Also from the Sbarro's 10-K. A rather complicated deal that seemed to be seen by many non-Sbarro family stockholders as not in their interests. Did Harold get tagged for tagging along with the family, do you think?
ITEM 1. BUSINESS
Sbarro, Inc., a New York corporation, was organized in 1977 and is the successor to a number of family food and restaurant businesses developed and operated by the Sbarro family. The Company has become a leading operator and franchisor of family-style Italian restaurants, with 898 restaurants worldwide at January 3, 1999. In addition, since 1995, the Company has created, through joint ventures, other concepts for the purpose of developing growth opportunities in addition to its Sbarro restaurants. (See "New Ventures", below.) As used in this Report, the terms "Company" and "Sbarro" refers to Sbarro, Inc. and its consolidated subsidiaries, unless the context indicates otherwise.
Recent Developments On January 19, 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 "Sbarro Family") entered into an Agreement and Plan of Merger (the "Merger Agreement"). The Merger Agreement followed an initial proposal for a similar transaction made in January 1998 and terminated in June 1998, and a revised proposal made on November 25, 1998 that became the subject of the Merger Agreement (the "Revised Proposal").
The 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, other than shares held of record by Mergeco or the Sbarro Family 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 presently outstanding shares of Common Stock. In addition, all outstanding stock options, including those held by the Sbarro Family, 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.
The Merger Agreement contains certain conditions to closing, including, among other things, (i) adoption of the Merger Agreement by a majority of the votes cast (excluding votes cast by the Sbarro Family, abstentions and broker non-votes) at a meeting of the Company's shareholders to be called to consider adoption of the Merger Agreement, (ii) receipt of financing for the transactions contemplated by the Merger Agreement, (iii) the continued 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 to settle those lawsuits was entered into on January 19, 1999. See "Legal Proceedings" in Item 3 of this Report.
. . .
ITEM 3. LEGAL PROCEEDINGS
Following the Company's announcement of the Revised Proposal, (see "Business Recent Developments" in Item 1 of this Report), seven class action lawsuits were instituted by shareholders against the Company, those members of the Sbarro Family who are directors of the Company and all or some of the other directors of the Company. The lawsuits were instituted in the Supreme Court of the State of New York, New York County and Suffolk County. The lawsuits in Suffolk County were discontinued and subsequently refilled as one lawsuit in New York County (with one additional plaintiff) in anticipation of consolidating all lawsuits into one lawsuit. While the complaints in each of the lawsuits vary, in general, they allege that the directors breached fiduciary duties, that the then proposed price of $27.50 to be paid to shareholders other than the Sbarro Family was inadequate and that there were inadequate procedural protections for those shareholders. Although varying, the complaints seek, generally, a declaration of a breach of, or an order requiring the defendants to carry out, their fiduciary duties to the plaintiffs, damages in unspecified amounts alleged to be caused to the plaintiffs, other relief (including injunctive relief or rescission or rescissory damages if the transaction is consummated), and costs and disbursements, including a reasonable allowance for counsel fees and expenses.
On January 19, 1999, counsel for all of the plaintiffs and counsel for all of the defendants entered into a Memorandum of Understanding pursuant to which an agreement in principle to settle all of the lawsuits was reached and the Sbarro Family agreed to an increase in the merger consideration to $28.85 per share. The Memorandum of Understanding states that plaintiffs' counsel intend to apply to the Court for an award of attorneys' fees and disbursements in an amount of no more than $2.1 million to be paid by the Company, which the defendants have agreed not to oppose. The defendants are also responsible for providing notice of the settlement to all class members. The settlement would result in the complete discharge and bar of all claims against, past, present and future officers and directors of the Company, and others associated with the Merger with respect to matters and issues of any kind that have been or could have been asserted in these lawsuits. The settlement is subject to, among other things, (i) completion of a formal stipulation of settlement, (ii) 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 date of the Merger, (iii) court approval of the settlement and (iv) consummation of the Merger. It is a condition to Mergeco's obligations under the Merger Agreement that holders of no more than 1,000,000 shares of Common Stock request exclusion from the settlement.
In December 1998, the Court approved, and the Company completed, the settlement of an action entitled Kenneth Hoffman and Gloria Curtis, on behalf of themselves and all others similarly situated v. Sbarro, Inc. that was pending in the United States District Court for the Southern District of New York. The plaintiffs, former restaurant level management employees, alleged that the Company required general managers and co-managers to reimburse the Company for cash and certain other shortages sustained by the Company and thereby lost their status as managerial employees exempt from the overtime compensation provisions of the Fair Labor Standards Act. The settlement resulted in a one-time charge of $3,544,000 before tax or $2,197,000 after tax ($.11 basic and diluted earnings per share) in fiscal 1998. |
