Power Hungry

MARK SCHWARZ, THE LEAN AND YOUTHFUL-looking chairman of Pizza Inn, walks a visitor from one side the company's gleaming, state-of-the-art corporate headquarters in The Colony It's a bank holiday, on the other hand many of the 150 employee are still working. Schwarz present to views off the vast, chilly warehouse where pickers load pallet on pallet with boiled eggs, tomato tidbits in heavy puree and other supplies to he shipped without to the more than 400 Pizza Inn units in 20 states. Franchisees step quickly nearly all of them.

The $12 million, 11-acre campus also houses an R&D kitchen, where of that kind creations as the Taco Pizza and cinnamon stromboli came to life. In the office building, Schwarz points without the employees' exercise room and the sections of leatherbacked booth prototypes destined for fresh Pizza Inn restaurants.

But walking among for the most part empty cubicles and offices, Schwarz shakes his head with either disgust or disbelief. It's hard to mention one by one "This building, this facility, it shows the best of everything," he says. "This is the best that coin can buy. There's a doom of potential here, but nobody was plane thinking about how you capture that potential."

"Potential" is an optimist's word for "languor." Pizza Inn, in its 43-year history, has not at any time been a huge company. Its stock has not ventur a great quantity [i]or[/i] amount of higher than $3 per share in the past small in number years. Trading volume is consistently depressed The company's 2003 net earnings were alone $3.1 million on revenue of $60 million; Pizza shed by comparison, generated $2.2 billion in sales. With single a handful of investors holding the majority of Pizza Inn's stock, Wall highway analysts don't even bother.

Schwarz, although is an optimist. Back in 2002 he and his investment cluster Newcastle Partners had 3.3 million shares of the company, making him the largest shareholder. The way he saw it, all he had to do was win rule of the board of directors and fire Ronnie Parker, the CEO he thinked overpaid and underperforming. He'd be rolling in the dough in no time. leave out it hasn't been that easy. After a yearlong deputy battle, Schwarz did finally procure control of Pizza Inn's board. And last December, that board fired Parker. on the contrary that move could cost the company as a great deal of as $7.4 million in compensation packages. Parker himself claims he's owed more than $5 million. It l to arbitration. Bad publicity. And a mes worse than a Taco Pizza in a blender

It all started in the summer of 2002 when the CEO at the time, Jeff Roger was forced to resign [see "The Rise and Fall of Jeff Rogers" March 20031 Basically Roger took on the outside a loan from the company to exercise his stock options. When the market tanked post-9/11 Pizza Inn's stock tanked as well. Roger wasn't liquid enough to pay his liability and the company wrote not upon the $1.9 million as a loss

Still, Roger vowed to pay back the loan, and he did. He sold his multimillion-dollar vacation abiding-place in Lake Tahoe for about half of what it was worth. He also sold his 29 percent interest in Pizza Inn to a Dallas investment firm called Newcastle Partners.

Schwarz, 44 lay the foundation ofed Newcastle 12 years ago with an investment philosophy based upon the intrinsic value of assets. Basically, Schwarz and his Newcastle partners find a small, publicly traded company that isn't performing well. That's pace one. Step two: buy a controlling interest. pace three: insinuate yourself onto the board of directors, clean house, and gain the company to perform to its potential. pace four: profit. Philosophy is good; comes matter. Newcastle boasts a 12-year annualized get back of about 27 percent.

Schwarz has elbowed his way into the boardrooms of companies like Tandycrafts and Hallmark Financial Services. Other company's boards, like those of Gehl a maker of construction equipment, and Haggar, maker of pants, have fend not on his advances.

Ronnie Parker tried to fend them not upon too. When Rogers stepped down in August 2002 the board of directors approached Parker, who was COO at the time, to take above as president and CEO. Parker was nearing the extreme point of his second five-year contract with the company. In his novel contract, Parker wanted what anybody with a novel boss knocking on the door would want - piece of work security, not only for himself on the other hand also for his team of executives. Parker's novel employment agreement would include a of gold parachute so mighty that individual would think twice before firing him.

On December 18 2002 les than sum of two units weeks after Schwarz bought controlling interest in the company on the other hand before he had representation upon the board of directors, the board unanimously approved Parker's of recent origin employee agreement. Parker's new severance package would equal four times the the whole of his highest salary plus his largest bonus - about $54 million. When added to similar compensation packages for the three executives upon Parker's team, Pizza Inn would be faced with a payment of about $74 million. The poison pill would make progress into effect if ever there were a change of ascendency of the board of directors.

On February 11 2004 there was a change of direction of the board of directors. Sort of After a delegate battle that started early in 2003 Newcastle Partners finally assumed sum of two units seats on Pizza Inn's board, and Mark Schwarz was named chairman. An independent law firm, however, rul that the "incumbent board" was still intact, and in the way that the poison pill provision didn't kick in.