sec document

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ELOgVAPVWIE5N7EtGDcjYoLfwUy17UMJrfK4eO/FrU6mzLD9Cnk7jgITm+f2TxRF qPY2ACgumcxkcDeC3ihp1w== 0000921895-03-001073.txt : 20031231 0000921895-03-001073.hdr.sgml : 20031231 20031231141850 ACCESSION NUMBER: 0000921895-03-001073 CONFORMED SUBMISSION TYPE: PRRN14A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20031231 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PIZZA INN INC /MO/ CENTRAL INDEX KEY: 0000718332 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 470654575 STATE OF INCORPORATION: MO FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: PRRN14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-12919 FILM NUMBER: 031080239 BUSINESS ADDRESS: STREET 1: 5050 QUORUM DR STE 500 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2147019955 MAIL ADDRESS: STREET 1: 5050 QUORUM DR STE 500 STREET 2: 5050 QUORUM DR STE 500 CITY: DALLAS STATE: TX ZIP: 75240 FORMER COMPANY: FORMER CONFORMED NAME: PANTERAS CORP DATE OF NAME CHANGE: 19901126 FORMER COMPANY: FORMER CONFORMED NAME: CONCEPT DEVELOPMENT INC DATE OF NAME CHANGE: 19870212 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: NEWCASTLE PARTNERS L P CENTRAL INDEX KEY: 0000932334 IRS NUMBER: 752574953 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRRN14A BUSINESS ADDRESS: STREET 1: 200 CRESCENT COURT STREET 2: STE 670 CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2146617474 MAIL ADDRESS: STREET 1: 200 CRESCENT COURT STREET 2: STE 670 CITY: DALLAS STATE: TX ZIP: 75201 PRRN14A 1 formprrn14a04670_12312003.htm PRRN14A sec document

SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )

Filed by the Registrant [ ]

Filed by a Party other than the Registrant [X]

Check the appropriate box:

[X] Preliminary Proxy Statement

[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))

[ ] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Under Rule 14a-12

PIZZA INN, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

NEWCASTLE PARTNERS, L.P.
NEWCASTLE CAPITAL MANAGEMENT, L.P.
NEWCASTLE CAPITAL GROUP, L.L.C.
MARK E. SCHWARZ
STEVEN J. PULLY
RAMON D. PHILLIPS
ROBERT B. PAGE
- --------------------------------------------------------------------------------
(Name of Persons(s) Filing Proxy Statement, if Other Than the Registrant)

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 forth the amount on which
the filing fee is calculated and state how it was determined):

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

(4) Proposed maximum aggregate value of transaction:

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

(5) Total fee paid:

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

[ ] Fee paid previously with preliminary materials:

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

[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.

(1) Amount previously paid:

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

(2) Form, Schedule or Registration Statement No.:

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

(3) Filing Party:

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

(4) Date Filed:

-2-

NEWCASTLE PARTNERS, L.P.

January __, 2004

Dear Fellow Shareholder:

Newcastle Partners, L.P. ("Newcastle Partners") is the beneficial
owner of an aggregate of 3,583,780 shares of Common Stock of Pizza Inn, Inc.
("Pizza Inn" or the "Company"), representing approximately 35.6% of the
outstanding Common Stock of the Company. Newcastle Partners does not believe
that two of the three incumbent directors nominated by the board of directors of
the Company for election at the upcoming annual meeting of shareholders of the
Company are the best possible candidates for election as directors. Newcastle
Partners also does not believe that the board of directors of the Company acted
in your best interests in approving various amendments to the Company's bylaws.
Newcastle Partners is therefore seeking your support at the annual meeting of
shareholders scheduled to be held at the Company's headquarters at 3551 Plano
Parkway, The Colony, Texas 75056 on Wednesday, January 21, 2004, at 11:00 A.M.
(Dallas time) for (i) the election of its slate of nominees to the board of
directors of the Company, two of whom differ from the Company's slate, (ii) the
adoption of proposals to repeal certain amendments to the Company's bylaws
approved by the board of directors of the Company on December 18, 2002 and (iii)
the adoption of a resolution recommending that the board of directors of the
Company reimburse Newcastle Partners for all expenses it incurs in connection
with this proxy solicitation.

Newcastle Partners urges you to carefully consider the information
contained in the attached Proxy Statement and then support its efforts by
signing, dating and returning the enclosed GOLD proxy today. The attached Proxy
Statement and the enclosed GOLD proxy card are first being furnished to the
shareholders on or about __________, 2004.

If you have already voted for the incumbent management slate you have
every right to change your vote by signing, dating and returning a later dated
proxy.

If you have any questions or require any assistance with your vote
please contact MacKenzie Partners, Inc., which is assisting us, at their address
and toll-free numbers below.

Thank you for your support,

Mark E. Schwarz
Newcastle Partners, L.P.

[MACKENZIE PARTNERS LOGO]

105 Madison Avenue
New York, New York 10016
(212) 929-5500 (Call Collect)
E-mail: PROXY@MACKENZIEPARTNERS.COM

or
CALL TOLL FREE (800) 322-2885

PRELIMINARY COPY SUBJECT TO COMPLETION
DATED DECEMBER 31, 2003

ANNUAL MEETING OF SHAREHOLDERS
OF
PIZZA INN, INC.
-------------------------

PROXY STATEMENT
OF
NEWCASTLE PARTNERS, L.P.

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

PLEASE SIGN, DATE AND MAIL THE ENCLOSED GOLD PROXY CARD TODAY

Newcastle Partners, L.P., a Texas limited partnership ("Newcastle
Partners" or "we"), is the largest shareholder of Pizza Inn, Inc., a Missouri
corporation ("Pizza Inn" or the "Company"). Newcastle Partners is writing to you
in connection with the election of three nominees to the board of directors of
Pizza Inn (the "Pizza Inn Board") at the annual meeting of shareholders
scheduled to be held at 11:00 A.M. (Dallas time), on Wednesday, January 21,
2004, at the Company's headquarters at 3551 Plano Parkway, The Colony, Texas
75056, including any adjournments or postponements thereof and any meeting which
may be called in lieu thereof (the "Annual Meeting"). Newcastle Partners has
nominated three directors, one of whom has also been nominated by the Pizza Inn
Board and currently serves as a director and two of whom are in opposition to
Pizza Inn's incumbent directors, whose terms expire at the Annual Meeting.

This proxy statement (the "Proxy Statement") and the enclosed GOLD
proxy card are being furnished to shareholders of Pizza Inn by Newcastle
Partners in connection with the solicitation of proxies from Pizza Inn's
shareholders to be used at the Annual Meeting to elect Newcastle Partners'
nominees, Steven J. Pully, Robert B. Page and Ramon D. Phillips (the
"Nominees"), to the Pizza Inn Board. Newcastle Partners is also seeking the
support of shareholders to adopt proposals to repeal certain amendments to the
Company's bylaws approved by the Pizza Inn Board on December 18, 2002 and to
adopt a resolution recommending that the Pizza Inn Board reimburse Newcastle
Partners for all expenses it incurs in connection with this proxy solicitation.
Newcastle Partners, Newcastle Capital Management, L.P. ("Newcastle Management"),
Newcastle Capital Group, L.L.C. ("Newcastle Capital"), Mark E. Schwarz, Steven
J. Pully, Robert B. Page and Ramon D. Phillips are members of a group (the
"Group") formed in connection with this proxy solicitation and are deemed
participants in this proxy solicitation. See "Participant Information." This
Proxy Statement and the GOLD proxy card are first being furnished to Pizza Inn's
shareholders on or about _________, 2004.

Pizza Inn has set the record date for determining shareholders
entitled to notice of and to vote at the Annual Meeting as November 26, 2003
(the "Record Date"). The principal executive offices of Pizza Inn are located at
3551 Plano Parkway, The Colony, Texas 75056. Shareholders of record at the close
of business on the Record Date will be entitled to vote at the Annual Meeting.

According to Pizza Inn, as of the Record Date, there were 10,068,674 shares of
common stock, $.01 par value per share (the "Shares"), outstanding and entitled
to vote at the Annual Meeting. Newcastle Partners, along with all of the
participants in this solicitation, are the beneficial owners of an aggregate of
3,638,643 Shares, which represents approximately 36.1% of the Shares outstanding
(based on information publicly disclosed by Pizza Inn). The participants in this
solicitation intend to vote such Shares for the election of the Nominees and the
other proposals described herein.

THIS SOLICITATION IS BEING MADE BY NEWCASTLE PARTNERS AND NOT ON BEHALF OF THE
BOARD OF DIRECTORS OR MANAGEMENT OF PIZZA INN. NEWCASTLE PARTNERS IS NOT AWARE
OF ANY OTHER MATTERS TO BE BROUGHT BEFORE THE ANNUAL MEETING. SHOULD OTHER
MATTERS, WHICH NEWCASTLE PARTNERS IS NOT AWARE OF A REASONABLE TIME BEFORE THIS
SOLICITATION, BE BROUGHT BEFORE THE ANNUAL MEETING, THE PERSONS NAMED AS PROXIES
IN THE ENCLOSED GOLD PROXY CARD WILL VOTE ON SUCH MATTERS IN THEIR DISCRETION.

NEWCASTLE PARTNERS URGES YOU TO SIGN, DATE AND RETURN THE GOLD PROXY CARD IN
FAVOR OF THE ELECTION OF ITS NOMINEES AND THE SHAREHOLDER PROPOSALS DESCRIBED IN
THIS PROXY STATEMENT.

IF YOU HAVE ALREADY SENT A PROXY CARD FURNISHED BY PIZZA INN MANAGEMENT TO THE
PIZZA INN BOARD, YOU MAY REVOKE THAT PROXY AND VOTE FOR THE ELECTION OF
NEWCASTLE PARTNERS' NOMINEES AND THE SHAREHOLDER PROPOSALS DESCRIBED HEREIN BY
SIGNING, DATING AND RETURNING THE ENCLOSED GOLD PROXY CARD. THE LATEST DATED
PROXY IS THE ONLY ONE THAT COUNTS. ANY PROXY MAY BE REVOKED AT ANY TIME PRIOR TO
THE ANNUAL MEETING BY DELIVERING A WRITTEN NOTICE OF REVOCATION OR A LATER DATED
PROXY FOR THE ANNUAL MEETING TO NEWCASTLE PARTNERS, C/O MACKENZIE PARTNERS, INC.
WHICH IS ASSISTING IN THIS SOLICITATION, OR TO THE SECRETARY OF PIZZA INN, OR BY
VOTING IN PERSON AT THE ANNUAL MEETING.

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IMPORTANT

Your vote is important, no matter how many or how few Shares you own.
Newcastle Partners urges you to sign, date, and return the enclosed GOLD proxy
card today to vote FOR the election of Newcastle Partners' Nominees, FOR the
adoption of proposals to repeal certain bylaw amendments approved by the Pizza
Inn Board on December 18, 2002 and FOR the approval of the resolution
recommending that the Pizza Inn Board reimburse Newcastle Partners for all
expenses it incurs in connection with this proxy solicitation.

o If your Shares are registered in your own name, please sign and date the
enclosed GOLD proxy card and return it to Newcastle Partners, c/o MacKenzie
Partners, Inc., in the enclosed envelope today.

o If any of your Shares are held in the name of a brokerage firm, bank, bank
nominee or other institution on the Record Date, only it can vote such
Shares and only upon receipt of your specific instructions. Accordingly,
please contact the person responsible for your account and instruct that
person to execute on your behalf the GOLD proxy card. Newcastle Partners
urges you to confirm your instructions in writing to the person responsible
for your account and to provide a copy of such instructions to Newcastle
Partners, c/o MacKenzie Partners, Inc., who is assisting in this
solicitation, at the address and telephone numbers set forth below, and on
the back cover of this Proxy Statement, so that we may be aware of all
instructions and can attempt to ensure that such instructions are followed.

If you have any questions regarding your proxy,
or need assistance in voting your Shares, please call:

[MACKENZIE PARTNERS LOGO]

105 Madison Avenue
New York, New York 10016
(212) 929-5500 (Call Collect)
E-mail: PROXY@MACKENZIEPARTNERS.COM

or
CALL TOLL FREE (800) 322-2885

-3-

PROPOSAL NO. 1 - ELECTION OF DIRECTORS

REASONS FOR ELECTING THE NOMINEES

We are asking you to support our Nominees so as to:

o elect nominees who will be strong advocates for advancing
shareholder interests and improving corporate governance
policies;

o elect nominees who will bring significant public company
experience and experience in the restaurant business and the
pizza franchising business in particular; and

o elect nominees who will take actions that we believe will be in
the best interests of the Company's franchisees.

As further described below, we believe that the election of the
Nominees represents the best means for Pizza Inn's shareholders to maximize the
value of their Shares. Robert B. Page and Ramon D. Phillips have significant
experience in the restaurant industry and the pizza franchising business in
particular. Mr. Page has worked for over 24 years in the restaurant industry,
including over 9 years for national pizza chains. Mr. Phillips is an advisory
member of the Pizza Inn Board, a former member of senior management and of the
board of Pizza Inn and a current franchisee of the Company. Steven J. Pully has
extensive experience in finance, law and accounting and also as a director and
officer of various public companies including the Company. If elected to the
Pizza Inn Board, the Nominees will use their experience to oversee the Company
with the goal of achieving consistent profitability while exercising their
fiduciary duties to advance shareholder and franchisee interests and explore all
available alternatives to maximize shareholder value. There can be no assurance
that these goals will be achieved if the Nominees are elected.

The Company's Restated Articles of Incorporation and Amended and
Restated Bylaws provide that the board of directors shall be divided into two
classes. Three Class II directors are up for election at the Annual Meeting.
Mark E. Schwarz is a Class I director of the Company (term expiring in 2004) and
Steven J. Pully is a Class II director of the Company (term expiring in 2003).
Mr. Pully is also a nominee of the Company for election to the Pizza Inn Board
at the Annual Meeting. Mr. Pully is also being included as part of Newcastle
Partners' slate in the event that the Company takes any action that would have
the effect of excluding Mr. Pully from the Company's slate.

THE COMPANY HAS ATTEMPTED TO USE THE CHANGE OF CONTROL PROVISIONS IN EMPLOYMENT
AGREEMENTS WITH MANAGEMENT TO DETER NEWCASTLE PARTNERS FROM SEEKING THE ELECTION
OF ITS NOMINEES.

A majority of the members of the Pizza Inn Board have attempted to
deter Newcastle Partners from opposing management's slate of incumbent directors
at the Annual Meeting, alleging that the change of control provisions in the
employment agreements with certain executives would be triggered, creating a

-4-

potential liability to the Company of over $7 million in change of control
payouts, including tax gross-up payments, as follows:

Portion of Lump Sum Payment NOT
Deductible by Pizza Inn for Federal
Pizza Inn Officer Lump Sum Payment Income Tax Purposes
- ----------------- ---------------- -------------------

Ronald Parker $5,400,000 $3,300,000

Keith Clark $762,000 $451,000

Ward Olgreen $630,000 $362,000

Shawn Preator $597,000 $369,000

Under each of the employment agreements, a "Change of Control" is
deemed to have occurred if "individuals who, as of [December 16, 2002]
constitute[d] the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to [December 16, 2002] whose election,
or nomination for election by the Company's shareholders, was approved by a vote
of at least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rules 14a-1 and 14a-12 of Regulation
14A promulgated under the Securities Exchange Act of 1934) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board." According to management's proxy statement for the Annual
Meeting (the "Management Proxy Statement"), counsel to the Company (which was
also counsel to the Company when the employment agreements were adopted) has
delivered to the Pizza Inn Board a written legal opinion, subject to certain
assumptions, limitations, qualifications and exceptions, that a Texas court in a
properly presented case should conclude that Messrs. Schwarz, Pully and Phillips
would not constitute "Incumbent Directors." According to the Management Proxy
Statement, counsel to Pizza Inn has also advised the Pizza Inn Board that it is
their opinion that if Newcastle Partners' Nominees were elected to the Pizza Inn
Board at the Annual Meeting, those individuals would also not be considered
"Incumbent Directors" and a "Change of Control" would occur.

We believe that Messrs. Schwarz and Pully are "Incumbent Directors"
under a plain reading of the employment agreements as they were appointed by an
agreement of a majority of the Pizza Inn Board and not due to an "actual or
threatened solicitation of proxies." We also believe that Mr. Phillips should be
deemed an "Incumbent Director" if elected by virtue of the fact that he was a
director of the Company at the time the new employment agreements were adopted
by the Pizza Inn Board. We also note that the Management Proxy Statement fails
to disclose Pizza Inn counsel's acknowledgement in its opinion as to the
"absence of cases on this point" and that "we [Company counsel] provide no
assurance that a Texas court would agree with our interpretation of this
language or our opinion with respect thereto." There can be no assurance that in

-5-

the event the employment of one or more of the executive officers were to
terminate for any reason (including voluntary termination of employment) within
twelve months after a purported "Change of Control," that in any legal
proceedings disputing whether a "Change of Control" has occurred, any of Messrs.
Schwarz, Pully or Phillips will be determined to be an "Incumbent Director." The
Management Proxy Statement states that the Company could be obligated to make
"Change of Control" payments aggregating approximately $7.4 million. In
addition, the Management Proxy Statement states that if Mr. Parker were no
longer Chief Executive Officer of the Company, the Company would be in default
under approximately $9.5 million of indebtedness owed to Wells Fargo Bank
(Texas). Additionally, the Company's interest rate swap agreement will be in
default, and as of September 28, 2003, the payoff amount was approximately
$800,000.

NEWCASTLE PARTNERS BELIEVES THE PIZZA INN BOARD SHOULD ADOPT A LONG TERM
STRATEGIC PLAN FOR THE FUTURE.

We believe that the Company should adopt a long term strategic plan to
improve its business and enhance shareholder value. To the knowledge of the
Nominees, the Company has not adopted a long term strategic plan. If elected,
the Nominees intend to take action to adopt a long term strategic plan, the
focus of which is to take the following actions and such other actions they deem
appropriate to improve the Company's business:

o Reinvest in the Pizza Inn brand by opening up additional
franchisee and company locations;

o Evaluate the cost model of the franchisees by undertaking a
market-based benchmarking study of competitors to compare the
sales, costs, unit investment, margins and return on investment
of competitors to those of the Company's franchisees;

o Develop a corporate culture that ties compensation to
performance.

The Nominees have not undertaken any studies to determine the cost of
implementing any long term strategic plan. To the extent required, the Nominees
intend to utilize cash flow from operations and possibly available lines of
credit or capital raising activities to implement a long term strategic plan.
There can be no assurance that the foregoing actions will be implemented if our
Nominees are elected, that there will be available capital to finance any long
term strategic plan that may be adopted or that the election of our Nominees
will improve the Company's business or otherwise enhance shareholder value. Your
vote to elect the Nominees does not constitute a vote in favor of our value
enhancing plans for Pizza Inn. Your vote to elect the Nominees will have the
legal effect of replacing two incumbent directors of Pizza Inn with our
Nominees. Neither we (nor to our knowledge, any other person on our behalf) has
made or undertaken any analysis or reports as to whether shareholder value will
be maximized as a result of this solicitation or obtained reports from
consultants or other outside parties as to whether the proposals presented
herein would have an effect on shareholder value. There can be no assurance that
shareholder value will be maximized as a

-6-

result of this solicitation or the election of the Nominees.

WE ARE SOLICITING PROXIES TO ELECT OUR NOMINEES AS A LAST RESORT. WE SUBMITTED
TO THE PIZZA INN BOARD THE NAMES AND RESUMES OF 18 POTENTIAL INDEPENDENT
DIRECTOR NOMINEES FOR ELECTION AT THE ANNUAL MEETING, NONE OF WHOM WERE
CONSIDERED FOR NOMINATION.

On October 10, 2003, Mark Schwarz submitted to the Pizza Inn Board the
names and resumes of 18 qualified and experienced potential director nominees,
including Mr. Page, that Mr. Schwarz had interviewed at his own expense. Mr.
Schwarz recommended that the Pizza Inn Board nominate two of the 18 potential
nominees for election at the Annual Meeting. As conceded in the Management Proxy
Statement, none of these individuals were contacted by the Company or discussed
at subsequent Board meetings. We believe that the refusal to seriously consider
qualified, independent director nominees submitted by a member of the Board that
controls the largest investment stake in the Company is an example of certain
members of the Pizza Inn Board attempting to entrench themselves.

On December 4, 2003, we made a verbal proposal to the Company to
resolve our disputes. We proposed that the nominees for election at the Annual
Meeting would include two of three persons (including Mr. Pully) then currently
nominated by the Pizza Inn Board and Robert B. Page as an additional nominee,
Steven J. Pully would be appointed Chairman of the Pizza Inn Board at the Annual
Meeting and one of each of Messrs. Schwarz, Pully or Page would be appointed to
each committee of the Pizza Inn Board at the Annual Meeting. We also proposed
that Messrs. Parker, Clark, Olgreen and Preator acknowledge in their sole
discretion that Messrs. Schwarz and Pully are "Incumbent Directors" as such term
is defined in the employment agreements and that the Pizza Inn Board would
designate Mr. Page as an "Incumbent Director" under the employment agreements.
In addition, we proposed that the Company repeal certain bylaw amendments
adopted by the Pizza Inn Board immediately after the 2002 Annual Meeting of
Shareholders (which we are asking you to repeal under Proposal No. 2 of this
Proxy Statement), any future changes to the Company's bylaws or the employment
agreements could only be approved by a supermajority vote of five of seven
directors and no changes to the bylaws or employment agreements could be enacted
or pursued by the Pizza Inn Board prior to the Annual Meeting. We also proposed
that the Company reimburse us for certain expenses incurred in connection with
our negotiation of a settlement and our threatened election contest. On December
8, 2003, the Company responded with a written counterproposal stating that the
controlling members of the Pizza Inn Board are not opposed to including Mr. Page
on the Company slate or the committee representation request, but believe that
the Chairman of the Board should continue to be elected on an annual basis by a
majority of the Pizza Inn Board. The Company also indicated that it did not have
the ability to designate a director as incumbent as defined in the Company's
employment agreements, the individual employees have not agreed to waive the

-7-

Change of Control provision, the Company is not opposed to revising the relevant
sections of the bylaws in a manner to be agreed upon with Newcastle Partners,
but is opposed to a supermajority voting requirement, and the Company and
Newcastle Partners would agree to bear their own legal and travel expenses. The
counterproposal indicated that it was presented as a package and "not meant to
resolve individual issues in the event the total proposal is unacceptable." On
December 15, 2003, we delivered a letter to the Chairman of the Pizza Inn Board,
expressing our disappointment with the Company's counterproposal. We were not
able to reach a mutually agreeable compromise with the Company on the disputed
issues.

WE BELIEVE THAT PIZZA INN'S SHARE PRICE OVER THE PAST SEVERAL YEARS DEMONSTRATES
THE COMPANY'S FAILURE TO CREATE VALUE FOR ITS SHAREHOLDERS.

o According to the Management Proxy Statement, during the period
from June 28, 1998 through June 29, 2003, Pizza Inn's Share price
performance trailed by over 45 percentage points the Dow Jones
Equity Market Index, a broad equity market index.

o According to the Management Proxy Statement, during this period
Pizza Inn's Share price performance trailed by over 48 percentage
points the Dow Jones Entertainment and Leisure Restaurant Index,
an index comprised of public companies engaged in the restaurant
or related lines of businesses.

We believe that the Share price will over the long term continue to
languish and underperform its peer groups under the leadership of the Pizza Inn
Board as currently composed. On December 17, 2003, the Share price closed at
$2.84.

THE NOMINEES

The following information sets forth the name, business address,
present principal occupation, and employment and material occupations,
positions, offices, or employments for the past five years of each of the
Nominees. This information has been furnished to Newcastle Partners by the
Nominees. The Nominees are citizens of the United States of America.

STEVEN J. PULLY (Age 43). Mr. Pully has been employed by Newcastle
Management, the general partner of Newcastle Partners, since December
2001 and has served as its President since January 2003. He is also a
director and officer of Geoworks Corporation, an entity with no
significant business operations, a director of MaxWorldwide, Inc., an
online advertising, sales and representation company, a director,
member of the Audit Committee and the Financial Representative on the
Audit Committee of Pizza Inn and Chief Executive Officer and a
director of privately-held Pinnacle Frames and Accents, Inc., a
manufacturer of picture frames. Prior to joining Newcastle Management
from May 2000 to December 2001, he was a managing director in the
mergers and acquisitions department of Banc of America Securities and
from January 1997 to May 2000 he was a senior managing director at
Bear Stearns. Prior to becoming an investment banker, Mr. Pully
practiced securities and corporate law at the law firm Baker & Botts.
Mr. Pully is a CPA and a member of the Texas Bar. Mr. Pully's business

-8-

address is 300 Crescent Court, Suite 1110, Dallas, Texas 75201.

ROBERT B. PAGE (Age 44). Since August 2003, Mr. Page has been a
franchisee for Shoney's, Inc., a family dining restaurant. From
November 2000 until September 2002, Mr. Page was Chief Operations
Officer of Gordon Biersch Brewery Restaurants, Inc., a group of casual
dining restaurants, and from 1993 through 2000, he worked for
Romacorp, Inc., which owned 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. From 1988 through 1993, he worked for NPC
International, Inc., which owned approximately 370 Pizza Hut
franchises, and was Senior Vice President of Operations from 1991
through 1993. Prior to working for NPC, he also worked in the food
service industry for Rally's Hamburgers, Godfather's Pizza, Luther's
BBQ and Pizza Hut, Inc., holding such positions as area supervisor,
district manager and restaurant manager. The current business address
for Mr. Page is 6515 Ringgold Road, East Ridge, Tennessee 37412.

RAMON D. PHILLIPS (Age 70) is currently retired. He 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 and Chief Executive Officer of Hallmark from 1989
through March 2001, and as Chairman through August 2001. Prior to
Hallmark, Mr. Phillips had over fifteen years of experience in the
franchise restaurant industry, serving in executive positions with
Kentucky Fried Chicken (1969-1974) and Pizza Inn (1974-1989). He was
elected a director of Pizza Inn in 1990 and served through December
2002. He was appointed to the position of advisory director in
December 2002. The current business address of Mr. Phillips is 7024
Rosebrook, Collyville, Texas 76034.

The Nominees will not receive any compensation from Newcastle Partners
for their services as directors of Pizza Inn other than the normal compensation
Steven J. Pully receives for his services as President of Newcastle Management.
Other than as stated herein, there are no arrangements or understandings between
Newcastle Partners and any of the Nominees or any other person or persons
pursuant to which the nomination described herein is to be made, other than the
consent by each of the nominees to be named in this Proxy Statement and to serve
as a director of Pizza Inn if elected as such at the Annual Meeting. None of the
Nominees has been convicted in any criminal proceedings (excluding traffic
violations or similar misdemeanors) over the past ten years. None of the
Nominees is a party adverse to Pizza Inn or any of its subsidiaries or has a
material interest adverse to Pizza Inn or any of its subsidiaries in any
material pending legal proceedings.

As of the date hereof, Ramon D. Phillips beneficially owned 44,863
Shares, consisting of 16,880 Shares owned directly by Mr. Phillips, 22,650
Shares issuable upon the exercise of options owned by Mr. Phillips, and 5,333
Shares owned directly by Wholesale Software International, Inc., representing in
the aggregate approximately 0.4% of the Company's issued and outstanding Shares.
Mr. Phillips is a shareholder, director and executive officer of Wholesale
Software and may be deemed to beneficially own the Shares owned by Wholesale

-9-

Software by virtue of his sole authority to vote and dispose of such shares. On
November 7, 2003, Mr. Phillips sold 15,680 Shares to Newcastle Partners in a
private transaction for $2.75 per Share. There have been no other transactions
in securities of Pizza Inn by Mr. Phillips during the past two years. As of the
date hereof, neither Steven J. Pully nor Robert B. Page beneficially owned any
securities of Pizza Inn or has purchased or sold any securities of Pizza Inn
during the past two years.

Newcastle Partners does not expect that the Nominees will be unable to
stand for election, but, in the event that such persons are unable to serve or
for good cause will not serve, the Shares represented by the enclosed GOLD proxy
card will be voted for substitute nominees. In addition, Newcastle Partners
reserves the right to nominate substitute persons if Pizza Inn makes or
announces any changes to its bylaws or takes or announces any other action that
has, or if consummated would have, the effect of disqualifying the Nominees. In
any such case, Shares represented by the enclosed GOLD proxy card will be voted
for such substitute nominees. Newcastle Partners reserves the right to nominate
additional persons if Pizza Inn increases the size of the Pizza Inn Board above
its existing size or increases the number of directors serving as Class II
directors above three. Additional nominations made pursuant to the preceding
sentence are without prejudice to the position of Newcastle Partners that any
attempt to increase the size of the current Pizza Inn Board or to increase the
number of directors serving as Class II directors constitutes an unlawful
manipulation of Pizza Inn's corporate machinery.

YOU ARE URGED TO VOTE FOR THE ELECTION OF THE NOMINEES ON THE ENCLOSED GOLD
PROXY CARD.

-10-

PROPOSAL NO. 2 - REPEAL OF CERTAIN BYLAW AMENDMENTS

On December 6, 2002, Newcastle Partners acquired from a former
director and executive officer of the Company an option to purchase an
additional 2,905,000 shares of Common Stock of the Company which increased its
beneficial ownership to 3,270,000 shares of Common Stock, or approximately 32.5%
of the then outstanding shares of the Company. The Company was not a party to
this transaction nor was approval of the transaction required or sought from the
Company. After the acquisition, Newcastle Partners entered into discussions with
the Company regarding its newly acquired ownership position. As a result of
those discussions, on December 18, 2002, the date of the Company's 2002 Annual
Meeting of Shareholders, Newcastle Partners and the Company entered into an
agreement (the terms of which are further discussed in "Certain Transactions
Between Newcastle Partners and Pizza Inn") wherein the Company agreed, among
others things, to cause at least one member of each class of directors of the
Company to resign from the Pizza Inn Board prior to the close of business on the
following day and to appoint Messrs. Schwarz and Pully to replace the resigning
directors. Between the time the agreement had been executed by the parties and
the formal appointment of Messrs. Schwarz and Pully to the Pizza Inn Board the
following day, the Board amended the Company's bylaws which we believe had the
effect of divesting the shareholders of certain rights. With the exception of
one bylaw amendment which Newcastle Partners had agreed to, the remainder of the
bylaw amendments were not made known to Newcastle Partners prior to their
adoption. Newcastle Partners believes that it would have been appropriate for
Messrs. Schwarz and Pully to be informed of any proposed or contemplated changes
to the Company's bylaws given that the Company had an obligation to appoint them
to the Pizza Inn Board the following day. Such bylaw amendments (each, a "Bylaw
Amendment" and collectively, the "Bylaw Amendments") include the following:

o An amendment to Article III, Section 7 which eliminates the
ability of a shareholder to call a special meeting of
shareholders;

o A new Article III, Section 13, which requires a shareholder to
comply with certain procedures and time constraints in order to
bring business before a shareholders meeting; and

o A new Article IV, Section 6, which requires a shareholder to
comply with certain procedures and time constraints in order to
nominate directors.

The full text of the bylaws that Newcastle Partners is seeking to
repeal is set forth in Schedule I hereto. Newcastle Partners is seeking your
vote to repeal all of the Bylaw Amendments. However, you may wish to repeal only
a specific Bylaw Amendment, if so desired. Accordingly, each shareholder will be
voting separately on each proposed Bylaw Amendment.

We believe that proper corporate governance procedures and practices
and the level of management accountability that the Pizza Inn Board imposes are
highly relevant to Pizza Inn's Share price performance and the success of its
franchise business. We believe that the Pizza Inn Board lost sight of its
responsibility to implement acceptable corporate governance procedures when it
approved the Bylaw Amendments. Although the Company claims that the Bylaw
Amendments were adopted to allow the Board to review any shareholder proposal
before it is disseminated to the shareholders, we believe that the Bylaw
Amendments effectively prevents the shareholders from calling a special meeting
to conduct business or elect directors and limiting shareholders' ability to
nominate directors and bring business proposals before shareholders meetings in
a timely manner. Although the Company also claims that the Bylaw Amendments were
adopted as anti-takeover provisions resulting in a management not readily
susceptible to change, we believe that the Bylaw Amendments have also reduced
the voice of shareholders in the governance of the Company at a time when
critical actions must be taken to restore the confidence of the investing public
and the franchisees.

-11-

Accordingly, the shareholders are being asked to adopt the following
resolutions that would have the effect of repealing the Bylaw Amendments that
Newcastle Partners had not been made aware of prior to adoption:

"Resolved, that the amendment to Article III, Section 7 to the Amended
and Restated Bylaws of Pizza Inn, Inc. adopted by the Board of
Directors on December 18, 2002 be, and it hereby is, repealed
effective as of the time this resolution is approved."

"Resolved, that the new Article III, Section 13 to the Amended and
Restated Bylaws of Pizza Inn, Inc. adopted by the Board of Directors
on December 18, 2002 be, and it hereby is, repealed effective as of
the time this resolution is approved."

"Resolved, that the new Article IV, Section 6 to the Amended and
Restated Bylaws of Pizza Inn, Inc. adopted by the Board of Directors
on December 18, 2002 be, and it hereby is, repealed effective as of
the time this resolution is approved."

YOU ARE URGED TO VOTE FOR THE REPEAL OF EACH OF THE BYLAW AMENDMENTS APPROVED BY
THE PIZZA INN BOARD ON DECEMBER 18, 2002 ON THE ENCLOSED GOLD PROXY CARD.

-12-

PROPOSAL NO. 3 - REIMBURSEMENT OF PROXY SOLICITATION EXPENSES OF NEWCASTLE
PARTNERS

Newcastle Partners is incurring significant expenses in connection
with this solicitation. Newcastle Partners is requesting that the Company
reimburse Newcastle Partners for all expenses it incurs in connection with this
solicitation and is seeking approval from the shareholders to authorize such
reimbursement. To date, Newcastle Partners has incurred expenses of
approximately $50,000.00. Newcastle Partners estimates that its expenses will
total approximately $100,000.00, although such amount could increase. Newcastle
Partners is seeking reimbursement of its expenses from the Company because it
believes that the solicitation will benefit all shareholders of the Company.
Although Newcastle Partners is expending its own working capital to finance this
solicitation while Pizza Inn management is paying for its solicitation with the
Company's cash, the Nominees, if elected, will not seek reimbursement if this
proposal is not approved by the Company's shareholders.

Accordingly, the shareholders are being asked to adopt the following
resolution recommending to the Pizza Inn Board that the Company reimburse
Newcastle Partners of its expenses incurred in connection with this proxy
solicitation:

"Resolved, that the shareholders recommend to the Board of Directors
that Pizza Inn, Inc. reimburse Newcastle Partners, L.P. for all
expenses it incurs in connection with its solicitation of proxies for
the annual meeting of shareholders scheduled to be held on January 21,
2004, or any advancements, postponements, rescheduling or continuation
thereof."

YOU ARE URGED TO VOTE FOR THE APPROVAL TO REIMBURSE NEWCASTLE PARTNERS OF ITS
PROXY SOLICITATION EXPENSES ON THE ENCLOSED GOLD PROXY CARD.

-13-

VOTING AND PROXY PROCEDURES

Only shareholders of record on the Record Date will be entitled to
notice of and to vote at the Annual Meeting. Each Share is entitled to one vote.
Shareholders who sell Shares before the Record Date (or acquire them without
voting rights after the Record Date) may not vote such Shares. Shareholders of
record on the Record Date will retain their voting rights in connection with the
Annual Meeting even if they sell such Shares after the Record Date. Based on
publicly available information, Newcastle Partners believes that the only
outstanding class of securities of Pizza Inn entitled to vote at the Annual
Meeting is the Shares.

Shares represented by properly executed GOLD proxy cards will be voted
at the Annual Meeting as marked and, in the absence of specific instructions,
will be voted FOR the election of the Nominees to the Pizza Inn Board, FOR the
proposal to repeal the Bylaw Amendments and FOR the proposal to reimburse
Newcastle Partners for all expenses it incurs in connection with this
solicitation, and in the discretion of the persons named as proxies on all other
matters as may properly come before the Annual Meeting.

We are asking you to elect our Nominees, two of whom are in opposition
to the incumbent nominees whose terms expire at the Annual Meeting (Mr. Pully is
a nominee on both the Company's slate and Newcastle Partners' slate) and the
proposals to repeal the Bylaw Amendments and to reimburse Newcastle Partners for
all expenses it incurs in connection with this proxy solicitation. The enclosed
GOLD proxy card may only be voted for our Nominees and does not confer voting
power with respect to the Company's nominees, other than Mr. Pully. Accordingly,
you will not have the opportunity to vote for any of Pizza Inn's nominees other
than Mr. Pully. You can only vote for Pizza Inn's nominees other than Mr. Pully
by signing and returning a proxy card provided by Pizza Inn. Shareholders should
refer to the Company's proxy statement for the names, backgrounds,
qualifications and other information concerning Pizza Inn's nominees. The
participants in this solicitation intend to vote all of their Shares in favor of
the Nominees and the proposals to repeal the Bylaw Amendments and to reimburse
Newcastle Partners for all expenses it incurs in connection with this proxy
solicitation and will not vote their Shares in favor of any of Pizza Inn's
nominees, other than Mr. Pully.

QUORUM

In order to conduct any business at the Annual Meeting, a quorum must
be present in person or represented by valid proxies. A quorum consists of a
majority of the Shares issued and outstanding on the Record Date. All Shares
that are voted "FOR", "AGAINST" or "ABSTAIN" (or "WITHHOLD" in the case of
election of directors) on any matter will count for purposes of establishing a
quorum and will be treated as Shares entitled to vote at the Annual Meeting (the
"Votes Present").

VOTES REQUIRED FOR APPROVAL

Election of Directors. A plurality of the total votes cast ("Votes
Cast") by holders of the Shares for the Nominees is required for the election of
directors and the three nominees who receive the most votes will be elected
(assuming a quorum is present). A vote to "WITHHOLD" for any nominee for
director will be counted for purposes of determining the Votes Present, but will
have no other effect on the outcome of the vote on the election of directors. A
Shareholder may cast such votes for the Nominees either by so marking the ballot
at the meeting or by specific voting instructions sent with a signed proxy to
either Newcastle Partners in care of MacKenzie Partners, Inc. at the address set
forth on the back cover of this Proxy Statement or to Pizza Inn at 3551 Plano
Parkway, The Colony, Texas 75056 or any other address provided by Pizza Inn.

Other Proposals. Other than the election of directors, the vote
required for all other business matters set forth in this Proxy Statement is the
affirmative vote of a majority of the Votes Present.

-14-

ABSTENTIONS

Abstentions will count as Votes Present for the purpose of determining
whether a quorum is present. Abstentions will not be counted as Votes Cast in
the election of directors. Abstentions will have an effect as a vote against the
proposals to repeal the Bylaw Amendments and proposal to approve the
reimbursement of proxy solicitation expenses of Newcastle Partners.

BROKER NON-VOTES

Shares held in street name that are present by proxy will be
considered as Votes Present for purposes of determining whether a quorum is
present. With regard to certain proposals, the holder of record of Shares held
in street name is permitted to vote as it determines, in its discretion, in the
absence of direction from the beneficial holder of the Shares.

The term "broker non-vote" refers to shares held in street name that
are not voted with respect to a particular matter, generally because the
beneficial owner did not give any instructions to the broker as to how to vote
such shares on that matter and the broker is not permitted under applicable
rules to vote such shares in its discretion because of the subject matter of the
proposal, but whose shares are present on at least one matter. Such shares shall
be counted as Votes Present for the purpose of determining whether a quorum is
present, if voting instructions are given by the beneficial owner as to at least
one of the matters to be voted on. Broker non-votes will not be counted as Votes
Cast or Votes Present with respect to matters as to which the record holder has
expressly not voted. Accordingly, Newcastle Partners believes that broker
non-votes will have no effect upon the outcome of voting on any of the business
matters set forth in this Proxy Statement.

-15-

REVOCATION OF PROXIES

Shareholders of Pizza Inn may revoke their proxies at any time prior
to exercise by attending the Annual Meeting and voting in person (although
attendance at the Annual Meeting will not in and of itself constitute revocation
of a proxy) or by delivering a written notice of revocation. The delivery of a
subsequently dated proxy which is properly completed will constitute a
revocation of any earlier proxy. The revocation may be delivered either to
Newcastle Partners in care of MacKenzie Partners, Inc. at the address set forth
on the back cover of this Proxy Statement or to Pizza Inn at 3551 Plano Parkway,
The Colony, Texas 75056 or any other address provided by Pizza Inn. Although a
revocation is effective if delivered to Pizza Inn, Newcastle Partners requests
that either the original or photostatic copies of all revocations be mailed to
Newcastle Partners in care of MacKenzie Partners, Inc. at the address set forth
on the back cover of this Proxy Statement so that Newcastle Partners will be
aware of all revocations and can more accurately determine if and when proxies
have been received from the holders of record on the Record Date of a majority
of the outstanding Shares. Additionally, MacKenzie Partners, Inc. may use this
information to contact shareholders who have revoked their proxies in order to
solicit later dated proxies for the election of the Nominees.

IF YOU WISH TO VOTE FOR THE ELECTION OF THE NOMINEES TO THE PIZZA INN BOARD, FOR
THE PROPOSAL TO REPEAL THE BYLAW AMENDMENTS AND FOR THE PROPOSAL TO REIMBURSE
NEWCASTLE PARTNERS FOR ALL EXPENSES IT INCURS IN CONNECTION WITH THIS PROXY
SOLICITATION, PLEASE SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED GOLD PROXY CARD
IN THE POSTAGE-PAID ENVELOPE PROVIDED.

SOLICITATION OF PROXIES

The solicitation of proxies pursuant to this Proxy Statement is being
made by Newcastle Partners. Proxies may be solicited by mail, facsimile,
telephone, telegraph, in person and by advertisements. Newcastle Partners will
not solicit proxies via the Internet.

Newcastle Partners has entered into an agreement with MacKenzie
Partners, Inc. for solicitation and advisory services in connection with this
solicitation, for which MacKenzie Partners, Inc. will receive a fee not to
exceed $75,000.00, together with reimbursement for its reasonable out-of-pocket
expenses, and will be indemnified against certain liabilities and expenses,
including certain liabilities under the federal securities laws. MacKenzie
Partners, Inc. will solicit proxies from individuals, brokers, banks, bank
nominees and other institutional holders. Newcastle Partners has requested
banks, brokerage houses and other custodians, nominees and fiduciaries to
forward all solicitation materials to the beneficial owners of the Shares they
hold of record. Newcastle Partners will reimburse these record holders for their
reasonable out-of-pocket expenses in so doing. It is anticipated that MacKenzie
Partners, Inc. will employ approximately 35 persons to solicit Pizza Inn's
shareholders for the Annual Meeting.

The entire expense of soliciting proxies is being borne by Newcastle
Partners pursuant to the terms of the Joint Filing and Solicitation Agreement
(as defined below). Costs of this solicitation of proxies are currently

-16-

estimated to be approximately $100,000.00. Newcastle Partners estimates that
through the date hereof, its expenses in connection with this solicitation are
approximately $50,000.00.

PARTICIPANT INFORMATION

Each member of the Group is a participant in this solicitation. Mark
E. Schwarz is the managing member of Newcastle Capital, a Texas limited
liability company, which is the general partner of Newcastle Management, a Texas
limited partnership, which in turn is the general partner of Newcastle Partners,
a Texas limited partnership. The principal occupation of Mr. Schwarz is serving
as the managing member of Newcastle Capital. The principal business of Newcastle
Capital is acting as the general partner of Newcastle Management. The principal
business of Newcastle Management is acting as the general partner of Newcastle
Partners. The principal business of Newcastle Partners is investing in
securities. The principal business address of Mr. Schwarz, Newcastle Partners,
Newcastle Management and Newcastle Capital is 300 Crescent Court, Suite 1110,
Dallas, Texas 75201. As of the date hereof, Newcastle Partners is the beneficial
owner of 3,583,780 Shares. Mark Schwarz, Newcastle Management and Newcastle
Capital may be deemed to beneficially own the Shares held by Newcastle Partners
by virtue of their affiliation with Newcastle Partners and each disclaims
beneficial ownership of such Shares except to the extent of their pecuniary
interest therein. Mr. Schwarz also owns directly an additional 10,000 Shares.
For information regarding purchases and sales of securities of Pizza Inn during
the past two years by Newcastle Partners and Mr. Schwarz, see Schedule II.

On December 11, 2002, Newcastle Partners, Newcastle Management,
Newcastle Group and Mark Schwarz entered into a Joint Filing Agreement whereby
they agreed to file a joint Schedule 13D (and amendments thereto) with respect
to the Shares (the "First Joint Filing Agreement"). On December 20, 2002, the
parties to the First Joint Filing Agreement and Steven J. Pully entered into a
separate joint filing agreement after Mr. Pully had been elected to the Pizza
Inn Board (the "Second Joint Filing Agreement"). On October 31, 2003, the
parties to the Second Joint Filing Agreement, Barry M. Barron, Sr. and Robert B.
Page entered into a Joint Filing and Solicitation Agreement (the "Joint Filing
and Solicitation Agreement"), in which, among other things, (i) the parties
agreed to solicit proxies or written consents for the election of Steven J.
Pully, Barry M. Barron, Sr. and Robert B. Page, or any other person(s) nominated
by Newcastle Partners to the Pizza Inn Board at the Annual Meeting (the
"Solicitation"); (ii) the parties agreed to solicit proxies or written consents
to repeal amendments to the Company's bylaws approved by the Pizza Inn Board on
December 18, 2002 and to cause Newcastle Partners to be reimbursed by the
Company for its expenses incurred in connection with the Solicitation; (iii) the
parties agreed to the joint filing on behalf of each of them of statements on
Schedule 13D with respect to the securities of the Company, and (iv) Newcastle
Partners agreed to bear certain expenses of the parties incurred in connection
with the Solicitation. On November 17, 2003, the Joint Filing and Solicitation
Agreement was amended whereby Ramon D. Phillips agreed to be a party to such
agreement and to replace Barry M. Barron, Sr. as one of Newcastle Partners'
nominees and Barry M. Barron, Sr. agreed to withdraw as a party to such
agreement.

-17-

CERTAIN TRANSACTIONS BETWEEN NEWCASTLE PARTNERS AND PIZZA INN

On December 6, 2002, Newcastle Partners acquired from a former
director and executive officer of the Company an option to purchase an
additional 2,905,000 shares of Common Stock of the Company which increased its
beneficial ownership to 3,270,000 shares of Common Stock, or approximately 32.5%
of the then outstanding shares of the Company. The Company was not a party to
this transaction nor was approval of the transaction required or sought from the
Company. After the acquisition, Newcastle Partners entered into discussions with
the Company regarding its newly acquired ownership position. As a result of
those discussions, on December 18, 2002, Newcastle Partners and the Company
entered into an agreement wherein the Company agreed, among others things, to
cause at least one member of each class of directors of the Company to resign
from the Pizza Inn Board prior to the close of business on the following day.
Upon obtaining such resignations, the Pizza Inn Board was required to replace
the resigning directors with Mark E. Schwarz as a Class I director, with a term
expiring at the 2004 annual meeting of shareholders of the Company, and Steven
J. Pully as a Class II director, with a term expiring at the 2003 annual meeting
of shareholders of the Company. Newcastle Partners also agreed to limit its
direct and indirect beneficial ownership of Common Stock of the Company to no
more than 40% of the Shares prior to the first anniversary of the agreement and
no more than 45% of the Shares between the first and second anniversaries of the
agreement. The agreement also provided that the bylaws of the Company would be
amended to provide that for so long as a representative of Newcastle Partners
serves on the Pizza Inn Board, the Company shall not expand the size of the
Pizza Inn Board above seven members. The full text of the agreement is contained
in a Schedule 13D amendment filed with the Securities and Exchange Commission by
Newcastle Partners on December 23, 2003.

Except as set forth in this Proxy Statement (including the Schedules
hereto), neither Newcastle Partners nor any of the other participants in this
solicitation, or any of their respective associates: (i) directly or indirectly
beneficially owns any Shares or any securities of Pizza Inn; (ii) has had any
relationship with Pizza Inn in any capacity other than as a Shareholder, or is
or has been a party to any transactions, or series of similar transactions, or
was indebted to Pizza Inn during the past year with respect to any Shares or
securities of Pizza Inn; or (iii) knows of any transactions during the past
year, currently proposed transactions, or series of similar transactions, to
which Pizza Inn or any of its subsidiaries was or is to be a party, in which the
amount involved exceeds $60,000 and in which any of them or their respective
affiliates had, or will have, a direct or indirect material interest. In
addition, other than as set forth herein, there are no contracts, arrangements
or understandings entered into by Newcastle Partners or any other participant in
this solicitation or any of their respective associates within the past year
with any person with respect to any of Pizza Inn's securities, including, but
not limited to, joint ventures, loan or option arrangements, puts or calls,
guarantees against loss or guarantees of profit, division of losses or profits,
or the giving or withholding of proxies.

Except as set forth in this Proxy Statement (including the Schedules
hereto), neither Newcastle Partners nor any of the other participants in this
solicitation, or any of their respective associates, has entered into any
agreement or understanding with any person with respect to (i) any future
employment by Pizza Inn or its affiliates or (ii) any future transactions to
which Pizza Inn or any of its affiliates will or may be a party. However,
Newcastle Partners has reviewed, and will continue to review, on the basis of
publicly available information, various possible business strategies that it

-18-

might consider in the event that the Nominees are elected to the Pizza Inn
Board.

OTHER MATTERS AND ADDITIONAL INFORMATION

Newcastle Partners is unaware of any other matters to be considered at
the Annual Meeting. However, should other matters, which Newcastle Partners is
not aware of a reasonable time before this solicitation, be brought before the
Annual Meeting, the persons named as proxies on the enclosed GOLD proxy card
will vote on such matters in their discretion.

Newcastle Partners has omitted from this Proxy Statement certain
disclosure required by applicable law that is already included in the Company's
proxy statement. This disclosure includes, among other things, biographical
information on Pizza Inn's directors and executive officers, information
concerning executive compensation, an analysis of cumulative total returns on an
investment in Shares during the past five years and procedures for submitting
proposals for inclusion in Pizza Inn's proxy statement at the next annual
meeting. Shareholders should refer to the Company's proxy statement in order to
review this disclosure.

See Schedule III for information regarding persons who beneficially
own more than 5% of the Shares and the ownership of the Shares by the management
of Pizza Inn.

The information concerning Pizza Inn contained in this Proxy Statement
and the Schedules attached hereto has been taken from, or is based upon,
publicly available information.

NEWCASTLE PARTNERS, L.P.

____________, 2004

-19-

SCHEDULE I

NEWCASTLE PARTNERS IS SEEKING YOUR VOTE TO APPROVE PROPOSALS TO REPEAL THE
FOLLOWING BYLAW AMENDMENTS APPROVED BY THE PIZZA INN BOARD ON DECEMBER 18, 2002:

1. Article III, Section 7 was amended by deletion in its entirety and
substitution in lieu thereof the following new Section 7:

SECTION 7. SPECIAL MEETINGS. Special meetings of the shareholders for
any purpose or purposes may be called by the Chief Executive Officer or by a
majority of the Board of Directors.

2. The following new Section 13 was inserted immediately after the present
Section 12 of Article III:

SECTION 13. BUSINESS AT SHAREHOLDERS' MEETING. At any meeting of the
shareholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before a meeting, business
must be (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors, (b) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (c)
otherwise properly brought before the meeting by a shareholder. For business to
be properly brought before a meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a shareholder's notice shall be delivered to or mailed and received
at the principal executive offices of the Corporation not less than fifty (50)
days nor more than seventy-five (75) days prior to the meeting; provided,
however, that in the event that less than sixty-five (65) days notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received no later than the
close of business on the fifteenth (15th) day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made,
whichever first occurs. Such shareholder's notice to the Secretary shall set
forth (a) as to each matter the shareholder proposes to bring before the
meeting, a brief description of business desired to be brought before the
meeting and the reasons for conducting such business at the meeting, and (b) as
to the shareholder giving the notice (i) the name and record address of the
shareholder, (ii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the shareholder and (iii) any
material interest of the shareholder in such business. No business shall be
conducted at a meeting of the shareholders unless proposed in accordance with
the procedures set forth herein. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the foregoing procedure and such
business shall not be transacted. To the extent this Section 13 shall be deemed
by the Board of Directors or the Securities and Exchange Commission, or finally
adjudged by a court of competent jurisdiction, to be inconsistent with the right
of shareholders to request inclusion of a proposal in the Corporation's proxy
statement pursuant to Rule 14a-8 promulgated under the Securities Exchange Act
of 1934, as amended, such rule shall prevail.

3. The following new Section 6 was inserted immediately after the present
Section 5 of Article IV:

-20-

SECTION 6. NOMINATIONS TO BOARD OF DIRECTORS. Nominations of persons
for election to the Board of Directors of the Corporation at a meeting of the
shareholders may be made by or at the direction of the Board of Directors or may
be made at a meeting of shareholders by any shareholder of the Corporation who
is entitled to vote for the election of Directors at the meeting in compliance
with the notice procedures set forth in this Section 6 of Article IV. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a shareholder's notice shall be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than fifty (50) days nor more than seventy-five (75) days prior to the
meeting; provided, however, that in the event that less than sixty-five (65)
days notice or prior public disclosure of the date of the meeting is given or
made no later than the close of business on the fifteenth (15th) day following
the day on which such notice of the date of the meeting was mailed or such
public disclosure was made, whichever first occurs. Such shareholder's notice to
the Secretary shall set forth (a) as to each person whom the shareholder
proposes to nominate for election or re-election as a Director, (i) the name,
age, business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class and number of shares of
capital stock of the Corporation which are beneficially owned by the person and
(iv) any other information related to the person that is required to be
disclosed in solicitations for proxies for election of Directors pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended; and (b) as
to the shareholder giving the notice (i) the name and record address of the
shareholder and (ii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the shareholder. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such proposed
nominee to serve as Director of the Corporation. No person shall be eligible for
election as a Director of the Corporation at a meeting of the shareholders
unless such person has been nominated in accordance with the procedures set
forth herein. If the facts warrant, the Chairman of the meeting shall determine
and declare to the meeting that a nomination does not satisfy the requirements
set forth in the preceding sentence and the defective nomination shall be
disregarded. Nothing in this Section 6 shall be construed to affect the
requirements for proxy statements of the Corporation under Regulation 14A of the
Exchange Act.

-21-

SCHEDULE II

TRANSACTIONS IN THE SECURITIES OF PIZZA INN, INC.
BY NEWCASTLE PARTNERS, L.P. AND MARK E. SCHWARZ
DURING THE PAST TWO YEARS

Class Quantity Price Per Date of
of Security Purchased Unit ($) Purchase
- --------------------------------------------------------------------------------------------------------
Newcastle Partners, L.P.
- --------------------------------------------------------------------------------------------------------
Common Stock 64,000 1.2090 8/27/02

Common Stock 34,800 1.2915 8/28/02

Common Stock 1,000 1.5300 9/05/02

Common Stock 12,000 1.5163 9/09/02

Common Stock 5,000 1.5680 9/10/02

Common Stock 1,600 1.6244 9/13/02

Common Stock 1,000 1.6300 9/23/02

Common Stock 9,000 1.6267 9/30/02

Common Stock 4,900 1.6281 10/04/02

Common Stock 1,500 1.6350 10/08/02

Common Stock 2,800 1.6504 10/10/02

Common Stock 5,000 1.6480 10/11/02

Common Stock 5,500 1.6477 10/14/02

Common Stock 3,000 1.6700 10/16/02

Common Stock 20,000 1.7500 10/18/02

Common Stock 3,000 1.6700 10/18/02

Common Stock 500 1.6950 10/25/02

Common Stock 10,000 1.6665 11/04/02

Common Stock 40,000 1.6575 11/06/02

Common Stock 23,000 1.6583 11/07/02

Common Stock 5,000 1.6680 11/08/02

Common Stock 100 1.8150 11/15/02

Common Stock 1,200 1.6775 11/20/02

Common Stock 8,400 1.6958 11/21/02

-22-

Class Quantity Price Per Date of
of Security Purchased Unit ($) Purchase
- --------------------------------------------------------------------------------------------------------

Common Stock 2,000 1.6925 11/25/02

Common Stock 75,000 1.9184 12/09/02

Common Stock 25,700 2.1063 12/10/02

Common Stock 6,200 2.2821 12/11/02

Common Stock 1,500 2.2400 12/12/02

Common Stock 29,500 2.5406 12/31/02

Common Stock 2,905,000 2.5383 1/07/03

Common Stock 120,000 2.0000 2/14/03

Common Stock 85,000 2.2500 2/14/03

Common Stock 27,000 1.5739 3/03/03

Common Stock 7,700 1.6566 3/10/03

Common Stock 11,700 1.6090 4/02/03

Common Stock 9,500 1.5716 4/03/03

Common Stock 15,680 2.7500 11/07/03

Mark E. Schwarz
- --------------------------------------------------------------------------------------------------------
Common Stock 2,500 1.9600 6/19/03
Common Stock 7,500 2.0300 6/30/03

-23-

SCHEDULE III

SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT

The following is based solely on information provided in the Company's
proxy statement filed with the Securities and Exchange Commission on December
15, 2003.

The following table sets forth certain information, as of November 15,
2003, 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 (17 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.

Shares
Name and Address of Beneficially Percent
5% Beneficial Owner Owned of Class

C. Jeffrey Rogers (a) 5529 St. Andrews Ct
Plano, Texas 75093 (a) (a)

Newcastle Partners, L.P.(b)
Newcastle Capital Management, L.P.
Newcastle Capital Group, L.L.C.
300 Crescent Court, Ste. 1110
Dallas, TX 75201 3,583,780 35.610%

Ronald W. Parker (c)
3551 Plano Parkway
The Colony, TX 75056 1,081,173 9.875%

Steve A. Ungerman (d) 30,566 Less than 1%
Butler E. Powell (c) 35,000 Less than 1%
Bobby L. Clairday (e) 48,900 Less than 1%
Steven J. Pully (b) -0- -0-
Mark E. Schwarz (b) 3,593,780 35.693%
F. Jay Taylor (c) 20,000 Less than 1%
B. Keith Clark (c) (f) 168,486 1.660%
Ward T. Olgreen (c) 167,739 1.653%
Shawn M. Preator 53,918 Less than 1%
Danny K. Meisenheimer 287 Less than 1%

All Directors and Group (g)
Executive Officers as a 5,250,661 52.170%

-24-

(a) Mr. Rogers was a Director and the Company's Chief Executive Officer until
August 21, 2002. For additional information, see "Severance Agreement". On
August 21, 2002, Mr. Rogers beneficially owned approximately 3,650,000
shares, or approximately 35% of the total shares then outstanding. On
January 3, 2003, Mr. Rogers filed with the Securities Exchange Commission a
Form 4 Statement of Changes in Beneficial Ownership showing ownership of
205,000 shares, or approximately 2% of the total shares then outstanding.
The Company cannot confirm subsequent changes, if any, in Mr. Rogers'
ownership position.

(b) 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 Management, L.P., and Mark E. Schwarz is the managing partner of
Newcastle Partners, L.P. Accordingly, each of Newcastle 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 Management, L.P.,
Newcastle Group, L.L.C., Mark Schwarz, Steven Pully, Ramon D. Phillips and
Robert B. Page are members of a Section 13(d) 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 Mr. Schwarz are the only
members of the group to directly own shares of Common Stock.

(c) Includes vested options and options vesting within 60 days of November 15,
2003 under the Company's stock option plans, as follows: 242,500 shares for
Mr. Parker; 12,500 shares for Mr. Powell; 10,000 shares for Mr. Taylor;
106,500 shares for Mr. Clark; 76,500 shares for Mr. Olgreen; and 44,500
shares for Mr. Preator.

(d) Includes 12,283 shares for which Mr. Ungerman shares voting and investment
power with his wife.

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

(f) Includes 4,000 shares held by K&A Clark Family Partnership, L.P.

(g) Excludes shares owned by Mr. Rogers who was a Director and an executive
officer until August 21, 2002.

-25-

IMPORTANT

Tell your Board what you think! Your vote is important. No matter how
many Shares you own, please give Newcastle Partners your proxy FOR the election
of the Nominees, FOR the proposals to repeal the Bylaw Amendments and FOR the
proposal to reimburse Newcastle Partners for all expenses it incurs in
connection with this solicitation by taking three steps:

o SIGNING the enclosed GOLD proxy card,

o DATING the enclosed GOLD proxy card, and

o MAILING the enclosed GOLD proxy card TODAY in the envelope
provided (no postage is required if mailed in the United States).

If any of your Shares are held in the name of a brokerage firm, bank,
bank nominee or other institution, only it can vote such Shares and only upon
receipt of your specific instructions. Accordingly, please contact the person
responsible for your account and instruct that person to execute the GOLD proxy
card representing your Shares. Newcastle Partners urges you to confirm in
writing your instructions to Newcastle Partners in care of MacKenzie Partners,
Inc. at the address provided below so that Newcastle Partners will be aware of
all instructions given and can attempt to ensure that such instructions are
followed.

If you have any questions or require any additional information
concerning this Proxy Statement, please contact MacKenzie Partners, Inc. at the
address set forth below.

[MACKENZIE PARTNERS LOGO]

105 Madison Avenue
New York, New York 10016
(212) 929-5500 (Call Collect)
E-mail: PROXY@MACKENZIEPARTNERS.COM
---------------------------
or
CALL TOLL FREE (800) 322-2885

PRELIMINARY COPY SUBJECT TO COMPLETION
DATED DECEMBER 31, 2003

GOLD PROXY

PIZZA INN, INC.

ANNUAL MEETING OF SHAREHOLDERS

THIS PROXY IS SOLICITED ON BEHALF OF NEWCASTLE PARTNERS, L.P.

THE BOARD OF DIRECTORS OF PIZZA INN, INC.
IS NOT SOLICITING THIS PROXY

The undersigned appoints Mark E. Schwarz and Steven J. Pully, and each of them,
attorneys and agents with full power of substitution to vote all shares of
common stock of Pizza Inn, Inc. (the "Company") which the undersigned would be
entitled to vote if personally present at the Annual Meeting of Shareholders of
the Company to be held at the Company's corporate offices, 3551 Plano Parkway,
The Colony, Texas 75056 on Wednesday, January 21, 2004, at 11:00 A.M. (Dallas
time), and including at any adjournments or postponements thereof and at any
meeting called in lieu thereof (the "Annual Meeting").

The undersigned hereby revokes any other proxy or proxies heretofore given to
vote or act with respect to the shares of common stock of the Company held by
the undersigned, and hereby ratifies and confirms all action the herein named
attorneys and proxies, their substitutes, or any of them may lawfully take by
virtue hereof. If properly executed, this Proxy will be voted as directed on the
reverse and in their discretion with respect to any other matters as may
properly come before the Annual Meeting.

IF NO DIRECTION IS INDICATED WITH RESPECT TO THE PROPOSALS ON THE REVERSE, THIS
PROXY WILL BE VOTED (1) FOR THE ELECTION OF THE NEWCASTLE PARTNERS, L.P.
NOMINEES, OR ANY SUBSTITUTIONS THERETO, (2) FOR PROPOSALS TO ADOPT RESOLUTIONS
REPEALING EACH OF THE FOLLOWING BYLAW AMENDMENTS OF THE AMENDED AND RESTATED
BYLAWS OF THE COMPANY ADOPTED ON DECEMBER 18, 2002: (i) THE AMENDMENT TO ARTICLE
III, SECTION 7 THAT ELIMINATES THE ABILITY OF SHAREHOLDERS TO CALL A SPECIAL
MEETING OF SHAREHOLDERS; (ii) THE NEW ARTICLE III, SECTION 13 THAT REQUIRES
SHAREHOLDERS TO COMPLY WITH CERTAIN PROCEDURES IN ORDER TO BRING BUSINESS BEFORE
A SHAREHOLDERS MEETING; AND (iii) THE NEW ARTICLE IV, SECTION 6 THAT REQUIRES
SHAREHOLDERS TO COMPLY WITH CERTAIN PROCEDURES IN ORDER TO NOMINATE DIRECTORS
AND (3) FOR THE PROPOSAL TO ADOPT A RESOLUTION RECOMMENDING TO THE BOARD OF
DIRECTORS OF THE COMPANY THAT THE COMPANY REIMBURSE NEWCASTLE PARTNERS, L.P. FOR
ALL EXPENSES IT INCURS IN CONNECTION WITH ITS SOLICITATION OF PROXIES FOR THE
ANNUAL MEETING.

This Proxy will be valid until the sooner of one year from the date indicated on
the reverse side and the completion of the Annual Meeting.

CONTINUED AND TO BE SIGNED ON REVERSE SIDE

[X] Please mark vote as in this example

NEWCASTLE PARTNERS, L.P. RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3

1. ELECTION OF DIRECTORS:

WITHHOLD
AUTHORITY TO
FOR ALL VOTE FOR ALL
NOMINEES NOMINEES

Nominees: (01) Robert B. Page, (02) [ ] [ ]
Ramon D. Phillips, and (03) Steven
J. Pully

[ ] FOR EXCEPT VOTE WITHHELD FROM FOLLOWING NOMINEES:

------------------------------------------
Nominee Exceptions

2. APPROVAL TO ADOPT RESOLUTIONS REPEALING THE FOLLOWING BYLAW AMENDMENTS OF
THE AMENDED AND RESTATED BYLAWS OF THE COMPANY ADOPTED ON DECEMBER 18,
2002:

(i) AMENDMENT TO ARTICLE III, SECTION 7 THAT ELIMINATES THE ABILITY OF
SHAREHOLDERS TO CALL A SPECIAL MEETING OF SHAREHOLDERS

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

(ii)NEW ARTICLE III, SECTION 13 THAT REQUIRES SHAREHOLDERS TO COMPLY WITH
CERTAIN PROCEDURES IN ORDER TO BRING BUSINESS BEFORE A SHAREHOLDERS
MEETING

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

(iii) NEW ARTICLE IV, SECTION 6 THAT REQUIRES SHAREHOLDERS TO COMPLY WITH
CERTAIN PROCEDURES IN ORDER TO NOMINATE DIRECTORS

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

3. APPROVAL TO ADOPT RESOLUTION RECOMMENDING TO THE BOARD OF DIRECTORS OF THE
COMPANY THAT THE COMPANY REIMBURSE NEWCASTLE PARTNERS, L.P. FOR ALL EXPENSES
IT INCURS IN CONNECTION WITH ITS SOLICITATION OF PROXIES FOR THE ANNUAL
MEETING:

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

4. In their discretion with respect to any other matters as may properly come
before the Annual Meeting.

DATED: ____________________________

____________________________________
(Signature)

____________________________________
(Signature, if held jointly)

____________________________________
(Title)

PLEASE SIGN EXACTLY AS NAME APPEARS ON THIS PROXY. WHEN SHARES ARE HELD JOINTLY,
JOINT OWNERS SHOULD EACH SIGN. EXECUTORS, ADMINISTRATORS, TRUSTEES, ETC., SHOULD
INDICATE THE CAPACITY IN WHICH SIGNING. IMPORTANT: PLEASE SIGN, DATE AND MAIL
THIS PROXY CARD PROMPTLY!

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