DEF 14A: Definitive proxy statements
Published on October 27, 1997
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by Registrant X
Filed by a Party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement
X Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
PIZZA INN, INC.
(Name of Registrant as Specified In Its Charter)
PIZZA INN, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
X $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(i)(2).
$500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
Fee computed on table below per Exchange Act Rules 14a-6(i)
(4) and 0-11.
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
PIZZA INN, INC.
5050 QUORUM DRIVE, SUITE 500
DALLAS, TEXAS 75240
(972) 701-9955
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 11, 1997
To our Shareholders:
The Annual Meeting of Shareholders of Pizza Inn, Inc., (the "Company")
will be held at The Westin Hotel (Galleria), 13340 Dallas Parkway, Dallas,
Texas 75240, on Thursday, December 11, 1997, at 10:00 a.m., Dallas time, for
the following purposes:
1. To elect three Class II directors;
2. To approve an amendment to the 1993 Stock Award Plan; and
3. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only shareholders of record at the close of business on October 14, 1997 are
entitled to notice of, and to vote at, this meeting and any adjournments
thereof.
Sincerely,
Jeff Rogers
President and Chief Executive Officer
November 4, 1997
Whether or not you plan to attend the meeting in person, please complete,
date, and sign the enclosed proxy, and mail it in the stamped envelope enclosed
for your convenience. The enclosed proxy is revocable at any time prior to its
use.
YOUR VOTE IS IMPORTANT.
PIZZA INN, INC.
5050 QUORUM DRIVE, SUITE 500
DALLAS, TEXAS 75240
(972) 701-9955
PROXY STATEMENT FOR THE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 11, 1997
The Board of Directors of Pizza Inn, Inc., a Missouri corporation (the
"Company"), is soliciting proxies to be voted at the Annual Meeting of
Shareholders (the "Annual Meeting") to be held at The Westin Hotel (Galleria),
13340 Dallas Parkway, Dallas, Texas 75240, on Thursday, December 11, 1997,
10:00 a.m., Dallas time, and at any adjournments thereof. This Proxy
Statement was first mailed to the Company's shareholders on or about November
1, 1997.
If the proxy is signed and returned before the Annual Meeting, it will be
voted in accordance with the directions on the proxy. A proxy may be revoked
at any time before it is voted by execution of a subsequent proxy, by signed
written notice to Pizza Inn, Inc., Church Street Station, P.O. Box 1677, New
York, New York 10008-1677, or by voting in person at the Annual Meeting.
OUTSTANDING CAPITAL STOCK
The record date for shareholders entitled to notice of, and to vote at,
the Annual Meeting is October 14, 1997. At the close of business on that
date, there were outstanding 12,747,215 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 three Class II director nominees named
herein, to serve for a term of two years each or until their respective
successors are elected and qualified;
2. FOR approval of an amendment to the 1993 Stock Award Plan
(the "Plan") increasing by 500,000 shares the aggregate number of shares of
Common Stock issuable under the Plan; and
3. In the discretion of the proxy holders, as to the transaction
of such other business as may properly come before the meeting or any
adjournments thereof.
The Board of Directors is not presently aware of any other business to be
brought before the Annual Meeting.
QUORUM AND VOTING
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Annual Meeting. In deciding all questions, a holder of Common Stock (a
"Shareholder") is entitled to one vote, in person or by proxy, for each share
held in his name on the record date. Solely with respect to the election of
directors, a Shareholder has that number of votes equal to the number of
shares held by him on the record date multiplied by the number of directors
being elected and he is entitled to cumulate his votes and cast them all for
any single nominee or to spread his votes, so cumulated, among as many
nominees and in such manner as he sees fit. Directors must be elected by a
plurality of the votes cast. To be elected as a director, a candidate must be
one of the three candidates who receive the most votes out of all votes cast
at the Annual Meeting.
A Shareholder who is present, in person or by proxy, and who withholds
his vote in the election of directors, will be counted for purposes of
determining whether a quorum exists, but the withholding of his vote will not
affect the election of directors. A Shareholder who is present, in person or
by proxy, and who abstains from voting on other proposals, will be counted for
purposes of a quorum, and the abstention will have the same effect as a vote
against the proposals. Brokers' "non-votes" are treated the same as votes
withheld or abstained.
The enclosed proxy, if executed and returned, will be voted as directed
on the proxy or, in the absence of such direction, FOR the election of the
nominees as directors and FOR the approval of the proposed amendment to the
Plan. 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.
ELECTION OF DIRECTORS
The Company's Articles of Incorporation and By-laws provide that the
Board of Directors shall be divided into two Classes. The terms of the three
Class II directors expire at the Annual Meeting. The Board has nominated for
election at the Annual Meeting all three incumbent Class II directors, each to
serve for a term of two years. Each nominee of the Board has expressed his
intention to serve the entire term for which election is sought. Directors
will be elected by cumulative voting. THE BOARD OF DIRECTORS RECOMMENDS A
VOTE FOR EACH OF THE THREE NOMINEE DIRECTORS.
The following table lists the names and ages, as of October 1, 1997, of
the three nominee directors and the four directors whose terms of office will
continue after the Annual Meeting, the class to which each director has been
or will be elected, the year in which each director was first elected, and the
annual meeting (assuming that it is held in December) at which the term of
each director will expire (assuming the election of each nominee).
EXECUTIVE OFFICERS
The following table sets forth certain information, as of October 1, 1997,
regarding the Company's executive officers:
BIOGRAPHIES OF NOMINEE DIRECTORS AND CONTINUING DIRECTORS
Steve A. Ungerman is a director of MedSynergies, Inc., a physician
practice management company, and is employed in the capacity of Special
Projects. From September 16, 1996 to August 15, 1997, he was President of
MedSynergies, Inc. In September 1996, he became Of Counsel to the law firm of
Ungerman, Sweet & Brousseau. Prior to September 1996, he practiced law as a
shareholder of Ungerman & Ungerman, P.C. and its predecessors for 28 years in
the areas of business matters, commercial finance and mediation. Mr. Ungerman
received his Juris Doctor degree from Southern Methodist University. He was
elected a Director and Chairman of the Board of Directors of Pizza Inn in
September 1990.
Bobby L. Clairday is an Area Developer of Pizza Inn restaurants and he is
President, a Director and sole shareholder of Clairday Food Services, Inc., a
Pizza Inn franchisee operating Pizza Inn restaurants in three states. Mr.
Clairday is also sole shareholder of Advance Food Services, Inc., a franchisee
operating Pizza Inn restaurants in Arkansas. From 1990 until his election as
a Director of the Company in January 1993, Mr. Clairday was an ex-officio
member of the Board of Directors, serving as a representative of our
franchisees. He has served as the President of the Pizza Inn Franchisee
Association and as a member of various committees and associations affiliated
with the Pizza Inn restaurant system. Mr. Clairday has been a franchisee of
the Company for over twenty years.
Don G. Navarro is President of The Navarro Group, Inc. ("TNG"). TNG and
its predecessor, Don Navarro and Associates, LLC, have provided financial and
business advisory services to a wide range of corporate and individual clients
since 1982. Mr. Navarro is also a Director of IMCO Recycling, Inc. and
Southeastern Paralegal Institute. Mr. Navarro was elected a Director of the
Company in September 1990.
Ronald W. Parker is Executive Vice President and Chief Operating Officer
of the Company. Mr. Parker joined the Company in October 1992 and was elected
Executive Vice President, Chief Operating Officer and a Director in January
1993. From October 1989 to September 1992, he was Executive Vice President
and General Manager of the Bonanza restaurant division of Metromedia
Steakhouses, Inc. and its predecessor Metsa, Inc. From 1983 to 1989, Mr.
Parker served in several executive positions for USACafes, the franchisor of
the Bonanza restaurant chain.
Ramon D. Phillips has been President, Chief Executive Officer and
Chairman of the Board of Hallmark Financial Services, Inc., a financial
services company, since May 1989. Prior to Hallmark Financial Services, Inc.,
Mr. Phillips had fifteen years experience in the franchise restaurant
industry, serving in an executive position with Kentucky Fried Chicken
(1969-1974) and Pizza Inn, Inc. (1974-1989).
C. Jeffrey Rogers was appointed President of the Company's predecessor in
February 1990 and he became President, Chief Executive Officer and a Director
of the Company in September 1990 pursuant to the terms of the Company's
recapitalization plan. From 1983 to 1989, Mr. Rogers was President, Chief
Executive Officer and a Director of USACafes General Partner, Inc., the
general partner of the limited partnership that owned the Bonanza family
restaurant system and franchised approximately 650 Bonanza restaurants, and
its predecessor USACafes. Mr. Rogers was elected Vice Chairman of the Board
of Directors of the Company in January 1994, and he was elected a Director of
Hallmark Financial Services, Inc. in May 1995.
F. Jay Taylor is an arbitrator in Ruston, Louisiana who is affiliated
with the American Arbitration Association and the Federal Mediation and
Conciliation Service. He is a Director and Chairman of the Audit Committee of
Michael's Stores, Inc. and a Director of the Illinois Central Railroad. He
formerly served as a Director of USACafes, Earth Resources and Mid South
Railroad. Dr. Taylor, who received his Ph.D. from Tulane University, served
as President of Louisiana Tech University from 1962 to 1987 and currently
serves as its President Emeritus. Mr. Taylor was elected a Director of the
Company in 1994.
BIOGRAPHIES OF NON-DIRECTOR OFFICERS
B. Keith Clark joined the Company in February 1997 and was elected
General Counsel and Secretary of the Company in March 1997. From June 1994
through February 1997, he was Assistant General Counsel and Assistant
Secretary of American Eagle Group, Inc., a property and casualty insurance
holding company. From January 1990 through May 1994, Mr. Clark was a
corporate associate in the Dallas office of Akin, Gump, Strauss, Hauer & Feld,
L.L.P., a diversified international law firm.
Dennis L. Essary was appointed Vice President of Administration/
Controller of Norco Division of the Company in July 1997. He joined the
Company as Controller of the Norco Division in September 1992. Mr. Essary
was Vice President of Armstrong Industries, Inc., a distributor of medical
equipment and supplies, from April 1990 to September 1992. Mr. Essary owned
a certified public accounting firm from 1987 to 1990.
Roy T. Lotz was appointed Vice President of Concept Development and
Equipment for the Company in July 1996. He was assigned responsibility for
concept development and equipment sales in September 1995. He joined the
Company in December 1991 as a Franchise Operations Consultant. Mr. Lotz was
Director of Real Estate and Construction for Tony Roma's Restaurants from 1988
to November 1991, and he was employed as Director of Franchise Operations and
in other positions for El Chico Restaurants from 1971 to 1988.
Bradford S. Lucky joined the Company in December 1996 as Executive
Director of Marketing and was appointed Vice President of Marketing in March
1997. Mr. Lucky served in several account management positions at
Publicis/Bloom Advertising Agency from 1989 through November 1996.
Ward T. Olgreen was appointed Vice President of International Operations
and Brand R&D for the Company in January 1995. He joined the Company in
September 1991 as a Franchise Operations Consultant. Mr. Olgreen was promoted
to Senior Franchise Operations Consultant in July 1992 and Director of
Franchise Operations in July 1993. Mr. Olgreen was a Branch Manager for GCS
Service, Inc., a restaurant equipment service provider, from June 1986 through
July 1991.
Elizabeth D. Reimer joined Pizza Inn in 1984, and since that time, has
worked in various positions in the finance and accounting department. She was
elected Treasurer, Controller and Assistant Secretary of the Company in
December 1996.
Robert L. Soria was appointed Vice President of Restaurant Development
for the Company in February 1996. He was Vice President of Franchise
Operations from July 1993 through February 1996. Mr. Soria joined the Company
in May 1991 as a Regional Director, and he was promoted to Director of
Franchise Services in September 1991. Mr. Soria was a Regional Franchise
Manager for Popeye's Fried Chicken in San Antonio, Texas from 1989 through
May 1991. Prior to 1989, Mr. Soria served in several positions for USACafes
with responsibility for restaurant and franchise operations.
Karen A. Steinbach joined Pizza Inn in April 1995, and was appointed
Director of Franchise Operations in July of 1995. She was appointed Vice
President of Franchise Operations and Training in April of 1997. Prior to
joining Pizza Inn, Ms. Steinbach was Director of Systems Development at Brice
Foods from 1993 through 1995. From 1988 to 1993, Ms. Steinbach served in
several positions at Brice Foods with responsibilities for restaurant and
franchise operations.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information, as of October 1,
1997, with respect to the beneficial ownership of Common Stock by: (a) each
person known to be a beneficial owner of more than five percent of the
outstanding Common Stock; (b) each director, nominee director, and executive
officer named in the section entitled "Summary Compensation Table;" and (c)
all directors and executive officers as a group (14 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.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board has established Audit, Compensation, Executive, Finance and
Stock Award Plan Committees. The Audit Committee selects independent auditors
and reviews audit results. The Compensation Committee reviews and approves
remuneration for officers of the Company and administers the 1992 Stock Award
Plan. The Finance Committee reviews and oversees the Company's capital
structure and operating results. The Executive Committee considers business
as directed by the Chairman of the Board. The Stock Award Plan Committee
administers the 1993 Stock Award Plan and the 1993 Outside Directors Stock
Award Plan.
As of October 1, 1997, Messrs. Clairday, Phillips, Taylor and Ungerman
serve on the Audit Committee; Messrs. Navarro, Phillips and Ungerman serve on
both the Compensation and Stock Award Plan Committees; Messrs. Navarro,
Phillips, Rogers and Ungerman serve on the Executive Committee; and Messrs.
Parker, Phillips and Taylor serve on the Finance Committee.
During fiscal year 1997, the Board of Directors held three meetings. The
Audit Committee met two times, the Compensation Committee met once, the
Executive Committee met nine times and the Finance Committee met three times.
In addition, the Compensation and Stock Award Plan Committees took several
actions by unanimous written consent in lieu of meetings. Each of the
directors attended at least three-fourths of the total number of meetings held
by the Board and the committees on which he served.
SUMMARY COMPENSATION TABLE
The following table sets forth the annual compensation of the Chief
Executive Officer and the other four most highly compensated executive
officers of the Company for the fiscal years ended June 27, 1997, June 30,
1996, and June 25, 1995 (designated as years 1997, 1996, and 1995).
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding stock options
exercised during fiscal year 1997 and unexercised stock options held at the
end of fiscal year 1997 by the Chief Executive Officer and the other four most
highly compensated executive officers of the Company. The closing bid price
for the Company's Common Stock, as reported by the National Association of
Securities Dealers Automated Quotation System, was $3.75 on June 27, 1997 the
last trading day of the Company's fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options
granted during fiscal year 1997, pursuant to the Company's 1993 Stock Award
Plan, to the Chief Executive Officer and the other four most highly
compensated executive officers of the Company.
COMPENSATION COMMITTEE AND STOCK AWARD PLAN COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is comprised of
three independent, non-employee directors. The Compensation Committee is
responsible for establishing the level of compensation of the executive
officers of the Company and administering the 1992 Stock Award Plan. The same
three directors also comprise the Stock Award Plan Committee, which
administers the 1993 Stock Award Plan.
In its administration and periodic review of executive compensation, the
Compensation Committee believes in aligning the interests of the executive
officers with those of the Company's shareholders. To accomplish this, the
Compensation Committee seeks to structure and maintain a compensation program
that is directly and materially linked to operating performance and
enhancement of shareholder value. This has been effectively accomplished in
the past by weighting the compensation of most executive officers in favor of
equity ownership incentives and bonuses paid on the basis of performance.
The Company intends for all compensation paid to its executives to be
fully deductible under federal income tax laws. Recently adopted changes to
the Internal Revenue Code impose certain limitations on compensation in excess
of $1 million per year paid to executives. The Compensation Committee
believes that performance based bonuses and stock options granted to its
executive officers will continue to be fully deductible.
CHIEF EXECUTIVE OFFICER
The salary and bonus of C. Jeffrey Rogers, Chief Executive Officer of the
Company, is set forth in his Employment Agreement, which was originally
executed in connection with Mr. Rogers' joining the Company in 1990 and was
most recently amended in October 1997. The agreement provides for an annual
base salary in fiscal year 1997 of $536,065 which will be increased by 5% per
year.
In reviewing Mr. Rogers' agreement, as amended, the Compensation
Committee found his base salary and bonus to be in line with the overall
leadership he has provided to the employees and to the franchise community.
The bonus program established in Mr. Rogers' agreement is based on new store
openings, pre-tax net income growth, and pre-tax operating cash flow.
Termination provisions were found to be industry competitive and in line with
historical performance and expected future contributions as well as helping to
ensure his continued leadership. See the section entitled "Executive
Employment Contracts."
EXECUTIVE OFFICERS
Salaries of the executive officers, excluding Mr. Rogers, are reviewed
annually and adjusted based on competitive practices, changes in level of
responsibilities and, in certain cases, individual performance measured
against goals. The Compensation Committee strongly believes that maintaining
a competitive salary structure is in the best interest of shareholders. It
believes the Company's long-term success in its marketplace is best achieved
through recruitment and retention of high caliber executives who are among the
most skilled and talented in the industry.
Bonus targets for the four most highly paid executive officers, other
than the Chief Executive Officer, are set annually. Mr. Parker's 1997 bonus
was based on individual performance and targets related to the Company's
profitability, cash flow and debt repayments. The 1997 bonuses for Mr. Soria,
Mr. Olgreen and Mr. Clark were based on individual performance and targets
related to profitability of the Company for the fiscal year.
STOCK OPTIONS
The Compensation Committee and Stock Award Plan Committee believe that
equity ownership motivates officers and employees to provide effective
leadership that contributes to the Company's long-term financial success as
measured by appreciation in its stock price. The Company established the 1993
Stock Award Plan for the purpose of aligning employee and shareholder
interests. Under these plans, stock options have been granted in fiscal year
1997 to Mr. Rogers and the other executive officers, as well as other
employees, based upon their relative positions and responsibilities, as well
as historical and expected contributions to Company growth.
Submitted by the Compensation Committee and Stock Award Plan Committee:
Don G. Navarro
Ramon D. Phillips
Steve A. Ungerman
EXECUTIVE EMPLOYMENT CONTRACTS
C. Jeffrey Rogers and the Company entered into an Employment Agreement
dated October 23, 1997 and effective July 1, 1997, for a term which currently
extends through June 30, 2002.
Under the agreement, Mr. Rogers is also entitled to the following cash
bonuses, based on performance: (a) $37,500 payable each quarter, if the
Company's operating results report pre-tax income growth of at least 10% more
than the same quarter in the preceding year; (b) $75,000 payable each
semi-annual period, if the Company opens at least 50 new Pizza Inn units
during such fiscal year; and (c) $200,000 payable annually, if the Company
meets targets established in the agreement for pre-tax operating cash flow
(such bonus being adjustable to a maximum of $250,000 per year if such targets
are exceeded by certain amounts).
Under the agreement, Mr. Rogers also receives a $25,000 annual allowance
to purchase life and disability insurance and a $10,000 annual allowance to
maintain secondary health, dental and other insurance. As compensation for
the use of his personal automobile on Company business, Mr. Rogers receives
$1,350 per month as an automobile allowance, plus reimbursement of gasoline
and maintenance expenses.
Ronald W. Parker and the Company entered into an Employment Agreement
dated October 23, 1997 and effective July 1, 1997, for a term which currently
extends through June 30, 2002 The agreement provides for an annual base
salary and bonus not less than the current base salary and bonus with such
increases as the Compensation Committee may approve.
Mr. Rogers or Mr. Parker may terminate their respective agreements at any
time within six months after a "change in control" of the Company occurs or
within twelve months under certain circumstances after a change in control of
the Company occurs. Change in control is defined as: (a) a transfer of
substantially all of the assets of the Company to an outside group or entity;
(b) the acquisition by an outside group or entity of 50% or more of the stock
of the Company or other surviving corporation; or (c) an unapproved change in
the majority of the Company's Board of Directors. If the Company terminates
Mr. Rogers' employment without cause, or if Mr. Rogers terminates his
employment upon a "change in control," he will be entitled to a lump sum
payment of his base salary for the remainder of the term of the agreement plus
two times the maximum annual bonus amounts provided in the agreement. If the
Company terminates Mr. Parker's employment without cause, or if Mr. Parker
terminates his employment upon a "change in control," he will be entitled to a
lump sum payment of three times (i) his highest annual salary over the last
three years plus (ii) the highest bonus and other cash compensation received
by Mr. Parker the last three years. Each agreement includes a noncompetition
covenant that would apply for three years after termination of employment.
COMPENSATION OF DIRECTORS
A director who is an employee of the Company is not compensated for
service as a member of the Board of Directors or any Committee of the Board.
Outside directors receive an annual fee of $17,000 plus meeting fees equal to
$1,000 per Board meeting and $250 per Committee meeting attended. The
Chairman of the Board receives an additional $6,000 annual fee for serving in
that capacity. Mr. Navarro receives an additional $250 per month to partially
pay for a health insurance policy. Directors are also reimbursed for Board
related expenses.
Under the 1993 Outside Directors Stock Award Plan each elected outside
director is eligible to receive, as of the first day of the Company's fiscal
year, options for Common Stock equal to number of shares of Common Stock
purchased during the preceding fiscal year or purchases by exercise of
previously granted options during the first ten days of the current fiscal
year. On the first day of the first fiscal year immediately following the day
on which an outside director first becomes eligible to participate in this
plan, that outside director shall receive an option to acquire one share of
Common Stock for each share of Common Stock owned by such director on this
first day of the fiscal year. No outside director shall be entitled to
options for more than 20,000 shares per fiscal year. Stock options granted
under the plan have an exercise price equal to the market price of the Common
Stock on the date of grant and are first exercisable one year after grant.
Since the beginning of fiscal year 1997, stock options were granted to
outside directors pursuant to such plan as follows: on June 26, 1995, options
for 20,000 shares (at $2.6875) to Mr. Navarro and 6,783 shares (at $2.6875) to
Mr. Ungerman; on July 1, 1996, options for 20,000 shares (at $4.25) to Mr.
Clairday, 20,000 shares (at $4.25) to Mr. Navarro, and 8,500 shares (at $4.25)
to Mr. Ungerman and; on June 27, 1997, options for 3,500 shares (at $3.75) to
Mr. Phillips, and 6,783 shares (at $3.75) to Mr. Ungerman and; on June 27,
1997, options for 3,500 shares (at $3.75) to Mr. Phillips, and 6,783 shares
(at $3.75) to Mr. Ungerman.
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal year 1997 were
Messrs. Navarro, Phillips and Ungerman. During fiscal year 1996, C. Jeffrey
Rogers served on the Board of Directors and the Compensation Committee of
Hallmark Financial Services, Inc., of which Mr. Phillips is Chief Executive
Officer and Chairman of the Board of Directors. Prior to 1990, Mr. Phillips
served as a director and officer of two predecessors of the Company. See
"Biographies of Nominee Directors and Continuing Directors."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Bobby L. Clairday is President and sole shareholder of Clairday Food
Services, Inc. and is sole shareholder of Advance Food Services, Inc., both of
which are franchisees of the Company. Mr. Clairday also holds area
development rights in his own name. As franchisees, the two corporations
purchase a majority of their food and other supplies from the Company. In
fiscal year 1997, purchases by these franchisees made up 9% of the Company's
food and supply sales, and royalties, license fees and area development fees
from Mr. Clairday and such franchisees made up 4% of the Company's franchise
revenues.
Ramon D. Phillips is a Vice President, and his sons are shareholders of
Wholesale Software International, Inc., which is a franchisee operating one
Pizza Inn restaurant.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors and the persons who own more than
ten percent of the Company's Common Stock to file initial reports of ownership
of Common Stock and reports of changes of ownership with the Securities and
Exchange Commission and the National Association of Securities Dealers, Inc.
and to furnish the Company with copies of such reports.
The Company believes that, during the preceding fiscal year, all of the
Company's executive officers, directors and holders of more than 10% of its
Common Stock complied with all Section 16(a) filing requirements.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative annual total shareholder
return (change in share price plus reinvestment of any dividends) on the
Company's Common Stock versus two indexes for the past five fiscal years. The
graph assumes $100 was invested on the last trading day of the fiscal year
ending June 30, 1991. The Company has not paid any cash dividends on its
Common Stock during the applicable period. The Dow Jones Equity Market Index
is a published broad equity market index. The Dow Jones Entertainment and
Leisure Restaurant Index is compiled by Dow Jones and Company, Inc., and is
comprised of seven public companies, weighted for the market capitalization of
each company, engaged in restaurant or related businesses (Boston Chicken,
Inc., Brinker International, Inc., Cracker Barrel Old Country Store, Inc.,
Darden Restaurants, Inc., McDonald's Corporation, Sysco Corporation, and
Wendy's International, Inc.).
1993 STOCK AWARD PLAN
The Company's 1993 Stock Award Plan (the "Plan") became effective as of
October 13, 1993. The purpose of the Plan is to attract and retain excellent
officers and employees by providing opportunities for them to participate in
increased stock value which their efforts help to produce.
The Plan is administered by the Stock Award Plan Committee (the
"Committee"), which is comprised of three outside directors, who are not
employed by the Company and who qualify as "disinterested persons" under rules
issued by the Securities and Exchange Commission. All officers and employees
of the Company (approximately 300 persons) are eligible to participate in the
Plan. The Committee determines, in its discretion but subject to the
limitations set forth in the Plan, the persons to whom awards are granted, the
number of shares covered by awards, the exercise price of awards, and the
conditions, if any, imposed upon the granting of awards under the Plan. The
Committee issues awards under the Plan to employees in correlation with their
respective responsibilities to the Company.
The total number of shares of the Company's Common Stock which may be
issued to employees under the Plan (before the proposed amendment) shall not
exceed 2,000,000. During any one Plan year, the total number of options
granted and shares issued pursuant to stock appreciation rights ("SARs") shall
not exceed 1,000,000, plus any unused allocations from prior years. Awards
granted under the Plan which expire or terminate without being exercised may
be regranted.
The exercise price for any option granted under the Plan may not be less
than the fair market value of the Company's Common Stock on the date of grant.
For all awards under the Plan, the minimum vesting period is six months after
grant and the maximum exercise period is five years after vesting. Payment
for shares purchased pursuant to an option must be made at the time of
exercise in cash or other payment method approved by the Committee. The Plan
terminates on October 13, 2003 and no awards may be granted thereafter.
Awards granted pursuant to the Plan may not be transferred and may only
be exercised by the participant, or, in the event of his death, by his heirs
or estate. Upon the death (or permanent disability) of a participant while he
is employed by the Company, any outstanding unvested award becomes immediately
vested and the award may be exercised by the participant's heirs, estate or
guardian within one year following the participant's death (or commencement of
such disability), after which any unexercised award terminates. If the
employment of a participant terminates for any reason other than death or
disability, he may exercise any vested award within 21 days after termination,
after which period any unexercised award terminates. In the event of a
"change of control" of the Company, as defined in the Plan, all outstanding
awards will become immediately vested and exercisable.
The Plan authorizes the Committee to grant "Incentive Options," which are
intended to permit the participant to defer resulting federal income taxes, as
well as "Standard Options" which do not have such tax benefit. The Plan also
authorizes the Committee to grant SARs either independent of, or in connection
with, options. Upon exercise of either form of option, the participant
purchases shares of Common Stock. Upon exercise of an SAR, the participant
receives, for each share with respect to which the SAR is exercised, an amount
equal to the difference between the fair market value of the Common Stock on
the date of the award and the fair market value of the Common Stock on the
date of exercise. Payment of an SAR benefit may be, at the discretion of the
Committee, in the form of cash, a note, or Common Stock of equivalent value.
The Committee may amend or terminate the Plan, including modification or
waiver of terms as they apply to individual participants. Shareholder
approval is required for any amendment which would: increase the aggregate
number of shares of Common Stock issuable under the Plan; materially increase
the benefits accruing to participants in the Plan; or modify the eligibility
requirements for, or decrease the minimum exercise price of, any Incentive
Options. No amendment or termination of the Plan may adversely affect the
rights of any participant under any then outstanding award without the consent
of the participant. The Plan provides for automatic adjustments to prevent
dilution or enlargement of the participant's rights in the event of a stock
split, stock dividend or similar transaction.
FEDERAL INCOME TAX CONSEQUENCES UNDER THE PLAN
Under the Internal Revenue Code (the "Code"), the holder of a Standard
Option will realize no taxable income upon the receipt of the option but will
realize compensation upon the exercise of such option, taxable as ordinary
income to the extent that the fair market value on the date of exercise
exceeds the option price. The Company is entitled to a deduction from income
in an equal amount at the time the optionee realizes such income. Upon a
resale of shares acquired pursuant to exercise of an option, any difference
between the sale price and the fair market value of the shares on the date of
exercise will be treated as capital gain or loss.
Incentive Options are intended to qualify as incentive stock options
under Section 422 of the Code. Generally, the optionee is not taxed and the
Company is not entitled to a deduction on the grant or exercise of an
Incentive Option. However, if the optionee disposes of the Option shares at
any time within (i) one year after the transfer of such shares to the optionee
pursuant to the exercise of such Incentive Option, or (ii) two years after the
grant of such Incentive Option, then the optionee will recognize ordinary
income equal to the excess, if any, of the lesser of the amount realized from
such disposition or the fair market value of the shares on the exercise date,
over the exercise price of such Incentive Option (with any remaining gain
being taxed as a capital gain). In such event, the Company will generally be
entitled to a deduction in an amount equal to the amount of ordinary income
recognized by the optionee. If the optionee disposes of the option shares
outside of the above described time limits, then capital gain or loss will be
recognized in an amount equal to the difference between the amount realized on
the disposition and the exercise price. The Company will not be entitled to
any deduction in this event. Finally, any excess of the fair market value of
the stock on the date the Incentive Option is exercised over the option
exercise price will be included in the calculation of the optionee's
alternative minimum taxable income, which may subject the optionee to the
alternative minimum tax.
NEW PLAN BENEFITS
In June 1997, the Stock Award Plan Committee granted certain stock
options subject to shareholder approval of the proposed amendment to the Plan,
increasing by 500,000 shares the total number of shares issuable under the
Plan. The following table sets forth the dollar value and number of stock
options which were granted, subject to shareholder approval of such amendment,
to each of the named executive officers, all executive officers as a group,
and all other participating employees (excluding executive officers) as a
group. Outside directors, who are not employees of the Company, are not
eligible to receive stock options under this Plan.
AMENDMENT TO THE 1993 STOCK AWARD PLAN
INCREASING THE NUMBER OF SHARES ISSUABLE
UNDER SUCH PLAN
In June 1997, the Stock Award Plan Committee adopted, subject to the
approval of the Company's shareholders, an amendment to the Company's 1993
Stock Award Plan (the "Plan"), increasing by 500,000 shares the total number
of shares of Common Stock which may be issued under the Plan. See "1993 Stock
Award Plan - New Plan Benefits". After giving effect to such amendment, the
total number of shares issuable under the Plan will be 3,000,000.
As of June 1, 1997, there were only 313,500 shares available for the
grant of options under the Plan, as currently constituted. The Board of
Directors believes that the amendment will enable the Company and its
shareholders, through future grants of stock options, to continue to secure
the benefits of the incentives inherent in stock ownership by its officers and
employees. For additional information regarding the Plan, see the section
entitled "1993 Stock Award Plan."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS APPROVE THE AMENDMENT TO
THE PLAN.
INDEPENDENT AUDITORS
The Audit Committee has selected Price Waterhouse, certified public
accountants, as the independent auditors of the Company for fiscal year 1998.
A representative of Price Waterhouse will be present at the Annual Meeting,
will be available to respond to appropriate questions, and will have an
opportunity to make a statement.
SHAREHOLDER PROPOSALS
A shareholder wishing to present a proposal at the Annual Meeting of
Shareholders tentatively scheduled for December 1998 must deliver his or her
proposal to the Company at its principal executive offices no later than
August 2, 1998, in such form as required under rules issued by the Securities
and Exchange Commission, in order to have it included in the proxy materials
of the Company for such Annual Meeting of Shareholders.
MISCELLANEOUS
The accompanying proxy is being solicited on behalf of the Board of
Directors of the Company. The expense of preparing, printing and mailing the
proxy and the material used in the solicitation thereof will be borne by the
Company. In addition to the use of the mails, proxies may be solicited by
directors, officers and employees of the Company by personal interview,
telephone or telefax. Arrangements may also be made with brokerage houses and
other custodians, nominees and fiduciaries for the forwarding of solicitation
materials to the beneficial owners of stock held of record by such persons,
and the Company may reimburse them for reasonable out-of-pocket expenses of
such solicitation.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K EXCLUDING EXHIBITS,
DATED SEPTEMBER 26, 1997, IS BEING FURNISHED TO SHAREHOLDERS WITH THIS PROXY
STATEMENT. COPIES OF SUCH EXHIBITS WILL BE FURNISHED UPON WRITTEN REQUEST AND
UPON REIMBURSEMENT OF THE COMPANY'S REASONABLE EXPENSES FOR FURNISHING SUCH
EXHIBITS. REQUESTS SHOULD BE ADDRESSED TO PIZZA INN, INC., 5050 QUORUM DRIVE,
SUITE 500, DALLAS, TEXAS 75240, ATTENTION: CORPORATE
SECRETARY.