Presentation to ISSJuly 12, 2013

2

Agenda

• Overview

• History

• Strategy

• Financial Performance

• Board of Directors Nominees

• Conclusion

3

Overview

4

Calloway’s Nursery, Inc.• Texas-based garden center chain

• Founded by local nurserymen, Jim Estill, John Cosby and John Peters

• 16 Calloway’s Nursery stores in the Dallas/Fort Worth market

• 2 Cornelius Nursery stores in the Houston market

5

Fun and Informative Stores• Nearly 100 of the company’s employees are

Texas Certified Nursery Professionals• Expert advice to gardeners of all levels• Weekly gardening clinics• Displays and instructions to aid gardeners

with design and color development in their yards

• Diverse product selection of plant varieties

6

Variety of Gardening Products• Flowering annual and perennial plants, trees, shrubs,

vines and interior house plants• Gardening-related products such as imported

pottery, tools, fertilizers, soil amendments, mulch and potting soil

• Largest selection of specialty pumpkins, squash and gourds

• Fresh-cut Christmas trees, living trees, premium Poinsettias, wreaths and garland

• In Houston, the Cornelius Nursery stores offer a complete gift shop including custom arrangements

7

Community Support• Good Neighbor (HOA) Program • Community Sponsorship (Donations)

Program• Callie’s Garden Circle• Garden Tours and Events• Lena Pope Home

8

Competition

Calloway’s competes with the large, well-

financed home center chains, as well as

Walmart and hundreds of local independent

nurseries

9

History

10

Inception - 1990Year Event

1986 Jim Estill, John Cosby and John Peters form Calloway’s Nursery, Inc.

1987 First four retail stores open in Dallas-Fort Worth market

1988 General Host Corporation acquires 80% ownership

1990 Calloway’s opens 10th store and achieves first profitable year

11

Initial Public Offering

1991 General Host sells its interest in IPO [June]

12

1993 - 1998Year Event

1993 General Host acquires control of Wolfe Nursery (“Wolfe”) and launches competitive expansion

1994 Home Depot (NYSE:HD) expands garden centers in Texas

1997 Lowe’s (NYSE:LOW) expands into Texas market including garden centers

1998 Calloway’s acquires Miller Plant Farm growing operation (“Miller”)

13

1999 - 2002Year Event

1999

Calloway’s enters Houston market with acquisition of Cornelius NurseryCalloway’s also acquires Turkey Creek Farms (“Turkey”) and Wholesale Landscape Distributors (“WLD”)

2001 WLD sold [October]

2002 Calloway’s enters San Antonio market by leasing 8 former Wolfe stores in San Antonio market

14

2002 - 2008Year Event

2002 Home Depot opens 6 free-standing Landscape Supply stores in Dallas-Fort Worth market (“HDLS”)

2003 Turkey [March] and Miller [September] sold2004 SEC deregistration completed [May]2005 4 of 8 San Antonio stores closed [May]2007 HDLS closes all stores [November]2008 Remaining 4 San Antonio stores closed [May]

15

2008 - 2009Year Event

2008 Arson-caused fire destroys flagship Cornelius Nursery store in Houston [July]

2009 Senior lender cancels credit line and requires company to refinance other debt by December 2010 [August]

2009 Cornelius Nursery store re-opens after sixteen months rebuilding [November]

2009 String of five consecutive profitable years ends with $1.8 million net loss

16

2009 - TodayYear Event

2010 JPMorgan Chase provides short-term credit facility [January]

2010 JPMorgan Chase refinances long-term debt [December]2010 Calloway’s rebounds with $0.7 million net income2011 Second straight profitable year2012 Third straight profitable year

2013 Store expansion resumes with construction of new Dallas-Fort Worth market store [September opening]

17

Retail Revenue, 1987-2013

18

Strategy

19

Investment of ChoiceCreate long-term value for all Calloway’s shareholders by consistently and dependably delivering on our promise to be:–Provider of Choice– Employer of Choice–Partner of Choice

20

Provider of Choice - Principles• Be the first place our customers want

to shop for their living plants and garden products

• Provide excellent personal service, beauty, selection, knowledge and fun in our Calloway’s and Cornelius stores

21

Provider of Choice - Initiatives• Early this year we implemented new,

advanced technology in all of our stores, which has:– Sharply improved our customer checkout

experience– Expanded the reach and value of our garden

club program– Provided operational efficiencies and cost-

savings

22

Provider of Choice - Initiatives• In 2012 we initiated our In-Store

Experience and Presentation initiative, which enhances our customers’ shopping experience with visual décor and products for the gardening seasons

• Our floor plans have been redesigned, and are now continuously updated, to best showcase our merchandise for the benefit of our customers

23

Provider of Choice - Initiatives• Store expansion resumes after four years– Brand-new Calloway’s Nursery retail store in

Little Elm, Texas planned to open in September– This store, with an exciting new look, based on

proven operations experience, will serve the burgeoning Little Elm and Frisco communities in North Texas

• Upcoming plans to expand in the Houston market with the Cornelius brand

24

Provider of Choice - Accolades• Named 2013 Neely Alumni Business of the Year

– In presenting the award, Dean O. Homer Erekson stated– “Calloway’s represents the very best model for a values-centered

business. In addition to being a successful garden center providing exceptional customer service, Calloway’s exemplifies community relations by sponsoring neighborhood programs, vegetable gardens for homeless, and the Lena Pope Home”

• Finalist in the 2012 Greater Tarrant Business Ethics Award competition– Honors companies that– “Demonstrate a commitment to ethical business practices in their

everyday operations, management philosophies and in response to crises or challenges”

25

Employer of Choice - Principles• Our goal is to offer professional service and accurate advice

so that our customers’ visits to our store lead to success in their gardens

• That’s why we support the Texas Nursery and Landscape Association (TNLA), both monetarily and through volunteer services– Only the best and brightest garden professionals, meeting rigorous

standards, can earn the coveted Texas Certified Nursery Professional (TCNP), and more advanced Texas Master Certified Nursery Professional (TMCNP) certifications

– We are proud to be associated with these professional programs and to employ more TCNPs and TMCNPs than any other retail organization in Texas

26

Employer of Choice - TCNP• To become a TCNP, an individual must

– Have completed 2,000 hours of industry work or attained equivalent university degrees in horticultural studies and six months on the job experience

– Master the training to pass a comprehensive examination covering marketing, customer service, plant identification, pest and disease management, plant pathology, plant nutrition, irrigation methods, plant selection and the principles of landscape design

27

Employer of Choice - TMCNP• The TMCNP certification requires far more of the

professional, including extensive training by instructors and professors from Texas A&M University

• This additional training provides knowledge of the latest research and technology

• Exam is exacting, rigorous and costly

• Number of applicants is limited

• Resulting corps of professionals provides a ready source of the latest information and the best practices that our nursery industry can offer

28

Partner of Choice - Principles• To consistently and dependably offer our

customers– The very best quality

– The most innovative and exciting new living plants and garden products

• Requires close and careful partnering with the best growers and suppliers in the industry

29

Partner of Choice - Initiatives• Over the years we’ve built a solid supplier

network with reliable and mutually-beneficial relationships

• Several years ago we sold our internal growing operations so that we could– Focus on our retail customers

– Stop competing with our own suppliers

30

Partner of Choice - Initiatives• More recently, we’ve expanded our

integration with key suppliers to– Improve inventory control and gross margins

– Further enhance the freshness and variety of living plants in our retail store

31

Partner of Choice - Initiatives• This unique and advanced technology and

business process goes well beyond electronic data interchange models by providing our trusted suppliers direct access to our system to facilitate collaboration between suppliers and our corporate buyers on planning and replenishment

32

Partner of Choice - Initiatives• So far, 38 of our top living plants suppliers,

representing over 83% of our total living plants purchases, take advantage of this technology, with even more planned for the future

33

Investment of Choice – What’s Ahead

• New Dallas-Fort Worth market store

• Continued debt reduction

• Refinance existing debt to lower rates

• Sale of excess land as market improves

• Development of Houston market

• New equity issuance has already ended

34

Financial Performance

35

Five Straight Years of Profits, then…

• Calloway’s was profitable every year from 2004 through 2008– After growing operations sold– After SEC deregisration completed

• July 13, 2008 changed everything– We were awakened early Sunday morning with

news that our flagship Voss Road store in Houston had been completely destroyed by an arsonist

– Fortunately, there were no injuries

36

Voss Road Fire

• Voss Road accounted for 10% of total revenue and about $1.0 million contribution margin

• It took over 16 months and over $2.0 million to rebuild this community landmark

37

Re-opened November 25, 2009

Hard work and determination paid-off, and we proudly re-opened a new and improved facility on November 25, 2009

38

In the meantime…• While we were redesigning, receiving

approvals and letting construction contracts• The most serious recession to strike the U.S.

in decades caused retailers across the country to suffer double-digit revenue declines

• The banking crisis locked-up commercial credit

• Fire insurance proceeds were substantially frozen pending completion of construction

39

Board and Management Actions• $0.7 million administrative cost

reductions• Compensation frozen• Prior year senior management

bonuses voluntarily cancelled• Management began direct equity

investments through the stock purchase plan

40

Stock Purchase Plan• Modeled on substantially-identical plan adopted by

Pier 1 Imports, Inc. (NYSE:PIR)– Adopted in 1980– Still in use today

• Alignment of interests of management with all shareholders– There are no stock options, restricted stock, etc.

• Plan allows participants to invest after-tax pay in Calloway’s stock– Company will make taxable match of 50% to 100% of

employee investment, based on service years

41

Good for the Company, but…• Management investments in the company

gave lenders confidence in Calloway’s despite poor 2009 financial results

• However, the economics are challenging for employees– Both employee investment and company match

are considered taxable pay– For employee in 28% tax bracket, a 10% payroll

investment can reduce take-home pay by 18%

42

Challenging Employee EconomicsAssumptionsAnnual salary 130,000.00$ Employee invests 10%Marginal rate 28% Company matches 10%Medicare rate 1.45%Biweekly payroll 26

Results Don't invest Invest CostGross pay before match 5,000.00$ 5,000.00$ -$ Match 500.00$ 500.00$ Gross taxable income 5,000.00$ 5,500.00$ 500.00$ Investment (1,000.00)$ (1,000.00)$ Income tax (1,400.00)$ (1,540.00)$ (140.00)$ Medicare tax (72.50)$ (79.75)$ (7.25)$ Net pay 3,527.50$ 2,880.25$ (647.25)$

Take-home pay reduction -18%

43

Management Commitment

Management’s fully-paid investments in the company are a strong incentive to deliver long-term shareholder value

44

Improved Performance Since 2009• All key performance indicators

have improved–Greater Liquidity–Reduced Debt–Improved Book Value–Improved Debt-to-Equity Ratio

45

Greater Liquidity

Year-end cash position has improved 73%

46

Reduced Debt

Debt has been reduced 19%

47

Improved Book Value

Book value per share has risen 59%

48

Improved Debt-to-Equity Ratio

Better debt ratio lowers borrowing costs

49

Total Shareholder Return• Total Shareholder Return (“TSR”) for the – Five-year,– Three-year,– One-year, and– Six-month

• periods through May 9, 2013 (the day before Kamin announced his hostile takeover attempt)

• clearly demonstrates– how the fire impacted performance, and– the successful recovery since that period

50

Five-Year TSR

Five-Year TSR includes impact of fire early in that period

Calloway's Nursery I nc. (2.2%)S&P 500 I ndex 30.2%Russell 3000 I ndex 32.6%

51

Three-Year TSR

Three-Year TSR shows the durability of post-fire recovery

Calloway's Nursery I nc. 69.2%S&P 500 I ndex 49.6%Russell 3000 I ndex 50.0%

52

One-Year TSR

One-Year TSR is good, though indices also surged early

Calloway's Nursery I nc. 18.8%S&P 500 I ndex 22.9%Russell 3000 I ndex 23.2%

53

Six-Month TSR

Six-Month TSR has sharply outperformed

Calloway's Nursery I nc. 23.9%S&P 500 I ndex 15.7%Russell 3000 I ndex 16.1%

54

Most Recent Results• Year to date results demonstrate

continued strong results from execution of our strategic plan–Net Income–Same-store Revenue–EBITDA

55

Net Income - Up

Net income rose 50% for the second quarter and 13% for the six-month period ended June 30, 2013

56

Same-Store Revenue - Up

Same-store revenue rose 15% for the second quarter, and 5% for the six-month period ended June 30, 2013

57

EBITDA Margin - Up

EBITDA Margin reached a new high for the most recent twelve-month period ended June 30, 2013

58

Board of Directors

59

Directors• Continued strong performance requires

leadership from experienced, highly-qualified directors

• Calloway’s is led by strong, experienced directors who are focused on serving all of Calloway’s shareholders

• Two of the directors are independent of management, and these two members constitute the Audit Committee and Compensation Committee

60

Board Composition• Calloway’s currently has a five-member

Board of Directors– One independent director retired in March 2011– A value-added replacement has not yet been

recruited• Two Committees composed solely of

independent directors– Audit Committee– Compensation Committee

61

Board Meetings and Compensation• Board meetings at least quarterly– Detailed financial review– Strategy and execution– Properties and corporate development– Capital resources and liquidity

• Independent director compensation– Quarterly retainer - $5,000– Meeting fees - $700– Last increased in 2007

62

Committees• Audit Committee– Meets four times each year– Executive sessions to review performance of

independent auditors and CFO– Approves all earnings releases

• Compensation Committee– Meets four times each year– Executive sessions to set compensation for all

executive officers– Establishes all incentive plans

63

Nominating and Governance• Intent to establish a Nominating and

Governance Committee led by independent directors

• Will be responsible for regularly evaluating the Board’s composition to ensure it has the right skillset for the company

• Identify and recruit new value-added directors

64

Director Nominees

65

Dr. Stanley Block

Financial Expert

66

Dr. Stanley Block• Chartered Financial Analyst• Emeritus Professor of Finance at Texas Christian

University– Served on the faculty for 45 years; served as

Chairman of the Finance Department for 10 years– Had an Endowed Chair in finance at Texas

Christian University named for him– Selected as co-winner of the award as

outstanding professor in the University

67

Dr. Stanley Block• Author of over 30 books– His text, Block, Hirt, and Danielsen, Foundations

of Financial Management, has been used by more than one million students

• BBA from the University of Texas at Austin, MBA from Cornell University, Doctorate from LSU

• Currently chairman of the Audit Committee and serves on the Compensation Committee

68

Daniel R. Feehan

Financial/Retail Expert

69

Daniel R. Feehan• President, chief executive officer and a member of

the board of directors of Cash America International, Inc. – Joined Cash America in June of 1988 as its executive vice president

of finance and administration– Then served as Cash America's president and chief operating officer

from January 1990 until February 2000• Also serves as non-executive chairman of the

board of directors for RadioShack Corporation• Serves on the boards for AZZ incorporated and

Williamson Dickie Mfg. Co.

70

Daniel R. Feehan• Previously served on the Board of Directors of Chase Bank

of Fort Worth• Active in his community serving on charitable boards and

has also led several fund raising efforts on behalf of– United Way– YMCA– Juvenile Diabetes Research Foundation– Susan G. Komen Breast Cancer Foundation

• BBA from Texas A&M University• Currently Chairman of the Compensation Committee and

serves on the Audit Committee

71

James C. Estill

Industry/Retail Expert

72

James C. Estill• Chairman of the Board, President and Chief Executive

Officer of the Company• Along with John Cosby and John Peters, co-founded the

Company in 1986• Before founding Calloway’s, served as President and Chief

Executive Officer of Sunbelt Nursery Group, Inc.• Prior to that, he served as Director of Real Estate for Pier 1

Imports, Inc., where he started his career in retail store management

73

James C. Estill• BBA in Management from Texas Christian

University, MBA in Finance from TCU• Texas Master Certified Nursery Professional• Past Chairman of the Certification Committee for

the Texas Nursery & Landscape Association (“TNLA”)

74

James C. Estill• In 2012, the TNLA bestowed on him the Arp

Award, which is the highest honor granted to an individual by the association

• This award signifies that, as a member, he has exemplified the TNLA’s ideal including innovation, service and highly ethical behavior in both his business and personal life

75

James C. Estill• Active in the community– Member of the International Board of Visitors of the

M.J. Neeley School of Business at Texas Christian University

– Member of the Board of Governors of the Fort Worth Club

– Member of the Board of Directors of the Lena Pope Home

– Elder at the University Christian Church

76

John T. Cosby

Industry/Retail Expert

77

John T. Cosby• Vice President and Secretary of the Company• Along with Jim Estill and John Peters, co-founded the

Company in 1986• Has developed all of the Calloway’s Nursery retail

locations, including site selection, site development and lease and acquisition negotiations

• Prior to 1986, served as vice president of corporate development at Sunbelt Nursery Group

• Responsible for real estate activities at Pearle Vision Center and Pier 1 Imports, Inc., where he started in retail store management

78

John T. Cosby

• Bachelor of Business Administration from Texas Wesleyan College

• Master of Business Administration from the University of Dallas

• Certified mediator• Serves on the Board of Directors of Dispute Resolution

Services of North Texas• Past Chairman of Optical Credit Union

79

John S. Peters

Industry/Retail Expert

80

John S. Peters• Vice President of Operations of the Company• Along with Jim Estill and John Cosby, co-founded the

Company in 1986• Developed the original staff into a team of industry

professionals• Has primary responsibility for distribution, human

resources and administration• Prior to 1986, served as Senior Vice President for Sunbelt

Nursery Group, where he was responsible for operation of all subsidiaries, including more than 100 stores in five states, and two growing operations

81

John S. Peters• Served as President of Wolfe Nursery, where he started his

career in retail store management• Attended both Tarrant County College and Texas Christian

University.• Active in the TNLA, where he has served as Past Chairman

and currently serves on its Education and Research Foundation

• Certified at the highest TNLA level – Texas Master Certified Nursery Professional (TMCNP)

82

Conclusion

83

ConclusionCalloway’s is a strong company, with• The right leaders, to continue• Taking the right actions, to• Position Calloway’s for continued success,

and• Drive shareholder value over the long-term