SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 28, 1999.
----------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO
_______________.
COMMISSION FILE NUMBER 0-12919
PIZZA INN, INC.
(EXACT NAME OF REGISTRANT IN ITS CHARTER)
MISSOURI 47-0654575
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5050 QUORUM DRIVE
SUITE 500
DALLAS, TEXAS 75240
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES,
INCLUDING ZIP CODE)
(972) 701-9955
(REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR SUCH SHORTER PERIOD THAT THE REGISTRANT
WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES[x] NO
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTIONS 12, 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT. YES [x] NO
AT MAY 10, 1999, AN AGGREGATE OF 11,420,925 SHARES OF THE REGISTRANT'S
COMMON STOCK, PAR VALUE OF $.01 EACH (BEING THE REGISTRANT'S ONLY CLASS OF
COMMON STOCK), WERE OUTSTANDING.
PIZZA INN, INC.
<TABLE>
<CAPTION>
PIZZA INN, INC.
Index
- ------------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
- ------- ------------------------------------------------------------------------------- ----
<S> <C> <C> <C>
Consoldiated Statements of Operations for the three months and six months ended
March 28, 1999 and March 29, 1998 3
Consolidated Balance Sheets at March 28, 1999 and June 28, 1998 4
Consolidated Statements of Cash Flows for the six months ended 5
March 28, 1999 and March 29, 1998
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
------- -----------------------------------------------------------------------------
Financial Condition and Results of Operations 9
------------------------------------------------------------------------------- ----
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
------- ----------------------------------------------------------------------- ----
Item 6. Exhibits and Reports on Form 8-K 12
------- ----------------------------------------------------------------------- ----
Signatures 13
----
</TABLE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
- --------------------------------
<TABLE>
<CAPTION>
PIZZA INN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------- ------------------
MARCH 28, MARCH 29, MARCH 28, MARCH 29,
REVENUES: 1999 1998 1999 1998
------------------- ------------------ ---------- ----------
<S> <C> <C> <C> <C>
Food and supply sales $ 14,004 $ 14,516 $ 43,835 $ 43,678
Franchise revenue 1,364 1,579 4,214 4,944
Restaurant sales 576 619 1,722 2,063
Other income 73 150 192 299
------------------- ------------------ ---------- ----------
16,017 16,864 49,963 50,984
------------------- ------------------ ---------- ----------
COSTS AND EXPENSES:
Cost of sales 12,700 13,094 40,415 39,407
Franchise expenses 743 882 2,289 2,540
General and administrative expenses 1,261 1,383 3,992 3,825
Interest expense 140 117 396 375
------------------- ------------------ ---------- ----------
14,844 15,476 47,092 46,147
------------------- ------------------ ---------- ----------
INCOME BEFORE INCOME TAXES 1,173 1,388 2,871 4,837
Provision for income taxes 373 209 897 1,382
------------------- ------------------ ---------- ----------
NET INCOME $ 800 $ 1,179 $ 1,974 $ 3,455
=================== ================== ========== ==========
BASIC EARNINGS PER COMMON SHARE $ 0.07 $ 0.09 $ 0.17 $ 0.27
=================== ================== ========== ==========
DILUTED EARNINGS PER COMMON SHARE $ 0.07 $ 0.09 $ 0.16 $ 0.25
=================== ================== ========== ==========
DIVIDENDS DECLARED PER COMMON SHARE $ - $ - $ 0.12 $ 0.12
=================== ================== ========== ==========
WEIGHTED AVERAGE COMMON SHARES 11,483 12,734 11,762 12,709
=================== ================== ========== ==========
WEIGHTED AVERAGE COMMON AND
POTENTIAL DILUTIVE COMMON SHARES 11,788 13,868 12,332 13,630
=================== ================== ========== ==========
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
PIZZA INN, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 28, JUNE 28,
1999 1998
------------ ---------
ASSETS (unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 590 $ 2,335
Accounts receivable, less allowance for doubtful
accounts of $807 and $825, respectively 5,426 6,021
Notes receivable, current portion, less allowance
for doubtful accounts of $158 and $174, respectively 538 741
Inventories 1,963 1,953
Prepaid expenses and other 636 556
------------ ---------
Total current assets 9,153 11,606
LONG-TERM ASSETS
Property, plant and equipment, net 1,823 1,921
Property under capital leases, net 1,362 761
Deferred taxes, net 5,793 6,705
Long-term notes receivable, less
allowance for doubtful accounts of $80 and $8,respectively 764 436
Deposits and other 387 344
------------ ---------
$ 19,282 $ 21,773
============ =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 3,052 $ 2,014
Accrued expenses 1,719 2,507
Current portion of capital lease obligations 237 125
------------ ---------
Total current liabilities 5,008 4,646
LONG-TERM LIABILITIES
Long-term debt 6,400 4,700
Long-term capital lease obligations 1,156 754
Other long-term liabilities 719 756
------------ ---------
13,283 10,856
------------ ---------
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized 26,000,000
shares; outstanding 11,461,130 and 12,528,436
shares, respectively (after deducting shares in
treasury: March - 3,460,986; June -2,381,386) 115 125
Additional paid-in capital 4,579 4,911
Retained earnings 1,305 5,881
------------ ---------
Total shareholders' equity 5,999 10,917
------------ ---------
$ 19,282 $ 21,773
============ =========
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
PIZZA INN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
-------------------
MARCH 28, MARCH 29,
1999 1998
------------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,974 $ 3,455
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 650 713
Provision for bad debt 177 100
Utilization of pre-reorganization net operating
loss carryforwards 912 1,285
Changes in assets and liabilities:
Notes and accounts receivable 293 (1,789)
Inventories (10) 270
Accounts payable - trade 1,038 662
Accrued expenses 11 (914)
Prepaid expenses and other (57) (385)
------------------- -----------
CASH PROVIDED BY OPERATING ACTIVITIES 4,988 3,397
------------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (731) (301)
Acquisition of area development territory - (986)
Proceeds from transfer of assets to capital lease 249 -
Proceeds from sale of re-acquired area develepment territory 986 -
Proceeds from property held for sale - 66
------------------- -----------
CASH USED FOR INVESTING ACTIVITIES (482) (235)
------------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term bank debt 1,700 -
Repayments of long-term bank debt and capital lease obligations (216) (1,496)
Dividends paid (2,164) (1,530)
Proceeds from exercise of stock options 35 778
Purchases of treasury stock (5,606) (1,710)
------------------- -----------
CASH USED FOR FINANCING ACTIVITIES (6,251) (3,958)
------------------- -----------
Net decrease in cash and cash equivalents (1,745) (796)
Cash and cash equivalents, beginning of period 2,335 2,037
------------------- -----------
Cash and cash equivalents, end of period $ 590 $ 1,241
------------------- -----------
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
------------------
MARCH 28, MARCH 29,
1999 1998
------------------ ----------
CASH PAYMENTS FOR:
<S> <C> <C>
Interest $ 356 $ 406
Income taxes - 120
NONCASH FINANCING AND INVESTING
ACTIVITIES:
Capital lease obligations incurred $ 730 $ -
</TABLE>
PIZZA INN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) The accompanying consolidated financial statements of Pizza Inn, Inc.
(the "Company") have been prepared without audit pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in the financial statements have been
omitted pursuant to such rules and regulations. The consolidated financial
statements should be read in conjunction with the notes to the Company's audited
consolidated financial statements in its Form 10-K/A for the fiscal year ended
June 28, 1998.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary to present fairly the
Company's financial position and results of operations for the interim periods.
All adjustments contained herein are of a normal recurring nature.
(2) On March 29, 1999, the Company's Board of Directors declared a quarterly
dividend of $.06 per share on the Company's common stock, payable April 23, 1999
to shareholders of record on April 9, 1999.
(3) In September 1998, the Company signed an agreement with its current
lender to extend the term of its existing $9.5 million revolving credit line
through August 2000 and to modify certain financial covenants. As of March 28,
1999, the Company was in compliance with all of its debt covenants.
(4) The Company decreased the net deferred tax asset during the quarter by
$240,820 for general business tax credits that are not expected to be utilized
through an addition to the tax valuation allowance. These general business tax
credits are due to expire in 2000 and will not be utilized prior to their
expiration due to a decrease in the estimated taxable income for this fiscal
year. The Company believes that it is more likely than not that these credits
will not be realized. This reduction is included in the provision for income
tax for the quarter and the nine months.
(5)
Effective December 28, 1997, the Company adopted SFAS 128, "Earnings Per Share",
which establishes standards for computing and presenting earnings per share
(EPS). The statement requires dual presentation of basic and diluted EPS on the
face of the income statement for entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation, to the numerator and denominator of the diluted EPS calculation.
Basic EPS excludes the effect of potentially dilutive securities while diluted
EPS reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised, converted or resulted in the
issuance of common stock that then shared in the earnings of the entity. The
following table shows the reconciliation of the numerator and denominator of the
basic EPS calculation to the numerator and denominator of the diluted EPS
calculation (in thousands, except per share amounts).
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- ----------
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 28, 1999
BASIC EPS
Income Available to Common Shareholders $ 800 11,483 $ 0.07
Effect of Dilutive Securities - Stock Options 305
------------
DILUTED EPS
Income Available to Common Shareholders
& Assumed Conversions $ 800 11,788 $ 0.07
============ ============= ==========
THREE MONTHS ENDED MARCH 29, 1998
BASIC EPS
Income Available to Common Shareholders $ 1,179 12,734 $ 0.09
Effect of Dilutive Securities - Stock Options 1,134
------------
DILUTED EPS
Income Available to Common Shareholders
& Assumed Conversions $ 1,179 13,868 $ 0.09
============ ============= ==========
NINE MONTHS ENDED MARCH 28, 1999
BASIC EPS
Income Available to Common Shareholders $ 1,974 11,762 $ 0.17
Effect of Dilutive Securities - Stock Options 570
------------
DILUTED EPS
Income Available to Common Shareholders
& Assumed Conversions $ 1,974 12,332 $ 0.16
============ ============= ==========
NINE MONTHS ENDED MARCH 29, 1998
BASIC EPS
Income Available to Common Shareholders $ 3,455 12,709 $ 0.27
Effect of Dilutive Securities - Stock Options 921
------------
DILUTED EPS
Income Available to Common Shareholders
& Assumed Conversions $ 3,455 13,630 $ 0.25
============ ============= ==========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- -----------------------
Quarter and nine months ended March 28, 1999 compared to the quarter and nine
months ended March 29, 1998.
Diluted earnings per share for the third quarter of the current fiscal year
decreased 20% to $.07 from $.09 for the same period last year. For the nine
months ended March 28, 1999, diluted earnings per share decreased 37% to $.16
from $.25 for the same period last year. Net income for the quarter decreased
32% to $800,000 from $1,179,000 for the same quarter last year. For the nine
months ended March 28, 1999, net income decreased 43% to $1,974,000 from
$3,455,000 for the same period last year. It should be noted that the
comparisons for these two periods include a third quarter credit to income tax
expense of $263,000 in the prior fiscal year of which a portion was reversed in
the current fiscal year. Additionally, net income and earnings per share for
the three and nine month periods decreased because of a lower volume of food
product sales from slightly lower chainwide sales, lower revenues from area
development territory sales, and higher cost of sales due to extraordinarily
higher cheese prices from July 1998 through January 1999. Restaurant cost of
sales, as a percentage of sales, throughout the Company's franchise community
was up approximately 3 percentage points, due to extraordinarily higher cheese
prices during these seven months. This increased cost also caused an adverse
effect on chainwide sales because of decreased franchisee advertising as well as
delayed new store openings and remodelings. Foreign economic factors continued
to adversely affect international sales and new store openings in foreign
markets.
Food and supply sales for the quarter decreased 4% to $14,004,000 from
$14,516,000 compared to the same period last year. This was primarily due to
lower international food sales and decreased equipment sales during the quarter.
For the nine month period, food and supply sales increased less than 1% to
$43,835,000 from $43,678,000 for the same period last year. During the first
nine months, food product revenues increased due to higher cheese prices, which
were partially offset by a lower volume of food product sales.
Franchise revenue, which includes income from royalties, license fees and
area development and foreign master license (collectively, "Territory") sales,
for the quarter decreased 14% or $215,000 compared to the same period of the
prior year. The decrease in the quarter was primarily due to lower income
recognized from Territory sales and royalty revenues. For the nine month
period, franchise revenue decreased 15% or $730,000. The prior year's nine
month period included the recognition of proceeds from the sale of foreign
master license rights in Brazil, the Palestinian Territories and Korea in the
amount of $371,000 and area development fees of $208,000. Current year revenues
include partial recognition of proceeds from the sale of foreign master license
rights in Puerto Rico in the amount of $50,000 and area development fees of
$56,000. Royalty revenue was down $178,000 compared to the first nine months of
last year, mainly resulting from a 1.5% decrease in chainwide sales and a
slightly lower average royalty rate due to both more restaurants within area
development territories and a lower ratio of full service units to Delco/Express
units.
Restaurant sales, which consist of revenue generated by Company-owned
stores, for the quarter decreased 7% or $43,000 compared to the same period of
the prior year. For the nine month period, restaurant sales decreased 17% or
$341,000. This was due to the lease expiration and closing of one Delco store
in August 1998. The Company owned and operated three and four stores for the
periods ending March 28, 1999 and March 29, 1998, respectively. Comparable
store sales growth at Company-owned stores increased 7% for the nine months
ended March 28, 1999.
Cost of sales for the quarter decreased 3% or $394,000 compared to the same
period last year due to lower food and supply sales as noted above. For the
nine month period, cost of sales increased 3% or $1,008,000 compared to the same
period last year primarily due to the increase in domestic food sales due to
higher cheese prices. As a percentage of sales for the first nine months, cost
of sales increased to 89% from 86% compared to the same period last year. This
was primarily due to the significantly higher cost of cheese, an increase in
allocation of corporate services expenses related to the Company's distribution
center, offset by a lower volume of food product sold.
Franchise expenses include selling, general and administrative expenses
directly related to the sale and service of franchises and Territories. These
expenses decreased 16% or $139,000 for the quarter and 10% or $251,000 for the
nine month period compared to the same period last year. The decreases were due
to an increase in corporate services expenses allocation to the distribution
center resulting in a corresponding decrease in franchise expenses, and
decreases in travel expenses. These decreases were partially offset by
increased franchise trade show spending. Additionally, franchise expenses for
the first nine months of the prior year also included the amortization of the
Company's cost basis in a reacquired area development Territory.
General and administrative expenses for the quarter decreased 9% or
$122,000 compared to the same period last year primarily due to a higher
allocation of corporate services expenses to the distribution center to
accurately reflect the total operating costs of the center. For the nine month
period, general and administrative expenses increased 4% or $167,000 compared to
the same period last year. This is principally due to an increase in the
allowance for doubtful accounts, as well as higher professional fees and
insurance expenses. These increases were partially offset by the higher
allocation of corporate services expenses to the distribution center.
Interest expense increased 20% or $23,000 and 6% or $21,000 for the quarter
and nine months, respectively, compared to the same periods of the prior year.
This is a result of higher average debt, which was offset slightly by lower
average interest rates.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of fiscal 1999, the Company utilized cash
provided by operations in the amount of $4,988,000, bank borrowings of
$1,700,000, and a portion of its cash balances to purchase 1,079,600 shares of
its own common stock for $5,605,852 and to pay dividends of $2,164,000 on the
Company's common stock.
Capital expenditures of $731,000 during the first nine months included
$414,000 for upgrading the Company's computer system (including compliance with
Year 2000 issues). During the first nine months, $249,000 of the computer
system's upgrades was transferred to a 36-month capitalized lease.
On March 29, 1999, the Company's Board of Directors declared a quarterly
dividend of $.06 per share on the Company's common stock, payable April 23, 1999
to shareholders of record on April 9, 1999.
The Company continues to realize substantial benefit from the utilization
of its net operating loss carryforwards (which currently total $11.9 million and
expire in 2005) to reduce its federal tax liability from the 34% to 31% tax rate
reflected on its statement of operations to an actual payment of approximately
2% of taxable income. Management believes that future operations will generate
sufficient taxable income, along with the reversal of temporary differences, to
fully realize its net deferred tax asset balance ($5.8 million as of March 28,
1999) without reliance on material, non-routine income. Taxable income in
future years at the current level would be sufficient for full realization of
the net tax asset.
The Company has assessed its computerized systems to determine their
ability to correctly identify the year 2000 and is devoting the necessary
internal and external resources to replace, upgrade or modify all significant
systems related to the year 2000. The Company's assessment, purchase of new
equipment, installation of new software, conversion and testing of data are
completed. The Company fully implemented the new system in May 1999 and has
begun processing information.
Because third party computer failures could also have a material impact on
a company's ability to conduct business, confirmations are being requested from
our material vendors and suppliers to certify that plans are being developed by
them to address and become compliant with the year 2000 issues. As of May 10,
1999, the Company had received responses from approximately 80% from such
parties and all the responding companies have provided written assurances that
they expect to address all their significant year 2000 issues on a timely basis.
The Company believes that any year 2000 impact on its franchisee base will have
no material effect on the Company's results of operations since sales
information is not currently communicated through computer systems. Through the
assessment of the Company's critical non-information technology systems,
management has determined that no modifications are required for year 2000
compliance in this area.
New software, testing, and conversion of systems and applications will
cost approximately $550,000 and new hardware components will cost approximately
$300,000. Total system upgrades are expected to position the Company for
anticipated future growth and enhance corporate service capabilities. Of these
costs, approximately $730,000 has been incurred as of March 28, 1999. All the
above capital expenditures are funded through a 36-month capitalized lease.
This report contains certain forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) relating to the
Company that are based on the beliefs of the management of the Company, as well
as assumptions and estimates made by and information currently available to the
Company's management. When used in this report, the words "anticipate,"
"believe," "estimate," "expect," "intend" and similar expressions, as they
relate to the Company or the Company's management, identify forward-looking
statements. Such statements reflect the current views of the Company with
respect to future events and are subject to certain risks, uncertainties and
assumptions relating to the operations and results of operations of the Company
as well as its customers and suppliers, including as a result of competitive
factors and pricing pressures, shifts in market demand, general economic
conditions and other factors including but not limited to, changes in demand for
Pizza Inn products or franchises, the impact of competitors' actions, changes in
prices or supplies of food ingredients, and restrictions on international trade
and business. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions or estimates prove incorrect, actual results
may vary materially from those described herein as anticipated, believed,
estimated, expected or intended.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------------------------
Amendment to the Company's Restated Articles of Incorporation approved by
shareholders at a Special Meeting on January 30, 1999. The results of the vote
were as follows:
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- -----------------
6,462,349 114,933 43,873 3,668,097
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------------
Exhibits:
3.1 Restated Articles of Incorporation as filed on September 5, 1990 and
amended on January 30, 1999.
No reports on Form 8-K were filed in the quarter for which this report
is filed.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIZZA INN, INC.
Registrant
By: /s/Ronald W. Parker
---------------------
Ronald W. Parker
Executive Vice President and
Principal Financial Officer
By: /s/Shawn M. Preator
-----------------
Shawn M. Preator
Controller and
Principal Accounting Officer
Dated: May 11, 1999
RESTATED ARTICLES OF INCORPORATION
OF
PIZZA INN, INC.
(as amended on JANUARY 30, 1999)
The undersigned being the President and Secretary of Pizza Inn, Inc. (the
"Corporation") do hereby certify that the following RESTATEMENT OF THE ARTICLES
OF INCORPORATION OF PIZZA INN, INC. (the "RESTATED ARTICLES") were adopted by
the unanimous consent of the Board of Directors of the Corporation on August 31,
1990, and the following RESTATED ARTICLES correctly set forth without change the
corresponding provisions of the Articles of Incorporation of the Corporation as
theretofore amended, and the following RESTATED ARTICLES supercede the original
Articles of Incorporation of the Corporation and all amendments thereto. The
incorporator of the Corporation was Roy Breeling, 5074 South 107th Street,
Omaha, Nebraska 68127.
ARTICLE I.
The name of this Corporation shall be PIZZA INN, INC.
ARTICLE II.
The period of the Corporation's duration is perpetual.
ARTICLE III.
3.1. The purposes for which this Corporation is organized are the following:
(1) To acquire, lease, own, hold, manage, conduct and/or otherwise operate a
fast food service facility and/or facilities, including, but not limited
to, food vending facilities, and/or other connection therewith to conduct,
perform and/or otherwise operate services and facilities ancillary thereto.
(2) To acquire, and pay for in cash, stock or bonds of this Corporation or
otherwise, the good will, rights, assets and property, and to undertake or
assume the whole or any part of the obligations or liabilities of any person,
firm, association or corporation.
(3) To acquire, hold, use, sell, assign, mortgage, lease and grant licenses
and franchises in respect of, letters patent of the United States or any foreign
country, patent rights, licenses and privileges, inventions, improvements and
processes, copyrights, trademarks and trade names, relating to or useful in
connection with any business of this Corporation.
(4) To acquire by purchase, subscription or otherwise and to receive, hold,
own, guarantee, sell, assign, exchange, transfer, mortgage, pledge or otherwise
dispose of or deal in and with any of the shares of the capital stock, or voting
trust certificates in respect of the shares of the capital stock, scrip,
warrants, rights, bonds, debentures, notes, trust receipts, and other
securities, obligations, choses in action and evidences of indebtedness or
interest issued or created by any corporations, joint stock companies,
syndicates, associations, firms, trusts or persons, public or private, or by the
government of the United States of America, or by any foreign government, or by
any state, territory, province, municipality or other political subdivision or
by any governmental agency and as owner thereof to possess and exercise all the
rights, power sand privileges of ownership, including the right to execute
consents and vote thereon, and to do any and all acts and things, necessary or
advisable for the preservation, protection, improvement and enhancement
invention value thereof.
(5) To borrow or raise moneys for any of the purposes of the Corporation,
and from time to time without limit as to amount, to draw, make, accept,
endorse, execute and issue promissory notes, drafts, bills of exchange,
warrants, bonds, debentures and other negotiable or non-negotiable instruments
and evidences of indebtedness, and to secure the payment of any thereof and of
the interest thereon by mortgage upon or pledge, conveyance or assignment in
trust of the whole or any part of the property of the corporation, whether at
the time owned or thereafter acquired, and to sell, pledge or otherwise dispose
of such bonds or other obligations of the Corporation and for its corporate
purposes.
(6) To purchase, receive, take by grant, gift, devise, bequest or otherwise,
lease, or otherwise acquire, own, hold, improve, employ, use and otherwise deal
in and with real or personal property, or any interest therein, wherever
situated, and to sell, convey, lease, exchange, transfer or otherwise dispose
of, or mortgage or pledge, all or any of the Corporation's property and assets,
or any interest therein, wherever situated.
(7) To purchase, receive or otherwise acquire, hold, own, pledge, transfer
or otherwise dispose of its own shares, provided that it shall not purchase,
either directly or indirectly, its own shares when its net assets are less than
its stated capital or when, by so doing, its net assets would be reduced below
its stated capital.
(8) To aid either by loans or by guarantee of securities or in any other
manner, any corporation, domestic or foreign, any shares of stock, or any bonds,
debentures, evidences of indebtedness or other securities whereof are held by
this Corporation or in which it shall have any interest, and to do any acts
designed to protect, preserve, improve, or enhance the value of any property at
any time held or controlled by this Corporation or in which it at the time may
be interest.
(9) To do any or all of the things hereinabove enumerated alone for its own
account, or for the account of others, or as the agent for others, or in
association with others or by or through others, and to enter into all lawful
contracts and undertakings in respect thereof.
(10) To have one or more offices, to conduct its business, carry on its
operations and promote its objects within and without the State of Missouri, in
other states, the District of Columbia, the territories, colonies and
dependencies of the United States, in foreign countries and anywhere in the
World, without restriction as to place, manner or amount, but subject to the
laws applicable thereto; and to do any or all of the things herein set forth to
the same extent as a natural person might or could do and in any part of the
world, either alone or in company with others.
(11) In general, to carry on any other business in connection with each and
all of the foregoing or incidental thereto, and to carry on, transact and engage
in any and every lawful business or other lawful thing calculated to be of gain,
profit or benefit to the Corporation as fully and freely as a natural person
might do, to the extent and in the manner, and anywhere within and without the
State of Missouri, as it may from time to time determine; and to have and
exercise each and all of the powers and privileges, either direct or incidental,
which are given and provided by or are available under the laws of the State of
Missouri in respect of general and business corporations organized for profit
thereunder; provided, however, that the Corporation shall not engage in any
activity for which a Corporation may not be formed under the laws of the State
of Missouri.
None of the purposes and powers specified in any of the paragraphs of this
ARTICLE III shall be in any way limited or restricted by reference to or
inference from the terms of any other paragraph, and the purposes and powers
specified in each of the paragraphs of this ARTICLE III shall be regarded as
independent purposes and powers. The enumeration of specific purposes and
powers in this ARTICLE III shall not be construed to restrict in any manner the
general purposes and powers of this Corporation, nor shall the expression of one
thing be deemed to exclude another, although it be of like nature. The
enumeration of purposes or powers herein shall not be deemed to exclude or in
any way limit by inference any purposes or powers which this Corporation has
power to exercise, whether expressly by the laws of the State of Missouri, nor
hereafter in effect, or implied by any reasonable construction of such laws.
ARTICLE IV.
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.
[Sections 4.3-4.17 deleted]
ARTICLE V.
5.1. The distinctive designation of the series of Preferred Stock authorized
hereby shall be "10% Non-Voting Cumulative Convertible Preferred Stock"
(the "Preferred Stock"). The number of authorized shares of Preferred Stock
shall be 5,000,000. Shares of Preferred Stock which have been issued and
reacquired in any manner, including shares purchased or redeemed, shall (upon
compliance with any applicable provisions of the General Corporation Law of
Missouri) have the status of authorized and unissued shares. The Preferred
Stock shall only be issued prior to August 1, 1992 in lieu of payment of
interest on the Term Loan pursuant to the Amended and Restated Credit Agreement.
Any reallocation of the respective interests of Lloyds Bank Plc and Kleinwort
Benson Limited between themselves with respect to ownership of the Preferred
Stock shall not be subject to the provisions of Section 4.10. Except as
hereinafter provided in Section 5.7, the Preferred Stock shall be non-voting;
provided, however, that the Preferred Stock may be converted into voting Common
Stock as hereinafter set forth in Section 5.5 hereof.
5.2. The holders of shares of Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available therefor, dividends at the annual rate of ten percent ($0.10) per
share, and no more. Such dividend shall be cumulative and shall be payable
within 110 days after the end of the Corporation's fiscal year commencing with
the first fiscal year ended subsequent to the issuance of any shares of
Preferred Stock and within 110 days of the end of each fiscal year ended
thereafter (each of such dates being a "dividend payment date") with respect to
each fiscal year of the Corporation ending subsequent to the issuance of any
shares of Preferred Stock, to stockholders of record on the respective date, not
exceeding 50 days preceding such dividend payment date, as shall be fixed for
this purpose by the Board of Directors in advance of payment of each particular
dividend. In the event that Preferred Stock has been outstanding for less than
a full fiscal year or the Corporation shall have changed its fiscal year, as the
case may be, such dividend shall accrue at the annual rate of 10% only for such
period of time as such Preferred Stock shall have been issued and outstanding.
All dividends paid with respect to shares of Preferred Stock shall be paid pro
rata to the holders entitled thereto. Dividends on such Preferred Stock shall
be fully cumulative and shall accrue (whether or not earned or declared) from
and after their respective issuance date. Holders of Preferred Stock will not
be entitled to any dividends, whether payable in cash, property or stock, in
excess of full cumulative dividends. No interest or sum of money in lieu of
interest shall be payable in respect of any accumulated unpaid dividends.
5.3. (a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, then, before any
distribution or payment shall be made to the holders of Common Stock, the
holders of shares of Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution to its
shareholders an amount in cash equal to $1.00 for each share of Preferred Stock
outstanding (which amount is hereinafter referred to as the "liquidation
preference"), together with an amount in cash equal to all accrued and unpaid
dividends thereon to the date fixed for liquidation, dissolution or winding up.
Except as provided in the preceding sentence, holders of Preferred Stock shall
not be entitled to any distribution in the event of liquidation, dissolution or
winding up of the affairs of the Corporation. If the assets of the Corporation
are not sufficient to pay in full the liquidation payments payable to the
holders of outstanding shares of the Preferred Stock, then the holders of all
such shares shall share ratably in any distribution of assets in accordance with
the amount which would be payable on such distribution if the amounts to which
the holders of outstanding shares of Preferred Stock are entitled were paid in
full.
For the purposes of this Section 5.3, neither the voluntary sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Corporation nor the consolidation or merger of the Corporation with any other
corporation shall be deemed to be a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, unless such voluntary sale,
conveyance, exchange, transfer, consolidation, or merger shall be in connection
with a plan of liquidation, dissolution or winding up of the Corporation.
5.4. (a) Subject to subsection (b) of this Section 5.4, to the extent
the Corporation shall have funds legally available for such redemption, the
Corporation, at the option of the Board of Directors, may redeem, in whole or in
part, the shares of Preferred Stock at the time outstanding, at any time or
from time to time, upon notice given as hereinafter specified, at a redemption
price of $1.00 per share, together with accrued and unpaid dividends thereon to
the redemption date.
Notwithstanding the foregoing provisions of Section 5.4(a) hereof, unless
the full cumulative dividends on all outstanding shares of preferred Stock shall
have been paid or contemporaneously are declared and paid for all past dividend
periods, none of the shares of preferred Stock shall be redeemed pursuant to
Section 5.4(a) hereof unless all outstanding shares of Preferred Stock are
simultaneously redeemed.
On or prior to 100 days after the end of each fiscal year of the Corporation,
commencing with the fiscal year ending in 1991, to the extent the Corporation
shall have funds legally available therefor, the Corporation shall apply an
amount equal to Excess Cash Flow as of the end of the immediately preceding
fiscal year of the Corporation to mandatory redemption, in whole or in part, of
the shares of Preferred Stock at the time outstanding, upon notice given as
hereinafter specified, at a redemption price of $1.00 per share, together with
accrued and unpaid dividends thereon to the redemption date. If any shares of
Preferred Stock shall be outstanding on August 1, 1995, to the extent the
Corporation shall have funds legally available for such payment, the Corporation
shall redeem all outstanding shares of Preferred Stock at a redemption price of
$1.00 per share, together with accrued and unpaid dividends thereon to the
redemption date.
If the Corporation shall fail to discharge its obligation to redeem any
outstanding shares of Preferred Stock pursuant to Section 5.4(c) hereof (the
"Mandatory Redemption Obligation"), the Mandatory Redemption Obligation shall be
discharged as soon as the Corporation is able to discharge much Mandatory
Redemption Obligation. If and so long as the Mandatory Redemption Obligation
with respect to the Preferred Stock shall not be fully discharged, the
Corporation shall not declare or pay any dividend or make any distribution on,
or, directly or indirectly, purchase, redeem or satisfy any mandatory
redemption, sinking and/or other similar obligations in respect of Common Stock
(other than as a result of a reclassification of Common Stock, or the exchange
or conversion of one class or series of Common Stock for or into another class
or series of Common Stock, or other than through the use of the proceeds of a
substantially contemporaneous sale of the Common Stock) or any warrants, rights
or options exercisable for or convertible into any of the Common Stock.
In the event that fewer than all the outstanding shares of Preferred Stock are
to be redeemed, the number of shares to be redeemed shall be determined by the
Board of Directors and the shares shall be redeemed on a pro rata basis among
holders of Preferred Stock.
In the event that the Corporation shall redeem shares of Preferred Stock, notice
of every redemption of shares of Preferred Stock shall be mailed by first class
mail, postage prepaid, and mailed not less than 30 days nor more than 60 days
prior to the redemption date addressed to the holders of record of the shares to
be redeemed at their respective last addresses as they shall appear on the books
of the Corporation; provided, however, that failure to give such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
procedure for the redemption of any shares of Preferred Stock to be redeemed
except as to any holder to whom the Corporation has failed to give such notice
or except as to any holder to whom notice was defective. Each such notice shall
state: (i) the redemption date; (ii) the number of shares of Preferred Stock to
be redeemed and, if less than all the shares held by such holder are to be
redeemed, the number of such shares to be redeemed; (iii) the redemption price;
(iv) the place or places where certificates for such shares are to be
surrendered for payment of the redemption price; and (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date.
Notice having been mailed as aforesaid and provided that on or before the
redemption date specified in such notice all funds necessary for such redemption
shall have been set aside by the Corporation, separate and apart from its other
funds, in trust for the pro rata benefit of the holders of the shares so called
for redemption, so as to be and to continue to be available therefor, then, from
and after the redemption date dividends on the shares of Preferred Stock so
called for redemption shall cease to accrue, and said shares shall no longer be
deemed to be outstanding and shall not have the status of shares of Preferred
Stock, and all rights of the holders thereof as shareholders of the Corporation
(except the right to receive from the Corporation the redemption price and any
accrued and unpaid dividends) shall cease. Upon surrender in accordance with
said notice of the certificates for any shares so redeemed (properly endorsed or
assigned for transfer, if the Board of Directors shall so require and the notice
shall so state), such shares shall be redeemed by the Corporation at the
redemption price aforesaid. In case fewer than all the shares represented by
any such certificate are redeemed, a new certificate or certificates shall be
issued representing the unredeemed shares without cost to the holder thereof.
5.5. Upon the occurrence of a default resulting from the Corporation's
failure to make a scheduled payment of principal or accrued interest on the Term
Loan, the Revolving Credit Loan or the Asset Paydown Loan (as such loans
are defined in the Plan) and the continuance of such default for 90 calendar
days, the Agent for the Banks (as defined in the Plan) will be entitled to
convert all shares of Preferred Stock into shares of Common Stock equal to 51%
of the issued and outstanding shares of Common Stock on a fully diluted basis;
provided, however, that the Agent will only be entitled to consummate the
foregoing conversion if at the time of default the Agent is holding shares of
Preferred Stock with an aggregate par value equal to or greater than
$250,000.00; and provided further that in the event the Corporation has reduced
the outstanding principal indebtedness on such loans to an aggregate of
$15,000,000.00, the Preferred Stock will be converted into a lesser percentage
of Common Stock on a fully diluted basis as defined by the following formula:
(par value of Preferred Stock held by the Agent on the date of exercise of
conversion, divided by the par value of the maximum amount of Preferred Stock
previously issued) times 51%.
5.6. No holder of shares of stock authorized or issued pursuant to ARTICLE
IV or this ARTICLE V shall have any preferential or preemptive rights of
subscription to any shares of capital stock of this Corporation, either now or
hereafter authorized, or to any obligations convertible into capital stock of
this Corporation, issued or sold, nor any rights of subscription to any thereof,
other than such rights, if any, as are hereinabove stated in this Article V with
respect to the Preferred Stock.
5.7. The holders of the Common Stock shall have the exclusive right to vote
upon all questions presented for shareholder vote, and the holders of the
Preferred Stock shall have no right to vote upon any such question except as
otherwise expressly provided by Missouri law, these Articles of Incorporation or
by any other law, rule or regulation to which the Corporation is or may become
subject.
5.8. The Corporation reserves the right to alter, amend, or repeal any
provision contained in its Articles of Incorporation in the manner now or
hereafter prescribed by the statutes of Missouri, and all rights and powers
conferred herein are granted subject to this reservation; and, in particular,
the Corporation reserves the right and privilege to amend its Articles of
Incorporation from time to time so as to authorize other or additional classes
of shares (including preferential shares), to increase or decrease the number of
shares of any class now or hereafter authorized, to establish, limit or deny to
stockholders of any class the right to purchase or subscribe for any shares of
stock of the Corporation of any class, whether now or hereafter authorized or
whether issued for cash, property or services or as a dividend or otherwise, or
to purchase or subscribe for any obligations, bonds, notes, debentures, or
securities or stock convertible into shares of stock of the Corporation or
carrying or evidencing any right to purchase shares of stock of any class, and
to vary the preferences, priorities, special powers, qualifications,
limitations, restrictions and the special or relative rights or other
characteristics in respect to the shares of each class, and to accept and avail
itself of or subject itself to, the provisions of any statutes of Missouri
hereafter enacted pertaining to general and business corporations, to exercise
all the rights, powers and privileges conferred upon corporations organized
thereunder or accepting the provisions thereof and to assume the obligations and
duties imposed therein, upon the affirmative vote of the holders of a majority
of the shares of each class whose separate vote is required thereon.
ARTICLE VI.
In the absence of fraud, no contract or other transaction between the
Corporation and any other person, corporation, firm, syndicate, association,
partnership, or joint venture shall be wholly or partially invalidated or
otherwise affected by reason of the fact that one or more of the directors of
the Corporation are or are to become Directors or officers of such other
corporation, firm, syndicate or association, or members of such partnership or
joint venture, or are pecuniarily or otherwise interested in such contractual
transaction, provided, that the fact such director or directors of the
Corporation are so situated or so interested or both, shall be disclosed or
shall have been known to the Board of Directors of the Corporation. Any
director or directors of the Corporation who is also a director or officer of
such other corporation, firm, syndicate or association, or a member of such
partnership, or joint venture, or pecuniarily or otherwise interested in such
contract or transaction, may be counted for the purpose of determining the
existence of a quorum at any meeting of the Board of Directors of the
Corporation which shall authorize any such contract or transaction and in the
absence of fraud, and as long as he acts in god faith, any such director may
vote there at to authorize any such contract or transaction, with like force and
effect as if he were not a director or officer of such other corporation, firm,
syndicate, or association, or a member of such partnership or joint venture, or
pecuniarily or otherwise interested in such contract or transaction; it is
expressly provided, however, that the Board of Directors may not authorize the
contract or transaction without the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors constitute less
than a quorum.
ARTICLE VII.
The street address of the registered office of the Corporation is 906 Olive
Street, St. Louis, Missouri 63101, and the initial registered agent at such
address is CT Corporation System.
ARTICLE VIII.
8.1. The business and affairs of the Corporation shall be managed by, or
under the direction of, a Board of Directors. The number of directors to
constitute the Board of Directors is seven (7).
8.2. The directors shall be divided into two (2) classes with respect to the
time for which they severally hold office, designated Class I and Class II.
Class I shall be composed of four (4) directors who shall hold office until the
1994 Annual meeting and until their respective successors shall be elected and
shall qualify. Class II shall be composed of three (3) directors (the initial
members of this class being designated in the Plan), who shall hold office until
the annual meeting of the shareholders in 1993 and until their respective
successors shall be elected and shall qualify. Upon expiration of the initial
terms of the office of directors as classified above, their successors shall be
elected for a term expiring at the annual meeting of the Corporation's
shareholders held in the second year following the year of their election. Any
director elected to fill any vacancy on the Board of Directors shall hold office
for the remainder of the full term of the class of directors in which such
vacancy occurs.
8.3. Any vacancy on the Board of Directors arising from the death,
resignation, retirement, disqualification or removal from office of one or more
directors may be filled by a majority of the Board of Directors then in office,
although less than a quorum, or by a sole remaining director. At any time until
August 1, 1995, the shareholders shall have the power by vote of the holders of
75% of the shares of stock then entitled to vote at any meeting expressly called
for that purpose, to remove any director from office with or without cause;
provided, however, that notwithstanding the foregoing, during the initial terms
of office of the Class I and Class II Directors, no director shall be removed
from office except for cause, cause being defined solely as fraud, physical
disability or mental incapacity. Any director elected to fill a vacancy shall
have the same remaining term as that of his or her predecessor.
8.4. The method of nomination and conduct of the election of directors at
the annual meeting of shareholders shall be prescribed in the By-Laws.
8.5. Notwithstanding any other provision of these Articles of Incorporation,
until August 1, 1995, no amendment, alteration or repeal of this Article VIII
shall be effective unless approved by the holders of shares of stock of the
Corporation representing at least 75% of the votes entitled to be cast thereon
at a meeting of the shareholders duly called for consideration of such
amendment.
ARTICLE IX.
The private property of the stockholders shall not be subject to the
payment of the corporate debts of the Corporation.
ARTICLE X.
10.1 The Corporation shall have and exercise all powers and rights
conferred upon corporations by the General and Business Corporation Law of
Missouri and any enlargement of such powers conferred by subsequent legislative
acts; and, in addition thereto, the Corporation shall have and exercise all
powers and rights, not otherwise denied corporations by the General and Business
Corporation Law of Missouri, as are necessary, suitable, proper, convenient or
expedient to the attainment of the purposes set forth in Article III above.
10.2 Except as may be otherwise specifically provided by statute, or
the Articles of Incorporation or the By-laws of the Corporation, as from time to
time amended, all powers of management, direction and control of the Corporation
shall be, and hereby are, vested in the Board of Directors.
10.3 The By-laws of the Corporation may from time to time be altered,
amended, suspended or repealed, or new By-laws may be adopted by a majority vote
of the Board of Directors, subject to any and all restrictions imposed, or
prohibitions provided, by the General and Business Corporation Law of Missouri.
10.4 The Board of Directors may designate an Executive Committee in the
manner and subject to the limitations set forth in the By-laws of the
Corporation.
10.5 The directors shall have power to hold their meetings and to keep the
books (except any books required to be kept in the State of Missouri, pursuant
to the laws thereof) at any place within or without the State of Missouri.
ARTICLE XI.
11.1. The Corporation may agree to the terms and conditions upon which any
director or officer accepts his office or position and in its By-laws or by
contract may agree to indemnify and protect each and all of such persons and any
person who, at the request of the Corporation served as a director or
officer of another Corporation in which this Corporation owned stock against all
costs and expenses reasonably incurred by any or all of them, and all liability
imposed or threatened to be imposed upon any or all of them, by reason of or
arising out of their or any of them being or having been a director or officer
of this Corporation or of such other corporation; but any such By-law or
contractual provision shall not be exclusive of any other right or rights of
any such director or officer to be indemnified and protected against such costs
and liabilities which he may otherwise possess.
11.2. The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceedings, whether civil, criminal, administrative or investigative
(other than an action by or in the right of this Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of this
Corporation, or is or was serving at the request of this Corporation as a
director, officer, employee, partner, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines, taxes and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of this
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
----------------
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of this
Corporation, and, with respect to any criminal action or proceeding, that he had
reasonable cause to believe that his conduct was unlawful.
11.3. This Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit by or in the right of this Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of this Corporation, or is or was serving at the request of this Corporation as
a director, officer, employee, partner, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) and amounts paid in settlement actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of this Corporation except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation unless and only to
the extent that the Court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnify for such expenses which the Court shall deem proper. Any
indemnification under this Article XI (unless ordered by a Court) shall be made
by this Corporation only as authorized in the specific instance upon a
determination that indemnification of the director, officer, employee, partner,
trustee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in this Article XI. Such determination
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not parties to such action, suit or proceeding,
or (2) if such quorum is not obtainable, or, even if obtainable, a quorum of
disinterested Directors so directs, by independent legal counsel in a written
opinion, or (3) by the shareholders. To the extent that a director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit, or proceeding referred to in this
Article XI, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the action, suit, or proceeding.
11.4. Expenses incurred in defending any actual or threatened civil or
criminal action, suit or proceeding may be paid by this Corporation in advance
of the final disposition of such action, suit or proceeding as authorized by the
Board of Directors in the specific instance upon receipt of an undertaking by or
on behalf of the director, officer, employee, partner, trustee or agent to repay
such amount unless it shall be ultimately determined that he is entitled to be
indemnified by the Corporation as authorized in this Article XI.
11.5. The indemnification provided by this Article XI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any By-law, agreement, vote of shareholders or disinterested
Directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has caused to be a director, officer, employee, partner, trustee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
11.6. For the purposes of this Article XI, references to this "Corporation"
include all constituent corporations absorbed in a consolidation or merger as
well as the resulting or surviving corporation so that any person who is or was
a director, officer, employee, partner, trustee or agent of such a constituent
corporation as a director, officer, employee, partner, trustee or agent of
another enterprise shall stand in the same position under the provisions of this
Article XI with respect to the resulting surviving corporation in the same
capacity.
11.7. In the event any provision of this Article XI shall be held invalid by
any court of competent jurisdiction, such holding shall not invalidate any other
provisions of this Article XI and any other provisions of this Article XI shall
be construed as if such invalid provisions had not been contained in this
Article XI.
IN WITNESS WHEREOF, the undersigned, C Jeffrey Rogers, President, has
executed this instrument and its Assistant Secretary has affixed its corporate
seal hereto and attested said seal as of the 30th day of January, 1999.
(seal)
PIZZA INN, INC.
ATTEST:
/s/B. Keith Clark By:/s/Jeffrey Rogers
B. Keith Clark C. Jeffrey Rogers
Secretary President
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