SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(AMENDMENT NO. 2)
FILED BY REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] CHECK THE APPROPRIATE BOX:Preliminary Proxy Statement
[ ] PRELIMINARY PROXY STATEMENT
Confidential, for Use of the Commission Only (as permitted by Rule 14a-b(e)(2))
[x] Definitive Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-B(E)(2))
[X] DEFINITIVE PROXY STATEMENT
Definitive Additional Materials
[ ] DEFINITIVE ADDITIONAL MATERIALS
[ ] SOLICITING MATERIAL PURSUANT TO 240.14A-11(C) OR 240.14A-12
Soliciting Material Pursuant to §240.14a-12
PIZZA INN, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX)
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] NO FEE REQUIRED.
[x] No fee required.
[ ] FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES 14A-6(I)Fee computed on table below per Exchange Act Rules 14a-6(i)(1) ANDand 0-11.
1) TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION APPLIES:Title of each class of securities to which transaction applies:2)
2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES:Aggregate number of securities to which transaction applies:
3) PER UNIT PRICE OR OTHER UNDERLYING VALUE OF TRANSACTION COMPUTED
PURSUANT TO EXCHANGE ACT RULEPer unit price or other underlying value of transaction computed pursuant toExchange Act Rule 0-11 (SET FOR THE AMOUNT ON WHICH THE
FILING FEE IS CALCULATED AND STATE HOW IT WAS DETERMINED)(set for the amount on which the filing fee is calculatedand state how it was determined):
4) PROPOSED MAXIMUM AGGREGATE VALUE OF TRANSACTION:Proposed maximum aggregate value of transaction:
5) TOTAL FEE PAID:
Total fee paid:
[ ] FEE PAID PREVIOUSLY WITH PRELIMINARY MATERIALS.
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)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.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:Amount Previously Paid:
2) FORM, SCHEDULE OR REGISTRATION STATEMENT NO:Form, Schedule or Registration Statement No.:
3) FILING PARTY:Filing Party:
4) DATE FILED:
EXPLANATORY NOTE: This Amendment No. 2 to the Proxy Statement on Schedule 14A
filed November 10, 2004 by Pizza Inn, Inc. with the Commission (the "Original
Proxy Statement") supersedes and replaces the Original Proxy Statement and that
certain Amendment No. 1 to the Original Proxy Statement filed November 12, 2004
by Pizza Inn, Inc. with the Commission.
PIZZA INN, INC.
3551 PLANO PARKWAY
THE COLONY, TEXAS 75056
(469) 384-5000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 23, 2005
Date Filed:
Mark E Schwarz | Pizza Inn, Inc. |
| Chairman of the Board | 3551 Plano Parkway |
| The Colony, Texas 75056 | |
Charles R. Morrison | www.pizzainn.com |
| Interim Chief Executive Officer and President | |
To our Shareholders:
The 2004
We are pleased to invite you to the 2007 Annual Meeting of Shareholders of Pizza Inn, Inc. (the "Company")
willto be held at the Company'sPizza Inn’s corporate offices,3551 Plano Parkway, The Colony, Texas 75056, on Thursday, June 23, 2005,December 13, 2007, at 10:00 a.m., Dallas time, for the
following purposes:
1. To elect four Class I 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 planlocal time.
Details regarding admission to the 1993 Outside
Directors Stock Award Plan that expired in 2003;
3. To considermeeting and vote upon a proposalthe business 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
5. To transact such other business as may properly come before the meeting
or any postponements or adjournments thereof.
These itemsbe conducted are more fully described in the accompanying Notice of Annual Meeting and Proxy Statement.
Your vote is important. Whether or not you plan to attend the annual meeting, we hope you will vote as soon as possible. To vote your shares, you may use the enclosed proxy statement, which is partcard, vote via the Internet or telephone or attend the special meeting and vote in person. On behalf of our board of directors, we urge you to complete, sign, date and return the enclosed proxy card, or vote via the Internet or telephone, even if you currently plan to attend the annual meeting because this notice. We have not received notice of other matters that may be properly
presentedwill help to ensure your representation at the annual meeting. A copy ofPlease review the Company's Annual Report for the
fiscal year ended June 27, 2004 is also enclosed. Except as expressly
incorporated by reference herein, such Annual Report does not constitute a part
of the materials used for the solicitation of proxies.
Please read the enclosed proxy statement carefully. Complete, date and signinstructions on the proxy and mail it in the stamped envelope enclosedcard regarding each of these voting options.
Thank you for your convenience.
Only shareholders of record at the close of business on May 1, 2005 are entitled
to noticeongoing support of and to vote at, this meeting and any postponements or adjournments
thereof.
By Ordercontinued interest in Pizza Inn, Inc.
Sincerely,
/s/ Mark E. Schwarz /s/ Charles R. Morrison
Chairman of the Board of Directors,
Rod J. McDonald
The Colony, Texas Corporate Secretary
June 6, 2005
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE,
DATE, AND SIGN THE ENCLOSED PROXY, AND MAIL IT IN THE STAMPED ENVELOPE ENCLOSED
FOR YOUR CONVENIENCE. THE ENCLOSED PROXY IS REVOCABLE AT ANY TIME PRIOR TO ITS
USE.
YOUR VOTE IS IMPORTANT.
Interim Chief Executive Officer and President
PIZZA INN, INC.
3551 PLANO PARKWAY
THE COLONY, TEXAS 75056
(469) 384-5000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Time and Date 10:00 a.m., local time, on Thursday, December 13, 2007.
Place The Company’s corporate office at 3551 Plano Parkway, The Colony, TX 75056.
Items of Business | (1) | To elect a board of directors to hold office until the next succeeding annual meeting of shareholders or until their respective successors shall have been elected and qualified; |
| (2) | To ratify the appointment of BDO Seidman, LLP as the Company’s independent registered public accounting firm for fiscal year 2008; and |
| (3) | To transact such other business as may properly come before the meeting or any postponement or adjournment thereof. |
Adjournments and
Postponements | Any action on the items of business described above may be considered at the annual meeting and on the date specified above or at any time and date to which the annual meeting may be properly adjourned or postponed. |
Record Date | You are entitled to vote only if you were a Company shareholder as of the close of business on October 31, 2007, the record date for the annual meeting. At the close of business on that date, there were 10,131,030 outstanding shares of Common Stock, $.01 par value per share, of the Company. No other class of securities of the Company is entitled to notice of, or to vote at, the annual meeting. |
Meeting Admission | You are entitled to attend the annual meeting only if you were a Company shareholder as of the close of business on October 31, 2007 or hold a valid proxy for the annual meeting. You should be prepared to offer proof of identification for admittance. If you are a shareholder of record or hold your shares through the Pizza Inn, Inc. 401(k) Plan, we may verify your ownership as of the record date prior to admitting you to the meeting. If you are not a shareholder of record but hold your shares through a broker, trustee or nominee (i.e., in “street name”), you should provide proof of beneficial ownership as of the record date, such as your most recent account statement prior to October 31, 2007, a copy of the voting instruction card provided by your broker, trustee or nominee, or similar evidence of ownership. If you do not provide identification upon request, the Company has the right to refuse you admission to the meeting. |
Voting | Your vote is very important. Whether or not you plan to attend the annual meeting, we encourage you to read this proxy statement and submit your proxy or voting instructions as soon as possible. You may submit your proxy or voting instructions by completing, signing, dating and returning your proxy card in the pre-addressed envelope provided, or, in most cases, by using the telephone or Internet. For specific instructions on how to vote your shares, please refer to the section entitled Questions and Answers – Voting Information in this proxy statement and the instructions on the proxy card. |
| By order of the Board of Directors, |
/s/ Danny Meisenheimer
Danny Meisenheimer
Vice President and Acting Secretary
The Colony, Texas
The Colony, Texas
November 16, 2007
This Notice of Annual Meeting and Proxy Statement and form of proxy are being distributed on or about November 29, 2007.
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 23, 2005
DECEMBER 13, 2007
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 Thursday, June 23, 2005,December 13, 2007, at 10:00 a.m., Dallaslocal time, and at any postponementspostponement or adjournmentsadjournment thereof. This Proxy Statement and the enclosed form of proxy are first being sent or made availablegiven to the Company's shareholders on or about June 6, 2005.
November 29, 2007.
QUESTIONS AND ANSWERS
Proxy Materials
1. Why am I receiving these materials?
The Board of Directors (the “Board”) of the Company is providing these proxy materials for you in connection with the Company’s annual meeting of shareholders, which is scheduled to take place on Thursday, December 13, 2007, at 10:00 a.m., local time. As a shareholder, you are invited to attend the annual meeting and are entitled to and requested to vote on the items of business described in this proxy statement.
2. What information is contained in this proxy statement?
The information in this proxy statement relates to the proposals to be voted on at the annual meeting, the voting process, the Board and Board committees, the compensation of directors and certain current and former executive officers and other required information.
3. How may I obtain the Company’s Form 10-K, 10-K/A and other financial information?
A copy of our 2007 Annual Report, which includes our 2007 Form 10-K and 10-K/A , is enclosed. Shareholders may request another free copy of our 2007 Annual Report from:
Pizza Inn, Inc.
Attn: Investor Relations
3551 Plano Parkway
The Colony, TX 75056
(800) 880-9955
http://www.pizzainn.com
Alternatively, current and prospective investors can access the 2007 Annual Report on the Investor Relations page of our web site at:
http://www.pizzainn.com
We will also furnish any exhibit to the 2007 Form 10-K and 10-K/A as specifically requested.
4. How may I obtain a separate set of proxy materials?
If you share an address with another shareholder, you may receive only one set of proxy materials (including our 2007 Annual Report with 2007 Form 10-K, 10-K/A and proxy statement) unless you have provided contrary instructions. If you wish to receive a separate set of proxy materials now, please request the additional copies by contacting our stock transfer agent, Securities Transfer Corporation, at:
(469) 633-0101
http://stctransfer.com
If you hold shares beneficially in “street name” and you wish to receive a separate set of proxy is signedmaterials in the future, please call Automatic Data Processing, Inc. at:
(800) 542-1061
5. How may I request a single set of proxy materials for my household?
If you share an address with another shareholder and returned beforehave received multiple copies of our proxy materials, you may write us at the Annual Meeting, itaddress shown in the answer to question 3 above and request that a single set of proxy materials be sent to your household in the future.
6. | How may I request an electronic copy of the proxy materials? |
You may sign up for future electronic delivery of proxy materials at: http://www.pizzainn.com
7. What should I do if I receive more than one set of proxy materials?
Under certain circumstances, you may receive more than one set of proxy materials, including multiple copies of this proxy statement and multiple proxy cards. For example, if you hold your shares in more than one brokerage account, you may receive a proxy card for each such brokerage account. If you are a shareholder of record and your shares are registered in more than one name, or variation of a name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card that you receive.
Voting Information
8. What items of business will be voted on at the annual meeting?
The items of business scheduled to be voted on are:
| (1) | To elect a board of directors to hold office until the next succeeding annual meeting of shareholders or until their respective successors shall have been elected and qualified; |
| (2) �� To ratify the appointment of BDO Seidman, LLP as the Company’s independent registered public accounting firm for fiscal year 2008; and |
| (3) | To transact such other business as may properly come before the meeting or any postponement or adjournment thereof. |
We will also consider any other business that properly comes before the meeting. See question, “What happens if additional matters are presented at the meeting?” below.
9. How does the Board recommend that I vote?
Our Board recommends that you vote your shares “FOR” each of the scheduled items of business.
10. What shares can I vote?
Each share of the Company’s common stock issued and outstanding as of the close of business on October 31, 2007, the Record Date, is entitled to be voted on all items being voted on at the meeting. You may vote all shares you own as of the Record Date, including (1) shares held directly in accordance withyour name as the directions onshareholder of record, and (2) shares for which you are the proxybeneficial owner through a broker, trustee or if no directions are
made, bynominee such as a bank. On the proxies named therein in their discretion. A shareholder may revoke
a proxy at any time before it is voted by executionRecord Date, we had approximately 10,131,030 shares of a subsequent proxy,
voting thecommon stock issued and outstanding.
11. How can I vote my shares in person at the Annual Meetingmeeting?
Shares held in your name as the shareholder of record may be voted in person at the meeting. Shares held beneficially in “street name” may be voted in person at the meeting only if you obtain a legal proxy from the broker, trustee or nominee that holds your shares giving you the right to vote the shares. Even if you plan to attend the annual meeting, we recommend that you also submit your proxy or voting instructions as described below so that your vote will be counted if you later decide not to attend the meeting.
12. How can I vote my shares without attending the meeting?
Whether you hold shares directly as the shareholder of record or beneficially in “street name,” you may direct how your shares are voted without attending the meeting. If you are a shareholder of record, you may vote by giving written noticesubmitting a proxy as described below. If you hold shares beneficially in “street name,” you may vote by submitting voting instructions to Pizza Inn, Inc., c/o Securities Transfer Corporation, Transfer Agent, 2591
Dallas Parkway, Suite 102, Frisco, Texas 75034your broker, trustee or nominee. For directions on how to vote, please refer to the instructions below and those included on your proxy card, or the voting instruction card provided by your broker, trustee or nominee, as applicable.
By Mail– Shareholders of record may submit proxies by completing, signing and dating their proxy cards and mailing them in the accompanying pre-addressed envelopes. Beneficial holders may vote by mail by completing, signing and dating the voting instruction cards provided by their brokers, trustees or nominees and mailing them in the accompanying pre-addressed envelopes.
By Internet– Shareholders of record with Internet access may submit proxies by following the “Vote by Internet” instructions on their proxy cards. Most shareholders who hold shares beneficially in “street name” may vote by accessing the website specified on the voting instruction cards provided by their brokers, trustees or nominees. Please check the voting instruction card for Internet voting availability.
By Telephone– Shareholders of record who live in the United States may submit proxies by following the “Vote by Telephone” instructions on their proxy cards. Most shareholders who hold shares beneficially in “street name” and live in the United States may vote by phone by calling the number specified on the voting instruction cards provided by their brokers, trustees or nominees. Please check the voting instruction card for telephone voting availability.
13. What is the deadline for voting my shares?
If you hold the shares as the shareholder of record, your proxy must be received before the polls close at the meeting. If you hold shares beneficially in “street name” with a broker, trustee or nominee, please follow the voting instructions provided by your broker, trustee or nominee.
14. May I change my vote?
You may change your vote at any time prior to the close of
the pollsvote at the Annual Meeting stating that the proxy has been revoked.meeting. If you hold shares throughare a bank or brokerage firm,shareholder of record, you must contact that firm to
revoke any prior voting instructions. The Company must receive the notice ormay change your vote in one of three ways: (1) by granting a new proxy card beforebearing a later date (which automatically revokes the earlier proxy), (2) by providing a written notice of revocation to the Corporate Secretary at the Company’s corporate office address prior to your shares being voted, or (3) by attending the meeting and voting in person. Attendance at the meeting will not cause your previously granted proxy to be revoked unless you specifically make that request. For shares you hold beneficially in “street name,” you may change your vote by submitting new voting instructions to your broker, trustee or nominee, or, if you have obtained a legal proxy from your broker, trustee or nominee giving you the right to vote your shares, by attending the meeting and voting in person.
15. Is my vote confidential?
Proxy instructions, ballots and voting tabulations that identify individual shareholders are handled in a manner that protects voting privacy. Your vote will not be disclosed either within the Company or to third parties, except: (1) as necessary to meet applicable legal requirements, (2) to allow for the tabulation of votes and certification of the vote, and (3) to facilitate a successful proxy solicitation.
16. How are votes counted and what is taken at the Annual Meeting.
OUTSTANDING CAPITAL STOCK
The record date for shareholders entitledvoting requirement to notice of, and to vote at, the
Annual Meeting is May 1, 2005. At the close of business on that date, there
were 10,091,294 outstanding shares of common stock, $.01 par value ("Common
Stock"). No other class of securitiesapprove each of the Company is entitled to notice of,
or to vote at, the Annual Meeting.
ACTION TO BE TAKEN AT THE MEETING
The accompanying proxy, unless the shareholder otherwise specifies in the
proxy, will be voted:
1. FOR the election of the four Class I 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. FOR the approval of 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. FOR the approval of the adoption of an incentive stock award plan for
employees as a successor plan to the 1993 Employee Stock Award Plan that expired
in 2003;
4. FOR the amendment of the Company's Restated Articles of Incorporation to
declassify the board of directors; and
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
proposals?
A majority of the outstanding shares entitled to vote at the Annual
Meeting,meeting, represented in person or by proxy, shall constituteconstitutes a quorum at the Annual Meeting.meeting. If a quorum is not present, in person or by proxy, the meeting may be postponed or adjourned from time to time until a quorum is obtained. Each outstanding share entitled to vote under the provisions of the Company'sCompany’s Restated Articles of Incorporation shallwill be entitled to one vote on each matter submitted to a vote at the Annual Meeting. Cumulative voting formeeting.
In the election of directors, isyou may vote “FOR” all or some of the nominees or your vote may be “WITHHELD” with respect to one or more of the nominees. For the election of directors, votes withheld do not permitted.affect whether a nominee has received sufficient votes to be elected. You may not cumulate your votes. 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. The election of each nominee as a director requires the affirmative vote of the holders of record of a majority of the outstanding shares entitled to vote on the election of directors and represented in person or by proxy at the Annual Meetingmeeting at which a quorum is present.
Shares represented by a shareholder who,
For the other item of business, you may vote “FOR,” “AGAINST” or a proxy that, directs that“ABSTAIN.” If you elect to “ABSTAIN,” the shares abstain from voting or that a vote be withheld on the election of
directors or any other matter, shall be deemed to be represented at the meeting
for quorum purposes as to such manner, but shall be treated, and haveabstention has the same effect as a vote against“AGAINST.” For the nominees forpurpose of determining whether the shareholders have approved matters other than the election of directors, abstentions are treated as directorsshares present or against such
other matter, as applicable. Broker non-votes shall be deemed to be represented at the meeting for quorum purposes, but shall be treated, and havevoting, and abstaining has the same effect as a vote against the nominees for election as directors and shall be
treated as shares that arenegative vote. Shares held by brokers who do not entitledhave discretionary authority to vote on a particular matter and who have not received voting instructions from their customers are not counted or deemed to be present or represented for the effectpurpose of neitherdetermining whether shareholders have approved that matter, but they are counted as present for the purpose of determining the existence of a vote for nor a vote against, each other matter.quorum. Shares as to which voting instructions are given as to at least one of the matters to be voted on shallare also deemed to be represented. If the proxy states how the shares are to be voted and in the absence of instructions by the shareholder, such shares will be deemed to be sorepresented at the meeting.
17. What happens if additional matters are presented at the meeting?
Other than the three items of business described in this proxy statement, we are not aware of any other business to be acted upon at the meeting. If you grant a proxy, the persons named as proxy holders will have the discretion to vote your shares on any additional matters properly presented for a vote at the meeting. If for any reason one or more of our nominees is not available as a candidate for director, the persons named as proxy holders may vote your proxy for such other candidate or candidates as the Board may nominate.
18. Who will serve as inspector of elections?
The inspector of elections will be a representative from the Company’s stock transfer agent, Securities Transfer Corporation.
19. Who will bear the cost of soliciting votes for the meeting?
The Company is making this solicitation and will pay the entire cost of preparing, assembling, printing, mailing and distributing these proxy materials and soliciting votes. If you choose to access the proxy materials and/or vote over the Internet, you are responsible for Internet charges you may incur. If you choose to vote by telephone, you are responsible for telephone charges you may incur. In addition to the mailing of these proxy materials, the solicitation of proxies or votes may be made in person, by telephone or by electronic communication by our directors, officers and employees, who will not receive any additional compensation for such solicitation activities other than reasonable out-of-pocket expenses directly related to such solicitation. 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.
20. Where can I find voting results from the annual meeting?
We intend to publish the final voting results from the annual meeting in our quarterly report on Form 10-Q for the second quarter of fiscal 2008.
Stock Ownership Information
21.What is the difference between holding shares as a shareholder of record and as a beneficial owner?
Most Company shareholders hold their shares directly in their own names rather than through a broker or other nominee. As summarized below, there are some distinctions between shares held of record and those owned beneficially.
Shareholder of Record
If your shares are registered directly in your name with the Company’s transfer agent, Securities Transfer Corporation, you are considered, with respect to those shares, the shareholder of record, and these proxy materials are being sent directly to you by the Company. As the shareholder of record, you have the right to grant your voting proxy directly to the Company or to a third party, or to vote in person at the meeting. There is a proxy card enclosed with these materials for your use.
Beneficial Owner
If your shares are held in a brokerage account or by another nominee, you are considered the beneficial owner of shares held in “street name,” and these proxy materials are being forwarded to you together with a voting instruction card on behalf of your broker, trustee or nominee. As the beneficial owner, you have the right to direct your broker, trustee or nominee how to vote and you are also invited to attend the meeting. Your broker, trustee or nominee has enclosed or provided a voting instruction card for you to use in directing the broker, trustee or nominee how to vote your shares. Since a beneficial owner is not a shareholder of record, you may not vote these shares in person at the meeting unless you obtain a “legal proxy” from the broker, trustee or nominee holding your shares, giving you the right to vote the shares at the meeting.
22. What happens if I have questions for the Company’s transfer agent?
Please contact the Company’s transfer agent at the phone number or address listed below with questions concerning stock certificates, transfer of ownership or other matters pertaining to your stock account.
Securities Transfer Corporation, Inc.
2591 Dallas Parkway, Suite 102
Frisco, TX 75034
(469) 633-0101
Annual Meeting Information
23. How can I attend the meeting?
You are entitled to attend the annual meeting only if you were a Company shareholder as of the close of business on October 31, 2007 or hold a valid proxy for the annual meeting. You should be prepared to offer proof of identification for admittance. If you are a shareholder of record or hold your shares through the Pizza Inn, Inc. 401(k) Plan, your ownership as of the Record Date may be verified prior to being admitted to the meeting. If you are not a shareholder of record but hold your shares through a broker, trustee or nominee (i.e., in “street name”), you should provide proof of beneficial ownership as of the Record Date, such as your most recent account statement prior to October 31, 2007, a copy of the voting instruction card provided by your broker, trustee or nominee, or similar evidence of ownership. If you do not provide identification upon request, the Company has the right to refuse you admission to the meeting.
24. How many shares must be present?
The quorum requirements for holding the meeting and transacting business are that a majority of the outstanding shares entitled to vote at the meeting, must be represented in person or by proxy. Shares held by brokers who do not vote (“broker non-votes”) because they do not have discretionary authority to vote on a particular matter and who have not received voting instructions from their customers are counted as present for the purpose of determining the existence of a quorum. Shares as to which voting instructions are given as to at least one of the matters to be voted are also deemed to be represented. If the proxy states how shares will be voted in the absence of instructions by the shareholder, such shares shallwill be deemed to be represented at the meeting.
The enclosed proxy, if properly executed
Shareholder Proposals, Director Nominations and returned, will be voted as
directed or stated onRelated Bylaw Provisions
25. What is the proxy or, in the absence of such direction,deadline to propose actions for the
election of the nominees as directors and each other matter on the proxy. 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 in their
discretion. The Board believes that all the nominees will be available to serve
as directors. If any nominee is unable to serve or for good cause will not
serve, 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.
PROPOSAL ONE:
ELECTION OF DIRECTORS
The Company's Restated Articles of Incorporation and Bylaws provide that
the Board of Directors shall be divided into two Classes. The terms of the four
incumbent Class I directors expireconsideration at the Annual Meeting. The Board has
nominated four candidates for election at the Annual Meeting, two of whom are
incumbent Class I directors. If elected, each director nominee shall hold
office for a two-year term, subject to the proposed amendment to the Company's
Restated Articles of Incorporation, which would change the term as described
herein, or until his successor shall have been elected and qualified. Each
nominee of the Board has expressed his intention to serve the entire term for
which election is sought and has agreed to serve for a term of one year only if
the shareholders approve Proposal Four, to declassify the Board. If any nominee
is unable or unwilling to serve at the time the election occurs, the proxies may
be voted for the election of another nominee to be designated by the Board. THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE FOUR NOMINEE 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 amended and
substituted Section 8.2 would provide for one class of directors. Under the
amendment, if approved by the shareholders, the four director nominees proposed
in this proxy, if elected, will hold office until the 2005next year’s annual meeting of shareholders (expectedshareholders?
If a shareholder wishes to submit a proposal for inclusion in the Company’s proxy statement and form of proxy for the Company’s next regularly scheduled annual meeting tentatively scheduled for December 10, 2008, the proposal must be received in proper form at the Company’s principal executive offices prior to July 19, 2008in order to have that proposal considered to be heldincluded in December 2005), 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 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 April 1, 2005, of the four
nominee directors, and the three directors whose terms of office will continue
after the Annual Meeting, the class to which each director has been or will be
elected, and the year in which each director was first elected.
NOMINEES
Bobby L. Clairday, 61, 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 the 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 franchiseematerials of the Company for over
twenty years andsuch meeting.
If a Class I Director for over nine years.
John D. Harkey, Jr., 44, has served as Chief Executive Officer and Chairmanshareholder wishes to submit a proposal at the 2008 Annual Meeting of Consolidated Restaurant Companies, Inc., as Chief Executive Officer and Vice
ChairmanShareholders outside the processes of Consolidated Restaurant Operations, Inc., and has been managerRule 14a-8 of the investment firm Cracken, Harkey, Street & Hartnett since 1997. From 1992 to
1998, Mr. Harkey was a partner withExchange Act, the law firm Cracken & Harkey, LLP. Mr.
Harkey was founder and managing director of Capstone Capital Corporation and
Capstone Partners, Inc. from 1989 until 1992. He has been a director of Total
Entertainment Restaurant Corporation since 1999.
Timothy P. Taft, 47, was appointed President and Chief Executive Officer in
March 2005. Prior to joining the Company, Mr. Taft served as President and
Chief Operating Officer of Whataburger, Inc. from October 2000 through October
2005. Prior to that, he served in various senior management positions with
Whataburger, Inc. beginning in 1994. Before joining Whataburger, Inc., Mr. Taft
was Vice President of The Marketing Continuum, a marketing services agency.
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 1993 that is the general partner of Newcastle Partners, L.P.
Mr. Schwarz was appointed Chairman of the Board ofshareholder must notify the Company in February 2004.
Mr. Schwarzwriting of such proposal prior to October 2, 2008 in order to have that proposal considered at such meeting.
To be in proper form, a shareholder’s notice must include information concerning the proposal or nominee. A shareholder who wishes to submit a proposal or nomination is also Chairmanencouraged to seek independent counsel with regard to the SEC requirements. The Company may not consider any proposal or nomination that does not meet the SEC’s requirements for submitting a proposal or nomination, and reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements.
Notices of intention to submit proposals for or at the Company’s 2008 Annual Meeting of Shareholders should be addressed to:
Corporate Secretary
Pizza Inn, Inc.
3551 Plano Parkway
The Colony, TX 75056
Fax (469) 384-5061
e-mail: corporate_secretary@pihq.com
26. How may I nominate or recommend individuals to serve as directors?
You may propose director candidates for consideration by the Board’s Nominating and Governance Committee. Any such recommendations should include the nominee’s name and qualifications for Board membership and should be directed to the Corporate Secretary at the address of our principal executive offices set forth above. To nominate a director, follow the instructions set forth above in the answer to question number 25, “What is the deadline to propose actions for consideration at next year’s annual meeting of shareholders?” plus submit a statement by the nominee acknowledging that he or she will owe a fiduciary obligation to the Company and its shareholders.
27. | How may I obtain a copy of the Company’s bylaw provisions regarding shareholder proposals and director nominations? |
You may contact the Corporate Secretary at our principal executive offices for a copy of the bylaws. Our bylaws are also available on our website at http://pizzainn.com/investor/bylaws.html. There are no specific provisions in the bylaws regarding shareholder proposals and director nominations. Follow the instructions set forth above in the answer to question number 25, “What is the deadline to propose actions for consideration at next year’s annual meeting of shareholders?”
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
The Company is committed to maintaining the highest standards of business conduct and corporate governance, which we believe are essential to running our business efficiently, serving our shareholders well and maintaining the Company’s integrity in the marketplace. The Company has adopted a Code of Business Conduct that applies to directors and to all Company employees and a Code of Ethical Conduct for Financial Managers. These codes work in conjunction with the Company’s Articles of Incorporation, Bylaws, and Board committee charters, and Chief Executive Officer of
Hallmark Financial Services, Inc., Chairmantogether form the framework for governance of the BoardCompany. These documents are available at the Company’s website at http://www.pizzainn.com. We will post on this website any amendments to the Code of Bell Industries,
Inc., ChairmanBusiness Conduct or waivers of the BoardCode of New Century Equity Holdings Corp.,Business Conduct for directors and a director
of Nashua Corporation, S L Industries, Inc. and Web Financial Corporation. Mr.
Schwarz was appointed a Director in December 2002 to fill a vacant Class I Board
seat.
CONTINUING DIRECTORS
Robert B. Page, 45, is a 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 a board member from 1998 through 2000, and President and
Chief Operations Officer from 1993 through 1998. Mr. Page was elected a Class II
Director of the Company in February 2004, and was appointed as the Company's
Acting Chief Executive Officer in January 2005, a position he held until March
2005.
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 as 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 February 2004.
Steven J. Pully, 45, is the President of Newcastle Capital Management,
L.P., the general partner of Newcastle Partners, L.P. Mr. Pully has also been
Chief Executive Officer and a director of New Century Equity Holdings Corp.
since June 2004, and was Chief Executive Officer of Pinnacle Frames and Accents,
Inc. from January 2003 through June 2004. 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 member of the
investment banking department of Bear Stearns where he became a senior managing
director in 1999. 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
executive officers.
The business of the Company is managed under the direction of the Board of
Directors.Board. Each director is expected to make reasonable efforts to attend board meetings, meetings of committees of which such director is a member and the Annual Meetingannual meeting of Shareholders.shareholders. The Board of Directors intends to comply with the corporate governance guidelines set forth by The Nasdaq Stock Market ("Nasdaq"(“Nasdaq”) listing standards and Securities and Exchange Commission ("SEC"(“SEC”) rules adopted to implement provisions of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"“Sarbanes-Oxley Act”). The in order to assure that the Board has six committees: an Executive Committee, an
Audit Committee, a Compensation Committee, a Finance Committee, a Nominatingwill have the necessary practices in place to review and Governance Committeeevaluate the Company’s business operations as needed and a Strategic Planning Committee. 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% or moreto make decisions that are independent of the Company’s management.
Board meetingsIndependence and meetingsIndependence Standards
Each of the committees on
which they served and all sevenCompany’s current directors attended the prior year's annual
meeting. Below is a table that provides membership and meeting information for
each of the Board committees during fiscal year 2004:
Nominating Strategic
Name Executive Audit Compensation Finance & Governance Planning
- --------------------------------------------------------------------------------
Mr. Schwarz X*
Mr. Clairday
Mr. Page X2 X2 X* X2 X**
Mr. Parker X1
Mr. Phillips X X* X X X X**
Mr. Powell X
Mr. Pully X* X X*
Number of Meetingsqualify as “independent” in Fiscal 2004 10 9 5 3 1 143
- -------------------------------------------------------------------------------
1 - Mr. Parker was replaced by Mr. Page as a member of the Executive Committee
in December 2004.
2 - Mr. Page resigned his membership on these committees effective as of his
appointment as Acting Chief Executive Officer on January 4, 2005.
3 - Includes five meetingsaccordance with the Company's management team.
* Committee Chairman
** Committee Co-Chairmanpublished Nasdaq listing requirements. Independent directors meet at least twice annually apart from other Board members and management representatives. Each
An independent director must not have any material relationship with the Company, directly or as a partner, shareholder or officer of an organization that has a relationship with the Company, or any relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In determining independence, the Board reviews whether directors have any material relationship with the Company. The Board considers all relevant facts and circumstances. In assessing the materiality of a director’s relationship with the Company, the Board considers the issues from the director’s standpoint and from the perspective of the Company's current
directors, other than Mr. Clairday, Mr. Page and Mr. Parker,persons or organizations with which the director has an affiliation.
The Board has nominated W.C. Hammett, Jr. as a candidate for election as a director at the annual meeting of shareholders.. See “Proposal One: Election of Directors.” below. The Board has made an affirmative determination that this nominee, if elected, will qualify as "independent" in accordance with published Nasdaq listing requirements. On
January 4, 2005 the independent director according to NASDAQ Marketplace Rule 4200(a)(15) and under SEC Rule 10A-3(b)(1).
Board appointed Mr. Page as Acting ChiefStructure and Committee Composition
The Board has seven directors and five standing committees: (1) Executive, Officer(2) Audit, (3) Compensation, (4) Finance, and (5) Nominating and Governance. Current copies of the Company. Mr. Page served in that capacity untilcharters for certain Board committees are available to security holders on the appointment of Mr.
Taft as President and CEO on March 31, 2005. According to published Nasdaq
listing requirements during his term as Acting CEO and for a period of three
years thereafter, Mr. Page will not qualify as an independent director.Company’s website at http://www.pizzainn.com. Below is a description of the functions performed by each committee of the Board.committee. 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"“independence” when applicable and that each member is free of any relationship that would interfere with his individual exercise of independent judgment.
Executive Committee.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 extent that the Board has delegated authority to another committee or to other persons, and except as otherwise limited by Missouri law.
Audit Committee.Committee. The Company has a separately designated standing audit
---------------- committee established in accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934.Act. 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'sCompany’s systems of internal controls regarding finance, accounting, legal compliance and ethics that management and the Board have established; the Company'sCompany’s auditing, accounting and financial reporting processes generally; reviewing and approving the terms of transactions between the Company and related parties; 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 integrityA copy of the Company's financial statements, accounting and financial reporting
principles, internal controls and procedures designedAudit Committee Charter is attached as an appendix to ensure compliance with
accounting standards, applicable laws, and regulations. this proxy statement.
The Company's
independent auditor, BDO Seidman LLP, is responsible for performing an
independent auditreport of the consolidated financial statements and expressing an
opinion on the conformity of those financial statements with generally accepted
accounting principles.
Audit Committee is included in this proxy statement.
Compensation Committee.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'sCompany’s compensation programs, (d) oversee the Company'sCompany’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'sCommittee’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.Committee. The primary responsibilities of this committee are to
------------------ (a) monitor present and future capital requirements and opportunities pertaining to the Company'sCompany’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'sCommittee’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.Committee. The primary responsibilities of this
------------------------------------ committee are to (a) recommend 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'sCompany’s corporate governance practices. The Nominating and Governance Committee'sCommittee’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 Nominating and Governance Committee are set forth in its Charter.
Review and Evaluation of Director Qualifications
From time to time the Nominating and Governance 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 Nominating and Governance 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 Nominating and Governance 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 Nominating and Governance Committee has not established specific minimum criteria or qualifications that a nominee must possess.
Identifying and Evaluating Candidates for Directors
Consideration of new Board nominee candidates typically involves a series of internal discussions, review of information concerning candidates and interviews with selected candidates. In the event that vacancies are anticipated or otherwise arise, the Nominating and Governance Committee considers various potential candidates for director. In general, candidates for nomination to the Board are suggested by Board members or by employees. In determiningemployees, and may come from professional search firms or shareholders. The new candidate standing for election at the
slate of nominees for the 2004 annual meeting the Nominating and Governance
Committee considered a number of candidatesshareholders was recommended by shareholders,
directors and others. Mr. Harkey and Mr. Taft were both recommended to the
Nominating and Governance Committee for nomination to thecurrent non-management Board by
non-management directors who are also shareholders, and were nominated as
candidates for election to the Board by the Nominating and Governance Committee.members. In 20042007, the Company did not employ a search firm or pay fees to other third parties in connection with seeking or evaluating Board nominee candidates.
Shareholder Recommendations and Nominations
The policy of the Nominating and Governance Committee willis to consider directorproperly submitted shareholder recommendations of candidates recommendedfor membership on the Board, as described above under “Review and Evaluation of Director Qualifications.” Any shareholder recommendations proposed for consideration by shareholders.the Nominating and Governance Committee should include the candidate’s name and qualifications for Board membership and should be addressed to:
Corporate Secretary
Pizza Inn, Inc.
3551 Plano Parkway
The Colony, TX 75056
Fax: (469) 384-5061
E-mail: corporate_secretary@pihq.com
Shareholders may nominate directors for consideration at an annual shareholders meeting and solicit proxies in favor of such nominees. The Nominating and Governance Committee evaluates candidates proposed by shareholders using the same criteria as for other candidates. The nameFor a description of any recommended candidatethe process for director, togethernominating directors in accordance with a
brief biographical sketch, a document indicating the candidate's willingnessCompany’s Bylaws, see “Questions and Answers – Shareholder Proposals, Director Nominations and Related Bylaw Provisions – How may I recommend or nominate individuals to serve if electedas directors?” The Company has not received any shareholder director nominations.
Board and evidenceCommittee Meetings
The Board met seven times during the last fiscal year. All directors attended 75% or more of the nominating person's ownership of Company
stock should be sent to the Corporate SecretaryBoard meetings and meetings of the Company using onecommittees on which they served. Below is a table that provides membership and meeting information for each 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 Strategic Planning committees during fiscal year 2007:
Name | Executive | Audit | Compensation | Finance | Nominating & Governance |
| Mark E. Schwarz | X* | ||||
| Jim Zielke | X | X | |||
| Robert B. Page | X | X | |||
| Ramon D. Phillips | X | X* | X | X | X |
| Steven J. Pully | X* | X* | X* | ||
| Steve Johnson | X | ||||
| Tim Taft | X | ||||
Number of Meetings in Fiscal 2007 | 3 | 5 | 4 | -- | 1 |
* Committee and Company management assembled and analyzed 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. The Strategic Planning Committee is
currently inactive; however, it is subject to reformation from time to time as
the Board may deem necessary.
Chairman
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 of:
Corporate Secretary
Pizza Inn, Inc.,
3551 Plano Parkway
The Colony, TX 75056. 75056
Fax: (469) 384-5061
E-mail: corporate_secretary@pihq.com
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'sBoard’s consideration. In such cases, that correspondence may be forwarded elsewhere in the Company for review and possible response.
Director Compensation
During fiscal year 2004, each non-employee director received as
Employee directors do not receive any separate compensation for serving onBoard activities. Non-employee directors receive the compensation described below. In addition to an annual retainer, non-employee directors receive fees for each Board and committees of the Board:
An annual retainer of $17,000;
An annual retainer of $6,000committee meeting attended. Non-employee and employee directors are also reimbursed for the Chairman of the Board; and
A per meeting fee of $1,000 for Board meetings and $250 fee for committee
meetings.
While Acting CEO of the Company, Mr. Page received no compensation for
serving as a director, except that he, like all directors of the Company, was
eligible to receive reimbursement of anytheir reasonable expenses incurred in connection with attending Board and committee meetings. Mr. Parker has received the standard director's
The total compensation effective aspaid to non-employee directors during fiscal 2007 was $159,750 plus reimbursement of December 14, 2004, the day after his last dayexpenses. The following table summarizes compensation paid to each of employment by the Company. Previously Mr. Parker was not paid for serving as a
member of the Board.
Members of the Strategic Planning Committee received a per diem fee of $500
for each day they were directly engagedour non-employee directors who served in the discharge of committee
responsibilities. As of the date of this proxy statement, the Company is
withholding Board fees otherwise due to Mr. Clairday and offsetting those
amounts against the Advance Foods Debt (defined below), and the Company is
actively pursuing with Mr. Clairday alternative methods to pay the Company in
full.
such capacity during fiscal 2007.
Director Compensation (for the fiscal year ended June 24, 2007) | |||||||
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) (1) | Option Awards ($) (1) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation ($) | Total ($) |
| Mark E. Schwarz | 30,750 | -- | -- | -- | -- | -- | 30,750 |
| Jim Zielke | 25,500 | -- | -- | -- | -- | -- | 25,500 |
| Ramon D. Phillips | 27,250 | -- | -- | -- | -- | -- | 27,250 |
| Steve Johnson | 25,000 | -- | -- | -- | -- | -- | 25,000 |
| Robert B. Page | 26,000 | -- | -- | -- | -- | -- | 26,000 |
| Steven J. Pully | 25,250 | -- | -- | -- | -- | -- | 25,250 |
| (1) Reflects dollar amount recognized for financial statement reporting purposes with respect to the fiscal year in accordance with FAS 123R. |
In addition to annual and meeting fees, each non-employee director wasis eligible to receive stock option awards under the 1993 Outside2005 Non-Employee Directors Stock Option Award Plan (the "1993 Plan"“2005 Directors Plan”) until the 1993 Plan's expiration on October 13,
2003.. Under the 19932005 Directors Plan, eligible directors would receive, as of the first day of the Company'sCompany’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 19932005 Directors 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. Stock options granted under the 19932005 Directors 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. For shares of Common
Stock purchased during fiscal 2004 or thereafter, eachEach eligible director will be entitled to options for no more than 40,000 shares per fiscal year under the terms of the 2005 Directors Plan.
In fiscal 2007, no stock options were granted.
PROPOSALS TO BE VOTED ON
PROPOSAL ONE:
ELECTION OF DIRECTORS
The Company’s Restated Articles of Incorporation and Amended and Restated Bylaws provide that each director serves a one-year term, with all directors subject to annual election. Clinton Coleman was elected to serve as a director on August 15, 2007 when Timothy P. Taft, the Company’s former President and CEO, resigned from the Company. One of the Company’s current directors, Steven Pully, is not standing for reelection to the Board.
The Board has nominated six of the seven incumbent directors and one new director candidate for election at the meeting. If elected, each director nominee will hold office until the next annual meeting, or until his successor has been elected and qualified. Each nominee has expressed his intention to serve the entire term for which election is sought. The Board believes that all the nominees will be available to serve as directors. If any nominee is unable to serve or for good cause will not serve, the Board may recommend a substitute nominee or leave a vacancy and fill the vacancy later. The shares represented by all valid proxies may be voted for the election of a substitute if one is nominated.
The Board of Directors recommends a vote “FOR” each of the nominee directors.
Following is the biographical information, as of November 12, 2007, of the nominee directors and, if applicable, the year in which each director was first elected.
New Nominee Directors
W.C. Hammett, Jr., 61, is Chief Financial Officer & Executive Vice President of Pegasus Solutions, Inc. Mr. Hammett was the Chief Financial Officer & Senior Vice President for Dave & Buster’s, Inc. from 2001 though 2006. He also served on the Board of Directors for Carreker Corporation from 2006 to 2007. From 1992 to 1997, Mr. Hammett was the Chief Financial Officer/Senior Vice President Accounting & Administration for La Quinta Inns, Inc. Previously, he was employed by Price Waterhouse Coopers.
Current Directors
Steven J. Pully, 47,works in the financial services industry. Until October 2007, Mr. Pullyservedas President of Newcastle Capital Management, L.P. and also as Chief Executive Officer of New Century Equity Holdings Corp. Prior to joining Newcastle, Mr. Pully was a managing director in the mergers and acquisitions department of Banc of America Securities, Inc. Mr. Pully is licensed as an attorney and CPA and is also a CFA. Mr. Pully was appointed a director of Pizza Inn in December 2002.
Steven M. Johnson, 48, is Chief Executive Officer of Fox & Hound Restaurant Group. From 1992 until 1998, Mr. Johnson was Chief Operating Officer for Coulter Enterprises, Inc., a Pizza Hut franchisee operating 100 Pizza Hut restaurants. From 1985 through 1991, he was Controller for Fugate Enterprises, Inc., a Pizza Hut, Taco Bell and Blockbuster Video franchisee. Previously, he was employed by the accounting firm of Ernst & Young. Mr. Johnson is a C.P.A. Mr. Johnson was appointed a director in 2006.
James K. Zielke, 43, is Chief Financial Officer, Treasurer, and Secretary of Fox & Hound Restaurant Group. Prior to his employment with Fox & Hound, Mr. Zielke served as Senior Director-Tax for PepsiCo Restaurant Services Group, Inc. From 1993 through 1997, Mr. Zielke was employed by Pizza Hut, Inc., most recently as Director-Tax from 1995 through 1997. Previously, he was employed by the accounting firm of Ernst & Young. Mr. Zielke is a C.P.A. Mr. Zielke was appointed a director in 2006.
Robert B. Page, 47, is self-employed. He is a former 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 a board member from 1998 through 2000, and President and Chief Operations Officer from 1993 through 1998. Mr. Page was elected a director of the Company in February 2004, and was appointed as the Company’s Acting Chief Executive Officer in January 2005, a position he held until March 2005.
Ramon D. Phillips, 74, 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 as 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 a director of the Company from 1980 through 1989 and 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 director in February 2004.
Mark E. Schwarz, 47, is the Chairman, Chief Executive Officer and Portfolio Manager of Newcastle Capital Management, L.P., a private investment management firm he founded in 1993 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 of Hallmark Financial Services, Inc., Bell Industries, Inc. and New Century Equity Holdings Corp., and a director of Nashua Corporation, and S L Industries, Inc. Mr. Schwarz was appointed a director in December 2002.
Clinton J. Coleman, 30, is Vice President of Newcastle Capital Management, L.P., the general partner of Newcastle. Partners, L.P. Mr. Coleman is also presently the Interim Chief Executive Officer of Bell Industries, Inc., a position he has held since July 2007. In addition, Mr. Coleman presently serves as a director on the boards of Bell Industries, Inc. and Fox & Hound Restaurant Group. Mr. Coleman recently served as Interim Chief Financial Officer of Pizza Inn, Inc. between July 2006 and January 2007. Mr. Coleman was appointed director in August of 2007 following Timothy P. Taft’s resignation from the Company.
Except as noted, each nominee has been engaged in the principal occupation described during the past five years. There are no family relationships among any of our directors or executive officers. Company stock ownership for each of these individuals is shown under the heading “Security Ownership of Certain Beneficial Owners, Directors and Executive Officers” and is based upon information furnished by the respective individuals.
PROPOSAL TWO:
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Audit Committee has selected BDO Seidman, LLP, registered accounting firm, as the independent auditors of the Company for fiscal year 2008. BDO Seidman, LLP has been the Company’s independent registered accounting firm since fiscal year 2004. As a matter of good corporate governance the Audit Committee has determined to submit its selection to shareholders for ratification. Shareholder ratification of the appointment is not required by our bylawsor by any other applicable law. In the event that this selection of auditors is not ratified by a majority of the shares of Common Stock present or represented by proxy at the annual meeting, the Audit Committee will reconsider whether or not to retain BDO Seidman, LLP. Even if the selection is ratified, the Audit Committee in its discretion may select a different registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.
A representative of BDO Seidman, LLP is expected to be present at the annual meeting, to be available to respond to appropriate questions and to have an opportunity to make a statement.
The Board of Directors Plan (defined below) is approved.
Sincerecommends a vote “FOR” the beginningratification of the selection of BDO Seidman, LLP as the Company’s independent registered accounting firm for 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 if the shareholders approve Proposal Two,
"Adoption of a Non-Employee Directors Stock Option Award Plan."
2008.
EXECUTIVE OFFICERS
The following table sets forth certain information, as of April 1, 2005,November 12, 2007, regarding the Company'sCompany’s executive officers:
Name | Age | Position | Executive Officer Since |
| Charles R. Morrison | 39 | Chief Financial Officer, Interim President and Chief Executive Officer | 2007 |
| Ward T. Olgreen | 48 | Senior Vice President of World Wide Franchising | 1995 |
| Darrell G. Smith | 52 | Vice President of Development | 2006 |
| Danny K. Meisenheimer | 48 | Vice President of Brand Management | 2003 |
Biographies Of Non-Director Executive Officers
Charles R. Morrison was appointed Chief Financial Officer Name Age Position Since
- ---- --- -------- -----
Timothy P. Taft 47in January 2007. He was appointed Interim President and Chief Executive Officer 2005
in August 2007. Prior to joining the Company, Mr. Morrison was with Metromedia Restaurant Group from 2004 through 2006, serving as President for Steak and Ale and The Tavern Restaurants and also previously serving as Chief Financial Officer for Steak and Ale and Ponderosa Restaurants, which were each divisions of Metromedia. Prior to that, he was Vice President of Finance for Kinko’s, Inc.
Ward T. Olgreen 46 was appointed Senior Vice President of World Wide Franchising in October 2007. He was appointed Senior Vice President of International Operations and Concept Development in September 2006. He served as Senior Vice President of Research and Development and Concept Development from January 2006 until August 2006. In December 2002 he was named 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 44 Secretary and General Counsel 2004
Danny K. Meisenheimer 45 Vice President of Marketing 2003
BIOGRAPHIES OF NON-DIRECTOR EXECUTIVE OFFICERS
Ward T. Olgreen was appointed Senior Vice President of Franchise Operations
and Concept Development in December 2002.Development. 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
Darrell G. Smith was appointed Vice President of International Operations and Brand R&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 DistributionDevelopment in October 2002. He was elected Vice President in June 2000.
He was elected Controller, Treasurer, and Assistant Secretary in April 1999.
Previously, Mr. Preator had been Assistant Controller for the Company since July
1998.January 2006. Prior to joining the Company, Mr. PreatorSmith served as Group Director of Development Services for Whataburger, Inc. from 2002 through 2005. From 1997 to 2002 he was President and Chief Operating Officer of Embree Group of Companies, 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. Mr. Preator is a CPA.
Rod J. McDonaldnational development and design-build construction group.
Danny K. Meisenheimer was appointed Corporate Secretary and General Counsel in
August 2004. Mr. McDonald joined the Company in September 1997 and served as
Assistant General Counsel of the Company until his appointment as General
Counsel. Prior to joining the Company, he was Vice President and Assistant
General Counsel for TCBY Enterprises, Inc.of Brand Management in July 2005. He served as Acting Chief Executive
Officer of the Company in December 2004 and January 2005.
Danny K. Meisenheimer was appointednamed 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'sFurr’s Restaurant Group, Inc. since 1995. Mr. Meisenheimer joined the Marketing Department of Furr'sFurr’s in 1991.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS,
COMPENSATION DISCUSSION AND EXECUTIVE OFFICERS
ANALYSIS
The following compensation discussion and analysis (“CD&A”) should be read in conjunction with the “Summary Compensation Table” and related tables that are presented elsewhere in this Proxy Statement.
Introduction and Summary
The purpose of this CD&A is to provide information about each material element of compensation that we pay or award to, or that is earned by: (1) each person who served as our principal executive officer during fiscal 2007; (2) each person who served as our principal financial officer during fiscal 2007; and (3) our three most highly compensated executive officers as of June 24, 2007 with compensation during fiscal 2007 of $100,000 or more (the “Named Executive Officers”), and to explain the numerical and related information contained in the tables located below. For our 2007 fiscal year, our Named Executive Officers were:
| · | Charles R. Morrison, our CFO, Interim President and CEO; |
| · | Ward T. Olgreen, our Senior Vice President of World Wide Franchising; |
| · | Danny K. Meisenheimer, our Vice President of Brand Management; and |
| · | Darrell G. Smith, our Vice President of Development. |
Timothy P. Taft, our former President and CEO, Jack A. Odachowski, our former Vice President of Supply Chain, Kevin A. Kleiner, our former Controller and CFO and Clinton J. Coleman, our former Interim CFO, are also Named Executive Officers because each served in their respective positions during our 2007 fiscal year or, with respect to Mr. Odachowski, would have qualified as a Named Executive Officer but for the fact that he was not serving as an executive officer at the end of our 2007 fiscal year.
The Compensation Committee
The three members of the Compensation Committee are Steven J. Pully (Chairman), Ramon D. Phillips and Steven M. Johnson. The Company’s Board has determined that each of the members of the Compensation Committee is “independent” under NASDAQ Marketplace Rules. Additional information regarding our Compensation Committee can be found under the “Compensation Committee” heading in the “Corporate Governance Principles and Board Matters” section of this Proxy Statement.
Role of Executives in Determining Executive Compensation
The Compensation Committee acts on behalf of the Board to establish the Company’s general compensation policies for its executive officers. The Board determines whether the Compensation Committee will make determinations as a committee or will make recommendations to the Board. In fiscal 2007, the Compensation Committee determined the compensation of the Company’s executive officers and delegated compensation determinations for other employees to Timothy P. Taft, the Company’s former CEO and President. It is the Company’s practice to have the CEO make recommendations to the Compensation Committee with regard to compensation for its non-executive employees.
Significant Compensation Events in Fiscal 2007
On January 31, 2007, the Company entered into an Employment Letter with Charles R. Morrison, pursuant to which Mr. Morrison agreed to serve as the Company’s CFO. On August 15, 2007, following the Company’s former President and Chief Executive Officer Timothy P. Taft’s resignation, Mr. Morrison was appointed Interim President and CEO. Please see the section entitled “Employment Agreements” for a more detailed description of Mr. Morrison’s Employment Letter.
Compensation Philosophy and Objectives
The Company has developed a compensation program for executives and employees designed to meet the following goals:
| · | align the interest of executives and employees with those of the Company’s shareholders; |
| · | reward performance and further the long-term interests of its shareholders; |
| · | attract, motivate and retain executives and employees with competitive compensation for the Company’s industry and the labor markets in which it operates; |
| · | build and encourage ownership of the Company’s shares; and |
| · | balance short-term and long-term strategic goals. |
Compensation Program Structure and Elements
Compensation Program Structure in the 2007 Fiscal Year Ended June 24, 2007
In fiscal 2007, each Named Executive Officer’s compensation was primarily comprised of base salary and incentive bonuses. This compensation structure fit into the Company’s overall compensation objective because it afforded us control over the expense incurred by the Company in connection with the compensation of its Named Executive Officers and allowed us to limit compensation to levels that we believe are comparable to those offered in the local marketplace.
Base Salary
Base salary, which is designed to attract and retain qualified executives, provides a fixed amount of cash to our Named Executive Officers. Base salaries for Named Executive Officers are generally determined on an individual basis by evaluating each executive’s scope of responsibility, performance, prior experience and salary history. In setting fiscal 2007 base salaries, the Compensation Committee considered executive compensation in its industry..
Discretionary Cash Bonuses
We believe that some portion of the executive’s compensation should be contingent upon successful achievement of our corporate objectives. Therefore, as part of the Company’s compensation program, each of the Named Executive Officers is eligible to receive discretionary cash bonuses. Bonuses paid to Named Executive Officers are determined by evaluating the financial performance of the Company against its annual budget as well as the successful completion of stated personal and Company goals. All goals and objectives are subject to approval by the Compensation Committee at the beginning of the fiscal year. We intend that our discretionary cash bonus program will focus management on achieving key financial and other performance objectives on a short-term basis, motivate certain desired individual behaviors and reward substantial achievement of financial and other performance objectives and individual goals on a short-term basis.
Equity-Based Compensation
The purpose of the equity-based compensation component is to instill the economic incentives of ownership in our Named Executive Officers and to create long-term incentives for management to increase shareholder value. The Company frequently uses vesting periods in its awards to encourage executives to remain with it and to focus on longer-term results.
Equity-based compensation is awarded pursuant to our 2005 Employee Stock Option Plan (the “2005 Plan”). The Compensation Committee administers the 2005 Plan. Subject to the terms of the 2005 Plan, the Compensation Committee determines the persons who are to receive awards, the number of shares subject to each such award and the terms, types and conditions of such awards.
In fiscal year 2007, the Compensation Committee reviewed and discussed the Company’s current compensation objectives, and the desired mix of cash and equity compensation. No grants were made in fiscal 2007.
Other Compensation
Our Named Executive Officers also either participate or are eligible to participate in our other benefit plans and programs on the same terms as other employees, including a 401(k) plan, medical and dental insurance, term life insurance, short-term disability insurance, and long-term disability insurance.
Tax Code Considerations
Section 162(m) of the Internal Revenue Code disallows a corporate income tax deduction for executive compensation paid to its chief executive officer or any of its four other highest compensated “covered employees” in excess of $1 million per year unless it is performance-based and is paid under a plan satisfying the requirements of Section 162(m). Qualifying performance-based compensation is not subject to the deduction limit if certain requirements are met. The Compensation Committee believes that the compensation arrangements with the Company’s executive officers will not exceed the limits on deductibility during the current fiscal year. The Compensation Committee currently intends to structure the performance-based portion of the compensation of executive officers in a manner that complies with Section 162(m).
SUMMARY COMPENSATION TABLE
The following table summarizes the overall compensation earned during the fiscal year ending June 24, 2007 by the Named Executive Officers.
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards ($)(2) | All Other Compensation ($)(3) | Total ($) |
Charles R. Morrison (CFO, Interim President and CEO)(4) | 2007 | 99,038 | 40,000 | -- | -- | -- | 139,038 |
Ward T. Olgreen (Senior Vice President of World Wide Franchising) | 2007 | 154,929 | 18,150 | -- | -- | -- | 173,079, |
Danny K. Meisenheimer (Vice President of Brand Management) | 2007 | 138,825 | 17,298 | -- | -- | -- | 156,123 |
Darrell G. Smith (Vice President of Development) | 2007 | 150,000 | 16,406 | -- | -- | -- | 166,406 |
Former Officers | |||||||
Timothy P. Taft (President and CEO)(5) | 2007 | 229,852 | 188,000 | -- | -- | -- | 417,852 |
Jack A. Odachowski (Vice President of Supply Chain)(6) | 2007 | 185,000 | -- | -- | -- | 35,577 (7) | 220,577 |
Kevin A. Kleiner (Controller and CFO)(8) | 2007 | 3,820 | -- | -- | -- | -- | 3,820 |
Clinton J. Coleman (CFO)(9) | 2007 | 112,000 | -- | -- | -- | -- | 112,000 |
| (1) Reflects dollar amount recognized for financial statement reporting purposes with respect to the fiscal year in accordance with FAS 123R. |
| (2) Reflects dollar amount recognized for financial statement reporting purposes with respect to the fiscal year in accordance with FAS 123R. |
| (3) Includes all other compensation not reported in the preceding columns, including (i) perquisites and other personal benefits, or property, unless the aggregate amount of such compensation is less than $10,000; (ii) any "gross-ups" or other amounts reimbursed during the fiscal year for the payment of taxes; (iii) discounts from market price with respect to securities purchased from the company except to the extent available generally to all security holders or to all salaried employees; (iv) any amounts paid or accrued in connection with any termination (including without limitation through retirement, resignation, severance or constructive termination, including change of responsibilities) or change in control; (v) contributions to vested and unvested defined contribution plans; (vi) any insurance premiums paid by, or on behalf of, the company relating to life insurance for the benefit of the named executive officer; and (vii) any dividends or other earnings paid on stock or option awards that are not factored into the grant date fair value required to be reported in a preceding column |
| (4) Mr. Morrison was appointed Interim Chief Executive Officer and President on August 15, 2007. Mr. Morrison was appointed Chief Financial Officer on January 31, 2007. Mr. Morrison’s Employment Letter dated January 31, 2007 provides for a base salary of $250,000, a bonus of $40,000 due on June 24, 2007 and an annual bonus based on the fiscal year performance. |
| (5) Mr. Taft served as the Company’s President and CEO from March 31, 2005 through his resignation on August 15, 2007. |
| (6) Mr. Odachowski was appointed Vice President of Supply Chain Management on September 6, 2005. Figures shown for fiscal 2007 are through June 22, 2007, Mr. Odachowski’s last date of employment with the Company. |
| (7) Amount represents severance equal to three months of base salary, or $35,577 payable in one lump sum. |
| (8) Mr. Kleiner served as the Company’s CFO from January 11, 2006 through his resignation on July 7, 2006. |
| (9) Mr. Coleman served as Interim CFO from July 5, 2006 through February 8, 2007 |
GRANTS OF PLAN-BASED AWARDS |
During fiscal year 2007, the Company did not make any grant to a Named Executive Officer pursuant to the 2005 Plan.
EMPLOYMENT AGREEMENTS
Current Officers
Other than as noted below for Mr. Morrison, there are no employment agreements in place for our [currently-employed] Named Executive Officers. The following summarizes the overall compensation earned by the Named Executive Officers for the fiscal year ending June 24, 2007
● Charles R. Morrison received a base salary of $99,038 and a bonus equaling $40,000
● Ward T. Olgreen received a base salary of $154,929 and a bonus equaling $18,150
● Danny K. Meisenheimer received a base salary of $138,825 and a bonus equaling $17,298
● Darrell G. Smith received a base salary of $150,000 and a bonus equaling $16, 406
Charles R. Morrison entered into an employment letter with the Company on January 31, 2007. Mr. Morrison’s employment letter provides for an annual base salary of $250,000, a bonus of $40,000 due on June 24, 2007 and an annual bonus based on criteria established annually by the Compensation Committee. In the event that Mr. Morrison is terminated other than for “cause” (as defined in his employment letter), he is entitled to severance benefits equal to three months of annual base salary and continuation of health benefits for three months.
Other Named Executive Officers are not covered under a general severance plan and any severance benefits payable to them would be determined by the Compensation Committee in its discretion.
Former Officers
Timothy P. Taft
Timothy P. Taft, our former President and CEO, entered into an employment agreement with the Company on March 31, 2005, which Mr. Taft agreed to amend effective November 30, 2006. His employment agreement was for a term that extended through June 30, 2007. It provided Mr. Taft with a total salary in the first 12 months of $1.00 plus any bonus determined by the Board. During the six-month period between April 2006 and September 2006, Mr. Taft agreed to be paid a total salary of approximately $12,000. Pursuant to his employment agreement, Mr. Taft began receiving a salary of $300,000 per year in October 2006. In June 2007, Mr. Taft was eligible for a total bonus potential of $338,000, of which $138,000 was guaranteed. His employment agreement also provided for a grant of 500,000 non-qualified stock options on March 31, 2005, with 50,000 of such options vesting immediately and the remainder vesting over three years. On August 15, 2007 Mr. Taft submitted his resignation to the Company. In connection with Mr. Taft’s resignation, the Company agreed to pay Mr. Taft severance of $300,000 representing one year of salary, payable in twelve equal monthly installments.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth certaininformation regarding outstanding equity awards at June 24, 2007 for the named executive officers.
Option Awards | Stock Awards | ||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) |
Charles R. Morrison (CFO, Interim President and CEO) | -- | -- | -- | -- | -- | -- | -- | -- | -- |
Ward T. Olgreen (Senior Vice President of World Wide Franchising) | -- | -- | -- | -- | -- | -- | -- | -- | -- |
Danny K. Meisenheimer Vice President of Brand Management) | -- | -- | -- | -- | -- | -- | -- | -- | -- |
Darrell G. Smith (Vice President of Development) | -- | -- | -- | -- | -- | -- | -- | -- | -- |
Former Officers | |||||||||
Timothy P. Taft (President and CEO) | 300,000 (1) | 200,000 (2) | -- | $2.50 | 3/31/2015 | -- | -- | -- | -- |
Jack A. Odachowski (Vice President of Supply Chain) | -- | -- | -- | -- | -- | -- | -- | -- | -- |
Kevin A Kleiner (Controller and CFO) | -- | -- | -- | -- | -- | -- | -- | -- | -- |
Clinton J. Coleman (Interim CFO) | -- | -- | -- | -- | -- | -- | -- | -- | -- |
| (1) | These options were granted on March 31, 2005and became exercisable (vested) as follows: 50,000 vested immediately on March 31, 2005; 100,000 vested on March 31, 2006 and 150,000 vested on March 31, 2007 |
| (2) | These options were granted on March 31, 2005 and were to become exercisable (vested) on March 31, 2008. These options never vested due to the resignation of the former President and CEO on August 15, 2007. |
OPTION EXERCISES AND STOCK VESTED
The following table sets forth information with respect to shares of the Company’s common stock acquired through exercises of stock options and the number of shares acquired and value realized on exercise by the Named Executive Officers.
Option Awards | Stock Awards | |||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) |
Charles R. Morrison (CFO, Interim President and CEO) | -- | -- | -- | -- |
Ward T. Olgreen (Senior Vice President of World Wide Franchising) | 30,000 | 12,614 | -- | -- |
Danny K. Meisenheimer (Vice President of Brand Management) | -- | -- | -- | -- |
Darrell G. Smith (Vice President of Development) | -- | -- | -- | -- |
Former Officers | ||||
Timothy P. Taft (President and CEO) | -- | -- | -- | -- |
Jack A. Odachowski (Vice President of Supply Chain) | -- | -- | -- | -- |
Kevin A. Kleiner (Controller and CFO) | -- | -- | -- | -- |
Clinton J. Coleman (CFO) | -- | -- | -- | -- |
PENSION BENEFITS
The Company has no plans that provide payments or other benefits in connection with retirement.
NONQUALIFIED DEFERRED COMPENSATION
The Company has no plan for the deferral of compensation on a basis that is not tax-qualified.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information as of April 1, 2005,
with respectJune 24, 2007 regarding the Company’s equity compensation plans.
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) (b) |
Equity compensation plans approved by security holders | 88,358 | $2.77 | 1,403,759 |
Equity compensation plans not approved by security holders | 500,000 | $2.50 | 0 |
Total | 588,358 | $2.54 | 1,403,759 |
| (a) Under the 2005 Plan 1,000,000 shares are authorized and available for future option grants. Under the 2005 Director Plan 500,000 shares were authorized and 437,758 are available for future option grants as of June 24, 2007. There are no shares available for grant under the 1993 Employee Stock Award Plan and the 1993 Outside Directors Stock Award Plan, both of which expired in September 2003. |
(b) Reflects shares granted to Mr. Taft in March 2005 pursuant to a Nonqualified Stock Option Agreement described in “Compensation Committee Report on Executive Compensation – Executive Employment Agreements” below. |
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee administers the Company’s executive compensation program, and its members are appointed by the Board. In this regard, the role of the Compensation Committee is to oversee our compensation plans and policies, annually review and approve all executive officers’ compensation decisions, and administer our stock option plans (including reviewing and approving stock option grants to executive officers). The Compensation Committee’s charter reflects these various responsibilities, and the Compensation Committee and the Board periodically review and revise the charter. The Compensation Committee’s membership is determined by the Board and is composed entirely of independent directors. The Compensation Committee meets at scheduled times during the year, and it also considers and takes action by written consent. The Compensation Committee Chairman reports on its actions and recommendations at Board meetings. The Company’s Human Resources and Legal Departments support the Compensation Committee in its work and in some cases the Human Resources Department acts pursuant to delegated authority to fulfill various functions in administering the Company’s compensation programs. In addition, the Compensation Committee has the authority to engage the services of outside Attorneys, advisers, experts and others to assist it.
The Compensation Committee and the Board have adopted a charter to conform to the beneficial ownershipCompensation Committee’s responsibilities under the revised NASDAQ standards, new rules adopted by the SEC and the provisions of Common Stock by: (a) each person
knownthe Sarbanes-Oxley 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 individual performance, operating performance and enhancement of shareholder value.
Tax Deductibility under Section 162(m)
As noted, the Company’s compensation policy is primarily based upon the practice of pay-for-performance. Section 162(m) of the Internal Revenue Code imposes a limitation on the deductibility of nonperformance-based compensation in excess of $1 million paid to the Company to be a beneficial owner of more than five percent ofPrincipal Executive Officer and the outstanding Common Stock; (b) each director, nominee director, and executive
officer named in the section entitled "Summary Compensation Table;" and (c) all
such directors and executive officers as a group (13 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 andother most highly compensated executive officers of the Company. The Compensation Committee currently believes that the Company should be able to continue to manage its executive compensation program for these officers so as to preserve the related federal income tax deductions.
Stock Options
The Company established the 2005 Plan for the purpose of aligning employee and shareholder interests. The Compensation Committee administers the 2005 Plan. Subject to the terms of the 2005 Plan, and automatic option grants to non-employee directors pursuant to the 2005 Directors Plan, the Compensation Committee determines the persons who are to receive awards, the number of shares subject to each such award and the terms, types and conditions of such awards. The Compensation Committee also has been furnishedthe authority to construe and interpret any of the provisions of the 2005 Plan or any awards granted thereunder.
In determining whether an award should be made, and/or the vesting schedule for any such award, subject to the terms of the 2005 Plan, the Compensation Committee may impose whatever conditions to vesting it deems appropriate. For example, the Compensation Committee may decide to grant an award only if the participant satisfies performance goals established by the respectiveCompensation Committee. The Compensation Committee may choose performance periods and performance goals that differ from participant to participant. The Compensation Committee may choose performance goals based on either Company-wide or departmental results, as deemed appropriate in light of the participant’s specific responsibilities. For purposes of qualifying awards as performance-based compensation under Section 162(m), the Compensation Committee may (but is not required to) specify performance goals for the entire Company and/or one or more individual departments. Performance goals may be based upon business criteria including: net income, earnings per share, return on equity, EBITDA, or other financial or performance-related measures.
The Company will continue to monitor changes in the marketplace relating to equity compensation and respond appropriately. We have periodically reviewed our option grant guidelines, among other reasons, in response to evolving market practices and will continue to be vigilant in this regard so that we may consider prevailing market standards in our effort to provide a competitive mix of cash and equity compensation.
Timing and Pricing of Option Awards
It is the policy of the Board and the Compensation Committee when approving stock option grants to employees and directors, whether pursuant to a shareholder approved plan or individual non-plan grants, to price all such grants at the fair market value of the Common Stock on the date of the grant (or, in the case of certain past option grants, at the fair market value of the Common Stock at the close of trading on the trading day immediately preceding the grant date). It is not the policy, practice or intended result of executive management, the Board or the Compensation Committee in granting stock options to engage in or approve of backdating option grants, selecting option exercise prices that differ from the underlying stock’s price on the grant date (except as may be allowed by applicable laws and accounted for in accordance with generally accepted accounting principles), or timing the grant of options to coordinate with the release of material nonpublic information.
For all option grants made pursuant to shareholder approved plans, option grant exercise prices, method of fixing grant dates, vesting requirements and expiration dates are specified in each such plan. There are currently two such plans, the 2005 Plan and the 2005 Directors Plan. Both plans provide that the date of a stock option award will be the effective date that the award is made to a plan participant. Both plans also provide that all stock option awards will be issued at fair market value, which is defined in the plans as the closing price of the Common Stock on the NASDAQ exchange on the date that the award is made.
Conclusion
We have reviewed with the Company’s executive officers.
Name Shares Percentmanagement and Addressall components of Beneficiallycompensation paid to Mr. Taft, Mr. Morrison and each of Class
-------
Beneficial Owner Owned
- ---------------- -----
Newcastle Partners, L.P.(a)
Newcastle Capital Management, L.P.
Newcastle Capital Group, L.L.C.
300 Crescent Court, Ste. 1110
Dallas, TX 75201 3,627,130 35.94%
Ronald W. Parker (b)
7108 Round Hill Road
McKinney, TX 75070 851,821 8.44%
Farnam Street Partners, L.P. (c)
Farnam Street Capital, Inc.
3033 Excelsior Boulevard,
Suite 300
Minneapolis, MN 55416 630,262 5.25%
Mark E. Schwarz (a)(d) 3,647,130 36.14%
Robert B. Page -0- -0-
Bobby L. Clairday (e) 48,900 Less than 1%
Ramon D. Phillips (f) 11,590 Less than 1%
Butler E. Powell (d) 32,500 Less than 1%the Company’s principal executive officers in fiscal year 2007, including base salary, bonus and equity compensation. Based upon this review and consideration of the Company’s overall executive officer compensation objectives, the Compensation Committee finds such total compensation to be appropriate, and recommends that the Compensation Committee Report be included in this proxy statement.
Submitted to the Board by the undersigned members of the Compensation Committee.
Compensation Committee
Steven J. Pully, (a) 8,929 Less than 1%
JohnChairman
Ramon D. Harkey, Jr. -0- -0-
Timothy P. Taft (d) 50,000 Less than 1%
Ward T. Olgreen (d) 137,675 1.68%
ShawnPhillips
Steven M. Preator (d) 54,349 Less than 1%
Danny K. Meisenheimer 922 Less than 1%
B. Keith Clark (g) 4,000 Less than 1%
All Directors and 4,855,588 48.12%
Executive Officers as a Group
(a) 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 Mr. Schwarz is the managing member of
Newcastle Capital Group, L.L.C. Accordingly, each of Newcastle Capital
Management, L.P., Newcastle Capital 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 Capital Group, L.L.C., Mr. Schwarz and Mr.
Pully are members of a Section 13d reporting group and may be deemed to
beneficially own shares of Common Stock owned by the other members of the group.
Newcastle Partners, L.P., Mr. Schwarz and Mr. Pully also directly own shares of
Common Stock. Mr. Pully disclaims beneficial ownership of the shares of Common
Stock beneficially owned by Newcastle Partners, L.P. Mr. Schwarz directly owns
20,000 shares of Common Stock, including options to acquire 5,000 shares.
(b) Mr. Parker was President and Chief Executive Officer of the Company
until December 13, 2004. He is an incumbent director who was not nominated to
stand for re-election.
(c) Farnam Street Capital, Inc. is the general partner of Farnam Street
Partners, L.P. Together Farnam Street Capital, Inc. and Farnam Street Partners,
L.P. beneficially own all of the shares shown. Mr. Raymond E. Cabillot is Chief
Executive Officer and Chief Financial Officer of Farnam Street Capital, Inc.,
and Mr. Peter O. Haeg is President and Secretary of Farnam Street Capital, Inc.
Accordingly, each of Farnam Street Partners, L.P., Farnam Street Capital, Inc.,
Mr. Cabillot and Mr. Haeg may be deemed to beneficially own the shares of Common
Stock beneficially owned by Farnam Street Capital, Inc. and Farnam Street
Partners, L.P. In addition, Farnam Street Partners, L.P., Farnam Street
Capital, Inc., Mr. Cabillot and Mr. Haeg are members of a Section 13d reporting
group and may be deemed to beneficially own shares of Common Stock owned by
other members of the group.
(d) Includes vested options and options vesting within 60 days of February
1, 2005 under the Company's stock option plans, as follows: 5,000 shares for Mr.
Schwarz; 20,000 shares for Mr. Powell; 50,000 shares for Mr. Taft; 66,500 shares
for Mr. Olgreen; and 44,500 shares for Mr. Preator.
(e) Mr. Clairday shares voting and investment power for 18,200 shares with
his wife.
(f) Mr. Phillips shares voting and investment power for 5,333 shares with
the other shareholders of Wholesale Software International, Inc.
(g) Mr. Clark was Senior Vice President, Secretary and General Counsel of
the Company until July 7, 2004.
AUDIT COMMITTEE REPORT
Johnson
The AuditCompensation Committee of the Board is responsible for providing independent,
objective oversight of the Company's accounting functions and internal controls.
The Audit Committee is currently composed of two independent directors and acts
under a written charter adopted and approved by the Board on April 15, 2003.
The Audit Committee reviews its Charter on an annual basis. Each of the members
is independent as defined by Nasdaq's listing standards and as required by the
Sarbanes-Oxley Act. After a full review and analysis, the Board positively
reaffirmed that each member is independent within the meaning of Rule
4200(a)(14) of the listing standards of the Nasdaq and the rules and regulations
of the 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 Audit Committee members.
On January 18, 2005, the Company notified Nasdaq that, due to one vacancy
on the Audit Committee that resulted from the resignation of Robert B. Page as a
member, the Company failed to comply with the audit committee composition
requirements under Marketplace Rule 4350(d)(2)(A), and would be relying on the
cure period provided under Marketplace Rule 4350(d)(4). As previously
disclosed, Mr. Page resigned in connection with and effective as of his
appointment on January 4, 2004 as the Acting Chief Executive Officer of the
Company.
On January 18, 2005, the Company received notice from Nasdaq that,
consistent with Marketplace Rule 4350(d)(4), the Company will be provided a cure
period until the earlier of the Company's next annual shareholders meeting or
January 4, 2006 in order to regain compliance with the audit committee
requirements and that the Company would be included in a list of non-compliant
Nasdaq companies at www.nasdaq.com on or after January 25, 2005. The Company
proposes to appoint Mr. Harkey to the Audit Committee, assuming his election as
a director at the Annual Meeting, to regain compliance with Nasdaq audit
committee requirements. The Company believes that Mr. Harkey will be
independent within the meaning of Rule 4200(a)(14) of the Nasdaq listing
standards and the rules and regulations of the SEC.
The Board of Directors has determined that at least one member of the Audit
Committee, Mr. Phillips, is an "audit committee financial expert," as defined by
SEC rules and 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
designationReport 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
Committeeconstitute soliciting material, 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. Phillips' relevant experience, see the section entitled
"Continuing Directors" above.
The Audit Committee reviewed and discussed the Company's audited financial
statements with management. It also discussed with BDO Seidman LLP the matters
required to be discussed by Statement on Auditing Standards No. 61,
"Communications with Audit Committees", as amended by Statement on Auditing
Standards No. 90. 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 Discussions with Audit
Committees," and the Committee discussed with BDO 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 BDO Seidman LLP concerning the audit, the
financial statement review, and other such matters deemed relevant and
appropriate by the AuditCommittee, the Audit Committee recommended to the Board
that the June 27, 2004 audited financial statements be included in the Company's
2004 Annual Report on Form 10-K.
In accordance with the rules of the SEC, the foregoing information, which
is required by paragraphs (a) and (b) of Regulation S-K Item 306, shall not be deemed to be "soliciting material",filed or to be "filed" with the SEC or subject to
the SEC's Regulation 14A,incorporated by reference into any other than as provided in that Item, or to the
liabilities of Section 18 ofCompany filing under the Securities Exchange Act of 1934,1933, as amended, except to the extent that the Company specifically requests thatincorporates the information
be treated as soliciting material or specifically incorporates itCompensation Committee Report therein 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: Ramon D. Phillips, Chairman
Butler E. Powell
reference.
Compensation Committee Interlocks and Insider Participation
None.
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 Audit 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 audit and other services provided by PricewaterhouseCoopers LLP in fiscal 2003 and
2004 and BDO Seidman, LLP in fiscal 2004.
PRICEWATERHOUSECOOPERS BDO SEIDMAN
2003 2004 2004
- --------------------------------------------------------------------------------
2006 and 2007.
BDO Seidman | ||
| 2006 | 2007 | |
| Audit Fees | $175,194 | $175,434 |
| Audit-Related Fees | 15,149 | 25,000 |
| Tax Fees | 7,950 | -- |
| All Other Fees | -- | $17,833 |
| Total | $198,293 | $218,267 |
Audit Fees $ 129,540 -- $ 74,718
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 $ 78,718
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'sCompany’s annual financial statements for the fiscal years ended June 29, 200325, 2006 and June 27, 2004,24, 2007, respectively, and the reviews of the financial statements included in the Company'sCompany’s Forms 10-Q for those years.
Audit-Related Fees.Fees. These fees consist of assurance and related services that are reasonably related to the performance of the audit or review of the Company'sCompany’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'sCompany’s benefits plans, review of the Company’s 2007 Uniform Franchise Offering Circular and providing consent to include audited financial statements, and accounting consultations regarding the application of generally accepted accounting principles to proposed transactions.
Tax Fees.Fees. These fees consist of 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 feesamounts billed by BDO Seidman, LLP for tax services, including preparation and review of the Company’s federal and state income tax returns, during fiscal 2004.
years 2006 and 2007.
All Other Fees. Fees paid to PricewaterhouseCoopers LLP and. These fees consist of amounts billed by 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 review by PricewaterhouseCoopers, LLP of the
Company's franchise offering circular. Fees paid to PricewaterhouseCoopers LLP
in fiscal 2004 also include serviceswork related to the transferdistribution outsourcing and sale leaseback transaction in the second quarter of audit-related
materials from PricewaterhouseCoopers LLP to BDO Seidman LLP.
fiscal 2007.
In considering and authorizing these payments to the independent auditors for services unrelated to performance of the audit of the Company'sCompany’s financial statements, the Audit Committee has determined that the cost segregation analysisall such 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'sauditor’s performance of the audit and financial statement review functions and are compatible with maintaining the independent auditor'sauditor’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
In fiscal 2007, 100% of all audit services and non-audit services performed by BDO Seidman, LLP were pre-authorized by the Audit Committee.
AUDIT COMMITTEE REPORT
The following table sets forthAudit Committee of the Board is responsible for providing independent, objective oversight of the Company’s accounting functions and internal controls. The Audit Committee is currently composed of two independent directors and acts under a written charter approved and adopted by the Board on April 15, 2003. The Audit Committee reviews its Charter on an annual basis. Each of the members is independent as defined by NASDAQ’s listing standards and as required by the Sarbanes-Oxley Act. After a full review and analysis, the Board positively reaffirmed that each member is independent within the meaning of Rule 4200(a)(15) of the listing standards of the NASDAQ and the rules and regulations of the 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 Audit Committee members.
The Board has made an affirmative determination that nominee W.C. Hammett, Jr., if elected, will satisfy SEC Rule 10A-3(b)(1), and thus may serve as a member of the Audit Committee. As a result, effective as of the date of the annual compensationmeeting of shareholders, the Company believes that it will be in compliance with the audit committee composition requirements under NASDAQ Marketplace Rule 4350(d)(2)(A) and NASDAQ Marketplace Rule 4200(a)(15) and Rule 10A-3(b)(1) of the Chief
Executive OfficerExchange Act.
The Board of Directors has determined that at least one member of the Audit Committee, Mr. Phillips, is an “audit committee financial expert,” as defined by SEC rules and 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 four most highly compensated executive officersmember of the CompanyAudit Committee or the Board. For an overview of Mr. Phillips’ relevant experience, see the section entitled “Continuing Directors” above.
The Audit Committee reviewed and discussed the Company’s audited financial statements with management. It also discussed with BDO Seidman, LLP the matters required to be discussed by Statement on Auditing Standards No. 61, “Communications with Audit Committees”, as amended by Statement on Auditing Standards No. 90. 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 Discussions with Audit Committees,” and the Committee discussed with BDO 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. 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 to generally accepted accounting principles.
Based on the discussions with BDO 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 audited financial statements be included in the Company’s 2007 Annual Report on Form 10-K for the fiscal yearsyear ended June 27, 2004, June 29, 2003, and June
30, 2002 (designated as years 2004, 2003, and 2002, respectively).
(a) Mr. Parker was President and Chief Executive Officer24, 2007, for filing with the SEC.
In accordance with the rules of the Company
until December 13, 2004.SEC, the foregoing information, which is required by paragraphs (a) and (b) Includes for Mr. Parker, a payment of $150,000 for life and disability
insurance benefits, secondary medical benefits and supplemental retirement
benefits (which includesRegulation S-K Item 306, shall not be deemed to be “soliciting material”, or to be “filed” with the paymentSEC or subject to the SEC’s Regulation 14A, other than as provided in that Item, or to the liabilities of related taxes) in 2004, and payments of
$165,266 for such benefits in 2003 and 2002.
(c) Mr. Clark was Senior Vice President, Secretary and General CounselSection 18 of the Exchange Act, except to the extent that the Company until July 7, 2004.
(d) Includes compensation for Mr. Meisenheimer from his employment datespecifically requests that the information be treated as soliciting material or specifically incorporates it by reference into a document filed under the Securities Act of December 31, 2002.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR1933, as amended, or the Exchange Act.
Submitted to the Board by the undersigned members of the Audit Committee.
Audit Committee
Ramon D. Phillips, Chairman
Robert B. Page
James K. Zielke
The Audit Committee Report does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any other Company filing under the Securities Act of 1933, as amended, except to the extent that the Company specifically incorporates the Audit Committee Report therein by reference.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND FISCAL YEAR-END OPTION VALUES
EXECUTIVE OFFICERS
The following table sets forth information, regarding stock options
exercised during fiscal year 2004 and unexercised stock options held at the end
of fiscal year 2004 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 $---2.82 on June 25, 2004,
the last trading day of the Company's fiscal year.
0 (u)
0
(e) Denotes exercisable options.
(u) Denotes unexercisable options.
(a) Mr. Parker was President and Chief Executive Officer of the Company until
December 13, 2004.
(b) Mr. Clark was Senior Vice President, Secretary and General Counsel of the
Company until July 7, 2004.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options granted
during fiscal year 2004, pursuant to the Company's 1993 Stock Award Plan, to the
Chief Executive Officer and the other four most highly compensated executive
officers of the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has been historically
comprised of three independent, non-employee directors. On January 4, 2004,
Robert B. Page submitted his resignation as a member effective as of November 5, 2007, concerning beneficial ownership by:
| § | Holders of more than 5% of the Company’s Common Stock; |
| § | Company directors and each of the Named Executive Officers set forth in the Summary Compensation Table set forth below; and |
| § | Company directors and executive officers as a group (seven directors and four executive officers). |
The information provided in connectionthe table is based upon the Company’s records, information filed with his appointment as the Company's Acting Chief Executive Officer,
leaving the Compensation Committee currently comprised of two members. The
Compensation Committee is responsible for establishing the level of compensation
of the executive officers of the Company and will be responsible for
administering the 2005 Non-Employee Director Stock Option Award Plan and the
2005 Employee Stock Award Plan if approved by the shareholders.
The Compensation Committee and the Board have adopted a charter to conform
to the Compensation Committee's responsibilities under the revised Nasdaq
standards, new rules adopted by the SEC and the provisions of the Sarbanes-Oxley
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.
Tax Deductibility under Section 162(m)
As noted, the Company's compensation policy is primarily based upon the
practice of pay-for-performance. Section 162(m) of the Internal Revenue Code
imposes a limitation on the deductibility of nonperformance-based compensation
in excess of $1 million paid to the Chief Executive Officer and the other most
highly compensated executive officers of the Company. The Compensation
Committee currently believes that the Company should be able to continue to
manage its executive compensation program for these officers so as to preserve
the related federal income tax deductions.
CHIEF EXECUTIVE OFFICER
The compensation of Ronald W. Parker as Chief Executive Officer of the
Company was based on his employment agreement, which was entered into on
December 16, 2002. Mr. Parker's employment with the Company was terminated for
cause on December 13, 2004.
Mr. Parker's employment agreement had been approved by the then members of
the Board of Directors of the Company and the Compensation Committee as
constituted on December 16, 2002. The employment agreement provided for a term
through December 31, 2007. Under his employment agreement, Mr. Parker's
compensation was to be determined by the Compensation Committee, the Board or
the Stock Award Plan Committee (whose function has been assumed by the
Compensation Committee), based on the recommendations of the Compensation
Committee. The Compensation Committee's recommendations with respect to Mr.
Parker's compensation, however, were subject to other provisions in his
employment agreement, including the provisions that provided that Mr. Parker's
total annual compensation could 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 was entitled to receive under his employment agreement certain
defined benefits, which, in fiscal 2004, totaled approximately $176,084. The
bonus program established in Mr. Parker's employment agreement was based on the
Company's performance in the areas of revenue growth, net income, new store
openings, store sales, Company stock price, store closings and Company expenses,
subject to payment of the minimum bonus described above.
The Compensation Committee that was comprised of Messrs. Pully (Chairman),
Page and Phillips reviewed the compensation of Mr. Parker and 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 that the total amount of Mr. Parker's
compensation was well in excess of the compensation of chief executive officers
at comparable companies and also excessive based upon the Company's performance
for the last completed fiscal year. The Compensation Committee also believes
that the compensation of the Chief Executive Officer, as well as other officers
and employees of the Company, should be more directly tied to individual
performance and the performance of the Company.
The Executive Committee and the Compensation Committee authorized payment
to Mr. Page of an annualized salary of $250,000 for his services as Acting Chief
Executive Officer. Mr. Page was the Acting Chief Executive Officer from January
4, 2005 through March 31, 2005. Mr. Page did not have an employment contract.
In establishing Mr. Page's compensation, the Compensation Committee and
Executive Committee considered Mr. Page's qualifications and experience,
compensation of chief executives at similar companies in the quick serve and
casual dining restaurant segments and the nature and complexity of the issues to
be encountered by Mr. Page during his term as Acting Chief Executive Officer.
Mr. Page was not paid a bonus.
On March 31, 2005, the Company and Timothy P. Taft entered into an
Executive Compensation Agreement approved by the Executive Committee and the
Compensation Committee. The agreement provides for a term through March 31,
2007, with a salary in the first 12 months of $1.00. Mr. Taft's bonuses,
benefits and salary in the second 12 months of the agreement are established by
the Compensation Committee or the Board, subject to certain minimum amounts.
Mr. Taft was also granted 500,000 options to acquire shares of Common Stock.
See "Executive Employment Contracts" below for more detail.
In structuring Mr. Taft's employment agreement, the Compensation Committee
and Executive Committee sought to offer a competitive and fair compensation
package tied to Mr. Taft's experience and qualifications while also aligning his
interests with those of the Company's shareholders. A significant portion of
Mr. Taft's compensation is materially and directly linked to Company performance
as a result of the granting of options to him. The options vest in increments
from 2005 through 2008. The Compensation Committee believes that Mr. Taft's
salary in the second 12 months, bonus amounts and benefits are comparable to
those offered to chief executive officers at similar companies in the quick
serve and casual dining restaurant segments.
OTHER EXECUTIVE OFFICERS
Subject to existing employment agreements, salaries of the other executive
officers are reviewed annually and adjusted based on competitive practices,
changes in level of responsibilities and individual performance measured against
goals.
STOCK OPTIONS
The Company established the 1993 Employee Stock Award Plan ("Employee
Option Plan") for the purpose of aligning employee and shareholder interests.
Under the Employee Option Plan, stock options were 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 years 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.
On March 31, 2005, the Company and Mr. Taft entered into a Non-Qualified
Stock Option Award Agreement as a part of Mr. Taft's employment agreement,
pursuant to which Mr. Taft was awarded options for 500,000 shares of Common
Stock at an exercise price of $2.50 per share.
The Board expects to grant additional stock option awards to eligible
employees beginning in calendar year 2005 if the shareholders approve Proposal
Three "Adoption of an Employee Stock Option Award Plan."
Submitted by the Compensation Committee: Steven J. Pully, Chairman
Ramon D. Phillips
EXECUTIVE EMPLOYMENT CONTRACTS
Ronald W. Parker, Ward T. Olgreen and Shawn M. Preator each entered into an
employment agreement with the Company on December 16, 2002. The agreements
provided for terms extending through December 31, 2007 for Mr. Parker and
December 31, 2005 for Mr. Olgreen and Mr. Preator, and provided that the
respective executive's compensation be determined each year by the Compensation
Committee subject to certain minimum amounts. The agreements also provided that
each executive may be terminated with or without cause.
Mr. Parker's agreement provided that his compensation would be determined
each year by the Compensation Committee, the Board or the Stock Award Plan
Committee, provided that he would receive an annual salary of not less than his
then current salary of $550,000 and a bonus of not less than $275,000, based
upon certain criteria defined in the agreement. The agreement also provided that
Mr. Parker could terminate the agreement within 12 months of a "change of
control" of the Company, as defined in the agreement, and that he could be
terminated with or without cause. Mr. Parker's employment was terminated for
cause by the Board on December 13, 2004.
On April 22, 2005, Mr. Preator and Mr. Olgreen each entered into an
Executive Compensation Agreement with the Company, replacing the employment
agreements executed on December 16, 2002. The agreements executed on April 22,
2005 each provided for a term through December 31, 2005. Mr. Preator's
agreement provides for salary of not less than his current salary of $150,000
and a bonus of not less than $30,000. Mr. Olgreen's agreement provides for
salary of not less than his current salary of $168,000 and a bonus of not less
than $33,600. Under the agreements each executive may be terminated with or
without cause and each executive may terminate his employment for any reason or
no reason at all.
Under the agreements executed on April 22, 2005, if the Company terminates
Mr. Olgreen's or Mr. Preator's employment without cause, he will be entitled to
a lump sum payment equal to six months of the executive's then current annual
salary plus a lump sum payment equal to any unpaid bonus the respective
executive would have been entitled to receive had he worked through December 31,
2005. Upon such a termination each would receive for a period of six months
following the date of termination of employment, all of the medical, life
insurance and other benefits then currentlyinformation provided to the respective
executive,Company, except where otherwise noted.
The number of shares beneficially owned by each entity or individual is determined under SEC rules, and a lump sum paymentthe information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the value ofentity or individual has sole or shared voting or investment power and also any accrued vacation days and
any unpaid "extra days" as defined in the Company's employee policy manual,shares that the executive would have been entitled to receive ifentity or individual has the executive had worked
through December 31, 2005. If the Company terminates Mr. Olgreen or Mr. Preator
for cause the Company shall pay the respective executive salary plus accrued
bonus, accrued vacation days and any unpaid "extra days" due to the executive
through the date of termination. If Mr. Preator or Mr. Olgreen terminates his
employment with or without any reason through December 31, 2005, the Company
will pay to the executive a lump sum payment equal to six months of the
executive's then current annual salary plus a lump sum payment equal to any
unpaid bonus the executive would have been entitled to receive had he worked
through December 31, 2005. Upon such a termination each would also receive a
lump sum payment of the value of any accrued vacation days and any unpaid "extra
days" as defined in the Company's employee policy manual, that the executive
would have been entitled to receive if the executive had worked through December
31, 2005.
Timothy P. Taft entered into an employment agreement with the Company on
March 31, 2005. The agreement is for a term that currently extends through
March 31, 2007, and provides for a salary in the first 12 months of $1.00.
Salary in the second 12 months is determined by the Board, subject to a minimum
amount of $300,000, and bonuses are determined by the Board, subject in the
second 12 months to a minimum amount of $200,000. The agreement also provides
for a grant of 500,000 non-qualified stock options, with 50,000 of such options
vesting immediately and the remainder vesting over three years. Mr. Taft may be
terminated with or without cause, with the definition of cause including, but
not limited to, breach of a monetary obligation to the Company, violation of the
compensation agreement, fraud against the Company and failure to substantially
perform required duties, each as described in the agreement.
If the Company terminates Mr. Taft's employment for cause, or if Mr. Taft
terminates his employment voluntarily, he will be entitled to a payment in the
amount of any unpaid salary accrued through the date of termination, any
unreimbursed expenses properly incurred prior to the date of termination and
rights granted to him under any executive benefit plan. If the Company
terminates Mr. Taft's employment without cause, he will be entitled to payment
of the amounts described above, and, either (a) during the first 12 months of
the agreement an amount equal to $25,000 for each full month he has been
employed or (b) commencing on the first anniversary of his employment, an amount
equal to 12 months of his then base salary. If the Company terminates Mr.
Taft's employment within six months of a change of control he will be entitled
to receive payment of all amounts payable under the agreement for termination or
resignation with or without cause, plus all then unvested stock options will
become immediately exercisable and remain exercisable for 90 days following the
date of termination of employment. Mr. Taft may terminate his agreement at any
time within six months after a "change of control" of the Company occurs or
following a change of control for "good reason", as those terms are defined in
the agreement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 6, 1999, the Company loaned Ronald W. Parker, the Company's then
President and Chief Operating Officer, approximately $560,000right to acquire 200,000
sharesas of Common StockJanuary 4, 2008 (60 days after November 5, 2007) through the exercise of vestedany stock options previously
grantedoption or other right. Unless otherwise indicated, each person has sole voting and investment power (or shares such powers with his or her spouse) with respect 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 Common Stock
through the exercise of vested stock options previously granted to him by the
Company. The interest rate on the loans was the same floating interest rate the
Company was paying 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 Common Stock and certain real property, and (ii) a second
lien on certain additional real property. After the July 7, 2000 loan, the
principal amount outstanding was approximately $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 set forth in the following table.
Name of Beneficial Owner | Shares Beneficially Owned | Percent of Class |
Beneficial owners of more than 5% | ||
Newcastle Partners, L.P.(a) Newcastle Capital Management, L.P. Newcastle Capital Group, L.L.C. 300 Crescent Court, Ste. 1110 Dallas, TX 75201 | 4,760,550 | 47.0% |
Hoak Public Equities, L.P.(b) Hoak Fund Management, L.P. 500 Crescent Court, Ste. 220 Dallas, TX 75201 | 525,000 | 5.2% |
Current directors and named executive officers | ||
Mark E. Schwarz (a)(c) Robert B. Page Steve Johnson Ramon D. Phillips (e) Steven J. Pully (a)(c) Jim Zeilke Clinton Coleman Ward T. Olgreen (c) Darrell G. Smith Danny K. Meisenheimer Charles R. Morrison | 4,805,550 -- 10,000 11,590 26,787 10,000 -- 48,506 7,500 7,228 9,000 | 47.4 % -- * * * * -- * * * * |
New nominee directors | ||
W.C. Hammett, Jr. | -- | -- |
All directors, nominees and executive officers as a group | 4,936,161 | 48.7% |
* Represents holdings 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 11 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 2004,
purchases by these franchisees made up 4.4% of the Company's food and supply
sales. Royalty payments by Mr. Clairday and 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 6.3% of the Company's franchise revenues.
As of October 1, 2004 Advance Food Services, Inc. and Clairday Food
Services, Inc. collectively owed the Company approximately $946,329, primarily
for royalties and purchases of products from the Company's distribution division
("Clairday Debt"). Of the total amount of the Clairday Debt outstanding on that
date, approximately $556,434 represents normal and customary 30-day purchase and
payment cycles for these franchisees. 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 carries the Advance Foods Debt on its books
as past due trade receivables, with no interest accrual. Mr. Clairday has made
limited payments toward reduction of the Advance Foods Debt, and the Company
has on occasion 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 $5,232 in June 2000, and
the 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
June 27, 2004, the amount of the Advance Foods Debt was $335,318. As of the
date of this proxy statement, the Company is withholding Board fees otherwise
due to Mr. Clairday and offsetting those amounts against the Advance Foods Debt,
and the Company is actively pursuing with Mr. Clairday alternative methods to
pay the Company in full.
less than one percent.
| (a) | 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. Schwarz is the managing member of Newcastle Capital Group, L.L.C. Accordingly, each of Newcastle Capital Management, L.P., Newcastle Capital Group, L.L.C. and Mr. 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 Capital Group, L.L.C., Mr. Schwarz and Mr. Pully are members of a Section 13d reporting group and may be deemed to beneficially own shares of Common Stock owned by the other members of the group. Newcastle Partners, L.P., Mr. Schwarz and Mr. Pully also directly own shares of Common Stock. Mr. Pully disclaims beneficial ownership of the shares of Common Stock beneficially owned by Newcastle Partners, L.P. Mr. Schwarz directly owns 15,000 shares of Common Stock, including options to acquire 30,000 shares of Common Stock. |
| (b) | Hoak Fund Management, L.P. is the general partner of Hoak Public Equities, L.P., James M. Hoak & Co. is the general partner of Hoak Fund Management, L.P., and J. Hale Hoak is the President of James M. Hoak & Co. Accordingly, each of Hoak Fund Management, L.P., Hoak Public Equities, L.P, James M. Hoak & Co., and Mr. Hoak may be deemed to own the shares of Common Stock beneficially owned by Hoak Public Equities, L.P. Dorothy Tyson Hoak, the spouse of J. Hale Hoak, beneficially owns 5,000 shares of Common Stock as to which beneficial ownership is disclaimed by Hoak Public Equities, L.P. |
| (c) | Includes vested options and options vesting as of January 4, 2008 (60 days after November 5, 2007) under the Company’s stock option plans, as follows: 30,000 shares for Mr. Schwarz, and 17,858 shares for Mr. Pully |
| (d) | Mr. Phillips shares voting and investment power for 5,333 shares with the other shareholders of Wholesale Software International, Inc. |
SECTION 16(A)16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 ("Act") requires the Company'sCompany’s executive officers and directors and the persons who own more than ten percent of the 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'sCompany’s executive officers, directors and holders of more than 10% of Common Stock timely filed all reports required by Section 16(a) of the Act, except as previously disclosednoted. In making these statements, the Company has relied upon examination of its records, copies of Forms 3, 4 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 the 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 the 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 OPTION AWARD PLAN
There will be presented5, and amendments thereto, provided to the meeting a proposal to adopt the 2005
Non-Employee Directors Stock Option Award Plan (the "Directors Plan"). The
Directors 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 the representations of its directors, executive officers and 10% shareholders. The Board
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Company Policies. It is our policy that all employees must avoid any activity that is or has approved the Directors Plan and directedappearance of being hostile, adverse or competitive with the Company, or that it be submittedinterferes with the proper performance of their duties, responsibilities or loyalty to the shareholders for approval.Company. These policies are included in our Code of Business Conduct described above. The proposalCode of Business Conduct can be viewed at the Company’s website at http://www.pizzainn.com. Each director and executive officer is instructed to approvealways inform the Directors Plan requires
the approval of holders of a majority of the shares present in person or
represented by proxy and entitled to vote.
Description of the Proposed Directors Plan
Administration. The Directors Plan is administered by the Compensation
Committee, which is comprised of two directors who are not employed by the
Company and who satisfy the "independence" requirements under rules issued by
Nasdaq.
Eligibility. All non-employee directors of the Company ("Non-Employee
Directors") are eligible to participate in the Directors Plan. A Non-Employee
Director is a member of the Company's Board of Directors who is not an employee
of the Company.
Shares Subject to the Directors Plan. The total number of shares of Common
Stockwhen confronted with any situation that may be issued to Non-Employee Directors underperceived as a conflict of interest, even if the Directors Plan
shallperson does not exceed 500,000, subject to adjustment as providedbelieve that the situation would violate the Company’s guidelines. If in the Directors
Plan. Awards granted under the Directors Plana particular circumstance it is concluded that expirethere is or terminate without
being exercised may be regranted.
Awards and Limitations. Undera perceived conflict of interest, the Directors Plan, unless and untilBoard will instruct the Compensation Committee determines otherwise and in additionCompany’s legal department to any other award
that may be grantedwork with the relevant departments within the Company to the Non-Employee Directors, an option to acquire two
sharesdetermine if there is a conflict of Common Stock shall be granted to each Non-Employee Director on the
first dayinterest. Any waivers of each fiscal year for each share of Common Stock purchased by such
Non-Employee Director during each preceding fiscal year,these conflict rules with upregard to a maximum
award of 40,000 options.
Exercise Price. The exercise price for any option granted underdirector or executive officer require the Directors 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 Directors 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 $2.75 on April 1, 2005.
Terms of Option Awards. For all awards under the Directors Plan, the
minimum vesting period is six months after grant and the maximum exercise period
is ten years after grant. 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 Compensation Committee.
Term of the Directors Plan. The Directors Plan terminates ten years from
the date ofprior approval by the Company's shareholders, 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 Directors
Plan may not be transferred other than as provided in the Directors 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 (other
than any unvested award that the participant would have been able to exercise
within the following 12 months if no termination of service had occurred) is
immediately forfeited and any outstanding unvested award that the participant
would have been able to exercise within the following 12 months if no
termination of service had occurred and any outstanding unexercised vested award
may be exercised by the participant's heirs, estate or guardian within 12 months
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;
however, the Compensation Committee may allow 30 days within which to exercise
vested options. In the event of a "change of control" of the Company, as
defined in the Directors Plan, all outstanding option awards will become
immediately vested and exercisable.
Plan Amendment and Modification. The Board may amend or terminate the
Directors Plan, subject to certain restrictions in the Directors Plan. For
example, shareholder approval is required for any amendment that would increase
the total number of shares as to which awards may be granted under the Directors
Plan or modify the class of persons eligible to receive awards or otherwise
require shareholder approval under applicable law or regulation. In addition,
neither the Board nor the Compensation Committee may amend the Directors Plan
regarding the amount, pricing and timing of awards other than to comply with
changes in the Internal Revenue Code, the Employment Retirement Income Security
Act of 1974, or the Audit Committee.
NASDAQ Rules. Conflict of interest situations are also governed by the NASDAQ rules thereunder. Modification, or amendmentdefining “independent” director status. Each of the
Directors Plan may not, without the consent of a participant, affect his or her
rights under a previously granted award. The Directors 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. The only awards
that may be granted under the Directors Plan are nonqualified options. The
following is a brief summary of certain federal income tax consequences relating
to the transactions described under the Directors Plan as set forth below. This
summary does not purport to address all aspects of federal income taxation and
does not describe state, local or foreign tax consequences. This discussion is
based upon provisions of the Internal Revenue Code of 1986, as amended (the
"Code") and the treasury regulations issued thereunder (the "Treasury
Regulations"), and judicial and administrative interpretations under the Code
and Treasury Regulations, all as in effect as of the date hereof, and all of
which are subject to change (possibly on a retroactive basis) or different
interpretation.
Nonqualified Stock Options. Nonqualified stock option awards granted under
the Directors Plan do notour directors 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.
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 short-term or long-term capital gain or loss,
depending on how long the participant has held the Common Stock.
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, 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, among other things, the income meets the
test of reasonableness, is an ordinary and necessary business expense, is not an
"excess parachute payment" within the meaning of Section 280G of the Code and is
not disallowed by the $1 million limitation on certain executive compensation
under Section 162(m) of the Code.
Withholding. Any ordinary income realized by the participant upon the
exercise of a nonqualified option award is subject to withholding of federal,
state and local income tax and to withholding of the Participant's share of tax
under the Federal Insurance Contribution Act ("FICA") and the Federal
Unemployment Tax Act ("FUTA").
To satisfy federal, state and local income tax withholding requirements,
the Company will require that the participant remit to the Company an amount
sufficient to satisfy the withholding requirements.
Withholding does not represent an increase in the participant's total
income tax obligation, since it is fully credited toward his or her tax
liability for the year. Additionally, withholding does not affect the
participant's basis in any Common Stock. Compensation income realized and tax
withheld will be reflected on Forms W-2 supplied by the Company to employees by
January 31 of the succeeding year.
New Plan Benefits. The following table sets forth information, as of
April 1, 2005, 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 Directors Plan, to the extent such benefits or amounts are
determinable as of April 1, 2005:
NAME AND POSITION NUMBER OF UNITS(1) DOLLAR VALUE(4)
- ------------------- ----------------- -------------
Mark E. Schwarz, Director 25,000(2) 0
Steven J. Pully, Director 17,858(3) 0
(1) The awards under the Directors 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 at an exercise price of
$2.85 per share under the terms of the 2005 Directors Plan as a result of Mr.
Schwarz's purchase of 12,500 shares of Common Stock in the open market in the
fiscal year ended June 27, 2004. The option will vest on November 3, 2005 and
will expire on November 3, 2010. The fair market value of the Common Stock was
$2.75 on April 1, 2005.
(3) On November 3, 2004, the Compensation Committee awarded Steven J. Pully
an option to purchase 17,858 shares of Common Stock at an exercise price of
$2.85 under the terms of the 2005 Directors Plan as a result of Mr. Pully's
purchase of 8,929 shares of Common Stock in the open market in the fiscal year
ended June 27, 2004. The option will vest on November 3, 2005 and will expire
on November 3, 2010. The fair market value of the Common Stock was $2.75 on
April 1, 2005.
(4) For purposes of determining values for this proxy statement for the
proposed option grants, the dollar value is calculated as of April 1, 2005, a
date selected only as being a recent reasonably practicable date. The dollar
values shown reflect the differences between the value of the options at the
exercise price of $2.85 and the $2.75 market value of the options at the closing
price for the Common Stock on April 1, 2005.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS APPROVE THE DIRECTORS
PLAN.
PROPOSAL THREE:
APPROVAL OF AN EMPLOYEE STOCK OPTION AWARD PLAN
There will be presented to the meeting a proposal to adopt the 2005
Employee Stock Option 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 that an equity-based incentive plan can be
an integral component of an attractive compensation program that will attract,
retain and reward qualified employees to the benefit of the Company and its
shareholders. The Board has approved the Employee Plan and directed that it be
submitted to the shareholders for approval. The proposal to approve the
Employee Plan requires the approval of holders of a majority of the shares
present in person or represented by proxy and entitled to vote.
Description of the Proposed Employee Plan
Administration. The Employee Plan is administered by the Compensation
Committee, which is comprised of two 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 Nasdaq.
Eligibility. All full-time employees of the Company or any subsidiary or
affiliate of the Company who are not on probationary status ("Employees" or
"Participants") are eligible to participate in the Employee Plan. As of May 1,
2005, there were approximately 150 individuals eligible to participate in the
Employee Plan.
Shares Subject to the Employee Plan. The total number of shares of Common
Stock that may be issued or transferred to Employees under the Employee Plan
shall not exceed 1,000,000, subject to adjustment as provided in the Employee
Plan. Awards granted under the Employee Plan that expire or terminate without
being exercised may be regranted.
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 $2.75 on April 1, 2005.
Terms of Option Awards. For all awards under the Employee Plan, the
minimum vesting period and the maximum exercise period will be determined for
each option grant by the Compensation Committee. 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 Compensation Committee.
Term of the Employee Plan. The Employee Plan terminates ten years from the
date of approval by the Company's shareholders 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 unvested
award (other than any unvested award that the participant would have been able
to exercise within the following 12 months if no termination of service had
occurred) is immediately forfeited and any unvested award that the participant
would have been able to exercise within the following 12 months if no
termination of service had occurred and any outstanding unexercised vested award
may be exercised by the participant's heirs, estate or guardian within 12 months
following the participant'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, all unvested and all
exercised vested option awards terminate, but under certain circumstances the
Employee may 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 Board may amend or terminate the
Employee Plan, subject to certain restrictions in the Employee Plan. For
example, shareholder approval is required for any amendment that would: (i)
increase the total number of shares as to which awards may be granted under the
Employee Plan, (ii) modify the class of persons eligible to receive awards, or
(iii) otherwise require shareholder approval under applicable law or regulation.
In addition, neither the Board nor the Committee may amend the Employee Plan
regarding the amount, pricing and timing of awards other than to comply with
changes in the Internal Revenue Code, the Employment Retirement Income Security
Act of 1974, or the rules thereunder. Modification, or amendment of the Employee
Plan may not, without the consent of a participant, affect his or her rights
under a previously granted award. 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. Option awards
under the Employee Plan are treated as incentive options ("ISO") or nonqualified
options. The following is a brief summary of certain federal income tax
consequences relating to the transactions described under the Employee Plan as
set forth below. This summary does not purport to address all aspects of
federal income taxation and does not describe state, local or foreign tax
consequences. This discussion is based upon provisions of the Code and the
Treasury Regulations, and judicial and administrative interpretations under the
Code and Treasury Regulations, all as in effect as of the date hereof, and all
of which are subject to change (possibly on a retroactive basis) or different
interpretation.
Incentive Stock Options. The grant of an ISO does not result in
recognizable income for the grantee. The exercise of an ISO would not result in
recognizable income for the grantee if the grantee (i) does not dispose of the
Common Stock within two (2) years after the date of grant or one (1) year after
the transfer of Common Stock upon exercise (the "holding periods"), 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 Common Stock upon later disposition would be the option price. Any gain
will be taxed to the Participant as long-term capital gain. However, to the
extent that the fair market value (determined as of the date of grant) of the
Common Stock with respect to which the Participant's ISOs are exercisable for
the first time during any year exceeds $100,000, the ISOs for the Common Stock
over $100,000 will be treated as nonqualified options, and not ISOs, for federal
tax purposes, and the Participant will recognize income as if the ISOs were
nonqualified options.
The excess of the market value on the exercise date over the option price
may be deemed as a tax preference for purposes of the alternative minimum tax,
which may produce significant tax repercussions depending upon the Participant's
particular tax status.
If the Participant disposes of the Common Stock prior to the expiration of
either of the holding periods, and the amount received for the Common Stock is
greater than the fair market value of the Common Stock on the exercise date,
then the difference between the ISO's exercise price and the fair market value
of the Common Stock at the time of exercise will be treated as ordinary income
for the tax year in which the disposition occurs. The Participant's basis in
the Common Stock will be increased by an amount equal to the amount treated as
ordinary income as a result of the disposition. Any gain in excess of the
increased basis in the Common Stock would be taxable as long-term or short-term
capital gain. However, if the price received for Common Stock acquired by
exercise of an ISO is less than the fair market value of the Common Stock on the
exercise date and the disposition is a transaction in which the Participant
sustains a loss which otherwise would be recognizable under the Code, then the
amount of ordinary income that the Participant will recognize is the excess, if
any, of the amount realized on the disposition of the Common Stock over the
basis of the Common Stock.
In general, there will be no federal income tax deduction allowed to the
Company upon the grant of an ISO, and the Company will be entitled to a
deduction to the extent a Participant recognizes ordinary income in the
circumstances described above, provided that, among other things, the income
meets the test of reasonableness, is an ordinary and necessary business expense,
is not an "excess parachute payment" within the meaning of Section 280G of the
Code and is not disallowed by the $1 million limitation on certain executive
compensation under Section 162(m) of the Code.
Nonqualified Stock Options. Nonqualified stock option awards granted under
the Employee 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.
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 short-term or long-term capital gain or loss,
depending on how long the Participant has held the Common Stock.
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, 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, among other things, the income meets the
test of reasonableness, is an ordinary and necessary business expense, is not an
"excess parachute payment" within the meaning of Section 280G of the Code and is
not disallowed by the $1 million limitation on certain executive compensation
under Section 162(m) of the Code.
Withholding. Any ordinary income realized by the Participant upon the
exercise of an ISO or nonqualified option award is subject to withholding of
federal, state and local income tax and to withholding of the Participant's
share of tax under FICA and FUTA.
To satisfy federal, state and local income tax withholding requirements,
the Company will require that the Participant remit to the Company an amount
sufficient to satisfy the withholding requirements.
Withholding does not represent an increase in the Participant's total
income tax obligation, since it is fully credited toward his or her tax
liability for the year. Additionally, withholding does not affect the
Participant's basis in any Common Stock. Compensation income realized and tax
withheld will be reflected on Forms W-2 supplied by the Company to employees by
January 31 of the succeeding year.
Special Withholding Rules for Incentive Options Exercised During the
Holding Period. According to Internal Revenue Service ("IRS") Notice 2002-47,
2002-28 I.R.B. 97, the IRS' current position is that it will not (1) assess FICA
or FUTA taxes upon the exercise of an ISO or the disposition of stock acquired
by an employee pursuant to the exercise of an ISO, and (2) will not treat the
exercise of an ISO, or the disposition of stock acquired by an employee pursuant
to the exercise of an ISO, as subject to federal income tax withholding.
However, to the extent that a Participant recognizes ordinary income due to the
sale of Common Stock acquired by the exercise of an ISO, the Participant still
must include compensation in income relating to the disposition of Common Stock
acquired by the exercise of an ISO. In addition, we must report on Form W-2 any
payment to an employee (or former employee) that is at least $600 in a calendar
year, even if the payment is not subject to federal income tax withholding.
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.
Background. Classified boards of directors have been widely adopted by
companies and have a long history in corporate law. Proponents of classified
boards assert that they promote the independence of directors in that directors
elected for multi-year terms are less subject to outside influence. Proponents
of classified boards also believe that they provide continuity and stability in
the management of the business and affairs of a company since a majority of the
directors will have prior experience as directors of the company. Proponents
further assert that classified boards may enhance stockholder value by
motivating an entity seeking control of a target company with a classified board
to initiate arms-length discussions with the board of the target company because
the entity would be unable to replace the entire board in a single election.
Some investors have, however, come to view classified boards as having the
effect of insulating directors from accountability to a company's shareholders.
A classified board, for example, limits the ability of stockholders to elect all
directors on an annual basis and thereby exercise influence over a company, and
may discourage proxy contests in which shareholders have an opportunity to vote
for a competing slate of director nominees. The election of directors is the
primary means for shareholders to influence the business and affairs of a
company and to hold directors accountable for implementation of policies.
Management and the Board of Directors agree that one class of directors to
be annually 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 Directors Plan as
non-employee directors may be eligible to participate in the Directors Plan and
may receive benefits and awards under the Directors Plan. Certain non-employee
directors have already received awards under the Directors Plan that are subject
to shareholder approval of the Directors Plan. These awards are described in
this Proxy Statement under the caption "New Plan Benefits" in Proposal Two. Our
employees, including our employee directors, our executive officers and their
associates, may have a substantial interest in, and may benefit from, the
Employee Plan as such persons may be eligible to participate in the Employee
Plan and may receive benefits and awards under the Employee Plan.
The Board of Directors, in approving the Directors Plan and the Employee
Plan, may have different and/or conflicting interests than or with the
shareholders of the Company. In addition, the Board of Directors, management and
employees of the Company, and 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, including interests arising from
ownership of securities of the Company under the Directors Plan or the Employee
Plan that are not shared on a pro rata basis by all shareholders of the Company.
SHAREHOLDER PROPOSALS
FOR THE 2005 ANNUAL MEETING
If a shareholder wishes to present a proposal at the Annual Meeting of
Shareholders tentatively scheduled for December 14, 2005, the shareholder must
deliver his or her proposal to the Company at its principal executive offices a
reasonable time before the Company begins to print and mail its proxy materials
for such Annual Meeting in order to have that proposal included in the proxy
materials of the Company for such Annual Meeting of Shareholders. If a
shareholder wishes to present a proposal at the 2005 Annual Meeting of
Shareholders outside the processes of Rule 14a-8 of the Securities Exchange Act
of 1934, as amended, the shareholder must notify the Company in writing of his
or her intent to make such presentation no later than 50 calendar days nor more
than 75 calendar days prior to the 2005 Annual Meeting (provided, however, that
in the event that less than 65 calendar days notice or prior public disclosure
of the 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 15th calendar 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) and otherwise“independent” in accordance with the advance notice provisionsNASDAQ rules. The NASDAQ rules include a series of objective tests that would not allow a director to be considered independent if the director had certain employment, business or family relationships with the Company. The NASDAQ independence definition includes a requirement that the Board also review the relations of each independent director to the Company on a subjective basis. In accordance with that review, the Board has made a subjective determination as to each independent director that no relationships exist that, in the Company's bylaws oropinion of the Company may have the right to determine and declare to
the meeting that such proposal was not properly brought before the meeting in
accordanceBoard, would interfere with the bylawsexercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, the directors reviewed and discussed information provided by the directors and the Company and/or exercise its discretionary
voting authority when such proposal is presented at the Annual Meeting of
Shareholders, without including any discussion of that proposal in the proxy
materials for the Annual Meeting.
To be in proper form, a shareholder's notice must include the specified
information concerning the proposal or nominee as described in the Company's
Bylaws. A shareholder who wishes to submit a proposal or nomination is
encouraged to seek independent counsel with regard to each director’s business and personal activities as they may relate to the Company's Bylaws and
SEC requirements. The Company may 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 addressedCompany’s management.
SEC Rules. In addition to the Corporate Secretary, Pizza Inn, Inc., 3551 Plano Parkway, The Colony, TX 75056,Company and NASDAQ policies and rules described above, the SEC has specific disclosure requirements covering certain types of transactions involving the Company and a director, executive officer or by faxother specified party. Specifically, other than described herein, we have not participated in any transaction since the beginning of fiscal year 2007, or any currently proposed transaction, to (469) 384-5061,which the Company was or by e-mailis to corporate_secretary@pizzainn.com.
--------------------------------
The Company reservesbe a party, in which the right to reject, rule out of order,amount involved exceeds $120,000 and in which any related person had, or take other
appropriate action with respect to any proposal that does not comply with these
and other applicable requirements.
will have, a direct or indirect material interest.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative annual total shareholder return (change in share price plus reinvestment of any dividends) on the 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, 1998.30, 2002. 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 EntertainmentTravel and Leisure RestaurantU.S. Restaurants and Bars Index is compiled by Dow Jones and Company, Inc., and replaces the Dow Jones Entertainment and Leisure Restaurant Index charted in this graph in previous years. The Dow Jones U.S. Restaurants and Bars Index is comprisedcomposed of seven104 public companies, weighted forincluding the market capitalization of each company,Company, engaged in restaurant or related businesses (CKE Restaurants,businesses.
MISCELLANEOUS
Annual Report and Form 10-K and 10-K/A
A copy of our 2007 Annual Report, which includes our 2007 Form 10-K and Form 10-K/A, is enclosed. Shareholders may request another free copy of our 2007 Annual Report from:
Pizza Inn, Inc., Brinker
International, Inc., Cracker Barrel Old Country Store, Inc., Darden Restaurants,
Inc., McDonald's Corporation, Tricon Global Restaurants, Inc.,
Attn: Investor Relations
3551 Plano Parkway
The Colony, TX 75056
(800) 880-9955
http://www.pizzainn.com
Alternative, current and Wendy's
International, Inc.).
MISCELLANEOUS
The accompanying proxy is being solicitedprospective investors can access the 2007 Annual Report on behalfthe Investor Relations page of the Company. The cost of
solicitation has been orour web site at:
http://www.pizzainn.com
We will be borne by the Company. Proxies may also be
solicited by directors, officers and employees of the Company in person or by
telephone, telefax, or 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 materialsfurnish any exhibit to the beneficial owners of stock held of
record by such persons2007 Form 10-K and the Company may reimburse them for reasonable
out-of-pocket expenses of such solicitation.
Form 10-K/A COPY OFas specifically requested.
YOU SHOULD RELY ONLY ON THE COMPANY'S ANNUAL REPORTINFORMATION CONTAINED IN THIS PROXY STATEMENT OR ANNEXED HERETO TO VOTE ON FORM 10-K EXCLUDING EXHIBITS,
DATED SEPTEMBER 24, 2004,THE MATTERS SET FORTH ABOVE. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS BEING FURNISHED TO SHAREHOLDERS WITHDIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. COPIES OF SUCH EXHIBITS WILL BE FURNISHED UPON WRITTEN REQUEST AND
UPON REIMBURSEMENT OFTHIS PROXY STATEMENT IS DATED NOVEMBER 16, 2007. YOU SHOULD NOT ASSUME THAT 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 indicatedINFORMATION CONTAINED IN THIS EXAMPLE.
[X]PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE AND THE BOARDMAILING 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,
John D. Harkey, Jr.
Timothy P. Taft
Mark E. Schwarz
(or any substitute
nominee or substitute
nominees, if any of the
foregoing persons is
unable to serve or for good
cause will not serve)
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 OFTHIS PROXY STATEMENT TO SHAREHOLDERS SHALL NOT CREATE ANY IMPLICATION TO THE RESTATED ARTICLES OF INCORPORATION TO DECLASSIFY
THE BOARD OF DIRECTORS.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]CONTRARY.
Appendix B
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 Item 2. | Please mark Your votes as indicated in this example. x |
| Item 1. | ELECTION OF DIRECTORS | Nominees: Steven M. Johnson, James K. Zielke, Jr., Robert B. Page, Ramon D. Phillips, Mark E. Schwarz, Clinton Coleman, W.C. Hammett, Jr. (or any substitute nominee or substitute nominees, if any of the foregoing persons is unable to serve or for good cause will not serve) | ||||||
FOR | WITHHELD FOR ALL | WITHHELD FOR: (Write that nominee’s name in the space provided below). | ||||||
| o | o | |||||||
| Item 2. | RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS, BDO SEIDMAN, LLP | |||||||
FOR | AGAINST | ABSTAIN | ||||||
| o | o | o | ||||||
If you plan to attend the Annual WILL
Meeting, please mark the WILL ATTEND block.
WILL ATTEND block. [ ]
o
Date , 2005
_____________________________________________
_____________________________________________________, 2007
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, TEXASPlano Parkway
The Colony, Texas 75056
ANNUAL MEETING OF SHAREHOLDERS ON JUNE 23, 2005
Annual Meeting of Shareholders on December 13, 2007
The undersigned, revoking all proxies heretofore given, hereby appoints Kevin A. KleinerDanny Meisenheimer and Shawn M. Preator,Ward Olgreen, 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"“Company”) that the undersigned is entitled to vote at the Annual Meeting of Shareholders to be held at 10:00 a.m., Dallas time, on Thursday, June 23, 2005,Wednesday, December 13, 2007, at the Company'sCompany’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.
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 Item 2.
Please mark your votes as indicated in this example. x
The Board of Directors recommends a vote FOR Item 1 and Item 2.