SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
FILED BY REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
CHECK THE APPROPRIATE BOX:
[ ] PRELIMINARY PROXY STATEMENT
[ ] CONFIDENTIAL, FOR USE OF THE COMISSSION 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.
5050 QUORUM DRIVE, SUITE 500
DALLAS, TEXAS 75240
(972) 701-9955
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 15, 1998
To our Shareholders:
The Annual Meeting of Shareholders of Pizza Inn, Inc., (the "Company") will
be held at the Company's training facility, 4819 Keller Springs Road, Addison,
Texas 75248, on Tuesday, December 15, 1998, at 10:00 a.m., Dallas time, for the
following purposes:
1. To elect four Class I directors;
2. To approve an amendment to the 1993 Stock Award Plan;
3. To approve an amendment to the 1993 Outside Directors Stock Award Plan;
4. To amend the Company's Restated Articles of Incorporation to delete
certain provisions restricting acquisition of the Company's Common Stock; and
5. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only shareholders of record at the close of business on October 26, 1998 are
entitled to notice of, and to vote at, this meeting and any adjournments
thereof.
Sincerely,
/S/Jeff Rogers
Jeff Rogers
President and Chief Executive Officer
November 9, 1998
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.
5050 QUORUM DRIVE, SUITE 500
DALLAS, TEXAS 75240
(972) 701-9955
PROXY STATEMENT FOR THE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 15, 1998
The Board of Directors of Pizza Inn, Inc., a Missouri corporation (the
"Company"), is soliciting proxies to be voted at the Annual Meeting of
Shareholders (the "Annual Meeting") to be held at the Company's training
facility, 4819 Keller Springs Road, Addison, Texas 75248, on Tuesday, December
15, 1998, 10:00 a.m., Dallas time, and at any adjournments thereof. This Proxy
Statement was first mailed to the Company's shareholders on or about November 9,
1998.
If the proxy is signed and returned before the Annual Meeting, it will be
voted in accordance with the directions on the proxy. A proxy may be revoked at
any time before it is voted by execution of a subsequent proxy, by signed
written notice to Pizza Inn, Inc., 40 Wall Street, New York, NY 10005, or by
voting in person 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 26, 1998. At the close of business on that date,
there were outstanding 11,641,830 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 until their respective successors are
elected and qualified;
2. FOR an amendment to the 1993 Stock Award Plan (the "Plan")
increasing by 500,000 shares the aggregate number of shares of Common Stock
issuable under the Plan;
3. FOR an amendment to the 1993 Outside Directors Stock Award
Plan (the "Director Plan") authorizing an increase in the number of stock
options granted each Director Plan year to Outside Directors who purchase
company stock in a preceding Director Plan year;
4. For an amendment to the Company's Restated Articles of Incorporation to
delete certain provisions restricting acquisition of the Company's Common Stock;
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 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. Solely with respect to the election of
directors, a Shareholder has that number of votes equal to the number of shares
held by him on the record date multiplied by the number of directors being
elected and he is entitled to cumulate his votes and cast them all for any
single nominee or to spread his votes, so cumulated, among as many nominees and
in such manner as he sees fit. Directors must 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. Brokers' "non-votes" are treated the same as votes withheld or
abstained.
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, FOR the proposed amendment to the Plan, FOR the
proposed amendment to the Directors Plan, and FOR the proposed amendment to the
Restated Articles of Incorporation. 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 affirmative role of a majority of the shares of
Common Stock, in present or by proxy, at the Annual Meeting is required to
approve the proposed amendment of the Plan, the proposed amendment to the
Director Plan, and the proposed amendment to the Restated Articles of
Incorporation.
PROPOSAL ONE:
ELECTION OF DIRECTORS
The Company's Restated Articles of Incorporation and By-laws 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 four incumbent Class I directors, each to
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. Directors will
be elected by cumulative voting. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
EACH OF THE FOUR NOMINEE DIRECTORS.
The following table lists the names and ages, as of October 1, 1998, of the four
nominee directors and the three directors whose terms of office will continue
after the Annual Meeting, the
class to which each director has been or will be elected, 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 (assuming the election
of each nominee).
<TABLE>
<CAPTION>
Director Term
Nominee Directors Age Class Since Expires
- -------------------- -------- ----- ----- -------
<S> <C> <C> <C> <C>
Bobby L. Clairday. . 55 I 1990 2000
Ronald W. Parker . . 48 I 1993 2000
Ramon D. Phillips. . 65 I 1990 2000
Butler E. Powell . . 59 I 1998 2000
Continuing Directors
- --------------------
C. Jeffrey Rogers. . 51 II 1990 1999
F. Jay Taylor. . . . 75 II 1994 1999
Steve A. Ungerman. . 54 II 1990 1999
</TABLE>
EXECUTIVE OFFICERS
The following table sets forth certain information, as of October 1, 1998,
regarding the Company's executive officers:
<TABLE>
<CAPTION>
Executive
Officer
Name Age Position Since
- ------------------ --------- ---------------------------------------------------------- -----
<S> <C> <C> <C>
C. Jeffrey Rogers. 51 President, Vice Chairman and Chief Executive Officer 1990
Ronald W. Parker . 48 Executive Vice President and Chief Operating Officer 1992
B. Keith Clark . . 35 General Counsel and Secretary 1997
Nancy J. Deemer. . 48 Controller, Treasurer and Assistant Secretary 1998
Dennis L. Essary . 44 Vice President of Norco Operations 1998
Bradford H. Lucky. 32 Vice President of Marketing 1997
Ward T. Olgreen. . 39 Vice President of International Operations and Brand R & D 1995
Gary W. Payne. . . 36 Vice President of Domestic Franchise Sales 1998
Robert L. Soria. . 43 Vice President of Restaurant Development 1993
Karen A. Steinbach 40 Vice President of Franchise Operations and Training 1997
</TABLE>
BIOGRAPHIES OF NOMINEE DIRECTORS AND CONTINUING DIRECTORS
Steve A. Ungerman is Of Counsel to the law firm of Boswell & Kober, P.C.
From August 16, 1997 to December 31, 1997, he was employed by MedSynergies,Inc.,
a physician practice management company, in the capacity of Special Projects.
From September 16, 1996 to August 15, 1997, he was President of MedSynergies,
Inc. From September 1996 to December 1997, he was Of Counsel to the law firm of
Ungerman, Sweet & Brousseau. Prior to September 1996, he practiced law as a
shareholder of Ungerman & Ungerman, P.C. and its predecessors for 28 years in
the areas of business matters, commercial finance and mediation. Mr. Ungerman
received his Juris Doctor degree from Southern Methodist University. He was
elected a Director and Chairman of the Board of Directors of Pizza Inn in
September 1990.
Bobby L. Clairday 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 three states. 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 our 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.
Ronald W. Parker is Executive Vice President and Chief Operating Officer of
the Company. Mr. Parker joined the Company in October 1992 and was elected
Executive Vice President, Chief Operating Officer and a Director in January
1993. 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.
Ramon D. Phillips has been President, Chief Executive Officer and Chairman
of the Board of Hallmark Financial Services, Inc., a financial services company,
since May 1989. Prior to Hallmark Financial Services, Inc., Mr. Phillips had
over fifteen years experience in the franchise restaurant industry, serving in
an executive position with Kentucky Fried Chicken (1969-1974) and Pizza Inn,Inc.
(1974-1989).
Butler E. Powell is Vice President of Business Banking with Hibernia
National Bank in Metairie, Louisiana. He has served in various capacities with
the bank and its predecessors since 1983. He graduated from Loyola University
in New Orleans with BBA and MBA degrees and spent 3 years with the national
accounting firm, Ernst and Ernst, before entering the banking industry. Mr.
Powell was 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
Director of Pizza Inn in January 1998.
C. Jeffrey Rogers was appointed President of the Company's predecessor in
February 1990 and he became President, Chief Executive Officer and a Director of
the Company in September 1990 pursuant to the terms of the Company's
recapitalization plan. From 1983 to 1989, Mr. Rogers was President, Chief
Executive Officer and a Director of USACafes General Partner, Inc., the general
partner of the limited partnership that owned the Bonanza family restaurant
system and franchised approximately 650 Bonanza restaurants, and its predecessor
USACafes. Mr. Rogers was elected Vice Chairman of the Board of Directors of the
Company in January 1994, and he was elected a Director of Hallmark Financial
Services, Inc. in May 1995.
F. Jay Taylor is an arbitrator in Ruston, Louisiana who is affiliated with
the American Arbitration Association and the Federal Mediation and Conciliation
Service. He is a Director and Chairman of the Audit Committee of Michael's
Stores, Inc. and a Director of the Illinois Central Railroad. He formerly
served as a Director of USACafes, Earth Resources and Mid South Railroad. Dr.
Taylor, who received his Ph.D. from Tulane University, served as President of
Louisiana Tech University from 1962 to 1987 and currently serves as its
President Emeritus. Mr. Taylor was elected a Director of the Company in 1994.
BIOGRAPHIES OF NON-DIRECTOR OFFICERS
B. Keith Clark joined the Company in February 1997 and was elected General
Counsel and Secretary of the Company in March 1997. From June 1994 through
February 1997, he was Assistant General Counsel and Assistant Secretary of
American Eagle Group, Inc., a property and casualty insurance holding company.
From January 1990 through May 1994, Mr. Clark was a corporate associate in the
Dallas office of Akin, Gump, Strauss, Hauer & Feld, L.L.P., a diversified
international law firm.
Nancy J. Deemer was elected Controller, Treasurer and Assistant Secretary in
April 1998. Prior to joining Pizza Inn, Ms. Deemer owned and operated a CPA firm
in the Dallas, Texas area from April 1997 through March 1998. From February
1996 through March 1997, Ms. Deemer was Controller of U.S. Communications, Inc.,
a regional long distance service provider. From July 1995 to February 1996, Ms.
Deemer offered accounting services on an independent contract basis. From May
1990 to July 1995, Ms. Deemer served in various capacities with Spectravision,
Inc., most recently as Vice President and Corporate Controller.
Dennis L. Essary was appointed Vice President of Administration/Controller
of Norco Division of the Company in July 1997. In February 1998 he was
appointed Vice President of Norco Operations. He joined the Company as
Controller of the Norco Division in September 1992. Mr. Essary was Vice
President of Mediquip International, a distributor of medical equipment and
supplies, from April 1990 to September 1992. Mr. Essary owned a certified
public accounting firm from 1987 to 1990.
Bradford H. Lucky was appointed Vice President of Marketing in March 1997. He
joined the Company in December 1996 as Executive Director of Marketing.
From 1989 through November 1996, Mr. Lucky served in several account
management positions in the Publicis/Bloom Advertising Agency.
Ward T. Olgreen was appointed Vice President of International Operations
and Brand R&D for the Company in January 1995. He joined the Company in
September 1991 as a Franchise Operations Consultant. Mr. Olgreen was promoted
to Senior Franchise Operations Consultant in July 1992 and Director of Franchise
Operations in July 1993. Mr. Olgreen was a Branch Manager for GCS Service,
Inc., a restaurant equipment service provider, from June 1986 through July 1991.
Gary W. Payne was appointed Vice President of Domestic Franchise Sales in
April 1998. Prior to joining Pizza Inn, Mr. Payne was Regional Vice President
for TCBY Systems, Inc., where he was employed from June 1992 through March 1998.
Robert L. Soria was appointed Vice President of Restaurant Development for
the Company in February 1996. He was Vice President of Franchise Operations
from July 1993 through February 1996. Mr. Soria joined the Company in May 1991
as a Regional Director, and he was promoted to Director of Franchise Services in
September 1991. Mr. Soria was a Regional Franchise Manager for Popeye's Fried
Chicken in San Antonio, Texas from 1989 through May 1991. Prior to 1989, Mr.
Soria served in several positions for USACafes with responsibility for
restaurant and franchise operations.
Karen A. Steinbach joined Pizza Inn in April 1995, and was appointed
Director of Franchise Operations in July of 1995. She was appointed Vice
President of Franchise Operations and Training in April of 1997. Prior to
joining Pizza Inn, Ms. Steinbach was Director of Systems Development at Brice
Foods from 1993 through 1995. From 1988 to 1993, Ms. Steinbach served in
several positions at Brice Foods with responsibilities for restaurant and
franchise operations.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information, as of October 1, 1998,
with respect to the beneficial ownership of Common Stock by: (a) each person
known 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 (15 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.
<TABLE>
<CAPTION>
Name Shares
and Address of Beneficially Percent
5% Beneficial Owner Owned of Class
- ------------------------------ ------------ ---------
<S> <C> <C> <C>
C. Jeffrey Rogers (a) 4,102,188 31.6%
5050 Quorum Drive, Suite 500
Dallas, Texas 75240
Ronald W. Parker (a) 1,367,652 9.5%
Butler E. Powell 2,500 less than 1%
Bobby L. Clairday (a) (b) 60,100 less than 1%
Ramon D. Phillips (a) (c) 46,956 less than 1%
Steve A. Ungerman (a) (d) 45,849 less than 1%
F. Jay Taylor (a) 10,000 less than 1%
B. Keith Clark (a) 17,465 less than 1%
Karen A. Steinbach (a) 14,066 less than 1%
Ward T. Olgreen(a) 72,552 less than 1%
All Directors and
Executive Officers as a Group 5,748,519 41.1%
</TABLE>
(a) Includes vested options under the Company's stock option plans, as
follows: 1,280,000 shares for Mr. Rogers; 843,500 shares for Mr. Parker; 30,000
shares for Mr. Clairday; 17,643 shares for Mr. Phillips; 15,283 shares for Mr.
Ungerman; 5,000 shares for Mr. Taylor; 12,500 shares for Mr. Clark; 12,000
shares for Ms. Steinbach; and 45,000 shares for Mr. Olgreen.
(b) Mr. Clairday shares voting and investment power for 18,200 shares with
his wife.
(c) Mr. Phillips shares voting and investment power for 5,333 shares with
the shareholders of Wholesale Software International, Inc.
(d) Mr. Ungerman shares voting and investment power for 12,283 shares with
his wife.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board has established Audit, Compensation, Executive, Finance and Stock
Award Plan Committees. The Audit Committee selects independent auditors and
reviews audit results. The Compensation Committee reviews and approves
remuneration for officers of the Company and administers the 1992 Stock Award
Plan. The Finance Committee reviews and oversees the Company's capital structure
and operating results. The Executive Committee considers business as directed
by the Chairman of the Board. The Stock Award Plan Committee administers the
1993 Stock Award Plan and the 1993 Outside Directors Stock Award Plan.
As of October 1, 1998, Messrs. Clairday, Phillips, Taylor and Ungerman
serve on the Audit Committee; Messrs. Phillips, Powell and Ungerman serve on
both the Compensation and Stock Award Plan Committees; Messrs. Phillips, Rogers
and Ungerman serve on the Executive Committee; and Messrs. Parker, Phillips,
Powell and Taylor serve on the Finance Committee.
During fiscal year 1998, the Board of Directors held four meetings. The
Audit Committee met three times, the Compensation Committee met once, the
Executive Committee met six times and the Finance Committee met four times. In
addition, the Board of Directors and the Compensation and Stock Award Plan
Committees took several actions by unanimous written consent in lieu of
meetings. Each of the directors attended at least three-fourths of the total
number of meetings held by the Board and the committees on which he served.
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 28, 1998, June 27, 1997 and June
30, 1996 (designated as years 1998, 1997 and 1996).
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
------------------------ --------------------
Securities Under-
Name Other Annual lying Options
(and Principal Position) Year (a) Salary ($) Bonus ($) Compensation ($)(b) (# of shars)(c)
- ------------------------ -------------------- --------------- ---------- -------------------- ---------------
<S> <C> <C> <C> <C> <C>
C. Jeffrey Rogers. . . . 1998 $ 536,065 $ 612,500 $ 243,892 180,000
(Chief Executive . . . . 1997 $ 510,539 $ 500,000 $ 220,380 250,000
Officer) . . . . . . . . 1996 $ 495,107 $ 500,000 $ 236,158 330,000
Ronald W. Parker . . . . 1998 $ 383,890 $ 186,500 $ 179,402 180,000
(Chief Operating . . . . 1997 $ 325,000 $ 270,160 $ 187,825 250,000
Officer) . . . . . . . . 1996 $ 295,149 $ 267,660 $ 165,207 193,500
B. Keith Clark (General. 1998 $ 107,211 $ 5,000 $ 3,600 27,000
Counsel) (d) . . . . . . 1997 $ 31,923 $ 8,000 $ 1,200 30,000
Karen A. Steinbach . . . 1998 $ 87,077 $ 6,000 $ 3,600 27,000
(Vice President of . . . 1997 $ 71,539 $ 16,000 $ 3,600 15,000
Franchise Operations . . 1996 $ 56,462 $ 20,960 $ 3,600 15,000
and Training)
Ward T. Olgreen. . . . . 1998 $ 84,690 $ 5,000 $ 3,600 12,000
(Vice President of . . . 1997 $ 76,384 $ 13,759 $ 5,980 10,000
International. . . . . . 1996 $ 73,574 $ 27,560 $ 5,255 10,000
Operations and R&D)
</TABLE>
(a) The Company's fiscal years 1997 and 1998 included 52 weeks, compared to
53 weeks in 1996.
(b) Includes: for Mr. Rogers, supplemental retirement benefits of $43,860
(which includes the payment of related taxes) per year in 1998, 1997, 1996 and
life insurance benefits (which includes the payment of related taxes) of $86,986
in 1998, $69,684 in 1997, and $75,929 in 1996; for Mr. Parker, supplemental
retirement benefits of $43,860 (which includes the payment of related taxes) per
year in 1998, 1997, 1996 and life insurance benefits (which includes the payment
of related taxes) of $67,309 in 1998, $66,965 in 1997 and $63,860 in 1996; for
Mr. Clark, car allowance of $3,600 in 1998 and $1,200 in 1997; for Ms.
Steinbach, car allowance of $3,600 per year in 1998, 1997 and 1996; and for Mr.
Olgreen, car allowance of $3,600 per year in 1998, 1997 and 1996.
(c) Stock option grants awarded in July 1998 were for services performed
during fiscal 1998. See "Option Grants in Last Fiscal Year."
(d) Includes compensation for Mr. Clark from his employment date of February
26, 1997.
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 1998 and unexercised stock options held at the end of fiscal
year 1998 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 $5.00 on June 26, 1998 the last trading
day of the Company's fiscal year. Certain stock option grants listed below were
awarded in July 1998 for services performed during fiscal year 1998. See
"Option Grants in Last Fiscal Year."
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Shares Fiscal Year End Fiscal Year End
Acquired on Value Realized (Exercisable/ (Exercisable/
Name Exercise (#) ($) Unexercisable)(#) Unexercisable)
- ------------------ ------------- ---------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
C. Jeffrey Rogers. -- -- 1,280,000 (e) $2,429,375
180,000 (u) $ -0-
Ronald W. Parker . -- -- 843,500 (e) $1,559,938
180,000 (u) $ -0-
B. Keith Clark . . -- -- 7,500 (e) $ 4,688
49,500 (u) $ 30,000
Karen A. Steinbach -- -- 4,000 (e) $ 6,750
62,000 (u) $ 54,188
Ward T. Olgreen. . -- -- 36,000 (e) $ 84,375
36,000 (u) $ 42,500
<FN>
(e) Denotes exercisable options.
(u) Denotes unexercisable options.
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options granted
during fiscal year 1998, 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. Certain stock option grants listed below were awarded
in July 1998 for services performed during fiscal year 1998.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term
- --------------------------------------------------------------------------- --------------------------
% of Total Options
Granted to Exercise
Options Employees in Fiscal Price Expiration
Granted (#) Year ($/Share) Date 5% 10%
- ------------------- ------------------- --------------------- -------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
C. Jeffrey Rogers . 180,000(a) 26.2 5.00 01/14/04 $277,370 $621,932
Ronald W. Parker. . 180,000(a) 26.2 5.00 01/14/04 $277,370 $621,932
B. Keith Clark 15,000(b) 2.2 4.875 10/16/05 $ 34,914 $ 83,625
. . . 12,000(c) 1.7 5.00 07/14/06 $ 28,647 $ 68,615
Karen A. Steinbach 15,000(b) 2.2 4.875 10/16/05 $ 34,914 $ 83,625
12,000(c) 1.7 5.00 07/14/06 $ 28,647 $ 68,615
Ward T. Olgreen 12,000(c) 1.7 5.00 07/14/06 $ 28,647 $ 68,615
<FN>
(a) All of such options were granted on July 15, 1998 and become exercisable on January 14, 1999.
(b) All of such options were granted on October 17, 1997. One third of such options become
exercisable on October 16, 1998, one third become exercisable on October 16, 1999, and one third become
exercisable on October 16, 2000.
(c) All of such options were granted on July 15, 1998. One half of such options become exercisable on
July 14, 2000 and the other half become exercisable on July 14, 2001.
</TABLE>
COMPENSATION COMMITTEE AND STOCK AWARD PLAN COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is comprised of three
independent, non-employee directors. The Compensation Committee is responsible
for establishing the level of compensation of the executive officers of the
Company and administering the 1992 Stock Award Plan. The same three directors
also comprise the Stock Award Plan Committee, which administers the 1993 Stock
Award Plan.
In its administration and periodic review of executive compensation, the
Compensation Committee believes in aligning the interests of the executive
officers with those of the Company's shareholders. To accomplish this, the
Compensation Committee seeks to structure and maintain a compensation program
that is directly and materially linked to operating performance and enhancement
of shareholder value. This has been effectively accomplished in the past by
weighting the compensation of most executive officers in favor of equity
ownership incentives and bonuses paid on the basis of performance.
The Company intends for all compensation paid to its executives to be fully
deductible under federal income tax laws. Recently adopted changes to the
Internal Revenue Code impose certain limitations on compensation in excess of $1
million per year paid to executives. The Compensation Committee believes that
performance based bonuses and stock options granted to its executive officers
will continue to be fully deductible.
CHIEF EXECUTIVE OFFICER
The salary and bonus of C. Jeffrey Rogers, Chief Executive Officer of the
Company, is set forth in his Employment Agreement, which was originally executed
in connection with Mr. Rogers' joining the Company in 1990 and was most recently
amended in October 1997. The agreement provides for an annual base salary in
fiscal year 1998 of $536,065 which will be increased by 5% per year.
In reviewing Mr. Rogers' agreement, as amended, the Compensation Committee
found his base salary and bonus to be in line with the overall leadership he has
provided to the employees and to the franchise community. The bonus program
established in Mr. Rogers' agreement is based on new store openings, pre-tax net
income growth, and pre-tax operating cash flow. Termination provisions were
found to be industry competitive and in line with historical performance and
expected future contributions as well as helping to ensure his continued
leadership. See the section entitled "Executive Employment Contracts."
EXECUTIVE OFFICERS
Salaries of the executive officers, excluding Mr. Rogers, are reviewed
annually and adjusted based on competitive practices, changes in level of
responsibilities and, in certain cases, individual performance measured against
goals. The Compensation Committee strongly believes that maintaining a
competitive salary structure is in the best interest of shareholders. It
believes the Company's long-term success in its marketplace is best achieved
through recruitment and retention of high caliber executives who are among the
most skilled and talented in the industry.
Bonus targets for the four most highly paid executive officers, other than
the Chief Executive Officer, are set annually. Mr. Parker's 1998 bonus was
based on individual performance and targets related to the Company's
profitability, cash flow and debt repayments. The 1998 bonuses for Mr. Clark,
Ms. Steinbach and Mr. Olgreen were based on individual performance and
targets related to profitability of the Company for the fiscal year.
STOCK OPTIONS
The Compensation Committee and Stock Award Plan Committee believe that
equity ownership motivates officers and employees to provide effective
leadership that contributes to the Company's long-term financial success as
measured by appreciation in its stock price. The Company established the 1993
Stock Award Plan for the purpose of aligning employee and shareholder interests.
Under this plan, stock options have been granted in fiscal year 1998 to Mr.
Rogers and the other executive officers, as well as other employees, based upon
their relative positions and responsibilities, as well as historical and
expected contributions to Company growth.
Submitted by the Compensation Committee and Stock Award Plan Committee:
Ramon D. Phillips
Steve A. Ungerman
Butler E. Powell
EXECUTIVE EMPLOYMENT CONTRACTS
C. Jeffrey Rogers and the Company entered into an Employment Agreement
dated October 23, 1997 and effective July 1, 1997, for a term which currently
extends through June 30, 2002.
Under the agreement, Mr. Rogers is also entitled to the following cash
bonuses, based on performance: (a) $37,500 payable each quarter, if the
Company's operating results report pre-tax income growth of at least 10% more
than the same quarter in the preceding year; (b) $75,000 payable each
semi-annual period, if the Company opens at least 50 new Pizza Inn units during
such fiscal year; and (c) $200,000 payable annually, if the Company meets
targets established in the agreement for pre-tax operating cash flow (such bonus
being adjustable to a maximum of $250,000 per year if such targets are exceeded
by certain amounts).
Under the agreement, Mr. Rogers also receives a $25,000 annual allowance to
purchase life and disability insurance and a $10,000 annual allowance to
maintain secondary health, dental and other insurance. As compensation for the
use of his personal automobile on Company business, Mr. Rogers receives $1,350
per month as an automobile allowance, plus reimbursement of gasoline and
maintenance expenses.
Ronald W. Parker and the Company entered into an Employment Agreement dated
October 23, 1997 and effective July 1, 1997, for a term which currently extends
through June 30, 2002. The agreement provides for an annual base salary and
bonus not less than the current base salary and bonus with such increases as the
Compensation Committee may approve.
Mr. Rogers or Mr. Parker may terminate their respective agreements at any time
within six months after a "change in control" of the Company occurs or within
twelve months under certain circumstances after a change in control of the
Company occurs. Change in control is defined as: (a) a transfer of
substantially all of the assets of the Company to an outside group or entity;
(b) the acquisition by an outside group or entity of 50% or more of the stock of
the Company or other surviving corporation; or (c) an unapproved change in the
majority of the Company's Board of Directors. If the Company terminates Mr.
Rogers' employment without cause, or if Mr. Rogers terminates his employment
upon a "change in control," he will be entitled to a lump sum payment of his
base salary for the remainder of the term of the agreement plus two times the
maximum annual bonus amounts provided in the agreement. If the Company
terminates Mr. Parker's employment without cause, or if Mr. Parker terminates
his employment upon a "change in control," he will be entitled to a lump sum
payment of three times (i) his highest annual salary over the last three years
plus (ii) the highest bonus and other cash compensation received by Mr. Parker
the last three years. Each agreement includes a noncompetition covenant that
would apply for three years after termination of employment.
COMPENSATION OF DIRECTORS
A director who is an employee of the Company is not compensated for service
as a member of the Board of Directors or any Committee of the Board. Outside
directors receive an annual fee of $17,000 plus meeting fees equal to $1,000 per
Board meeting and $250 per Committee meeting attended. The Chairman of the
Board receives an additional $6,000 annual fee for serving in that capacity.
Directors are also reimbursed for Board related expenses.
Under the 1993 Outside Directors Stock Award Plan each elected outside
director is eligible to receive, as of the first day of the Company's fiscal
year, options for Common Stock equal to the number of shares of Common Stock
purchased during the preceding fiscal year or purchases by exercise of
previously granted options during the first ten days of the current fiscal year.
On the first day of the first fiscal year immediately following the day on which
an outside director first becomes eligible to participate in this plan, that
outside director shall receive an option to acquire one share of Common Stock
for each share of Common Stock owned by such director on this first day of the
fiscal year. No outside director shall be entitled to options for more than
20,000 shares per fiscal year. Stock options granted under the plan have an
exercise price equal to the market price of the Common Stock on the date of
grant and are first exercisable one year after grant.
Since the beginning of fiscal year 1998, stock options were granted to
outside directors pursuant to such plan as follows: on June 27, 1997, options
for 3,500 shares (at $3.75) to Mr. Phillips, and 6,783 shares (at $3.75) to Mr.
Ungerman and; on July 1, 1998, options for 5,490 shares (at $5.50) to Mr.
Phillips, and 2,500 shares (at $5.50) to Mr. Powell.
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal year 1998 were
Messrs. Powell, Phillips and Ungerman. During fiscal year 1996, C. Jeffrey
Rogers served on the Board of Directors and the Compensation Committee of
Hallmark Financial Services, Inc., of which Mr. Phillips is Chief Executive
Officer and Chairman of the Board of Directors. Prior to 1990, Mr. Phillips
served as a director and officer of two predecessors of the Company. See
"Biographies of Nominee Directors and Continuing Directors."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 20 restaurants in
Arkansas, Texas and Missouri, 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 1998, purchases by these franchisees made up 8% of the Company's food and
supply sales, and royalties, license fees and area development fees from Mr.
Clairday and such franchisees made up 3% of the Company's franchise revenues.
Ramon D. Phillips is a Vice President, and his sons are shareholders of
Wholesale Software International, Inc., which is a franchisee operating one
Pizza Inn restaurant.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors and the persons who own more than ten percent
of the Company's Common Stock to file initial reports of ownership of Common
Stock and reports of changes of ownership with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc. and to
furnish the Company with copies of such reports. The Company believes that,
during the preceding fiscal year, all of the Company's executive officers,
directors and holders of more than 10% of its Common Stock complied with all
Section 16(a) filing requirements with the exception of one Form 4 report
inadvertently filed late for Ronald W. Parker. This Form 4 report, which
reported one transaction for the exercise of stock options in August 1997, was
filed in September 1997 after the filing deadline.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative annual total shareholder return
(change in share price plus reinvestment of any dividends) on the Company's
Common Stock versus two indexes for the past five fiscal years. The graph
assumes $100 was invested on the last trading day of the fiscal year ending June
27, 1992. Until fiscal year 1998, 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 (Boston Chicken, Inc.,
Brinker International, Inc., Cracker Barrel Old Country Store, Inc., Darden
Restaurants, Inc., McDonald's Corporation, Sysco Corporation, and Wendy's
International, Inc.).
<TABLE>
<CAPTION>
Cumulative Total Return
-----------------------
6/26/93 6/25/94 6/24/95 6/28/96 6/29/97 6/28/98
<S> <C> <C> <C> <C> <C> <C>
PIZZA INN, INC. . . . . 100.00 122.73 104.55 154.55 136.36 197.35
DOW JONES EQUITY MARKET 100.00 101.33 129.20 161.38 216.56 282.04
DOW JONES RESTAURANTS . 100.00 110.13 137.21 163.22 168.08 223.59
</TABLE>
PROPOSAL TWO:
AMENDMENT TO THE 1993 STOCK AWARD PLAN
INCREASING THE NUMBER OF ISSUABLE SHARES UNDER SUCH PLAN
The Company's 1993 Stock Award Plan (the "Plan") became effective as of
October 13, 1993. The purpose of the Plan is to attract and retain excellent
officers and employees by providing opportunities for them to participate in
increased stock value which their efforts help to produce.
The Plan is administered by the Stock Award Plan Committee (the
"Committee"), which is comprised of three outside directors who are not employed
by the Company and who qualify as "disinterested persons" under rules issued by
the Securities and Exchange Commission. All officers and employees of the
Company (approximately 235 persons) are eligible to participate in the Plan. The
Committee determines, in its discretion but subject to the limitations set forth
in the Plan, the persons to whom awards are granted, the number of shares
covered by awards, the exercise price of awards, and the conditions, if any,
imposed upon the granting of awards under the Plan. The Committee issues awards
under the Plan to employees in correlation with their respective
responsibilities to the Company.
The total number of shares of the Company's Common Stock which may be
issued to employees under the Plan (before the proposed amendment) shall not
exceed 2,500,000. During any one Plan year, the total number of options granted
and shares issued pursuant to stock appreciation rights ("SARs") shall not
exceed 1,000,000, plus any unused allocations from prior years. Awards granted
under the Plan which expire or terminate without being exercised may be
regranted.
The exercise price for any option granted under the Plan may not be less
than the fair market value of the Company's Common Stock on the date of grant.
For all awards under the 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 an option must be made at the time of exercise in
cash or other payment method approved by the Committee. The Plan terminates on
October 13, 2003 and no awards may be granted thereafter.
Awards granted pursuant to the Plan may not be transferred 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 he is
employed by the Company, any outstanding unvested award becomes immediately
vested and the 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 award terminates. If the
employment of a participant terminates for any reason other than death or
disability, he may exercise any vested award within 21 days after termination,
after which period any unexercised award terminates. In the event of a "change
of control" of the Company, as defined in the Plan, all outstanding awards will
become immediately vested and exercisable.
The Plan authorizes the Committee to grant "Incentive Options," which are
intended to permit the participant to defer resulting federal income taxes, as
well as "Standard Options" which do not have such tax benefit. The Plan also
authorizes the Committee to grant SARs either independent of, or in connection
with, options. Upon exercise of either form of option, the participant
purchases shares of Common Stock. Upon exercise of an SAR, the participant
receives, for each share with respect to which the SAR is exercised, an amount
equal to the difference between the fair market value of the Common Stock on the
date of the award and the fair market value of the Common Stock on the date of
exercise. Payment of an SAR benefit may be, at the discretion of the Committee,
in the form of cash, a note, or Common Stock of equivalent value.
The Committee may amend or terminate the Plan, including modification or
waiver of terms as they apply to individual participants. Shareholder approval
is required for any amendment which would: increase the aggregate number of
shares of Common Stock issuable under the Plan; materially increase the benefits
accruing to participants in the Plan; or modify the eligibility requirements
for, or decrease the minimum exercise price of, any Incentive Options. No
amendment or termination of the Plan may adversely affect the rights of any
participant under any then outstanding award without the consent of the
participant. The 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.
FEDERAL INCOME TAX CONSEQUENCES UNDER THE PLAN
Under the Internal Revenue Code (the "Code"), the holder of a Standard
Option will realize no taxable income upon the receipt of the option but will
realize compensation upon the exercise of such option, taxable as ordinary
income to the extent that the fair market value on the date of exercise exceeds
the option price. The Company is entitled to a deduction from income in an
equal amount at the time the optionee realizes such income. Upon a sale of
shares acquired pursuant to exercise of an option, any difference between the
sale price and the fair market value of the shares on the date of exercise will
be treated as capital gain or loss.
Incentive Options are intended to qualify as incentive stock options under
Section 422 of the Code. Generally, the optionee is not taxed and the Company
is not entitled to a deduction on the grant or exercise of an Incentive Option.
However, if the optionee disposes of the Option shares at any time within (i)
one year after the transfer of such shares to the optionee pursuant to the
exercise of such Incentive Option, or (ii) two years after the grant of such
Incentive Option, then the optionee will recognize ordinary income equal to the
excess, if any, of the lesser of the amount realized from such disposition or
the fair market value of the shares on the exercise date, over the exercise
price of such Incentive Option (with any remaining gain being taxed as a capital
gain). In such event, the Company will generally be entitled to a deduction in
an amount equal to the amount of ordinary income recognized by the optionee. If
the optionee disposes of the option shares outside of the above described time
limits, then capital gain or loss will be recognized in an amount equal to the
difference between the amount realized on the disposition and the exercise
price. The Company will not be entitled to any deduction in this event.
Finally, any excess of the fair market value of the stock on the date the
Incentive Option is exercised over the option exercise price will be included in
the calculation of the optionee's alternative minimum taxable income, which may
subject the optionee to the alternative minimum tax.
NEW PLAN BENEFITS
In July 1998, the Stock Award Plan Committee granted certain stock options
subject to shareholder approval of the proposed amendment to the Plan,
increasing by 500,000 shares the total number of shares issuable under the Plan.
The following table sets forth the dollar value and number of stock options
which were granted, subject to shareholder approval of such amendment, to each
of the named executive officers, all executive officers as a group, and all
other participating employees (excluding executive officers) as a group.
Outside directors, who are not employees of the Company, are not eligible to
receive stock options under this Plan.
<TABLE>
<CAPTION>
Name
(and Position) Dollar Value ($)(a) Number of Units
- ------------------------------ -------------------- ---------------
<S> <C> <C>
C. Jeffrey Rogers (b). . . . . $ 0 180,000
(Chief Executive
Officer)
Ronald W. Parker (b) . . . . . $ 0 180,000
(Chief Operating
Officer)
B. Keith Clark (b) . . . . . . $ 0 12,000
(General Counsel)
Karen A. Steinbach (b) . . . . $ 0 12,000
(Vice President of Operations
and Training)
Ward T. Olgreen (b). . . . . . $ 0 12,000
(Vice President of
International Operations
and R & D)
All Executive. . . . . . . . . $ 0 349,000
Officers
(10 persons)
All Other. . . . . . . . . . . $ 0 151,000
Employees
(26 persons)
<FN>
(a) Based on the difference between the exercise price of $5.00 per
share and the closing bid price of the Common Stock of $4.75 per share on
October 1, 1998.
(b) Terms of the options granted to Mr. Rogers, Mr. Parker, Mr. Clark,
Ms. Steinbach and Mr. Olgreen are set forth in the table above entitled "Option
Grants in the Last Fiscal Year."
</TABLE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
In August 1998, the Stock Award Plan Committee adopted, subject to the
approval of the Company's shareholders, an amendment to the Company's 1993 Stock
Award Plan (the "Plan"), increasing by 500,000 shares the total number of shares
of Common Stock which may be issued under the Plan. See "- New Plan Benefits"
above. After giving effect to such amendment, the total number of shares
issuable under the Plan will be 3,000,000.
As of June 1, 1998, there were only 115,000 shares available for the grant
of options under the Plan, as currently constituted. The Board of Directors
believes that the amendment will enable the Company and its shareholders,
through future grants of stock options and the grants described in the section
entitled "New Plan Benefits", to continue to secure the benefits of the
incentives inherent in stock ownership by its officers and employees. For
additional information regarding the Plan, see the section entitled "Amendment
to the 1993 Stock Award Plan Increasing the Number of Issuable Shares Under Such
Plan."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS APPROVE THE AMENDMENT TO THE
PLAN.
PROPOSAL THREE:
AMENDMENT TO THE 1993 OUTSIDE DIRECTORS STOCK
AWARD PLAN INCREASING THE NUMBER OF
OPTIONS ISSUABLE UNDER SUCH PLAN
The Company's 1993 Outside Directors Stock Award Plan (the "Directors
Plan") became effective as of October 13, 1993. The purpose of the Directors
Plan is to attract and retain excellent outside directors and provide those
directors with an opportunity to participate in increased value of the Company
which their initiative and skill have helped Outside Directors to produce.
The Directors Plan is administered by the Stock Award Plan Committee (the
"Committee"), which is comprised of three outside directors who are not employed
by the Company and who qualify as "disinterested persons" under rules issued by
the Securities and Exchange Commission. All Outside Directors of the Company
(the "Outside Directors") are eligible to participate in the Directors Plan. An
Outside Director is a member of the Company's Board of Directors who is not an
employee or officer of the Company. Under the Directors Plan, an option to
acquire one share of stock shall be granted on the first day of each Directors
plan year for each share of stock purchased by an Outside Director during the
preceding Directors plan year, up to a maximum award of 20,000 shares per
Outside Director per Directors Plan year.
The total number of shares of the Company's Common Stock which may be
issued to Outside Directors under the Directors Plan shall not exceed 250,000.
Awards granted under the Directors Plan which expire or terminate without being
exercised may be regranted.
The exercise price for any option granted under the Directors Plan may not
be less than the fair market value of the Company's Common Stock on the date of
grant. For all awards under the Directors 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 an option must be made at the
time of exercise in cash or other payment method approved by the Committee. The
Directors Plan terminates on October 13, 2003 and no awards may be granted
thereafter.
Awards granted pursuant to the Directors Plan may not be transferred 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 he serves as an Outside Director of the Company, any outstanding unvested
award becomes immediately vested and the 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 award terminates. If an Outside Director's service as a member of
the Board terminates for any reason other than death or disability, any
unexercised award terminates. In the event of a "change of control" of the
Company, as defined in the Directors Plan, all outstanding awards will become
immediately vested and exercisable.
The Committee may amend or terminate the Directors Plan, including
modification or waiver of terms as they apply to individual participants.
Shareholder approval is required for any amendment which would: increase the
aggregate number of shares of Common Stock issuable under the Directors Plan;
materially increase the benefits accruing to participants in the Directors Plan;
or modify the eligibility requirements for, or decrease the minimum exercise
price of, any Options. No amendment or termination of the Directors Plan may
adversely affect the rights of any participant under any then outstanding award
without the consent of the participant. The Directors Plan provides for
automatic adjustments to prevent dilution or enlargement of the participant's
rights in the event of a stock split, stock dividend or similar transaction.
FEDERAL INCOME TAX CONSEQUENCES UNDER THE DIRECTORS PLAN
The Options granted pursuant to the Directors Plan do not qualify as
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code (the "Code"), and as such, are considered non-qualified stock
options ("Standard Options"). Under the Code, the holder of a Standard Option
will realize no taxable income upon the receipt of the option but will realize
compensation upon the exercise of such option, taxable as ordinary income to the
extent that the fair market value on the date of exercise exceeds the option
price. The Company is entitled to a deduction from income in an equal amount at
the time the optionee realizes such income. Upon a sale of shares acquired
pursuant to exercise of an option, any difference between the sale price and the
fair market value of the shares on the date of exercise will be treated as
capital gain or loss.
RECOMMENDATION OF THE BOARD OF DIRECTORS
In August, 1998, the Stock Award Plan Committee adopted, subject to the
approval of the Company's shareholders, an amendment to the Directors Plan,
increasing from one to two the number of Options to be granted to an Outside
Director on the first day of each Directors Plan year for each share of the
Company's Common Stock the Outside Director purchased during the preceding
Directors Plan year.
The Board of Directors believes that this amendment will enable the Company
and its shareholders, through increased future grants of stock options, to
continue to secure the benefits of the incentives inherent in stock ownership by
the Outside Directors. For additional information regarding the Directors Plan,
see the section entitled "Amendment to the 1993 Outside Directors Stock Award
Plan Increasing the Number of Options Issuable Under Such Plan."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS APPROVE THIS AMENDMENT TO
THE DIRECTORS PLAN.
PROPOSAL FOUR:
APPROVAL OF AN AMENDMENT TO
THE RESTATED ARTICLES OF INCORPORATION
TO DELETE CERTAIN PROVISIONS RESTRICTING ACQUISITION
OF THE COMPANY'S COMMON STOCK
On October 23, 1998, the Board of Directors approved a proposal to amend
the Company's Restated Articles of Incorporation to delete Sections 4.3 through
4.17 which currently restrict a shareholder's ability to acquire in excess of
ten percent of the Company's outstanding Common Stock (the "Stock Acquisition
Restrictions"). The proposal to effect the amendment 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 Article
IV is set forth in the Appendix to this Proxy Statement.
On September 21, 1989, the Company's predecessor filed for protection under
the United States Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division. The plan of reorganization, as
confirmed by the court, became effective on September 5, 1990. In connection
with such confirmation, the Company filed its Restated Articles of Incorporation
which, among other things, created the Stock Acquisition Restrictions to protect
certain net operating loss carryforwards ("NOL") possessed by the Company and to
act as an anti-takeover device.
Under the Internal Revenue Code (the "Code"), a net operating loss of a
corporation for a taxable year may generally be carried forward 15 years to
offset taxable income of the corporation. The Company has a net operating loss
carryforward of approximately $14.9 million (the "NOL") resulting from taxable
losses incurred in and prior to fiscal year 1991. At present, subject to
expiration of the 15 year carryforward period, the Company believes that the NOL
is available to offset taxable income earned by the Company in 1998 or
thereafter.
The ability of the Company to use the NOL could be limited under section 382 of
the Code in the event of an "ownership change" of the Company. In general, an
"ownership change" of the Company would occur on any day if one or more 5%
shareholders of the Company have increased their aggregate respective percentage
point stock ownership (by value) in the Company by more than 50%. A "5%
shareholder" is a person who owns directly or by attribution more than 5% of the
stock of the Company. The percentage point increase in ownership of a 5%
shareholder on any day is the excess of the shareholder's percentage point
ownership on such day over the lowest percentage point ownership of the
shareholder during the previous three years. In the event of an "ownership
change," the Company would be allowed to use a limited amount of the NOL arising
prior to the ownership change for each taxable year thereafter. The annual
amount available for use, in general, would be limited to the product of (i) a
percentage approximating the rate of return on tax-exempt obligations and (ii)
the aggregate value of the equity of the Company on the date of the ownership
change. The amount of any annual limitation that is not utilized in any year
may be carried forward to the following year. The actual rules for determining
whether an ownership change of the Company has occurred under section 382 and
the impact on the ability of the Company to use the NOL are much more complex
than the foregoing summary would indicate.
The Stock Acquisition Restrictions operate to reduce the likelihood of an
ownership change of the Company under section 382 because they limit the
percentage point increase that any one shareholder can cause. If an ownership
change of the Company occurs, the limitation on the ability of the Company to
use its NOL could cause the Company to pay more (or significantly more) federal
income taxes thereafter than it otherwise would have paid. Prior to September
5, 1993, the Stock Acquisition Restrictions curtailed the ability of any
shareholder to acquire over five percent of the Company's outstanding Common
Stock, thereby dramatically reducing the likelihood of the Company forfeiting
its NOL. After such date, the restrictions automatically relaxed to the
existing ten percent threshold, providing reduced protection against the loss of
Company NOL.
Existing management and the Board of Directors have always supported the
maximization of shareholder value and continue to strive to do so. In addition,
they believe that adequate tools exist to ensure that all shareholders benefit
from any proposal to acquire the Company. Therefore, in light of the deterrent
effect of the Stock Acquisition Restrictions on any attempt to acquire a
significant interest in the Common Stock of the Company, management and the
Board of Directors believe that the reduced protection of the NOL does not
warrant the potential limitation of shareholder value caused by the Stock
Acquisition Restrictions.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS APPROVE THIS AMENDMENT TO
THE RESTATED ARTICLES OF INCORPORATION.
INDEPENDENT AUDITORS
The Audit Committee has selected PricewaterhouseCoopers, LLP certified
public accountants, as the independent auditors of the Company for fiscal year
1999. A representative of PricewaterhouseCoopers, 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.
SHAREHOLDER PROPOSALS
If a shareholder wishes to present a proposal at the Annual Meeting of
Shareholders tentatively scheduled for December 1999, the shareholder must
deliver his or her proposal to the Company at its principal executive offices no
later than August 4, 1999, in such form as required under rules issued by the
Securities and Exchange Commission, 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 1999 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 1, 1999 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.
MISCELLANEOUS
The accompanying proxy is being solicited on behalf of the Board of
Directors of the Company. The expense of preparing, printing and mailing the
proxy and the material used in the solicitation thereof will be borne by the
Company. In addition to the use of the mails, proxies may be solicited by
directors, officers and employees of the Company by personal interview,
telephone or telefax. 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/A EXCLUDING EXHIBITS,
DATED SEPTEMBER 30, 1998, 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., 5050 QUORUM DRIVE,
SUITE 500, DALLAS, TEXAS 75240, ATTENTION: CORPORATE SECRETARY.
APPENDIX
A. Current Article IV of Pizza Inn, Inc.'s Restated Articles of
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Incorporation.
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4.1. The total number and designation of shares of capital stock that the
Corporation shall have the authority to issue is Twenty-Six Million (26,000,000)
shares of Common Stock, with the par value of one cent ($.01) per share and
Five Million (5,000,000) shares of Preferred Stock, with the par value of one
dollar ($1.00) per share.
4.2. Each holder of Common Stock shall be entitled to cast one (1) vote for
each share of Common Stock issued and outstanding in his or her name. No Common
Stock shall be issued without voting rights. Except as hereinafter provided in
Section 5.7, Preferred Stock shall be non-voting unless converted to Common
Stock.
4.3. For the purposes of Sections 4.3 to 4.18 of this ARTICLE IV:
(1) The term "Act" shall mean the Securities Exchange Act of 1934, as
---
amended, and any successor statute.
(2) The terms "acquire," "acquisition" or "acquiring" with respect to the
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acquisition of any security of the Corporation shall refer to the acquisition of
such security by any means whatsoever, including without limitation, an
acquisition of such security by gift, by operation of law, by will or by
intestacy.
(3) The term "Amended and Restated Credit Agreement" shall mean the Amended
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and Restated Credit Agreement among the Corporation, Lloyds Bank Plc and
Kleinwort Benson Limited as lender and as agent for itself and Lloyds Bank Plc
as the same may be amended and supplemented from time to time.
(4) The term "Code" means the Internal Revenue Code of 1986, as amended, and
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any successor statute.
(5) The term "Common Stock" means all Common Stock of the Corporation and
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any other securities (other than Preferred Stock as hereinafter defined in
Section 4.3(14)) issued by the Corporation which are treated as stock for
purposes of Section 382 of the Code.
(6) The term "Excess Cash Flow" shall have the meaning assigned to that term
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in the Amended and Restated Credit Agreement (except that for purposes hereof,
clause (ii) of the definition of Excess Cash Flow specified in the Amended and
Restated Credit Agreement shall be disregarded).
(7) The term "Excess Shares" shall have the meaning ascribed to it in
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Section 4.7(1) hereof.
(8) The term "Fair Market Value" of the Common Stock shall mean the average
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of the daily closing prices of the Common Stock for 15 consecutive trading days
commencing 20 trading days before the date of such computation. The closing
price is the last reported sale price on the principal securities exchange on
which the Common Stock is listed or, if the Common Stock is not listed on any
national securities exchange, the NASDAQ National Market System, or, if the
Common Stock is not designated for trading on the NASDAQ National Market System,
the average of the closing bid and asked prices as reported on NASDAQ or, if not
so reported, the average of the closing bid and asked prices as reported on
NASDAQ's OTC Bulletin Board Service, or, if not so reported, as furnished by the
National Quotation Bureau Incorporated. In the absence of such a quotation, the
Corporation shall determine the current market price on a reasonable and
appropriate basis of the average of the daily closing prices for 15 consecutive
trading days commencing 20 trading days before the date of such computation.
(9) The term "Five Percent Limitation" shall mean the limitations on
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ownership of Common Stock imposed by Section 4.4 hereof.
(10) The term "Five Percent or More Holder" shall mean any shareholder (or
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group of shareholders acting in concert) who directly or indirectly beneficially
owns, or whose shares are or would be attributed to any shareholder (or group of
shareholders acting in concert) who directly or indirectly beneficially owns
Common Stock and Warrants which, in the aggregate, and assuming conversion of
the Warrants into the maximum number of shares of Common Stock that may be
acquired pursuant thereto, regardless of contingencies, equal or exceed five
percent of the Fair Market Value of the then outstanding Common Stock plus the
shares of Common Stock deemed to be outstanding by reason of the assumed
conversion of Warrants then owned by such Person, but only for as long as such
shareholder or any shareholder to whom such shareholder's shares would be
attributed in a "5-percent shareholder" within the meaning of Section 382(i)(7)
of the Code and the regulations issued with respect thereto, provided that,
notwithstanding the foregoing, such shareholder shall be a "Five Percent or More
Holder" if such shareholder directly or indirectly beneficially owns five
percent more of the issued and outstanding shares of Common Stock.
(11) The term "Net Operating Loss Carryover" means the net operating loss
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carryovers to which the Corporation is entitled from time to time under the
Code.
(12) The term "own," "owing," "ownership" or "owning" refer to the ownership
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of securities within the meaning of Section 382 of the Code after taking into
account the attribution rules of Section 382(1)(3) of the Code and the
regulations promulgated thereunder (except insofar as such attribution would be
inconsistent with provisions of this ARTICLE IV relating to Warrants).
(13) The term "Permitted Transferee" shall have the meaning ascribed to it
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in Section 4.7(1)(a) hereof or Section 4.11(1)(a) as the context requires.
(14) The term "Person" shall mean any individual, firm, corporation,
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partnership, joint venture or other entity and shall include any group comprised
of such Person and any other Person with whom such Person or any Affiliate or
Associate (as those terms are defined in Rule 12b-2 of the General Rules and
Regulations under the Act) of such Person has any agreement, arrangement or
understanding, directly or indirectly, for the purpose of acquiring, holding,
voting or disposing of Common Stock or Warrants, and any other Person who is a
member of such group.
(15) The term "Plan of Reorganization" or "Plan" shall mean the Debtors'
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Second Amended Joint Plan of Reorganization together with any modifications
thereto as may be filed by the debtors and debtors-in-possession in the United
States Bankruptcy Court for the Northern District of Texas, Dallas Division, in
the following Chapter 11 reorganization cases: In Re: Pizza Inn, Inc., f/k/a
PZ Acquizo, Inc., Debtor, Case No. 389-35942-HCA-11; In Re: Memphis Pizza Inns,
Inc., Debtor, Case No. 389-35944-HCA-11; and In Re: Pantera's Corporation,
Debtor, Case No. 389-35943-HCA-11, as approved by the Bankruptcy Court.
(16) The term "Preferred Stock" means the 10% non-voting cumulative
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convertible preferred stock which may be issued by the Corporation pursuant to
the Plan and having the terms delineated in Article V hereof.
(17) The term "Proceeds" shall have the meaning ascribed to it in Section
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4.7(1)(d) hereof.
(18) The term "Prohibited Shares" shall have the meaning ascribed to it in
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Section 4.11(1) hereof.
(19) The term "Purported Owner" shall have the meaning ascribed to it in
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Section 4.7(1) hereof or Section 4.11(1) as the context requires.
(20) The term "Purported Owner's Transferor" shall have the meaning ascribed
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to it in Section 4.7(1)(a) hereof or Section 5.23(2)(a) as the context requires.
(21) The term "Share Trustee" shall mean the trustee of the Excess Shares
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nominated and appointed by the Board of Directors from time to time.
(22) The term "Ten Percent Limitation" shall mean the limitation on
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ownership of Common Stock imposed by Section 4.6 hereof.
(23) The term "Termination Date" shall mean the date set forth in Section
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4.4 hereof.
(24) The term "Testing Date" shall mean the date set by the Board of
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Directors from time to time to determine whether any person is a Purported Owner
of Excess Shares or a Purported Owner of Prohibited Shares.
(25) The term "Testing Period" shall mean the three-year period ending on
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the Testing Date.
(26) The term "Transfer Agent" shall mean the transfer agent with respect to
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the Common Stock or the Preferred Stock nominated and appointed by the Board of
Directors from time to time.
(27) The term "Warrant" shall mean any securities issued or assumed by the
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Corporation, or any securities issuable by the Corporation in respect of issued
securities, or any rights granted by any Person to another Person, for
consideration or otherwise, which are convertible into, or which include the
right to acquire, shares of Preferred Stock, Common Stock or Warrants, whether
or not the right to make such conversion or acquisition is subject to any
contingencies, including, without limitation, warrants, options, calls,
contracts to acquire securities, convertible debt instruments or any other
interests treated as an option pursuant to Section 382(1)(3) of the Code.
4.4. At no time on or before September 5, 1993 (such date being the
"Termination Date"):
(1) shall any Person (or group of Persons acting in concert) who directly or
indirectly beneficially owns (as determined pursuant to Rules 13d-3 and
13d-5 under the Act), or whose shares are or would be attributed to any Person
(or group of Persons acting in concert) who directly or indirectly beneficially
owns, Common Stock or Warrants of the Corporation which, in the aggregate, and
assuming exercise of such Warrants into the maximum number of shares of Common
Stock that may be acquired pursuant thereto, regardless of contingencies, equal
less than five percent of the Fair Market Value of the outstanding Common Stock
plus the shares of Common Stock deemed to be outstanding by reason of the
assumed conversion of Warrants owned by such Person, acquire (whether
voluntarily or involuntarily) any shares of Common Stock or Warrants, which,
together with the shares of Common Stock or Warrants owned by such Person, if
any, assuming conversion of such Warrants into the maximum number of shares of
Common Stock that may be acquired pursuant thereto, regardless of contingencies,
would increase such ownership percentage of such Person to five percent or more
of the Fair Market Value of the then outstanding Common Stock, plus the shares
of Common Stock deemed to be outstanding and owned by such Person by reason of
the assumed conversion of Warrants owned by such Person; or
(2) shall any Five Percent or More Holder increase the ownership by such
Person of Common Stock or Warrants (excluding Common Stock that is acquired upon
the exercise of Warrants secured by such Person pursuant to a distribution
permitted or required to be made to such Person pursuant to the Plan of
Reorganization); or
(3) shall any Person (or group of Persons acting in concert) who directly or
indirectly beneficially owns, or whose shares are or would be attributed to any
Person (or group of Persons acting in concert) who directly or indirectly
beneficially owns, Common Stock or Warrants attempt any sale, transfer,
assignment, conveyance, pledge or other method of disposition (other than as
hereinafter specifically permitted in this subsection (3)) of any Common Stock
or Warrants to any Person (or group of Persons acting in concert) who directly
or indirectly beneficially owns, or whose shares are or would be attributed to
any Person (or group of Persons acting in concert) who directly or indirectly
beneficially owns, or, as a result of such attempted disposition, would
beneficially own, Common Stock or Warrants which, in the aggregate, and assuming
conversion of such Warrants into the maximum number of shares of Common Stock
that may be acquired pursuant thereto, regardless of contingencies, equal or
exceed five percent of the aggregate Fair Market Value of the then outstanding
Common Stock plus the shares of Common Stock deemed to be outstanding by reason
of the assumed conversion of Warrants then owned by such Person; provided,
however, that any such Person may sell or otherwise make a disposition of such
Common Stock or Warrants of a type described in the first sentence of section
(f) or section (g) of Rule 144 under the Securities Act of 1933, as amended, or
a sale or other disposition in which the Purported Owner executes a statement
under penalties of perjury that, immediately after such sale or other
disposition, such Person is not a Five Percent or More Holder.
4.5. For purposes of applying Section 4.4 hereinabove, increase in
percentage ownership of Common Stock of the acquiror as a result of the subject
acquisition and the increase in percentage ownership of Common Stock from other
acquisitions during the Testing Period shall be measured under Section 382 of
the Code and the regulations promulgated thereunder, except that Warrants,
whether or not the conversion of such Warrants results in an ownership change as
defined under Section 382 of the Code, will be assumed to be converted in
such manner as will maximize the percentage point increase which may occur in
the ownership of Common Stock of the Corporation of Five Percent or More
Holders. Persons referred to in Section 4.4(1) shall include Persons who own no
Common Stock or Warrants.
The Corporation and the Board of Directors shall be fully protected in
relying in good faith upon the information, opinions, reports or statements of
the chief executive officer, the chief financial officer, or the chief
accounting officer of the Corporation or of independent public accountants or
the Corporation's legal counsel in making the determination and finding
contemplated by Sections 4.4 and 4.5.
4.6. Commencing on the Termination Date, any sale thereafter of Common Stock
that would result in a Person who owns less than ten percent of the
outstanding Common Stock increasing such Person's ownership to ten percent or
more of Common Stock in the Corporation and any sale that would result in an
increase in the holdings of a Person holding ten percent or more of Common Stock
in the Corporation shall be void unless the purchaser shall have first offered
pro rata (proportionately based on a fraction, the numerator of which is the
-- ----
number of shares of Common Stock held by such holder and the denominator of
--
which is the total number of outstanding shares of Common Stock) to all holders
--
of Common Stock of the Corporation the right to sell shares to such purchaser
aggregating at least equal in voting power to the amount actually purchased.
This Section 4.6 shall not apply to the purchase of shares by an underwriter for
resale in a registered public offering of Common Stock by the Corporation but
shall apply to any purchaser from such underwriter. Notwithstanding anything to
the contrary contained in the Articles, this Section 4.6 also shall not apply to
the sale of Preferred Stock or any Common Stock into which such Preferred Stock
is converted.
4.7. The transfer of any shares of Common Stock in violation of this ARTICLE
IV prohibited and shall be null and void ab initio.
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(1) If, notwithstanding the foregoing prohibition, a person shall,
voluntarily or involuntarily, purport to become a transferee (a "Purported
---------
Owner") of shares of Common Stock in excess of such Five Percent Limitation or
the Ten Percent Limitation (the number of shares of Common Stock so exceeding
the Five Percent Limitation or Ten Percent Limitation being herein the "Excess
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Shares"), then
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(a) The Purported Owner shall not obtain any rights in and to the Excess
Shares, and the purported transfer of the Excess Shares to the Purported Owner
shall not be recognized by the Secretary of the Corporation or the Transfer
Agent. Until the Excess Shares are transferred to a Person whose acquisition
thereof will not violate the Five Percent Limitation or Ten Percent Limitation
as then applicable (a "Permitted Transferee"), the transferor of the Excess
---------------------
Shares to the Purported Owner (the "Purported Owner's Transferor") shall be
----------------------------
deemed to have retained the Excess Shares and shall hold and be entitled to
exercise all rights incident to ownership of such Excess Shares (including
receiving dividends and other distributions), except that if the Excess Shares
are Warrants, they may not be exercised, converted or exchanged until exercised,
converted or exchanged in accordance with their terms by a Permitted
Transferee; provided, however, that, the foregoing notwithstanding, in the event
shares of Common Stock are issued in respect of Warrants which are Excess
Shares, the shares of Common Stock so issued shall be deemed to be issued and
outstanding shares of Common Stock of the Corporation and shall be Excess Shares
deemed retained by the Purported Owner's Transferor. Warrants issued by the
Corporation shall reflect the provisions of the foregoing sentence. All Excess
Shares will continue to be issued and outstanding.
(b) No employee or agent of the Corporation, including the Transfer Agent,
shall be permitted to record any attempted or purported transfer made in
violation of this ARTICLE IV. If the Transfer Agent or any employee or agent of
the Corporation obtains possession of a certificate or certificates representing
the Excess Shares, such person shall deliver such certificate or certificates to
the Share Trustee who shall proceed forthwith to sell or cause the sale of the
Excess Shares to a Permitted Transferee. Upon notice from the Corporation of
the existence of Excess Shares and the identity of the Purported Owner, the
Share Trustee shall take all lawful action to cause the Purported Owner and the
Purported Owner's Transferor to deliver or cause delivery of any indicia of
ownership thereof to the Share Trustee and upon obtaining possession thereof,
the Share Trustee shall proceed as soon as feasible to sell or cause the sale of
the Excess Shares to a Permitted Transferee. The Share Trustee shall sell or
cause the sale of the Excess Shares in the then existing public market or in
such other commercially reasonable fashion as the Corporation shall direct. In
performing the duties herein imposed upon it, the Share Trustee shall act at all
times as the agent for the Purported Owner's Transferor. The Purported Owner
and the Purported Owner's Transferor shall each be deemed to have appointed the
Corporation and the Share Trustee, jointly and severally, as each such person's
attorney-in-fact, with full power of substitution and full power and authority
in the name and on behalf of the Purported Owner and the Purported Owner's
Transferor, to sell, assign and transfer each Excess Shares attempted to be
transferred in violation of this ARTICLE IV, and to do all lawful acts and
execute all documents deemed necessary and advisable to effect such sale,
assignment and transfer, in an arm's-length transaction, to another Person.
(c) Once the Excess Shares are acquired by a Permitted Transferee, the
Permitted Transferee shall have and shall be entitled to exercise all rights
incident to the ownership of such Excess Shares.
(d) The Proceeds from the sale of the Excess Shares to the Permitted
Transferee (the "Proceeds") shall be distributed as follows:
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(i) first, to the Share Trustee for any costs incurred in respect of its
administration of the Excess Shares (in the event that the Proceeds are
insufficient to reimburse the Share Trustee for any costs incurred in respect of
its administration of the Excess Shares, the Purported Owner's Transferor
shall be primarily liable to reimburse the Share Trustee for such costs, and if
such Purported Owner's Transferor fails or refuses to pay such costs, the
Corporation shall pay such costs to the Share Trustee and the Corporation shall
become subrogated to any rights the Share Trustee may have against the Purported
Owner's Transferor to seek reimbursement for such costs);
(ii) second, to the Purported Owner, if known, in an amount up to the amount
paid by the Purported Owner, if determinable, for the Excess Shares; and
(iii) the remaining proceeds, if any, shall be distributed to the Purported
Owner's Transferor, if known and if not known, such remaining Proceeds shall be
held by the Corporation for the benefit of the Purported Owner's Transferor or
such other Person as their interests may appear.
(e) Notwithstanding anything in this ARTICLE IV to the contrary, the
Corporation shall at all times be entitled to make application to any court of
equitable jurisdiction within the State of Missouri for an adjudication of the
respective rights and interests of any Person in and to the Proceeds pursuant to
this ARTICLE IV and applicable law and for leave to pay the Proceeds into
such court.
Pursuant to Section 382 of the Code, in determining whether any Person has
become a Purported Owner of Excess Shares:
(a) the Corporation is entitled to rely on the existence or absence, as
of the Testing Date, or any other date of filings on Schedules 13D and 13G as
required by Rule 13d-1 of the Act to identify any Person who is a Five Percent
or More Holder, and the existence or absence of any amendments to Schedules 13D
and 13G showing any material increase or decrease in the percentage of Common
Stock or Warrants owned by such Person, as required by Rule 13d-2 of the Act;
and
(b) in the case of any entity which is a Five Percent or More Holder,
in order to determine shifts in the indirect ownership of Common Stock or
Warrants, without regard to the actual identity of the ultimate beneficial
owners of such Common Stock or Warrants, the Corporation may rely on a
statement, signed under oath or affirmation of such entity, to establish the
extent, if any, to which the ownership interests of any such entity's owners
have changed as of the Testing Date. The Corporation may not rely on a
statement by such an entity if:
the Corporation knows that the statement is false; or
the statement is offered by an entity that has either a direct or indirect
ownership interest of 50% or more of the Common Stock of the Corporation.
The Board of Directors shall be fully protected in relying on good faith on the
items set forth in subparagraphs (a) and (b) of this Paragraph (2), together
with such other items or sources of information as may be required from time to
time by the Code, to determine whether any Person has become a Purported Owners
of Excess Shares.
4.8. Immediately upon the purported acquisition of any Excess Shares, the
Purported Owner thereof shall give, or cause to be given, written notice thereof
to the Corporation. Each owner of shares of Common Stock and Warrants
shall furnish to the Corporation all information reasonably requested with
respect to all shares of Common Stock and Warrants directly and indirectly owned
by such Person.
4.9. Upon a determination by the Board of Directors that a Person has
attempted or may attempt to transfer or to acquire Excess Shares, the Board of
Directors may take such action as it deems advisable to refuse to give effect to
such transfer or acquisition on the books and records of the Corporation,
including, without limitation, to cause the Transfer Agent to record the
Purported Owner's Transferor as the record owner of the Excess Shares and to
institute proceedings to enjoin any such transfer or acquisition.
4.10. Except as provided in Section 5.1, at no time on or before the
Termination Date shall any holder of Preferred Stock or Warrants transfer any
Preferred Stock or Warrants except to a bank (as that term is defined in Section
581 of the Code), an insurance company (as that term is defined in Section
1.801-3(a) of Regulations promulgated under the Code), or a trust qualified
under Section 401(a) of the Code. No such transfer shall be made unless it is
part of a transfer of an interest in the Term Loan (as defined in Section 5.5
hereof) and unless such transfer and the holding of an interest in the Term Loan
and Preferred Stock or Warrants shall be in the ordinary course of the trade or
business of such bank, insurance company or qualified trust.
4.11. The transfer of any shares of Preferred Stock in violation of this
Section 4.10 is prohibited and shall be null and void ab initio.
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(1) If, notwithstanding the foregoing prohibition, a persona shall,
voluntarily or involuntarily, purport to become a transferee (a "Purported
---------
Owner") of shares of Preferred Stock in violation of Section 4.10 (the shares of
Preferred Stock purported to be transferred in violation of the Section
4.10 limitation being herein the "Prohibited Shares"), then
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(a) The Purported Owner shall not obtain any rights in and to the Prohibited
Shares, and the purported transfer of the Prohibited Shares to the
Purported Owner shall not be recognized by the Secretary of the Corporation or
the Transfer Agent. Until the Prohibited Shares are transferred to a Person
whose acquisition thereof will not violate the Section 4.10 limitation (a
"Permitted Transferee"), the transferor of the Prohibited Shares to the
----------------
Purported Owner (the "Purported Owner's Transferor") shall be deemed to have
-- -----------------------------
retained the Prohibited Shares and shall hold and be entitled to exercise all
rights incident to ownership of such Prohibited Shares (including receiving
dividends and other distributions), except that if the Prohibited Shares are
Warrants, they may not be exercised, converted or exchanged until exercised,
converted or exchanged in accordance with their terms by a Permitted Transferee;
provided, however, that, the foregoing notwithstanding, in the event shares of
Preferred Stock are issued in respect of Warrants which are Prohibited Shares,
the shares of Preferred Stock so issued shall be deemed to be Prohibited Shares
deemed retained by the Purported Owner's Transferor. Warrants issued by the
Corporation shall reflect the provisions of the foregoing sentence. All
Prohibited Shares will continue to be issued and outstanding.
(b) No employee or agent of the Corporation, including the Transfer Agent,
shall be permitted to record any attempted or purported transfer made in
violation of this ARTICLE IV.
(c) Once the Prohibited Shares are acquired by a Permitted Transferee, the
Permitted Transferee shall have and shall be entitled to exercise all rights
incident to the ownership of such Prohibited Shares.
(d) Notwithstanding anything in this ARTICLE IV to the contrary, the
Corporation shall at all times be entitled to make application to any court of
equitable jurisdiction within the State of Missouri for an adjudication of the
respective rights and interests of any Person pursuant to this ARTICLE IV.
(2) Pursuant to Section 382 of the Code, in determining whether any Person
has become a Purported Owner of Prohibited Shares the Corporation may rely on a
statement, signed under oath or affirmation of such entity, to establish the
qualification of the transferee hereunder. The Corporation may not rely on a
statement by such an entity if the Corporation knows that the statement is
false. The Board of Directors shall be fully protected in relying in good faith
on the items set forth in this Paragraph (2), together with such other
items or sources of information as may be required from time to time by the
Code, to determine whether any Person has become a Purported Owner of Prohibited
Shares.
4.12. Immediately upon the purported acquisition of any Prohibited Shares,
the Purported Owner thereof shall give, or cause to be given, written notice
thereof to the Corporation. Each owner of shares of Preferred Stock and
Warrants shall furnish to the Corporation all information reasonably requested
with respect to all shares of Preferred Stock and Warrants directly and
indirectly owned by such Person, including a statement, signed under oath or
affirmation of the Purported Transferee, to establish the qualification of the
Purported Transferee hereunder.
4.13. Upon a determination by the Board of Directors that a Person has
attempted or may attempt to transfer or to acquire Prohibited Shares, the Board
of Directors may take such action as it deems advisable to refuse to give effect
to such transfer or acquisition on the books and records of the Corporation,
including, without limitation, to cause the Secretary or Transfer Agent to
record the Purported Owner's Transferor as the record owner of the Prohibited
Shares and to institute proceedings to enjoin any such transfer or acquisition.
4.14. If any provision of this ARTICLE IV or any application of any such
provision is determined to be invalid by any federal or state court having
jurisdiction over the issues, the validity of the remaining provisions shall not
be affected and other applications of such provision shall not be affected only
to the extent necessary to comply with the determination of such court.
4.15. It is the purpose of this ARTICLE IV to facilitate the Corporation's
ability to preserve and utilize its Net Operating Loss Carryover and to that end
the Board of Directors is authorized to take such action, to the extent
permitted by law and not inconsistent with this ARTICLE IV as it may deem
necessary or advisable to protect the Corporation and the interests of holders
of its equity and debt securities by preservation of the Corporation's ability
to preserve and utilize its Net Operating Loss Carryover. The Corporation shall
issue no Warrants unless such Warrants are issued subject to restrictions
consistent with those contained in this ARTICLE IV, which restrictions are
deemed necessary or advisable to protect the Corporation and the interests of
holders of its equity and debt securities by preservation of the Corporation's
ability to preserve and utilize its Net Operating Loss Carryover.
4.16. The Board of Directors may, to the extent permitted by law, from time
to time establish, modify, amend or rescind, by By-law or otherwise, regulations
and procedures not inconsistent with the express provisions of this ARTICLE IV
for determining whether any transfer of Common Stock, Warrants or Preferred
Stock would jeopardize the Corporation's ability to preserve and utilize its Net
Operating Loss Carryover, and for the orderly application, administration and
implementation of the provisions of this ARTICLE IV. Such procedures and
regulations shall be kept on file with the Secretary of the Corporation and with
its Transfer Agent and shall be made available to inspection by the public and,
upon request, shall be mailed to any holder of Common Stock of the Corporation.
4.17. All certificates evidencing ownership of Common Stock, Warrants and
Preferred Stock of the Corporation shall bear a conspicuous legend with respect
to provisions of this ARTICLE IV in compliance with the General Corporation Law
of Missouri.
B. Article IV of Pizza Inn, Inc.'s Restated Articles of Incorporation as
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amended to reflect the changes discussed in Proposal Four.
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4.1. The total number and designation of shares of capital stock that the
Corporation shall have the authority to issue is Twenty-Six Million (26,000,000)
shares of Common Stock, with the par value of one cent ($.01) per share and
Five Million (5,000,000) shares of Preferred Stock, with the par value of one
dollar ($1.00) per share.
4.2. Each holder of Common Stock shall be entitled to cast one (1) vote for
each share of Common Stock issued and outstanding in his or her name. No Common
Stock shall be issued without voting rights. Except as hereinafter
provided in Section 5.7, Preferred Stock shall be non-voting unless converted to
Common Stock.
Form of Proxy
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 Items 1, 2, 3 and 4
Please mark your votes as indicated in this example: [X]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3 AND 4.
Item 1. ELECTION OF CLASS I DIRECTORS.
FOR [ ]
WITHHELD FOR ALL [ ]
Nominees: Bobby L. Clairday, Ronald W. Parker, Ramon D. Phillips and Butler E.
Powell
WITHHELD FOR: (Write that nominee's name in the space provided below).
Item 2. PROPOSED AMENDMENT TO THE COMPANY'S 1993 STOCK AWARD
PLAN INCREASING BY 500,000 SHARES THE AGGREGATE NUMBER
OF SHARES OF STOCK ISSUABLE UNDER SUCH PLAN
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
Item 3. PROPOSED AMENDMENT TO THE COMPANY'S 1993 OUTSIDE DIRECTOR'S
STOCK AWARD PLAN INCREASING THE NUMBER OF OPTIONS ISSUABLE
UNDER SUCH PLAN.
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
Item 4. PROPOSED AMENDMENT TO THE COMPANY'S RESTATED ARTICLES.
OF INCORPORATION TO DELETE CERTAIN PROVISIONS RESTRICTING
ACQUISITION OF THE COMPANY'S COMMON STOCK.
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
If you plan to attend the Annual Meeting, please mark the WILL ATTEND block [ ]
Date: , 1998
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 as such.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
PIZZA INN, INC.
5050 QUORUM, SUITE 500
DALLAS, TEXAS 75240
ANNUAL MEETING OF SHAREHOLDERS ON DECEMBER 15, 1998
The undersigned, revoking all proxies heretofore given, hereby appoints C.
Jeffrey Rogers and B. Keith Clark, 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") which
the undersigned is entitled to vote at the Annual Meeting of Shareholders to be
held at 10:00 a.m., Dallas time on Tuesday, December 15, 1998, at the Company's
training facility, 4819 Keller Springs Road, Addison, TX 75248, 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.
