The Beard Gambit
Shareholder Joseph Beard made a run at the company, but fell short
The Wooleys rejected Beard's offer, and board member Pike Powers accused Beard of trying to obtain proprietary information on the company under the guise of attempting to drive out the Wooleys. Although the chain of events that followed wasn't what Beard had in mind, the brothers were driven out nonetheless. With the Wooleys gone, Beard proffered another offer to the new management, this time in the $6 million to $10 million range. Again, he was rejected. By that time the company was moving closer to a Chapter 11 filing.
According to new CEO Sam Coats, Schlotzsky's had little choice but to turn down Beard's proposal. "Since we were insolvent at that time and the proposal was subject to due diligence by the investor, there was no way we could have met the due diligence requirements that the investor would have insisted on Schlotzsky's meeting," he said. Had Beard wanted to make a large buy of shares in spite of the insolvency, Coats added, "It would have required shareholder approval, which would have taken at least six weeks to obtain and possibly longer." That was too risky a move, in Coats' view, because it would have placed the company at risk of an involuntary bankruptcy and ultimately a liquidation proceeding. Beard's response to the bankruptcy was immediate: He unloaded 1.2 million shares at prices ranging from 29 cents to 59 cents.