actions shall be sufficient if served upon their
attorneys of record in such Actions.
11. The Court adopts and incorporates the definitions in the
Stipulation for purposes of this Order.
12. Solely for purposes of the Settlement, the Actions shall be
maintained as a class action pursuant to CPLR Article 9 on behalf of a class
consisting of all record and beneficial owners of Sbarro, Inc. ("Sbarro") common
stock during the period beginning on and including the close of business on
November 25, 1998 through and including the date the proposed merger of Sbarro
Merger LLC ("Mergeco") with and into Sbarro is consummated (the "Merger Date"),
including any and all of their personal representatives, heirs, estates,
administrators, executors, trustees, predecessors in interest, transferees,
successors and assigns, immediate and remote, and any person or entity acting
for or on behalf of, or claiming under, any of them, and each of them, but
excluding the Defendants in the Actions, Mergeco, the Sbarro Family and their
respective personal representatives, heirs, estates, administrators, executors,
trustees, predecessors in interest, successors and assigns (the "Class");
13. The Court finds that (a) the Class is so numerous that joinder of
all members is impracticable, (b) there are questions of law or fact common to
the Class, (c) the claims of the named plaintiffs are typical of the claims of
the Class, (d) the named plaintiffs and Class Counsel will fairly and adequately
protect the interests of the Class and the named plaintiffs are certified as
-4-
<PAGE>
representative parties for the Class, and (e) the Class meets the further
requirements of CPLR Article 9.
14. The Court preliminarily finds the Settlement to be fair,
reasonable, adequate and in the best interests of the Class, subject to a final
determination based upon the record before the Court at the Settlement Hearing.
15. The Settlement Hearing shall be held on , 1999, at a.m./p.m. in the
Supreme Court of the State of New York, County of New York, in Courtroom ___, 60
Centre Street, New York, New York 10007 to determine whether the Court should
approve the Settlement pursuant to CPLR 908 as fair, reasonable, adequate and in
the best interests of the Class, whether the Stipulation and the terms and
conditions of the Settlement should be finally approved by the Court, and
whether to enter an Order and Final Judgment dismissing the Actions as to all
defendants with prejudice and on the merits and with each party to bear its own
expenses (except as provided in the Stipulation) as against the plaintiffs and
all members of the Class except those who submit a valid and timely request for
exclusion from the Class and extinguish, release and enjoin prosecution of any
and all Settled Claims, and to hear and determine such other matters as the
Court may deem necessary. At the Settlement Hearing, Class Counsel may apply for
an award of attorneys' fees and expenses as set forth in the Stipulation,
subject to the Settlement becoming final, as contemplated in paragraph 8 of the
Stipulation, which application shall be heard by the Court at the Settlement
Hearing or at such time thereafter as the Court in its discretion deems
appropriate.
EXHIBIT A
-5-
<PAGE>
16. The Court reserves the right to adjourn the Settlement Hearing,
including consideration of the application for attorneys' fees and expenses,
without further notice other than by oral announcement at the Settlement Hearing
or any adjournment thereof.
17. The Court reserves the right to approve the Settlement at or after
the Settlement Hearing with such modification as may be consented to by the
parties to the Stipulation and without further notice to the Class.
18. The Notice of Pendency of Class Action, Proposed Settlement of
Class Action and Settlement Hearing (the "Notice"), substantially in the form
attached as Exhibit A-1 to the Stipulation, and the Summary Notice (the "Summary
Notice"), substantially in the form attached as Exhibit A-2 to the Stipulation,
are approved.
19. a. Within five (5) business days of the date of this Order,
defendant Sbarro shall cause to be mailed, by first-class mail, postage prepaid,
the Notice, in substantially the form attached hereto as Exhibit A-1, to all
members of the Class who can be identified with reasonable effort on the stock
records maintained by or on behalf of Sbarro as of the fifth from last business
day before the Notice is mailed.
b. Within seven (7) business days of the date of this Order,
Sbarro shall cause the Summary Notice, in substantially the form attached hereto
as Exhibit A-2, to be published in the national edition of THE WALL STREET
JOURNAL.
c. Sbarro shall be solely responsible for the cost of printing
and mailing the Notice to the Class and of publishing the Summary Notice as set
forth herein.
EXHIBIT A
-6-
<PAGE>
20. The form and method of distribution of the Notice and Summary
Notice specified herein constitutes the best notice practicable under the
circumstances and shall constitute due and sufficient notice of the Settlement
Hearing and of all matters relating to Settlement to all persons entitled to
receive such notice, and fully satisfies the requirements of due process, CPLR
Article 9 and all other applicable law. Sbarro shall, on or before the date of
the Settlement Hearing, file proof of mailing of the Notice and publication of
the Summary Notice.
21. Requests for Exclusion from the Class must be postmarked on or
before _________, 1999 and comply with the procedures set forth in the Notice.
22. Any member of the Class who does not request exclusion from the
Class and who objects to the Stipulation, the Settlement, the Order and Final
Judgment, and/or the application for attorneys' fees and expenses, or who
otherwise wishes to be heard, may appear in person or by their attorney at the
Settlement Hearing and present any evidence or argument that may be proper and
relevant; provided however, that no person other than plaintiffs, Class Counsel,
Defendants and counsel for Defendants in the Actions shall be heard, and no
papers, briefs, pleadings or other documents submitted by any such person shall
be received and considered by the Court (unless the Court in its discretion
shall thereafter otherwise direct, upon application of such person and for good
cause shown) unless no later than ten (10) days prior to the Settlement Hearing
directed herein, such person files with the Court (a) written notice of their
intention to appear; (b) a detailed statement of their objections to any matter
before the Court; (c) the grounds therefor or the reasons why they desire to
appear and to be heard; (d) a statement of the number of shares of Sbarro common
stock owned by such persons as of the close of business on
EXHIBIT A
-7-
<PAGE>
November 25, 1998 and any transactions on Sbarro common stock from that date
until the submission of their objection; and (e) documents and writings which
such person desires the Court to consider, and, on or before or such filing,
serves a copy of their filing by hand or overnight mail on the following counsel
of record:
Arthur N. Abbey
Abbey Gardy & Squitieri LLP
212 East 39th Street
New York, NY 10016
Jeffrey A. Klafter
Bernstein Litowitz Berger & Grossmann LLP
1285 Avenue of the Americas
New York, NY 10019
Jonathan M. Plasse
Goodkind Labaton Rudoff & Sucharow LLP
100 Park Avenue
New York, NY 10017
Class Counsel
Joel M. Wolosky
Parker Chapin Flatteau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10036
Attorneys for Defendants Sbarro, Inc. and
Bernard Zimmerman
EXHIBIT A
-8-
<PAGE>
Stephen W. Greiner
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
Attorneys for Defendants Richard A. Mandell,
Harold L. Kestenbaum, Paul Vatter and
Terry Vince
Arthur A. Katz
Warshaw Burstein Cohen Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, NY 10017
Attorneys for Defendants Joseph Sbarro,
Anthony Sbarro, Mario Sbarro and
Carmela Sbarro
23. Any person who fails to object in the manner prescribed above shall
be deemed to have waived such objection and shall be forever barred from raising
such objection in the Actions or any other action or proceedings.
24. Pending final determination of whether the Settlement should be
approved, plaintiffs and all members of the Class are barred and enjoined from
commencing, continuing, asserting or prosecuting any action or claim, either
directly, individually, representatively, derivatively or in any other capacity,
against Mergeco, the Sbarro Family or any Defendant which are Settled Claims.
25. In the event the Settlement is not approved by the Court, or the
Court approves the Settlement but such approval is reversed or vacated on
appeal, reconsideration or otherwise and such order reversing or vacating the
Settlement becomes final by lapse of time or otherwise, or if any of the
conditions to such Settlement are not fulfilled, then the Settlement shall be of
no
EXHIBIT A
-9-
<PAGE>
further force and effect, and the Stipulation and any amendment thereof, and all
negotiations, proceedings and statements relating thereto, except for paragraphs
O, 6, 10 and 14 of the Stipulation, shall be null and void and without prejudice
to any party hereto, and each party shall be restored to his, her or its
respective position as it existed prior to January 19, 1999, the date of the
execution of the Memorandum of Understanding among counsel to the plaintiffs and
counsel to the Defendants related to the Stipulation and the Settlement.
SO ORDERED:
-----------------------------
J.S.C.
-10-
<PAGE>
PRESENT: HON. BEATRICE SHAINSWIT, JUSTICE At a ____ Term, Part _____,
Supreme Court of the State
of New York, County of New
York, at the Courthouse, 60
Centre Street, New York, NY
on the ___ day of ____, 1999
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- ----------------------------------------------------------)
PETER SALIT, BARRY ADELMAN, )
DAVID FINKELSTEIN, LEE BRENIN, CHARTER )
CAPITAL CORP., GRUNTAL FINANCIAL LLC )
SAVINGS PLAN A/C/ NORMAN EPSTEIN, HARBOR )
FINANCE PARTNERS, LIST, INC. and WAYNE )
CRIMI, On Behalf of Themselves and All Others )
Similarly Situated, ) Consolidated
)
Plaintiffs, ) Index No. 98-605796
)
- against - )
)
SBARRO, INC., JOSEPH SBARRO, ANTHONY )
SBARRO, MARIO SBARRO, CARMELA SBARRO, )
TERRY VINCE, HAROLD L. KESTENBAUM, )
RICHARD A. MANDELL, PAUL A. VATTER )
and BERNARD ZIMMERMAN, )
)
Defendants. )
- ----------------------------------------------------------)
ORDER AND FINAL JUDGMENT
------------------------
A hearing (the "Settlement Hearing") having been held before this Court
(the "Court") on ________________, 1999, pursuant to the Court's order of April
__, 1999 (the "Scheduling Order"), upon a Stipulation of Settlement dated April
__, 1999 (the "Stipulation"), with respect to the above-captioned consolidated
action (the "Actions"), it appearing that due notice of said
EXHIBIT B
<PAGE>
hearing has been given in accordance with the aforesaid Scheduling Order; the
respective parties having appeared by their attorneys of record; the Court
having heard and considered evidence and memoranda in support of the proposed
Settlement; the attorneys for the respective parties having been heard; an
opportunity to be heard having been given to all other persons requesting to be
heard in accordance with the Scheduling Order; the Court having determined that
notice to the certified Class (as defined below), pursuant to the Scheduling
Order, was adequate and sufficient; and the entire matter of the proposed
Settlement having been heard and considered by the Court;
IT IS HEREBY ORDERED, ADJUDGED AND DECREED this day of
, 1999, that:
1. Unless otherwise defined herein, all defined terms shall be defined
as set forth in the Stipulation.
2. The form of, and manner of giving, notice to the members of the
Class is hereby determined to have been the best notice practicable under the
circumstances, was due and sufficient notice of the Settlement Hearing and of
all matters relating to the Settlement, and fully satisfied the requirements of
due process, Article 9 of the New York Civil Practice Law and Rules ("CPLR") and
all other applicable law.
3. The Stipulation and the Settlement are approved and the terms
thereof are adjudged to be fair, reasonable, adequate and in the best interests
of the Class.
4. The Class has been adequately represented in the Actions and the
Settlement.
5. Subject to the Settlement becoming final as contemplated in
paragraph 8 of the Stipulation, and compliance by the parties with the terms of
the Stipulation and this Order, any
2
<PAGE>
and all claims, demands, rights, actions or causes of action, rights,
liabilities, damages, losses, obligations, judgments, suits, matters and issues
of any kind or nature, known or unknown, that have been or could have been
asserted in the Actions or in any court, tribunal or proceeding by or on behalf
of any member of the Class, whether individual, class, representative,
derivative, legal, equitable or any other type or in any other capacity relating
to the claims asserted in the Actions (collectively, the "Settled Claims")
against Defendants in the Actions, Mergeco, the Sbarro Family or any of their
families, parent entities, associates, affiliates or subsidiaries, and each and
all of the foregoing's past, present or future officers, directors,
shareholders, members, employees, attorneys, financial or investment advisors,
consultants, accountants, investment bankers, commercial bankers, engineers,
advisors or agents, general or limited partners or partnerships, and the
personal representatives, heirs, estates, administrators, executors, trustees,
predecessors in interest, successors and assigns of each of the foregoing
(collectively, the "Released Persons") are except as to those persons who are
excluded from the Class, fully, finally and forever compromised, settled,
discharged and dismissed with prejudice and on the merits and released pursuant
to the terms and conditions set forth herein; provided, however, that the
parties to the Stipulation expressly reserve all rights and claims to enforce
compliance with the terms of the Stipulation and this Order and Final Judgment.
With respect to any and all claims being settled and released, it is the
intention of the parties hereto that, upon the Settlement becoming final,
plaintiffs and each member of the Class (who has not elected to be excluded from
the Class) hereby expressly waive and relinquish, to the fullest extent
permitted by law, the provisions, rights, and benefits of Section 1542 of the
California Civil Code, which statute provides that:
3
<PAGE>
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor. 6. Only the persons identified in Exhibit 1
hereto are deemed to have validly and timely requested exclusion
exclusion from the Class and are excluded from the Class
7. Subject to the Settlement becoming final pursuant to paragraph 8 of
the Stipulation and compliance by the parties with the terms of the Stipulation
and this Order, the Actions are dismissed as to all Released Persons with
prejudice and on the merits and without costs except as provided in the
Stipulation.
8. Subject to the Settlement becoming final, pursuant to paragraph 8 of
the Stipulation and compliance by the parties with the terms of the Stipulation
and this Order, the plaintiffs and all members of the Class, except those
identified on Exhibit 1 hereto, are permanently barred and enjoined from
commencing, continuing, asserting or prosecuting, either directly, individually,
representatively, derivatively or in any other capacity, any of the Settled
Claims against Mergeco, the Sbarro Family or any Released Person.
9. In the event the Merger is not consummated on or before September
30, 1999, unless otherwise agreed by the parties, this Order and Final Judgment
shall be of no force and effect, and the Stipulation and any amendment thereof,
and all negotiations, proceedings and statements relating thereto, except for
paragraphs O, 6, 10 and 14 of the Stipulation, shall be null and void and
without prejudice to any party, and each party shall be restored to his, her or
its respective portion as it existed prior to January 19, 1999, the date of the
execution of the
EXHIBIT B
4
<PAGE>
Memorandum of Understanding among counsel to the plaintiffs and counsel to the
Defendants related to the Stipulation and the Settlement.
10. Without affecting the finality of this Order and Final Judgment in
any way, this Court reserves jurisdiction over all of the parties and the Class
members of all matters relating to the administration and consummation of the
Settlement and the Stipulation and the application of plaintiffs' counsel for an
award of attorneys' fees and expenses.
Dated: _______________ , 1999
-------------------------------
J.S.C.
EXHIBIT B
5
<PAGE>
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- -----------------------------------------------------------)
PETER SALIT, BARRY ADELMAN, )
DAVID FINKELSTEIN, LEE BRENIN, CHARTER )
CAPITAL CORP., GRUNTAL FINANCIAL LLC )
SAVINGS PLAN A/C/ NORMAN EPSTEIN, HARBOR )
FINANCE PARTNERS, LIST, INC. and WAYNE )
CRIMI, On Behalf of Themselves and All Others )
Similarly Situated, ) Consolidated
)
Plaintiffs, )Index No. 98-605796
)
- against - )
)
SBARRO, INC., JOSEPH SBARRO, ANTHONY )
SBARRO, MARIO SBARRO, CARMELA SBARRO, )
TERRY VINCE, HAROLD L. KESTENBAUM, )
RICHARD A. MANDELL, PAUL A. VATTER )
and BERNARD ZIMMERMAN, )
)
Defendants. )
- -----------------------------------------------------------)
NOTICE OF PENDENCY OF CLASS ACTION,
PROPOSED SETTLEMENT OF CLASS ACTION
AND SETTLEMENT HEARING
----------------------
TO: ALL RECORD AND BENEFICIAL OWNERS OF THE COMMON STOCK OF
SBARRO, INC. DURING THE PERIOD BEGINNING ON AND INCLUDING THE
CLOSE OF BUSINESS ON NOVEMBER 25, 1998 THROUGH AND INCLUDING
THE DATE THE PROPOSED MERGER BETWEEN SBARRO AND AN ENTITY
FORMED BY THE SBARRO FAMILY (AS DEFINED BELOW) IS CONSUMMATED
(THE "MERGER DATE"), INCLUDING ANY AND ALL OF THEIR PERSONAL
REPRESENTATIVES, HEIRS, ESTATES, ADMINISTRATORS, EXECUTORS,
TRUSTEES, PREDECESSORS IN INTEREST, TRANSFEREES, SUCCESSORS AND
ASSIGNS, IMMEDIATE AND REMOTE, AND ANY PERSON OR ENTITY ACTING
FOR OR ON BEHALF OF, OR CLAIMING UNDER, ANY OF THEM, AND EACH
OF THEM, BUT EXCLUDING THE DEFENDANTS IN THE ACTIONS, SBARRO
MERGER LLC, THE SBARRO FAMILY AND THEIR RESPECTIVE PERSONAL
EXHIBIT A-1
<PAGE>
REPRESENTATIVES, HEIRS, ESTATES, ADMINISTRATORS, EXECUTORS,
TRUSTEES, PREDECESSORS IN INTEREST, SUCCESSORS AND ASSIGNS.
PLEASE READ THIS NOTICE CAREFULLY AND IN ITS ENTIRETY. YOUR RIGHTS WILL
BE AFFECTED BY THE LEGAL PROCEEDINGS IN THIS LITIGATION. IF YOU WERE
NOT THE BENEFICIAL HOLDER OF SBARRO STOCK BUT HELD SBARRO STOCK FOR A
BENEFICIAL HOLDER, PLEASE TRANSMIT THIS DOCUMENT TO SUCH BENEFICIAL
HOLDER.
1. This notice is given pursuant to Article 9 of the New York Civil
Practice Law and Rules ("CPLR") and pursuant to an Order of this Court entered
in the above-captioned consolidated actions (the "Actions") to all record and
beneficial owners of Sbarro, Inc. ("Sbarro" or the "Company") common stock
during the period beginning on and including the close of business on November
25, 1998 through and including the Merger Date, including any and all of their
personal representatives, heirs, estates, administrators, executors, trustees,
predecessors in interest, transferees, successors and assigns, immediate and
remote, and any person or entity acting for or on behalf of, or claiming under,
any of them, and each of them, but excluding the Defendants in the Actions,
Mergeco, the Sbarro Family and their respective personal representatives, heirs,
estates, administrators, executors, trustees, predecessors in interest,
successors and assigns (the "Class").
2. On May 11, 1999, the Court entered an order (the "Scheduling Order")
which, among other things, (a) consolidated the Actions for all purposes; (b)
preliminarily found the Settlement described herein (the "Settlement") to be
fair, reasonable, adequate and in the best interests of the Class, subject to a
final determination based upon the record before the Court at the Settlement
Hearing described below; and (c) determined, solely for purposes of the
Settlement, that the Actions may be maintained as a class action by the named
plaintiffs as
EXHIBIT A-1
-2-
<PAGE>
representatives of the Class, and naming the law firms of Abbey, Gardy &
Squitieri, LLP, Bernstein Litowitz Berger & Grossmann LLP, and Goodkind Labaton
Rudoff & Sucharow LLP as Co-Lead Counsel for the Class ("Class Counsel").
SETTLEMENT HEARING
------------------
3. Members of the Class have an interest in these proceedings and are
hereby notified that a hearing (the "Settlement Hearing") shall be held on June
29, 1999, at 10:30 a.m. in the Supreme Court of the State of New York, County of
New York, Part 10, Room 222, 60 Centre Street, New York, New York 10007 to
determine the following issues:
a. whether the Court should approve the Settlement pursuant to
CPLR 908 as fair, reasonable, adequate and in the best interest of the Class;
b. whether the Stipulation of Settlement dated April 7, 1999
(the "Stipulation") and the terms and conditions of the Settlement should be
finally approved by the Court;
c. whether an Order and Final Judgment should be entered by
the Court dismissing the Actions as to all defendants with prejudice and on the
merits and with each party to bear its own expenses (except as provided in the
Stipulation) as against the plaintiffs and all members of the Class except those
persons who submit a valid and timely request for exclusion from the Class in
the manner described below, and extinguish, release and enjoin prosecution of
any and all Settled Claims (the "Order and Final Judgment");
d. to hear and determine such other matters as the Court may
deem necessary; and
EXHIBIT A-1
-3-
<PAGE>
e. in the event the Court approves the Settlement and enters
the Order and Final Judgment, to consider an application by Class Counsel for an
award of attorneys' fees and expenses, as described below.
4. The Court has reserved the right to adjourn the Settlement Hearing,
including consideration of the application for attorneys' fees and expenses,
without further notice other than by oral announcement at the Settlement Hearing
or any adjournment thereof. The Court also has reserved the right to approve the
Settlement at or after the Settlement Hearing with such modifications as may be
consented to by the parties to the Stipulation and without further notice to the
Class.
SUMMARY OF SETTLEMENT
---------------------
The Actions and the Settlement address claims arising out of a
proposed merger of an entity formed by Defendants Mario Sbarro, Joseph Sbarro
and Anthony Sbarro (including Joseph Sbarro (1994) Family Limited Partnership
and The Trust of Carmela Sbarro, entities participating with such Defendants
(collectively, the "Sbarro Family"), under which all outstanding common stock of
Sbarro not owned by the Sbarro Family (the "Public Shares") would be exchanged
for cash (the "Merger"). Pursuant to the Settlement described herein, the price
to be paid for the Public Shares in the Merger has been increased to $28.85 per
share, a $1.35 per share increase from the $27.50 per share previously proposed
by the Sbarro Family. This per share increase represents an aggregate increase
of approximately $18.2 million. In consideration of this increase to be paid for
the Public Shares, among other things, plaintiffs in the Actions have agreed,
subject to consummation of the Merger and the approval of the Settlement
EXHIBIT A-1
-4-
<PAGE>
by the Court, to the dismissal of their claims relating to the Merger. A more
complete description of the Settlement is set forth below.
FACTUAL BACKGROUND
------------------
The following description of the Actions and the Settlement
have been prepared by counsel for the parties. The Court has made no findings
with respect to such matters, and this Notice is not an expression by the Court
of any findings of fact or of law.
A. Defendant Sbarro is a New York corporation with its principal
executive offices located at 401 Broadhollow Road, Melville, New York 11747.
Sbarro operates a chain of family-style, cafeteria-type Italian restaurants
under the "Sbarro" and "Sbarro The Italian Eatery" names. As of January 3, 1999,
Sbarro had 630 Company-owned and 268 franchised restaurants in the United States
and abroad.
B. Defendants Mario Sbarro, Joseph Sbarro, Anthony Sbarro, Carmela
Sbarro, Terry Vince, Harold L. Kestenbaum, Richard A. Mandell, Paul A. Vatter
and Bernard Zimmerman (collectively, the "Individual Defendants" and together
with Sbarro, the other defendant in the Actions, the "Defendants") are, and were
at all times relevant to this litigation, officers and/or directors of Sbarro.
C. On January 20, 1998, Sbarro announced that it had received a
proposal from the Sbarro Family, owners of approximately 34.4% of Sbarro's
presently outstanding common stock (Sbarro's only outstanding class of capital
stock), pursuant to which all other holders of Sbarro common stock (the "Public
Shareholders") would receive $28.50 cash per share for their Sbarro
EXHIBIT A-1
-5-
<PAGE>
shares in a transaction structured as a cash merger with a company to be owned
by the Sbarro Family (the "Initial Merger Proposal"). The Initial Merger
Proposal was terminated in June 1998.
D. Following the close of business on November 25, 1998, Sbarro
announced that it had received a proposal from the Sbarro Family pursuant to
which the Public Shareholders would receive $27.50 cash per share for their
Sbarro shares in a transaction to be structured as a cash merger of an entity to
be owned by the Sbarro Family with and into the Company (the "Revised Merger
Proposal"). Sbarro named a Special Committee of its Board of Directors,
consisting of Defendants Richard A. Mandell, Harold L. Kestenbaum, Paul A.
Vatter and Terry Vince, to consider the Revised Merger Proposal.
E. Following the announcement of the Revised Merger Proposal, the
following putative class actions challenging the Revised Merger Proposal were
filed by Sbarro shareholders in the Supreme Court of the State of New York,
County of New York: Lee Brenin v. Mario Sbarro, et al., Index No. 98-605796;
Peter Salit v. Sbarro, Inc. et al., Index No. 98-605801; David Finkelstein v.
Sbarro, Inc. et al., Index No. 98-605827; Barry Adelman v. Mario Sbarro, et al.,
Index No. 98-605847; Charter Capital et al. v. Joseph Sbarro et al., Index No.
99-100884. In addition, the following putative class actions challenging the
Revised Merger Proposal were filed by Sbarro shareholders in the Supreme Court
of the State of New York, County of Suffolk: Charter Capital Corp. v. Joseph
Sbarro et al., Index No. 98-27736; Harbor Finance Partners and List, Inc. v.
Mario Sbarro et al., Index No. 98-27723; and Gruntal Financial LLC Savings Plan
A/C Norman Epstein v. Richard A. Mandell et al., Index No. 98-27200. The actions
filed in the County of Suffolk were voluntarily discontinued in order to pursue
the litigation in the County of
EXHIBIT A-1
-6-
<PAGE>
New York. The Actions challenged the Revised Merger Proposal alleging, among
other things, that the $27.50 per share merger consideration to be paid to the
Public Shareholders was inadequate. The Actions sought, among other things, to
enjoin the consummation of the proposed transaction or, in the alternative, to
rescind the transaction if it takes place, unspecified money damages and
attorney's fees and expenses.
F. Following the filing of the Actions, counsel for plaintiffs in the
Actions ("plaintiffs' counsel") and their financial expert met with the Special
Committee's Chairman, counsel and financial advisor, and conducted negotiations
with the Sbarro Family, in an effort to reach a settlement of the Actions.
G. As a result of the discussions and negotiations that the Sbarro
Family had with plaintiffs' counsel and with the Special Committee, the Sbarro
Family agreed to raise the price to be paid to the Public Shareholders in the
proposed Merger to $28.85 per share (the "Increased Merger Consideration"), or
to an aggregate of approximately $388.6 million, representing an increase per
share of $1.35, or an aggregate increase of approximately $18.2 million, from
the Revised Merger Proposal announced on November 25, 1998 (the "Final Merger
Proposal"). The Final Merger Proposal was made expressly contingent upon the
adoption of the Agreement and Plan of Merger dated January 19, 1999 among the
Company, Sbarro Mergeco LLC ("Mergeco") and the Sbarro Family (the "Merger
Agreement") by the holders of a majority of the shares of Sbarro common stock
owned by the Public Shareholders (the "Public Shareholders Voting Requirement"),
as well as by two-thirds of all outstanding shares of Sbarro common stock (the
"Statutory Voting Requirement").
EXHIBIT A-1
-7-
<PAGE>
H. On January 19, 1999, the following events occurred:
1. After receiving a written opinion from its financial
advisor, Prudential Securities Incorporated ("Prudential"), that, as of the date
of the Merger Agreement, the Increased Merger Consideration was fair, from a
financial point of view, to the Public Shareholders, the Special Committee
concluded that the Merger, as reflected in a proposed Merger Agreement, was fair
to, and in the best interests of, the Company and the Public Shareholders, and
unanimously resolved to recommend that Sbarro's Board of Directors adopt the
Merger Agreement;
2. After a presentation by the Special Committee and based, in
part, on the recommendation of the Special Committee and the fairness opinion
received from Prudential, Sbarro's Board of Directors also determined that the
Merger was fair to, and in the best interests of, the Company and the Public
Shareholders and adopted the Merger Agreement. Consummation of the Merger
Agreement is conditioned upon, among other things: (i) fulfillment of the Public
Shareholder Voting Requirement, as well as of the Statutory Voting Requirement;
(ii) receipt of financing for the transactions contemplated by the Merger
Agreement; (iii) the continued suspension of dividends by the Company; and (iv)
settlement of the Actions; and
3. The parties to the Actions executed a memorandum of
understanding (the "MOU"), which contemplates the settlement and dismissal of
the Actions pursuant to the Stipulation.
EXHIBIT A-1
-8-
<PAGE>
I. The Sbarro Family agreed to the Final Merger Proposal after
considering the existence of the Actions and the desirability of satisfactorily
addressing the claims set forth in the Actions.
J. Pursuant to the Merger Agreement and subject to the terms and
conditions thereof, Mergeco, a New York limited liability company formed by the
Sbarro Family for the purpose of the Merger, will be merged with and into Sbarro
with each then outstanding share of the Company's common stock, other than
shares held of record by Mergeco or the Continuing Shareholders or in the
Company's treasury, to be converted into the right to receive the Increased
Merger Consideration in cash, without interest. In addition, all outstanding
stock options, including those held by the Sbarro Family, will be terminated,
with the holders thereof to be paid the difference between the Increased Merger
Consideration and the applicable exercise price per share multiplied by the
total number of shares of Sbarro common stock subject to such option.
K. Following execution of, and pursuant to, the MOU, plaintiffs'
counsel: (i) continued their investigation and legal analysis of the matters
alleged in the Actions and consulted with their financial advisor; (ii) engaged
in additional discovery, including documentary discovery and the depositions of
the Chairman and Chief Executive Officer of Sbarro, the Chairman of the Special
Committee, and a Managing Director of Prudential; and (iii) reviewed and
commented upon a draft of the proxy statement which will be provided to Sbarro
shareholders in connection with the Merger (the "Proxy Statement").
L. In light of the aforementioned investigation, the additional facts
developed in discovery, the events, negotiations and agreements described above,
and analysis of applicable
EXHIBIT A-1
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<PAGE>
law, counsel for plaintiffs in the Actions have concluded that the terms and
conditions of the Settlement provided for in the Stipulation are fair,
reasonable, adequate and in the best interests of the plaintiffs and the Class.
M. Plaintiffs entered into the Stipulation after taking into account:
(i) the substantial benefits to the members of the Class from the Merger
Agreement, including the Increased Merger Consideration and the Public
Shareholder Voting Requirement; (ii) the risks of continued litigation; and
(iii) the conclusion of plaintiffs' counsel that the terms and conditions of the
Settlement are fair, reasonable, adequate and in the best interests of the
Public Shareholders. Plaintiffs and plaintiffs' counsel have agreed to the terms
of the Settlement because, in their view, the Settlement achieves plaintiffs'
principal objectives in the litigation, which are to maximize shareholder value
for the Company's shareholders and to provide additional representation for the
Public Shareholders.
N. All the defendants in the Actions have denied and continue to deny
vigorously any liability with respect to any and all claims alleged in the
Actions, expressly deny having engaged in any wrongful or illegal activity, or
having violated any law or regulation or duty, and expressly deny that any
person or entity has suffered any harm or damages as a result of the Settled
Claims (as defined in paragraph 5 below). While denying any fault or wrongdoing,
and relying on the provision of the Stipulation that it shall, in no event, be
construed as or deemed to be evidence of an admission or concession on the part
of Defendants or any Released Person (as defined in paragraph 5 below) of any
fault or liability whatsoever, and without conceding any infirmity in their
defenses against the claims alleged in the Actions, Defendants consider it
desirable that the
EXHIBIT A-1
-10-
<PAGE>
Actions be settled and dismissed, subject to the terms and conditions of the
Stipulation, because the Settlement will (i) halt the substantial expense,
inconvenience and distraction of continued litigation of plaintiffs' claims;
(ii) finally put to rest those claims; and (iii) dispel any uncertainty that may
exist as a result of this litigation. The Court has made no finding that
Defendants engaged in any wrongdoing or wrongful conduct or otherwise
acted improperly or in violation of any law or regulation or duty in any
respect.
THE SETTLEMENT TERMS
--------------------
The following are the principal provisions set forth in the
Stipulation:
THE SETTLEMENT
1. In consideration for the full settlement, satisfaction, compromise
and release of the Settled Claims (as defined below), and in furtherance of the
Final Merger Proposal and the Merger Agreement, the parties to the Actions have
agreed to settle the Actions upon the terms and conditions described below.
2. The Sbarro Family has agreed to the payment of the Increased Merger
Consideration upon consummation of the Merger as a result of the discussions and
negotiations described above, and after also considering the desirability of
obtaining the dismissal, release and discharge of the Released Persons (as
defined below) of and from all Settled Claims.
3. As further consideration for the Settlement, Sbarro has agreed to
pay all costs incurred in identifying members of the Class and notifying by mail
the members of the Class of the Settlement, including the printing and copying
of this Notice and publication of the Summary Notice.
EXHIBIT A-1
-11-
<PAGE>
4. Class Counsel have agreed to the Settlement described herein after
having reviewed a draft of the Proxy Statement to satisfy themselves that the
Proxy Statement would fully and fairly disclose all material information. The
Increased Merger Consideration in the Final Merger Proposal, as reflected in the
terms of the Merger Agreement, together with the opportunity of plaintiff's
counsel to review and comment on the Proxy Statement, furnishes consideration
for plaintiffs' agreement to release and forever discharge each of the
Defendants from the Settled Claims.
SETTLED CLAIMS
5. Subject to the Settlement becoming final as contemplated in
paragraph 8 below, any and all claims, demands, rights, actions or causes of
action, rights, liabilities, damages, losses, obligations, judgments, suits,
matters and issues of any kind or nature, known or unknown, that have been or
could have been asserted in the Actions or in any court, tribunal or proceeding
by or on behalf of any member of the Class (who has not elected to be excluded
from the Class in the manner described below), whether individual, class,
representative, derivative, legal, equitable or any other type or in any other
capacity relating to the claims asserted in the Actions (collectively, the
"Settled Claims") against Defendants in the Actions, Mergeco, the Sbarro Family
or any of their families, parent entities, associates, affiliates or
subsidiaries, and each and all of the foregoing's past, present or future
officers, directors, shareholders, members, employees, attorneys, financial or
investment advisors, consultants, accountants, investment bankers, commercial
bankers, engineers, advisors or agents, general or limited partners or
partnerships, and the personal representatives, heirs, estates, administrators,
executors, trustees, predecessors in
EXHIBIT A-1
-12-
<PAGE>
interest, successors and assigns of each of the foregoing (collectively, the
"Released Persons") shall be fully, finally and forever compromised, settled,
discharged and dismissed with prejudice and on the merits and released pursuant
to the terms and conditions set forth herein, provided however, that the parties
hereto expressly reserve all rights and claims to enforce compliance with
the terms of the Stipulation. With respect to any and all claims being
settled and released, it is the intention of the parties hereto that, upon
the Settlement becoming final, plaintiffs and each member of the Class who has
not elected to be excluded from the Class, hereby expressly waive and
relinquish, to the fullest extent permitted by law, the provisions, rights,
and benefits of Section 1542 of the California Civil Code, which statute
provides that:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
RIGHTS TO WITHDRAW FROM THE SETTLEMENT
6. Defendants, by action taken by a majority of Defendants Mario
Sbarro, Joseph Sbarro and Anthony Sbarro, or plaintiffs, by action taken by
plaintiffs' Co-Lead Counsel, shall have the option to withdraw from and
terminate the Settlement in the event that: (i) the Order and Final Judgment
referred to below is not entered substantially in the form agreed, including
such modifications thereto as may be ordered by the Court with the consent of
the parties; (ii) the Settlement is not approved by the Court or is disapproved,
or the Court or appellate court requests the parties to make a material
modification to the Settlement to which the parties do not
EXHIBIT A-1
-13-
<PAGE>
consent; (iii) the condition to finality of the Settlement set forth in clause
(ii) of paragraph 8 below shall not have been satisfied; or (iv) the Merger
Agreement is terminated.
ORDER AND FINAL JUDGMENT
7. If the Settlement (including any modification thereto made with the
consent of the parties) is approved by the Court, the parties shall promptly
request the Court to enter an Order and Final Judgment, which will, among other
things:
a. determine that the Class has been adequately represented in
the Actions and the Settlement;
b. approve the Stipulation and the Settlement and adjudge the
terms thereof to be fair, reasonable, adequate and in the best interests of the
Class;
c. determine that the requirements of CPLR Article 9 and due
process have been satisfied in connection with notice to the Class;
d. dismiss, as to all Released Persons, the Actions with
prejudice and without costs except as herein provided, and extinguish, discharge
and release any and all Settled Claims of each plaintiff and each other Class
member, except those persons who submit a valid and timely Request for
Exclusion, said dismissal to be subject only to the Settlement becoming final as
contemplated in paragraph 8 below and compliance by the parties with the terms
of the Stipulation and any Order of the Court concerning the Stipulation, and
permanently enjoin plaintiffs and all other members of the Class, except those
persons who submit a valid and timely Request for Exclusion, from asserting,
commencing, prosecuting or continuing, either directly,
EXHIBIT A-1
-14-
<PAGE>
individually, representatively, derivatively or in any other capacity, any of
the Settled Claims against Mergeco, the Sbarro Family or any Released Person;
and
e. without affecting the finality of the Order and Final
Judgment, reserve the Court's jurisdiction over all of the parties and the Class
members, except those who submit a valid and timely Request for Exclusion, for
the administration of the terms of the Settlement and the Stipulation and the
application of plaintiffs' counsel for an award of attorneys' fees and expenses.
FINALITY OF SETTLEMENT
8. The approval of the Settlement shall be considered final when the
following three events have occurred: (i) entry of the Order and Final Judgment
approving the Settlement; (ii) expiration of any applicable appeal period for
the appeal of the Order and Final Judgment without an appeal having been filed
or, if an appeal is filed, entry of an order affirming the Order and Final
Judgment appealed from and the expiration of any applicable period for the
reconsideration, rehearing or appeal of such affirmance without any motion for
reconsideration or rehearing or further appeal having been filed; and (iii)
consummation of the Merger.
9. In the event the Settlement is not approved by the Court, or the
Court approves the Settlement but such approval is reversed or vacated on
appeal, reconsideration or otherwise and such order reversing or vacating the
Settlement becomes final by lapse of time or otherwise, or if any of the
conditions to such Settlement are not fulfilled, then the Settlement shall be of
no further force and effect, and the Stipulation and any amendment thereof (with
certain exceptions provided therein), and all negotiations, proceedings and
statements relating thereto, shall be null
EXHIBIT A-1
-15-
<PAGE>
and void and without prejudice to any party, and each party shall be restored to
his, her or its respective position as it existed prior to the execution of the
MOU.
ATTORNEYS' FEES
10. At or before the Settlement Hearing, plaintiffs' counsel will apply
for an award of attorneys' fees (inclusive of expenses), not to exceed
$2,100,000, subject to the Settlement becoming final, as contemplated in
paragraph 8 above. Defendants have agreed that they will not object to such an
application by plaintiffs' counsel, but Defendants retain the right to oppose
any other application for fees or disbursements by plaintiffs, plaintiffs'
counsel or any other person. Any fee and expense award to plaintiffs' counsel
shall be paid exclusively by Sbarro on behalf of and for the benefit of all
Defendants. The fairness, reasonableness and adequacy of the Settlement, and
whether the Settlement is in the best interests of the Public Shareholders, may
be considered and ruled upon by the Court independently of its consideration of
any award of attorneys' fees and expenses. No counsel for plaintiffs shall apply
to any court for any fees and expenses except as provided for in this paragraph.
The award of attorneys' fees and expenses will not in any way reduce the amounts
payable to Sbarro shareholders pursuant to the Merger.
YOUR RIGHT TO APPEAR AT THE SETTLEMENT HEARING
----------------------------------------------
11. Any member of the Class who does not request exclusion from the
Class and who objects to the Stipulation, the Settlement, the Order and Final
Judgment, and/or the application for attorneys' fees and expenses, or who
otherwise wishes to be heard, may appear in person or by their attorney at the
Settlement Hearing and present any evidence or argument that may be proper and
relevant; provided however, that no person other than plaintiffs, Class Counsel,
EXHIBIT A-1
-16-
<PAGE>
Defendants and counsel for Defendants in the Actions shall be heard, and no
papers, briefs, pleadings or other documents submitted by any such person shall
be received and considered by the Court (unless the Court in its discretion
shall thereafter otherwise direct, upon application of such person and for good
cause shown) unless no later than ten (10) days prior to the Settlement Hearing,
such person files with the Court (i) written notice of their intention to
appear; (ii) a detailed statement of their objections to any matter before the
Court; (iii) the grounds therefor or the reasons why they desire to appear and
to be heard; (iv) a statement of the number of shares of Sbarro common stock
owned by such person as of the close of business on November 25, 1998 and any
transactions in Sbarro common stock from that date until the submission of their
objection; and (v) documents and writings which such person desires the Court to
consider, and, on or before or such filing, serves a copy of their filing by
hand or overnight mail on the following counsel of record:
Arthur N. Abbey
Abbey Gardy & Squitieri LLP
212 East 39th Street
New York, NY 10016
Jeffrey A. Klafter
Bernstein Litowitz Berger & Grossmann LLP
1285 Avenue of the Americas
New York, NY 10019
Jonathan M. Plasse
Goodkind Labaton Rudoff & Sucharow LLP
100 Park Avenue
New York, NY 10017
EXHIBIT A-1
-17-
<PAGE>
Class Counsel
Joel M. Wolosky
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10036
Attorneys for Defendants Sbarro, Inc. and
Bernard Zimmerman
Stephen W. Greiner
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
Attorneys for Defendants Richard A. Mandell,
Harold L. Kestenbaum, Paul Vatter and
Terry Vince
Arthur A. Katz
Warshaw Burstein Cohen Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, NY 10017
Attorneys for Defendants Joseph Sbarro,
Anthony Sbarro, Mario Sbarro and
Carmela Sbarro
12. Any person who fails to object in the manner prescribed above shall
be deemed to have waived such objection and shall be forever barred from raising
such objection in the Actions or any other action or proceedings.
YOUR RIGHT TO EXCLUDE YOURSELF FROM THE SETTLEMENT
--------------------------------------------------
13. If you are a Class member, you will be bound by all determinations,
orders and judgments of the Court in the Actions, whether favorable or
unfavorable, unless you mail, by first class mail, a written request for
exclusion from the Class, postmarked no later than June 18, 1999,
EXHIBIT A-1
-18-
<PAGE>
addressed to counsel for all parties at the addresses listed in paragraph
11 above. You may not exclude yourself from the Class after that date. In order
to be valid, your request must legibly set forth your name and address and a
statement that you wish to be excluded from the Class. You must also provide the
names in which your Sbarro shares were registered, your Social Security or
Taxpayer Identification Number and the number of shares of Sbarro common stock
you owned as of the close of business on November 25, 1998 and any transactions
in Sbarro common stock from that date until the submission of your Request for
Exclusion. Any member of the Class who requests exclusion from the Class must
request exclusion with respect to all shares of which he, she or it is the
beneficial owner, and any Class member who requests exclusion from the Class
with respect to shares whose beneficial ownership is shared in any way must
request exclusion together with all other persons with whom such ownership is
shared. If signing a Request for Exclusion on behalf of any entity (such as a
trust corporation, partnership, limited liability company or estate), you must
enclose evidence of your authority to act for such entity and provide the
foregoing information with respect to that entity.
INTERIM INJUNCTION
------------------
14. Pending final determination of whether the Settlement should be
approved, plaintiffs and all members of the Class, are barred and enjoined from
commencing, continuing, asserting or prosecuting any action or claims, either
directly, individually, representatively, derivatively or in any other capacity,
against Mergeco, the Sbarro Family or any Defendant which are Settled Claims.
-19-
<PAGE>
SCOPE OF THIS NOTICE AND FURTHER INFORMATION
--------------------------------------------
15. This Notice does not purport to be a comprehensive description of
the Actions, the allegations or transactions related thereto, the terms of the
Stipulation, the Settlement or the Settlement Hearing. For a more detailed
statement of the matters involved in this litigation, you may inspect the
pleadings, the Stipulation, the Orders entered by the Court and other papers
filed in the litigation, at the Office of the Clerk of the Supreme Court of the
State of New York, County of New York, 60 Centre Street, New York, New York
10007 during regular business hours of each business day.
DO NOT WRITE OR TELEPHONE THE COURT.
NOTICE TO PERSON OR ENTITIES HOLDING
RECORD OWNERSHIP ON BEHALF OF OTHERS
------------------------------------
16. Brokerage firms, banks and other persons or entities who are
members of the Class in their capacities as record owners, but not as beneficial
owners, are requested to send this notice promptly to beneficial owners.
Additional copies of this notice, for transmittal to beneficial owners, are
available on request directed to: Sbarro, Inc. 401 Broadhollow Road, Melville,
New York 11747, Attention: Vice President-Finance. Reasonable expenses of
EXHIBIT A-1
-20-
<PAGE>
forwarding this notice to beneficial will be reimbursed by Sbarro and should be
addressed to: Sbarro, Inc. 401 Broadhollow Road, Melville, New York 11747,
Attention: Vice President- Finance.
BY ORDER OF THE COURT:
_______________________________
J.S.C.
Dated: _________________ , 1999
EXHIBIT A-1
-21-
<PAGE>
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- ---------------------------------------------------------)
PETER SALIT, BARRY ADELMAN, )
DAVID FINKELSTEIN, LEE BRENIN, CHARTER )
CAPITAL CORP., GRUNTAL FINANCIAL LLC )
SAVINGS PLAN A/C/ NORMAN EPSTEIN, HARBOR )
FINANCE PARTNERS, LIST, INC. and WAYNE )
CRIMI, On Behalf of Themselves and All Others )
Similarly Situated, ) Consolidated
)
Plaintiffs, ) Index No. 98-605796
)
- against - )
)
SBARRO, INC., JOSEPH SBARRO, ANTHONY )
SBARRO, MARIO SBARRO, CARMELA SBARRO, )
TERRY VINCE, HAROLD L. KESTENBAUM, )
RICHARD A. MANDELL, PAUL A. VATTER )
and BERNARD ZIMMERMAN, )
)
Defendants. )
- ---------------------------------------------------------)
SUMMARY NOTICE OF PENDENCY OF CLASS ACTION,
PROPOSED SETTLEMENT OF CLASS ACTION
AND SETTLEMENT HEARING
----------------------
TO: ALL RECORD AND BENEFICIAL OWNERS OF THE COMMON STOCK OF
SBARRO, INC. ("SBARRO") DURING THE PERIOD BEGINNING ON AND
INCLUDING THE CLOSE OF BUSINESS ON NOVEMBER 25, 1998 THROUGH
AND INCLUDING THE DATE THE PROPOSED MERGER BETWEEN SBARRO
AND AN ENTITY FORMED BY THE SBARRO FAMILY (AS DEFINED BELOW) IS
CONSUMMATED, INCLUDING ANY AND ALL OF THEIR PERSONAL
REPRESENTATIVES, HEIRS, ESTATES, ADMINISTRATORS, EXECUTORS,
TRUSTEES, PREDECESSORS IN INTEREST, TRANSFEREES, SUCCESSORS AND
ASSIGNS, IMMEDIATE AND REMOTE, AND ANY PERSON OR ENTITY ACTING
FOR OR ON BEHALF OF, OR CLAIMING UNDER, ANY OF THEM, AND EACH
OF THEM, BUT EXCLUDING THE DEFENDANTS IN THE ACTIONS, SBARRO
MERGER LLC, THE SBARRO FAMILY AND THEIR RESPECTIVE PERSONAL
REPRESENTATIVES, HEIRS, ESTATES, ADMINISTRATORS, EXECUTORS,
TRUSTEES, PREDECESSORS IN INTEREST, SUCCESSORS AND ASSIGNS (THE
"CLASS").
EXHIBIT A-2
<PAGE>
YOU ARE HEREBY NOTIFIED that the above-captioned consolidated actions
(the "Actions") have been certified as a class action for settlement purposes
only and that a settlement of the Actions has been proposed whereby the
consideration per share to be paid to shareholders of Sbarro, other than Mario
Sbarro, Joseph Sbarro, Anthony Sbarro, Joseph Sbarro (1994) Family Limited
Partnership and The Trust of Carmela Sbarro (the "Sbarro Family"), in connection
with a proposed merger of an entity formed by the Sbarro Family with and into
Sbarro has been increased from $27.50 per share to $28.85 per share,
representing an aggregate increase of approximately $18.2 million.
A hearing will be held before the Honorable Beatrice Shainswit in the
Supreme Court of the State of New York, County of New York, in Courtroom ____,
60 Centre Street, New York, New York 10007, on , 1999 at a.m./p.m., to
determine, among other things, whether the proposed settlement should be
approved by the Court as fair, reasonable, adequate and in the best interests of
the Class, and to consider the application of plaintiffs' counsel for an award
of attorneys' fees and expenses.
IF YOU ARE A MEMBER OF THE CLASS DESCRIBED ABOVE, YOUR RIGHTS WILL BE
AFFECTED BY THE HEARING. If you have not received the full printed Notice of
Pendency of Class Action, Proposed Settlement of Class Action and Settlement
Hearing (the "Notice"), you may obtain copies of these documents by writing to:
Sbarro, Inc.
401 Broadhollow Road
Melville, New York 11747
Attention: Vice President-Finance
To exclude yourself from the Class you must do so in accordance with
the instructions contained in the Notice no later than
____________________________________, 1999. If you
EXHIBIT A-2
-2-
<PAGE>
are a Class member and do not validly and timely exclude yourself, you will be
bound by the Order and Final Judgment of the Court and will be deemed to have
released all Settled Claims as described in the Notice.
You may obtain further information by writing to the address shown
above.
DO NOT CONTACT THE COURT OR THE CLERK'S OFFICE FOR INFORMATION.
Dated: __________________________, 1999
BY ORDER OF THE COURT
EXHIBIT A-2
-3-
[LETTERHEAD OF BEAR STEARNS]
As of January 19, 1999
Mr. Mario Sbarro
Mr. Joseph Sbarro
Mr. Anthony Sbarro
The Trust of Carmela Sbarro
Sbarro Merger LLC
Gentlemen:
We understand that Sbarro Merger LLC and Sbarro, Inc. (the "Company") have
entered into an Agreement and Plan of Merger dated as of January 19, 1999,
pursuant to which, among other things, all shareholders of the Company, other
than the Continuing Shareholders (as defined in the Agreement and Plan of
Merger), will receive $28.85 per share in cash (the "Transaction").
You have informed us that the aggregate cash purchase price, together with fees
and expenses, will result in a total Transaction cost of approximately $408
million. You have informed us that the Transaction cost will be funded by: (A)
approximately $138 million of cash and marketable securities which is expected
to be available to the Company at the closing of the Transaction, (B)
approximately $300 million of total debt financing, based in all material
respects on the terms and conditions set forth in a term sheet delivered by you
to the Special Committee of the Company's Board of Directors considering the
Transaction (the "Debt Financing"). The Debt Financing shall include either a
bank revolving credit facility, which shall have undrawn availability on the
closing date of the Transaction, or excess cash to fund the Company's ongoing
working capital needs, including capital expenditures.
You have asked Bear, Stearns & Co. Inc. ("Bear Stearns") to act as placement
agent and arranger in connection with the Debt Financing.
This letter will confirm that, based upon and subject to (a) the foregoing, (b)
the information concerning the Company supplied to us by the Continuing
Shareholders and the Company, and (c) current market conditions, Bear Stearns is
highly confident as of the date hereof of its ability to place and arrange the
Debt Financing, subject to each of the following: (I) the negotiation of
definitive language with respect to the terms and conditions of the senior notes
included in the Debt Financing as set forth in the term sheet referred to above
and the negotiation of other acceptable terms and conditions of the Debt
Financing, including, but not limited to, interest rate, price and other
covenants; (II) the negotiation of acceptable terms, and the execution of
acceptable documentation, related to the Transaction and the Debt Financing;
(III) no material adverse change in the business, prospects, condition
(financial or otherwise) or results of operations of the Company; (IV)
satisfactory completion of legal due diligence; (V) nothing coming to our
<PAGE>
Sbarro Merger LLC
As of January 19, 1999
Page 2
attention which shall contradict or call into question (A) the information
previously provided to us by the Continuing Shareholders or the Company or (B)
the results of our financial due diligence investigation; (VI) no material
adverse change in market conditions for new issues of high yield debt or
syndicated bank loan facilities; (VII) no material adverse change in conditions
of the financial and capital markets generally, and (VIII) the Continuing
Shareholders' and the Company's full cooperation with respect to the marketing
of the Debt Financing. The acceptability of each of the foregoing will be
determined in the sole discretion of Bear Stearns' Commitment Committee.
This letter does not constitute a commitment or undertaking on the part of Bear
Stearns to provide any part of the Debt Financing described above and does not
ensure the successful placement, arrangement or completion of the Debt
Financing. Bear Stearns does not and shall not have any liability (whether
direct or indirect, in contract or tort or otherwise) to the Company, the
Continuing Shareholders or any other person or entity in connection with this
letter.
You are hereby authorized to deliver a copy of this letter to the Continuing
Shareholders' and the Company's respective affiliates and representatives;
provided, however, that in connection with the Transaction and the related Debt
Financing, no public reference to Bear Stearns or this letter shall be made by
the Continuing Shareholders or the Company or any of its respective
representatives or affiliates without our express written consent.
Yours sincerely,
BEAR, STEARNS & CO. INC.
By: /s/ John T. Kilgallon
------------------------------
John T. Kilgallon
Senior Managing Director
