PREC14A: Preliminary proxy statement in connection with contested solicitations

19

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:
[X] PRELIMINARY PROXY STATEMENT
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-B(E)(2))
[ ] 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.
[ ] CHECKBOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY EXCHANGE
ACT RULE 0-11(A)(2)AND IDENTIFY THE FILING FOR WHICH THE
OFFSETTING FEE WAS PAID PREVIOUSLY. IDENTIFY THE PREVIOUS
FILING BY REGISTRATION STATEMENT NUMBER, OR THE FORM OR
SCHEDULE AND THE DATE OF ITS FILING.
1) AMOUNT PREVIOUSLY PAID:
2) FORM, SCHEDULE OR REGISTRATION STATEMENT NO:
3) FILING PARTY:
4) DATE FILED:


PIZZA INN, INC.
3551 PLANO PARKWAY
THE COLONY, TEXAS 75056
(469) 384-5000

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD DECEMBER 15, 2004

To our Shareholders:

The Annual Meeting of Shareholders of Pizza Inn, Inc. (the "Company") will
be held at the Company's corporate offices, 3551 Plano Parkway, The Colony,
Texas 75056, on Wednesday, December 15, 2004, at 10:00 a.m., Dallas time, for
the following purposes:

1. To elect four Class I directors;

2. To consider and vote upon a proposal to approve the adoption of a
stock award plan for non-employee directors as a successor plan to the 1993
Outside Directors Stock Award Plan that expired in 2003;

3. To consider and vote upon a proposal to approve the adoption of a stock
award plan for employees as a successor plan to the 1993 Employee Stock Award
Plan that expired in 2003;

4. To consider and vote upon a proposal to amend the Company's Restated
Articles of Incorporation to declassify the board of directors; and

5. To transact such other business as may properly come before the meeting
or any postponements or adjournments thereof.

These items are more fully described in the proxy statement, which is part of
this notice. We have not received notice of other matters that may be properly
presented at the annual meeting.

Only shareholders of record at the close of business on October 18, 2004 are
entitled to notice of, and to vote at, this meeting and any postponements or
adjournments thereof.

By Order of the Board of Directors,


Rod J. McDonald
The Colony, Texas Corporate Secretary
November , 2004

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE,
DATE, AND SIGN THE ENCLOSED PROXY, AND MAIL IT IN THE STAMPED ENVELOPE ENCLOSED
FOR YOUR CONVENIENCE. THE ENCLOSED PROXY IS REVOCABLE AT ANY TIME PRIOR TO ITS
USE.
YOUR VOTE IS IMPORTANT.

PIZZA INN, INC.
3551 PLANO PARKWAY
THE COLONY, TEXAS 75056
(469) 384-5000

PROXY STATEMENT FOR THE
ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD DECEMBER 15, 2004

Pizza Inn, Inc., a Missouri corporation (the "Company"), is soliciting
proxies to be voted at the Annual Meeting of Shareholders (the "Annual Meeting")
to be held at the Company's corporate offices, 3551 Plano Parkway, The Colony,
Texas 75056, on Wednesday, December 15, 2004, at 10:00 a.m., Dallas time, and at
any postponements or adjournments thereof. This Proxy Statement and the
enclosed form of proxy were first mailed to the Company's shareholders on or
about November _, 2004.

If the proxy is signed and returned before the Annual Meeting, it will be
voted in accordance with the directions on the proxy or, if no directions are
made, by the proxies named therein in their discretion. A shareholder may
revoke a proxy at any time before it is voted by execution of a subsequent
proxy, voting the shares in person at the Annual Meeting, or by giving written
notice to Pizza Inn, Inc., c/o Securities Transfer Corporation, Transfer Agent,
2591 Dallas Parkway, Suite 102, Frisco, Texas 75034 at any time prior to the
close of the polls at the Annual Meeting stating that the proxy has been
revoked. If you hold shares through a bank or brokerage firm, you must contact
that firm to revoke any prior voting instructions. The Company must receive the
notice or a new proxy card before the vote is taken at the Annual Meeting.

OUTSTANDING CAPITAL STOCK

The record date for shareholders entitled to notice of, and to vote at, the
Annual Meeting is October 18, 2004. At the close of business on that date,
there were outstanding 10,138,674 shares of Common Stock, $.01 par value
("Common Stock"). No other class of securities of the Company is entitled to
notice of, or to vote at, the Annual Meeting.

ACTION TO BE TAKEN AT THE MEETING

The accompanying proxy, unless the shareholder otherwise specifies in the
proxy, will be voted:

1. FOR the election of the four Class I director nominees named herein, to
serve for a term of two years each (or one year if the proposal to amend the
Company's Restated Articles of Incorporation is adopted) or until their
respective successors are elected and qualified;

2. FOR the approval of the adoption of a stock award plan for non-employee
directors as a successor plan to the 1993 Outside Directors Stock Award Plan
that expired in 2003;

3. FOR the approval of the adoption of an incentive stock award plan
for employees as a successor plan to the 1993 Employee Stock Award Plan that
expired in 2003;

4. FOR the amendment of the Company's Restated Articles of
Incorporation to declassify the board of directors; and

5. In the discretion of the proxy holders, as to the transaction
of such other business as may properly come before the meeting or any
postponements or adjournments thereof.

The Board of Directors is not presently aware of any other business to be
brought before the Annual Meeting.

QUORUM AND VOTING

The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Annual Meeting. In deciding all questions, a holder of Common Stock (a
"Shareholder") is entitled to one vote, in person or by proxy, for each share
held in his name on the record date. Cumulative voting for the election of
directors is not permitted. Thus, a Shareholder is not entitled to cumulate his
votes and cast them all for any single nominee or to spread his votes, so
cumulated, among more than one nominee. Directors will be elected by a
plurality of the votes cast. To be elected as a director, a candidate must be
one of the four candidates who receive the most votes out of all votes cast at
the Annual Meeting.

A Shareholder who is present, in person or by proxy, and who withholds his
vote in the election of directors, will be counted for purposes of determining
whether a quorum exists, but the withholding of his vote will not affect the
election of directors. A Shareholder who is present, in person or by proxy, and
who abstains from voting on other proposals, will be counted for purposes of a
quorum, and the abstention will have the same effect as a vote against the
proposals. Broker non-votes will be considered shares present and counted for
purposes of determining whether a quorum exists; however, the presence of such
shares will have no effect on the outcome of the vote. If a quorum is not
present, in person or by proxy, the meeting may be postponed or adjourned from
time to time until a quorum is obtained.

The enclosed proxy, if executed and returned, will be voted as directed on
the proxy or, in the absence of such direction, for the election of the nominees
as directors. If any other matters properly come before the meeting, the
enclosed proxy will be voted by the proxy holders in accordance with their best
judgment. The Board believes that all the nominees will be available to serve as
directors. If any nominee is unable to serve, the Board may decide to do one of
two things. The Board may recommend a substitute nominee, or the Board may fill
the vacancy later. The shares represented by all valid proxies may be voted for
the election of a substitute if one is nominated.


PROPOSAL ONE:

ELECTION OF DIRECTORS

The Company's Restated Articles of Incorporation and Bylaws provide that
the Board of Directors shall be divided into two Classes. The terms of the four
Class I directors expire at the Annual Meeting. The Board has nominated for
election at the Annual Meeting all of the incumbent Class I directors. Each
nominated director will serve for a term of two years. Each nominee of the
Board has expressed his intention to serve the entire term for which election is
sought, but if any of them is unable to serve at the time the election occurs,
the proxy will be voted for the election of another nominee to be designated by
the Board. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE FOUR NOMINEE
DIRECTORS.

On October 20, 2004, the Board of Directors approved a proposal to amend the
Company's Restated Articles of Incorporation to delete Section 8.2, the
provision that divides the Board into two classes of directors. The amended and
substituted Section 8.2 would provide for one class of directors. Under the
amendment, if approved by the shareholders, the four director nominees proposed
in this proxy, if elected, will hold office until the 2005 annual meeting of
shareholders, at which time they, or their successors, would be subject to
election as members of a single class of seven directors. Those directors
currently referred to as Class II directors, who were elected at the 2003 annual
meeting of shareholders to hold office until the 2005 annual meeting of
shareholders, will complete their terms at the 2005 annual meeting of
shareholders, at which time they, or their successors, would be subject to
election as members of a single class of seven directors. Members of the single
class, or their successors, would be subject to re-election every year. The
proposal to amend the Restated Articles of Incorporation requires the approval
of holders of a majority of the shares present in person or represented by proxy
and entitled to vote.

If the proposed amendment is not approved by the shareholders, the two classes
of directors will continue, and the four Class I nominees, if elected, will
serve two year terms.

Following is the biographical information, as of October 1, 2004, of the four
nominee directors, the three directors whose terms of office will continue after
the Annual Meeting, the class to which each director has been or will be
elected, the year in which each director was first elected, and the annual
meeting (assuming that it is held in December) at which the term of each
director will expire.

NOMINEES

Bobby L. Clairday, 61, is an Area Developer of Pizza Inn restaurants and he
is President, a Director, and sole shareholder of Clairday Food Services, Inc.,
a Pizza Inn franchisee operating Pizza Inn restaurants in Arkansas. Mr.
Clairday is also sole shareholder of Advance Food Services, Inc., a franchisee
operating Pizza Inn restaurants in Arkansas. From 1990 until his election as a
Director of the Company in January 1993, Mr. Clairday was an ex-officio member
of the Board of Directors, serving as a representative of the Company's
franchisees. He has served as the President of the Pizza Inn Franchisee
Association and as a member of various committees and associations affiliated
with the Pizza Inn restaurant system. Mr. Clairday has been a franchisee of the
Company for over twenty years and a Class I Director for over nine years.

Ronald W. Parker, 54, was appointed President and Chief Executive Officer
of the Company in August 2002. Mr. Parker joined the Company in October 1992 and
was elected Executive Vice President, Chief Operating Officer, and a Director in
January 1993. He was appointed President in July 2000. From October 1989 to
September 1992, he was Executive Vice President and General Manager of the
Bonanza restaurant division of Metromedia Steakhouses, Inc. and its predecessor
Metsa, Inc. From 1983 to 1989, Mr. Parker served in several executive positions
for USACafes, the franchisor of the Bonanza restaurant chain. From 1974 to 1983,
Mr. Parker served in several executive positions with Chart House, Inc., a
restaurant company with more than 600 units of various brands. He previously
worked with a national accounting firm from 1972 to 1974. Mr. Parker also
currently serves on the Board of Directors of the Cotton Bowl Athletic
Association, the Mississippi State University Foundation, and the Mississippi
State University Bulldog Club, Inc. Foundation. Mr. Parker was previously on the
Board of Directors of the Mississippi State University Alumni Association.

Butler E. Powell, 65, is Vice President of Business Banking with Hibernia
National Bank in Metairie, Louisiana. He has served in various capacities with
the bank and its predecessors since 1983. He graduated from Loyola University
in New Orleans with BBA and MBA degrees and spent over three years with the
national accounting firm Ernst and Ernst before entering the banking industry.
Mr. Powell was the former President and a Director of the New Orleans Athletic
Club and served on the Foundation Board of East Jefferson Hospital. He was
elected a Class I Director of the Company in January 1998.

Mark E. Schwarz, 44, is the Chairman, Chief Executive Officer, and
Portfolio Manager of Newcastle Capital Management, L.P., a private investment
management firm he founded in 1992 that is the general partner of Newcastle
Partners, L.P. Mr. Schwarz was appointed Chairman of the Board of the Company in
February 2004. Mr. Schwarz is also Chairman of the Board and Chief Executive
Officer of Hallmark Financial Services, Inc., Chairman of the Board of Bell
Industries, Inc., Chairman of the Board of New Century Equity Holdings Corp.,
director and Chief Executive Officer of Geoworks Corporation, and a director of
Nashua Corporation, S L Industries, Inc., Web Financial Corporation, and
privately-held Pinnacle Frames and Accents, Inc. From 1995 through 1999, he was
also a Vice President of Sandera Capital Management and in 1998 and 1999 he was
a director of Aydin Corporation. Mr. Schwarz was appointed a Director in
December 2002 to fill a vacant Class I Board seat.


CONTINUING DIRECTORS

Robert B. Page, 45, is a franchisee of Shoney's, Inc., a family dining
restaurant chain. From November 2000 until September 2002, Mr. Page was Chief
Operations Officer of Gordon Biersch Brewery Restaurant Inc., a group of casual
dining restaurants. From 1993 through 2000 he worked for Romacorp, Inc., which
owns Tony Roma's, a chain of casual dining restaurants, where he was Chief
Executive Officer and a board member from 1998 through 2000, and President and
Chief Operations Officer from 1993 through 1998. Mr. Page was elected a Class II
Director of the Company in February 2004.

Ramon D. Phillips, 71, is the former Chairman of the Board, President, and
Chief Executive Officer of Hallmark Financial Services, Inc., a financial
services company. He served as Chairman, President, and Chief Executive Officer
of Hallmark from 1989 through 2000, and as Chairman through August 2001. Prior
to Hallmark, Mr. Phillips had over fifteen years experience in the franchise
restaurant industry, serving as Controller for Kentucky Fried Chicken, Inc.
(1969-1974) and as Executive Vice President and Chief Financial Officer for
Pizza Inn, Inc. (1974-1989). He was elected a Director of the Company in 1990
and served through 2002. He served as an Advisory Director in 2002 and was
re-elected as a Class II Director in 2003.

Steven J. Pully, 44, is the President of Newcastle Capital Management, L.P.
Mr. Pully is also Chief Executive Officer and a director of New Century Equity
Holdings Corp., an officer and director of Geoworks Corporation, a director of
Max Worldwide, Inc., and a director of privately-held Pinnacle Frames and
Accents, Inc. Prior to joining Newcastle Capital Management, L.P. in late 2001,
from May 2000 to December 2001, he was a managing director in the mergers and
acquisitions department of Banc of America Securities, Inc. and from January
1997 to May 2000 he was a senior managing director in the investment banking
department of Bear Stearns. Prior to becoming an investment banker, Mr. Pully
practiced securities and corporate law at the law firm of Baker & Botts. Mr.
Pully is a CPA, a CFA, and a member of the Texas Bar. Mr. Pully was appointed a
Director in December 2002 to fill a vacant Class II Board seat.


INFORMATION REGARDING THE BOARD AND ITS COMMITTEES

The Board has adopted a set of Corporate Governance Guidelines on
governance practices followed by the Company in order to assure that the Board
will have the necessary authority and practices in place to review and evaluate
the Company's business operations as needed and to make decisions that are
independent of the Company's management. The guidelines are also intended to
align the interests of directors and management with those of the Company's
shareholders. The Governance Guidelines set forth the practices the Board will
follow with respect to Board composition and selection, Board meetings and
involvement of senior management, Chief Executive Officer performance evaluation
and succession planning, and Board committee composition and compensation. The
Governance Guidelines are intended to be compliant with changes to The Nasdaq
Stock Market ("Nasdaq") listing standards and Securities and Exchange Commission
(the "SEC") rules adopted to implement provisions of the Sarbanes-Oxley Act of
2002 (the "Sarbanes-Oxley Act"). The Board has six committees: an Executive
Committee, an Audit Committee, a Compensation Committee, a Finance Committee, a
Nominating and Governance Committee, and a Strategic Planning Committee. The
Governance Guidelines, as well as the charters for certain Board committees,
including the Nominating and Governance Committee, may be viewed at
http://www.pizzainn.com.
-----------

The Board met nine times during the last fiscal year. All directors
attended 75% of more of the Board meetings and meetings of the committees on
which they served. Below is a table that provides membership and meeting
information for each of the Board committees:

Nominating Strategic
Name Executive Audit Compensation Finance & Governance Planning
- --------------------------------------------------------------------------------
Mr. Schwarz X*
Mr. Clairday
Mr. Page X X X* X X**
Mr. Parker X
Mr. Phillips X X* X X X X**
Mr. Powell X
Mr. Pully X* X X*

Number of Meetings
in Fiscal 2004 10 9 5 3 1 14^
- --------------------------------------------------------------------------------
* Committee Chairman
** Committee Co-Chairman
^ Includes five meetings with the Company's management team.

Independent directors meet twice annually apart from other Board members
and management representatives. Each of the Company's directors, other than Mr.
Clairday and Mr. Parker, qualify as "independent" in accordance with published
Nasdaq listing requirements.

Below is a description of each committee of the Board. Each of the
committees has authority to engage legal counsel or other experts or consultants
as it deems appropriate to carry out its responsibilities. The Board has
determined that each member of each committee meets the applicable laws and
regulations regarding "independence" when applicable and that each member is
free of any relationship that would interfere with his individual exercise of
independent judgment.

Executive Committee. This Committee will consider issues as directed by the
-------------------
Chairman of the Board. It also may exercise the authority of the Board between
Board meetings, except to the extent that the Board has delegated authority to
another committee or to other persons, and except as otherwise limited by
Missouri law.

Audit Committee. The Company has a separately designated standing audit
----------------
committee established in accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934. The responsibilities of this Committee include reviewing
the financial reports and other financial information provided by the Company to
any governmental body or the public; the Company's systems of internal controls
regarding finance, accounting, legal compliance, and ethics that management and
the Board have established; the Company's auditing, accounting, and financial
reporting processes generally; and such other functions as the Board may from
time to time assign to the Committee. In performing its duties, the Committee
seeks to maintain an effective working relationship with the Board, the
independent accountant, and management of the Company. The specific duties and
functions of the Audit Committee are set forth in the Audit Committee Charter.
The Charter is reviewed annually and updated as necessary to reflect changes in
regulatory requirements, authoritative guidelines, and evolving practices.

Management is responsible for the preparation, presentation, and integrity
of the Company's financial statements, accounting and financial reporting
principles, internal controls, and procedures designed to ensure compliance with
accounting standards, applicable laws, and regulations. The Company's
independent auditor, BDO Seidman LLP, is responsible for performing an
independent audit of the consolidated financial statements and expressing an
opinion on the conformity of those financial statements with generally accepted
accounting principles.

Compensation Committee. The primary responsibilities of this Committee are
-----------------------
to (a) review and recommend to the Board the compensation of the Chief Executive
Officer and other officers of the Company, (b) review executive bonus plan
allocations, (c) oversee and advise the Board on the adoption of policies that
govern the Company's compensation programs, (d) oversee the Company's
administration of its equity-based compensation and other benefit plans, and (e)
approve grants of stock options to officers and employees of the Company under
its stock plans. The Compensation Committee's role includes producing the report
on executive compensation required by SEC rules and regulations. The specific
duties and functions of the Compensation Committee are set forth in its charter.
This charter is reviewed annually and updated as necessary to reflect changes in
regulatory requirements, authoritative guidelines, and evolving practices.

Finance Committee. The primary responsibilities of this Committee are to
------------------
(a) monitor present and future capital requirements and opportunities pertaining
to the Company's business, and (b) review and provide guidance to the Board and
management about all proposals concerning major financial policies of the
Company. The Finance Committee's role includes designating officers and
employees who can execute documents and act on behalf of the Company in the
ordinary course of business under previously approved banking, borrowing, and
other financing arrangements.

Nominating and Governance Committee. The primary responsibilities of this
-------------------------------------
Committee are to (a) determine the slate of director nominees for election to
the Board, (b) identify and recommend candidates to fill vacancies occurring
between annual shareholder meetings, and (c) review, evaluate, and recommend
changes to the Company's Corporate Governance Guidelines. The Committee's role
includes periodic review of the compensation paid to non-employee directors for
annual retainers and meeting fees and making recommendations to the Board for
any adjustments. The specific responsibilities and functions of the Committee
are set forth in its Charter.

From time to time the Committee reviews the Board to assess the skills and
characteristics required of Board members in the context of the current
composition of the Board. This assessment includes issues of diversity in
numerous factors, understanding of and achievements in the restaurant industry,
board service, business, finance, marketing, and community involvement. These
factors, and any other qualifications considered useful by the Committee, are
reviewed in the context of an assessment of the perceived needs of the Board at
a particular point. As a result, the priorities and emphasis of the Committee
and of the Board may change from time to time to take into account changes in
business and other trends, and the portfolio of skills and experience of current
and prospective Board members. Therefore, while focused on the achievement and
the ability of potential candidates to make a positive contribution with respect
to such factors, the Committee has not established specific minimum criteria or
qualifications that a nominee must possess.

Consideration of new Board nominee candidates typically involves a series
of internal discussions, review of information concerning candidates, and
interviews with selected candidates. In general, candidates for nomination to
the Board are suggested by Board members or by employees. In 2004 the Company
did not employ a search firm or pay fees to other third parties in connection
with seeking or evaluating Board nominee candidates. The Committee will consider
director candidates recommended by shareholders. The Committee evaluates
candidates proposed by shareholders using the same criteria as for other
candidates. The name of any recommended candidate for director, together with a
brief biographical sketch, a document indicating the candidate's willingness to
serve if elected, and evidence of the nominating person's ownership of Company
stock should be sent to the Corporate Secretary of the Company using one of the
methods set forth in "Communications from Shareholders to the Board," below.

Strategic Planning Committee. This Committee was constituted on April 21,
------------------------------
2004 specifically to work with the Company's senior management to create and
implement a strategic plan for the Company. The Committee and Company management
assemble and analyze data pertaining to the Company's business plan, competitive
environment and objectives, and other factors relevant to the Company's
concepts, products, and services, ultimately preparing and recommending plans,
timetables, strategies, options, and procedures for the Company's long-term
growth and success. Upon completion and presentation of a final strategic plan
to be implemented and monitored by management, the Committee will transition
into an oversight role, and ultimately may be dissolved, subject to reformation
from time to time as the Board may deem necessary.

Communications from Shareholders to the Board

The Board recommends that shareholders initiate any communications with the
Board in writing and send them in care of the Corporate Secretary. Shareholders
can send communications by e-mail to corporate_secretary@pizzainn.com, by fax to
--------------------------------
(469) 384-5061, or by mail to Corporate Secretary, Pizza Inn, Inc., 3551 Plano
Parkway, The Colony, TX 75056. This centralized process assists the Board in
reviewing and responding appropriately to shareholder communications. The names
of specific intended Board members should be noted in the communication. The
Board has instructed the Corporate Secretary to forward such correspondence only
to the intended recipients; however, the Board has also instructed the Corporate
Secretary, prior to forwarding any correspondence, to review such correspondence
and, in his discretion, not to forward certain items if they are deemed of a
commercial or frivolous nature or otherwise inappropriate for the Board's
consideration. In such cases, that correspondence may be forwarded elsewhere in
the Company for review and possible response.

Director Compensation

As an employee of the Company, Mr. Parker receives no compensation for
serving as a director, except that he, like all directors, is eligible to
receive reimbursement of any expenses incurred in attending Board and committee
meetings. During fiscal year 2004, each director received as compensation for
serving on the Board and committees of the Board:

- - An annual retainer of $17,000;

An annual retainer of $6,000 for the Chairman of the Board; and

A per meeting fee of $1,000 for Board meetings and $250 fee for committee
meetings.

Members of the Strategic Planning Committee receive a per diem fee of $500 for
each day they are directly engaged in the discharge of Committee
responsibilities.

In addition to annual and meeting fees each non-employee director was
eligible to receive stock option awards under the 1993 Outside Directors Stock
Award Plan (the "1993 Plan") until the 1993 Plan's expiration on October 13,
2003. Under the 1993 Plan, eligible directors would receive, as of the first
day of the Company's fiscal year, options for Common Stock equal to twice the
number of shares of Common Stock purchased during the preceding fiscal year or
purchased by exercise of previously granted options during the first ten days of
the current fiscal year. On the first day of the first fiscal year immediately
following the day on which a non-employee director first became eligible to
participate in the 1993 Plan, that director would receive options to acquire two
shares of Common Stock for each share of Common Stock owned by such director on
the first day of the fiscal year. The exercise price of the options is not less
than the closing price for the Common Stock on Nasdaq on the date of the option
grant. Each eligible director was entitled to options for no more than 20,000
shares per fiscal year. Stock options granted under the 1993 Plan have an
exercise price equal to the market price of the Common Stock on the date of
grant and are first exercisable one year after grant.

Since the beginning of fiscal year 2004, stock options for 5,000 shares
were granted to Mr. Schwarz pursuant to the 1993 Plan at an exercise price of
$2.15 per share.

Expiration of the 1993 Plan does not affect vesting, exercise, or expiration of
options previously granted pursuant to such Plan; however, no further options
may be granted.

The Board expects to grant stock option awards to non-employee directors
beginning in calendar year 2005, with awards retroactive to the 1993 Plan's
October 13, 2003 expiration date, if the shareholders approve Proposal Two,
"Adoption of a Non-Employee Directors Stock Option Award Plan."


-----------------------------------------------------------------


EXECUTIVE OFFICERS

The following table sets forth certain information, as of October 1, 2004,
regarding the Company's executive officers:
Executive
Officer
Name Age Position Since
- ---- --- -------- -----
Ronald W. Parker 54 President and Chief Executive Officer 1992
Ward T. Olgreen 45 Senior Vice President of Franchise Operations
and Concept Development 1995
Shawn M. Preator 35 Chief Financial Officer and Vice
President of Distribution 1999
Rod J. McDonald 43 Secretary and General Counsel 2004

Danny K. Meisenheimer 44 Vice President of Marketing 2003


BIOGRAPHIES OF NON-DIRECTOR OFFICERS

Ward T. Olgreen was appointed Senior Vice President of Franchise Operations and
Concept Development in December 2002. He was appointed Vice President of
Concept Development in February 1999 and Senior Vice President of Concept
Development in July 2000. He joined the Company in September 1991 and served in
a variety of operational positions until his appointment in January 1995 as Vice
President of International Operations and Brand R&D. Mr. Olgreen was a Branch
Manager for GCS Service, Inc., a restaurant equipment service provider, from
June 1986 through July 1991.

Shawn M. Preator was appointed Chief Financial Officer and Vice President
of Distribution in October 2002. He was elected Vice President in June 2000.
He was elected Controller, Treasurer, and Assistant Secretary in April 1999.
Prior to that election, Mr. Preator had been Assistant Controller for the
Company since July 1998. Prior to joining the Company, Mr. Preator was a Senior
Financial Analyst at LSG/Sky Chefs, Inc., an international airline caterer, from
September 1996 to July 1998. Prior to September 1996, Mr. Preator worked for
the accounting firm Ernst & Young LLP in its audit department.

Rod J. McDonald was appointed Corporate Secretary and General Counsel in August
2004. Mr. McDonald joined the Company in September 1997 and had served as
Assistant General Counsel of the Company since that time. Prior to joining the
Company, he was Vice President and Assistant General Counsel for TCBY
Enterprises, Inc.

Danny K. Meisenheimer was appointed Vice President of Marketing in January 2003
after joining the Company in December 2002. Prior to joining the Company, Mr.
Meisenheimer served as Vice President of Marketing for Furr's Restaurant Group,
Inc. since 1995. Mr. Meisenheimer joined the Marketing Department of Furr's in
1991.

SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information, as of October 1, 2004,
with respect to the beneficial ownership of Common Stock by: (a) each person
known to the Company to be a beneficial owner of more than five percent of the
outstanding Common Stock; (b) each director, nominee director, and executive
officer named in the section entitled "Summary Compensation Table;" and (c) all
directors and executive officers as a group (11 persons). Except as otherwise
indicated, each of the persons named in the table below is believed by the
Company to possess sole voting and investment power with respect to the shares
of Common Stock beneficially owned by such person. Information as to the
beneficial ownership of Common Stock by directors and executive officers of the
Company has been furnished by the respective directors and executive officers.

Name Shares Percent
and Address of Beneficially of Class
-------
Beneficial Owner Owned
- ---------------- -----

Newcastle Partners, L.P.
Newcastle Capital Management, L.P.
Newcastle Capital Group, L.L.C.
300 Crescent Court, Ste. 1110
Dallas, TX 75201 (a) 3,627,130 35.79%

Ronald W. Parker (b)
3551 Plano Parkway
The Colony, TX 75056 851,821 8.40%

Mark E. Schwarz (a)(b) 3,647,130 35.9%
Robert B. Page -0- -0-
Butler E. Powell (b) 32,500 Less than 1%
Bobby L. Clairday (c) 48,900 Less than 1%
Ramon D. Phillips (d) 11,590 Less than 1%
Steven J. Pully (a) 8,929 Less than 1%
Ward T. Olgreen (b) 169,659 1.67%
Shawn M. Preator (b) 56,165 Less than 1%
Danny K. Meisenheimer 1,092 Less than 1%

All Directors and 3,994,965 39.42%
Executive Officers as a Group

(a) Newcastle Capital Management, L.P. is the general partner of Newcastle
Partners, L.P., Newcastle Capital Group, L.L.C. is the general partner of
Newcastle Capital Management, L.P., and Mr. Schwarz is the managing partner of
Newcastle Partners, L.P. Accordingly, each of Newcastle Capital Management,
L.P., Newcastle Group, L.L.C., and Mark E. Schwarz may be deemed to beneficially
own the shares of Common Stock beneficially owned by Newcastle Partners, L.P.
In addition, Newcastle Partners, L.P., Newcastle Capital Management, L.P.,
Newcastle Group, L.L.C., and Messrs. Schwarz and Pully are members of a Section
13D reporting group and may be deemed to beneficially own shares of Common Stock
owned by the other members of the group. Newcastle Partners, L.P., and Messrs.
Schwarz and Pully also directly own shares of Common Stock.

(b) Includes vested options and options vesting within 60 days of October 1,
2004 under the Company's stock option plans, as follows: 62,500 shares for Mr.
Parker; 5,000 shares for Mr. Schwarz; 20,000 shares for Mr. Powell; 66,500
shares for Mr. Olgreen; and 44,500 shares for Mr. Preator.

(c) Mr. Clairday shares voting and investment power for 18,200 shares with
his wife.

(d) Mr. Phillips shares voting and investment power for 5,333 shares with
the other shareholders of Wholesale Software International, Inc.

AUDIT COMMITTEE REPORT

The Audit Committee of the Board is responsible for providing independent,
objective oversight of the Company's accounting functions and internal controls.
The Committee is composed of three independent directors and acts under a
written charter adopted and approved by the Board of Directors on April 15,
2003. The Committee reviews its Charter on an annual basis. Each of the members
of the Committee is independent as defined by the National Association of
Securities Dealers' listing standards and as required by the Sarbanes-Oxley Act.
After a full review and analysis, the Board of Directors positively reaffirmed
that each member of the Committee is independent within the meaning of Rule
4200(a)(14) of the National Association of Securities Dealers' listing standards
and the rules and regulations of the SEC, as such requirements are defined as of
the mailing date of this proxy statement. The Board annually reviews the Nasdaq
listing standards' definition of independence for audit committee members and
makes an annual determination of the independence of Committee members. The
Board of Directors has also determined that at least one member of the
Committee, Mr. Phillips, is an "audit committee financial expert," as defined by
SEC rules and regulations. This designation results from a disclosure
requirement of the SEC related to Mr. Phillips' experience and understanding
with respect to certain accounting and auditing matters. The SEC believes this
designation does not impose upon Mr. Phillips any duty, obligation, or liability
that is greater than is generally imposed on him as a member of the Audit
Committee and the Board, and that his designation as an audit committee
financial expert pursuant to this SEC requirement does not affect the duty,
obligation, or liability of any other member of the Audit Committee or the
Board. For an overview of Mr. Phillips' relevant experience, see the section
entitled "Continuing Directors" above.

The Committee reviewed and discussed the Company's audited financial
statements with management. The Committee also discussed with BDO Seidman LLP
the matters required to be discussed by Statement on Auditing Standards No. 61,
"Communications with Audit Committees." In addition, BDO Seidman LLP also
provided to the Committee the written disclosures and the letter required by
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees," and the Committee discussed with BDO Seidman LLP that firm's
independence.

The Committee is responsible for recommending to the Board that the
Company's financial statements be included in the Company's annual report.
Based on the discussions with BDO Seidman LLP concerning the audit, the
financial statement review, and other such matters deemed relevant and
appropriate by the Committee, the Committee recommended to the Board that the
June 27, 2004 audited financial statements be included in the Company's 2004
Annual Report on Form 10-K.

In accordance with the rules of the SEC, the foregoing information, which
is required by paragraphs (a) and (b) of Regulation S-K Item 306, shall not be
deemed to be "soliciting material", or to be "filed" with the SEC or subject to
the SEC's Regulation 14A, other than as provided in that Item, or to the
liabilities of Section 18 of the Securities Exchange Act of 1934, as amended,
except to the extent that the Company specifically requests that the information
be treated as soliciting material or specifically incorporates it by reference
into a document filed under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended.

Submitted by the Audit Committee: Ramon D. Phillips, Chairman
Robert B. Page
Butler E. Powell

FEES PAID TO INDEPENDENT AUDITORS

The Audit Committee has selected BDO Seidman LLP certified public
accountants as the independent auditors of the Company for fiscal year 2005. A
representative of BDO Seidman LLP will be present at the Annual Meeting, will be
available to respond to appropriate questions, and will have an opportunity to
make a statement.

For fiscal 2004, the Audit Committee selected BDO Seidman LLP to replace
PricewaterhouseCoopers LLP, which was the Company's independent auditor for the
fiscal year ending June 29, 2003. The decision to change accountants was made
by vote of the Committee, and the dismissal of PricewaterhouseCoopers LLP became
effective on October 8, 2003. During fiscal years 2002 and 2003, there were no
disagreements between the Company's senior management and PricewaterhouseCoopers
LLP's senior audit personnel on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure such
that would have caused PricewaterhouseCoopers LLP to have made reference to the
subject matter of such disagreements in connection with its audit report. The
Company does not anticipate that a representative of PricewaterhouseCoopers LLP
will be present at the Annual Meeting, nor does it anticipate that any such
representative will be available to make a statement or to answer questions.

The following table shows the fees the Company paid or accrued for the audit and
other services provided by PricewaterhouseCoopers LLP in fiscal 2003 and BDO
Seidman LLP in fiscal 2004.

PRICEWATERHOUSECOOPERS BDO SEIDMAN
2003 2004 2004
- --------------------------------------------------------------------------------
Audit Fees $ 129,540 -- $ 74,718
Audit-Related Fees $ 13,656 -- $ 5,500
Tax Fees $ 13,345 $ 9,300 $ 950
All Other Fees $ 35,579 $ 12,500 $ 4,759
-----------------------------------------------------------
Total $ 192,120 $ 21,800 $ 85,927

AUDIT FEES This category represents aggregate fees billed by
PricewaterhouseCoopers LLP and BDO Seidman LLP for professional services
rendered for the audit of the Company's annual financial statements for the
years ended June 29, 2003 and June 27, 2004, respectively, and the reviews of
the financial statements included in the Company's Forms 10-Q for those years.

AUDIT-RELATED FEES These fees consist of assurance and related services that
are reasonably related to the performance of the audit or review of the
Company's financial statements. This category includes fees related to the
performance of audits and attest services not required by statute or
regulations, audits of the Company's benefits plans, and accounting
consultations regarding the application of generally accepted accounting
principles to proposed transactions.


TAX FEES Fees billed by PricewaterhouseCoopers LLP for fiscal years 2003 and
2004 for tax return preparation and foreign tax analysis, and for a change in
tax accounting method, and fees billed by BDO Seidman LLP for tax services
during fiscal 2004.


ALL OTHER FEES Fees paid to PricewaterhouseCoopers LLP and BDO Seidman LLP in
2003 and 2004 generally include services regarding the change of control issue,
consultation on a potential business opportunity, and for
PricewaterhouseCoopers, LLP, review of the Company's franchise offering
circular. Fees paid to PricewaterhouseCoopers LLP in fiscal 2004 were for
services related to the transfer of audit-related materials from
PricewaterhouseCoopers LLP to BDO Seidman LLP.

In considering and authorizing these payments to the independent auditors for
services unrelated to performance of the audit of the Company's financial
statements, the Committee has determined that the cost segregation analysis
services, tax return preparation, foreign tax analysis and calculation, review
of the Company's franchise offering circular, and transfer of materials related
to the audit engagement undertaken by the independent auditors are not
inconsistent with the independent auditor's performance of the audit and
financial statement review functions and are compatible with maintaining the
independent auditor's independence.

Policy of the Audit Committee for Pre-Approval of Audit and Permissible
Non-Audit Services of the Independent Auditor

The Audit Committee is responsible for appointing, setting compensation
for, and overseeing the work of, the independent auditor. In accordance with
Audit Committee policy and the requirements of law, all services to be provided
by BDO Seidman LLP are pre-approved by the Audit Committee. Pre-approval applies
to audit services, audit-related services, tax services, and other services. In
some cases, pre-approval is provided by the full Audit Committee for up to a
year, and relates to a particular defined task or scope of work and is subject
to a specific budget. In other cases, the Chairman of the Audit Committee has
the delegated authority from the Audit Committee to pre-approve additional
services, and such pre-approvals are then communicated to the full Audit
Committee.


SUMMARY COMPENSATION TABLE

The following table sets forth the annual compensation of the Chief
Executive Officer and the other four most highly compensated executive officers
of the Company for the fiscal years ended June 27, 2004, June 29, 2003, and June
30, 2002 (designated as years 2004, 2003, and 2002, respectively).