Common use of Seasonality Clause in Contracts

Seasonality. The Company's business is subject to seasonal fluctuations, the effects of weather and economic conditions. Earnings have been highest in its fourth fiscal quarter due primarily to increased customer traffic during the holiday shopping season. The fourth fiscal quarter typically accounts for approximately 40% of annual net income. The length of the holiday shopping period between Thanksgiving and Christmas and the number of weeks in the fourth quarter also impacts the fourth quarter earnings relationship from year to year. NEW RESTAURANT CONCEPTS During 1995, the Company began developing three new restaurant concepts. The first is a casual dining concept under the name Umberto's of New Hyde Park, featuring pizza and other Italian-style foods. The Company has an 80% interest in this restaurant business. Umberto's currently operates five restaurants on Long Island, New York, with three additional units planned for 1998 openings and five food court units in regional shopping malls in Chicago, Las Vegas, White Plains and Long Island, New York. The Company is also developing with joint venture partners a family-style steakhouse concept and an upscale, table-service Italian restaurant, and is analyzing the market potential of a new concept that would offer healthy, South-of-the-Border cuisine. PROPERTIES All Sbarro restaurants are operated in leased premises. As of December 28, 1997, the Company leased 641 restaurants, of which 34 were subleased to franchisees under terms which cover all obligations of the Company under the lease. The remaining franchisees directly lease their restaurant space. Most of the Company's restaurant leases provide for the payment of base rents plus real estate taxes, utilities, insurance, common area charges and certain other expenses, as well as contingent rents generally ranging from 8% to 10% of net restaurant sales in excess of stipulated amounts. Leases to which the Company was a party at December 28, 1997 have initial terms expiring as follows: Years Initial Lease Number of Company- Number of Franchised Terms Expire Owned Restaurants Restaurants ------------ ----------------- ----------- 1998 26 4 1999 - 2003 336 25 2004 - 2008 239 5 2009 - 2012 6 0 Since May 1986, the Company's headquarters have been located in a two-story 20,000 square foot office building located in Commack, New York, which is leased for a period of fifteen years at a current annual base rent of $337,000. The Company pays real estate taxes, utilities, insurance and certain other expenses for the facility. In March 1994, the Company purchased a 100,000 square foot office building in Melville, New York, for $5,350,000 and recently completed the renovation of the building at an estimated additional cost of approximately $15 million. The Company intends to occupy approximately 25% of the building in late-1998 as its corporate headquarters and lease the remainder of the building. The Company has entered into leases with unaffiliated third parties to occupy approximately 50% of the total space in the facility.