5
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
FILED BY REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
CHECK THE APPROPRIATE BOX:
[ ] PRELIMINARY PROXY STATEMENT
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-6(E)14A-B(E)(2))
[X] DEFINITIVE PROXY STATEMENT
[ ] DEFINITIVE ADDITIONAL MATERIALS
[ ] SOLICITING MATERIAL PURSUANT TO 240.14A-11(C) OR 240.14A-12
PIZZA INN, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] NO FEE REQUIRED.
[ ] FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES 14A-6(I)(1) AND 0-11.
1) TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION APPLIES:
2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES:
3) PER UNIT PRICE OR OTHER UNDERLYING VALUE OF TRANSACTION COMPUTED
PURSUANT TO EXCHANGE ACT RULE 0-11 (SET FOR THE AMOUNT ON WHICH
THE FILING FEE IS CALCULATED AND STATE HOW IT WAS DETERMINED):
4) PROPOSED MAXIMUM AGGREGATE VALUE OF TRANSACTION:
5) TOTAL FEE PAID:
[ ] FEE PAID PREVIOUSLY WITH PRELIMINARY MATERIALS.
[ ] CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY EXCHANGE ACT
RULE 0-11(A)(2)AND IDENTIFY THE FILING FOR WHICH THE OFFSETTING FEE
WAS PAID PREVIOUSLY. IDENTIFY THE PREVIOUS FILING BY REGISTRATION
STATEMENT NUMBER, OR THE FORM OR SCHEDULE AND THE DATE OF ITS FILING.
1) AMOUNT PREVIOUSLY PAID:
2) FORM, SCHEDULE OR REGISTRATION STATEMENT NO:
3) FILING PARTY:
4) DATE FILED:
PIZZA INN, INC.
3551 PLANO PARKWAY
THE COLONY, TEXAS 75056
(469) 384-5000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 11,DECEMBER 15, 2004
To our Shareholders:
The Annual Meeting of Shareholders of Pizza Inn, Inc. (the "Company") will
be held at the Company's corporate offices, 3551 Plano Parkway, The Colony,
Texas 75056, on Wednesday, February 11,December 15, 2004, at 11:10:00 a.m., Dallas time, for
the following purposes:
1. To elect threefour Class III directors;
2. To consider and vote upon a proposal to approve the adoption of a
stock award plan for non-employee directors as a successor plan to the 1993
Outside Directors Stock Award Plan that expired in 2003;
3. To consider and vote upon a proposal to approve the adoption of a
stock award plan for employees as a successor plan to the 1993 Employee Stock
Award Plan that expired in 2003;
4. To consider and vote upon a proposal to amend the Company's Restated
Articles of Incorporation to declassify the board of directors; and
2.5. To transact such other business as may properly come before the
meeting or any postponements or adjournments thereof.
On October 27, 2003,These items are more fully described in the Companyproxy statement, which is part of
this notice. We have not received a notice from Newcastle Partners,
L.P. ("Newcastle")of other matters that it intends to (1) nominate a competing slate of
directorsmay be properly
presented at the Annual Meeting, (2) present at the Annual Meeting proposals to
repeal certain of the amendments to the Company's bylaws adopted by the Board of
Directors on December 18, 2002 (the "Bylaw Amendments") and (3) seek approval to
have all of its expenses incurred in connection with any proxy or other
solicitation materials reimbursed by the Company. Newcastle has also advised the
Company that it intends to solicit shareholders through a proxy statement.
THE BOARD RECOMMENDS A VOTE "FOR" THE ELECTION OF ITS NOMINEES ON THE
ENCLOSED WHITE PROXY CARD. THE BOARD FURTHER RECOMMENDS THAT YOU REJECT ANY
PROXY SOLICITATION BY NEWCASTLE AND THAT YOU VOTE "AGAINST" NEWCASTLE'S
PROPOSALS TO REPEAL THE BYLAW AMENDMENTS AND TO SEEK REIMBURSEMENT FOR ITS PROXY
SOLICITATION EXPENSES, IF SUCH PROPOSALS ARE PRESENTED AT THE ANNUAL MEETING. WE
URGE YOU TO VOTE "FOR" THE BOARD'S NOMINEES NAMED IN THIS PROXY STATEMENT AND
NOT TO EXECUTE ANY PROXY CARD SENT TO YOU BY NEWCASTLE.annual meeting.
Only shareholders of record at the close of business on December 31, 2003October 18, 2004 are
entitled to notice of, and to vote at, this meeting and any postponements or
adjournments thereof.
By Order of the Board of Directors,
B. Keith Clark/s/ Rod J. McDonald
Rod J. McDonald
The Colony, Texas Corporate Secretary
January 13,November 16, 2004
THIS ANNUAL MEETING IS OF PARTICULAR IMPORTANCE TO ALL SHAREHOLDERS OF THE
COMPANY BECAUSE OF THE ATTEMPT BY NEWCASTLE TO TAKE OVER YOUR BOARD.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE,
DATE, AND SIGN THE ENCLOSED WHITE PROXY, CARD, AND MAIL IT IN THE STAMPED ENVELOPE ENCLOSED
FOR YOUR CONVENIENCE. THE ENCLOSED WHITE PROXY CARD IS REVOCABLE AT ANY TIME PRIOR TO ITS
USE.
YOUR VOTE IS IMPORTANT.
PIZZA INN, INC.
3551 PLANO PARKWAY
THE COLONY, TEXAS 75056
(469) 384-5000
PROXY STATEMENT FOR THE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 11,DECEMBER 15, 2004
The Board of Directors of
Pizza Inn, Inc., a Missouri corporation (the "Company"), is soliciting
proxies to be voted at the Annual Meeting of Shareholders (the "Annual Meeting")
to be held at the Company's corporate offices, 3551 Plano Parkway, The Colony,
Texas 75056, on Wednesday, February 11,December 15, 2004, 11:at 10:00 a.m., Dallas time, and at
any postponements or adjournments thereof. This Proxy Statement and the
enclosed form of proxy were first mailed to the Company's shareholders on or
about January 13,November 16, 2004.
If the enclosed WHITE proxy card is signed and returned before the Annual Meeting, it will be
voted in accordance with the directions on the proxy.proxy or, if no directions are
made, by the proxies named therein in their discretion. A proxyshareholder may
be revokedrevoke a proxy at any time before it is voted by execution of a subsequent
proxy, voting the shares in person at the Annual Meeting, or by signedgiving written
notice to Pizza Inn, Inc., c/o American StockSecurities Transfer 59 Maiden Lane, New York, NY 10007,Corporation, Transfer Agent,
2591 Dallas Parkway, Suite 102, Frisco, Texas 75034 at any time prior to the
close of the polls at the Annual Meeting stating that the proxy has been
revoked. If you hold shares through a bank or bybrokerage firm, you must contact
that firm to revoke any prior voting in personinstructions. The Company must receive the
notice or a new proxy card before the vote is taken at the Annual Meeting.
OUTSTANDING CAPITAL STOCK
The record date for shareholders entitled to notice of, and to vote at, the
Annual Meeting is December 31, 2003.October 18, 2004. At the close of business on that date,
there were outstanding 10,073,67410,138,674 shares of Common Stock, $.01 par value per
share
("Common Stock"). No other class of securities of the Company is entitled to
notice of, or to vote at, the Annual Meeting.
ACTION TO BE TAKEN AT THE MEETING
The accompanying WHITE proxy, card, unless the shareholder otherwise specifies in the
proxy, will be voted:
1. FOR the election of the threefour Class III director nominees named herein, to
serve for a term of two years each (or one year if the proposal to amend the
Company's Restated Articles of Incorporation is adopted) or until their
respective successors are elected and qualified;
2. AGAINSTFOR the repeal of certainapproval of the amendmentsadoption of a stock award plan for non-employee
directors as a successor plan to the Company's bylaws
adopted by1993 Outside Directors Stock Award Plan
that expired in 2003;
3. FOR the Boardapproval of Directors on December 18, 2002, if Newcastle Partners,
L.P. ("Newcastle") presentsthe adoption of an incentive stock award plan
for employees as a proposal at the Annual Meeting to repeal those
amendments;
3. AGAINST the reimbursement by the Company of costs and expenses (including
any litigation expenses) incurred by Newcastle in connection with its
solicitation of proxies in connection with this Annual Meeting, if Newcastle
presents a proposal at the Annual Meeting for the Company to reimburse such
costs and expenses and/or to recommendsuccessor plan to the Board1993 Employee Stock Award Plan that
expired in 2003;
4. FOR the amendment of Directors that the Company reimburse Newcastle for such expenses;Company's Restated Articles of
Incorporation to declassify the board of directors; and
4.5. In the discretion of the proxy holders, as to the transaction
of such other business as may properly come before the meeting or any
postponements or adjournments thereof.
The Board of Directors is not presently aware of any other business to be
brought before the Annual Meeting.
QUORUM AND VOTING
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Annual Meeting. In deciding all questions, a holder of Common Stock (a
"Shareholder") is entitled to one vote, in person or by proxy, for each share
held in his name on the record date. Cumulative voting for the election of
directors is not permitted. Thus, a Shareholder is not entitled to cumulate his
votes and cast them all for any single nominee or to spread his votes, so
cumulated, among more than one nominee. Directors mustwill be elected by a
plurality of the votes cast. To be elected as a director, a candidate must be
one of the threefour candidates who receive the most votes out of all votes cast at
the Annual Meeting. With respect to all other matters voted on at the Annual
Meeting, the affirmative vote of the holders of a majority of the shares
present, in person or by proxy, at the Annual Meeting will be required for
passage.
A Shareholder who is present, in person or by proxy, and who withholds his
vote in the election of directors, will be counted for purposes of determining
whether a quorum exists, but the withholding of his vote will not affect the
election of directors. A Shareholder who is present, in person or by proxy, and
who abstains from voting on other proposals, will be counted for purposes of a
quorum, and the abstention will have the same effect as a vote against the
proposals. Broker non-votes will be considered shares present and counted for
purposes of determining whether a quorum exists if voting instructions are given
as to at least one of the matters to be voted on;exists; however, the presence of such
shares will have no effect on the outcome of the vote. If a quorum is not
present, in person or by proxy, the meeting may adjournbe postponed or adjourned from
time to time until a quorum is obtained.
With respect to the election of directors, theThe enclosed WHITE proxy, card, if executed and returned, will be voted as directed on
the proxy or, in the absence of such direction, FORfor the election of the nominees
named onas directors. If any other matters properly come before the WHITEmeeting, the
enclosed proxy card as directors.will be voted by the proxy holders in accordance with their best
judgment. The Board believes that all the nominees will be available to serve as
directors. If any nominee is unable to serve, the Board may decide to do one of
two things. The Board may recommend a substitute nominee, or the Board may fill
the vacancy later. The shares represented by all valid proxies may be voted for
the election of a substitute if one is nominated.
On October 27, 2003, the Company received a notice from Newcastle Partners, L.P.
("Newcastle") that it intends to (1) nominate a competing slate of directors at
the Annual Meeting, (2) present at the Annual Meeting proposals to repeal the
Bylaw Amendments and (3) seek approval to have all of its expenses incurred in
connection with any proxy or other solicitation materials reimbursed by the
Company. If Newcastle presents the proposals mentioned above at the Annual
Meeting, the enclosed WHITE proxy card, if executed and returned, will be voted
as directed on the proxy or, in the absence of such direction, AGAINST such
proposals.
If any other matters properly come before the meeting, the enclosed proxy will
be voted by the proxy holders in accordance with their best judgment.
THE PROXY CONTEST
As of November 15, 2003, Newcastle was the beneficial owner of 3,583,780
shares of the Company's Common Stock, which represents over 35% of the issued
and outstanding Common Stock of the Company. The majority of these shares were
purchased pursuant to an option granted in December 2002 to Newcastle by Mr. C.
Jeffrey Rogers, the Company's former Chief Executive Officer. Pursuant to an
agreement with the Company entered into at the time Newcastle acquired the
shares from Mr. Rogers, the Board of Directors was required to appoint a
representative of Newcastle to each class of directors of the Company. On
December 19, 2002, Mark E. Schwarz and Steven J. Pully were appointed to serve
as Newcastle's representatives on the Board of Directors in accordance with the
Company's agreement with Newcastle.
At the meeting of the Board of Directors on August 26, 2003, the Nominating
and Corporate Governance Committee requested that the Board approve its
recommendation to re-nominate all of the existing directors whose terms would
expire at the upcoming annual meeting. Mr. Schwarz stated that he had been
interviewing potential director nominees for the Board to consider, but had not
yet finished his interview process. At Mr. Schwarz's request, the Board of
Directors deferred the nomination process until the next regularly scheduled
Board meeting on October 14, 2003.
On October 13, 2003, the Board received a memorandum from Mr. Schwarz listing 18
potential candidates for the Board to consider nominating for election at the
annual meeting. At the October 14, 2003 Board meeting, Mr. Schwarz stated that
he had asked Mr. Taylor and Mr. Ungerman to step down from the Board of
Directors and that two new persons should be nominated to replace them. The
other members of the Board inquired as to whether Mr. Schwarz had specific
nominees for the Board to consider. Mr. Schwarz stated that he had not yet
finished his interview process and that he did not have any specific
recommendations for the Board at that time.
During the October 14, 2003 meeting, the Board of Directors determined that it
needed to make a decision as to the nominees for the annual meeting due to the
October 27, 2003 deadline for filing the Company's proxy statement. The
Company's proxy statement was due 120 days after its fiscal year ended on June
28, 2003. The members of the Nominating and Corporate Governance Committee again
proposed that all three existing directors whose terms were expiring should be
re-nominated. The Board members discussed that the experience, qualifications
and familiarity with the Company's business made the existing directors valued
members of the Board. The Board also took into consideration the fact that Mr.
Schwarz was not prepared at that time to make any specific recommendation to the
Board. The Board voted to re-nominate all three existing directors who were up
for re-election, with Mr. Schwarz and Mr. Pully voting against the proposal.
On October 27, 2003, the Company received a letter from Newcastle stating its
intent to nominate Steven J. Pully, Barry M. Barron, Sr., and Robert B. Page to
the Board of Directors of the Company at the Annual Meeting and to solicit
proxies from shareholders with respect to the election of its nominees.
On November 7, 2003, the Company received a subsequent letter from
Newcastle stating that it intended to substitute Ramon D. Phillips for Robert B.
Page as one of its nominees for election at the Annual Meeting.
On November 10, 2003, the Board of Directors held two meetings and
discussed, among other things, certain matters related to the proposed director
nominations. At that time, the Board of Directors postponed the Annual Meeting
until January 21, 2004 in order to permit the Board and Newcastle additional
time to discuss the nominees to be proposed by the Board of Directors at the
Annual Meeting and to evaluate additional information regarding whether the
election of two new directors proposed by Newcastle could cause a "Change of
Control" as defined in the employment agreements between the Company and each of
Ronald W. Parker, B. Keith Clark, Ward T. Olgreen and Shawn M. Preator, as
discussed below.
On November 11, 2003, the Company received a subsequent letter from
Newcastle stating that it intends to substitute Robert B. Page for Barry M.
Barron, Sr. as one of its nominees for election at the Annual Meeting.
On November 16, 2003, the Board of Directors met and further discussed the
"Change of Control" issue and Newcastle's desire for two additional Board seats.
On December 4, 2003, Newcastle presented a proposal regarding a resolution
of its dispute with the Company regarding the proxy contest threatened by
Newcastle. As proposed by Newcastle, it would withdraw its alternative slate of
directors and support a mutually agreed slate of directors under the following
conditions:
(i) Mr. Page would be presented on the Company slate for election to the
Board, one of each of Messrs. Schwarz, Pully or Page would be appointed to each
Board committee, and Mr. Pully would be named Chairman of the Board;
(ii) the Board of Directors would designate each of Messrs. Schwarz, Pully
and Page as an incumbent director as defined in the Company's existing executive
employment contracts, and each employee with a contract would waive the Change
of Control provision with regards to these three individuals;
(iii) the Board will repeal the bylaw amendments adopted on December 18,
2002, agree not to change the bylaws or the employment contracts before the
January 21, 2004 meeting, and agree that any future changes to the Company's
bylaws or the existing executive employment contracts can only be approved by a
supermajority vote of five of the seven directors; and
(iv) the Company will reimburse Newcastle for all its legal and travel
expenses related to these negotiations and its threatened proxy contest, which
expenses are currently undetermined.
After review and discussion by the five non-Newcastle directors (the
"Existing Directors"), a counter proposal was submitted to Newcastle on December
8, 2003. Following the points as listed above, the Existing Directors responded
as followings:
(i) the Existing Directors are not opposed to including Mr. Page on the
Company slate or the committee representation request, but believe that the
Chairman of the Board should continue to be elected on an annual basis by a
majority of the Board of Directors;
(ii) the Board of Directors does not have the ability to designate a
director as incumbent as defined in the Company's executive employment contracts
and the individual employees have not agreed to waive the Change of Control
provision;
(iii) the Existing Directors are not opposed to revising the relevant
sections of the bylaws in a manner to be agreed upon with Newcastle, but are
opposed to a supermajority voting requirement;
(iv) the Company and Newcastle will agree to bear their own legal and travel
expenses.
The Board of Directors was unable to reach a mutually agreeable compromise on
these issues.
On January 6, 2004, the Board of Directors met and voted to postpone the Annual
Meeting until February 11, 2004 to allow sufficient time for all shareholders to
receive and consider the Company's proxy solicitation materials and to vote
prior to the Annual Meeting.
The Board of Directors opposes the election of Messrs. Phillips and Page to
the Board of Directors. Although Mr. Page was among the candidates listed in the
memorandum provided by Mr. Schwarz to the Board of Directors on October 13,
2003, he was not discussed at the October 14, 2003 meeting. In addition, he has
not been discussed at subsequent Board meetings, none of the non-Newcastle
representatives of the Board have spoken with Mr. Page and, therefore, the Board
of Directors has not had an adequate opportunity to assess his qualifications.
From the receipt of the October 13, 2003 candidate memorandum to the October 27,
2003 filing date, there was not sufficient time to contact and adequately assess
the qualifications of 18 potential candidates. In addition, Mr. Page was not
identified by Newcastle as one of its director designees until October 27, 2003.
A scheduled meeting between Mr. Page and Mr. Parker in October was cancelled by
Newcastle. Mr. Page was not discussed at the Company's two November 10, 2003
meetings discussed above because Mr. Page had been removed by Newcastle as one
of its director designees. Furthermore, the Board believes that the existing
directors will be better able to serve the interests of the shareholders of the
Company based on their experience, qualifications and familiarity with the
Company's business.
The employment agreements for each of Mr. Ronald Parker, Mr. Keith Clark,
Mr. Shawn Preator and Mr. Ward Olgreen provide that that if the employment of
any of these executive officers were to terminate for any reason (including the
voluntary termination of employment by such officer) within 12 months after a
"Change of Control", the Company would be required to make a lump sum payment to
the officer in the following amounts: $5.4 million to Mr. Parker, $762,000 to
Mr. Clark, $630,000 to Mr. Olgreen and $597,000 to Mr. Preator. The aggregate
of these payments for which the Company would be obligated to pay is
approximately $7.4 million. Such amounts include tax gross-up payments as a
result of excise taxes that such persons would be required to pay due to such
payments being deemed to be "excess parachute payments" under the Internal
Revenue Code. Of this amount, approximately $3.3 million of the amount paid to
Mr. Parker, $451,000 of the amount paid to Mr. Clark, $362,000 of the amount
paid to Mr. Olgreen and $369,000 of the amount paid to Mr. Preator would not be
deductible by the Company for federal income tax purposes.
In addition, if Mr. Parker were no longer the Chief Executive Officer of the
Company, the Company would be in default under approximately $9.5 million of
indebtedness owed to Wells Fargo Bank (Texas). Additionally, the Company's
interest rate swap agreement will be in default, and as of September 28, 2003,
the payoff amount was approximately $800,000.
Under each of the employment agreements, a "Change of Control" is deemed to have
occurred if "individuals who, as of [December 16, 2002], constitute[d] the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to [December 16, 2002] whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange
Act of 1934) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board."
Counsel to the Company has delivered to the Board its written legal
opinion that, subject to the assumptions, limitations, qualifications and
exceptions contained therein, it is of the opinion that a Texas court in a
properly presented and argued case should conclude that Messrs. Schwarz, Pully,
Phillips and Page would not constitute members of the Incumbent Board and
therefore, if the Newcastle nominees are elected to the Board in connection with
a proxy contest, a "Change of Control" as defined in the employment agreements
discussed above would be deemed to occur. The opinion of counsel is based upon
certain assumptions, limitations, qualifications and exceptions, including a
certificate from the Company setting forth the factual background of the
Company's relationship with Messrs. Schwarz and Pully, and specifically, the
circumstances surrounding the appointment of Messrs. Schwarz and Pully to the
Board in December 2002. The opinion of counsel also notes the absence of legal
precedent concerning the matters covered by the opinion and states that there is
no assurance that a Texas court would agree with counsel's interpretation of
such matters. Counsel for Newcastle has informed counsel to the Company that
they disagree with this opinion. Additionally, Messrs. Schwarz and Pully have
informed the Board that they believe themselves to be incumbent directors.
The Board of Directors and management believe that electing Messrs.
Phillips and Page (or Mr. Barron) to the Board of Directors is contrary to the
best interests of the Company's shareholders. The Board of Directors recommends
that you reject Newcastle's nominees and vote FOR the Board's nominees on the
enclosed WHITE proxy card. WE URGE YOU NOT TO EXECUTE ANY PROXY CARD SENT TO
YOU BY NEWCASTLE.
PROPOSAL ONE:
ELECTION OF DIRECTORS
The Company's Restated Articles of Incorporation and By-LawsBylaws provide that
the Board of Directors shall be divided into two Classes. Currently, a former
Board member holds one additional Board seat in a non-voting advisory capacity.
The advisory position is not elected, but may be appointed from time to time by
vote of the Board of Directors for a period of time as approved by the Board.
The terms of the threefour
Class III directors expire at the Annual Meeting. The Board has nominated for
election at the Annual Meeting all of the incumbent Class III directors. Each
nominated director will serve for a term of two years. Each nominee of the
Board has expressed his intention to serve the entire term for which election is
sought.sought, but if any of them is unable to serve at the time the election occurs,
the proxy will be voted for the election of another nominee to be designated by
the Board. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"FOR EACH OF THE THREEFOUR NOMINEE
DIRECTORS LISTED BELOW.DIRECTORS.
On October 20, 2004, the Board of Directors approved a proposal to amend the
Company's Restated Articles of Incorporation to delete Section 8.2, the
provision that divides the Board into two classes of directors. The following table listsamended and
substituted Section 8.2 would provide for one class of directors. Under the
namesamendment, if approved by the shareholders, the four director nominees proposed
in this proxy, if elected, will hold office until the 2005 annual meeting of
shareholders, at which time they, or their successors, would be subject to
election as members of a single class of seven directors. Those directors
currently referred to as Class II directors, who were elected at the 2003 annual
meeting of shareholders to hold office until the 2005 annual meeting of
shareholders, will complete their terms at the 2005 annual meeting of
shareholders, at which time they, or their successors, would be subject to
election as members of a single class of seven directors. Members of the single
class, or their successors, would be subject to re-election every year. The
proposal to amend the Restated Articles of Incorporation requires the approval
of holders of a majority of the shares present in person or represented by proxy
and ages,entitled to vote.
If the proposed amendment is not approved by the shareholders, the two classes
of directors will continue, and the four Class I nominees, if elected, will
serve two year terms.
Following is the biographical information, as of November 15, 2003,October 1, 2004, of the threefour
nominee directors, the four Class Ithree directors whose terms of office will continue after
the Annual Meeting, the advisory director, the class to which each director has been or will be
elected, the year in which each director was first elected, and the annual
meeting (assuming that it is held in December) at which the term of each
director will expire.
Director Term
Nominee Directors Age Class Since Expires
- ------------------ --- ----- ----- -------
Steve A. Ungerman 59 II 1990 2003
F. Jay Taylor 80 II 1994 2003
Steven J. Pully 43 II 2002 2003
Continuing Directors
- ---------------------NOMINEES
Bobby L. Clairday, 60 I 1990 2004
Ronald W. Parker 53 I 1993 2004
Butler E. Powell 65 I 1998 2004
Mark E. Schwarz 43 I 2002 2004
Advisory Director
- ------------------
Ramon D. Phillips (a) 70 n/a 2002 n/a
(a) Mr. Phillips previously served as a Class I Director from 1990
through 2002. The position of Advisory Director is subject to Board discretion.
EXECUTIVE OFFICERS
The following table sets forth certain information, as of November 15, 2003,
regarding the Company's executive officers:
Executive
Officer
Name Age Position Since
- ---- --- -------- -----
Ronald W. Parker 53 President and Chief Executive Officer 1992
B. Keith Clark 41 Senior Vice President- Corporate Development,
Secretary and General Counsel 1997
Ward T. Olgreen 44 Senior Vice President of Franchise Operations
and Concept Development 1995
Shawn M. Preator 34 Chief Financial Officer and Vice President of
Distribution 1999
Danny K. Meisenheimer 43 Vice President of Marketing 2003
Michael L. Iglesias 42 Vice President of Franchise Development 2001
James D. Shoemake 36 Vice President of Franchise Services 2002
Barry L. Hill 42 Vice President of Training 2002
Brian L. Waters 52 Vice President of Purchasing - Norco
Division 2000
Susan A. Milliman 38 Vice President of Recruiting and Employee
Services 2001
BIOGRAPHIES OF NOMINEE DIRECTORS, CONTINUING DIRECTORS, AND ADVISORY DIRECTOR
Bobby L. Clairday61, is an Area Developer of Pizza Inn restaurants and he
is President, a Director, and sole shareholder of Clairday Food Services, Inc.,
a Pizza Inn franchisee operating Pizza Inn restaurants in Arkansas. Mr.
Clairday is also sole shareholder of Advance Food Services, Inc., a franchisee
operating Pizza Inn restaurants in Arkansas. From 1990 until his election as a
Director of the Company in January 1993, Mr. Clairday was an ex-officio member
of the Board of Directors, serving as a representative of ourthe Company's
franchisees. He has served as the President of the Pizza Inn Franchisee
Association and as a member of various committees and associations affiliated
with the Pizza Inn restaurant system. Mr. Clairday has been a franchisee of the
Company for over twenty years and a member of the BoardClass I Director for over nine years.
Ronald W. Parker, 54, was appointed President and Chief Executive Officer
of the Company in August 2002. Mr. Parker joined the Company in October 1992 and
was elected Executive Vice President, Chief Operating Officer, and a Director in
January 1993. He was appointed President in July 2000. From October 1989 to
September 1992, he was Executive Vice President and General Manager of the
Bonanza restaurant division of Metromedia Steakhouses, Inc. and its predecessor
Metsa, Inc. From 1983 to 1989, Mr. Parker served in several executive positions
for USACafes, the franchisor of the Bonanza restaurant chain. From 1974 to 1983,
Mr. Parker served in several executive positions with Chart House, Inc., a
restaurant company with more than 600 units of various brands. He previously
worked with a national accounting firm from 1972 to 1974. Mr. Parker also
currently serves on the Board of Directors of the Cotton Bowl Athletic
Association, the Mississippi State University Foundation, and the Mississippi
State University Bulldog Club, Inc. Foundation. Mr. Parker was previously on the
Board of Directors of the Mississippi State University Alumni Association.
Butler E. Powell, 65, is Vice President of Business Banking with Hibernia
National Bank in Metairie, Louisiana. He has served in various capacities with
the bank and its predecessors since 1983. He graduated from Loyola University
in New Orleans with BBA and MBA degrees and spent 3 1/2over three years with the
national accounting firm Ernst and Ernst before entering the banking industry.
Mr. Powell was the former President and a Director of the New Orleans Athletic
Club and served on the Foundation Board of East Jefferson Hospital. He was
elected a Class I Director of the Company in January 1998.
Steven J. Pully is the President of Newcastle Capital Management, L.P., a
private investment management firm that is the general partner of Newcastle
Partners, L.P. Mr. Pully is also a director and officer of Geoworks Corporation,
a director of Max-Worldwide, Inc. and a director and Chief Executive Officer of
privately-held Pinnacle Frames and Accents, Inc. Prior to joining Newcastle
Capital Management, L.P. in late 2001, from May 2000 to December 2001, he was a
managing director in the mergers and acquisitions department of Banc of America
Securities and from January 1997 to May 2000 he was a senior managing director
at Bear Stearns. Prior to becoming an investment banker, Mr. Pully practiced
securities and corporate law at the law firm Baker & Botts. Mr. Pully is a CPA
and a member of the Texas Bar. Mr. Pully was appointed a Director in December
2002 to fill a vacant Class II Board seat.
Mark E. Schwarz, 44, is the Chairman, Chief Executive Officer, and
Portfolio Manager of Newcastle Capital Management, L.P., a private investment
management firm he founded in 1992 that is the general partner of Newcastle
Partners, L.P. Mr. Schwarz was appointed Chairman of the Board of the Company in
February 2004. Mr. Schwarz is also Chairman of the Board and Chief Executive
Officer of Hallmark Financial Services, Inc., aChairman of the Board of Bell
Industries, Inc., Chairman of the Board of New Century Equity Holdings Corp.,
director and Chief Executive Officer of Geoworks Corporation, and a director of
Bell Industries, Inc., Nashua Corporation, S L Industries, andInc., Web Financial Corporation.Corporation, and
privately-held Pinnacle Frames and Accents, Inc. From 1995 through 1999, he was
also a Vice President of Sandera Capital Management and in 1998 and 1999 he was
a director of Aydin Corporation. Mr. Schwarz was appointed a Director in
December 2002 to fill a vacant Class I Board seat.
F. Jay TaylorCONTINUING DIRECTORS
Robert B. Page, 45, is an arbitrator in Ruston, Louisiana who is affiliated with the
American Arbitration Associationa franchisee of Shoney's, Inc., a family dining
restaurant chain. From November 2000 until September 2002, Mr. Page was Chief
Operations Officer of Gordon Biersch Brewery Restaurant Inc., a group of casual
dining restaurants. From 1993 through 2000 he worked for Romacorp, Inc., which
owns Tony Roma's, a chain of casual dining restaurants, where he was Chief
Executive Officer and the Federal Mediationa board member from 1998 through 2000, and Conciliation
Service. He formerly served as a Director of USACafes, Earth Resources,President and
Mid
South Railroad. HeChief Operations Officer from 1993 through 1998. Mr. Page was elected a director of First Guaranty Bank in 2001. Dr.
Taylor, who received his Ph.D. from Tulane University, served as President of
Louisiana Tech University from 1962 to 1987 and currently serves as its
President Emeritus. Mr. Taylor was elected aClass II
Director of the Company in 1994.
Steve A. Ungerman is a practicing attorney in Dallas, Texas. From January 1,
1998 through December 31, 2000 he was Of Counsel to the law firm of Boswell &
Kober, P.C. From August 1997 to December 1997, he was employed by MedSynergies,
Inc., a physician practice management company, in the capacity of Special
Projects. From September 1996 to August 1997, he was President of MedSynergies,
Inc. From September 1996 to December 1997, he was Of Counsel to the law firm of
Ungerman, Sweet & Brousseau. Prior to September 1996, he practiced law as a
shareholder of Ungerman & Ungerman, P.C. and its predecessors for 28 years in
the areas of business matters, commercial finance and mediation. Mr. Ungerman
received his Juris Doctor degree from Southern Methodist University. He was
elected a Director and Chairman of the Board of Directors of the Company in
September 1990.February 2004.
Ramon D. Phillips, 71, is the former Chairman of the Board, President, and
Chief Executive Officer of Hallmark Financial Services, Inc., a financial
services company. He served as Chairman, President, and Chief Executive Officer
of Hallmark from 1989 through 2000, and as Chairman through August 2001. Prior
to Hallmark, Mr. Phillips had over fifteen years experience in the franchise
restaurant industry, serving in an executive position withas Controller for Kentucky Fried Chicken, Inc.
(1969-1974) and as Executive Vice President and Chief Financial Officer for
Pizza Inn, Inc. (1974-1989). He was elected a Director of the Company in 1990
and served through 2002. He served as an Advisory Director in 2002 and was
re-elected as a Class II Director in 2003.
Steven J. Pully, 44, is the President of Newcastle Capital Management, L.P.
Mr. Pully is also Chief Executive Officer and a director of New Century Equity
Holdings Corp., an officer and director of Geoworks Corporation, a director of
Max Worldwide, Inc., and a director of privately-held Pinnacle Frames and
Accents, Inc. Prior to joining Newcastle Capital Management, L.P. in late 2001,
from May 2000 to December 2001, he was a managing director in the mergers and
acquisitions department of Banc of America Securities, Inc. and from January
1997 to May 2000 he was a senior managing director in the investment banking
department of Bear Stearns. Prior to becoming an investment banker, Mr. Pully
practiced securities and corporate law at the law firm of Baker & Botts. Mr.
Pully is a CPA, a CFA, and a member of the Texas Bar. Mr. Pully was appointed a
Director in December 2002 to fill a vacant Class II Board seat.
INFORMATION REGARDING THE BOARD AND ITS COMMITTEES
The Board has adopted a set of Corporate Governance Guidelines on
governance practices followed by the Company in order to assure that the Board
will have the necessary authority and practices in place to review and evaluate
the Company's business operations as needed and to make decisions that are
independent of the Company's management. The guidelines are also intended to
align the interests of directors and management with those of the Company's
shareholders. The Governance Guidelines set forth the practices the Board will
follow with respect to Board composition and selection, Board meetings and
involvement of senior management, Chief Executive Officer performance evaluation
and succession planning, and Board committee composition and compensation. The
Governance Guidelines are intended to be compliant with changes to The Nasdaq
Stock Market ("Nasdaq") listing standards and Securities and Exchange Commission
(the "SEC") rules adopted to implement provisions of the Sarbanes-Oxley Act of
2002 (the "Sarbanes-Oxley Act"). The Board has six committees: an Executive
Committee, an Audit Committee, a Compensation Committee, a Finance Committee, a
Nominating and Governance Committee, and a Strategic Planning Committee. The
Governance Guidelines, as well as the charters for certain Board committees,
including the Nominating and Governance Committee, may be viewed at
http://www.pizzainn.com.
The Board met nine times during the last fiscal year. All directors
attended 75% of more of the Board meetings and meetings of the committees on
which they served. Below is a table that provides membership and meeting
information for each of the Board committees:
Nominating Strategic
Name Executive Audit Compensation Finance & Governance Planning
- --------------------------------------------------------------------------------
Mr. Schwarz X*
Mr. Clairday
Mr. Page X X X* X X**
Mr. Parker X
Mr. Phillips X X* X X X X**
Mr. Powell X
Mr. Pully X* X X*
Number of Meetings
in Fiscal 2004 10 9 5 3 1 14^
- --------------------------------------------------------------------------------
* Committee Chairman
** Committee Co-Chairman
^ Includes five meetings with the Company's management team.
Independent directors meet twice annually apart from other Board members
and management representatives. Each of the Company's directors, other than Mr.
Clairday and Mr. Parker, qualify as "independent" in accordance with published
Nasdaq listing requirements.
Below is a description of each committee of the Board. Each of the
committees has authority to engage legal counsel or other experts or consultants
as it deems appropriate to carry out its responsibilities. The Board has
determined that each member of each committee meets the applicable laws and
regulations regarding "independence" when applicable and that each member is
free of any relationship that would interfere with his individual exercise of
independent judgment.
Executive Committee. This Committee will consider issues as directed by the
-------------------
Chairman of the Board. It also may exercise the authority of the Board between
Board meetings, except to the positionextent that the Board has delegated authority to
another committee or to other persons, and except as otherwise limited by
Missouri law.
Audit Committee. The Company has a separately designated standing audit
----------------
committee established in accordance with Section 3(a)(58)(A) of advisorythe Securities
Exchange Act of 1934. The responsibilities of this Committee include reviewing
the financial reports and other financial information provided by the Company to
any governmental body or the public; the Company's systems of internal controls
regarding finance, accounting, legal compliance, and ethics that management and
the Board have established; the Company's auditing, accounting, and financial
reporting processes generally; and such other functions as the Board may from
time to time assign to the Committee. In performing its duties, the Committee
seeks to maintain an effective working relationship with the Board, the
independent accountant, and management of the Company. The specific duties and
functions of the Audit Committee are set forth in the Audit Committee Charter.
The Charter is reviewed annually and updated as necessary to reflect changes in
regulatory requirements, authoritative guidelines, and evolving practices.
Management is responsible for the preparation, presentation, and integrity
of the Company's financial statements, accounting and financial reporting
principles, internal controls, and procedures designed to ensure compliance with
accounting standards, applicable laws, and regulations. The Company's
independent auditor, BDO Seidman LLP, is responsible for performing an
independent audit of the consolidated financial statements and expressing an
opinion on the conformity of those financial statements with generally accepted
accounting principles.
Compensation Committee. The primary responsibilities of this Committee are
-----------------------
to (a) review and recommend to the Board the compensation of the Chief Executive
Officer and other officers of the Company, (b) review executive bonus plan
allocations, (c) oversee and advise the Board on the adoption of policies that
govern the Company's compensation programs, (d) oversee the Company's
administration of its equity-based compensation and other benefit plans, and (e)
approve grants of stock options to officers and employees of the Company under
its stock plans. The Compensation Committee's role includes producing the report
on executive compensation required by SEC rules and regulations. The specific
duties and functions of the Compensation Committee are set forth in its charter.
This charter is reviewed annually and updated as necessary to reflect changes in
regulatory requirements, authoritative guidelines, and evolving practices.
Finance Committee. The primary responsibilities of this Committee are to
------------------
(a) monitor present and future capital requirements and opportunities pertaining
to the Company's business, and (b) review and provide guidance to the Board and
management about all proposals concerning major financial policies of the
Company. The Finance Committee's role includes designating officers and
employees who can execute documents and act on behalf of the Company in the
ordinary course of business under previously approved banking, borrowing, and
other financing arrangements.
Nominating and Governance Committee. The primary responsibilities of this
-------------------------------------
Committee are to (a) determine the slate of director nominees for election to
the Board, (b) identify and recommend candidates to fill vacancies occurring
between annual shareholder meetings, and (c) review, evaluate, and recommend
changes to the Company's Corporate Governance Guidelines. The Committee's role
includes periodic review of the compensation paid to non-employee directors for
annual retainers and meeting fees and making recommendations to the Board for
any adjustments. The specific responsibilities and functions of the Committee
are set forth in December 2002.its Charter.
From time to time the Committee reviews the Board to assess the skills and
characteristics required of Board members in the context of the current
composition of the Board. This assessment includes issues of diversity in
numerous factors, understanding of and achievements in the restaurant industry,
board service, business, finance, marketing, and community involvement. These
factors, and any other qualifications considered useful by the Committee, are
reviewed in the context of an assessment of the perceived needs of the Board at
a particular point. As a result, the priorities and emphasis of the Committee
and of the Board may change from time to time to take into account changes in
business and other trends, and the portfolio of skills and experience of current
and prospective Board members. Therefore, while focused on the achievement and
the ability of potential candidates to make a positive contribution with respect
to such factors, the Committee has not established specific minimum criteria or
qualifications that a nominee must possess.
Consideration of new Board nominee candidates typically involves a series
of internal discussions, review of information concerning candidates, and
interviews with selected candidates. In general, candidates for nomination to
the Board are suggested by Board members or by employees. In 2004 the Company
did not employ a search firm or pay fees to other third parties in connection
with seeking or evaluating Board nominee candidates. The Committee will consider
director candidates recommended by shareholders. The Committee evaluates
candidates proposed by shareholders using the same criteria as for other
candidates. The name of any recommended candidate for director, together with a
brief biographical sketch, a document indicating the candidate's willingness to
serve if elected, and evidence of the nominating person's ownership of Company
stock should be sent to the Corporate Secretary of the Company using one of the
methods set forth in "Communications from Shareholders to the Board," below.
Strategic Planning Committee. This Committee was constituted on April 21,
------------------------------
2004 specifically to work with the Company's senior management to create and
implement a strategic plan for the Company. The Committee and Company management
assemble and analyze data pertaining to the Company's business plan, competitive
environment and objectives, and other factors relevant to the Company's
concepts, products, and services, ultimately preparing and recommending plans,
timetables, strategies, options, and procedures for the Company's long-term
growth and success. Upon completion and presentation of a final strategic plan
to be implemented and monitored by management, the Committee will transition
into an oversight role, and ultimately may be dissolved, subject to reformation
from time to time as the Board may deem necessary.
Communications from Shareholders to the Board
The Board recommends that shareholders initiate any communications with the
Board in writing and send them in care of the Corporate Secretary. Shareholders
can send communications by e-mail to corporate_secretary@pizzainn.com, by fax to
(469) 384-5061, or by mail to Corporate Secretary, Pizza Inn, Inc., 3551 Plano
Parkway, The Colony, TX 75056. This centralized process assists the Board in
reviewing and responding appropriately to shareholder communications. The names
of specific intended Board members should be noted in the communication. The
Board has instructed the Corporate Secretary to forward such correspondence only
to the intended recipients; however, the Board has also instructed the Corporate
Secretary, prior to forwarding any correspondence, to review such correspondence
and, in his discretion, not to forward certain items if they are deemed of a
commercial or frivolous nature or otherwise inappropriate for the Board's
consideration. In such cases, that correspondence may be forwarded elsewhere in
the Company for review and possible response.
Director Compensation
As an employee of the Company, Mr. Parker receives no compensation for
serving as a director, except that he, like all directors, is eligible to
receive reimbursement of any expenses incurred in attending Board and committee
meetings. During fiscal year 2004, each other director received as compensation
for serving on the Board and committees of the Board:
- - An annual retainer of $17,000;
An annual retainer of $6,000 for the Chairman of the Board; and
A per meeting fee of $1,000 for Board meetings and $250 fee for committee
meetings.
Members of the Strategic Planning Committee receive a per diem fee of $500 for
each day they are directly engaged in the discharge of Committee
responsibilities.
In addition to annual and meeting fees, each non-employee director was
eligible to receive stock option awards under the 1993 Outside Directors Stock
Award Plan (the "1993 Plan") until the 1993 Plan's expiration on October 13,
2003. Under the 1993 Plan, eligible directors would receive, as of the first
day of the Company's fiscal year, options for Common Stock equal to twice the
number of shares of Common Stock purchased during the preceding fiscal year or
purchased by exercise of previously granted options during the first ten days of
the current fiscal year. On the first day of the first fiscal year immediately
following the day on which a non-employee director first became eligible to
participate in the 1993 Plan, that director would receive options to acquire two
shares of Common Stock for each share of Common Stock owned by such director on
the first day of the fiscal year. The exercise price of the options is not less
than the closing price for the Common Stock on Nasdaq on the date of the option
grant. Each eligible director was entitled to options for no more than 20,000
shares per fiscal year. Stock options granted under the 1993 Plan have an
exercise price equal to the market price of the Common Stock on the date of
grant and are first exercisable one year after grant.
Since the beginning of fiscal year 2004, stock options for 5,000 shares
were granted to Mr. Schwarz pursuant to the 1993 Plan at an exercise price of
$2.15 per share.
Expiration of the 1993 Plan does not affect vesting, exercise, or expiration of
options previously granted pursuant to such Plan; however, no further options
may be granted.
The Board expects to grant stock option awards to non-employee directors
beginning in calendar year 2005, with awards retroactive to the 1993 Plan's
October 13, 2003 expiration date, if the shareholders approve Proposal Two,
"Adoption of a Non-Employee Directors Stock Option Award Plan."
EXECUTIVE OFFICERS
The following table sets forth certain information, as of October 1, 2004,
regarding the Company's executive officers:
Executive
Officer
Name Age Position Since
- ---- --- -------- -----
Ronald W. Parker 54 President and Chief Executive Officer 1992
Ward T. Olgreen 45 Senior Vice President of Franchise Operations
and Concept Development 1995
Shawn M. Preator 35 Chief Financial Officer and Vice
President of Distribution 1999
Rod J. McDonald 43 Secretary and General Counsel 2004
Danny K. Meisenheimer 44 Vice President of Marketing 2003
BIOGRAPHIES OF NON-DIRECTOR OFFICERS
B. Keith Clark was appointed Senior Vice President- Corporate Development
in October 2002. He joined the Company in February 1997 and was elected General
Counsel and Secretary of the Company in March 1997. From June 1994 through
February 1997, he was Assistant General Counsel and Assistant Secretary of
American Eagle Group, Inc., a property and casualty insurance holding company.
From January 1990 through May 1994, Mr. Clark was a corporate associate in the
Dallas office of Akin, Gump, Strauss, Hauer & Feld, L.L.P., a diversified
international law firm. Mr. Clark served on the Company's Board of Directors
from September 2002 through December 2002. Since 1999 Mr. Clark has been a
member of the Board of Directors of the Visiting Nurse Association of Texas, a
non-profit corporation providing a variety of home health care services, where
he currently serves as Chairman of the Board.
Ward T. Olgreen was appointed Senior Vice President of Franchise Operations and
Concept Development in December 2002. He was appointed Vice President of
Concept Development in February 1999 and Senior Vice President of Concept
Development in July 2000. He joined the Company in September 1991 and served in
a variety of operational positions until his appointment in January 1995 as Vice
President of International Operations and Brand R& D.&D. Mr. Olgreen was a Branch
Manager for GCS Service, Inc., a restaurant equipment service provider, from
June 1986 through July 1991.
Shawn M. Preator was appointed Chief Financial Officer and Vice President
of Distribution in October 2002. He was elected Vice President in June 2000.
He was elected Controller, Treasurer, and Assistant Secretary in April 1999.
Prior to that election, Mr. Preator had been Assistant Controller for the
Company since July 1998. Prior to joining the Company, Mr. Preator was a Senior
Financial Analyst at LSG/Sky Chefs, Inc., an international airline caterer, from
September 1996 to July 1998. Prior to September 1996, Mr. Preator worked for
the accounting firm Ernst & Young LLP in its audit department.
Rod J. McDonald was appointed Corporate Secretary and General Counsel in August
2004. Mr. McDonald joined the Company in September 1997 and had served as
Assistant General Counsel of the Company since that time. Prior to joining the
Company, he was Vice President and Assistant General Counsel for TCBY
Enterprises, Inc.
Danny K. Meisenheimer was appointed Vice President of Marketing in January 2003
after joining the Company in December 2002. Prior to joining the Company, Mr.
Meisenheimer served as Vice President of Marketing for Furr's Restaurant Group,
Inc. since 1995. Mr. Meisenheimer joined the Marketing Department of Furr's in
1991.
Michael L. Iglesias was appointed Vice President of Franchise Development in May
2001. From May 1996 through May 2001, he was Director of Franchise Development
for the Company. Prior to joining the Company, Mr. Iglesias was an Area Sales
Representative for TCBY Systems, Inc.
James D. Shoemake was appointed Vice President of Franchise Services in May
2002. Mr. Shoemake had been Division Vice President of Traditional Operations
since 2000. He joined the Company in 1997 as a Franchise Operations Consultant.
Prior to joining the Company, Mr. Shoemake was an International Business
Consultant for European and Asian Markets for Brice Group, Inc.
Barry L. Hill was appointed Vice President of Training in May 2002. Mr.
Hill had been Director of Field Training and New Store Opening for the Company
since 1999. He joined the Company in 1998 as Training Manager. Prior to joining
the Company, Mr. Hill was Director of Training for Whataburger for 15 years.
Brian L. Waters was appointed Vice President of Purchasing - Norco Division in
September 2000. He joined the Company in August 1996 as Director of Purchasing.
Prior to joining the Company, Mr. Waters was Senior Purchasing Manager for Fast
Food Merchandisers from 1993 to 1996.
Susan A. Milliman was appointed Vice President of Recruiting and Employee
Services in July 2001. Ms. Milliman had been Director of Human Resources for the
Company since 1996. Prior to joining the Company, Ms. Milliman was a Human
Resources Generalist for Claim Services Resource Group.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information, as of November 15,
2003,October 1, 2004,
with respect to the beneficial ownership of Common Stock by: (a) each person
known to the Company to be a beneficial owner of more than five percent of the
outstanding Common Stock; (b) each director, nominee director, and executive
officer named in the section entitled "Summary Compensation Table";Table;" and (c) all
directors and executive officers as a group (17(11 persons). Except as otherwise
indicated, each of the persons named in the table below is believed by the
Company to possess sole voting and investment power with respect to the shares
of Common Stock beneficially owned by such person. Information as to the
beneficial ownership of Common Stock by directors and executive officers of the
Company has been furnished by the respective directors and executive officers.
Name Shares Percent
and Address of Beneficially of Class
5%-------
Beneficial Owner Owned
- ------------------- ------------------------ -----
C. Jeffrey Rogers (a)
5529 St. Andrews Ct
Plano, Texas 75093 (a) (a)
Newcastle Partners, L.P.
Newcastle Capital Management, L.P.
Newcastle Capital Group, L.L.C.
(b)
300 Crescent Court, Ste. 1110
Dallas, TX 75201 3,583,780 35.610%(a) 3,627,130 35.79%
Ronald W. Parker (c)(b)
3551 Plano Parkway
The Colony, TX 75056 1,018,173 9.875%
Steve A. Ungerman (d) 30,566 Less than 1%851,821 8.40%
Mark E. Schwarz (a)(b) 3,647,130 35.9%
Robert B. Page -0- -0-
Butler E. Powell (c) 35,000(b) 32,500 Less than 1%
Bobby L. Clairday (e)(c) 48,900 Less than 1%
Ramon D. Phillips (d) 11,590 Less than 1%
Steven J. Pully (b) -0- -0-
Mark E. Schwarz (b) 3,593,780 35.693%
F. Jay Taylor (c) 20,000(a) 8,929 Less than 1%
B. Keith Clark (c)(f) 168,486 1.660%
Ward T. Olgreen (c) 167,739 1.653%(b) 169,659 1.67%
Shawn M. Preator 53,918(b) 56,165 Less than 1%
Danny K. Meisenheimer 2871,092 Less than 1%
All Directors and 3,994,965 39.42%
Executive Officers as a Group
(g) 5,250,661 52.170 %
(a) Mr. Rogers was a Director and the Company's Chief Executive Officer
until August 21, 2002. For additional information, see "Severance Agreement".
On August 21, 2002, Mr. Rogers beneficially owned approximately 3,650,000
shares, or approximately 35% of the total shares then outstanding. On January 3,
2003, Mr. Rogers filed with the Securities Exchange Commission a Form 4
Statement of Changes in Beneficial Ownership showing ownership of 205,000
shares, or approximately 2% of the total shares then outstanding. The Company
cannot confirm subsequent changes, if any, in Mr. Rogers' ownership position.
(b) Newcastle Capital Management, L.P. is the general partner of Newcastle
Partners, L.P., Newcastle Capital Group, L.L.C. is the general partner of
Newcastle Capital Management, L.P., and Mark E.Mr. Schwarz is the managing partner of
Newcastle Partners, L.P. Accordingly, each of Newcastle Capital Management,
L.P., Newcastle Group, L.L.C., and Mark E. Schwarz may be deemed to beneficially
own the shares of Common Stock beneficially owned by Newcastle Partners, L.P.
In addition, Newcastle Partners, L.P., Newcastle Capital Management, L.P.,
Newcastle Group, L.L.C., Markand Messrs. Schwarz Stevenand Pully Ramon D. Phillips and Robert P. Page are members of a Section
13(d)13D reporting group and may be deemed to beneficially own shares of Common Stock
owned by the other members of the broup.group. Newcastle Partners, L.P., and Mr.Messrs.
Schwarz are the only members of the group toand Pully also directly own shares of Common Stock.
(c)(b) Includes vested options and options vesting within 60 days of November
15, 2003October 1,
2004 under the Company's stock option plans, as follows: 242,50062,500 shares for Mr.
Parker; 12,5005,000 shares for Mr. Schwarz; 20,000 shares for Mr. Powell; 10,000 shares for Mr. Taylor; 106,500
shares for Mr. Clark; 76,50066,500
shares for Mr. Olgreen; and 44,500 shares for Mr. Preator.
(d) Includes 12,283 shares for which Mr. Ungerman shares voting and
investment power with his wife.
(e) Includes 18,200 shares for which(c) Mr. Clairday shares voting and investment power for 18,200 shares with
his wife.
(f) Includes 4,000(d) Mr. Phillips shares held by K&A Clark Family Partnership, L.P.
(g) Excludesvoting and investment power for 5,333 shares owned by Mr. Rogers who was a Director and an executive
officer until August 21, 2002.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board currently consistswith
the other shareholders of seven authorized directors and one
non-voting advisory director as described in "Proposal One: Election of
Directors" on page 5.
The Board has established Audit, Compensation, Executive, Finance, Nominating
and Governance, and Stock Award Plan Committees. The Audit Committee selects
independent auditors and reviews audit results. The Compensation Committee
reviews and approves remuneration for officers of the Company. The Finance
Committee reviews and oversees the Company's capital structure and operating
results. The Executive Committee considers business as directed by the Chairman
of the Board. The Nominating and Governance Committee considers recommendations
for and qualifications of nominees for Director, and provides senior management
guidance in matters of the Company's governance. The Nominating and
Governance Committee will consider nominees recommended by shareholders. See
"Shareholder Proposals" for the procedures required to be followed in submitting
such recommendations. The Stock Award Plan Committee administers the 1993 Stock
Award Plan and the 1993 Outside Directors Stock Award Plan.
As of November 15, 2003, Messrs. Taylor, Powell, Pully, and Ungerman serve
on the Audit Committee; Messrs. Powell, Taylor, and Ungerman serve on the
Compensation Committee; Messrs. Clairday and Powell serve on the Stock Award
Plan Committee; Messrs. Ungerman, Parker, and Schwarz serve on the Executive
Committee; Messrs. Schwarz, Parker, Powell, and Taylor, serve on the Finance
Committee; and Messrs. Taylor and Powell serve on the Nominating and Governance
Committee.
During fiscal year 2003, the Board of Directors held four meetings. The Audit
Committee met four times, the Compensation Committee met three times, the
Executive Committee met twelve times, and the Finance Committee met four times.
In addition, the Board of Directors and the Compensation and Stock Award Plan
Committees took several actions by unanimous written consent in lieu of
meetings. Each of the directors attended at least three-fourths of the total
number of meetings held by the Board and the committees on which he served.
COMPENSATION OF DIRECTORS
A director who is an employee of the Company is not compensated for service
as a member of the Board of Directors or any Committee of the Board. Outside
directors receive an annual fee of $17,000 plus meeting fees equal to $1,000 per
Board meeting and $250 per Committee meeting attended. The Chairman of the
Board receives an additional $6,000 annual fee for serving in that capacity.
Directors are also reimbursed for Board related expenses.
Under the 1993 Outside Directors Stock Award Plan each elected outside
director is eligible to receive, as of the first day of the Company's fiscal
year, options for Common Stock equal to twice the number of shares of Common
Stock purchased during the preceding fiscal year or purchases by exercise of
previously granted options during the first ten days of the current fiscal year.
On the first day of the first fiscal year immediately following the day on which
an outside director first becomes eligible to participate in this plan, that
outside director shall receive an option to acquire one share of Common Stock
for each share of Common Stock owned by such director on this first day of the
fiscal year. No outside director shall be entitled to options for more than
20,000 shares per fiscal year. Stock options granted under the plan have an
exercise price equal to the market price of the Common Stock on the date of
grant and are first exercisable one year after grant.
Since the beginning of fiscal year 2003, stock options were granted to
outside directors pursuant to such plan as follows: on July 1, 2002 options for
10,000 shares were granted to Mr. Powell at an exercise price of $1.280 per
share.Wholesale Software International, Inc.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board is responsible for providing independent,
objective oversight of the Company's accounting functions and internal controls.
The Audit Committee is composed of fourthree independent directors and acts under a
written charter adopted and approved by the Board of Directors on April 15,
2003. The Committee reviews its Charter on an annual basis. Each of the members
of the Audit Committee is independent as defined by the National Association of
Securities Dealers' listing standards and as required by the Sarbanes-Oxley Act of 2002 ("Act").Act.
After a full review and analysis, the Board of Directors positively reaffirmed
that each member of the Audit Committee is independent within the meaning of Rule
4200(a)(14) of the National Association of Securities Dealers' listing standards
and the rules and regulations of the Securities and Exchange Commission (the "SEC"),SEC, as such requirements are defined as of
the mailing date of this proxy statement. The Board annually reviews the Nasdaq
listing standards' definition of independence for audit committee members and
makes an annual determination of the independence of Committee members. The
Board of Directors has also determined that at least one member of the
Audit
Committee, Mr. Pully,Phillips, is an "audit committee financial expert" (asexpert," as defined by
SEC rules and regulations).regulations. This designation results from a disclosure
requirement of the SEC related to Mr. Phillips' experience and understanding
with respect to certain accounting and auditing matters. The SEC believes this
designation does not impose upon Mr. Phillips any duty, obligation, or liability
that is greater than is generally imposed on him as a member of the Audit
Committee and the Board, and that his designation as an audit committee
financial expert pursuant to this SEC requirement does not affect the duty,
obligation, or liability of any other member of the Audit Committee or the
Board. For an overview of Mr. Pully's qualifications,Phillips' relevant experience, see the section
entitled "Biographies of Nominee Directors, Continuing Directors,
and Advisory Director""Continuing Directors" above.
The responsibilities of the Audit Committee include reviewing the financial
reports and other financial information provided by the Company to any
governmental body or the public; the Company's systems of internal controls
regarding finance, accounting, legal compliance and ethics that management and
the Board have established; and the Company's auditing, accounting, and
financial reporting processes generally. Consistent with this function, the
Audit Committee encourages continuous improvement of, and adherence to, the
Company's policies, procedures, and practices at all levels.
The Committee has been established to: (a) assist the Board in its
oversight responsibilities regarding: (1) the integrity of the Company's
financial statements, (2) the Company's compliance with legal and regulatory
requirements, and (3) the independent accountant's qualifications and
independence; (b) prepare the report required by the United States Securities
and Exchange Commission (the "SEC") for inclusion in the Company's annual proxy
statement; (c) retain and terminate the Company's independent accountant; (d)
approve audit and non-audit services to be performed by the independent
accountant; and (e) perform such other functions as the Board may from time to
time assign to the Committee. In performing its duties, the Committee shall
seek to maintain an effective working relationship with the Board, the
independent accountant, and management of the Company.
The Audit Committee reviewed and discussed the Company's audited financial
statements with management. The Audit Committee also discussed with the
independent accountantsBDO Seidman LLP
the matters required to be discussed by Statement on Auditing Standards No. 61,
(Communications"Communications with Audit Committees). The Company's
independent accountantsCommittees." In addition, BDO Seidman LLP also
provided to the Audit Committee the written disclosures and the letter required by
Independence Standards Board Standard No. 1, (Independence"Independence Discussions with
Audit Committees),Committees," and the Audit Committee discussed with the independent accountantsBDO Seidman LLP that firm's
independence.
The Audit Committee is responsible for recommending to the Board that the
Company's financial statements be included in the Company's annual report.
Based on the discussions with the independent accountantsBDO Seidman LLP concerning the audit, the
financial statement review, and other such matters deemed relevant and
appropriate by the Audit Committee, the Audit Committee recommended to the Board that the
June 29, 200327, 2004 audited financial statements be included in the Company's 20032004
Annual Report on Form 10-K.
In accordance with the rules of the Securities and Exchange Commission,SEC, the foregoing information, which
is required by paragraphs (a) and (b) of Regulation S-K Item 7 of Schedule 14A,306, shall not be
deemed to be "soliciting material", or to be "filed" with the CommissionSEC or subject to
the Commission'sSEC's Regulation 14A, other than as provided in that Item, or to the
liabilities of Section 18 of the Securities Exchange Act of 1934, as amended,
except to the extent that the Company specifically requests that the information
be treated as soliciting material or specifically incorporates it by reference
into a document filed under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended.
SUBMITTED BY THE AUDIT COMMITTEE
OF THE COMPANY'S BOARD OF DIRECTORS
Dr. F. Jay Taylor,Submitted by the Audit Committee: Ramon D. Phillips, Chairman
Robert B. Page
Butler E. Powell
Steven J. Pully
Steve A. Ungerman
FEES PAID TO INDEPENDENT AUDITORS
The Audit Committee has selected BDO Seidman LLP certified public
accountants as the independent auditors of the Company for fiscal year 2005. A
representative of BDO Seidman LLP will be present at the Annual Meeting, will be
available to respond to appropriate questions, and will have an opportunity to
make a statement.
For fiscal 2004, the Audit Committee selected BDO Seidman LLP to replace
PricewaterhouseCoopers LLP, which was the Company's independent auditor for the
fiscal year ending June 29, 2003. The decision to change accountants was made
by vote of the Committee, and the dismissal of PricewaterhouseCoopers LLP became
effective on October 8, 2003. During fiscal years 2002 and 2003, there were no
disagreements between the Company's senior management and PricewaterhouseCoopers
LLP's senior audit personnel on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure such
that would have caused PricewaterhouseCoopers LLP to have made reference to the
subject matter of such disagreements in connection with its audit report. The
Company does not anticipate that a representative of PricewaterhouseCoopers LLP
will be present at the Annual Meeting, nor does it anticipate that any such
representative will be available to make a statement or to answer questions.
The following table shows the fees the Company paid or accrued for the audit and
other services provided by PricewaterhouseCoopers LLP in fiscal 2003 and BDO
Seidman LLP in fiscal 2004.
PRICEWATERHOUSECOOPERS BDO SEIDMAN
2003 2004 2004
- --------------------------------------------------------------------------------
Audit Fees $ 129,540 -- $ 74,000
Audit-Related Fees $ 13,656 -- $ --
Tax Fees $ 13,345 $ 9,300 $ 950
All Other Fees $ 35,579 $ 12,500 $ 3,050
-----------------------------------------------------------
Total $ 192,120 $ 21,800 $ 78,000
AUDIT FEES This category represents aggregate fees billed by
PricewaterhouseCoopers LLP and BDO Seidman LLP for professional services
rendered for the audit of the Company's annual financial statements for the
years ended June 29, 2003 and June 27, 2004, respectively, and the reviews of
the financial statements included in the Company's Forms 10-Q for those years.
AUDIT-RELATED FEES These fees consist of assurance and related services that
are reasonably related to the performance of the audit or review of the
Company's financial statements. This category includes fees related to the
performance of audits and attest services not required by statute or
regulations, audits of the Company's benefits plans, and accounting
consultations regarding the application of generally accepted accounting
principles to proposed transactions.
TAX FEES Fees billed by PricewaterhouseCoopers LLP for fiscal years 2003 and
2004 for tax return preparation and foreign tax analysis, and for a change in
tax accounting method, and fees billed by BDO Seidman LLP for tax services
during fiscal 2004.
ALL OTHER FEES Fees paid to PricewaterhouseCoopers LLP and BDO Seidman
LLP in 2003 and 2004 generally include services pertaining to the question of
change of control of the Board and the Company following the election of
directors at the Company's 2003 Annual Meeting of Shareholders, consultation on
a potential business opportunity, and for PricewaterhouseCoopers, LLP, review of
the Company's franchise offering circular. Fees paid to PricewaterhouseCoopers
LLP in fiscal 2004 also include services related to the transfer of
audit-related materials from PricewaterhouseCoopers LLP to BDO Seidman LLP.
In considering and authorizing these payments to the independent auditors for
services unrelated to performance of the audit of the Company's financial
statements, the Committee has determined that the cost segregation analysis
services, tax return preparation, foreign tax analysis and calculation, review
of the Company's franchise offering circular, and transfer of materials related
to the audit engagement undertaken by the independent auditors are not
inconsistent with the independent auditor's performance of the audit and
financial statement review functions and are compatible with maintaining the
independent auditor's independence.
Policy of the Audit Committee for Pre-Approval of Audit and Permissible
Non-Audit Services of the Independent Auditor
The Audit Committee is responsible for appointing, setting compensation
for, and overseeing the work of, the independent auditor. In accordance with
Audit Committee policy and the requirements of law, all services to be provided
by BDO Seidman LLP are pre-approved by the Audit Committee. Pre-approval applies
to audit services, audit-related services, tax services, and other services. In
some cases, pre-approval is provided by the full Audit Committee for up to a
year, and relates to a particular defined task or scope of work and is subject
to a specific budget. In other cases, the Chairman of the Audit Committee has
the delegated authority from the Audit Committee to pre-approve additional
services, and such pre-approvals are then communicated to the full Audit
Committee.
SUMMARY COMPENSATION TABLE
The following table sets forth the annual compensation of the Chief
Executive Officer and the other four most highly compensated executive officers
of the Company for the fiscal years ended June 27, 2004, June 29, 2003, and June
30, 2002 and June
24, 2001 (designated as years 2004, 2003, and 2002, and 2001)respectively).
Annual Compensation
-------------------------------------------------------
Long-Term
Compensation
Awards
------------------
All
Securities - OtherUnder-
Name Other Annual Underlying Compensation
Compensationlying Options (d)
(and Principal Position) Year Salary ($) Bonus ($) Compensation ($) (b)(a) (# of shares)
------ ------------- --------- -------------- ------------------------------- ------------------ --------------- ---------- --------------------- -------------
C. Jeffrey Rogers . . . . . . 2003(a)$ 126,308 $ 0 $ 15,772 0 $ 422,000
(Former ChiefRonald W. Parker. . . . . . . . . 20022004 $ 663,523550,000 $ 361,000275,000 $ 242,702176,084 0
0
Executive Officer). . . . . . 2001 $ 619,424 $ 475,000 $ 263,233 62,500 0
Ronald W. Parker. .(President and Chief) . . . . . 2003 $ 537,755 $ 275,000 $ 179,050179,910 0
0
(President and Chief)Executive Officer). . . . . . . 2002 $ 507,885 $ 277,300 $ 287,863 0
0
Executive Officer)B. Keith Clark (b) (Senior. . . . . . . 20012004 $ 473,892195,000 $ 275,00026,500 $ 203,945 62,5005,961 0
B. Keith Clark (Senior. Vice President, Secretary,. . . 2003 $ 186,035 $ 53,325 $ 2,993 0
0
Vice President, Secretary,and General Counsel). . . . . . 2002 $ 161,884 $ 42,500 $ 0 0
0
and General Counsel). . . . . 2001 $ 148,538 $ 22,000 $ 0 40,000 0
Ward T. Olgreen . . . . . . . . 2004 $ 168,000 $ 33,600 $ 7,539 0
(Senior Vice President. . . . . 2003 $ 160,904 $ 34,700 $ 3,769 0
0
(Senior Vice President. .of Franchise Operations and . . 2002 $ 147,596 $ 32,250 $ 0 0 0
of Franchise Operations and . 2001 $ 134,615 $ 17,250 $ 0 37,500 0
Concept Development)
Shawn M. Preator. . . . . . . . 2004 $ 150,000 $ 30,000 $ 5,961 0
(Chief Financial Officer and. . 2003 $ 139,650 $ 42,750 $ 3,042 0
0
(Chief Financial Officer and.Vice President of Distribution) 2002 $ 107,923 $ 21,000 $ 0 0
0
Vice President of Distribution)2001 $ 92,737 $ 22,500 $ 0 36,000 0
Danny K. Meisenheimer . . . . .2003. 2004 $ 136,102 $ 27,000 $ 0 0
Vice President of . . . . . . . 2003 (c) $ 65,244 $ 13,000 $ 0 0
0
(Vice President of
Marketing) (c )Marketing
(a) Mr. Rogers was a Director and the Company's Chief Executive Officer
until August 21, 2002. Figures shown are for the period July 1, 2002 through
August 21, 2002. For additional information, see "Severance Agreement".
(b) Includes:Includes for Mr. Rogers,Parker, quarterly payments of $37,500 for life and
disability insurance benefits, (which includes thesecondary medical benefits, and supplemental
retirement benefits in 2004, and an annual payment of related taxes) of $86,489$77,546 for such benefits
in 20022003 and 2001,2002; supplemental retirement benefits (which includes the payment
of related taxes) of $43,860 in 2002 and
2001, and life and disability insurance benefits (which includes the payment of
related taxes) of $11,050 in 2003 and $43,860 in 2002 and 2001; for Mr. Parker,
in 2003 a $150,000 allowance for life and disability benefits, secondary medical
benefits, and supplemental retirement benefits, a car allowance of $17,330 in
2003, and life insurance benefits (which includes the payment of related taxes)
of $10,879 in 2003, and $77,546 in 2002 and 2001, supplemental retirement
benefits (which includes the payment of related taxes) of $43,860 in 2002 and
2001,2002; and life and disability insurance
benefits (which includes the payment of related taxes) of $43,860 in 20022003 and
2001; in 2003 a car allowance of $2,993
for2002.
(b) Mr. Clark $3,769 for Mr. Olgreen,was Senior Vice President, Secretary, and $3,042 for Mr. Preator.General Counsel of
the Company until July 7, 2004.
(c) Includes compensation for Mr. Meisenheimer from his employment date of
December 31, 2002.
(d) Amounts paid pursuant to Severance Agreement dated August 21, 2002, as
follows: severance payments of $195,000 and $120,000; $50,000 for continuing
insurance coverage; $25,000 for executive recruiting services; and $32,000 for
legal expenses. For additional information, see "Severance Agreement".
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding stock options
exercised during fiscal year 20032004 and unexercised stock options held at the end
of fiscal year 20032004 by the Chief Executive Officer and the other four most
highly compensated executive officers of the Company. The closing bid price for
the Company's Common Stock, as reported by the National Association of
Securities Dealers Automated Quotation System, was $2.15$2.82 on June 27, 2003,25, 2004,
the last trading day of the Company's fiscal year.
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Shares Fiscal Year End Fiscal Year
Acquired on Value Realized (Exercisable/ End (Exercisable/
Name Exercise (#) ($) Unexercisable)(#) Unexercisable)
- --------- ------------- -------------- ----------------- --------------
Ronald W. Parker -- -- 242,500 (e) $ -0-
-0- (u) $ -0-
B. Keith Clark -- -- 106,500 (e) $ 4,500
-0- (u) $ -0-
Ward T. Olgreen -- -- 76,500 (e) $ 4,500
-0- (u) $ -0-
Shawn M. Preator -- -- 44,500 (e) $ 4,500
-0- (u) $ -0-
Danny K. Meisenheimer -- -- -0- (e) $ -0-
-0- (u) $ -0-
C. Jeffrey Rogers (a) -- -- -0- (e) $ -0-
-0- (u) $ -0-
(a) Mr. Rogers was a Director and the Company's Chief Executive Officer
until August 21, 2002. For additional information, see "Severance Agreement"
below.
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Shares Fiscal Year End Fiscal Year
Acquired on Value Realized (Exercisable/ End (Exercisable/
Name Exercise (#) ($) Unexercisable) (#) Unexercisable)
- --------------------- ------------ ---------------- ------------------ -------------------
Ronald W. Parker. . . -- -- 62,500 (e) $ 0
0 (u) $ 0
B. Keith Clark.(a). . 30,000 22,800 61,500 (e) $ 0
0 (u) $ 0
Ward. T. Olgreen. . . -- -- 76,500 (e) $24,600
0 (u) $ 0
Shawn M. Preator. . . -- -- 44,500 (e) $24,600
0 (u) $ 0
Danny K. Meisenheimer -- -- 0 (e) $ 0
0 (u) $ 0
(e) Denotes exercisable options.
(u) Denotes unexercisable options.
(a) Mr. Clark was Senior Vice President, Secretary, and General Counsel of the
Company until July 7, 2004.
OPTION GRANTS IN LAST FISCAL YEAR
DuringThe following table sets forth information regarding stock options granted
during fiscal year 20032004, pursuant to the Company did not grant any stock optionsCompany's 1993 Stock Award Plan, to the
Chief Executive Officer or any ofand the other four most highly compensated executive
officers of the Company.
Individual Grants
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Term
- ----------------------- ------------------------------
% of Total Options
Granted to Exercise
Options Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Share) Date 5% 10%
- ------ ------------- ---------------------------------------- ------------------------------ ------------ --------- ---------- --------- ------- ----
Ronald W. Parker 0 - $ - - $- $ - $-
B. Keith Clark 0 - $ - - $- $ - $-
Ward T. Olgreen 0 - $ - - $- $ - $-
Shawn M. Preator 0 - $ - - $- $ - $-
Danny K. Meisenheimer 0 - $ - - $ - $- C. Jeffrey Rogers (a) 0 - $ - - $ - $-
(a) Mr. Rogers was a Director and the Company's Chief Executive
Officer until August 21, 2002. For additional information, see
"Severance Agreement" below.
COMPENSATION COMMITTEE AND STOCK AWARD PLAN COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is comprised of three
independent, non-employee directors. The Compensation Committee is responsible
for establishing the level of compensation of the executive officers of the
Company. TheCompany and will be responsible for administering the 2004 Non-Employee Director
Stock Option Award Plan and the 2004 Employee Incentive Stock Award Plan Committee, which administersif
approved by the 1993 Stock Award
Plan, is also composed of three non-employee directors.shareholders.
The Compensation Committee and the Board have adopted a charter for the
Compensation Committee to conform to the Committee's responsibilities tounder the
revised Nasdaq standards, of Nasdaq, new rules adopted by the Securities and Exchange
Commission,SEC, and the provisions of
the Sarbanes-Oxley Act of 2002.Act.
Compensation Philosophy and Practice
In its administration and periodic review of executive compensation, the
Compensation Committee believes in aligning the interests of the executive
officers with those of the Company's shareholders. To accomplish this, the
Compensation Committee seeks to structure and maintain a compensation program that is
directly and materially linked to operating performance and enhancement of
shareholder value.
The Company intends for allTax Deductibility under Section 162(m)
As noted, the Company's compensation paid to its executives to be fully
deductible under federal income tax laws. Thepolicy is primarily based upon the
practice of pay-for-performance. Section 162(m) of the Internal Revenue Code
imposes certain limitationsa limitation on the deductibility of nonperformance-based compensation
in excess of $1 million per year paid to executives.the Chief Executive Officer and the other most
highly compensated executive officers of the Company. The Compensation Committee currently
believes that performance based bonuses
and stock options grantedthe Company should be able to continue to manage its executive
compensation program for these officers will continueso as to be fully
deductible.preserve the related federal
income tax deductions.
CHIEF EXECUTIVE OFFICER
The salary and bonuscompensation of Ronald W. Parker, as Chief Executive Officer of the
Company, from August 21, 2002,is based on his employment agreement as more fully described under
"Executive Employment Contracts" below.
Mr. Parker's employment agreement was approved by the then members of the Board
of Directors of the Company and the Compensation Committee as constituted on
December 16, 2002. The term of the employment agreement continues through
December 31, 2007. Under his employment agreement, Mr. Parker's compensation is
determined by the Compensation Committee, the Board of Directors of the Company,
or the Stock Award Plan Committee (whose function has been assumed by the
Compensation Committee), based on the recommendations of the Compensation
Committee. In reviewingThe Compensation Committee's recommendations with respect to Mr.
Parker's compensation, however, are subject to other provisions in his
employment agreement, including the Compensation Committee foundprovisions that provide that Mr. Parker's
total annual compensation may not be reduced to less than an annual salary of
$550,000 and a mandatory minimum annual bonus equal to $275,000. Additionally,
Mr. Parker is entitled to receive under his compensation terms to beemployment agreement certain defined
benefits, which, in line with compensation packages of chief executive
officers at similar companies.fiscal 2004, totaled approximately $176,084. The bonus
program established in Mr. Parker's employment agreement wasis based on Companythe
Company's performance related toin the areas of revenue growth, net income, new store
openings, store sales, Company stock price, store closings, and Company
expenses. Termination provisions were foundexpenses, subject to payment of the minimum bonus described above.
The current Compensation Committee has reviewed the compensation of Mr. Parker
and has evaluated Mr. Parker's compensation by comparing it to the compensation
of chief executive officers in the restaurant industry, and by considering the
Company's current structure and performance, among other things. As a result of
this review, the Compensation Committee believes the total amount of Mr.
Parker's compensation to be industry competitivewell in excess of the compensation of chief
executive officers at comparable companies and in
line with historicalbased upon the Company's
performance and expected future contributions, and help to
ensure his continued leadership. See section entitled "Executive Employment
Contracts".
FORMER CHIEF EXECUTIVE OFFICERfor the last completed fiscal year. The salary and bonusCompensation Committee also
believes that the compensation of C. Jeffrey Rogers,the Chief Executive Officer, as well as other
officers and employees of the Company, through August 21, 2002, was paid pursuantshould be more directly tied to
his most recent Employment
Agreement, effective asindividual performance and the performance of July 1, 1999, as amended on April 20, 2001.the Company.
EXECUTIVE OFFICERS
SalariesSubject to existing employment agreements, salaries of the executive
officers, excluding Mr. Parker, are reviewed annually and adjusted based on
competitive practices, changes in level of responsibilities and in certain cases, individual
performance measured against goals. The Compensation Committee strongly
believes that maintaining a competitive salary structure is in the best interest
of shareholders. It believes the Company's long-term success in its marketplace
is best achieved through recruitment and retention of high caliber executives
who are highlyamong the most skilled and talented in the industry. Bonus targetsThe Compensation
Committee also believes that compensation levels for the four most highly paidCompany's executive
officers other than
the Chief Executive Officer, are set annually. The 2003 bonusesshould be tied to individual and Company performance.
Subject to existing employment agreements, salary and bonus for Mr.
Olgreen, and Mr. Preator, and for Mr. Clark, prior to his resignation from the
Company in July 2004, are based upon their employment agreements as more fully
described under "Executive Employment Contracts" below. Mr. Olgreen, Mr. Preator, and Mr. Meisenheimer wereMeisenheimer's
bonus for 2004 was based on individual performance, the performance of departmentsthe
department within theirhis area of responsibility, and certain goals related to
Company operations for the fiscal year.
STOCK OPTIONS
The Company established the 1993 Employee Stock Award Plan ("Employee
Option Plan") for the purpose of aligning employee and shareholder interests.
Under this plan,the Employee Option Plan, stock options arewere granted from time to time to
certain executive officers, as well as other employees, based upon their
relative positions and responsibilities, as well as historical and expected
contributions to Company growth. During fiscal yearyears 2003 and 2004, the Company
did not grant stock options to employees.
The term of the Employee Option Plan expired on October 13, 2003.
Expiration does not affect vesting, exercise, or expiration of options
previously granted pursuant to the Plan. Upon expiration of the Employee Option
Plan no further option grants can be made.
The Board expects to grant stock option awards to eligible employees
beginning in calendar year 2005 if the shareholders approve Proposal Three
"Adoption of an Employee Incentive Stock Option Award Plan."
Submitted by the:
COMPENSATION COMMITTEE STOCK AWARD PLAN COMMITTEE
Butler E. Powell,the Compensation Committee: Steven J. Pully, Chairman
Bobby L. Clairday, Chairman
F. Jay Taylor Butler E. Powell
Steve A. UngermanRobert B. Page
Ramon D. Phillips
EXECUTIVE EMPLOYMENT CONTRACTS
Ronald W. Parker, B. Keith Clark, Ward T. Olgreen, and Shawn M. Preator
each entered into an Employment Agreement with the Company on December 16, 2002
whichthat contained the following provisions: (i) a term that currently extends
through December 31, 2007 for Mr. Parker and December 31, 2005 for Messrs. Clark,
Olgreen and Preator; (ii) the respective executive's compensation will be
determined each year by the Compensation Committee; (iii) each executive may be
terminated with or without cause, with cause including, but not limited to,
breach of monetary obligation to the Company, violation of the employment
agreement, fraud against the Company, and failure to substantially perform
required duties, each as described in suchthe agreement; (iv) each executive shall
receive an annual salary not less than his current salary and a bonus for Mr.
Parker of not less than fifty percent of his annual salary based on Company
performance related to revenue, net income, new store openings, store sales,
Company stock price, store closings, and Company expenses, and a bonus for each
of Messrs. Clark, Olgreen and Preator of not less than twenty percent of their
respective annual salary based on individual performance, the performance of
departments within their responsibility, and certain goals related to Company
operations for the fiscal year; (v) each executive is bound by obligations to
the Company related to the protection of the Company's trade secrets and
confidential information; and (vi) each executive is bound to arbitrate disputes
related to theirhis employment agreement.
Mr. Parker, Mr. Clark, Mr. Olgreen, or Mr. Preator may terminate theirhis respective
agreementsagreement at any time within 12 months after a "change of control"of the Company
occurs. Change of control is defined as: (a) a transfer of substantially all of
the assets of the Company to any person, group, or entity other than a person,
group, or entity that is controlled by the executive; (b) the Company is merged
with or into another corporation and the shareholders of the Company prior to
such merger own less than 50% of the voting stock of the Company or other
surviving corporation after the merger; (c) an unapproved change in the majority
of the Company's Board of Directors; or (d) a person, entity, or group (other
than (i) the Company or (ii) an employee benefit plan sponsored by the Company)
acquires 50% or more of the voting stock of the Company. If the Company
terminates Mr. Parker's employment without cause, or if Mr. Parker terminates
his employment upon a "change of control," he will be entitled to a lump sum
payment equal to four times (i) his highest annual salary over the last three
years plus (ii) the highest bonus and other cash compensation received by Mr.
Parker during the last three years. If the Company terminates Mr. Clark's, Mr. Olgreen's or
Mr. Preator's employment without cause, or if Mr. Clark, Mr. Olgreen, or Mr. Preator
terminates his employment upon a "change of control", he will be entitled to a
lump sum payment equal to two and one-half times the base amount of his annual
compensation, as calculated according to Section 280G of the Internal Revenue
Code. In addition, Mr. Parker, Mr. Clark, Mr. Olgreen, and Mr. ParkerPreator would be entitled
to an additional "tax gross-up" paymentgross-up payment" as a result of any excise tax that such
person is required to pay as a result of such payment being deemed to be an
"excess parachute payment" under the Internal Revenue Code. Each agreement
includes a noncompetition covenant that would apply for a stated number of years after
termination of employment. The number of years for the non-competition covenant
is equal
to the number of years by which the respective executive's compensation is
multiplied pursuant to any severance payments made to such executive.
See
"The Proxy Contest" for additional information with respect to the potential
effects of the election at the Annual Meeting of Newcastle's nominees to the
Board of Directors.
C. Jeffrey Rogers and the Company entered into an Employment Agreement,
executed October 1, 1999 and effective as ofOn July 1, 1999, and an Amendment to
the Employment Agreement executed April 20, 2001, for a term to extend through
June 30, 2004.7, 2004 Mr. Rogers' employment agreement terminated upon his resignation
from the Company on August 21, 2002. Certain benefits and payments to Mr.
Rogers' provided for in the agreement ceased at that time. See the section below
entitled "Severance Agreement".
SEVERANCE AGREEMENT
On August 21, 2002, Mr. Rogers and the Company entered into a Severance
Agreement and Release (the "Severance Agreement") in connection with Mr. Rogers'
resignation ofClark resigned his position as Senior Vice President,
Secretary, and General Counsel of the Company, citing provisions of his
employment contract requiring him to give notice of his election to terminate
his employment within twelve months of a Director and Chief Executive Officer"change of control" of the Company. PursuantThe
Company disputes that a "change of control" of the Company has occurred and,
pursuant to the terms of Mr. Clark's employment contract, has initiated
arbitration proceedings to resolve the Severance Agreement, Mr. Rogers agreed,
among other things, to (1) resign from all positions with the Company and its
affiliates, (2) generally release the Company from potential claims that he
might have against the Company, including any claims for severance payment under
his employment agreement, (3) not disclose the Company's confidential
information, and (4) enter into a covenant not to sue the Company, its
affiliates, officers, or employees. In return, the Company agreed to pay Mr.
Rogers approximately $415,000, consisting of accrued vacation, severance pay,
life insurance premiums, executive recruiting assistance, and legal fees, plus
the amount of any unpaid salary through August 21, 2002.dispute.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 6, 1999, the Company loaned C. Jeffrey Rogers, the Company's Chief
Executive Officer, approximately $1.95 million to acquire 700,000 shares of the
Company's Common Stock through the exercise of vested stock options previously
granted to him by the Company. The interest rate on the loan was the same
floating interest rate the Company pays on its credit facility with Wells Fargo
(Texas), N. A. ("Wells Fargo"). As collateral for the loan, Mr. Rogers granted
the Company a second lien on 2,749,000 shares of the Company's Common Stock and
certain real property. The Company agreed to subordinate its loan to an
existing personal loan made by Wells Fargo to Mr. Rogers. The Wells Fargo loan
was secured by a first lien on the collateral pledged to the Company. The
principal amount outstanding at all times during fiscal year 2002 was
approximately $1,949,000. In August 2002, the Board, based upon a review of
certain financial information provided by Mr. Rogers, determined that the
collection of the promissory note was doubtful. The Company recorded a charge in
the fourth quarter of fiscal 2002 to fully reserve for the possible nonpayment.
On August 21, 2002, Mr. Rogers resigned from the Company. On December 9, 2002,
Mr. Rogers repaid the loan to the Company, including all accrued interest
expense and related costs. The Company reversed the pre-tax reserve in the
second quarter of fiscal 2003.
On October 6, 1999, the Company loaned Ronald W. Parker, the Company's President
and Chief Operating Officer, approximately $557,000$560,000 to acquire 200,000 shares of
the Company's
Common Stock through the exercise of vested stock options previously granted to
him by the Company. On July 7, 2000, the Company loaned Mr. Parker
approximately $302,000 to acquire an additional 200,000 shares of the
Company's Common Stock
through the exercise of vested stock options previously granted to him by the
Company. The interest rate on the loans is the same floating interest rate the
Company pays on its credit facility with Wells Fargo. As collateral for the
loans, Mr. Parker granted the Company (i) a first lien on 100,000 previously
purchased shares of the Company's Common Stock and certain real property, and (ii) a second
lien inon certain additional real property. After the July 7, 2000 loan, the
principal amount outstanding was $859,000. Mr. Parker paid
the Company approximately $170,000 of the principal amount, leaving a current
principal loan balance at fiscal year end of approximately $689,000. All amounts
are due and payable on each loan on June 30, 2004.$862,000. The Board of Directors
approved each loan, with the specific terms and collateral being approved by the
Compensation Committee.
On October 30, 2000, Mr. Parker paid the Company approximately $165,000 of
the principal amount of the loans, and on June 10, 2004 Mr. Parker paid the
remaining principal balance and accrued interest in full. The Company has
released all liens on the shares of Common Stock and the real property pledged
by Mr. Parker as collateral for the loans. The Company currently has no
outstanding loans to its officers or directors.
Bobby L. Clairday is President and sole shareholder of Clairday Food
Services, Inc. and is sole shareholder of Advance Food Services, Inc., both of
which are franchisees of the Company. Mr. Clairday also holds area development
rights in his own name. Mr. Clairday currently operates 1211 restaurants in
Arkansas, either individually or through the corporations noted above. As
franchisees, the two corporations purchase a majority of their food and other
supplies from the Company's distribution division. In fiscal year 2003,2004,
purchases by these franchisees made up 6%4.4% of the Company's food and supply
sales,sales. Royalty payments by Mr. Clairday and royalties,such franchisees were 3.2% of the
Company's royalty revenues, and license fees and area development fees from Mr.
Clairday and such franchisees made up 4%6.3% of the Company's franchise revenues.
SHAREHOLDER PROPOSALS
REPEAL OF BYLAW AMENDMENTS AND REIMBURSEMENT OF EXPENSES
OnAs of October 27, 2003,1, 2004 Advance Food Services, Inc. and Clairday Food
Services, Inc. collectively owed the Company received a noticeapproximately $946,329, primarily
for royalties and purchases of products from Newcastle that it
intends to solicit the consent of shareholders at the Annual Meeting through a
proxy statement to repeal certain of the amendments to the Company's bylaws
adopted bydistribution division
("Clairday Debt"). Of the Board of Directors of the Company on December 18, 2002 (the
"Bylaw Amendments") and to seek approval to have all of its expenses incurred in
connection with any proxy or other solicitation materials reimbursed by the
Company. On November 7, 2003, the Company received a subsequent letter from
Newcastle advising the Company that the specific shareholder proposals that it
intends to present at the Annual Meeting are as follows:
- - the adoption of a resolution repealing the amendment to Article III,
Section 7, new Article III, Section 13 and new Article IV, Section 6 of the
Amended and Restated Bylaws of Pizza Inn adopted by the Pizza Inn Board on
December 18, 2002; and
- - the adoption of a resolution recommending to the Pizza Inn Board that
Pizza Inn reimburse Newcastle for all expenses (including any litigation
expenses) it incurs in connection with its solicitation of proxies for the
Annual Meeting.
REPEAL OF BYLAW AMENDMENTS
The amendments to the Company's bylaws that Newcastle seeks to repeal are
discussed below.
Article III, Section 7 (which deals with who is authorized to call a special
meeting of shareholders) was amended to delete the ability of shareholders
owning at least one-third (1/3) intotal amount of the entire capital stockClairday Debt outstanding on that
date, approximately $556,434 represents normal and customary 30-day purchase and
payment cycles for these franchisees, which often pay 1 to 15 or 16 to 30 days
outside of terms. The balance of the Clairday Debt, approximately $335,318,
represents amounts incurred by Advance Foods, Inc. during a period in 1996 and
1997 following Mr. Clairday's sale of that company to unrelated third parties
and prior to his reacquisition of the company in 1997 ("Advance Foods Debt").
The Company issuedcarries the Advance Foods Debt on its books as past due trade
receivables, with no interest accrual. From time to time Mr. Clairday makes
payments toward reduction of the Advance Foods Debt, and outstanding to call a special meeting.
Article III, Section 13 (which requires shareholders to provide advance notice
to the Company of matters that shareholders wishwill from
time to raise at shareholder
meetings)time set off certain payments due Mr. Clairday or Advance Foods, Inc.
against the Advance Foods Debt, reducing the balance owed. The last payment made
by Mr. Clairday toward the Advance Foods Debt was added to$5,232 in June 2000, and the
Bylaws. The full text of Article III, Section 13 is
as follows:
SECTION 13. BUSINESS AT SHAREHOLDERS' MEETING.last set-off applied by the Company against the Advance Foods Debt was $1,167 in
April 2001. No payment or set off was applied during fiscal 2004. At any meetingJune 27,
2004, the amount of the shareholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before a meeting, business
must be (a) specified in the notice of meeting (or any supplement thereto) given
by or at the directionAdvance Foods Debt was $335,318. As of the Board of Directors, (b) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (c)
otherwise properly brought before the meeting by a shareholder. For business to
be properly brought before a meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a shareholder's notice shall be delivered to or mailed and received
at the principal executive offices of the Corporation not less than fifty (50)
days nor more than seventy-five (75) days prior to the meeting; provided,
however, that in the event that less than sixty-five (65) days notice or prior
public disclosure of theNovember 16,
2004 mail date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received no later than the
close of business on the fifteenth (15th) day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made,
whichever first occurs. Such shareholder's notice to the Secretary shall set
forth (a) as to each matter the shareholder proposes to bring before the
meeting, a brief description of business desired to be brought before the
meeting and the reasons for conducting such business at the meeting, and (b) as
to the shareholder giving the notice (i) the name and record address of the
shareholder, (ii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the shareholder and (iii) any
material interest of the shareholder in such business. No business shall be
conducted at a meeting of the shareholders unless proposed in accordance with
the procedures set forth herein. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the foregoing procedure and such
business shall not be transacted. To the extent this Section 13 shall be deemed
by the Board of Directors or the Securities and Exchange Commission, or finally
adjudged by a court of competent jurisdiction, to be inconsistent with the right
of shareholders to request inclusion of a proposal in the Corporation's proxy statement, pursuantMr. Clairday was engaged in negotiations
with his lenders to Rule 14a-8 promulgated underfinance the Securities Exchange Act
of 1934, as amended, such rule shall prevail.
Article IV, Section 6 (which requires shareholders to provide advance
notice toAdvance Foods Debt and pay the Company of individuals that shareholders desire to nominate for
election to the Board of Directors at a meeting of the shareholders called for
the purpose of electing directors) was also added to the bylaws. The full text
of Article IV, Section 6 is as follows:
SECTION 6. NOMINATIONS TO BOARD OF DIRECTORS. Nominations of persons for
election to the Board of Directors of the Corporation at a meeting of the
shareholders may be made by or at the direction of the Board of Directors or may
be made at a meeting of shareholders by any shareholder of the Corporation who
is entitled to vote for the election of Directors at the meeting in compliance
with the notice procedures set forth in this Section 6 of Article IV. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a shareholder's notice shall be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than fifty (50) days nor more than seventy-five (75) days prior to the
meeting; provided, however, that in the event that less than sixty-five (65)
days notice or prior public disclosure of the date of the meeting is given or
made no later than the close of business on the fifteenth (15th) day following
the day on which such notice of the date of the meeting was mailed or such
public disclosure was made, whichever first occurs. Such shareholder's notice to
the Secretary shall set forth (a) as to each person whom the shareholder
proposes to nominate for election or re-election as a Director, (i) the name,
age, business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class and number of shares of
capital stock of the Corporation which are beneficially owned by the person and
(iv) any other information related to the person that is required to be
disclosed in solicitations for proxies for election of Directors pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended; and (b) as
to the shareholder giving the notice (i) the name and record address of the
shareholder and (ii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the shareholder. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such proposed
nominee to serve as Director of the Corporation. No person shall be eligible for
election as a Director of the Corporation at a meeting of the shareholders
unless such person has been nominated in accordance with the procedures set
forth herein. If the facts warrant, the Chairman of the meeting shall determine
and declare to the meeting that a nomination does not satisfy the requirements
set forth in the preceding sentence and the defective nomination shall be
disregarded. Nothing in this Section 6 shall be construed to affect the
requirements for proxy statements of the Corporation under Regulation 14A of the
Exchange Act.
At the time the Board of Directors approved the Bylaw Amendments, it
determined that the amendments were in the best interests of the Company. The
Board of Directors continues to believe that the Bylaw Amendments are in the
best interest of the Company and therefore recommends that shareholders vote
AGAINST the repeal of the Bylaw Amendments.
The Bylaw Amendments established an advance notice procedure with regard to
the nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors (the "nomination procedure") and with
regard to certain matters to be brought before a meeting of shareholders (the
"business procedure"). If the chairman presiding at the meeting determines that
a person was not nominated in accordance with the nomination procedure, such
person will not be eligible for election as a director, or if the chairman
presiding determines that other business was not properly brought before such
meeting in accordance with the business procedure, such business will not be
conducted at such meeting. Nothing in the nomination procedure or the business
procedure preclude discussion by any shareholder of any nomination or business
properly made or brought before the annual meeting of shareholders in accordance
with the procedures specified in the bylaws.
By requiring advance notice of nominations by shareholders, the nomination
procedure affords the Board of Directors an opportunity to consider the
qualification of the proposed nominees and, to the extent deemed necessary or
desirable by the Board of Directors, to inform the shareholders about such
qualifications. By requiring advance notice of proposed business, the business
procedure provides the Board of Directors with an opportunity to inform
shareholders of any business proposed to be conducted at a meeting and the Board
of Directors' position on any such proposal, enabling shareholders to better
determine whether they desire to attend the meeting or grant a proxy to the
Board of Directors as to the disposition of such business. In addition, the
business procedure provides for a more orderly procedure for conducting the
annual meeting of shareholders. Although our bylaws do not give the Board of
Directors any power to approve or disapprove shareholder nominations for the
election of directors or any other business desired by shareholders to be
conducted at an annual meeting, our bylaws may have the effect of precluding a
nomination for the election of directors or of precluding any other business at
a particular annual meeting if the proper procedures are not followed.
The Bylaw Amendments also limited the calling of special meetings of
shareholders to the chief executive officer or a majority of the Board of
Directors. This amendment eliminated the ability of the holders of 1/3 of the
Company's outstanding stock from accelerating a meeting of shareholders in order
to bring a proposal for shareholder approval. The purpose of this amendment was
to prevent a significant shareholder or proxy contestant from forcing
shareholder consideration of a proposal before the Board has had an opportunity
to review the proposal.
The Bylaw Amendments may discourage or deter a third party from conducting
a solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of the Company, even if the conduct of such
business or such attempt might be beneficial to the Company and its
shareholders. The existence of anti-takeover provisions (whether the intention
of these provisions is to effect an anti-takeover plan or whether the
anti-takeover effect is merely incidental) has disadvantages and advantages to
the shareholders. On the one hand, the existence of anti-takeover provisions may
tend to lower the market price of the Company's Common Stock because the Company
may be less attractive to third parties who would otherwise be interested in
accumulating stock in a takeover attempt, but are discouraged from doing so
because of the anti-takeover provisions. Anti-takeover provisions may also
result in an issuer's management becoming entrenched and not readily susceptible
to changes in management sought by the shareholders. On the other hand, the
existence of anti-takeover provisions may be helpful to the Company and the
shareholders because they might make the Company less vulnerable to a takeover
of the Company at a time when the market price of the Common Stock is low
relative to the perceived value of the Company, and the existence of
anti-takeover provisions might insulate the Company's management from pressure
to enter into transactions or take other actions that might not be in the best
interest of the shareholders.
EXPENSE REIMBURSEMENT
Because the Board of Directors believes that the repeal of the Bylaw Amendments
would not be in the best interest of the Company, the Board of Directors does
not believe that the Company should reimburse Newcastle for the expenses
(including any litigation expenses) incurred by it in connection with any proxy
or other solicitation materials seeking the repeal of the Bylaw Amendments.
RECOMMENDATION OF BOARD OF DIRECTORS
IF NEWCASTLE PRESENTS ITS PROPOSALS TO REPEAL THE BYLAW AMENDMENTS AT THE
ANNUAL MEETING AND/OR TO SEEK REIMBURSEMENT OF ITS PROXY SOLICITATION EXPENSES,
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "AGAINST" THESE
PROPOSALS.
INDEPENDENT AUDITORS
For the Company's fiscal year beginning June 30, 2003, the Audit Committee
has selected BDO Seidman LLP certified public accountants as the independent
auditors of the Company for fiscal year 2004. A representative of BDO Seidman
LLP will be present at the Annual Meeting, will be available to respond to
appropriate questions, and will have an opportunity to make a statement.
For fiscal 2004, BDO Seidman replaces PricewaterhouseCoopers LLP, which was the
Company's independent auditor for the fiscal year ending June 29, 2003. The
Company does not anticipate that a representative of PricewaterhouseCoopers will
be present at the Annual Meeting, nor does it anticipate that a representative
will be available to make a statement or to answer questions. The decision to
change accountants was made by vote of the Board's Audit Committee, and the
dismissal of PricewaterhouseCoopers became effective on October 8, 2003. During
fiscal years 2002 and 2003, there were no disagreements between the Company's
senior management and PricewaterhouseCoopers' senior audit personnel on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure such that would have caused PricewaterhouseCoopers
to have made reference to the subject matter of such disagreements in connection
with its audit report.
AUDIT FEES. The aggregate fees billed by PricewaterhouseCoopers LLP for
professional services rendered for the audit of the Company's annual financial
statements for the year ended June 29, 2003 and the reviews of the financial
statements included in the Company's Forms 10-Q for that year were $129,540.
FINANCIAL INFORMATION SYSTEM DESIGN AND IMPLEMENTATION FEES. During fiscal year
2003, PricewaterhouseCoopers LLP did not bill the Company for any professional
services for financial information systems design and implementation.
ALL OTHER FEES. All other fees billed by PricewaterhouseCoopers LLP for fiscal
year 2003 totaled $62,580, including audit-related services of $13,656 and
non-audit services of $48,924. Non-audit services generally include fees for a
change in tax accounting method, tax return preparation, foreign tax analysis
and calculation, and review of the Company's Franchise Offering Circular.
In considering and authorizing these payments to PricewaterhouseCoopers LLP for
services unrelated to performance of the audit of the Company's financial
statements, the Audit Committee has determined that the change in tax accounting
method services, tax return preparation, foreign tax analysis and calculation,
and review of the Company's franchise offering circular undertaken by
PricewaterhouseCoopers LLP are not inconsistent with its performance of the
audit and financial statement review functions and are compatible with
maintaining its independence.full.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 ("Act") requires the
Company's executive officers and directors and the persons who own more than ten
percent of the Company's Common Stock to file initial reports of ownership of Common Stock
and reports of changes of ownership with the Securities and Exchange Commission
and the National Association of Securities Dealers, Inc. and to furnish the
Company with copies of such reports. The Company believes that, during the
preceding fiscal year and prior fiscal years, all of the Company's executive
officers, directors and holders of more than 10% of its Common Stock timely filed
all reports required by Section 16(a) of the Exchange Act.Act, except as previously disclosed
and except for the following filings made on behalf of the following directors:
For Mr. Schwarz, a Form 4 Statement of Changes in Beneficial Ownership of
Securities reflecting purchase of 7,500 shares of Common Stock on June 30, 2003
was not timely filed. A filing was made on July 14, 2003. For Mr. Phillips, a
Form 4 Statement of Changes in Beneficial Ownership of Securities reflecting
sale of 5,290 shares of Common Stock on April 2, 2004 was not timely filed. A
filing was made on April 13, 2004.
PROPOSAL TWO:
ADOPTION OF NON-EMPLOYEE DIRECTORS STOCK AWARD PLAN
There will be presented to the meeting a proposal to adopt the 2004
Non-Employee Directors Stock Award Plan ("2004 Plan"). The 2004 Plan will
replace the 1993 Outside Directors Stock Award Plan, which expired by its terms
on October 13, 2003. The Board believes that an equity-based incentive plan is
an integral component of an attractive compensation program that will attract,
retain, and reward qualified non-employee directors, to the benefit of the
Company and its shareholders. The Board has approved the 2004 Plan and directed
that it be submitted to the shareholders for approval.
Description of the Proposed 2004 Plan
Administration. The 2004 Plan is administered by the Compensation
Committee, which is comprised of three non-employee directors who are not
employed by the Company and who satisfy the "independence" requirements under
rules issued by the SEC and Nasdaq.
Eligibility. All non-employee directors of the Company ("Non-Employee
Directors") are eligible to participate in the 2004 Plan. A Non-Employee
Director is a member of the Company's Board of Directors who is not, and has not
been during the immediately preceding 12-month period, an employee of the
Company.
Shares Subject to the Plan. The total number of shares of Common Stock
that may be issued to Non-Employee Directors under the 2004 Plan shall not
exceed 200,000. Awards granted under the 2004 Plan that expire or terminate
without being exercised may be regranted.
Awards and Limitations. Under the 2004 Plan, options to acquire two shares
of Common Stock shall be granted on the first day of each 2004 Plan year
(currently a plan year is the Company's fiscal year) for each share of Common
Stock purchased by a Non-Employee Director during each preceding 2004 Plan year,
up to a maximum award of 50,000 shares per Non-Employee Director per 2004 Plan
year.
Exercise Price. The exercise price for any option granted under the 2004
Plan may not be less than the fair market value of the Common Stock on the date
of grant. Fair market value is defined in the 2004 Plan as the closing price for
the Common Stock on Nasdaq on the date of the option award. The fair market
value of the Common Stock was $2.85 on November 3, 2004.
Terms of Option Awards. For all awards under the 2004 Plan, the minimum
vesting period is six months after grant and the maximum exercise period is five
years after vesting. Payment for shares purchased pursuant to exercise of an
option award must be made at the time of exercise in cash or other payment
method approved by the Committee.
Term of the 2004 Plan. The 2004 Plan terminates three years from December
15, 2004 or such earlier date as the Board may determine and no awards may be
granted thereafter.
Option Exercise and Transfer. Awards granted pursuant to the 2004 Plan may
not be transferred other than as provided in the 2004 Plan and may only be
exercised by the participant, or, in the event of his death, by his heirs or
estate. Upon the death (or permanent disability) of a participant while serving
as a Non-Employee Director, any outstanding unvested award becomes immediately
vested and the option award may be exercised by the participant's heirs, estate,
or guardian within one year following the participant's death (or commencement
of such disability), after which any unexercised option award terminates. If a
Non-Employee Director's service as a member of the Board terminates for any
reason other than death or disability, all unvested and all unexercised vested
option awards terminate, but under certain circumstances the Director may have
three months within which to exercise vested options. In the event of a "change
of control" of the Company, as defined in the 2004 Plan, all outstanding option
awards will become immediately vested and exercisable.
Plan Amendment and Modification. The Committee may amend or terminate the
2004 Plan, including modification or waiver of terms as they apply to individual
participants. However, shareholder approval is required for any amendment that
would: increase the aggregate number of shares of Common Stock issuable under
the 2004 Plan; materially increase the benefits accruing to participants in the
2004 Plan; or modify the eligibility requirements for, or decrease the minimum
exercise price of, any options. No amendment or termination of the 2004 Plan
may adversely affect the rights of any participant under any then outstanding
award without the consent of the participant. The 2004 Plan provides for
automatic adjustments to prevent dilution or enlargement of the participant's
rights in the event of a stock split, stock dividend, or similar transaction. No
adjustments or reduction of the exercise price of any outstanding award may be
made in the event of a decline in the price of the Common Stock, either by
reducing the exercise price of outstanding awards or by canceling outstanding
awards in connection with regranting incentives at a lower price to the same
Participant.
Federal Income Tax Consequences Under the Directors Plan. Option awards
under the Plan are treated as nonqualified options.
Nonqualified Stock Options. Nonqualified stock option awards granted under
the Plan do not qualify as "incentive stock options" and will not qualify for
any special tax benefits to the participant. A participant generally will not
recognize any taxable income at the time the nonqualified option award is
granted. However, upon its exercise, the participant will recognize ordinary
income for federal tax purposes measured by the excess of the then fair market
value of the Common Stock over the exercise price. The income realized by the
participant will not be subject to income and other employee withholding taxes.
A participant's basis for determination of gain or loss upon the subsequent
disposition of Common Stock acquired upon the exercise of a nonqualified option
award will be the amount paid for such Common Stock plus any ordinary income
recognized as a result of the exercise of such option award. Upon disposition of
any Common Stock acquired pursuant to the exercise of a nonqualified option
award, the difference between the sale price and the participant's basis in the
Common Stock will be treated as a capital gain or loss and generally will be
characterized as long-term gain or loss if the Common Stock has been held for
more than one year at its disposition.
In general, there will be no federal income tax deduction allowed to the
Company upon the grant or termination of a nonqualified option award or a sale
of disposition of the Common Stock acquired upon the exercise of a nonqualified
option award. However, upon the exercise of a nonqualified option award or a
sale or disposition of the Common Stock acquired upon the exercise of a
nonqualified option award, the Company will be entitled to a deduction for
federal income tax purposes equal to the amount of ordinary income that a
participant is required to recognize as a result of the exercise, provided that
the deduction is not otherwise disallowed under the Internal Revenue Code.
NEW PLAN BENEFITS
The following table sets forth information, as of November 3, 2004,
concerning the benefits or amounts that will be received by or allocated to the
non-employee directors and all non-employee directors as a group under the 2004
Plan, to the extent such benefits or amounts are determinable as of November 3,
2004:
2004 PLAN
NAME AND POSITION DOLLAR VALUE ($) NUMBER OF UNITS (1)
----------------- ---------------- ---------------
Mark E. Schwarz, Director 71,250 25,000 (2)
Steven J. Pully, Director 50,895 17,858 (3)
(1) The awards under the 2004 Plan and the shares underlying any such award
may be subject to certain vesting, exercise, acceleration, and/or other rights,
restrictions, and conditions, at various exercise prices, in each case, as
determined by the Compensation Committee.
(2) On November 3, 2004, the Compensation Committee awarded Mark E. Schwarz
an option to purchase 25,000 shares of common stock of the Company at an
exercise price of $2.85 per share. The option will vest on November 3, 2005 and
will expire on November 3, 2010.
(3) On November 3, 2004, the Compensation Committee awarded Steven J. Pully
an option to purchase 17,858 shares of common stock of the Company at an
exercise price of $2.85 per share. The option will vest on November 3, 2005 and
will expire on November 3, 2010.
Recommendation of the Board of Directors
The Board believes that the adoption of the 2004 Plan will enable the
Company and its shareholders, through the future grant of stock options based
upon a Director's increase in equity position, to continue to secure the benefit
of the incentives inherent in director stock ownership.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS APPROVE THE 2004 PLAN.
PROPOSAL THREE:
APPROVAL OF AN EMPLOYEE STOCK AWARD PLAN
There will be presented to the meeting a proposal to adopt the 2004
Employee Incentive Stock Award Plan (the "Employee Plan"). The Employee Plan
will replace the 1993 Employee Stock Award Plan, which expired by its terms on
October 13, 2003. The Board believes stock options play an important role in
attracting and retaining the services of outstanding personnel and in
encouraging such employees to have a greater financial investment in the Company
(although the Employee Plan does not necessarily require them to hold for
investment the stock received under the Employee Plan). The Board has approved
the Employee Plan and directed that it be submitted to the shareholders for
approval.
Description of the Proposed Employee Plan
Administration. The Employee Plan is administered by the Compensation
Committee ("Committee"), which is comprised of three non-employee directors who
are not employed by the Company, who are not eligible to receive awards under
the Employee Plan, and who satisfy the "independence" requirements under rules
issued by the SEC and Nasdaq.
Eligibility. All regular, full-time employees of the Company, its
operating divisions, affiliates, subsidiaries, Company-operated restaurants, and
other employees designated from time to time by the Committee ("Employees or
"Participants") are eligible to participate in the Employee Plan. As of November
1, 2004, there were approximately 150 individuals eligible to participate in the
Employee Plan.
Shares Subject to the Plan. The total number of shares of Common Stock
that may be issued or transferred to Employees under the Employee Plan shall not
exceed 500,000. Awards granted under the Employee Plan that expire or terminate
without being exercised may be regranted.
Awards and Limitations. No Employee may receive grants under the Employee
Plan in any given year that, singly or in the aggregate, cover more than 50,000
shares of Common Stock.
Exercise Price. The exercise price for any option granted under the
Employee Plan may not be less than the fair market value of the Common Stock on
the date of grant. Fair market value is defined in the Employee Plan as the
closing price for the Common Stock on Nasdaq on the date of the option award.
The fair market value of the Common Stock was $2.85 on November 3, 2004.
Terms of Option Awards. For all awards under the Employee Plan, the
minimum vesting period is six (6) months after grant and the maximum exercise
period is five years after vesting. Payment for shares purchased pursuant to
exercise of an option award must be made at the time of exercise in cash or
other payment method approved by the Committee.
Term of the Employee Plan. The Employee Plan terminates three years from
December 15, 2004 or such other date as the Board may determine, and no awards
may be granted thereafter.
Option Exercise and Transfer. Awards granted pursuant to the Employee Plan
may not be transferred other than as provided in the Employee Plan and may only
be exercised by the participant, or, in the event of his death, by his heirs or
estate. Upon the death (or permanent disability) of an Employee, any
outstanding unvested award becomes immediately vested and the option award may
be exercised by the Employee's heirs, estate, or guardian within one year
following the Employee's death (or commencement of such disability), after which
any unexercised option award terminates. If an Employee's employment terminates
for any reason other than death or disability, any unvested option awards
terminate, and the Employee will have thirty (30) days within which to exercise
vested options. In the event of a "change of control" of the Company, as
defined in the Employee Plan, all outstanding option awards will become
immediately vested and exercisable.
Plan Amendment and Modification. The Committee may amend or terminate the
Employee Plan, including modification or waiver of terms as they apply to
individual Participants. However, shareholder approval is required for any
amendment that would: increase the aggregate number of shares of Common Stock
issuable under the Employee Plan; materially increase the benefits accruing to
Participants in the Employee Plan; or modify the eligibility requirements for,
or decrease the minimum exercise price of, any options. No amendment or
termination of the Employee Plan may adversely affect the rights of any
Participant under any then outstanding award without the consent of the
Participant. The Employee Plan provides for automatic adjustments to prevent
dilution or enlargement of the Participant's rights in the event of a stock
split, stock dividend, or similar transaction. No adjustments or reduction of
the exercise price of any outstanding award may be made in the event of a
decline in the price of the Common Stock, either by reducing the exercise price
of outstanding awards or by canceling outstanding awards in connection with
regranting incentives at a lower price to the same Participant.
Federal Income Tax Consequences Under the Employee Plan. Following is an
explanation of the U.S. federal income tax consequences for grantees who are
subject to tax in the U.S.
Incentive Stock Options. Option awards under the Plan are treated as
incentive options ("ISO"). The grant of an ISO does not result in income for the
grantee or a deduction for the Company. The exercise of an ISO would not result
in income for the grantee if the grantee (i) does not dispose of the shares
within two (2) years after the date of grant or one (1) year after the transfer
of shares upon exercise, and (ii) is an employee of the Company from the date of
grant and through and until three (3) months before the exercise date. If these
requirements are met, the basis of the shares upon later disposition would be
the option price. Any gain will be taxed to the Employee as long-term capital
gain and the Company would not be entitled to an deduction. The excess of the
market value on the exercise date over the option price is an item of tax
preference, potentially subject to the alternative minimum tax.
If the Employee disposes of the shares prior to the expiration of either of
the holding periods, the Employee would recognize ordinary income and the
Company would be entitled to a deduction equal to the lesser of the fair market
value of the shares on the exercise date minus the option price or the amount
realized on disposition minus the option price. Any gain in excess of the
ordinary income portion would be taxable as long-term or short-term capital
gain.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS APPROVE THE EMPLOYEE
PLAN.
PROPOSAL FOUR:
APPROVAL OF AN AMENDMENT TO
THE COMPANY'S RESTATED ARTICLES OF INCORPORATION
TO DECLASSIFY THE BOARD OF DIRECTORS
On October 20, 2004, the Board of Directors approved a proposal to amend
the Company's Restated Articles of Incorporation to delete Section 8.2, which
currently provides that the Board be divided into two classes of Directors,
Class I and Class II, with each class elected for a term expiring at the annual
meeting of the Company's shareholders held in the second year following their
election. The amended and substituted Section 8.2 would provide for one class of
Directors beginning with the slate of Directors proposed to the shareholders at
the annual meeting of the Company's shareholders in 2005. Members of the single
class would be subject to re-election every year. The proposal to amend the
Restated Articles of Incorporation requires the approval of holders of a
majority of the shares present in person or represented by proxy and entitled to
vote. The text of the existing and proposed versions of Section 8.2 is set forth
below.
Current Section 8.2 of the Company's Restated Articles of Incorporation.
- -------------------------------------------------------------------------------
8.2 The directors shall be divided into two (2) classes with respect to the
time for which they severally hold office, designated Class I and Class II.
Class I shall be composed of four (4) directors who shall hold office until the
1994 Annual meeting and until their respective successors shall be elected and
shall qualify. Class II shall be composed of three (3) directors (the initial
members of this class being designated in the Plan), who shall hold office until
the annual meeting of the shareholders in 1993 and until their respective
successors shall be elected and shall qualify. Upon expiration of the initial
terms of the office of directors as classified above, their successors shall be
elected for a term expiring at the annual meeting of the Corporation's
shareholders held in the second year following the year of their election. Any
director elected to fill any vacancy on the Board of Directors shall hold office
for the remainder of the full term of the class of directors in which such
vacancy occurs.
Section 8.2 as amended to reflect the changes discussed above in Proposal
---------------------------------------------------------------------------
Four.
---
8.2 Beginning with the Company's 2004 annual meeting of shareholders,
if the shareholders vote to amend the Restated Articles to so provide, there
shall be one (1) class of directors, who shall be elected annually. Those
directors currently referred to as Class I Directors, who are nominated for
election at the 2004 annual meeting of shareholders, if elected, will hold
office until the 2005 annual meeting of shareholders, at which time they, or
their successors, must be nominated for election as members of a single class of
directors. Those directors currently referred to as Class II Directors, who were
elected at the 2003 annual meeting of shareholders to hold office until the 2005
annual meeting of shareholders, will complete their terms at the 2005 annual
meeting of shareholders, at which time they, or their successors, must be
nominated for election as members of a single class of directors. Any director
elected to fill any vacancy on the Board of Directors shall hold office for the
remainder of the full term of the director whose position such newly elected
director fills.
If Proposal Four is not approved by the shareholders, directors will
continue to be elected by class, with the members of each class holding office
for a term to expire at the annual meeting of the Company's shareholders held in
the second year following the year of their election.
Recommendation of the Board of Directors
Management and the Board of Directors believes that one class of directors
to be annually re-elected is consistent with good governance practices and
provides greater accountability of the Board to the Company's shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS APPROVE THIS AMENDMENT
TO THE RESTATED ARTICLES OF INCORPORATION.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Our non-employee directors may benefit from the 2004 Plan as non-employee
directors may be eligible to participate in the 2004 Plan and may receive
benefits and awards under the 2004 Plan. Certain non-employee directors have
already received awards under the 2004 Plan that are subject to shareholder
approval of the 2004 Plan. These awards are described in this Proxy Statement
under the caption "NEW PLAN BENEFITS". The Board of Directors, in approving the
2004 Plan, may have different and/or conflicting interests than or with the
shareholders of the Company. In addition, the Board of Directors, management of
the Company, and the shareholders affiliated with the Company may have different
and/or conflicting interests than or with the shareholders of the Company that
are not affiliated with the Company in any capacity other than in their capacity
as a shareholder of the Company.
SHAREHOLDER PROPOSALS
FOR THE 20042005 ANNUAL MEETING
If a shareholder wishes to present a proposal at the Annual Meeting of
Shareholders tentatively scheduled for January 25,December 14, 2005, the shareholder must
deliver his or her proposal to the Company at its principal executive offices no
later than August 5, 2004, in such form as required under rules issued by the
Securities and Exchange Commission,July 15, 2005 in order to have that proposal included in the proxy
materials of the Company for such Annual Meeting of Shareholders.
UnlessIf a shareholder wishes to present a proposal at the Company's advance notice bylaw provision2005 Annual Meeting of
Shareholders, but does not wish to include the proposal in the proxy materials
of the Company for such Annual Meeting of Shareholders, the shareholder must
notify the Company in writing of his or her intent to make such presentation no
later than September 28, 2005 or the Company shall have the right to exercise
its discretionary voting authority when such proposal is repealedpresented at the Annual
Meeting if a shareholder intends to submit a matter for consideration at next
year's meeting, other than by submitting aof Shareholders, without including any discussion of that proposal to be included in the
Company's proxy statement, the shareholder must give timely notice according to
the Company's bylaws. Those bylaws provide that, to be timely, a shareholder's
notice must be received by the Company's Corporate Secretary at 3551 Plano
Parkway, The Colony, Texas 75056, not less than 50 days nor more than 75 days
prior to the meeting. However, if less than 65 days notice or prior public
disclosure of the date of the meeting is given or made to shareholders, the
shareholders must deliver notice to the Company no later than the close of
business on the 15th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made, whichever first
occurs. For each matter the shareholder intends to bring before the meeting, the
notice must specify: (a) the name and address of the shareholder as they appear
on the books of the Company; (b) the class and number of shares of the Company's
stock that are beneficially owned by the shareholder; (c) any material interest
of the shareholder in the proposed business described in the notice; (d) if such
business is a nomination for director, each nomination sought to be made,
together with the reasons for each nomination, a description of the
qualifications and business or professional experience of each proposed nominee
and a statement signed by each nominee indicating his or her willingness to
serve if elected, and disclosing the information about him or her that is
required by the Securities and Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder to be disclosed in
the proxy materials for the meeting involved if heAnnual Meeting.
To be in proper form, a shareholder's notice must include the specified
information concerning the proposal or she werenominee as described in the Company's
Bylaws. A shareholder who wishes to submit a nominee of the
Company for election as one of its directors; (e) if such businessproposal or nomination is
other than
a nomination for director, the nature of the business, the reasons why it is
soughtencouraged to be raised and submitted for a vote of the shareholders and if and why
it is deemed by the shareholder to be beneficialseek independent counsel with regard to the Company;Company's Bylaws and
(f) if so
requestedSEC requirements. The Company will not consider any proposal or nomination that
does not meet its Bylaw requirements and the SEC's requirements for submitting a
proposal or nomination. Notices of intention to present proposals at the
Company's 2005 Annual Meeting of Shareholders should be addressed to the
Corporate Secretary, Pizza Inn, Inc., 3551 Plano Parkway, The Colony, TX 75056,
or by fax to (469) 384-5061, or by e-mail to corporate_secretary@pizzainn.com.
--------------------------------
The Company reserves the Company, allright to reject, rule out of order, or take other
information that would be required to be
filed with the Securities and Exchange Commission (the "SEC") if,appropriate action with respect to the business proposed to be brought before the meeting, the person proposing
such business was a participant in a solicitation subject to Section 14 of the
Exchange Act.any proposal that does not comply with these
and other applicable requirements.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative annual total shareholder return
(change in share price plus reinvestment of any dividends) on the Company's Common Stock
versus two indexes for the past five fiscal years. The graph assumes $100 was
invested on the last trading day of the fiscal year ending June 28, 1998.
Prior to the first quarter of fiscal year 1998 and subsequent to the second
quarter of fiscal year 2001, the Company did not pay cash dividends on its
Common Stock during the applicable period. The Dow Jones Equity Market Index is
a published broad equity market index. The Dow Jones Entertainment and Leisure
Restaurant Index is compiled by Dow Jones and Company, Inc., and is comprised of
seven public companies, weighted for the market capitalization of each company,
engaged in restaurant or related businesses (CKE Restaurants, Inc., Brinker
International, Inc., Cracker Barrel Old Country Store, Inc., Darden Restaurants,
Inc., McDonald's Corporation, Tricon Global Restaurants, Inc., and Wendy's
International, Inc.).
PIZZA INN INC NEW
Cumulative Total Return
6/28/1998
6/27/1999 6/25/2000 6/24/2001 6/30/2002 6/29/2003 6/27/2004
PIZZA INN, INC. . . . . . 100.00 69.93 75.45 48.48 28.60 48.03107.90 69.33 40.89 68.69 90.09
DOW JONES US TOTAL MARKET 100.00 115.99 131.10 111.93 92.17 93.20113.03 96.50 79.46 80.51 96.13
DOW JONES US RESTAURANTS. 100.00 111.42 88.09 90.35 107.16 96.0879.06 81.09 96.18 86.50 106.18
MISCELLANEOUS
The accompanying proxy is being solicited on behalf of the Board of Directors of
the Company. The expensecost of
preparing, printing, and mailing the proxy and the
material used in the solicitation thereofhas been or will be borne by the Company. The
Company anticipates that its costs and expenses related to the solicitation of
proxies pursuant to this proxy statement will be approximately $35,000 more than
what the Company would normally spend for the solicitation of proxies in
connection with an annual meeting. In addition to the use of the mails, proxiesProxies may also be
solicited by directors, officers, and officersemployees of the Company in person or by
personal interview,
telephone, telefax, or telefax.email without compensation for those activities other
than reimbursement for out-of-pocket expenses. Arrangements may also be made
with brokerage houses and other custodians, nominees, and fiduciaries for the
forwarding of solicitation materials to the beneficial owners of stock held of
record by such persons, and the Company may reimburse them for reasonable
out-of-pocket expenses of such solicitation.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K EXCLUDING EXHIBITS,
DATED SEPTEMBER 25, 2003,24, 2004, IS BEING FURNISHED TO SHAREHOLDERS WITH THIS PROXY
STATEMENT. COPIES OF SUCH EXHIBITS WILL BE FURNISHED UPON WRITTEN REQUEST AND
UPON REIMBURSEMENT OF THE COMPANY'S REASONABLE EXPENSES FOR FURNISHING SUCH
EXHIBITS. REQUESTS SHOULD BE ADDRESSED TO PIZZA INN, INC., 3551 PLANO PARKWAY,
THE COLONY, TEXAS 75056, ATTENTION: CORPORATE SECRETARY.
This Proxy, when properly executed, will be voted by the Proxies in the manner
designated below. If this Proxy is returned signed but without a clear voting
designation, the Proxies will vote FOR Item 1, Item 2, Item 3, and Item 4.
Please mark Your
votes as indicated
IN THIS EXAMPLE.
[X]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 1, ITEM 2, ITEM 3, AND ITEM 4.
Item 1. ELECTION OF CLASS I DIRECTORS. Nominees: Bobby L. Clairday,
Ronald W. Parker,
Butler E. Powell,
Mark E. Schwarz
WITHHELD
FOR FOR ALL WITHHELD FOR: (Write that nominee's name in the space
provided below).
[ ] [ ] ------------------------------------------------------
Item 2. ADOPTION OF A NON-EMPLOYEE DIRECTORS STOCK OPTION AWARD PLAN.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Item 3. ADOPTION OF AN EMPLOYEE INCENTIVE STOCK OPTION AWARD PLAN.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Item 4. AMENDMENT OF THE RESTATED ARTICLES OF INCORPORATION TO DECLASSIFY
THE BOARD OF DIRECTORS.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
If you plan to attend the Annual WILL
Meeting, please mark the WILL ATTEND
ATTEND block. [ ]
Date , 2004
_____________________________________________
Signature
_____________________________________________
Signature if held jointly
NOTE: Please sign as name appears hereon.
Joint owners should each sign. When
signing as attorney, executor, administrator,
trustee, or guardian, please give full title.
FOLD AND DETACH HERE
PROXY
(1) THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
PIZZA INN, INC.
3551 PLANO PARKWAY
THE COLONY, TEXAS 75056
ANNUAL MEETING OF SHAREHOLDERS ON FEBRUARY 11,DECEMBER 15, 2004
The undersigned, revoking all proxies heretofore given, hereby appoints B.
Keith ClarkRod
J. McDonald and Shawn M. Preator, or either of them, as proxies of the
undersigned, with full power of substitution and resubstitution, to vote on
behalf of the undersigned the shares of Pizza Inn, Inc. (the "Company") that the
undersigned is entitled to vote at the Annual Meeting of Shareholders to be held
at 11:10:00 a.m., Dallas time, on Wednesday, February 11,December 15, 2004, at the Company's
corporate offices, 3551 Plano Parkway, The Colony, Texas 75056, and at all
adjournments thereof, as fully as the undersigned would be entitled to vote if
personally present, as specified on the reverse side of this card and on such
other matters as may properly come before the meeting or any adjournments
thereof. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
(Continued and to be signed on the reverse side)
ANNUAL MEETING OF SHAREHOLDERS OF
PIZZA INN, INC.
February 11, 2004
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach along the perforated line and mail in the envelope provided.
The Board of Directors recommends a vote FOR Item 1.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS SHOWN HERE.. [X]
1. ELECTION OF CLASS II DIRECTORS.
Nominees: [ }Steven J. Pully,
[ }F. Jay Taylor,
{ }Steve A. Ungerman
[ ] FOR ALL NOMINEES
[ ] WITHHOLD AUTHORITY FOR ALL NOMINEES
[ ] FOR ALL EXCEPT
(see instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold as shown here [ X }
FOR AGAINST ABSTAIN
2. APPROVAL TO ADOPT A RESOLUTION TO REPEAL THE FOLLOWING
AMENDMENT OF THE AMENDED AND RESTATED BYLAWS OF
THE COMPANY ADOPTED ON DECEMBER 18, 2002:
AMENDMENT TO ARTICLE III, SECTION 7 THAT ELIMINATES
THE ABILITY OF SHAREHOLDERS TO CALL A SPECIAL MEETING
OF SHAREHOLDERS. [ ] [ ] [ ]
3. APPROVAL TO ADOPT A RESOLUTION TO REPEAL THE FOLLOWING
AMENDMENT OF THE AMENDED AND RESTATED BYLAWS OF
THE COMPANY ADOPTED ON DECEMBER 18, 2002: NEW
ARTICLE III, SECTION 13 THAT REQUIRES SHAREHOLDERS
TO COMPLY WITH CERTAIN PROCEDURES IN ORDER TO BRING
BUSINESS BEFORE A SHAREHOLDERS MEETING. [ ] [ ] [ ]
4. APPROVAL TO ADOPT A RESOLUTION TO REPEAL THE FOLLOWING
AMENDMENT OF THE AMENDED AND RESTATED BYLAWS OF
THE COMPANY ADOPTED ON DECEMBER 18, 2002:
NEW ARTICLE IV, SECTION 6 THAT REQUIRES SHAREHOLDERS
TO COMPLY WITH CERTAIN PROCEDURES IN ORDER TO
NOMINATE DIRECTORS. [ ] [ ] [ ]
5. REIMBURSEMENT OF NEWCASTLE PROXY SOLICATION EXPENSES. [ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ITEMS 2,3,4 AND 5
IF THEY ARE PRESENTED AT THE ANNUAL MEETING.
This Proxy, when properly executed, will be voted by the Proxies in the manner
designated below. If this Proxy is returned signed but without a clear voting
designation, the Proxies will vote FOR Item 1 and AGAINST Items 2,3, 4 and 5.
Mark "X" here if you plan to attend the meeting. [ ]
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this method.
[ ]
Signature of Shareholder Date:
Signature of Shareholder Date:
NOTE: Please sign exactly as your names appear on this Proxy. When shares are
held jointly, each holder should sign. When signing as executor, administrator,
attorney, trustee or guardian, please give full title as such. If the signer is
a corporation, please sign full corporate name by duly authorized officer,
giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.