SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. 1)
FILED BY REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
CHECK THE APPROPRIATE BOX:
[ ] PRELIMINARY PROXY STATEMENT
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-B(E)(2))
[X] DEFINITIVE PROXY STATEMENT
[ ] DEFINITIVE ADDITIONAL MATERIALS
[ ] SOLICITING MATERIAL PURSUANT TO 240.14A-11(C) OR 240.14A-12
PIZZA INN, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] NO FEE REQUIRED.
[ ] FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES 14A-6(I)(1) AND 0-11.
1) TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION APPLIES:
2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES:
3) PER UNIT PRICE OR OTHER UNDERLYING VALUE OF TRANSACTION COMPUTED
PURSUANT TO EXCHANGE ACT RULE 0-11 (SET FOR THE AMOUNT ON WHICH
THE FILING FEE IS CALCULATED AND STATE HOW IT WAS DETERMINED):
4) PROPOSED MAXIMUM AGGREGATE VALUE OF TRANSACTION:
5) TOTAL FEE PAID:
[ ] FEE PAID PREVIOUSLY WITH PRELIMINARY MATERIALS.
[ ] CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY EXCHANGE ACT
RULE 0-11(A)(2)AND IDENTIFY THE FILING FOR WHICH THE OFFSETTING FEE
WAS PAID PREVIOUSLY. IDENTIFY THE PREVIOUS FILING BY REGISTRATION
STATEMENT NUMBER, OR THE FORM OR SCHEDULE AND THE DATE OF ITS FILING.
1) AMOUNT PREVIOUSLY PAID:
2) FORM, SCHEDULE OR REGISTRATION STATEMENT NO:
3) FILING PARTY:
4) DATE FILED:
PIZZA INN, INC.
3551 PLANO PARKWAY
THE COLONY, TEXAS 75056
(469) 384-5000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 15, 2004
To our Shareholders:
The Annual Meeting of Shareholders of Pizza Inn, Inc. (the "Company") will
be held at the Company's corporate offices, 3551 Plano Parkway, The Colony,
Texas 75056, on Wednesday, December 15, 2004, 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 plan to the 1993
Outside Directors Stock Award Plan that expired in 2003;
3. To consider and vote upon a proposal to approve the adoption of a
stock award plan for employees as a successor plan to the 1993 Employee Stock
Award Plan that expired in 2003;
4. To consider and vote upon a proposal to amend the Company's Restated
Articles of Incorporation to declassify the board of directors; and
5. To transact such other business as may properly come before the
meeting or any postponements or adjournments thereof.
These items are more fully described in the proxy statement, which is part of
this notice. We have not received notice of other matters that may be properly
presented at the annual meeting.
Only shareholders of record at the close of business on October 18, 2004 are
entitled to notice of, and to vote at, this meeting and any postponements or
adjournments thereof.
By Order of the Board of Directors,
/s/ Rod J. McDonald
Rod J. McDonald
The Colony, Texas Corporate Secretary
November 16, 2004
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.
PIZZA INN, INC.
3551 PLANO PARKWAY
THE COLONY, TEXAS 75056
(469) 384-5000
PROXY STATEMENT FOR THE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 15, 2004
Pizza Inn, Inc., a Missouri corporation (the "Company"), is soliciting
proxies to be voted at the Annual Meeting of Shareholders (the "Annual Meeting")
to be held at the Company's corporate offices, 3551 Plano Parkway, The Colony,
Texas 75056, on Wednesday, December 15, 2004, at 10:00 a.m., Dallas time, and at
any postponements or adjournments thereof. This Proxy Statement and the
enclosed form of proxy were first mailed to the Company's shareholders on or
about November 16, 2004.
If the proxy is signed and returned before the Annual Meeting, it will be
voted in accordance with the directions on the proxy or, if no directions are
made, by the proxies named therein in their discretion. A shareholder may
revoke a proxy at any time before it is voted by execution of a subsequent
proxy, voting the shares in person at the Annual Meeting, or by giving written
notice to Pizza Inn, Inc., c/o Securities Transfer Corporation, Transfer Agent,
2591 Dallas Parkway, Suite 102, Frisco, Texas 75034 at any time prior to the
close of the polls at the Annual Meeting stating that the proxy has been
revoked. If you hold shares through a bank or brokerage firm, you must contact
that firm to revoke any prior voting instructions. The Company must receive the
notice or a new proxy card before the vote is taken at the Annual Meeting.
OUTSTANDING CAPITAL STOCK
The record date for shareholders entitled to notice of, and to vote at, the
Annual Meeting is October 18, 2004. At the close of business on that date,
there were outstanding 10,138,674 shares of Common Stock, $.01 par value
("Common Stock"). No other class of securities of the Company is entitled to
notice of, or to vote at, the Annual Meeting.
ACTION TO BE TAKEN AT THE MEETING
The accompanying 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
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Annual Meeting. In deciding all questions, a holder of Common Stock (a
"Shareholder") is entitled to one vote, in person or by proxy, for each share
held in his name on the record date. Cumulative voting for the election of
directors is not permitted. Thus, a Shareholder is not entitled to cumulate his
votes and cast them all for any single nominee or to spread his votes, so
cumulated, among more than one nominee. Directors will be elected by a
plurality of the votes cast. To be elected as a director, a candidate must be
one of the four candidates who receive the most votes out of all votes cast at
the Annual Meeting.
A Shareholder who is present, in person or by proxy, and who withholds his
vote in the election of directors, will be counted for purposes of determining
whether a quorum exists, but the withholding of his vote will not affect the
election of directors. A Shareholder who is present, in person or by proxy, and
who abstains from voting on other proposals, will be counted for purposes of a
quorum, and the abstention will have the same effect as a vote against the
proposals. Broker non-votes will be considered shares present and counted for
purposes of determining whether a quorum exists; however, the presence of such
shares will have no effect on the outcome of the vote. If a quorum is not
present, in person or by proxy, the meeting may be postponed or adjourned from
time to time until a quorum is obtained.
The enclosed proxy, if executed and returned, will be voted as directed on
the proxy or, in the absence of such direction, for the election of the nominees
as directors. If any other matters properly come before the meeting, the
enclosed proxy will be voted by the proxy holders in accordance with their best
judgment. The Board believes that all the nominees will be available to serve as
directors. If any nominee is unable to serve, the Board may decide to do one of
two things. The Board may recommend a substitute nominee, or the Board may fill
the vacancy later. The shares represented by all valid proxies may be voted for
the election of a substitute if one is nominated.
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
Class I directors expire at the Annual Meeting. The Board has nominated for
election at the Annual Meeting all of the incumbent Class I directors. Each
nominated director will serve for a term of two years. Each nominee of the
Board has expressed his intention to serve the entire term for which election is
sought, but if any of them is unable to serve at the time the election occurs,
the proxy will be voted for the election of another nominee to be designated by
the Board. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR 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 2005 annual meeting of
shareholders, at which time they, or their successors, would be subject to
election as members of a single class of seven directors. Those directors
currently referred to as Class II directors, who were elected at the 2003 annual
meeting of shareholders to hold office until the 2005 annual meeting of
shareholders, will complete their terms at the 2005 annual meeting of
shareholders, at which time they, or their successors, would be subject to
election as members of a single class of seven directors. Members of the single
class, or their successors, would be subject to re-election every year. The
proposal to amend the Restated Articles of Incorporation requires the approval
of holders of a majority of the shares present in person or represented by proxy
and 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 October 1, 2004, of the four
nominee directors, 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, the year in which each director was first elected, and the annual
meeting (assuming that it is held in December) at which the term of each
director will expire.
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 franchisee of the
Company for over twenty years and a Class I Director for over nine years.
Ronald W. Parker, 54, was appointed President and Chief Executive Officer
of the Company in August 2002. Mr. Parker joined the Company in October 1992 and
was elected Executive Vice President, Chief Operating Officer, and a Director in
January 1993. He was appointed President in July 2000. From October 1989 to
September 1992, he was Executive Vice President and General Manager of the
Bonanza restaurant division of Metromedia Steakhouses, Inc. and its predecessor
Metsa, Inc. From 1983 to 1989, Mr. Parker served in several executive positions
for USACafes, the franchisor of the Bonanza restaurant chain. From 1974 to 1983,
Mr. Parker served in several executive positions with Chart House, Inc., a
restaurant company with more than 600 units of various brands. He previously
worked with a national accounting firm from 1972 to 1974. Mr. Parker also
currently serves on the Board of Directors of the Cotton Bowl Athletic
Association, the Mississippi State University Foundation, and the Mississippi
State University Bulldog Club, Inc. Foundation. Mr. Parker was previously on the
Board of Directors of the Mississippi State University Alumni Association.
Butler E. Powell, 65, is Vice President of Business Banking with Hibernia
National Bank in Metairie, Louisiana. He has served in various capacities with
the bank and its predecessors since 1983. He graduated from Loyola University
in New Orleans with BBA and MBA degrees and spent over three years with the
national accounting firm Ernst and Ernst before entering the banking industry.
Mr. Powell was the former President and a Director of the New Orleans Athletic
Club and served on the Foundation Board of East Jefferson Hospital. He was
elected a Class I Director of the Company in January 1998.
Mark E. Schwarz, 44, is the Chairman, Chief Executive Officer, and
Portfolio Manager of Newcastle Capital Management, L.P., a private investment
management firm he founded in 1992 that is the general partner of Newcastle
Partners, L.P. Mr. Schwarz was appointed Chairman of the Board of the Company in
February 2004. Mr. Schwarz is also Chairman of the Board and Chief Executive
Officer of Hallmark Financial Services, Inc., Chairman of the Board of Bell
Industries, Inc., Chairman of the Board of New Century Equity Holdings Corp.,
director and Chief Executive Officer of Geoworks Corporation, and a director of
Nashua Corporation, S L Industries, Inc., Web Financial Corporation, and
privately-held Pinnacle Frames and Accents, Inc. From 1995 through 1999, he was
also a Vice President of Sandera Capital Management and in 1998 and 1999 he was
a director of Aydin Corporation. Mr. Schwarz was appointed a Director in
December 2002 to fill a vacant Class I Board seat.
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.
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 2003.
Steven J. Pully, 44, is the President of Newcastle Capital Management, L.P.
Mr. Pully is also Chief Executive Officer and a director of New Century Equity
Holdings Corp., an officer and director of Geoworks Corporation, a director of
Max Worldwide, Inc., and a director of privately-held Pinnacle Frames and
Accents, Inc. Prior to joining Newcastle Capital Management, L.P. in late 2001,
from May 2000 to December 2001, he was a managing director in the mergers and
acquisitions department of Banc of America Securities, Inc. and from January
1997 to May 2000 he was a senior managing director in the investment banking
department of Bear Stearns. Prior to becoming an investment banker, Mr. Pully
practiced securities and corporate law at the law firm of Baker & Botts. Mr.
Pully is a CPA, a CFA, and a member of the Texas Bar. Mr. Pully was appointed a
Director in December 2002 to fill a vacant Class II Board seat.
INFORMATION REGARDING THE BOARD AND ITS COMMITTEES
The Board has adopted a set of Corporate Governance Guidelines on
governance practices followed by the Company in order to assure that the Board
will have the necessary authority and practices in place to review and evaluate
the Company's business operations as needed and to make decisions that are
independent of the Company's management. The guidelines are also intended to
align the interests of directors and management with those of the Company's
shareholders. The Governance Guidelines set forth the practices the Board will
follow with respect to Board composition and selection, Board meetings and
involvement of senior management, Chief Executive Officer performance evaluation
and succession planning, and Board committee composition and compensation. The
Governance Guidelines are intended to be compliant with changes to The Nasdaq
Stock Market ("Nasdaq") listing standards and Securities and Exchange Commission
(the "SEC") rules adopted to implement provisions of the Sarbanes-Oxley Act of
2002 (the "Sarbanes-Oxley Act"). The Board has six committees: an Executive
Committee, an Audit Committee, a Compensation Committee, a Finance Committee, a
Nominating and Governance Committee, and a Strategic Planning Committee. The
Governance Guidelines, as well as the charters for certain Board committees,
including the Nominating and Governance Committee, may be viewed at
http://www.pizzainn.com.
The Board met nine times during the last fiscal year. All directors
attended 75% of more of the Board meetings and meetings of the committees on
which they served. Below is a table that provides membership and meeting
information for each of the Board committees:
Nominating Strategic
Name Executive Audit Compensation Finance & Governance Planning
- --------------------------------------------------------------------------------
Mr. Schwarz X*
Mr. Clairday
Mr. Page X X X* X X**
Mr. Parker X
Mr. Phillips X X* X X X X**
Mr. Powell X
Mr. Pully X* X X*
Number of Meetings
in Fiscal 2004 10 9 5 3 1 14^
- --------------------------------------------------------------------------------
* Committee Chairman
** Committee Co-Chairman
^ Includes five meetings with the Company's management team.
Independent directors meet twice annually apart from other Board members
and management representatives. Each of the Company's directors, other than Mr.
Clairday and Mr. Parker, qualify as "independent" in accordance with published
Nasdaq listing requirements.
Below is a description of each committee of the Board. Each of the
committees has authority to engage legal counsel or other experts or consultants
as it deems appropriate to carry out its responsibilities. The Board has
determined that each member of each committee meets the applicable laws and
regulations regarding "independence" when applicable and that each member is
free of any relationship that would interfere with his individual exercise of
independent judgment.
Executive Committee. This Committee will consider issues as directed by the
-------------------
Chairman of the Board. It also may exercise the authority of the Board between
Board meetings, except to the extent that the Board has delegated authority to
another committee or to other persons, and except as otherwise limited by
Missouri law.
Audit Committee. The Company has a separately designated standing audit
----------------
committee established in accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934. The responsibilities of this Committee include reviewing
the financial reports and other financial information provided by the Company to
any governmental body or the public; the Company's systems of internal controls
regarding finance, accounting, legal compliance, and ethics that management and
the Board have established; the Company's auditing, accounting, and financial
reporting processes generally; and such other functions as the Board may from
time to time assign to the Committee. In performing its duties, the Committee
seeks to maintain an effective working relationship with the Board, the
independent accountant, and management of the Company. The specific duties and
functions of the Audit Committee are set forth in the Audit Committee Charter.
The Charter is reviewed annually and updated as necessary to reflect changes in
regulatory requirements, authoritative guidelines, and evolving practices.
Management is responsible for the preparation, presentation, and integrity
of the Company's financial statements, accounting and financial reporting
principles, internal controls, and procedures designed to ensure compliance with
accounting standards, applicable laws, and regulations. The Company's
independent auditor, BDO Seidman LLP, is responsible for performing an
independent audit of the consolidated financial statements and expressing an
opinion on the conformity of those financial statements with generally accepted
accounting principles.
Compensation Committee. The primary responsibilities of this Committee are
-----------------------
to (a) review and recommend to the Board the compensation of the Chief Executive
Officer and other officers of the Company, (b) review executive bonus plan
allocations, (c) oversee and advise the Board on the adoption of policies that
govern the Company's compensation programs, (d) oversee the Company's
administration of its equity-based compensation and other benefit plans, and (e)
approve grants of stock options to officers and employees of the Company under
its stock plans. The Compensation Committee's role includes producing the report
on executive compensation required by SEC rules and regulations. The specific
duties and functions of the Compensation Committee are set forth in its charter.
This charter is reviewed annually and updated as necessary to reflect changes in
regulatory requirements, authoritative guidelines, and evolving practices.
Finance Committee. The primary responsibilities of this Committee are to
------------------
(a) monitor present and future capital requirements and opportunities pertaining
to the Company's business, and (b) review and provide guidance to the Board and
management about all proposals concerning major financial policies of the
Company. The Finance Committee's role includes designating officers and
employees who can execute documents and act on behalf of the Company in the
ordinary course of business under previously approved banking, borrowing, and
other financing arrangements.
Nominating and Governance Committee. The primary responsibilities of this
-------------------------------------
Committee are to (a) determine the slate of director nominees for election to
the Board, (b) identify and recommend candidates to fill vacancies occurring
between annual shareholder meetings, and (c) review, evaluate, and recommend
changes to the Company's Corporate Governance Guidelines. The Committee's role
includes periodic review of the compensation paid to non-employee directors for
annual retainers and meeting fees and making recommendations to the Board for
any adjustments. The specific responsibilities and functions of the Committee
are set forth in its Charter.
From time to time the Committee reviews the Board to assess the skills and
characteristics required of Board members in the context of the current
composition of the Board. This assessment includes issues of diversity in
numerous factors, understanding of and achievements in the restaurant industry,
board service, business, finance, marketing, and community involvement. These
factors, and any other qualifications considered useful by the Committee, are
reviewed in the context of an assessment of the perceived needs of the Board at
a particular point. As a result, the priorities and emphasis of the Committee
and of the Board may change from time to time to take into account changes in
business and other trends, and the portfolio of skills and experience of current
and prospective Board members. Therefore, while focused on the achievement and
the ability of potential candidates to make a positive contribution with respect
to such factors, the Committee has not established specific minimum criteria or
qualifications that a nominee must possess.
Consideration of new Board nominee candidates typically involves a series
of internal discussions, review of information concerning candidates, and
interviews with selected candidates. In general, candidates for nomination to
the Board are suggested by Board members or by employees. In 2004 the Company
did not employ a search firm or pay fees to other third parties in connection
with seeking or evaluating Board nominee candidates. The Committee will consider
director candidates recommended by shareholders. The Committee evaluates
candidates proposed by shareholders using the same criteria as for other
candidates. The name of any recommended candidate for director, together with a
brief biographical sketch, a document indicating the candidate's willingness to
serve if elected, and evidence of the nominating person's ownership of Company
stock should be sent to the Corporate Secretary of the Company using one of the
methods set forth in "Communications from Shareholders to the Board," below.
Strategic Planning Committee. This Committee was constituted on April 21,
------------------------------
2004 specifically to work with the Company's senior management to create and
implement a strategic plan for the Company. The Committee and Company management
assemble and analyze data pertaining to the Company's business plan, competitive
environment and objectives, and other factors relevant to the Company's
concepts, products, and services, ultimately preparing and recommending plans,
timetables, strategies, options, and procedures for the Company's long-term
growth and success. Upon completion and presentation of a final strategic plan
to be implemented and monitored by management, the Committee will transition
into an oversight role, and ultimately may be dissolved, subject to reformation
from time to time as the Board may deem necessary.
Communications from Shareholders to the Board
The Board recommends that shareholders initiate any communications with the
Board in writing and send them in care of the Corporate Secretary. Shareholders
can send communications by e-mail to corporate_secretary@pizzainn.com, by fax to
(469) 384-5061, or by mail to Corporate Secretary, Pizza Inn, Inc., 3551 Plano
Parkway, The Colony, TX 75056. This centralized process assists the Board in
reviewing and responding appropriately to shareholder communications. The names
of specific intended Board members should be noted in the communication. The
Board has instructed the Corporate Secretary to forward such correspondence only
to the intended recipients; however, the Board has also instructed the Corporate
Secretary, prior to forwarding any correspondence, to review such correspondence
and, in his discretion, not to forward certain items if they are deemed of a
commercial or frivolous nature or otherwise inappropriate for the Board's
consideration. In such cases, that correspondence may be forwarded elsewhere in
the Company for review and possible response.
Director Compensation
As an employee of the Company, Mr. Parker receives no compensation for
serving as a director, except that he, like all directors, is eligible to
receive reimbursement of any expenses incurred in attending Board and committee
meetings. During fiscal year 2004, each other director received as compensation
for serving on the Board and committees of the Board:
- - An annual retainer of $17,000;
An annual retainer of $6,000 for the Chairman of the Board; and
A per meeting fee of $1,000 for Board meetings and $250 fee for committee
meetings.
Members of the Strategic Planning Committee receive a per diem fee of $500 for
each day they are directly engaged in the discharge of Committee
responsibilities.
In addition to annual and meeting fees, each non-employee director was
eligible to receive stock option awards under the 1993 Outside Directors Stock
Award Plan (the "1993 Plan") until the 1993 Plan's expiration on October 13,
2003. Under the 1993 Plan, eligible directors would receive, as of the first
day of the Company's fiscal year, options for Common Stock equal to twice the
number of shares of Common Stock purchased during the preceding fiscal year or
purchased by exercise of previously granted options during the first ten days of
the current fiscal year. On the first day of the first fiscal year immediately
following the day on which a non-employee director first became eligible to
participate in the 1993 Plan, that director would receive options to acquire two
shares of Common Stock for each share of Common Stock owned by such director on
the first day of the fiscal year. The exercise price of the options is not less
than the closing price for the Common Stock on Nasdaq on the date of the option
grant. Each eligible director was entitled to options for no more than 20,000
shares per fiscal year. Stock options granted under the 1993 Plan have an
exercise price equal to the market price of the Common Stock on the date of
grant and are first exercisable one year after grant.
Since the beginning of fiscal year 2004, stock options for 5,000 shares
were granted to Mr. Schwarz pursuant to the 1993 Plan at an exercise price of
$2.15 per share.
Expiration of the 1993 Plan does not affect vesting, exercise, or expiration of
options previously granted pursuant to such Plan; however, no further options
may be granted.
The Board expects to grant stock option awards to non-employee directors
beginning in calendar year 2005, with awards retroactive to the 1993 Plan's
October 13, 2003 expiration date, if the shareholders approve Proposal Two,
"Adoption of a Non-Employee Directors Stock Option Award Plan."
EXECUTIVE OFFICERS
The following table sets forth certain information, as of October 1, 2004,
regarding the Company's executive officers:
Executive
Officer
Name Age Position Since
- ---- --- -------- -----
Ronald W. Parker 54 President and Chief Executive Officer 1992
Ward T. Olgreen 45 Senior Vice President of Franchise Operations
and Concept Development 1995
Shawn M. Preator 35 Chief Financial Officer and Vice
President of Distribution 1999
Rod J. McDonald 43 Secretary and General Counsel 2004
Danny K. Meisenheimer 44 Vice President of Marketing 2003
BIOGRAPHIES OF NON-DIRECTOR OFFICERS
Ward T. Olgreen was appointed Senior Vice President of Franchise Operations and
Concept Development in December 2002. He was appointed Vice President of
Concept Development in February 1999 and Senior Vice President of Concept
Development in July 2000. He joined the Company in September 1991 and served in
a variety of operational positions until his appointment in January 1995 as Vice
President of International Operations and Brand R&D. Mr. Olgreen was a Branch
Manager for GCS Service, Inc., a restaurant equipment service provider, from
June 1986 through July 1991.
Shawn M. Preator was appointed Chief Financial Officer and Vice President
of Distribution in October 2002. He was elected Vice President in June 2000.
He was elected Controller, Treasurer, and Assistant Secretary in April 1999.
Prior to that election, Mr. Preator had been Assistant Controller for the
Company since July 1998. Prior to joining the Company, Mr. Preator was a Senior
Financial Analyst at LSG/Sky Chefs, Inc., an international airline caterer, from
September 1996 to July 1998. Prior to September 1996, Mr. Preator worked for
the accounting firm Ernst & Young LLP in its audit department.
Rod J. McDonald was appointed Corporate Secretary and General Counsel in August
2004. Mr. McDonald joined the Company in September 1997 and had served as
Assistant General Counsel of the Company since that time. Prior to joining the
Company, he was Vice President and Assistant General Counsel for TCBY
Enterprises, Inc.
Danny K. Meisenheimer was appointed Vice President of Marketing in January 2003
after joining the Company in December 2002. Prior to joining the Company, Mr.
Meisenheimer served as Vice President of Marketing for Furr's Restaurant Group,
Inc. since 1995. Mr. Meisenheimer joined the Marketing Department of Furr's in
1991.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS
AND EXECUTIVE OFFICERS
The following table sets forth certain information, as of October 1, 2004,
with respect to the beneficial ownership of Common Stock by: (a) each person
known to the Company to be a beneficial owner of more than five percent of the
outstanding Common Stock; (b) each director, nominee director, and executive
officer named in the section entitled "Summary Compensation Table;" and (c) all
directors and executive officers as a group (11 persons). Except as otherwise
indicated, each of the persons named in the table below is believed by the
Company to possess sole voting and investment power with respect to the shares
of Common Stock beneficially owned by such person. Information as to the
beneficial ownership of Common Stock by directors and executive officers of the
Company has been furnished by the respective directors and executive officers.
Name Shares Percent
and Address of Beneficially of Class
-------
Beneficial Owner Owned
- ---------------- -----
Newcastle Partners, L.P.
Newcastle Capital Management, L.P.
Newcastle Capital Group, L.L.C.
300 Crescent Court, Ste. 1110
Dallas, TX 75201 (a) 3,627,130 35.79%
Ronald W. Parker (b)
3551 Plano Parkway
The Colony, TX 75056 851,821 8.40%
Farnam Street Partners, L.P.
Farnam Street Capital, Inc.
3033 Excelsior Boulevard,
Suite 300
Minneapolis, MN 55416 (c) 525,078 5.18%
Mark E. Schwarz (a)(b) 3,647,130 35.9%
Robert B. Page -0- -0-
Butler E. Powell (b) 32,500 Less than 1%
Bobby L. Clairday (d) 48,900 Less than 1%
Ramon D. Phillips (e) 11,590 Less than 1%
Steven J. Pully (a) 8,929 Less than 1%
Ward T. Olgreen (b) 169,659 1.67%
Shawn M. Preator (b) 56,165 Less than 1%
Danny K. Meisenheimer 1,092 Less than 1%
All Directors and 3,994,965 39.42%
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 partner of
Newcastle Partners, L.P. Accordingly, each of Newcastle Capital Management,
L.P., Newcastle Group, L.L.C., and Mark E. Schwarz may be deemed to beneficially
own the shares of Common Stock beneficially owned by Newcastle Partners, L.P.
In addition, Newcastle Partners, L.P., Newcastle Capital Management, L.P.,
Newcastle Group, L.L.C., and Messrs. Schwarz and 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., and Messrs.
Schwarz and Pully also directly own shares of Common Stock.
(b) Includes vested options and options vesting within 60 days of October 1,
2004 under the Company's stock option plans, as follows: 62,500 shares for Mr.
Parker; 5,000 shares for Mr. Schwarz; 20,000 shares for Mr. Powell; 66,500
shares for Mr. Olgreen; and 44,500 shares for Mr. Preator.
(c) Farnam Street Capital, Inc, is the general partner of Farnam Street
Partners, L.P. and 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 Partners, L.P. In addition, Farnam Street Partners, L.P.,
Farnam Street Capital, Inc., and Messrs. Cabillot and 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) Mr. Clairday shares voting and investment power for 18,200 shares with
his wife.
(e) Mr. Phillips shares voting and investment power for 5,333 shares with
the other shareholders of Wholesale Software International, Inc.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board is responsible for providing independent,
objective oversight of the Company's accounting functions and internal controls.
The Committee is composed of three independent directors and acts under a
written charter adopted and approved by the Board of Directors on April 15,
2003. The Committee reviews its Charter on an annual basis. Each of the members
of the Committee is independent as defined by the National Association of
Securities Dealers' listing standards and as required by the Sarbanes-Oxley Act.
After a full review and analysis, the Board of Directors positively reaffirmed
that each member of the Committee is independent within the meaning of Rule
4200(a)(14) of the National Association of Securities Dealers' listing standards
and the rules and regulations of the SEC, as such requirements are defined as of
the mailing date of this proxy statement. The Board annually reviews the Nasdaq
listing standards' definition of independence for audit committee members and
makes an annual determination of the independence of Committee members. The
Board of Directors has also determined that at least one member of the
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 member of the Audit Committee or the
Board. For an overview of Mr. Phillips' relevant experience, see the section
entitled "Continuing Directors" above.
The Committee reviewed and discussed the Company's audited financial
statements with management. The Committee also discussed with BDO Seidman LLP
the matters required to be discussed by Statement on Auditing Standards No. 61,
"Communications with Audit Committees." In addition, BDO Seidman LLP also
provided to the 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 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 Committee, the 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", or to be "filed" with the SEC or subject to
the SEC's Regulation 14A, other than as provided in that Item, or to the
liabilities of Section 18 of the Securities Exchange Act of 1934, as amended,
except to the extent that the Company specifically requests that the information
be treated as soliciting material or specifically incorporates it by reference
into a document filed under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended.
Submitted by the Audit Committee: Ramon D. Phillips, Chairman
Robert B. Page
Butler E. Powell
FEES PAID TO INDEPENDENT AUDITORS
The Audit Committee has selected BDO Seidman LLP certified public
accountants as the independent auditors of the Company for fiscal year 2005. A
representative of BDO Seidman LLP will be present at the Annual Meeting, will be
available to respond to appropriate questions, and will have an opportunity to
make a statement.
For fiscal 2004, the Audit Committee selected BDO Seidman LLP to replace
PricewaterhouseCoopers LLP, which was the Company's independent auditor for the
fiscal year ending June 29, 2003. The decision to change accountants was made
by vote of the Committee, and the dismissal of PricewaterhouseCoopers LLP became
effective on October 8, 2003. During fiscal years 2002 and 2003, there were no
disagreements between the Company's senior management and PricewaterhouseCoopers
LLP's senior audit personnel on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure such
that would have caused PricewaterhouseCoopers LLP to have made reference to the
subject matter of such disagreements in connection with its audit report. The
Company does not anticipate that a representative of PricewaterhouseCoopers LLP
will be present at the Annual Meeting, nor does it anticipate that any such
representative will be available to make a statement or to answer questions.
The following table shows the fees the Company paid or accrued for the audit and
other services provided by PricewaterhouseCoopers LLP in fiscal 2003 and BDO
Seidman LLP in fiscal 2004.
PRICEWATERHOUSECOOPERS BDO SEIDMAN
2003 2004 2004
- --------------------------------------------------------------------------------
Audit Fees $ 129,540 -- $ 74,000
Audit-Related Fees $ 13,656 -- $ --
Tax Fees $ 13,345 $ 9,300 $ 950
All Other Fees $ 35,579 $ 12,500 $ 3,050
-----------------------------------------------------------
Total $ 192,120 $ 21,800 $ 78,000
AUDIT FEES This category represents aggregate fees billed by
PricewaterhouseCoopers LLP and BDO Seidman LLP for professional services
rendered for the audit of the Company's annual financial statements for the
years ended June 29, 2003 and June 27, 2004, respectively, and the reviews of
the financial statements included in the Company's Forms 10-Q for those years.
AUDIT-RELATED FEES These fees consist of assurance and related services that
are reasonably related to the performance of the audit or review of the
Company's financial statements. This category includes fees related to the
performance of audits and attest services not required by statute or
regulations, audits of the Company's benefits plans, and accounting
consultations regarding the application of generally accepted accounting
principles to proposed transactions.
TAX FEES Fees billed by PricewaterhouseCoopers LLP for fiscal years 2003 and
2004 for tax return preparation and foreign tax analysis, and for a change in
tax accounting method, and fees billed by BDO Seidman LLP for tax services
during fiscal 2004.
ALL OTHER FEES Fees paid to PricewaterhouseCoopers LLP and BDO Seidman
LLP in 2003 and 2004 generally include services pertaining to the question of
change of control of the Board and the Company following the election of
directors at the Company's 2003 Annual Meeting of Shareholders, consultation on
a potential business opportunity, and for PricewaterhouseCoopers, LLP, review of
the Company's franchise offering circular. Fees paid to PricewaterhouseCoopers
LLP in fiscal 2004 also include services related to the transfer of
audit-related materials from PricewaterhouseCoopers LLP to BDO Seidman LLP.
In considering and authorizing these payments to the independent auditors for
services unrelated to performance of the audit of the Company's financial
statements, the Committee has determined that the cost segregation analysis
services, tax return preparation, foreign tax analysis and calculation, review
of the Company's franchise offering circular, and transfer of materials related
to the audit engagement undertaken by the independent auditors are not
inconsistent with the independent auditor's performance of the audit and
financial statement review functions and are compatible with maintaining the
independent auditor's independence.
Policy of the Audit Committee for Pre-Approval of Audit and Permissible
Non-Audit Services of the Independent Auditor
The Audit Committee is responsible for appointing, setting compensation
for, and overseeing the work of, the independent auditor. In accordance with
Audit Committee policy and the requirements of law, all services to be provided
by BDO Seidman LLP are pre-approved by the Audit Committee. Pre-approval applies
to audit services, audit-related services, tax services, and other services. In
some cases, pre-approval is provided by the full Audit Committee for up to a
year, and relates to a particular defined task or scope of work and is subject
to a specific budget. In other cases, the Chairman of the Audit Committee has
the delegated authority from the Audit Committee to pre-approve additional
services, and such pre-approvals are then communicated to the full Audit
Committee.
SUMMARY COMPENSATION TABLE
The following table sets forth the annual compensation of the Chief
Executive Officer and the other four most highly compensated executive officers
of the Company for the fiscal years ended June 27, 2004, June 29, 2003, and June
30, 2002 (designated as years 2004, 2003, and 2002, respectively).
Annual Compensation
------------------------
Long-Term
Compensation
Awards
------------------
Securities Under-
Name Other Annual lying Options
(and Principal Position) Year Salary ($) Bonus ($) Compensation ($) (a) (# of shares)
- ------------------------------- ------------------ --------------- ---------- --------------------- -------------
Ronald W. Parker. . . . . . . . 2004 $ 550,000 $ 275,000 $ 176,084 0
(President and Chief) . . . . . 2003 $ 537,755 $ 275,000 $ 179,910 0
Executive Officer). . . . . . . 2002 $ 507,885 $ 277,300 $ 287,863 0
B. Keith Clark (b) (Senior. . . . . 2004 $ 195,000 $ 26,500 $ 5,961 0
Vice President, Secretary,. . . 2003 $ 186,035 $ 53,325 $ 2,993 0
and General Counsel). . . . . . 2002 $ 161,884 $ 42,500 $ 0 0
Ward T. Olgreen . . . . . . . . 2004 $ 168,000 $ 33,600 $ 7,539 0
(Senior Vice President. . . . . 2003 $ 160,904 $ 34,700 $ 3,769 0
of Franchise Operations and . . 2002 $ 147,596 $ 32,250 $ 0 0
Concept Development)
Shawn M. Preator. . . . . . . . 2004 $ 150,000 $ 30,000 $ 5,961 0
(Chief Financial Officer and. . 2003 $ 139,650 $ 42,750 $ 3,042 0
Vice President of Distribution) 2002 $ 107,923 $ 21,000 $ 0 0
Danny K. Meisenheimer . . . . . 2004 $ 136,102 $ 27,000 $ 0 0
Vice President of . . . . . . . 2003 (c) $ 65,244 $ 13,000 $ 0 0
Marketing
(a) Includes for Mr. Parker, quarterly payments of $37,500 for life and
disability insurance benefits, secondary medical benefits, and supplemental
retirement benefits in 2004, and an annual payment of $77,546 for such benefits
in 2003 and 2002; supplemental retirement benefits (which includes the payment
of related taxes) of $43,860 in 2003 and 2002; and life and disability insurance
benefits (which includes the payment of related taxes) of $43,860 in 2003 and
2002.
(b) Mr. Clark was Senior Vice President, Secretary, and General Counsel of
the Company until July 7, 2004.
(c) Includes compensation for Mr. Meisenheimer from his employment date of
December 31, 2002.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding stock options
exercised during fiscal year 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 $2.82 on June 25, 2004,
the last trading day of the Company's fiscal year.
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Shares Fiscal Year End Fiscal Year
Acquired on Value Realized (Exercisable/ End (Exercisable/
Name Exercise (#) ($) Unexercisable) (#) Unexercisable)
- --------------------- ------------ ---------------- ------------------ -------------------
Ronald W. Parker. . . -- -- 62,500 (e) $ 0
0 (u) $ 0
B. Keith Clark.(a). . 30,000 22,800 61,500 (e) $ 0
0 (u) $ 0
Ward. T. Olgreen. . . -- -- 76,500 (e) $24,600
0 (u) $ 0
Shawn M. Preator. . . -- -- 44,500 (e) $24,600
0 (u) $ 0
Danny K. Meisenheimer -- -- 0 (e) $ 0
0 (u) $ 0
(e) Denotes exercisable options.
(u) Denotes unexercisable options.
(a) Mr. Clark was Senior Vice President, Secretary, and General Counsel of the
Company until July 7, 2004.
OPTION GRANTS IN LAST FISCAL YEAR
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.
Individual Grants
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Term
- ----------------------- ------------------------------
% of Total Options
Granted to Exercise
Options Employees in Price Expiration
Name Granted Fiscal Year ($/Share) Date 5% 10%
- ----------------------- ------------------------------ ------------ --------- ---------- -- ----
Ronald W. Parker 0 - $ - - $- $ -
B. Keith Clark 0 - $ - - $- $ -
Ward T. Olgreen 0 - $ - - $- $ -
Shawn M. Preator 0 - $ - - $- $ -
Danny K. Meisenheimer 0 - $ - - $- $ -
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is comprised of three
independent, non-employee directors. The Compensation Committee is responsible
for establishing the level of compensation of the executive officers of the
Company and will be responsible for administering the 2004 Non-Employee Director
Stock Option Award Plan and the 2004 Employee Incentive Stock Award Plan if
approved by the shareholders.
The Compensation Committee and the Board have adopted a charter for the
Compensation Committee to conform to the 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
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 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, is based on his employment agreement as more fully described under
"Executive Employment Contracts" below.
Mr. Parker's employment agreement was approved by the then members of the Board
of Directors of the Company and the Compensation Committee as constituted on
December 16, 2002. The term of the employment agreement continues through
December 31, 2007. Under his employment agreement, Mr. Parker's compensation is
determined by the Compensation Committee, the Board of Directors of the Company,
or the Stock Award Plan Committee (whose function has been assumed by the
Compensation Committee), based on the recommendations of the Compensation
Committee. The Compensation Committee's recommendations with respect to Mr.
Parker's compensation, however, are subject to other provisions in his
employment agreement, including the provisions that provide that Mr. Parker's
total annual compensation may not be reduced to less than an annual salary of
$550,000 and a mandatory minimum annual bonus equal to $275,000. Additionally,
Mr. Parker is entitled to receive under his employment agreement certain defined
benefits, which, in fiscal 2004, totaled approximately $176,084. The bonus
program established in Mr. Parker's employment agreement is 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 current Compensation Committee has reviewed the compensation of Mr. Parker
and has evaluated Mr. Parker's compensation by comparing it to the compensation
of chief executive officers in the restaurant industry, and by considering the
Company's current structure and performance, among other things. As a result of
this review, the Compensation Committee believes the total amount of Mr.
Parker's compensation to be well in excess of the compensation of chief
executive officers at comparable companies and 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.
EXECUTIVE OFFICERS
Subject to existing employment agreements, salaries of the executive
officers, excluding Mr. Parker, are reviewed annually and adjusted based on
competitive practices, changes in level of responsibilities and individual
performance measured against goals. The Compensation Committee strongly
believes that maintaining a competitive salary structure is in the best interest
of shareholders. It believes the Company's long-term success in its marketplace
is best achieved through recruitment and retention of high caliber executives
who are among the most skilled and talented in the industry. The Compensation
Committee also believes that compensation levels for the Company's executive
officers should be tied to individual and Company performance.
Subject to existing employment agreements, salary and bonus for Mr.
Olgreen, and Mr. Preator, and for Mr. Clark, prior to his resignation from the
Company in July 2004, are based upon their employment agreements as more fully
described under "Executive Employment Contracts" below. Mr. Meisenheimer's
bonus for 2004 was based on individual performance, performance of the
department within his area of responsibility, and certain goals related to
Company operations for the fiscal year.
STOCK OPTIONS
The Company established the 1993 Employee Stock Award Plan ("Employee
Option Plan") for the purpose of aligning employee and shareholder interests.
Under 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.
The Board expects to grant stock option awards to eligible employees
beginning in calendar year 2005 if the shareholders approve Proposal Three
"Adoption of an Employee Incentive Stock Option Award Plan."
Submitted by the Compensation Committee: Steven J. Pully, Chairman
Robert B. Page
Ramon D. Phillips
EXECUTIVE EMPLOYMENT CONTRACTS
Ronald W. Parker, B. Keith Clark, Ward T. Olgreen, and Shawn M. Preator
each entered into an Employment Agreement with the Company on December 16, 2002
that contained the following provisions: (i) a term that currently extends
through December 31, 2007 for Mr. Parker and December 31, 2005 for Messrs.
Olgreen and Preator; (ii) the respective executive's compensation will be
determined each year by the Compensation Committee; (iii) each executive may be
terminated with or without cause, with cause including, but not limited to,
breach of monetary obligation to the Company, violation of the employment
agreement, fraud against the Company, and failure to substantially perform
required duties, each as described in the agreement; (iv) each executive shall
receive an annual salary not less than his current salary and a bonus for Mr.
Parker of not less than fifty percent of his annual salary based on Company
performance related to revenue, net income, new store openings, store sales,
Company stock price, store closings, and Company expenses, and a bonus for each
of Messrs. Olgreen and Preator of not less than twenty percent of their
respective annual salary based on individual performance, the performance of
departments within their responsibility, and certain goals related to Company
operations for the fiscal year; (v) each executive is bound by obligations to
the Company related to the protection of the Company's trade secrets and
confidential information; and (vi) each executive is bound to arbitrate disputes
related to his employment agreement.
Mr. Parker, Mr. Olgreen, or Mr. Preator may terminate his respective
agreement at any time within 12 months after a "change of control"of the Company
occurs. Change of control is defined as: (a) a transfer of substantially all of
the assets of the Company to any person, group, or entity other than a person,
group, or entity that is controlled by the executive; (b) the Company is merged
with or into another corporation and the shareholders of the Company prior to
such merger own less than 50% of the voting stock of the Company or other
surviving corporation after the merger; (c) an unapproved change in the majority
of the Company's Board of Directors; or (d) a person, entity, or group (other
than (i) the Company or (ii) an employee benefit plan sponsored by the Company)
acquires 50% or more of the voting stock of the Company. If the Company
terminates Mr. Parker's employment without cause, or if Mr. Parker terminates
his employment upon a "change of control," he will be entitled to a lump sum
payment equal to four times (i) his highest annual salary over the last three
years plus (ii) the highest bonus and other cash compensation received by Mr.
Parker during the last three years. If the Company terminates Mr. Olgreen's or
Mr. Preator's employment without cause, or if Mr. Olgreen, or Mr. Preator
terminates his employment upon a "change of control", he will be entitled to a
lump sum payment equal to two and one-half times the base amount of his annual
compensation, as calculated according to Section 280G of the Internal Revenue
Code. In addition, Mr. Parker, Mr. Olgreen, and Mr. Preator would be entitled
to an additional "tax gross-up payment" as a result of any excise tax that such
person is required to pay as a result of such payment being deemed to be an
"excess parachute payment" under the Internal Revenue Code. Each agreement
includes a noncompetition covenant that would apply for a number of years equal
to the number of years by which the respective executive's compensation is
multiplied pursuant to any severance payments made to such executive.
On July 7, 2004 Mr. Clark resigned his position as Senior Vice President,
Secretary, and General Counsel of the Company, citing provisions of his
employment contract requiring him to give notice of his election to terminate
his employment within twelve months of a "change of control" of the Company. The
Company disputes that a "change of control" of the Company has occurred and,
pursuant to the terms of Mr. Clark's employment contract, has initiated
arbitration proceedings to resolve the dispute.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 6, 1999, the Company loaned Ronald W. Parker, the Company's President
and Chief Operating Officer, approximately $560,000 to acquire 200,000 shares of
Common Stock through the exercise of vested stock options previously granted to
him by the Company. On July 7, 2000, the Company loaned Mr. Parker
approximately $302,000 to acquire an additional 200,000 shares of Common Stock
through the exercise of vested stock options previously granted to him by the
Company. The interest rate on the loans is the same floating interest rate the
Company pays on its credit facility with Wells Fargo. As collateral for the
loans, Mr. Parker granted the Company (i) a first lien on 100,000 previously
purchased shares of 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 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, which often pay 1 to 15 or 16 to 30 days
outside of terms. The balance of the Clairday Debt, approximately $335,318,
represents amounts incurred by Advance Foods, Inc. during a period in 1996 and
1997 following Mr. Clairday's sale of that company to unrelated third parties
and prior to his reacquisition of the company in 1997 ("Advance Foods Debt").
The Company carries the Advance Foods Debt on its books as past due trade
receivables, with no interest accrual. From time to time Mr. Clairday makes
payments toward reduction of the Advance Foods Debt, and the Company will from
time to time set off certain payments due Mr. Clairday or Advance Foods, Inc.
against the Advance Foods Debt, reducing the balance owed. The last payment made
by Mr. Clairday toward the Advance Foods Debt was $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 November 16,
2004 mail date of this proxy statement, Mr. Clairday was engaged in negotiations
with his lenders to finance the Advance Foods Debt and pay the Company in full.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 ("Act") requires the
Company's executive officers and directors and the persons who own more than ten
percent of the Common Stock to file initial reports of ownership of Common Stock
and reports of changes of ownership with the Securities and Exchange Commission
and the National Association of Securities Dealers, Inc. and to furnish the
Company with copies of such reports. The Company believes that, during the
preceding fiscal year and prior fiscal years, all of the Company's executive
officers, directors and holders of more than 10% of Common Stock timely filed
all reports required by Section 16(a) of the Act, except as previously disclosed
and except for the following filings made on behalf of the following directors:
For Mr. Schwarz, a Form 4 Statement of Changes in Beneficial Ownership of
Securities reflecting purchase of 7,500 shares of Common Stock on June 30, 2003
was not timely filed. A filing was made on July 14, 2003. For Mr. Phillips, a
Form 4 Statement of Changes in Beneficial Ownership of Securities reflecting
sale of 5,290 shares of Common Stock on April 2, 2004 was not timely filed. A
filing was made on April 13, 2004.
PROPOSAL TWO:
ADOPTION OF NON-EMPLOYEE DIRECTORS STOCK AWARD PLAN
There will be presented to the meeting a proposal to adopt the 2004
Non-Employee Directors Stock Award Plan ("2004 Plan"). The 2004 Plan will
replace the 1993 Outside Directors Stock Award Plan, which expired by its terms
on October 13, 2003. The Board believes that an equity-based incentive plan is
an integral component of an attractive compensation program that will attract,
retain, and reward qualified non-employee directors, to the benefit of the
Company and its shareholders. The Board has approved the 2004 Plan and directed
that it be submitted to the shareholders for approval.
Description of the Proposed 2004 Plan
Administration. The 2004 Plan is administered by the Compensation
Committee, which is comprised of three non-employee directors who are not
employed by the Company and who satisfy the "independence" requirements under
rules issued by the SEC and Nasdaq.
Eligibility. All non-employee directors of the Company ("Non-Employee
Directors") are eligible to participate in the 2004 Plan. A Non-Employee
Director is a member of the Company's Board of Directors who is not, and has not
been during the immediately preceding 12-month period, an employee of the
Company.
Shares Subject to the Plan. The total number of shares of Common Stock
that may be issued to Non-Employee Directors under the 2004 Plan shall not
exceed 200,000. Awards granted under the 2004 Plan that expire or terminate
without being exercised may be regranted.
Awards and Limitations. Under the 2004 Plan, options to acquire two shares
of Common Stock shall be granted on the first day of each 2004 Plan year
(currently a plan year is the Company's fiscal year) for each share of Common
Stock purchased by a Non-Employee Director during each preceding 2004 Plan year,
up to a maximum award of 50,000 shares per Non-Employee Director per 2004 Plan
year.
Exercise Price. The exercise price for any option granted under the 2004
Plan may not be less than the fair market value of the Common Stock on the date
of grant. Fair market value is defined in the 2004 Plan as the closing price for
the Common Stock on Nasdaq on the date of the option award. The fair market
value of the Common Stock was $2.85 on November 3, 2004.
Terms of Option Awards. For all awards under the 2004 Plan, the minimum
vesting period is six months after grant and the maximum exercise period is five
years after vesting. Payment for shares purchased pursuant to exercise of an
option award must be made at the time of exercise in cash or other payment
method approved by the Committee.
Term of the 2004 Plan. The 2004 Plan terminates three years from December
15, 2004 or such earlier date as the Board may determine and no awards may be
granted thereafter.
Option Exercise and Transfer. Awards granted pursuant to the 2004 Plan may
not be transferred other than as provided in the 2004 Plan and may only be
exercised by the participant, or, in the event of his death, by his heirs or
estate. Upon the death (or permanent disability) of a participant while serving
as a Non-Employee Director, any outstanding unvested award becomes immediately
vested and the option award may be exercised by the participant's heirs, estate,
or guardian within one year following the participant's death (or commencement
of such disability), after which any unexercised option award terminates. If a
Non-Employee Director's service as a member of the Board terminates for any
reason other than death or disability, all unvested and all unexercised vested
option awards terminate, but under certain circumstances the Director may have
three months within which to exercise vested options. In the event of a "change
of control" of the Company, as defined in the 2004 Plan, all outstanding option
awards will become immediately vested and exercisable.
Plan Amendment and Modification. The Committee may amend or terminate the
2004 Plan, including modification or waiver of terms as they apply to individual
participants. However, shareholder approval is required for any amendment that
would: increase the aggregate number of shares of Common Stock issuable under
the 2004 Plan; materially increase the benefits accruing to participants in the
2004 Plan; or modify the eligibility requirements for, or decrease the minimum
exercise price of, any options. No amendment or termination of the 2004 Plan
may adversely affect the rights of any participant under any then outstanding
award without the consent of the participant. The 2004 Plan provides for
automatic adjustments to prevent dilution or enlargement of the participant's
rights in the event of a stock split, stock dividend, or similar transaction. No
adjustments or reduction of the exercise price of any outstanding award may be
made in the event of a decline in the price of the Common Stock, either by
reducing the exercise price of outstanding awards or by canceling outstanding
awards in connection with regranting incentives at a lower price to the same
Participant.
Federal Income Tax Consequences Under the Directors Plan. Option awards
under the Plan are treated as nonqualified options.
Nonqualified Stock Options. Nonqualified stock option awards granted under
the Plan do not qualify as "incentive stock options" and will not qualify for
any special tax benefits to the participant. A participant generally will not
recognize any taxable income at the time the nonqualified option award is
granted. However, upon its exercise, the participant will recognize ordinary
income for federal tax purposes measured by the excess of the then fair market
value of the Common Stock over the exercise price. The income realized by the
participant will not be subject to income and other employee withholding taxes.
A participant's basis for determination of gain or loss upon the subsequent
disposition of Common Stock acquired upon the exercise of a nonqualified option
award will be the amount paid for such Common Stock plus any ordinary income
recognized as a result of the exercise of such option award. Upon disposition of
any Common Stock acquired pursuant to the exercise of a nonqualified option
award, the difference between the sale price and the participant's basis in the
Common Stock will be treated as a capital gain or loss and generally will be
characterized as long-term gain or loss if the Common Stock has been held for
more than one year at its disposition.
In general, there will be no federal income tax deduction allowed to the
Company upon the grant or termination of a nonqualified option award or a sale
of disposition of the Common Stock acquired upon the exercise of a nonqualified
option award. However, upon the exercise of a nonqualified option award or a
sale or disposition of the Common Stock acquired upon the exercise of a
nonqualified option award, the Company will be entitled to a deduction for
federal income tax purposes equal to the amount of ordinary income that a
participant is required to recognize as a result of the exercise, provided that
the deduction is not otherwise disallowed under the Internal Revenue Code.
NEW PLAN BENEFITS
The following table sets forth information, as of November 3, 2004,
concerning the benefits or amounts that will be received by or allocated to the
non-employee directors and all non-employee directors as a group under the 2004
Plan, to the extent such benefits or amounts are determinable as of November 3,
2004:
2004 PLAN
NAME AND POSITION DOLLAR VALUE ($) NUMBER OF UNITS (1)
----------------- ---------------- ---------------
Mark E. Schwarz, Director 71,250 25,000 (2)
Steven J. Pully, Director 50,895 17,858 (3)
(1) The awards under the 2004 Plan and the shares underlying any such award
may be subject to certain vesting, exercise, acceleration, and/or other rights,
restrictions, and conditions, at various exercise prices, in each case, as
determined by the Compensation Committee.
(2) On November 3, 2004, the Compensation Committee awarded Mark E. Schwarz
an option to purchase 25,000 shares of common stock of the Company at an
exercise price of $2.85 per share. The option will vest on November 3, 2005 and
will expire on November 3, 2010.
(3) On November 3, 2004, the Compensation Committee awarded Steven J. Pully
an option to purchase 17,858 shares of common stock of the Company at an
exercise price of $2.85 per share. The option will vest on November 3, 2005 and
will expire on November 3, 2010.
Recommendation of the Board of Directors
The Board believes that the adoption of the 2004 Plan will enable the
Company and its shareholders, through the future grant of stock options based
upon a Director's increase in equity position, to continue to secure the benefit
of the incentives inherent in director stock ownership.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS APPROVE THE 2004 PLAN.
PROPOSAL THREE:
APPROVAL OF AN EMPLOYEE STOCK AWARD PLAN
There will be presented to the meeting a proposal to adopt the 2004
Employee Incentive Stock Award Plan (the "Employee Plan"). The Employee Plan
will replace the 1993 Employee Stock Award Plan, which expired by its terms on
October 13, 2003. The Board believes stock options play an important role in
attracting and retaining the services of outstanding personnel and in
encouraging such employees to have a greater financial investment in the Company
(although the Employee Plan does not necessarily require them to hold for
investment the stock received under the Employee Plan). The Board has approved
the Employee Plan and directed that it be submitted to the shareholders for
approval.
Description of the Proposed Employee Plan
Administration. The Employee Plan is administered by the Compensation
Committee ("Committee"), which is comprised of three non-employee directors who
are not employed by the Company, who are not eligible to receive awards under
the Employee Plan, and who satisfy the "independence" requirements under rules
issued by the SEC and Nasdaq.
Eligibility. All regular, full-time employees of the Company, its
operating divisions, affiliates, subsidiaries, Company-operated restaurants, and
other employees designated from time to time by the Committee ("Employees or
"Participants") are eligible to participate in the Employee Plan. As of November
1, 2004, there were approximately 150 individuals eligible to participate in the
Employee Plan.
Shares Subject to the Plan. The total number of shares of Common Stock
that may be issued or transferred to Employees under the Employee Plan shall not
exceed 500,000. Awards granted under the Employee Plan that expire or terminate
without being exercised may be regranted.
Awards and Limitations. No Employee may receive grants under the Employee
Plan in any given year that, singly or in the aggregate, cover more than 50,000
shares of Common Stock.
Exercise Price. The exercise price for any option granted under the
Employee Plan may not be less than the fair market value of the Common Stock on
the date of grant. Fair market value is defined in the Employee Plan as the
closing price for the Common Stock on Nasdaq on the date of the option award.
The fair market value of the Common Stock was $2.85 on November 3, 2004.
Terms of Option Awards. For all awards under the Employee Plan, the
minimum vesting period is six (6) months after grant and the maximum exercise
period is five years after vesting. Payment for shares purchased pursuant to
exercise of an option award must be made at the time of exercise in cash or
other payment method approved by the Committee.
Term of the Employee Plan. The Employee Plan terminates three years from
December 15, 2004 or such other date as the Board may determine, and no awards
may be granted thereafter.
Option Exercise and Transfer. Awards granted pursuant to the Employee Plan
may not be transferred other than as provided in the Employee Plan and may only
be exercised by the participant, or, in the event of his death, by his heirs or
estate. Upon the death (or permanent disability) of an Employee, any
outstanding unvested award becomes immediately vested and the option award may
be exercised by the Employee's heirs, estate, or guardian within one year
following the Employee's death (or commencement of such disability), after which
any unexercised option award terminates. If an Employee's employment terminates
for any reason other than death or disability, any unvested option awards
terminate, and the Employee will have thirty (30) days within which to exercise
vested options. In the event of a "change of control" of the Company, as
defined in the Employee Plan, all outstanding option awards will become
immediately vested and exercisable.
Plan Amendment and Modification. The Committee may amend or terminate the
Employee Plan, including modification or waiver of terms as they apply to
individual Participants. However, shareholder approval is required for any
amendment that would: increase the aggregate number of shares of Common Stock
issuable under the Employee Plan; materially increase the benefits accruing to
Participants in the Employee Plan; or modify the eligibility requirements for,
or decrease the minimum exercise price of, any options. No amendment or
termination of the Employee Plan may adversely affect the rights of any
Participant under any then outstanding award without the consent of the
Participant. The Employee Plan provides for automatic adjustments to prevent
dilution or enlargement of the Participant's rights in the event of a stock
split, stock dividend, or similar transaction. No adjustments or reduction of
the exercise price of any outstanding award may be made in the event of a
decline in the price of the Common Stock, either by reducing the exercise price
of outstanding awards or by canceling outstanding awards in connection with
regranting incentives at a lower price to the same Participant.
Federal Income Tax Consequences Under the Employee Plan. Following is an
explanation of the U.S. federal income tax consequences for grantees who are
subject to tax in the U.S.
Incentive Stock Options. Option awards under the Plan are treated as
incentive options ("ISO"). The grant of an ISO does not result in income for the
grantee or a deduction for the Company. The exercise of an ISO would not result
in income for the grantee if the grantee (i) does not dispose of the shares
within two (2) years after the date of grant or one (1) year after the transfer
of shares upon exercise, and (ii) is an employee of the Company from the date of
grant and through and until three (3) months before the exercise date. If these
requirements are met, the basis of the shares upon later disposition would be
the option price. Any gain will be taxed to the Employee as long-term capital
gain and the Company would not be entitled to an deduction. The excess of the
market value on the exercise date over the option price is an item of tax
preference, potentially subject to the alternative minimum tax.
If the Employee disposes of the shares prior to the expiration of either of
the holding periods, the Employee would recognize ordinary income and the
Company would be entitled to a deduction equal to the lesser of the fair market
value of the shares on the exercise date minus the option price or the amount
realized on disposition minus the option price. Any gain in excess of the
ordinary income portion would be taxable as long-term or short-term capital
gain.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS APPROVE THE EMPLOYEE
PLAN.
PROPOSAL FOUR:
APPROVAL OF AN AMENDMENT TO
THE COMPANY'S RESTATED ARTICLES OF INCORPORATION
TO DECLASSIFY THE BOARD OF DIRECTORS
On October 20, 2004, the Board of Directors approved a proposal to amend
the Company's Restated Articles of Incorporation to delete Section 8.2, which
currently provides that the Board be divided into two classes of Directors,
Class I and Class II, with each class elected for a term expiring at the annual
meeting of the Company's shareholders held in the second year following their
election. The amended and substituted Section 8.2 would provide for one class of
Directors beginning with the slate of Directors proposed to the shareholders at
the annual meeting of the Company's shareholders in 2005. Members of the single
class would be subject to re-election every year. The proposal to amend the
Restated Articles of Incorporation requires the approval of holders of a
majority of the shares present in person or represented by proxy and entitled to
vote. The text of the existing and proposed versions of Section 8.2 is set forth
below.
Current Section 8.2 of the Company's Restated Articles of Incorporation.
- -------------------------------------------------------------------------------
8.2 The directors shall be divided into two (2) classes with respect to the
time for which they severally hold office, designated Class I and Class II.
Class I shall be composed of four (4) directors who shall hold office until the
1994 Annual meeting and until their respective successors shall be elected and
shall qualify. Class II shall be composed of three (3) directors (the initial
members of this class being designated in the Plan), who shall hold office until
the annual meeting of the shareholders in 1993 and until their respective
successors shall be elected and shall qualify. Upon expiration of the initial
terms of the office of directors as classified above, their successors shall be
elected for a term expiring at the annual meeting of the Corporation's
shareholders held in the second year following the year of their election. Any
director elected to fill any vacancy on the Board of Directors shall hold office
for the remainder of the full term of the class of directors in which such
vacancy occurs.
Section 8.2 as amended to reflect the changes discussed above in Proposal
---------------------------------------------------------------------------
Four.
---
8.2 Beginning with the Company's 2004 annual meeting of shareholders,
if the shareholders vote to amend the Restated Articles to so provide, there
shall be one (1) class of directors, who shall be elected annually. Those
directors currently referred to as Class I Directors, who are nominated for
election at the 2004 annual meeting of shareholders, if elected, will hold
office until the 2005 annual meeting of shareholders, at which time they, or
their successors, must be nominated for election as members of a single class of
directors. Those directors currently referred to as Class II Directors, who were
elected at the 2003 annual meeting of shareholders to hold office until the 2005
annual meeting of shareholders, will complete their terms at the 2005 annual
meeting of shareholders, at which time they, or their successors, must be
nominated for election as members of a single class of directors. Any director
elected to fill any vacancy on the Board of Directors shall hold office for the
remainder of the full term of the director whose position such newly elected
director fills.
If Proposal Four is not approved by the shareholders, directors will
continue to be elected by class, with the members of each class holding office
for a term to expire at the annual meeting of the Company's shareholders held in
the second year following the year of their election.
Recommendation of the Board of Directors
Management and the Board of Directors believes that one class of directors
to be annually re-elected is consistent with good governance practices and
provides greater accountability of the Board to the Company's shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS APPROVE THIS AMENDMENT
TO THE RESTATED ARTICLES OF INCORPORATION.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Our non-employee directors may benefit from the 2004 Plan as non-employee
directors may be eligible to participate in the 2004 Plan and may receive
benefits and awards under the 2004 Plan. Certain non-employee directors have
already received awards under the 2004 Plan that are subject to shareholder
approval of the 2004 Plan. These awards are described in this Proxy Statement
under the caption "NEW PLAN BENEFITS". The Board of Directors, in approving the
2004 Plan, may have different and/or conflicting interests than or with the
shareholders of the Company. In addition, the Board of Directors, management of
the Company, and the shareholders affiliated with the Company may have different
and/or conflicting interests than or with the shareholders of the Company that
are not affiliated with the Company in any capacity other than in their capacity
as a shareholder of the Company.
SHAREHOLDER PROPOSALS
FOR THE 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 no
later than July 15, 2005 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, but does not wish to include the proposal in the proxy materials
of the Company for such Annual Meeting of Shareholders, the shareholder must
notify the Company in writing of his or her intent to make such presentation no
later than September 28, 2005 or the Company shall have the right to exercise
its discretionary voting authority when such proposal is 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 the Company's Bylaws and
SEC requirements. The Company will not consider any proposal or nomination that
does not meet its Bylaw requirements and the SEC's requirements for submitting a
proposal or nomination. Notices of intention to present proposals at the
Company's 2005 Annual Meeting of Shareholders should be addressed to the
Corporate Secretary, Pizza Inn, Inc., 3551 Plano Parkway, The Colony, TX 75056,
or by fax to (469) 384-5061, or by e-mail to corporate_secretary@pizzainn.com.
--------------------------------
The Company reserves the 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.
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.
Prior to the first quarter of fiscal year 1998 and subsequent to the second
quarter of fiscal year 2001, the Company did not pay cash dividends on its
Common Stock during the applicable period. The Dow Jones Equity Market Index is
a published broad equity market index. The Dow Jones Entertainment and Leisure
Restaurant Index is compiled by Dow Jones and Company, Inc., and is comprised of
seven public companies, weighted for the market capitalization of each company,
engaged in restaurant or related businesses (CKE Restaurants, Inc., Brinker
International, Inc., Cracker Barrel Old Country Store, Inc., Darden Restaurants,
Inc., McDonald's Corporation, Tricon Global Restaurants, Inc., and Wendy's
International, Inc.).
PIZZA INN INC NEW
Cumulative Total Return
6/27/1999 6/25/2000 6/24/2001 6/30/2002 6/29/2003 6/27/2004
PIZZA INN, INC. . . . . . 100.00 107.90 69.33 40.89 68.69 90.09
DOW JONES US TOTAL MARKET 100.00 113.03 96.50 79.46 80.51 96.13
DOW JONES US RESTAURANTS. 100.00 79.06 81.09 96.18 86.50 106.18
MISCELLANEOUS
The accompanying proxy is being solicited on behalf of the Company. The cost of
solicitation has been or 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 materials to the beneficial owners of stock held of
record by such persons, and the Company may reimburse them for reasonable
out-of-pocket expenses of such solicitation.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K EXCLUDING EXHIBITS,
DATED SEPTEMBER 24, 2004, IS BEING FURNISHED TO SHAREHOLDERS WITH THIS PROXY
STATEMENT. COPIES OF SUCH EXHIBITS WILL BE FURNISHED UPON WRITTEN REQUEST AND
UPON REIMBURSEMENT OF THE COMPANY'S REASONABLE EXPENSES FOR FURNISHING SUCH
EXHIBITS. REQUESTS SHOULD BE ADDRESSED TO PIZZA INN, INC., 3551 PLANO PARKWAY,
THE COLONY, TEXAS 75056, ATTENTION: CORPORATE SECRETARY.
This Proxy, when properly executed, will be voted by the Proxies in the manner
designated below. If this Proxy is returned signed but without a clear voting
designation, the Proxies will vote FOR Item 1, Item 2, Item 3, and Item 4.
Please mark Your
votes as indicated
IN THIS EXAMPLE.
[X]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 1, ITEM 2, ITEM 3, AND ITEM 4.
Item 1. ELECTION OF CLASS I DIRECTORS. Nominees: Bobby L. Clairday,
Ronald W. Parker,
Butler E. Powell,
Mark E. Schwarz
WITHHELD
FOR FOR ALL WITHHELD FOR: (Write that nominee's name in the space
provided below).
[ ] [ ] ------------------------------------------------------
Item 2. ADOPTION OF A NON-EMPLOYEE DIRECTORS STOCK OPTION AWARD PLAN.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Item 3. ADOPTION OF AN EMPLOYEE INCENTIVE STOCK OPTION AWARD PLAN.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Item 4. AMENDMENT OF THE RESTATED ARTICLES OF INCORPORATION TO DECLASSIFY
THE BOARD OF DIRECTORS.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
If you plan to attend the Annual WILL
Meeting, please mark the WILL ATTEND
ATTEND block. [ ]
Date , 2004
_____________________________________________
Signature
_____________________________________________
Signature if held jointly
NOTE: Please sign as name appears hereon.
Joint owners should each sign. When
signing as attorney, executor, administrator,
trustee, or guardian, please give full title.
FOLD AND DETACH HERE
PROXY
(1) THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
PIZZA INN, INC.
3551 PLANO PARKWAY
THE COLONY, TEXAS 75056
ANNUAL MEETING OF SHAREHOLDERS ON DECEMBER 15, 2004
The undersigned, revoking all proxies heretofore given, hereby appoints Rod
J. McDonald and Shawn M. Preator, or either of them, as proxies of the
undersigned, with full power of substitution and resubstitution, to vote on
behalf of the undersigned the shares of Pizza Inn, Inc. (the "Company") that the
undersigned is entitled to vote at the Annual Meeting of Shareholders to be held
at 10:00 a.m., Dallas time, on Wednesday, December 15, 2004, at the Company's
corporate offices, 3551 Plano Parkway, The Colony, Texas 75056, and at all
adjournments thereof, as fully as the undersigned would be entitled to vote if
personally present, as specified on the reverse side of this card and on such
other matters as may properly come before the meeting or any adjournments
thereof. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.