-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VMnzXGMTat4744/rumtGAYquD0YMKOQjQDKtFHZh9kX7ZFe5jYkLgiC+dMaFDNYo I4j8IT5wrs9qEChCP2HAbA== 0000910680-99-000015.txt : 19990125 0000910680-99-000015.hdr.sgml : 19990125 ACCESSION NUMBER: 0000910680-99-000015 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19990122 GROUP MEMBERS: ANTHONY SBARRO GROUP MEMBERS: FRANKLIN MONTGOMERY FOR CARMELA SBARRO GROUP MEMBERS: JOSEPH SBARRO GROUP MEMBERS: JOSEPH SBARRO (1994)FAMILY LIMITED PARTNERSHIP GROUP MEMBERS: SBARRO MARIO GROUP MEMBERS: SBARRO MERGER LLC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SBARRO INC CENTRAL INDEX KEY: 0000766004 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 112501939 STATE OF INCORPORATION: NY FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-38230 FILM NUMBER: 99509666 BUSINESS ADDRESS: STREET 1: 401 BROADHOLLOW ROAD CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5168640200 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SBARRO MARIO CENTRAL INDEX KEY: 0000941892 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: C/O SBARRO INC STREET 2: 762 LARKFIELD RD CITY: COMMACK STATE: NY ZIP: 11725 MAIL ADDRESS: STREET 1: 763 LARKFIED RD CITY: COMMACK STATE: NY ZIP: 11725 SC 13D/A 1 AMENDMENT NO. 3 TO SCHEDULE 13D SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Schedule 13D Under the Securities Exchange Act of 1934 (Amendment No. 3) Sbarro, Inc. ------------- (Name of Issuer) Common Stock, par value $.01 per share (Title of class of securities) 805844-10-7 ----------- (CUSIP Number) Richard A. Rubin, Esq. Arthur A. Katz, Esq. Parker Chapin Flattau & Klimpl, LLP Warshaw Burstein Cohen Schlesinger & Kuh, LLP 1211 Avenue of the Americas 555 Fifth Avenue New York, New York 10036 New York, New York 10017 212-704-6000 212-984-7700 - -------------------------------------------------------------------------------- (Person Authorized to Receive Notices and Communications) January 19, 1999 ---------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ] CUSIP No. 805844 10 7 13D Page 2 of 17 Pages ----------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON SS. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Mario Sbarro, individually and as a member of the Trust of Carmela Sbarro 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS SC, BK, OO 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION UNITED STATES NUMBER OF 7 SOLE VOTING POWER SHARES BENEFICIALLY 1,861,396 OWNED BY EACH REPORTING PERSON WITH - --------------------- 8 SHARED VOTING POWER 2,504,074 9 SOLE DISPOSITIVE POWER 1,861,396 10 SHARED DISPOSITIVE POWER 2,504,074 ---------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 4,365,470 (may be deemed to beneficially own all shares beneficially owned by each member of the group, or 7,805,516 shares) 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 20.9% (may be deemed beneficially own all shares beneficially owned by each member of the group, or 36.7%) 14 TYPE OF REPORTING PERSON* IN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! CUSIP No. 805844 10 7 13D Page 3 of 17 Pages ----------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON SS. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Anthony Sbarro 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS* SC, BK, OO 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION UNITED STATES NUMBER OF 7 SOLE VOTING POWER SHARES BENEFICIALLY 1,432,133 OWNED BY EACH REPORTING PERSON WITH - ----------------- 8 SHARED VOTING POWER 0 9 SOLE DISPOSITIVE POWER 1,432,133 10 SHARED DISPOSITIVE POWER 0 ---------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,432,133 (may be deemed to beneficially own all shares beneficially owned by each member of the group, or 7,805,516 shares) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 6.9% (may be deemed to beneficially own all shares beneficially owned by each member of the group, or 36.7%) 14 TYPE OF REPORTING PERSON* IN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! CUSIP No. 805844 10 7 13D Page 4 of 17 Pages ----------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON SS. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Joseph Sbarro 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS* SC, BK, OO 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION UNITED STATES NUMBER OF 7 SOLE VOTING POWER SHARES BENEFICIALLY 2,007,913 OWNED BY EACH REPORTING PERSON WITH - --------------------- 8 SHARED VOTING POWER 0 9 SOLE DISPOSITIVE POWER 2,007,913 10 SHARED DISPOSITIVE POWER 0 ---------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,007,913 (may be deemed to beneficially own all shares beneficially owned by each member of the group, or 7,805,516 shares) 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.7% (may be deemed to beneficially own all shares beneficially owned by each member of the group, or 36.7%) 14 TYPE OF REPORTING PERSON* IN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! CUSIP No. 805844 10 7 13D Page 5 of 17 Pages ----------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON SS. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Joseph Sbarro (1994) Family Limited Partnership 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS* SC, BK, OO 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION NEW YORK NUMBER OF 7 SOLE VOTING POWER SHARES 609,000 BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH - --------------------- 8 SHARED VOTING POWER 0 9 SOLE DISPOSITIVE POWER 609,000 10 SHARED DISPOSITIVE POWER 0 ---------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 609,000 (may be deemed to beneficially own all shares beneficially owned by each member of the group, or 7,805,516 shares) 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 3.0% (may be deemed to beneficially own all shares beneficially owned by each member of the group, or 36.7%) 14 TYPE OF REPORTING PERSON* PN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! CUSIP No. 805844 10 7 13D Page 6 of 17 Pages ----------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON SS. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Franklin Montgomery, as co-trustee of the Trust of Carmela Sbarro 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS* SC, BK, OO 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION UNITED STATES NUMBER OF 7 SOLE VOTING POWER SHARES BENEFICIALLY 0 OWNED BY EACH REPORTING PERSON WITH - --------------------- 8 SHARED VOTING POWER 2,497,884 9 SOLE DISPOSITIVE POWER 0 10 SHARED DISPOSITIVE POWER 2,497,884 ---------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,497,844 (may be deemed to beneficially own all shares beneficially owned by each member of the group, or 7,805,516 shares) 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 12.2% (may be deemed to beneficially own all shares beneficially owned by each member of the group, 36.7%) 14 TYPE OF REPORTING PERSON* IN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! CUSIP No. 805844 10 7 13D Page 7 of 17 Pages ----------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON SS. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Sbarro Merger LLC 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS* SC, BK, OO 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION NEW YORK NUMBER OF 7 SOLE VOTING POWER SHARES BENEFICIALLY 0 OWNED BY EACH REPORTING PERSON WITH - --------------------- 8 SHARED VOTING POWER 0 9 SOLE DISPOSITIVE POWER 0 10 SHARED DISPOSITIVE POWER 0 ---------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 0 (may be deemed to beneficially own all shares beneficially owned by each member of the group, or 7,805,516 shares) 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 0% (may be deemed to beneficially own all shares beneficially owned by each member of the group, 36.7%) 14 TYPE OF REPORTING PERSON* IN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! CUSIP No. 805844 10 7 13D Page 8 of 17 Pages INTRODUCTION ------------ This Amendment ("Amendment No. 3") is being filed jointly, pursuant to Rule 13d-1(f)(1) promulgated under the Securities Exchange Act of 1934, as amended, by: (i) Mario Sbarro, individually and as co-trustee of the Trust of Carmela Sbarro, (ii) Anthony Sbarro, (iii) Joseph Sbarro, (iv) Joseph Sbarro (1994) Family Limited Partnership (the "Partnership"), (v) Franklin Montgomery, as co-trustee of the Trust of Carmela Sbarro, and (vi) Sbarro Merger LLC ("Mergeco") to amend the Schedule 13D (the "Original Schedule 13D") filed by the Reporting Persons (other than the Partnership and Mergeco) on January 22, 1998, as amended by Amendment No. 1 thereto filed by the Reporting Persons (other than the Partnership and Mergeco) on June 24, 1998 and Amendment No. 2 thereto filed by the Reporting Persons (other than the Partnership and Mergeco) on December 2, 1998. The Original Schedule 13D, as heretofore amended, is referred to as the "Existing Schedule 13D". This Amendment No. 3, among other things, adds the Partnership and Mergeco as Reporting Persons. All terms used, but not defined, in this Amendment are as defined in the Existing Schedule 13D. The summary descriptions contained herein of certain agreements and documents are qualified in their entirety by reference to the complete text of such agreements and documents filed as Exhibits hereto or incorporated herein by reference. ------------ Item 2 of the Existing Schedule 13D is amended in its entirety to read as follows: Item 2. Identity and Background. (a) This statement is being filed jointly pursuant to Rule 13d-1 (f)(1) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), by: (i) Mario Sbarro individually and as co-trustee under that certain Trust Agreement dated April 28, 1984 for the benefit of Carmela Sbarro and here descendants (the "Trust of Carmela Sbarro"), (ii) Anthony Sbarro, (iii) Joseph Sbarro, (iv) Joseph Sbarro (1994) Family Limited Partnership (the "Partnership"), (v) Franklin Montgomery, as co-trustee of the Trust of Carmela Sbarro, and (vi) Sbarro Merger LLC (individually, a "Reporting Person" and, collectively, the "Reporting Persons"). Information with respect to each Reporting Person is given solely by such Reporting Person. No Reporting Person has responsibility for the accuracy or completeness of the information supplied by any other Reporting Person, and each Reporting Person agrees that this statement is filed on behalf of such Reporting Person only. The Reporting Persons may be deemed to constitute a "group" for the purposes of Rule 13d-3 of the Exchange Act. CUSIP No. 805844 10 7 13D Page 9 of 17 Pages (b) The business address of each of Mario Sbarro, Anthony Sbarro and Joseph Sbarro is 401 Broadhollow Road, Melville, NY 11747. The principal business address of the Partnership is c/o Joseph Sbarro, 401 Broadhollow Road, Melville, New York 11747. The business address of Franklin Montgomery is 488 Madison Avenue, New York, New York 10022. The business address of Sbarro Merger LLC ("Mergeco") is c/o Mario Sbarro, 401 Broadhollow Road, Melville, New York 11747. (c) The principal occupation or employment of Mario Sbarro, Anthony Sbarro and Joseph Sbarro is as follows: (i) Mario Sbarro is the Chairman of the Board of Directors, Chief Executive Officer, President and a director of the Company; (ii) Anthony Sbarro is the Vice Chairman of the Board of Directors, Treasurer and a director of the Company; and (iii) Joseph Sbarro is Senior Executive Vice President, Secretary and a director of the Company. The Company is a leading operator and franchiser of family-style Italian restaurants. The address of the Company is 401 Broadhollow Road, Melville, NY 11747. The Partnership is a New York limited partnership formed to hold certain investments for the family of Joseph Sbarro. The Partnership's business address is c/o Joseph Sbarro, 401 Broadhollow Road, Melville, New York 11747. Joseph Sbarro is the sole general partner of the Partnership. Franklin Montgomery is an attorney in sole practice. His business address is 488 Madison Avenue, Suite 1100, New York, New York 10022. Mergeco, a New York limited liability company formed by the Reporting Persons to facilitate the Merger (as defined in Item 4), has no business or operations and will be merged with and into the Company, with the Company as the surviving corporation upon consummation of the Merger. Mergeco's business address is c/o Mario Sbarro, 401 Broadhollow Road, Melville, New York 11747. The members of Mergeco are Mario Sbarro, Joseph Sbarro, the Partnership, Anthony Sbarro and the Trust of Carmela Sbarro. (d) During the last five years, neither any Reporting Person nor the Company has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) During the last five years, neither any Reporting Person nor the Company has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which such person or entity was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, Federal or State securities laws or finding any violation with respect to such laws. (f) Each of the Reporting Persons is a citizen of the United States. CUSIP No. 805844 10 7 13D Page 10 of 17 Pages Item 3 of the Existing Schedule 13D is amended in its entirety to read as follows: Item 3. Source and Amount of Funds or Other Consideration. Each of the Reporting Persons (in the case of Franklin Montgomery, as a trustee of the Trust of Carmela Sbarro) has held the shares of Common Stock beneficially owned (excluding unexercised stock options referred to in Items 5 and 6 below) by such Reporting Person as reported herein for more than four years. No funds were involved in the formation of the group by the Reporting Persons. Approximately $408 million will be required to pay the aggregate Merger Consideration (as defined in Item 4) to shareholders of the Company (other than the Reporting Persons) 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 the 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. The debt financing is to include either a bank revolving credit facility, which will have undrawn availability on the closing date of the Merger, or excess cash to fund the Company's ongoing working capital needs, including capital expenditures. Among the conditions to the obligation of the Reporting Persons to consummate the Merger is that the Company shall have obtained the debt financing on the material terms and conditions no less favorable than those described in the Merger Agreement, including those set forth in the term sheet annexed as Exhibit "B" to the Merger Agreement. The Reporting Persons 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 "A" to the Merger Agreement. Item 4 of the Existing Schedule 13D is amended in its entirety to read as follows: Item 4. Purpose of Transaction. On January 12, 1998, Mario Sbarro, Joseph Sbarro, Anthony Sbarro and the Trust of Carmela Sbarro presented to the Company's Board of Directors a proposal for, subject to certain conditions, the merger of the Company with a company to be formed, pursuant to which the shareholders of the Company, other than the Reporting Persons, would receive $28.50 per share in cash for their shares. On June 17, 1998, negotiations regarding that proposal terminated. On November 25, 1998, the same persons made a similar offer pursuant to which the shareholders of the Company, other than the Reporting Persons, would receive $27.50 in cash for their shares. On January 19, 1999, the Company, Mergeco and the Reporting Persons entered into an Agreement and Plan of Merger (the "Merger Agreement"). The following is a brief discussion of the Merger Agreement and as qualified in its entirety by reference to the Merger Agreement, a copy of which is Exhibit 6 to this Schedule. CUSIP No. 805844 10 7 13D Page 11 of 17 Pages The Merger Agreement provides for the merger of Mergeco with and into the Company (the "Merger"), with each outstanding share of Common Stock, other than shares held of record by Mergeco or the Reporting Persons 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 20,531,977 presently outstanding shares of Common Stock. In addition, all outstanding stock options, including those held by the Reporting Persons, 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. The purpose of the Merger is for the Reporting Persons to acquire the Company through the Merger. The 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 Reporting Persons, 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. The Reporting Persons have received a letter from Bear Stearns that, subject to certain conditions, Bear Stearns is highly confident that the debt financing for the transaction can be obtained. A copy of that letter is annexed as Exhibit "A" to the Merger Agreement. A Memorandum of Understanding, which contemplates the Merger Consideration of $28.85, has been entered into with counsel to the plaintiffs in the shareholder class actions arising from the proposed Merger for the proposed settlement of such lawsuits. The settlement is subject to, among other things, completion of definitive documentation relating to the settlement, court approval and consummation of the Merger. The foregoing is a brief discussion of the Memorandum of Understanding and is qualified in its entirety by reference to the Memorandum of Understanding, a copy of which is Exhibit 7 to this Schedule. The proposed transactions would, if and when consummated, result in the Company's Common Stock ceasing to be authorized for listing on the New York Stock Exchange, Inc. and becoming eligible for termination of registration under Section 12(g)(4) of the Exchange Act. Except as described above, no Reporting Person has any present plans or proposals that relate to or would result in: (i) the acquisition of additional securities of the Company or the disposition CUSIP No. 805844 10 7 13D Page 12 of 17 Pages of securities of the Company; (ii) an extraordinary corporate transaction, such as a merger, reorganization or liquidation of the Company; (iii) a sale or transfer of a material amount of assets of the Company or any of its subsidiaries; (iv) any change in the present board of directors or management of the Company, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board; (v) any material change in the present capitalization or dividend policy of the Company; (vi) any other material change in the Company's business or corporate structure, (vii) any changes in the Company's charter, by-laws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Company by any person; (viii) causing a class of securities of the Company to be delisted from a national securities exchange or cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (ix) causing a class of equity securities of the Company to become eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934; or (x) any action similar to any of those enumerated above. Item 5 of the Existing Schedule 13D is amended in its entirety to read as follows: Item 5. Interest in Securities of the Issuer. (a) The Reporting Persons may be deemed a group within the meaning of Rule 13d-5 under the Exchange Act and, therefore, each of the Reporting Persons may be deemed to be the beneficial owner, within the meaning of Rule 13d-3 under the Exchange Act, of all of the shares beneficially owned by each member of the group, or an aggregate of 7,805,516 shares of Common Stock of the Company, representing, based on the 20,531,977 shares of Common Stock which were issued and outstanding on January 15, 1999 and the portion of options to purchase shares of Common Stock held by the Reporting Persons which were then exercisable or become exercisable within 60 days after such date, approximately 36.7% of the total of the outstanding shares of the Company's Common Stock and such portion of such options. Mario Sbarro may be deemed to be the beneficial owner of 4,365,470 (20.9%) of the issued and outstanding shares of Common Stock. Anthony Sbarro is the beneficial owner of 1,432,133 (6.9%) of the issued and outstanding shares of Common Stock. Joseph Sbarro may be deemed to be the beneficial owner of 2,007,913 (9.7%) of the issued and outstanding shares of Common Stock. The Partnership is the beneficial owner of 609,000 (3.0%) of the issued and outstanding shares of Common Stock. Franklin Montgomery, as co-trustee of the Trust of Carmela Sbarro, may be deemed to be the beneficial owner of 2,497,884 (12.2%) of the issued and outstanding shares of Common Stock. CUSIP No. 805844 10 7 13D Page 13 of 17 Pages Mergeco is not presently the beneficial owner of any shares of Common Stock. (b) The following table sets forth information as to shares of Common Stock as to which each Reporting Person individually has sole or shared power to vote or to direct the disposition at January 15, 1999:
Shares with Shares with Sole Power to Shared Power to Vote and Vote and Total Direct Disposition Direct Disposition Shares % ------------------ ------------------ ------- ----- Mario Sbarro 1,861,396 (1) 2,504,074 (2) 4,365,470 (1)(2) 20.9 Anthony Sbarro 1,432,133 (3) - 1,432,133 (3) 6.9 Joseph Sbarro 2,007,913 (4) - 2,007,913 (4) 9.7 Joseph Sbarro (1994) Family Limited Partnership 609,000 (5) - 609,000 (5) 3.0 Franklin Montgomery, as co-trustee 2,497,884 (5) of the Trust of Carmela Sbarro - 2,497,884 (5) 12.2 Sbarro Merger LLC 0 - 0 - - --------------------
(1) Includes 336,666 shares which are not outstanding but which are subject to issuance upon exercise of the portion of options held by Mario Sbarro that are presently exercisable or exercisable within 60 days of January 15, 1999. (2) Includes (i) 5,450 shares of Common Stock held by a charitable foundation supported by Mario Sbarro and his wife, of which Mario Sbarro, his wife and another director of the Company are directors, (ii) 2,497,884 shares of Common Stock held by the Trust of Carmela Sbarro, of which Mario Sbarro is one of two trustees and (iii) 740 shares of Common Stock owned by the wife of Mario Sbarro. The reporting of these shares should not be construed as an admission that Mario Sbarro is, for purposes of Section 13 of the Exchange Act or otherwise, the beneficial owner of these shares. (3) Includes 198,333 shares of Common Stock which are not outstanding but are subject to issuance upon exercise of the portion of options held by Anthony Sbarro that are presently exercisable or exercisable within 60 days of January 15, 1999. (4) Includes (i) 199,999 shares of Common Stock which are not outstanding but which are subject to issuance upon exercise of the portion of options held by Joseph Sbarro that are presently exercisable or exercisable within 60 days of January 15, 1999 and (ii) 609,000 shares of Common Stock owned by the Partnership, of which Joseph Sbarro is the sole general partner. The reporting of such 609,000 shares should not be construed as an admission that Joseph Sbarro is, for purposes of Section 13 of the Exchange Act or otherwise, the beneficial owner of these shares. CUSIP No. 805844 10 7 13D Page 14 of 17 Pages (5) Joseph Sbarro is the sole general partner of the Partnership. These shares are also included in the shares that may be deemed to be beneficially owned by Joseph Sbarro reflected above. (6) Represents shares of Common Stock owned by the Trust of Carmela Sbarro, of which Mr. Montgomery is one of the two trustees. Mario Sbarro is the other trustee and these shares also are included in the shares that may be deemed to be beneficially owned by Mario Sbarro as reflected above. (c) No Reporting Person has engaged in any transaction in the Company's Common Stock since sixty (60) days prior to the date of the Original Schedule 13D, except that (i) on December 1, 1998, Mario Sbarro made gifts aggregating 7,400 shares to his children and their spouses and (ii) certain stock options held by Mario, Anthony and Joseph Sbarro under the Company's stock option plans have, as described in Item 6, vested in accordance with their terms. (d) No person other than the Reporting Persons is known to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, securities of the Company beneficially owned by the Reporting Persons. Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer. To the knowledge of each Reporting Person on the date hereof, no Reporting Person has any contract, arrangement, understanding or relationship (legal or otherwise) with any person with respect to securities issued by the Company, including, but not limited to, transfer or voting of any such securities, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, divisions of profits or loss or the giving or withholding of proxies, except: (a) The Reporting Persons have agreed, in the Merger Agreement, (i) to vote at the shareholders meeting to be held to consider the Merger all 7,064,328 shares of outstanding Common Stock owned of record by them for adoption of the Merger Agreement but only if at least a majority of the votes cast (excluding votes cast by the Reporting Persons, abstentions and broker non-votes) are cast in favor of adoption of the Merger Agreement, (ii) not to grant a proxy to vote any of their shares other than to another Reporting Person or to persons identified in a proxy card distributed on behalf of the Company's Board of Directors to vote such shares in the manner provided in (i), and (iii) not to sell, transfer or otherwise dispose of any of their shares (other than transfers to other Reporting Persons or any family members of Mario Sbarro, Anthony Sbarro or Joseph Sbarro or trusts for their benefit or such family members), which shares may be so transferred only if, among other things, the transferee agrees in writing to be bound by the terms of the foregoing agreements. (b) Mario Sbarro holds options to purchase (1) 150,000 shares of Common Stock at an exercise price of $20.67 per share granted to him on May 30, 1990 by action of the Board of Directors and approved by the shareholders of the Company, which option is presently exercisable in full and expires on May 29, 2000; (ii) 120,000 shares of Common Stock at an exercise price of CUSIP No. 805844 10 7 13D Page 15 of 17 Pages $27.08 per share granted to him on December 28, 1993 under the Company's 1991 Stock Incentive Plan (the "1991 Plan"), which option is presently exercisable in full and expires on December 27, 2003; (iii) 100,000 shares of Common Stock at an exercise price of $24.75 per share granted to him on August 20, 1996 under the 1991 Plan, which option is exercisable as to one-third of the number of shares of Common Stock subject to the option annually, on a cumulative basis, commencing on August 20, 1998 and expires on August 19, 2006; (iv) 100,000 shares of Common Stock at an exercise price of $25.125 per share granted to him on February 19, 1997 under the 1991 Plan, which option is exercisable as to one-third of the number of shares of Common Stock subject to the option annually, on a cumulative basis, commencing February 19, 1999 and expires on February 18, 2007; and (v) 150,000 shares of Common Stock at an exercise price of $28.875 granted to him on May 21, 1997 under the 1991 Plan, which option becomes exercisable as to one-third of the number of shares of Common Stock subject to the option annually, on a cumulative basis, commencing February 19, 1999 and expires on May 20, 2007. (c) Anthony Sbarro holds options to purchase (i) 75,000 shares of Common Stock at an exercise price of $20.67 per share granted to him on May 30, 1990 by action of the Board of Directors and approved by shareholders of the Company, which option is presently exercisable in full and expires on May 29, 2000; (ii) 90,000 shares of Common Stock at an exercise price of $27.08 per share granted to him on December 28, 1993 under the 1991 Plan, which option is presently exercisable in full and expires on December 27, 2000 and (iii) 100,000 shares of Common Stock at an exercise price of $25.125 per share granted to him on February 19, 1997 under the 1991 Plan, which option becomes exercisable as to one-third of the number of shares subject to the option annually, on a cumulative basis, commencing February 19, 1999 and expires on February 18, 2007. (d) Joseph Sbarro holds options to purchase (i) 75,000 shares of Common Stock at an exercise price of $20.67 per share granted to him on May 30, 1990 by action of the Board of Directors and approved by the shareholders of the Company, which option is presently exercisable in full and expires on May 29, 2000; (ii) 75,000 shares of Common Stock at an exercise price of $27.08 per share granted to him on December 28, 1993 under the 1991 Plan, which option is presently exercisable in full and expires on December 27, 2000; (iii) 50,000 shares of Common Stock at an exercise price of $24.75 per share granted to him on August 20, 1996 under the 1991 Plan, which option is exercisable as to one-third of the number of shares subject to the option annually, on a cumulative basis, commencing on August 20, 1998 and expires on August 19, 2006; and (iv) 100,000 shares of Common Stock at an exercise price of $25.125 per share granted to him on February 19, 1997 under the 1991 Plan, which option becomes exercisable as to one-third of the number of shares subject to the option annually, on a cumulative basis, commencing February 19, 1999 and expires on February 18, 2007. CUSIP No. 805844 10 7 13D Page 16 of 17 Pages Item 7 of the Existing Schedule 13D is amended in its entirety to read as follows: Item 7. Material to be Filed as Exhibits Exhibit Description ------- ----------- 1.* Joint Filing Agreement dated as of January 21, 1998 among Mario Sbarro, Anthony Sbarro, Joseph Sbarro and Franklin Montgomery, as trustee of the Trust of Carmela Sbarro. 2.* Proposal dated January 12, 1998 on behalf of the Reporting Persons to the Board of Directors of the Company. 3.* Joint Filing Agreement dated as of June 22, 1998 among Mario Sbarro, Anthony Sbarro, Joseph Sbarro and Franklin Montgomery, as trustee of the Trust of Carmela Sbarro. 4.* Joint Filing Agreement dated as of December 2, 1998 among Mario Sbarro, Anthony Sbarro, Joseph Sbarro and Franklin Montgomery, as trustee of the Trust of Carmela Sbarro. 5. Joint Filing Agreement dated as of January 21, 1999 among Mario Sbarro, Anthony Sbarro, Joseph Sbarro, the Partnership, Franklin Montgomery, as trustee of the Trust of Carmela Sbarro, and Mergeco. 6. Agreement and Plan of Merger dated as of January 19, 1999 among the Company and the Reporting Persons. 7. Memorandum of Understanding dated January 19, 1999 among counsel to the plaintiffs and counsel to the defendants in the various class action lawsuits instituted by certain shareholders of the Company. - ----------- * Previously filed. All other exhibits are filed herewith. CUSIP No. 805844 10 7 13D Page 17 of 17 Pages SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: January 21, 1999 /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 /s/ Franklin Montgomery -------------------------------------------------------- Franklin Montgomery as co-trustee of the Trust of Carmela Sbarro Sbarro Merger LLC By: /s/ Mario Sbarro -------------------------------------------------------- Mario Sbarro, Member EX-5 2 JOINT FILING AGREEMENT EXHIBIT 5 --------- The undersigned agree that the statement on Schedule 13D to which this Agreement is attached is filed on behalf of each of them. Dated: January 21, 1999 /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 /s/ Franklin Montgomery -------------------------------------------------------- Franklin Montgomery as co-trustee of the Trust of Carmela Sbarro Sbarro Merger LLC By: /s/ Mario Sbarro -------------------------------------------------------- Mario Sbarro, Member EX-6 3 AGREEMENT AND PLAN OF MERGER EXHIBIT 6 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 AGREEMENT AND PLAN OF MERGER TABLE OF CONTENTS SECTION Page PARTIES.......................................................................1 PREAMBLE......................................................................1 ARTICLE I THE MERGER 1.1 The Merger...........................................................1 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.................................................2 2.2 Mergeco Membership Interests.........................................3 2.3 Exchange of Shares...................................................3 2.4 Stock Option Plans...................................................4 2.5 Withholding Rights...................................................5 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY 3.1 Organization.........................................................5 3.2 Capitalization.......................................................5 3.3 Authorization of this Agreement; Recommendation of Merger............6 3.4 Governmental Filings; No Conflicts...................................6 -i- ARTICLE IV REPRESENTATIONS AND WARRANTIES OF MERGECO AND THE CONTINUING SHAREHOLDERS 4.1 Organization.........................................................7 4.2 Membership Interests.................................................7 4.3 Authorization of this Agreement......................................8 4.4 Governmental Filings; No Violations..................................8 4.5 Financing Arrangements...............................................8 ARTICLE V COVENANTS 5.1 Conduct of the Business of the Company...............................9 5.2 Activities of Mergeco................................................9 5.3 Access to Information................................................9 5.4 Financing...........................................................10 5.5 Shareholders' Meeting...............................................10 5.6 Proxy Statement and Schedule 13E-3..................................10 5.7 Best Efforts........................................................11 5.8 Consents............................................................12 5.9 Public Announcements................................................12 5.10 Indemnification.....................................................12 5.11 No Solicitation.....................................................15 5.12 Transfer Taxes......................................................15 ARTICLE VI CLOSING CONDITIONS 6.1 Conditions to the Obligations of Each Party.........................16 6.2 Conditions to the Obligations of Mergeco............................16 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 -ii- ARTICLE VIII TERMINATION AND ABANDONMENT 8.1 Termination.........................................................19 8.2 Procedure and Effect of Termination.................................20 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......................21 9.4 Notices.............................................................21 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......................................................24 9.11 Entire Agreement....................................................24 9.12 Severability........................................................25 9.13 Headings............................................................25 SIGNATURES...................................................................26 -iii- AGREEMENT AND PLAN OF MERGER 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 NOW, THEREFORE, in consideration of the representations, warranties and agreements herein contained, the parties hereto agree as follows: 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. -1- (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." 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 -2- 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 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") -3- 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) 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 -4- 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 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 -5- 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 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. -6- 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. 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. -7- 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 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. -8- 4.5 Financing Arrangements. Mergeco and the Continuing Shareholders have received a "highly confident" letter (the "Debt Financing Letter") dated the date hereof from Bear, Stearns & Co. Inc. ("Bear Stearns"), a copy of which is annexed as Exhibit "A" to this Agreement, 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 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 -9- 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 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 -10- 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 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 -11- 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 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 -12- 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 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 -13- 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 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. -14- (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 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 -15- 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 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 -16- 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 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 -17- 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 annexed as Exhibit "B" to this Agreement, 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 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 -18- (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. 7.3 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 June 30, 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; -19- (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) 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. -20- 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 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: -21- (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 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 -22- 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 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, -23- 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. 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 -24- 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] -25- 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 /s/ Franklin Montgomery ---------------------------------- 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 /s/ Mario Sbarro ---------------------------------- 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- EXHIBIT A [LETTERHEAD OF BEAR STEARNS] 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") are contemporaneously herewith entering into an Agreement and Plan of Merger dated 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 and (b) approximately $300 million of total debt financing, based in all material respects on the terms and conditions set forth in Exhibit B to the Agreement and Plan of Merger (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 Exhibit B to the Agreement and Plan of Merger 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 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/ Randall E. Paulson --------------------------------- Randall E. Paulson Senior Managing Director EXHIBIT B THIS SUMMARY TERM SHEET DOES NOT CONSTITUTE A COMMITMENT OR UNDERTAKING ON THE PART OF BEAR STEARNS TO PROVIDE OR ARRANGE THE DEBT FINANCING AND DOES NOT ENSURE THE SUCCESSFUL PLACEMENT OR COMPLETION OF THE DEBT FINANCING. THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS OF THE SECURITIES AND DOES NOT PURPORT TO BE COMPLETE. SBARRO, INC. Senior Notes Summary Term Sheet - -------------------------------------------------------------------------------- Issue Senior Notes due 2009 (the "Notes"). Issuer Sbarro, Inc. (the "Company"). Distribution The Notes will be sold to qualified institutional buyers in a Rule 144A private placement. Subsidiary Guarantees The Notes will be jointly and severally guaranteed on a senior basis by all of the Company's present and future Restricted Subsidiaries. Maturity 10 years. Coupon To be determined based on market conditions at the time of pricing. Ranking The Notes will be general unsecured senior obligations of the Company, ranking pari passu with all existing and future senior indebtedness of the Company. Security None. Mandatory Redemption The Company will not be required to make mandatory redemption or sinking fund payments with respect to the Notes (other than in connection with Asset Sales or a Change of Control). Optional Redemption The Notes will be non-callable for five years after issuance. Thereafter, the Notes may be redeemed at the option of the Company, in whole or in part, at premiums declining ratably to par to the end of year eight, plus accrued interest and Liquidated Damages, if any, through the redemption date. Until the third anniversary of the issuance of the Notes, the Company may redeem up to 35% of the original principal amount of the Notes with the net cash proceeds of a Public Equity Offering at a price of __% of par, plus accrued interest and Liquidated Damages, if any; provided however, that following such redemption, at least 65% of the original principal amount of the Notes remains outstanding. Registration Rights The Registration Rights Agreement will provide that the Company will file and cause to become effective a registration statement relating to an exchange offer for the Notes. If such filing does not occur or such exchange offer is not consummated (unless, in the circumstances provided for in the Registration Rights Agreement, the Company registers the Notes for resale) within the specified time periods (consistent with market practices) set forth in the Registration Rights Agreement, the Company will be required to pay Liquidated Damages (consistent with market practices) until so consummated. Change of Control Upon any Change of Control, the Company will be required to offer to purchase all of the outstanding Notes at 101% plus accrued interest and Liquidated Damages, if any, through the redemption date. Covenants The Notes will be governed by an Indenture containing certain covenants customary for a transaction of this nature that, among other things, will limit the ability of the Company and its subsidiaries to incur additional indebtedness; pay dividends, repurchase capital stock or make other restricted payments; create restrictions on the ability of restricted subsidiaries to make certain payments; create liens; enter into transactions with affiliates; sell assets or enter into certain mergers and consolidations. A summary description of certain key covenants is as follows: Restricted Payments. Restricted Payments may not exceed 50% of cumulative Adjusted Consolidated Net Income of the Company and its Restricted Subsidiaries or, if cumulative Adjusted Consolidated Net Income is a loss, minus 100% of such loss, plus $5.0 million. Restricted Payments include, among other items: (i) dividends or other distributions on the Company's capital stock; (ii) the purchase or redemption of any of the Company's capital stock; (iii) the retirement of any debt that is subordinated to the Notes, and (iv) any Investments (other than Permitted Investments) in entities which are not Wholly Owned Restricted Subsidiaries. Adjusted Consolidated Net Income means for any period the sum of (a) Consolidated Net Income for such period plus (b) the aggregate amount of intangible amortization charges resulting from the contemplated merger transaction to the extent deducted in calculating Consolidated Net Income for such period. Consolidated Net Income means for any period, the aggregate of the Net Income of the Company and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP, less the Tax Amount for such period; provided that (a) the Net Income (but not the loss) of any Person that is not a Restricted Subsidiary of the Company or that is accounted for by the equity method of accounting shall be excluded except to the extent of the amount of dividends or distributions paid in cash by such Person to the Company or Wholly Owned Restricted Subsidiaries of the Company during such period, (b) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, or operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (c) the Net Income (or loss) of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (d) any non-cash write-off or charge (excluding any such non-cash write-off or charge to the extent it represents an accrual of or reserve for cash expenses in any future period) in respect of disposition of assets other than in the ordinary course of business shall be excluded, (e) extraordinary gains or losses as determined in accordance with GAAP shall be excluded and (f) the cumulative effect of a change in accounting principles shall be excluded. Tax Amount generally means (so long as the Company is treated as a Subchapter S Corporation for federal income tax purposes) with respect to the Company, for any period, the aggregate combined federal, state, local and foreign income taxes (including estimated taxes) actually payable by shareholders (including partners, members, or other owners of shareholders) of the Company in respect of such Person's taxable income for such period in respect of the Company, as more specifically provided in the Indenture. Permitted Investments include, among other items: (i) Investments made after the original issuance date of the Notes in businesses similar or reasonably related to that of the Company and its Restricted Subsidiaries as of the issuance date in an amount not to exceed $10.0 million in aggregate outstanding at any one time and (ii) the guarantee made after the original issuance date of the Notes by the Company of indebtedness of Unrestricted Subsidiaries of the Company in an amount not to exceed $10.0 million in aggregate principal outstanding at any one time, subject to the incurrence of such guarantee being permitted under the Consolidated Interest Coverage Ratio test of the Limitation of Indebtedness covenant. Limitation on Indebtedness. The Company and its Restricted Subsidiaries shall only be permitted to create, incur, assume, guarantee or otherwise become directly or indirectly liable for the payment of any Indebtedness, other than Permitted Indebtedness, if, after giving pro forma effect thereto, the Consolidated Interest Coverage Ratio for the four prior quarters is at least 2.0x to 1.0. Permitted Indebtedness will include, among other items: (i) Indebtedness incurred by the Company and its Restricted Subsidiaries under the Senior Credit Facility, or any refinancing thereof, not to exceed $75.0 million at any one time outstanding (less amounts applied to repay or prepay permanently such Indebtedness in accordance with the "Limitation on Asset Sales" covenant); and (ii) other Indebtedness of the Company or its Restricted Subsidiaries in an aggregate principal amount not in excess of $10.0 million at any one time outstanding. Covenants (cont.) Consolidated Interest Coverage Ratio means with respect to the Company and its Restricted Subsidiaries for any period, the ratio of the Consolidated Cash Flow for such period to the Consolidated Interest Expense for such period. Consolidated Cash Flow means for any period, the sum of (a) the Consolidated Net Income of the Company and its Restricted Subsidiaries for such period, plus (b) the provision for taxes based on income or profits or the Tax Amount for such period to the extent that such provision for taxes or Tax Amount was deducted in computing Consolidated Net Income for such period plus (c) the Consolidated Interest Expense of the Company and its Restricted Subsidiaries for such period, plus (d) consolidated depreciation and amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) of the Company and its Restricted Subsidiaries to the extent deducted in computing Consolidated Net Income for such period, plus (e) other consolidated non-cash expenses of the Company and its Restricted Subsidiaries for such period (excluding any such non-cash expense to the extent it represents an accrual of or reserve for cash expenses in any future period); less the amount of non-cash items increasing such Consolidated Net Income for such period. Notwithstanding the foregoing, the Net Income of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the Company or one of its Restricted Subsidiaries. EX-7 4 MEMORANDUM OF UNDERSTANDING MEMORANDUM OF UNDERSTANDING WHEREAS, on or about November 25, 1998, Sbarro, Inc. ("Sbarro") announced that it had received a proposal from the Sbarro family (the "Acquisition Group") to acquire for $27.50 cash per share the Sbarro shares that they collectively did not already own in a transaction to be structured as a cash merger (the "Merger") with a company to be owned by the Acquisition Group (the "Merger Proposal"); and WHEREAS, five putative class action lawsuits challenging the Merger Proposal were filed by Sbarro shareholders and are pending in the Supreme Court of the State of New York, County of New York (the "Actions"); and WHEREAS, as a result of the pendency of the Actions, counsel for plaintiffs in the Actions and representatives of the Acquisition Group and Sbarro conducted negotiations in an effort to reach a settlement of the Actions in conjunction with the consideration of the Merger Proposal by the Special Committee of the Board of Directors of Sbarro appointed to consider the Merger Proposal (the "Special Committee"); and WHEREAS, as a result of discussions and negotiations that the Acquisition Group had with plaintiffs' counsel and with the Special Committee, the Acquisition Group has agreed to the terms of the revised Merger Proposal discussed below; NOW THEREFORE, as a result of the foregoing, the parties to the Actions, by their respective attorneys, have reached an agreement-in-principle providing for the settlement of the Actions (the "Settlement") on the terms and subject to the conditions set forth below in this memorandum of understanding (the "Memorandum"): 1. The purpose of this Memorandum is to set forth the agreement-in-principle of the parties to the Actions with respect to the matters addressed below. 2. In full settlement of any and all claims whatsoever which have been or could have been made in the Actions, all of which shall be released and discharged: a. Subject to the approval of a merger agreement (the "Merger Agreement") by the Special Committee, the board of directors of Sbarro, the Acquisition Group and the Sbarro stockholders, and the satisfaction or waiver of all conditions to closing thereunder, the Acquisition Group may proceed with the Merger in which the holders of Sbarro stock, other than the Acquisition Group, will receive $28.85 cash per share (the "Merger Consideration"). b. The parties to the Actions agree that the cash consideration of $28.85 per Sbarro share, representing a $1.35 per share increase over the initial Merger Proposal constitutes fair, adequate and reasonable consideration to be paid to the holders of Sbarro stock other than the Acquisition Group and for the settlement of all claims which were raised or could have been raised by plaintiffs or any members of the Class (as defined below) in the Actions. 3. The parties to the Actions will use their best efforts to complete the discovery contemplated by this Memorandum and to agree upon, execute and present to the Supreme Court, New York County, as soon as practicable, a formal Stipulation of Settlement and such other documents as may be necessary and appropriate in order to obtain the prompt approval by the Court of the Settlement and the dismissal with prejudice of the Actions and any other related actions in the manner contemplated herein and by the Stipulation of Settlement. Pending the negotiation and execution of the Stipulation of Settlement, all proceedings in the Actions, except for Settlement-related proceedings pursuant to this Memorandum of Understanding, shall be suspended. 4. The Stipulation of Settlement expressly will provide as follows: a. for the conditional certification of the Actions, for settlement purposes only, as a class action pursuant to Article 9 of the New York Civil Practice Law and Rules on behalf of a class consisting of all record and beneficial owners of Sbarro stock during the period beginning on and including the close of business on November 25, 1998 through and including the date of the consummation of the Merger, including any and all of their respective successors in interest, predecessors, representatives, trustees, executors, administrators, heirs, assigns or transferees, immediate and remote, and any person or entity acting for or on behalf of, or claiming under any of them, and each of them, and excluding the defendants in the Actions and any person, firm, trust, corporation or other entity related to or affiliated with any of the defendants (the "Class") b. for the complete discharge, dismissal with prejudice, settlement and release of, and an injunction barring, all claims, demands, rights, actions or causes of actions, rights, liabilities, damages, losses, obligations, judgments, suits, matters and issues of any kind or nature, 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, legal, equitable or any other type or in any capacity against defendants in the Actions or any of their families, parent entities, associates, affiliates or subsidiaries and each and all of their respective past, present or future officers, directors, stockholders, members, representatives, 2 employees, attorneys, financial or investment advisors, consultants, accountants, investment bankers, commercial bankers, engineers, advisors or agents, heirs, executors, trustees, general or limited partners or partnerships, personal representatives, estates, administrators, predecessors, successors and assigns (collectively, the "Released Persons"). c. that defendants in the Actions have denied, and continue to deny, that any of them have committed or have threatened to commit any violations of law or breaches of duty to the plaintiffs, the Class or anyone; d. that defendants in the Actions are entering into the Stipulation of Settlement in part because the Settlement would eliminate the distraction, burden and expense of further litigation; e. subject to the Order of the Court, pending final determination of whether the Settlement provided for in the Stipulation of Settlement should be approved, that plaintiffs and all members of the Class, and each of them, are barred and enjoined from commencing, prosecuting, instigating or in any way participating in the commencement or prosecution of any action asserting any released claim, either directly, representatively, derivatively or in any other capacity, against any defendant in the Actions which have been or could have been asserted, or which arise out of or relate in any way to any of the transactions or events described in any complaint or amended complaint in the Actions. f. defendants may withdraw from the settlement if the holders of more than 1,000,000 shares of common stock of Sbarro shall have requested exclusion from the Class. 5. The Settlement contemplated by this Memorandum of Understanding will not be binding upon any party until, and is otherwise subject to: a. the completion by plaintiffs in the Actions of such documentary discovery and/or oral depositions or interviews as reasonably are requested by them and agreed to by the respective party from whom discovery is requested; b. a formal Stipulation of Settlement (and such other documentation as may be required to obtain final approval by the Court of the Settlement) has been executed by counsel for the parties to the Actions, which Stipulation of Settlement shall include a provision permitting defendants to terminate the Settlement if, prior to the effective time of the Merger, any action is pending in any state or federal court which raises any settled claims against any of the Released Persons; c. the consummation of the Merger; 3 d. final approval by the Court of the Settlement (and the exhaustion of possible appeals, if any) and the dismissal of the Actions by the Court with prejudice and without awarding costs to any party (except as provided herein) have been obtained, and entry by the Court of a final order and judgment containing such release language as is negotiated by the parties and contained in the Stipulation of Settlement; and e. the determination by defendants in the Actions that the dismissal of the Actions in accordance with the Stipulation of Settlement will result in the release with prejudice of the settled claims. 6. This Memorandum of Understanding shall be null and void and of no force and effect should any of the conditions herein not be met or should plaintiffs' counsel determine in good faith, based upon the discovery contemplated by this Memorandum, that the proposed Settlement is not fair, reasonable and adequate; in such event, this Memorandum of Understanding shall not be deemed to prejudice in any way the positions of the parties with respect to the Actions nor to entitle any party to the recovery of costs and expenses incurred to implement this Memorandum of Understanding (except as provided in paragraph 7 hereof for the costs of notice of the Settlement). 7. Plaintiffs' counsel intend to apply to the Court for an award of attorneys' fees (inclusive of disbursements and fees), in an amount of no more than $2.1 million, to be paid by Sbarro pursuant to the terms of the Stipulation of Settlement following final Court approval of the Settlement and the entry of an order awarding fees and expenses by the Court. Defendants agree that they will not oppose such an application. Defendants shall be responsible for providing notice of the Settlement to the members of the Class and shall pay the costs and expenses relating to providing notice of the Settlement to the Class. 8. Neither this Memorandum of Understanding nor any provision hereof shall be deemed a presumption, concession or an admission by any defendant in the Actions of any fault, liability or wrongdoing as to any facts or claims alleged or asserted in the Actions, or any other actions or proceedings, and shall not be interpreted, construed, deemed, invoked, offered, or received in evidence or otherwise used by any person in the Actions, or in any other action or proceeding, whether civil, criminal or administrative. 9. This Memorandum of Understanding constitutes the entire agreement among the parties with respect to the subject matter hereof, and may not be amended nor any of its provisions waived except by a writing signed by all of the signatories hereto. 4 10. This Memorandum of Understanding and the Settlement contemplated by it shall be governed by, and construed in accordance with, the laws of the State of New York, regardless of laws that might otherwise govern under applicable conflict of laws principles. 11. This Memorandum will be executed by counsel for the parties to the Actions. This Memorandum may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. By signing this Memorandum, counsel for plaintiffs in the Actions represent that they have authority to act on behalf of all plaintiffs and their counsel in all of the actions constituting the Actions. 12. This Memorandum of Understanding shall be binding upon and shall inure to the benefit of the parties and their respective agents, successors, executors, heirs and assigns. IN WITNESS WHEREOF, the parties have executed this Memorandum effective as of the date set forth below. ABBEY GARDY & SQUITIERI, LLP PARKER CHAPIN FLATTAU & KLIMPL, LLP By: /s/ Arthur N. Abbey By: /s/ Richard Rubin --------------------------- ---------------------------- Arthur N. Abbey Richard Rubin 212 East 39th Street 1211 Avenue of the Americas New York, New York 10016 New York, New York 10036 (212) 889-3700 (212) 704-6000 BERNSTEIN LITOWITZ BERGER WILLKIE FARR & GALLAGHER & GROSSMANN LLP By: /s/ Jeffrey A. Klafter By: /s/ Stephen W. Greiner ----------------------------- --------------------------- Jeffrey A. Klafter Stephen W. Greiner 1285 Avenue of the Americas 787 Seventh Avenue New York, New York 19919 New York, New York 10019 (212) 554-1400 (212) 728-8000 5 GOODKIND LABATON RUDOFF WARSHAW BURSTEIN COHEN & SUCHAROW LLP SCHLESINGER & KUH, LLP By: /s/ Jonathan M. Plasse By: /s/ Arthur A. Katz ----------------------------- ----------------------------- Jonathan M. Plasse Arthur A. Katz 100 Park Avenue 555 Fifth Avenue New York, New York 10017 New York, New York 10017 (212) 907-0700 (212) 984-7700 On behalf of: ENTWISTLE & CAPPUCCI LLP 400 Park Avenue, 16th Floor New York, New York 10022 (212) 894-7200 WECHSLER HARWOOD HALEBIAN & FEFFER, LLP 488 Madison Avenue, 8th Floor New York, New York 10022 (212) 935-7400 WOLF POPPER, LLP 845 Third Avenue New York, New York 10022 (212) 759-4600 BERNSTEIN LIEBHARD & LIFSHITZ, LLP 10 East 40th Street New York, New York 10016 (212) 779-1414 LOWEY DANNENBERG BEMPORAD & SELINGER, P.C. The Gateway Building 1 North Lexington Avenue White Plains, New York 10601 (914) 997-0500 FINKELSTEIN THOMPSON & LOUGHRAN Suite 601 1055 Thomas Jefferson Street, N.W. Washington, D.C. 20007 (202) 337-8000 Dated: January 19, 1999 6 -----END PRIVACY-ENHANCED MESSAGE-----