FY05 Proxy - Prefiling
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment
No. )
Filed
by
the Registrant [ X ]
Filed
by
a party other than the Registrant [ ]
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 Pursuant to Section 240.14a-12
Sonic
Corp.
(Name
of
Registrant as Specified In Its Charter)
_______________________________________________________
(Name
of
Person(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)(4) and 0-11
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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.:
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Party:
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Filed:
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
To
Be Held January 31, 2006
SONIC
CORP.
300
Johnny Bench Drive
Oklahoma
City, Oklahoma 73104
Dear
Stockholder:
It
is my
pleasure to invite you to the annual meeting of the stockholders of Sonic Corp.
(the “Company”). We will hold the meeting on Tuesday, January 31, 2006, at 1:30
p.m. on the Fourth Floor of the Sonic Headquarters Building, located at 300
Johnny Bench Drive, Oklahoma City, Oklahoma, for the following
purposes:
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1.
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To
elect three directors;
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2.
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To
approve an amendment to the Certificate of Incorporation to increase
the
number of authorized shares of common
stock;
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3.
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To
approve the Sonic Corp. 2006 Long-Term Incentive
Plan;
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4.
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To
ratify the selection of Ernst & Young LLP as our independent
registered public accounting firm;
and
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5.
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To
act upon any such other matters as may properly come
before the meeting or
any adjournments or postponements
thereof.
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The
foregoing items of business are more fully described in the Proxy Statement
accompanying this Notice. The Board of Directors has chosen the close of
business on November 30, 2005, as the date used to determine the stockholders
who will be able to attend and vote at the Annual Meeting. If you own stock
in
Sonic Corp. at the close of business on that date, you are cordially invited
to
attend the meeting.
Your
vote
is important. If you decide not to attend the annual meeting in person, you
may
vote on these proposals by proxy. To do so, please complete, date, sign, and
return the enclosed proxy card promptly. We have enclosed a postage-prepaid
envelope to expedite the return of your completed proxy card. If you have voted
by mail and later decide to attend the annual meeting, you may revoke your
proxy
by coming to the meeting and voting in person.
We
look
forward to seeing you at the meeting.
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By order of the Board of
Directors, |
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Ronald
L. Matlock, Secretary |
Oklahoma
City, Oklahoma
December
19, 2005
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TABLE
OF CONTENTS
SOLICITATION
OF PROXIES
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1
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Solicitation
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1
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Reimbursement
of Nominees
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1
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Revocation
of Proxy
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1
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Mailing
of Proxy Statement and Proxy Card
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1
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Stockholder
Proposals
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1
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VOTING
RIGHTS AND PROCEDURE
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1
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PROPOSAL
NO. 1 - ELECTION OF DIRECTORS
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2
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General
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2
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Nominees
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2
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Other
Directors
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3
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Directors
Emeritus
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4
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Committees,
Compensation, and Meetings
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4
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Corporate
Governance
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5
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Communications
with Directors
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6
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PROPOSAL
NO. 2 - APPROVAL OF AMENDMENT TO CERTIFICATE OF
INCORPORATION
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7
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General
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7
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Amendment
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7
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Vote
Required
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PROPOSAL
NO. 3 - APPROVAL OF THE 2006 SONIC CORP. LONG-TERM INCENTIVE
PLAN
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8
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General
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8
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Share
Limits
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8
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Administration
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9
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Types
of Awards
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9
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Performance
Goals
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10
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Limitation
on Transfer and Beneficiaries
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11
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Acceleration
upon Certain Events
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11
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Termination
and Amendment
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11
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Federal
Income Tax Information
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11
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New
Plan Benefits
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13
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PROPOSAL
NO. 4 - RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
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General
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Principal
Accountant Fees and Services
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13
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Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Registered Public Accounting Firm
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EXECUTIVE
COMPENSATION
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14
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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REPORT
OF COMPENSATION COMMITTEE
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Independent
Compensation Consultant Report
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Compensation
Policy and Overall Objectives
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Discussion
of Compensation Components
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Compensation
of Chief Executive Officer
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COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
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REPORT
OF AUDIT COMMITTEE
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STOCK
PERFORMANCE GRAPH
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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24
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OTHER
MATTERS
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2005
ANNUAL REPORT AND FORM 10-K
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EXHIBITS
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Exhibit
A - Audit Committee Charter
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A-1
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Exhibit
B - Sonic Corp. 2006 Long-Term Incentive Plan
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B-1
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PROXY
STATEMENT
FOR
THE ANNUAL MEETING OF STOCKHOLDERS OF
SONIC
CORP.
To
Be Held Tuesday, January 31, 2006
SOLICITATION
OF PROXIES
Solicitation
Sonic
Corp. (sometimes referred to herein as “Sonic,” “we,” “us,” “our,” or the
“Company”) is furnishing this proxy statement to the stockholders of the Company
to solicit their proxies for use at the annual meeting of stockholders to take
place on Tuesday, January 31, 2006, and at any adjournment of the meeting.
We
also may use the services of our directors, officers, and employees to solicit
proxies personally or by telephone. We regularly retain the services of
Corporate Communications, Inc., 523 Third Avenue South, Nashville, Tennessee,
to
assist with our investor relations and other stockholder communications issues.
Corporate Communications, Inc. may assist in the solicitation of the proxies
and
will not receive any additional compensation for those services. Sonic will
bear
all of the costs of preparing, printing, assembling, and mailing this proxy
statement and the proxy card and all of the costs of the solicitation of the
proxies.
Reimbursement
of Nominees
Sonic
will reimburse any bank, broker-dealer, or other custodian, nominee, or
fiduciary for its reasonable expenses incurred in completing the mailing of
proxy materials to the beneficial owners of Sonic’s voting common
stock.
Revocation
of Proxy
Any
proxy
given pursuant to this solicitation may be revoked by the stockholder at any
time prior to the voting of the proxy by giving written notice to Ronald L.
Matlock, Secretary of the Company. The persons named on the proxy card will
vote
the proxies at the annual meeting, if received in time and not
revoked.
Mailing
of Proxy Statement and Proxy Card
Sonic
has
had this proxy statement and the proxy card mailed to its stockholders on or
about December 19, 2005.
Stockholder
Proposals
In
order
for the Company to include a stockholder proposal in the proxy materials for
the
next annual meeting of stockholders, a stockholder must deliver the proposal
to
the Secretary of the Company no later than August 19, 2006.
VOTING
RIGHTS AND PROCEDURE
Only
the
record holders of shares of the voting common stock of the Company as of the
close of business on November 30, 2005, will have the right to vote at the
annual meeting. As of the close of business on that date, the Company had
57,774,832 shares of common stock issued and outstanding (excluding 18,117,172
shares of common stock held as treasury stock). Each stockholder of record
will
have one vote for each share of common stock of the Company that the stockholder
owned as of the record date. All shares of common stock may vote on all matters
coming before the annual meeting, and a majority of all of the outstanding
shares of common stock of the Company entitled to vote at the meeting,
represented in person or by proxy, will constitute a quorum for the meeting.
The
Company will treat all abstentions and nominee non-votes as present or
represented at the meeting for the purposes of determining whether a quorum
exists for the meeting.
With
respect to the election of directors, the three nominees receiving the greatest
number of votes will be elected. Abstentions and broker non-votes (discussed
below) will not affect the outcome of the election because only a plurality
of
the votes actually cast is needed to elect directors.
With
respect to the approval of the amendment to the certificate of incorporation,
the approval of the Sonic Corp. 2006 Long-Term Incentive Plan, the ratification
of the independent registered public accounting firm, and any other matter
properly brought before the meeting, a majority of the shares represented at
the
meeting and entitled to vote is required for approval. Therefore, abstentions
will have the effect of a vote against approval. Broker non-votes will not
affect the outcome of the vote.
Proxies
submitted by brokers that do not indicate a vote because they do not have
discretionary authority and have not received instructions as to how to vote
on
a proposal (so-called "broker non-votes") will be considered as present for
quorum purposes but not as shares counted for determining the outcome of the
vote.
PROPOSAL
NO. 1 - ELECTION OF DIRECTORS
General
Our
certificate of incorporation provides for a classified board of directors,
with
three classes of directors each nearly as equal in number as possible. Each
class serves for a three-year term and one class is elected each year. The
Board
of Directors is authorized by our bylaws to fix from time to time the number
of
directors that constitute the whole Board of Directors. The Board size has
been
set at nine members. The Nominating and Corporate Governance Committee has
recommended to the Board of Directors, and the Board of Directors has nominated
for election by the stockholders, the three individuals listed below. If
elected, each nominee will serve as a director for a three-year term expiring
at
the annual meeting to be held in 2009.
Michael
J. Maples was appointed to the Board of Directors in June 2005 upon the
recommendation of the Nominating and Corporate Governance Committee. Mr. Maples
was brought to the attention of the Nominating and Corporate Governance
Committee by one of Sonic’s independent directors. One
other
board position for a term expiring at the annual meeting to be held in January
2008 is vacant. The Board of Directors has initiated its search for a qualified
candidate to fill the vacant Board position.
All
nominees will hold office until the stockholders elect their qualified
successors. If any nominee becomes unable or unwilling to accept the election
or
to serve as a director (an event which the Board of Directors does not
anticipate), the person or persons named in the proxy will vote for the election
of the person or persons recommended by the Board of Directors.
Nominees
The
following table sets forth the name, principal occupation, age, year in which
the individual first became a director, and year in which the director’s term
will expire (if elected) for each nominee for election as a director at the
annual meeting of stockholders.
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Name
and
Principal
Occupation
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First
Became
a
Director
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Term
Expires
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Age
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Michael
J. Maples1
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June
2005
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2009
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63
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Frank
E. Richardson2 |
March
1991 |
2009 |
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Kathryn
L. Taylor3
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Nominee
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2009
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50
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____________________
1Mr.
Maples has
over
40 years of experience in the computer industry. He held various
management positions at Microsoft Corporation from 1988 to 1995, the most recent
of which was Executive Vice President of the Worldwide Products Group and a
member of the Office of the President. Before joining Microsoft, Mr.
Maples
worked
for IBM Corporation for over 23 years where he served as Director of Software
Strategy. After retiring from Microsoft in 1995, Mr. Maples has
primarily devoted his time to private investments and ranching. Mr. Maples
also serves as a director of Lexmark Corp., Motive, Inc., and Multimedia Games,
Inc.
2Mr.
Richardson has served as Chairman of F. E. Richardson & Co., Inc. of New
York City, a firm specializing in acquisitions of and investments in growth
companies, since June 1995. From 1986 to June 1995, Mr. Richardson served as
President of Wesray Capital Corporation, a firm which also specialized in
acquisitions of and investments in growth companies. Since 1997, he has served
as Chairman of Enterprise News Media, Inc., which owns newspapers in Brockton,
Quincy, Plymouth, and several other towns in Massachusetts.
3Ms.
Taylor has served as the Secretary of Commerce and Tourism and Executive
Director of the Department of Commerce of Oklahoma and the Small Business
Advocate to the Governor of Oklahoma since February 2003. From 1999 through
2002, she served as President of Lobeck-Taylor Foundation, a charitable
foundation established by Ms. Taylor and her husband to support education and
social issues. Ms. Taylor was a partner in the Oklahoma City law firm of Crowe
and Dunlevy, serving as the Chair of the Franchising and Distribution Section
from 1994 until 1998. She served as the Executive Vice President and General
Counsel of Dollar-Thrifty Car Rental from 1988 until 1994. Ms. Taylor also
serves as a director of Bank of Oklahoma.
Proxies
cannot be voted for more than three nominees.
The
Board of Directors recommends a vote “For” the election of each of the three
nominees as a director.
Other
Directors
The
following table sets forth the name, principal occupation, age, year in which
the individual first became a director, and year in which the director’s term
will expire for each director who will continue as a director after the annual
meeting of stockholders.
Name
and
Principal
Occupation
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First
Became
a
Director
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Term
Expires
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Age
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Leonard
Lieberman1
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December
1988
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2008
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76
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H.E.
“Gene” Rainbolt2
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January
1996
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2008
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76
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J.
Clifford Hudson3
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August
1993
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2007
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51
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Federico
F. Peña4
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January
2001
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2007
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58
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Robert
M. Rosenberg5
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April
1993
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2007
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67
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____________________
1Mr.
Lieberman served as the Chief Executive Officer and a Director of Supermarkets
General Corporation from 1983 to 1987. From 1987 to the present, Mr. Lieberman
has primarily devoted his time to private investments. From January through
April 1991, he served as Chairman, President and Chief Executive Officer of
Outlet Communications, Inc. Mr. Lieberman serves as a Director of Enterprise
News Media, Inc. and as a member of the Management Committee of Consolidated
Container Company, LLC.
2Mr.
Rainbolt has served as Chairman of the Board of BancFirst Corp. of Oklahoma
City, Oklahoma, since 1989. From 1985 to 1989, he served as Chairman of the
Board of Directors of United Community Corp., a bank holding company in Oklahoma
City, Oklahoma, and a predecessor of BancFirst Corp. From 1974 to 1985, Mr.
Rainbolt served as Chairman of the Board of Federal National Bank of Shawnee,
Oklahoma.
3Mr.
Hudson has served as the Company’s Chairman of the Board and Chief Executive
Officer since January 2000. Mr. Hudson served as Chief Executive Officer and
President of the Company from April 1995 to January 2000, and reassumed the
position of President in November 2004. He has served in various other offices
with the Company since 1984. He served as Chairman of the Board of the
Securities Investor Protection Corporation, the federally-chartered organization
which serves as the insurer of customer accounts with brokerage firms, from
1994
to 2001.
4Mr.
Peña
has served as a Managing Director of Vestar Capital Partners since January
1999.
He served as a Senior Advisor of Vestar Capital Partners from August 1998 until
January 1999. Mr. Peña served as the U.S. Secretary of Energy from April 1997
through July 1998 and as the U.S. Secretary of Transportation from January
1993
through January 1997. He served as the Mayor of the city and county of Denver,
Colorado from 1983 through 1991 and in the Colorado House of Representatives
from 1979 until 1982. Mr.
Peña
currently serves as a Director of Principal Financial Group and Valor
Communications Group, Inc. He has been a member of Toyota’s North American
Diversity Advisory Board since January 2002.
5Mr.
Rosenberg served as President and Chief Executive Officer of Allied Domecq
Retailing USA (“Allied”) from May 1993 until his retirement in August 1998.
Allied is the parent company of Dunkin’ Donuts, Inc. and Baskin-Robbins, Inc.
Mr. Rosenberg served as President and Chief Executive Officer of Dunkin’ Donuts,
Inc. from 1963 until May 1993, and he served as President and Chief Executive
Officer of Baskin-Robbins, Inc. from December 1992 until May 1993. Mr. Rosenberg
currently serves as an honorary Director of the National Restaurant Association,
as well as a trustee of the educational foundation of the International
Franchise Association ("IFA"). He is a past president of the IFA. Mr. Rosenberg
also serves as a Director of Dominos, Inc. and Buffets, Inc.
Directors
Emeritus
Troy
N.
Smith, Sr., founder of the Company, has served as Chairman Emeritus of the
Board
of Directors since May 1991. As Chairman Emeritus, Mr. Smith has the right
to
attend and participate on a non-voting basis at all meetings of the Board of
Directors and receives the same director fees as the other independent
directors. E. Dean Werries, who served as a director from 1991 until 2005 (and
Chairman of the Board from 1995 until 2000), was named Director Emeritus in
January 2005. Mr. Werries has the right to attend and participate on a
non-voting basis at all meetings of the Board of Directors.
Committees,
Compensation, and Meetings
The
Board
of Directors has three standing committees: the Nominating and Corporate
Governance Committee, the Audit Committee, and the Compensation Committee.
The
charters for each of these committees are available at no charge in the
Corporate Governance section of the Company’s website at www.sonicdrivein.com.
The
Board has affirmatively determined that each director who serves on the
committees is independent as that term is defined by applicable rules of the
Securities and Exchange Commission (“SEC”) and NASDAQ listing standards.
The
independent directors of the Company meet without the management directors
at
executive sessions in conjunction with each quarterly board meeting and at
other
appropriate times. The independent directors have designated Frank E. Richardson
as the lead director to preside at all meetings of the independent
directors.
Nominating
and Corporate Governance Committee.
In
accordance with its written charter adopted by the Board of Directors, the
Nominating and Corporate Governance Committee identifies individuals qualified
to become Board members, recommends to the Board director nominees, and monitors
significant developments in the law and practice of corporate governance. On
November 10, 2005, the Nominating and Corporate Governance Committee nominated
the three individuals named above for election as directors at the annual
meeting of stockholders. The members of the Nominating and Corporate Governance
Committee consist of all of the independent directors of the Company. Frank
E.
Richardson is the Chair of the Nominating and Corporate Governance Committee.
The Nominating and Corporate Governance Committee held four meetings during
the
Company’s last fiscal year. The Nominating and Corporate Governance Committee
will consider nominees recommended by the Company’s stockholders. In order to
recommend a nominee for the next annual meeting, stockholders must deliver
the
recommendation in writing to the Company on or before August 19, 2006, addressed
to the attention of Ronald L. Matlock, Secretary of the Company, and must
provide the full name, address, and business history of the recommended
nominee.
Audit
Committee.
In
accordance with its written charter adopted by the Board of Directors, the
Audit
Committee provides assistance to the Board in fulfilling its oversight
responsibility relating to the Company’s financial statements and the financial
reporting process, the systems of internal accounting and financial controls,
the internal audit function, the annual independent audit of the Company’s
financial statements, and compliance by the Company with certain legal and
regulatory requirements. The committee encourages free and open communication
among the committee members, Ernst & Young LLP, the Company’s independent
registered public accounting firm,
and
management of the Company. In accordance with its charter, the Audit Committee
pre-approves all audit and permissable non-audit services. Throughout the
year, the committee periodically meets with representatives of Ernst & Young
LLP and also meets with representatives of the internal audit function, without
management present. The members of the Audit Committee are H. E. Rainbolt
(Chair), Margaret M. Blair, Frank E. Richardson, and Robert M. Rosenberg. Each
of the members of the Audit Committee is "independent," as defined by the rules
of the SEC and the NASDAQ stock market listing standards. The Board of
Directors has determined that Mr. Rainbolt is an “audit committee financial
expert” as defined in Item 401(h) of Regulation S-K. In fiscal 2005, the Audit
Committee met nine times, including meetings to review the quarterly financial
statements prior to the releases of earnings to the public. A copy of the
written charter for the Audit Committee is attached to this proxy statement
as
Exhibit A and is also posted in the Corporate Governance section of the
Company’s website at www.sonicdrivein.com.
Compensation
Committee.
In
accordance with its written charter adopted by the Board of Directors, the
Compensation Committee’s functions include reviewing and approving the base
salary, annual incentive bonus awards, and other compensation awards to the
executive officers of the Company, as well as overseeing, reviewing, and
administering the Company’s various equity benefit plans. The members of the
Compensation Committee are Leonard Lieberman (Chair), Michael J. Maples, and
Federico F. Peña. The Compensation Committee held five meetings during the
Company’s last fiscal year.
Compensation
of Directors.
During
the last fiscal year, the Company compensated the independent directors for
their services in the amount of $20,000 per year, plus $2,500 for every meeting
of the Board of Directors attended and an additional $1,000 for any special
telephonic meetings. Audit Committee members received an additional $1,000
per
quarter for regularly scheduled earnings release telephonic meetings and the
Chair of the Audit Committee received additional annual compensation of $7,000.
The
Chair
of each of the Nominating and Corporate Governance and the Compensation
Committees received additional annual compensation of $2,500. Other
than the compensation described above, the Company did not pay any additional
fees to directors for serving on its standing committees. The Company does
not
compensate directors who also serve as an officer or employee of the Company
or
its subsidiaries for their services as a director. The 2001 Sonic Corp.
Directors’ Stock Option Plan, as adopted in January 2001, provides
for the grant of 10-year, non-qualified stock options to purchase 50,625 shares
of common stock of the Company to each independent director of the Company
upon
the individual’s initial election as a director, and
provides for the annual grant of 10-year, non-qualified stock options to
purchase 6,750
shares
of common stock of the Company to each independent director of the Company
beginning with the first year of the director’s second three-year term and
continuing annually for so long as the individual serves on the Board.
The
exercise price of the stock options equals the market value of the common stock
at the date of the grant, and the stock options become exercisable with regard
to one-third of the shares of common stock underlying the option on each of
the
first three anniversary dates of the grant of the stock option. In January
2005,
the
Company granted options to purchase 6,750 shares of common stock of the Company
at $31.71 per share to Dr. Blair and Messrs. Lieberman, Peña, Rainbolt,
Richardson, and Rosenberg. The Company granted options to purchase 50,625 shares
of common stock of the Company at $31.04 per share to Mr. Maples upon his
appointment to the Board in June 2005.
Meetings
of the Board of Directors.
The
Board of Directors of the Company held six meetings during the Company’s last
fiscal year. The independent directors met in executive session at each
quarterly meeting. With the exception of Pattye L. Moore who attended 60% of
the
aggregate total meetings of the Board of Directors and Board committees on
which
she served, each director attended at least 75% of the meetings of the Board
and
the Board committees on which he or she served. The
Company encourages its Board members to attend the Annual Meeting of
Stockholders and schedules Board and committee meetings to coincide with the
stockholder meeting to facilitate the directors’ attendance at the Annual
Meeting of Stockholders. All of the directors attended the Annual Meeting of
Stockholders held in January 2005.
Corporate
Governance
Sonic’s
policies and practices reflect corporate governance initiatives that are
compliant with the listing standards of NASDAQ and the corporate governance
regulations of the Sarbanes-Oxley Act of 2002. The Board of Directors has
documented its corporate governance practices and adopted Corporate Governance
Guidelines, which are designed to formalize these practices and enhance
governance efficiency and effectiveness. The Corporate Governance Guidelines
may
be found in the corporate governance section of Sonic’s website, www.sonicdrivein.com.
Among
other things, these guidelines address the following:
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The
Nominating and Corporate Governance Committee is required to review
with
the Board annually the composition of the Board as a whole, including
the
directors’ independence, skills, experience, age, diversity, and
availability of service to the
Company.
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· |
The
Board is required to conduct periodic self-evaluation through the
Nominating and Corporate Governance
Committee.
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· |
The
Nominating and Corporate Governance Committee is required to review
and
report to the Board at least annually on succession planning for
the Chief
Executive Officer and the Chief Executive Officer is required at
all times
to make available to the Board his or her recommendations of potential
successors.
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· |
The
independent directors are required to meet in conjunction with each
regularly scheduled quarterly board meeting and at other appropriate
times.
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· |
The
Board and all committees are authorized to hire their own
advisors.
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· |
Directors
who change job responsibilities are required to notify the Board
and give
the Board the opportunity to review whether they should continue
to serve
as Board members.
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Annually,
the Nominating and Corporate Governance Committee follows a process designed
to
consider the re-election of existing directors and seek individuals qualified
to
become new Board members for recommendation to the Board for any vacancies.
With
respect to nominating existing directors, the Nominating and Corporate
Governance Committee reviews relevant information available to it, including
an
assessment of the directors’ continued ability and willingness to serve as
directors. The Nominating and Corporate Governance Committee also assesses
each
person’s contribution in light of the mix of skills and experience the
Nominating and Corporate Governance Committee has deemed appropriate for the
Board.
With
respect to considering nominations of new directors when the opportunity arises,
the Nominating and Corporate Governance Committee conducts a thorough search
to
identify candidates based upon criteria the Nominating and Corporate Governance
Committee deems appropriate and considering the mix of skills and experience
necessary to complement existing Board members. The Nominating and Corporate
Governance Committee then reviews selected candidates and makes a recommendation
to the Board. The Nominating and Corporate Governance Committee may seek input
from other Board members or senior management in identifying candidates.
Each
candidate for director must possess at least the following specific minimum
qualifications:
· |
Each
candidate shall be an individual who has demonstrated integrity and
ethics
in his or her professional life and has established a record of
professional accomplishment in his or her chosen
field.
|
· |
No
candidate shall have any material personal, financial, or professional
interest in any present or potential competitor of the
Company.
|
· |
Each
candidate shall be prepared to participate fully in activities of
the
Board of Directors, including active membership in at least one committee
of the Board of Directors and attendance at, and active participation
in,
meetings of the Board of Directors and the committee(s) of the Board
of
which he or she is a member.
|
The
Nominating and Corporate Governance Committee will consider nominations for
the
Board by stockholders the same way it evaluates other individuals for nomination
as a new director. Such nominations must be made in accordance with the
Company’s bylaws.
Communications
with Directors
Stockholders
may communicate with the non-employee members of the Board of Directors by
writing to the Board, c/o Ronald L. Matlock, Secretary of the Company. All
written submissions that appear to be good faith efforts to communicate with
Board members about matters involving the interests of the Company and its
stockholders are collected and forwarded on a periodic basis to the Board.
Any
concerns relating to accounting, internal accounting controls, or auditing
matters will be brought immediately to the attention of the Company’s internal
auditor and handled in accordance with the procedures established by the Audit
Committee with respect to such communications.
PROPOSAL
NO. 2 - APPROVAL OF AMENDMENT TO CERTIFICATE OF
INCORPORATION
General
The
Board
of Directors recommends that the stockholders approve an amendment to the
Company’s Certificate of Incorporation to increase the number of authorized
shares of common stock from 100 million shares to 245 million
shares.
Of
the
100 million shares currently authorized, as of November 30, 2005, the Company
had 57,774,832 shares issued and outstanding (excluding 18,117,172 shares of
common stock held as treasury stock). In addition, the Company has reserved
a
total of 6,008,979 shares of common stock for issuance pursuant to the Company’s
employee stock option and directors’ stock option plans. The Company, therefore,
has approximately 81% of its authorized shares of common stock issued or
reserved for issuance. (Of the 6,008,979 shares reserved for issuance, 5,130,513
shares are reserved for outstanding options. The remaining 924,113 shares
available for future options grants will not be awarded if Proposal No. 3 -
Approval of the Sonic Corp. 2006 Long-Term Incentive Plan is approved by the
stockholders.)
In
2002,
the Company increased its authorized common stock from 40 million shares to
100
million shares and since that time has utilized that increase in authorized
shares primarily to effect two three-for-two stock splits, one each in 2002
and
in 2004. The number of authorized shares currently available for issuance would
not be sufficient to implement another three-for-two stock split. The purpose
of
the proposed increase in authorized shares is to ensure that an adequate supply
of authorized unissued shares of common stock is available for general corporate
needs, such as future stock splits or stock dividends, raising additional
capital, financing acquisitions, or the issuance of stock options and other
stock-based incentives under the Company’s employee benefit plans.
The
proposed amendment, if adopted, would make an additional 145 million shares
of
common stock available from time to time without further stockholder approval,
unless otherwise required by law, rule, or regulation. The Company has no
present plans, agreements, commitments, or understandings with regard to the
issuance of the proposed additional shares of common stock. Stockholders of
the
Company do not have and will not have any preemptive rights to purchase any
of
the additional shares of common stock.
Amendment
If
approved, the amendment would change the initial portion of Article Fourth
of
the Company’s Certificate of Incorporation as follows:
|
From:
|
“FOURTH:
The total number of shares which the Corporation shall have the authority
to issue shall be one hundred one million (101,000,000) shares, of
which
one hundred million (100,000,000) shall be shares of common stock,
par
value $.01 per share, and one million (1,000,000) shall be shares
of
preferred stock, par value $.01 per
share…”
|
|
To:
|
“FOURTH:
The total number of shares which the Corporation shall have the authority
to issue shall be two hundred forty-six million (246,000,000) shares,
of
which two hundred forty-five million (245,000,000) shall be shares
of
common stock, par value $.01 per share, and one million (1,000,000)
shall
be shares of preferred stock, par value $.01 per share. .
.”
|
Vote
Required
The
amendment of the Certificate of Incorporation requires approval by the
affirmative vote of the holders of a majority of the shares represented at
the
meeting and entitled to vote. If the stockholders do not vote a sufficient
number of shares of common stock in favor of the amendment, the amendment will
not take effect. The Board of Directors has not decided what action, if any,
it
may take if that happens.
The
Board of Directors recommends a vote “For” the amendment of the Company’s
Certificate of Incorporation.
PROPOSAL
NO. 3 - APPROVAL OF THE SONIC CORP. 2006 LONG-TERM INCENTIVE
PLAN
The
Board
of Directors has approved and is submitting for stockholder approval the
Sonic Corp. 2006 Long-Term Incentive Plan (the “2006 Incentive Plan”). The
text of the 2006 Incentive Plan appears at the end of this proxy statement
as Exhibit B. The following description of the Plan should be read in
conjunction with, and is qualified in its entirety by reference to, the full
text of the Plan.
General
The
purpose of the 2006 Incentive Plan is to promote our success by linking the
personal interests of our employees, officers, and directors to those of our
stockholders, and to provide participants with an incentive for outstanding
performance. The 2006 Incentive Plan authorizes the grant of awards in any
of
the following forms:
· |
options
to purchase shares of our common stock, which may be incentive stock
options or non-qualified stock
options;
|
· |
stock
appreciation rights;
|
· |
performance
share units;
|
· |
restricted
stock units;
|
· |
other
stock-based awards;
|
· |
any
other right or interest relating to our common
stock; or
|
The
2006
Incentive Plan provides that awards may be granted to any employee, officer,
or
director of the Company or any of its affiliates. If approved by the
stockholders, the 2006 Incentive Plan will replace the 2001 Sonic Corp. Stock
Option Plan and the 2001 Sonic Corp. Directors’ Stock Option Plan. As of October
31, 2005, options covering 5,130,513 shares of common stock were outstanding
under the Company’s equity compensation plans, the weighted-average exercise
price of those options was $14.97, and the weighted-average term to the
expiration of the outstanding options was 5.62 years. As of October 31, 2005,
924,113 shares remained available for future option grants under the 2001 Sonic
Corp. Stock Option Plan and the 2001 Sonic Corp. Directors’ Stock Option Plan,
but no further awards will be granted under such plans if the 2006 Incentive
Plan is approved by the stockholders.
Share
Limits
The
number of shares of our common stock that is proposed to be available for
issuance under the 2006 Incentive Plan is 4,500,000. The maximum aggregate
number of shares that may be issued in conjunction with stock appreciation
rights, performance shares, performance share units, restricted stock,
restricted stock units, dividend equivalents, other stock-based awards, and
any
other right or interest relating to our common stock is 1,000,000. If an award
granted under the 2006 Incentive Plan is canceled or terminates for any reason
without having been exercised or settled, any shares of our common stock subject
to the award will be added back into the overall share limit of the Plan and
will again be available for the grant of awards under the Plan. In addition,
shares of our common stock subject to stock appreciation rights or other awards
settled in cash will be added back into the overall share limit of the 2006
Incentive Plan and will again be available for the grant of awards under the
Plan.
The
maximum number of shares of our common stock with respect to awards that may
be
granted during any one calendar year under the 2006 Incentive Plan to any one
person is 150,000. The maximum amount of one or more awards denominated in
cash
that may be received by any one participant during any calendar year is
$1,000,000. The 2006 Incentive Plan prohibits repricing of options.
Administration
The
2006
Incentive Plan will be administered by a committee of two or more independent
directors appointed by the Board of Directors (the “Plan Committee”). The Plan
Committee has broad authority to administer the Plan, including the authority
to:
· |
designate
participants;
|
· |
determine
the type or types of awards to be granted to each participant and
the
number, terms, and conditions of
awards;
|
· |
accelerate
the vesting or lapse of restrictions of any outstanding
award;
|
· |
determine
whether an award may be settled in, or the exercise price of an award
may
be paid in, cash, common stock, other awards or other
property;
|
· |
establish,
adopt, or revise any rules and regulations as it may deem advisable
to
administer the 2006 Incentive
Plan; and
|
· |
make
all other decisions and determinations that may be required under
the 2006
Incentive Plan.
|
Subject
to certain limitations, the Plan Committee is permitted to delegate to a
subcommittee thereof or to one or more directors or executive officers its
authority under the 2006 Incentive Plan. If approved by the stockholders,
the
Board of Directors has designated the Compensation Committee to serve as
the
Plan Committee.
Furthermore, the Board directed that the Compensation Committee Charter be
amended to reflect such appointment and to provide that in the event the
Compensation Committee proposes to grant awards under the terms of the 2006
Incentive Plan, other than incentive stock options or non-qualified stock
options, the Compensation Committee must obtain the Board’s prior
approval.
Types
of Awards
The
Plan
Committee is authorized under the 2006 Incentive Plan to grant the following
types of awards.
Stock
Options. The
Plan
Committee is authorized under the 2006 Incentive Plan to grant stock options,
which may be incentive stock options or non-qualified stock options. All options
will be evidenced by a written award agreement between the Company and the
participant, which will include any provisions specified by the Plan Committee.
The exercise price of an option may not be less than the fair market value
of
our common stock on the date of grant. In no event may any stock option be
exercisable for more than ten years from the date of grant. The terms of an
incentive stock option must meet the requirements of Section 422 of the
Internal Revenue Code.
Stock
Appreciation Rights.
The Plan
Committee may also grant stock appreciation rights. Upon the exercise of a
stock
appreciation right, the holder will have the right to receive the excess, if
any, of the fair market value of one share of our common stock on the date
of
exercise, over the grant price of the stock appreciation right as determined
by
the Plan Committee, which will not be less than the fair market value of one
share of our common stock on the date of grant. All awards of stock appreciation
rights will be evidenced by an award agreement reflecting the terms, methods
of
exercise, methods of settlement, form of consideration payable in settlement,
and any other terms and conditions of the stock appreciation right, as
determined by the Plan Committee at the time of grant.
Performance
Share Awards. The
Plan
Committee may grant performance share awards to participants on terms and
conditions as may be selected by the Plan Committee. The Plan Committee will
have the discretion to determine the target number of shares of our common
stock
subject to each performance share award and to set performance targets and
other
terms or conditions to payment of the performance share awards in its discretion
which,
depending on the extent to which they are met, will determine the number and
value of performance share awards that will be paid to the participant. All
performance share awards will be evidenced by an award agreement.
Performance
Share Unit Awards.
The
Plan Committee may grant performance share unit awards to participants on terms
and conditions as may be selected by the Plan Committee. The Plan Committee
will
have the discretion to determine the target number of shares of our common
stock
subject to each performance share unit award and to set performance targets
and
other terms or conditions to payment of the performance share awards in its
discretion which, depending on the extent to which they are met, will determine
the number and value of performance share unit awards that will be paid to
the
participant. All performance share unit awards will be evidenced by an award
agreement. Performance share unit awards may be payable in cash, shares of
our
common stock or other property, as determined by the Plan Committee and
reflected in the award agreement.
Restricted
Stock Awards. The
Plan
Committee may grant restricted stock awards to participants, which will be
subject to restrictions on transferability and other restrictions as the Plan
Committee may impose, including, without limitation, restrictions on the right
to vote restricted stock or the right to receive dividends, if any, on the
restricted stock. Restricted stock awards may be subject to forfeiture upon
termination of employment or upon a failure to satisfy performance goals during
the applicable restriction period. All restricted stock awards will be evidenced
by an award agreement.
Restricted
Stock Unit Awards. The
Plan
Committee may grant restricted stock unit awards to participants, which will
be
subject to restrictions on transferability, vesting requirements, and other
restrictions as the Plan Committee may impose. Restricted stock unit awards
may
be subject to forfeiture upon termination of employment or upon a failure to
satisfy performance goals during the applicable restriction period. All
restricted stock awards will be evidenced by an award agreement. Restricted
stock unit awards may be payable in cash, shares of our common stock, or other
property, as determined by the Plan Committee and reflected in the award
agreement.
Dividend
Equivalent. The
Plan
Committee is authorized to grant dividend equivalents to participants subject
to
terms and conditions as may be selected by the Plan Committee. Dividend
equivalents will entitle the participant to receive payments equal to dividends
(in cash, shares of our common stock, or other property) with respect to all
or
a portion of the number of shares of our common stock subject to an award.
Other
Stock-Based Awards. The
Plan
Committee may, subject to limitations under applicable law, grant other awards
that are payable in, or valued relative to, shares of our common stock as will
be deemed by the Plan Committee to be consistent with the purposes of the 2006
Incentive Plan, including without limitation shares of common stock awarded
purely as a bonus and not subject to any restrictions or conditions. The Plan
Committee will determine the terms and conditions of any other stock-based
awards.
Performance
Goals
In
order
to preserve full deductibility under Section 162(m) of the Internal Revenue
Code, the Plan Committee may determine that any award will be determined solely
on the basis of:
· |
the
achievement by the Company or one of our subsidiaries of a specified
target return, or target growth in return, on equity or
assets;
|
· |
total
stockholder return, described as our stock price appreciation plus
reinvested dividends, relative to a defined comparison group or target
over a specific performance period;
|
· |
the
achievement by the Company or a business unit, or one of our subsidiaries,
of a specified target, or target growth in, revenues, net income,
earnings
per share, EBIT or EBITDA; or
|
· |
any
combination of the above.
|
If
an
award is made on this basis, the Plan Committee must establish goals prior
to
the beginning of the period for which the performance goal relates, or by a
later date as may be permitted under applicable tax regulations, and
the
Plan Committee may for any reason reduce, but not increase, any award,
notwithstanding the achievement of a specified goal.
Any
payment of an award granted with performance goals will be conditioned on the
written certification of the Plan Committee in each case that the performance
goals and any other material conditions were satisfied.
Limitation
on Transfer and Beneficiaries
No
award
under the 2006 Incentive Plan will be assignable or transferable other than
by
will or the laws of descent and distribution or, except in the case of an
incentive stock option, pursuant to a qualified domestic relations order.
However, the Plan Committee may permit other transfers if it deems appropriate,
provided such other transfers are not made in exchange for any consideration.
Acceleration
upon Certain Events
Unless
otherwise set forth in the applicable award agreement, upon the participant’s
death or termination of employment as a result of disability, all outstanding
options, stock appreciation rights, and other awards in the nature of rights
that may be exercised will become fully exercisable and all restrictions on
outstanding awards will lapse. Any options or stock appreciation rights will
thereafter continue or lapse in accordance with the other provisions of the
2006
Incentive Plan and the award agreement. In addition, the Plan Committee may
at
any time in its discretion declare any or all awards to be fully or partially
vested and exercisable, provided that the Plan Committee will not have the
authority to accelerate or postpone the timing of payment or settlement with
respect to awards subject to Section 409A of the Internal Revenue Code in a
manner that would cause the awards to be subject to certain related interest
and
penalty provisions. The Plan Committee may discriminate among participants
or
among awards in exercising such discretion.
Termination
and Amendment
The
Plan
Committee has the right at any time to amend or terminate the 2006 Incentive
Plan, but it may condition any amendment on the approval of our stockholders
if
such approval will be necessary or advisable under tax, securities, stock
exchange, or other applicable laws, policies, or regulations. The Plan Committee
has the right to amend or terminate any outstanding award without approval
of
the participant, but an amendment or termination may not, without the
participant’s consent, reduce or diminish the value of the award determined as
if it had been exercised, vested, cashed in, or otherwise settled on the date
of
the amendment or termination, and the original term of any option may not be
extended. The Plan Committee has broad authority to amend the 2006 Incentive
Plan or any outstanding award without the approval of the participants to the
extent necessary to comply with applicable tax laws, securities laws, accounting
rules, or other applicable laws, or to ensure that an award is not subject
to
interest and penalties under Section 409A of the Internal Revenue Code. If
any provision of the 2006 Incentive Plan or any award agreement contravenes
any
regulation or U.S. Department of Treasury guidance promulgated under
Section 409A of the Internal Revenue Code that could cause an award to be
subject to interest and penalties, such provision will be modified to maintain
the original intent of the provision without violating Section 409A.
Furthermore, any discretionary authority that the Plan Committee may have
pursuant to the 2006 Incentive Plan will not be applicable to an award that
is
subject to Section 409A to the extent such discretionary authority will
contravene Section 409A.
Federal
Income Tax Information
The
following discussion is a summary of the federal income tax consequences
relating to the grant and exercise of awards under the 2006 Incentive Plan
and
the subsequent sale of common stock that will be acquired under this Plan.
The
tax effect of exercising awards may vary depending upon the particular
circumstances, and the income tax laws and regulations change frequently.
Nonqualified
Stock Options.
There
will be no federal income tax consequences to a participant or to the Company
upon the grant of a nonqualified stock option. When the participant exercises
a
nonqualified option, however, he will realize ordinary income in an amount
equal
to the excess of the fair market value of the option shares that he receives
upon exercise of the option at the time of exercise over the exercise price,
and
we will be allowed a corresponding deduction, subject to any applicable
limitations under Section 162(m) of the Internal Revenue Code. Any gain
that a participant realizes when the participant later sells or disposes of
the
option shares will be short-term or long-term capital gain, depending on how
long the participant held the shares.
Incentive
Stock Options.
There
typically will be no federal income tax consequences to a participant or to
the
Company upon the grant or exercise of an incentive stock option. If the
participant holds the option shares for the required holding period of at least
two years after the date the option was granted or one year after exercise
of
the option, the difference between the exercise price and the amount realized
upon sale or disposition of the option shares will be long-term capital gain
or
loss, and we will not be entitled to a federal income tax deduction. If the
participant disposes of the option shares in a sale, exchange, or other
disqualifying disposition before the required holding period ends, he will
realize taxable ordinary income in an amount equal to the excess of the fair
market value of the option shares at the time of exercise over the exercise
price, and we will be allowed a federal income tax deduction equal to such
amount, subject to any applicable limitations under Section 162(m) of the
Internal Revenue Code. While the exercise of an incentive stock option does
not
result in current taxable income, the excess of the fair market value of the
option shares at the time of exercise over the exercise price will be an item
of
adjustment for purposes of determining the participant’s alternative minimum
tax.
Stock
Appreciation Rights.
The
participant will not recognize income, and we will not be allowed a tax
deduction, at the time a stock appreciation right is granted. When the
participant exercises the stock appreciation right, the fair market value of
any
shares of common stock received will be taxable as ordinary income, and we
will
be allowed a federal income tax deduction equal to such amount, subject to
any
applicable limitations under Section 162(m) of the Internal Revenue Code.
Restricted
Stock Awards.
Unless a
participant makes an election to accelerate recognition of income to the date
of
grant as described below, the participant will not recognize income, and we
will
not be allowed a tax deduction, at the time a restricted stock award is granted.
When the restrictions lapse, the participant will recognize ordinary income
equal to the fair market value of the common stock as of that date, less any
amount he paid for the stock, and we will be allowed a corresponding tax
deduction at that time, subject to any applicable limitations under
Section 162(m) of the Internal Revenue Code. If the participant files an
election under Section 83(b) of the Internal Revenue Code within
30 days after the date of grant, he will recognize ordinary income as of
the date of grant equal to the fair market value of the stock as of that date,
less any amount he paid for the stock, and we will be allowed a corresponding
tax deduction at that time, subject to any applicable limitations under
Section 162(m) of the Internal Revenue Code. Any future appreciation in the
stock will be taxable to the participant at capital gains rates. However, if
the
stock is later forfeited, such participant will not be able to recover the
tax
previously paid pursuant to his Section 83(b) election.
Restricted
Stock Unit Awards, Performance Share Awards, and Performance Share Unit
Awards.
A
participant will not recognize income, and we will not be allowed a tax
deduction, at the time restricted stock unit awards, performance share awards,
or performance share unit awards are granted. When the participant receives
payment under the restricted stock unit awards, performance share awards, or
performance share unit awards, the amount of cash received and the fair market
value of any shares of stock received will be ordinary income to the
participant, and we will be allowed a corresponding tax deduction at that time,
subject to any applicable limitations under Section 162(m) of the Internal
Revenue Code.
Impact
of Recent Tax Law Changes.
Recently
adopted, Section 409A of the Internal Revenue Code has implications that
affect traditional deferred compensation plans, as well as certain equity-based
awards, such as certain stock options, restricted stock units, and stock
appreciation rights. Section 409A requires compliance with specific rules
regarding the timing of exercise or settlement of equity-based awards and,
unless explicitly set forth in a plan document or award agreement, no
acceleration of payment is permitted. The U.S. Department of Treasury has
provided preliminary guidance with respect to Section 409A and more
definitive guidance is anticipated in the near future. Individuals who hold
equity awards are subject to the following penalties if the terms of such awards
do not comply with the requirements of Section 409A: (i) appreciation
is includible in the participant’s gross income for tax purposes once the awards
are no longer subject to a “substantial risk of forfeiture” (e.g., upon
vesting), (ii) the participant is required to pay interest at the tax
underpayment rate plus one percentage point commencing on the date these awards
are no longer subject to a substantial risk of forfeiture, and (iii) the
participant incurs a 20% penalty tax on the amount required to be included
in
income. As set forth above, the 2006 Incentive Plan and the awards granted
thereunder are intended to conform with the requirements of Section 409A.
New
Plan Benefits
All
awards under the 2006 Incentive Plan are approved by the Plan Committee, in
its
sole discretion. For this reason, it is not possible at this time to determine
the awards that will be made to any particular employees, officers, or directors
under the 2006 Incentive Plan in the future. As of the date of this proxy
statement, no awards have been granted under the 2006 Incentive
Plan.
The
Board of Directors recommends a vote “FOR” the approval of the Sonic Corp. 2006
Long-Term Incentive Plan.
PROPOSAL
NO. 4 - RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
General
Sonic
is
asking the stockholders to ratify the Audit Committee’s appointment of Ernst
& Young LLP as Sonic’s independent registered public accounting firm for the
fiscal year ending August 31, 2006. Ernst & Young LLP has audited Sonic’s
consolidated financial statements annually since Sonic’s 1984 fiscal
year.
Representatives
of Ernst & Young LLP will be present at the annual meeting and will have an
opportunity to make a statement if they desire to so do. They will also be
available to respond to appropriate questions presented at the annual
meeting.
In
the
event the appointment of Ernst & Young LLP is not ratified by the
affirmative vote of a majority of the shares of common stock represented at
the
annual meeting, the Audit Committee will reconsider this
appointment.
The
Board of Directors recommends a vote “For” the ratification of the appointment
of Ernst & Young LLP.
Principal
Accountant Fees and Services
The
following table sets forth the aggregate fees billed to the Company by Ernst
& Young LLP for professional services rendered for the fiscal years ended
August 31, 2005 and 2004:
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Audit
Fees1
|
|
$
|
574,565
|
|
$
|
300,844
|
|
Audit-Related
Fees2
|
|
|
21,750
|
|
|
42,500
|
|
Tax
Fees3
|
|
|
31,750
|
|
|
47,000
|
|
Total
|
|
$
|
628,065
|
|
$
|
390,344
|
|
____________________
1Audit
fees relate to professional services rendered for the annual audit of the
consolidated financial statements of the Company (including internal control
reporting under Section 404 of the Sarbanes-Oxley Act of 2002) and the quarterly
reviews relating to Securities and Exchange Commission filings of the Company’s
financial statements. Audit fees also include professional services rendered
for
separate audits of selected subsidiaries of the Company. For 2005, the audit
fee
amount includes estimated billings for the completion of the 2005 audits, which
were completed after year-end. The significant increase in audit fees in 2005
resulted from additional fees related to the Section 404 internal control
reporting.
2Audit-related
fees relate to professional services rendered for the annual audit of the
Company’s benefit plan and consultations relating to Sarbanes-Oxley
legislation.
3Tax
fees
include fees for tax planning and consultations and reviews of tax
returns.
Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
of
Independent Registered Public Accounting Firm
The
Audit
Committee’s policy is to pre-approve all audit and permissible non-audit
services to be provided by the independent registered public accounting firm.
These services may include audit services, audit-related services, tax services,
and other services. The Audit Committee also reviews whether any of the senior
audit team members receive any discretionary compensation from the audit firm
with respect to non-audit services performed by the independent registered
public accounting firm.
The
Audit
Committee has considered whether the provision of these services is compatible
with maintaining the independence of the independent registered public
accounting firm and has determined that such services have not adversely
affected such independence. All of the fees for fiscal year 2005 and 2004 were
pre-approved by the Audit Committee and there were no instances of waiver of
approval requirements during those periods.
EXECUTIVE
COMPENSATION
Summary
Compensation Table.
The
following table sets forth the compensation paid for the last three fiscal
years
to our chief executive officer and our four other highest paid executive
officers.
Annual
Compensation
|
|
Long-term
Compensation
|
|
|
|
|
|
|
|
|
Name
and
Principal
Position
|
Year
|
Salary($)
|
Bonus($)1
|
Other
Annual Compen-
sation($)2
|
|
Securities
Underlying
Stock
Options(#)
|
All
Other
Compen- sation($)3
|
|
|
|
|
|
|
|
|
J.
Clifford Hudson
|
2005
|
546,044
|
424,676
|
–
|
|
40,051
|
10,471
|
Chairman
of the Board,
|
2004
|
525,042
|
419,565
|
|
|
42,697
|
10,439
|
Chief
Executive Officer and
|
2003
|
516,708
|
301,719
|
|
|
33,905
|
9,864
|
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
W.
Scott McLain
|
2005
|
284,319
|
150,351
|
|
|
36,015
|
10,982
|
Executive
Vice President,
|
2004
|
270,308
|
110,275
|
|
|
43,579
|
10,103
|
President
of Sonic Industries Inc.
|
2003
|
260,008
|
93,415
|
|
|
13,690
|
9,752
|
|
|
|
|
|
|
|
|
Michael
A. Perry
|
2005
|
250,000
|
133,724
|
|
|
32,289
|
11,371
|
President
of
|
2004
|
230,000
|
81,305
|
|
|
14,429
|
10,491
|
Sonic
Restaurants, Inc.
|
2003
|
206,067
|
51,870
|
|
|
42,849
|
9,304
|
|
|
|
|
|
|
|
|
Ronald
L. Matlock
|
2005
|
245,637
|
106,371
|
|
|
10,799
|
10,864
|
Senior
Vice President,
|
2004
|
234,610
|
95,712
|
|
|
15,413
|
10,071
|
General
Counsel and
|
2003
|
226,674
|
81,202
|
|
|
11,882
|
9,414
|
Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
C. Vaughan
|
2005
|
189,433
|
83,210
|
|
|
21,653
|
10,230
|
Vice
President and
|
2004
|
167,200
|
39,174
|
|
|
9,776
|
8,665
|
Chief
Financial Officer
|
2003
|
160,000
|
42,513
|
|
|
11,417
|
8,390
|
|
|
|
|
|
|
|
|
____________________
1The
amounts include incentive bonus awards granted pursuant to the incentive bonus
program described under “Report of Compensation Committe - Discussion of
Compensation Components,” as well as a holiday bonus equal to one-half month’s
base salary.
2The
amount of other annual compensation did not exceed the lesser of $50,000 or
10%
of the annual salary and bonus reported for the named individual.
3The
amounts include the Company’s matching contribution to the Company’s defined
contribution plan and premiums for life insurance paid on behalf of the named
individuals. During the last fiscal year, the Company made matching
contributions to the Company’s 401(k) defined contribution plan in the amounts
of $9,575 for Mr. Hudson, $10,086 for Mr. McLain, $10,475 for Mr. Perry, $9,968
for Mr. Matlock, and $9,385 for Mr. Vaughan. During the last fiscal year, the
Company paid life insurance premiums in the amount of $896 for each of Messrs.
Hudson, McLain, Perry, and Matlock, and in the amount of $845 for Mr.
Vaughan.
Stock
Option Table.
The
following table sets forth information regarding the stock options granted
during the last fiscal year to the Company’s chief executive officer and the
other executive officers named above.
Name
|
Number
of Securities Underlying Options
Granted
(#)1
|
Percent
of Total Options Granted to Employees in Fiscal Year
(%)
|
Exercise Price
($/Sh)
|
Expiration Date
|
Potential
Realizable Value at Assumed Annual Rates of Price Appreciation for
Option Term2
|
|
|
|
|
|
|
|
|
5%
($)
|
10%
($)
|
|
|
|
|
|
|
|
|
|
|
J.
Clifford Hudson
|
10,000
|
|
6.37
|
31.71
|
|
1/19/2015
|
|
199,422
|
505,376
|
|
|
30,051
|
|
|
32.48
|
|
4/6/2015
|
|
613,837
|
1,555,583
|
|
|
|
|
|
|
|
|
|
|
|
W.
Scott McLain
|
22,593
|
|
5.73
|
29.58
|
|
11/10/2014
|
|
420,291
|
1,065,100
|
|
|
13,422
|
|
|
32.48
|
|
4/6/2015
|
|
274,164
|
694,787
|
|
|
|
|
|
|
|
|
|
|
|
Michael
A. Perry
|
20,256
|
|
5.14
|
29.58
|
|
11/10/2014
|
|
245,792
|
622,885
|
|
|
25,455
|
|
|
32.48
|
|
4/6/2015
|
|
376,816
|
954,927
|
|
|
|
|
|
|
|
|
|
|
|
Ronald
L. Matlock
|
10,799
|
|
1.72
|
32.48
|
|
4/6/2015
|
|
220,586
|
559,008
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
C. Vaughan
|
13,322
|
|
3.45
|
29.58
|
|
11/10/2014
|
|
247,825
|
628,038
|
|
|
8,331
|
|
|
32.48
|
|
4/6/2015
|
|
170,173
|
431,252
|
|
____________________
1Each
option becomes exercisable with regard to one-third of the shares of common
stock underlying the option on each of the first three anniversary dates of
the
grant of the option.
2The
assumed annual rates of 5% and 10% would result in the Company’s common stock
price increasing during the 10-year term of the option from the $32.48 per
share
exercise price to $52.91 and $84.25 respectively, from the $31.71 per share
exercise price to $51.65 and $82.25, respectively, and from the $29.58 per
share
exercise price to $48.18 and $76.72, respectively.
Option
Exercises and Year End Value Table.
The
following table sets forth information regarding stock options exercised during
the last fiscal year by the Company’s chief executive officer and the other
individuals named above and the value of unexercised stock options as of the
end
of the last fiscal year.
Name
|
|
Shares Acquired
on Exercise (#)
|
Value
Realized ($)
|
Number
of Unexercised Options as of Fiscal Year End Exercisable/
Unexercisable (#)
|
Value
of Unexercised In-the-Money Options as of Fiscal Year
End Exercisable/ Unexercisable ($)1
|
|
|
|
|
|
|
|
|
|
|
J.
Clifford Hudson
|
|
|
76,679
|
2 |
|
2,263,564
|
|
|
646,592
|
|
|
14,721,692
|
|
|
|
|
|
|
|
|
|
|
85,466
|
|
|
474,786
|
|
W.
Scott McLain
|
|
|
45,000
|
|
|
1,023,543
|
|
|
230,483
|
|
|
4,892,313
|
|
|
|
|
|
|
|
|
|
|
71,911
|
|
|
359,903
|
|
Michael
A. Perry
|
|
|
15,041
|
|
|
219,147
|
|
|
51,474
|
|
|
678,665
|
|
|
|
|
|
|
|
|
|
|
56,188
|
|
|
303,396
|
|
Ronald
L. Matlock
|
|
|
0
|
|
|
0
|
|
|
254,550
|
|
|
5,792,421
|
|
|
|
|
|
|
|
|
|
|
27,014
|
|
|
169,159
|
|
Stephen
C. Vaughan
|
|
|
14,695
|
|
|
306,031
|
|
|
155,721
|
|
|
3,283,527
|
|
|
|
|
|
|
|
|
|
|
31,974
|
|
|
121,204
|
|
____________________
1These
amounts represent the value of unexercised options granted each year since
1996
for Messrs. Hudson, McLain, Matlock, and Vaughan and the value of unexercised
options granted each year since 2001 for Mr. Perry.
2Of
these
option exercises, all of the options exercised by Mr. Hudson would have expired
in fiscal year 2005 if not exercised.
Termination
and Change in Control Arrangements.
The
Company has employment contracts with J. Clifford Hudson, its Chairman of the
Board, Chief Executive Officer and President, and the other senior executive
officers. Mr. Hudson’s contract, which expires in August 2006 (and which
automatically extends each year for one additional year to maintain successive
terms of two years unless specifically terminated or not renewed by the
Company), provides that, if the Company terminates Mr. Hudson’s employment other
than for cause or fails to renew his contract, he will receive his base
compensation for a 24-month period after termination (at an annualized base
of
$556,545 as of August 31, 2005). Mr. Hudson’s contract defines “cause” as (1)
the willful and intentional failure substantially to perform his duties (other
than because of physical or mental incapacity), (2) the commission of an illegal
act in connection with his employment, or (3) the commission of any act which
falls outside the ordinary course of his responsibilities and which exposes
the
Company to a significant level of undue liability. A determination of “cause”
requires the affirmative vote of at least two-thirds of all members of the
Board
of Directors. The contracts for Michael A. Perry, Ronald L. Matlock, and Stephen
C. Vaughan expire in August 2006. The contract for W. Scott McLain expires
in
January 2006. The contracts for all senior executive officers (except Mr.
Hudson) automatically renew for successive one-year terms unless specifically
terminated or not renewed by the Company. Those contracts provide for 12 months’
salary upon termination of employment other than for cause. The contracts for
all of the foregoing officers contain the same definition of “cause” as Mr.
Hudson’s contract.
The
contracts for all of the foregoing officers also provide that, upon a change
in
control of the Company, if the Company terminates the officer’s employment other
than for cause or violates any term of the contract, the Company must pay the
officer a lump sum equal to a specified multiple of the officer’s then current
salary, not to exceed the maximum payable without a loss of the deduction under
Section 280(g) of the Internal Revenue Code. The specified multiple equals
two
times the amount of their annual salary for all of the officers of the Company,
except for Mr. Hudson (who would receive three times his annual salary). The
same lump sum provision applies if the officer should
resign
for “good reason,” which includes (without limitation) the occurrence without
the officer’s consent after a change in control of the Company of (1) the
assignment to the officer of duties inconsistent with the officer’s office with
the Company, (2) a change in the officer’s title or office with the Company, or
(3) a reduction in the officer’s salary. The officers’ contracts generally
define a “change in control” to include any consolidation or merger of the
Company in which the Company does not continue or survive or pursuant to which
the shares of capital stock of the Company convert into cash, securities, or
other property; any sale, lease, exchange, or transfer of all or substantially
all of the assets of the Company; the acquisition of 50% or more of the
outstanding capital stock of the Company by any person; or, a change in the
make-up of the Board of Directors of the Company during any period of two
consecutive years, pursuant to which individuals who at the beginning of the
period made up the entire Board of Directors of the Company cease for any reason
to constitute a majority of the Board of Directors, unless at least two-thirds
of the directors then and still in office approved the nomination of the new
directors.
Other
than the foregoing agreements, the Company has no compensatory plan or
arrangement with respect to its executive officers which would result from
the
resignation, retirement, or termination of any executive officer’s employment
with the Company, from a change in control of the Company, or from a change
in
an executive officer’s responsibilities following a change in control of the
Company.
Following
her resignation as President of the Company effective October 31, 2004, Pattye
Moore agreed to serve as a consultant to the Company for a two-year term. During
the term of her consulting agreement, Ms. Moore has agreed to not be employed
by
or consult for any competitor of the Company. Ms. Moore receives for her
services during the term of the agreement compensation in the amount of $15,000
per month, plus reimbursement of reasonable expenses incurred in connection
with
her consulting services.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
We
lease
two parcels of real estate, upon which we operate two drive-in restaurants,
from
Plains Realty Corp. (“Plains”), a corporation in which a minority interest is
held by J. Clifford Hudson, Chairman of the Board of Directors, Chief Executive
Officer and President of the Company, in trust for himself and in trust for
his
son. The Company made rental payments during fiscal year 2005 for both parcels
pursuant to leases entered into in 1988 and 1989. Both leases expire in January
2009. During the last fiscal year, the Company paid Plains a total of $110,498
in rent pursuant to those two leases. We believe that the terms and conditions
of the leases are no less favorable than those we could have obtained from
third
parties in arm’s length transactions.
H.
E.
Rainbolt, a director of the Company, is Chairman of the Board and a principal
stockholder of BancFirst Corp., the holding company of BancFirst of Oklahoma
City ("BancFirst"). BancFirst is a participant in the Company’s $150 million
revolving line of credit. During the last fiscal year, the largest amount
outstanding under that line of credit was approximately $35.6 million, in which
BancFirst participated in approximately $3.6 million.
REPORT
OF COMPENSATION COMMITTEE
The
following report of the Compensation Committee of the Board of Directors
describes the Compensation Committee’s compensation policies with regard to the
Company’s executive officers for the last fiscal year, including the specific
relationship of corporate performance to executive compensation. The report
also
discusses the Compensation Committee’s basis for the chief executive officer’s
compensation for the last fiscal year, including the factors and criteria upon
which the Compensation Committee based that compensation. As described above
under “Committees, Compensation, and Meetings,” the Compensation Committee’s
functions include reviewing and approving the base salary, annual incentive
bonus awards, and other compensation awards to the Company’s chief executive
officer and certain other executive officers of the Company. The Compensation
Committee’s functions also include the administration of the Company’s stock
option plans and the granting of stock options under those plans, the
administration of the Company’s stock purchase plan, and the administration of
the Company's employee stock incentive plan and the granting of stock under
that
plan.
The
following report shall not constitute a document deemed incorporated by
reference by any general statement incorporating this proxy statement by
reference into any filing under the Securities Act of 1933 or under
the
Securities
Exchange Act of 1934, except to the extent the Company specifically incorporates
the information by reference, and the report shall not constitute information
otherwise deemed filed under either of those acts.
Independent
Compensation Consultant Report
For
several years we have retained independent compensation consultants to advise
us
on the structure and competitiveness of the Company’s executive compensation
program and to recommend programs appropriate for the Company in the areas
of
salary, annual incentive programs, long-term incentives, benefits, and
employment contract provisions. In conducting the initial review, the consultant
interviewed the executive officers of the Company, as well as the members of
the
Compensation Committee; identified a peer group of 11 comparable multi-unit
restaurant companies; and analyzed the cash compensation, stock option and
long-term incentive programs, and employment contract provisions available
in
that peer group according to available proxy statement information, as well
as
compensation data from other published surveys. Since the initial review, we
have obtained annual updates of the review and report to the Company. The
results of these reviews continue to show that the total compensation of the
Company’s executive officers falls below the median level of total compensation
of the peer group executive officers. The Company and the Compensation Committee
intend to continue to work with a consultant to develop changes to the Company’s
executive compensation program, when and if appropriate.
Compensation
Policy and Overall Objectives
In
order
to attract, retain, and motivate superior executive talent, the Compensation
Committee seeks to maintain compensation programs competitive with those
provided by leading companies in the multi-unit restaurant business with similar
size and business focus as the Company. The Compensation Committee has adopted
a
compensation strategy to provide: (1) base salaries which are competitive but
not above the industry median, (2) median or above-median total annual cash
opportunities, through incentives based on operating results, (3) above-median
long-term incentives based on stock appreciation, and (4) other benefits for
executives which are competitive but not above industry norms.
The
primary components of the Company’s executive compensation package consist of
base salary, annual incentive bonus awards, and stock option awards. In
connection with making decisions with respect to executive compensation, the
Compensation Committee has taken into account as one of the factors which it
considers, the provisions of Section 162(m) of the Internal Revenue Code which
limits the deductibility by the Company of certain categories of compensation
in
excess of $1,000,000 paid to certain executive officers. No
executive officer's total compensation for the fiscal year ending August 31,
2005 exceeded the $1,000,000 deductibility cap.
Discussion
of Compensation Components
Base
Salary.
In
reviewing each executive officer’s base salary, the Compensation Committee takes
into consideration the executive officer’s responsibilities and performance,
salaries for comparable positions at other companies, and fairness issues
relating to pay for other Company executives. In making salary recommendations
or decisions, the Committee exercises its discretion and judgment based on
those
factors. The Committee does not apply any specific formula to determine the
weight of each factor.
Incentive
Bonus Awards.
The
Company has adopted an incentive bonus plan, which covers all of the Company’s
executive officers, as well as other mid-level management personnel. Under
the
plan, the Compensation Committee measures the performance of the Company against
an annual business plan prepared by management and reviewed and approved by
the
Board of Directors. Achievement of the earnings per share target set forth
in
the annual business plan may result in the payment of incentive payments equal
to a percentage of the base salary of the covered officer (75% for Mr. Hudson,
50% for Messrs. McLain and Perry, and 40% for Messrs. Matlock and Vaughan).
Under the plan, the Committee may award up to 50% of the incentive payments
if
the Company’s earnings per share equal 85% or more of the annual business plan
earnings per share goal and may award up to 100% of the incentive payments
as
the percentage of earnings per share achieved increases from 85% to 100% of
the
goal. The plan also allows the Committee to increase the incentive payments
ratably to the extent the Company exceeds the earnings per share target.
However, the Committee has the discretion whether and in what amounts to award
any incentive bonuses.
Stock
Option Grants.
The
2001 Sonic Corp. Stock Option Plan is a stock-based incentive compensation
plan
under which employees selected by the Compensation Committee may receive
awards
in the form of stock options. Historically, the Committee has awarded selected
employees an annual grant of stock options to purchase a number of shares
of
common stock computed by (1) dividing the employee’s annual salary and bonus by
the current market price of the common stock and (2) multiplying that amount
by
a factor ranging up to two. In addition, the Compensation Committee may grant
special stock option awards to new members of management and to existing
members
of management who may have received a promotion or in other appropriate
circumstances.
Compensation
of Chief Executive Officer
Mr.
Hudson has served as the Company’s Chairman of the Board since January 2000, and
its Chief Executive Officer since April 1995. He served as President of the
Company from April 1995 to January 2000 and reassumed the position of President
in November 2004. On January 19, 2005, the
Compensation Committee set Mr. Hudson’s annual compensation at $556,500
and
made
a discretionary grant to Mr. Hudson of options to purchase 10,000
shares
of common stock pursuant to the terms of the 2001 Stock Option Plan.
The
Committee considered the results of the most recent update of the Company’s
independent compensation consultant regarding the range of compensation for
the
chief executive officers of the Company’s competitive peer group and set Mr.
Hudson’s level of compensation below the median of that group. On April 6, 2005,
the Compensation Committee granted Mr. Hudson options to purchase 30,051 shares
of common stock, consistent with the standard annual formula for granting stock
options described above. Effective November 10, 2005, the Compensation Committee
approved the award of 96.5% of Mr. Hudson’s potential incentive bonus for the
fiscal year ended August 31, 2005, pursuant to the terms of the Company’s
incentive bonus plan, which percentage is consistent with the percentages
approved for the other executive officers of the Company, after taking into
account the performance of the Company for that year.
|
Respectfully
submitted,
|
|
|
|
The
Compensation Committee
|
|
/s/
Leonard Lieberman, Chairman
|
|
/s/
Michael J. Maples
|
|
/s/
Federico
F. Peña
|
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The
members of the Compensation Committee are named above. None of these individuals
has ever been an officer or employee of Sonic or any of its subsidiaries or
had
any relationship with Sonic requiring disclosure under Item 404 of Regulation
S-K. No executive officer of Sonic has served on the board of directors or
compensation committee of any other entity that has or has had one or more
executive officers who served as a member of the Board of Directors or the
Compensation Committee during fiscal year 2005.
REPORT
OF AUDIT COMMITTEE
The
Audit
Committee is comprised of four directors and operates under a written charter,
a
copy of which is attached as Exhibit A to this proxy statement and is also
available on the Company’s website (www.sonicdrivein.com). Each of the members
of the Audit Committee meets the independence requirements of NASDAQ and the
Sarbanes-Oxley Act of 2002. The Audit Committee held nine meetings in fiscal
2005. The meetings facilitated communication with senior management and
employees, the internal auditors and Ernst & Young LLP, the Company’s
independent registered public accounting firm (Ernst & Young). The Committee
held discussions with the internal auditors and Ernst & Young both with and
without management present, on the results of their examinations and the overall
quality of the Company’s financial reporting and internal controls.
The
Audit
Committee has the sole authority to appoint or replace the independent
registered public accounting firm, and is directly responsible for the oversight
of the scope of its role and the determination of its
compensation.
The Audit Committee regularly evaluated the performance and independence of
Ernst & Young and, in addition, reviewed and pre-approved all services
provided by Ernst & Young during fiscal 2005.
As
stated
in the Audit Committee’s charter, the Audit Committee’s responsibility is one of
oversight. It is the responsibility of the Company’s management to establish and
maintain a system of internal control over financial reporting, to plan and
conduct audits, and to prepare consolidated financial statements in accordance
with generally accepted accounting principles. It is the responsibility of
the
Company’s independent registered public accounting firm to audit those financial
statements. The Audit Committee does not provide any expert or other special
assurance as to the Company’s financial statements or any expert or professional
certification as to the work of the Company’s independent registered public
accounting firm.
In
fulfilling its responsibilities, the Audit Committee has met and held
discussions with management and Ernst & Young regarding the fair and
complete presentation of the Company’s financial results. The Audit Committee
has discussed significant accounting policies applied by the Company in its
financial statements, as well as alternative treatments. The Audit Committee
has
met to review and discuss the annual audited and quarterly consolidated
financial statements for the Company for the 2005 fiscal year (including the
disclosures contained in the Company’s 2005 Annual Report on Form 10-K and
its 2005 Quarterly Reports on Form 10-Q, under the heading “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”) with
the Company’s management and Ernst & Young. The Audit Committee also
reviewed and discussed with management, the internal auditors and Ernst &
Young the reports required by Section 404 of the Sarbanes-Oxley Act of
2002, namely, management’s annual report on the Company’s internal control over
financial reporting and Ernst & Young’s attestation report.
The
Audit
Committee has discussed with Ernst & Young the matters required to be
discussed by Statement on Auditing Standards No. 61, “Communication with
Audit Committees” (Codification of Statement on Auditing Standards, AU 380), as
modified or supplemented. In addition, the Audit Committee has received the
written disclosures and the letter from Ernst & Young required by
Independence Standards Board Standard No. 1, “Independence Discussions with
Audit Committees,” as modified or supplemented, and has discussed with Ernst and
Young its independence from the Company and its management. The Audit Committee
also has considered whether the provision of non-audit services by Ernst &
Young is compatible with maintaining Ernst & Young’s independence.
In
reliance on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited consolidated financial
statements for the Company for the fiscal year ended August 31, 2005 be included
in the Company’s Annual Report on Form 10-K for the year ended August 31,
2005.
|
Respectfully
submitted,
|
|
|
|
The
Audit Committee
|
|
/s/
H. E. Rainbolt, Chairman
|
|
/s/
Margaret
M. Blair
|
|
/s/
Frank E. Richardson
|
|
/s/
Robert M. Rosenberg
|
STOCK
PERFORMANCE GRAPH
The
following graph compares the cumulative total return on the Company’s common
stock with the cumulative total returns on two published indices - the Total
Return Index for The Nasdaq Stock Market (U.S. Companies) (“Nasdaq U.S. Stocks”)
and the Index for Nasdaq Retail Trade Stocks (“Nasdaq Retail Stocks”). The graph
assumes a $100 investment on August 31, 2000, in the Company’s common stock and
in the stocks comprising the two identified indices. “Cumulative total return”
means the appreciation in stock price, plus dividends paid, assuming the
reinvestment of all dividends.
The
following graph shall not constitute a document deemed incorporated by reference
by any general statement incorporating this proxy statement by reference into
any filing under the Securities Act of 1933 or under the Securities Exchange
Act
of 1934, except to the extent the Company specifically incorporates the
information by reference, and the graph shall not constitute information
otherwise deemed filed under either of those acts.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Certain
Beneficial Owners.
The
following table shows the total number and percentage of the outstanding shares
of the Company’s voting common stock beneficially owned as of September 30,
2005, with respect to each person (including any “group” as used in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended) the Company knows
to have beneficial ownership of more than 5% of the Company’s common stock. The
Company computed the percentage ownership amounts in accordance with the
provisions of Rule 13d-3(d), which includes as beneficially owned all shares
of
common stock which the person or group has the right to acquire within the
next
60 days.
Beneficial
Owner
|
Number
of
Shares
|
Percent1
|
|
|
|
|
FMR
Corp.2
82
Devonshire Street
Boston,
Massachusetts 02109
|
8,037,320
|
13.9
|
%
|
|
|
|
|
Earnest
Partners, LLC
3
75
Fourteenth Street, Suite 2300
Atlanta,
Georgia 30309
|
4,337,358
|
7.5
|
%
|
|
|
|
|
Capital
Research & Management Company4
333
South Hope Street, 55th
Floor
Los
Angeles, California 90071
|
3,470,400
|
6.0
|
%
|
____________________
1Based
on
the number of outstanding shares of common stock on October 31, 2005.
2Reflects
shares beneficially owned by FMR Corp. (“FMR”) according to a 13F Holdings
Report filed by FMR with the SEC on November 14, 2005, reflecting ownership
of
shares as of September 30, 2005. Based on the 13F Holdings Report, Fidelity
Management & Research Company (“Fidelity”), a wholly-owned subsidiary of
FMR, and FMR Co., Inc. have defined dispositive power over 7,903,325 shares,
sole voting power over 12,850 shares and no voting power over 7,890,475 shares.
Fidelity Management Trust Company (“Fidelity Management”), another wholly-owned
subsidiary of FMR, has defined dispositive power over 133,995 shares, sole
voting power over 65,720 shares and no voting power over 68,275 shares.
According to a statement on Schedule 13G filed by FMR with the SEC on February
14, 2005, as of December 31, 2004, FMR, Mr. Edward C. Johnson 3d, Chairman
of
FMR, and Abigail R. Johnson, a Director of FMR, each has sole dispositive power
over (and beneficially owned) 8,931,963 shares, representing (a) 8,507,410
shares beneficially owned by Fidelity as a result of its role as an investment
advisor to various investment companies, one of which, Fidelity Low Priced
Stock
Fund, owned 6,150,000 shares and (b) 424,553 shares beneficially owned by
Fidelity Management as a result of its role as an investment manager for certain
institutional accounts. Fidelity and Fidelity Management have the same address
as FMR.
3Reflects
shares beneficially owned by Earnest Partners, LLC according to a 13F Holdings
Report filed by Earnest Partners, LLC with the SEC on November 14, 2005,
reflecting ownership of shares as of September 30, 2005. Based on the 13F
Holdings Report, Earnest Partners, LLC has sole voting power over 1,556,570
shares, shared voting power over 1,216,594 shares, no voting power over
1,564,194 shares, and sole dispositive power over all 4,337,358 shares.
4Reflects
shares beneficially owned by The Capital Group Companies, Inc. (“CGC”) according
to a 13F Holdings Report filed by Capital Research and Management Company
(“CRMC”) with the SEC on November 14, 2005, reflecting ownership of shares as of
September 30, 2005. Based on the 13F Holdings Report, CGC has defined
dispositive power and no voting power over 3,470,400 shares. CRMC is a
wholly-owned subsidiary of CGC.
Management.
The
following table sets forth information obtained from our directors and executive
officers as to their beneficial ownership of the Company’s voting common stock
as of October 31, 2005. We computed the percentage ownership amounts in
accordance with the provisions of Rule 13d-3(d), which rule includes as
beneficially owned all shares of common stock which the person or group has
the
right to acquire pursuant to stock options exercisable within the next 60 days
(“Currently Exercisable Options”). Unless indicated otherwise, each stockholder
holds sole voting and investment power with regard to the shares of common
stock.
Beneficial
Owner
|
Number
of
Shares
|
Number
of
Currently
Exercisable
Options
|
Percent1
|
|
|
|
|
|
|
|
J.
Clifford Hudson2
|
573,803
|
|
646,592
|
|
|
2.08%
|
W.
Scott McLain3
|
1,659
|
|
238,374
|
|
|
4
|
Michael
A. Perry
5
|
21,673
|
|
58,226
|
|
|
4
|
Ronald
L. Matlock3
|
5,556
|
|
254,550
|
|
|
4
|
Stephen
C. Vaughan6
|
8,249
|
|
160,162
|
|
|
4
|
Margaret
M. Blair
|
10,577
|
|
32,875
|
|
|
4
|
Leonard
Lieberman
|
39,802
|
|
67,500
|
|
|
4
|
Michael
J. Maples7
|
0
|
|
0
|
|
|
4
|
Pattye
L. Moore
|
147,266
|
|
0
|
|
|
4
|
Federico
F. Peña
|
774
|
|
52,875
|
|
|
4
|
H.
E. Rainbolt
|
79,312
|
|
109,688
|
|
|
4
|
Frank
E. Richardson8
|
1,381,886
|
|
67,500
|
|
|
2.44%
|
Robert
M. Rosenberg
|
81,020
|
|
39,000
|
|
|
4
|
Directors
and executive officers
as a group (17)
9
|
2,358,158
|
|
1,841,389
|
|
|
6.75%
|
____________________
1Pursuant
to Rule 13(d)(3), the Company includes the shares of common stock underlying
the
Currently Exercisable Options as outstanding for the purposes of computing
the
percentage ownership of the person or group holding those options but not for
the purposes of computing the percentage ownership of any other
person.
2Includes
(a) 157,266 shares of common stock held by Mr. Hudson in trust for himself,
(b)
343,664 shares of common stock held by Mr. Hudson’s wife in trust for herself
(of which Mr. Hudson disclaims beneficial ownership), and (c) 72,873 shares
of
common stock held by Mr. Hudson in trust for his two children (of which Mr.
Hudson disclaims beneficial ownership).
3All
of
such shares are held in the Company's 401(k) plan.
4Represents
less than 1% of the Company’s outstanding shares.
5Includes
3,081 shares held for Mr. Perry in the Company’s 401(k) plan and 2,860 shares
held in the Company’s employee stock purchase plan.
6Includes
3,966 shares held for Mr. Vaughan in the Company’s employee stock purchase
plan.
7Mr.
Maples purchased 10,000 shares on November 14, 2005.
8Includes
1,500 shares of common stock held by Mr. Richardson’s wife (of which Mr.
Richardson disclaims beneficial ownership) and 6,100 shares of common stock
held
by Mr. Richardson as custodian for his children (of which Mr. Richardson
disclaims beneficial ownership).
9Includes
(a) 11,527 shares of common stock held for certain executive officers in the
Company’s 401(k) plan and (b) 8,777 shares held for certain executive officers
in the Company’s employee stock purchase plan.
Changes
in Control.
We do
not know of any arrangements (including the pledge by any person of securities
of the Company), the operation of which may result at a subsequent date in
a
change in control of the Company.
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based
upon a review of the original and amended Forms 3, 4, and 5 furnished to the
Company during its last fiscal year, we do not know of any person who failed
to
file on a timely basis any reports required by Section 16(a) of the Securities
Exchange Act of 1934, as amended, except one Form 4 by Mr. Hudson which, due
to
administrative error, was filed within two business days after the requisite
two
business day period, and one Form 4 by Mr. Rosenberg which was filed late
relating to the disposition of 645 shares held in trust for Mr. Rosenberg’s
son.
OTHER
MATTERS
The
Board
of Directors knows of no other matters which may come before the annual meeting.
If any other business properly comes before the meeting, the persons named
in
the proxy will vote with respect to that matter in accordance with their best
judgment.
2005
ANNUAL REPORT AND FORM 10-K
A
copy of
the 2005 Annual Report to Stockholders accompanies this Proxy Statement. The
Company’s Annual Report on Form 10-K for the year ended August 31, 2005, as
filed with the Securities and Exchange Commission, contains detailed information
concerning the Company and its operations which is not included in the 2005
Annual Report. A
copy of the 2005 Form 10-K will be furnished to each stockholder without charge
upon request in writing to: Ronald
L. Matlock, Secretary, Sonic Corp., 300 Johnny Bench Drive, Oklahoma City,
OK
73104. The
2005
Form 10-K is also available at the Company’s website at www.sonicdrivein.com.
Only
one
proxy statement and annual report may be delivered to multiple stockholders
sharing an address, unless the Company receives contrary instructions from
one
or more of the stockholders. Any stockholder at a shared address to which a
single copy of the proxy statement and annual report have been sent who would
like a separate copy of this proxy statement and annual report or future proxy
statements and annual reports may make a written or oral request to Ronald
L.
Matlock, Secretary, Sonic Corp., 300 Johnny Bench Drive, Oklahoma City, OK
73104
or by telephone at (405) 225-5000. Similarly, requests may be made for delivery
of a single copy of a proxy statement and annual report to be delivered to
an
address where multiple stockholders are currently receiving multiple copies
of
proxy statements and annual reports.
EXHIBIT
A
SONIC
CORP.
AUDIT
COMMITTEE CHARTER
(Amended
and Restated - November 15, 2002)
Purpose
The
Audit
Committee (the “Committee”) is established by the Board of Directors for the
purpose of overseeing the accounting and financial reporting processes of
the
Company and audits of the financial statements of the Company.
The
Committee is responsible for assisting the Board’s oversight of (1) the quality
and integrity of the Company’s financial statements and related disclosure, (2)
the Company’s compliance with legal and regulatory requirements, (3) the
independent auditor’s qualifications and independence, (4) the performance of
the Company’s internal audit function and independent auditors and (5)
related-party transactions.
This
Charter amends and replaces the Audit Committee Charter originally adopted
by
the Board on April 25, 2000.
Composition
1. |
Members.
The Committee shall consist of as many members as the Board shall
determine, but in any event not fewer than three members. The members
of
the Committee shall be appointed annually by the Board.
|
2. |
Qualifications.
Each member of the Committee shall meet all applicable independence,
financial literacy and other requirements of law and the Nasdaq
Stock
Market, Inc. (“Nasdaq”), or the rules of any other exchange on which the
Company’s shares may be traded. Each member of the Committee shall be able
to read and understand financial statements. In addition, at least
one
member of the Committee must meet the applicable Securities and
Exchange
Commission (“SEC”) and Nasdaq definitions of “financial expert” as may
become applicable. Each member of the Committee is prohibited from
owning
or controlling 20 percent or more of the Company’s voting securities, or
such lower number as may be established by applicable law. No member
of
the Committee will receive any compensation from the Company except
for
Board or Committee service.
|
3. |
Chair.
The Chair of the Committee shall be appointed by the
Board.
|
4. |
Removal
and Replacement.
The members of the Committee may be removed or replaced, and any
vacancies
on the Committee shall be filled, by the
Board.
|
Operations
1. |
Meetings.
The Chair of the Committee, in consultation with the Committee
members,
shall determine the schedule and frequency of the Committee meetings,
provided that the Committee shall meet at least four times per
year and as
more frequently as circumstances require. The Committee shall have
the
opportunity to meet with the independent auditors without members
of
management present at each regularly scheduled meeting of the Committee,
and may meet periodically, with other members of management, the
general
counsel and the internal auditor, upon
request.
|
2. |
Agenda.
The Chair of the Committee shall develop and set the Committee’s agenda,
in consultation with other members of the Committee, the Board
and
management. The agenda and
|
|
information
concerning the business to be conducted at each Committee meeting
shall be
communicated to the members of the Committee in
advance.
|
3. |
Report
to Board.
The Committee shall report regularly to the entire Board and shall
maintain the minutes of its meetings with the corporate records
of the
Company.
|
4. |
Self-Evaluation;
Assessment of Charter.
The Committee shall conduct an annual performance self-evaluation
and
shall report to the entire Board the results of the self-evaluation.
The
Committee shall assess the adequacy of this Charter periodically
and
recommend any changes to the Board.
|
5. |
Continuing
Education.
The Company is responsible for providing the Committee with educational
resources relating to accounting principles and procedures, current
accounting topics pertinent to the Company and other materials
as
requested by the Committee. The Company shall assist the Committee
in
maintaining appropriate financial
literacy.
|
Authority
and Duties
Independent
Auditor’s Qualifications and Independence
1. |
Authority
to Appoint Independent Auditor.
The Committee has the sole authority to appoint, determine funding
for,
oversee and, where applicable, replace the independent auditor
employed by
the Company to audit its financial statements. The Committee shall
have a
clear understanding with management and the independent auditors
that the
independent auditors are ultimately accountable to the Board and
the
Committee, as representatives of the Company’s shareholders.
|
2. |
Approval
of Non-Audit Services.
The Committee has the sole authority to approve in advance any
non-audit
services permissible under applicable law to be provided by the
independent auditor. The Committee shall review with the lead audit
partner whether any of the senior audit team members receive any
discretionary compensation from the audit firm with respect to
non-audit
services performed by the independent auditor.
|
3. |
Evaluation
of Independent Auditor.
The Committee shall obtain and review with the lead audit partner,
annually or more frequently as the Committee considers appropriate,
a
report by the independent auditor describing: the independent auditor’s
internal quality-control procedures; any material issues raised
by the
most recent internal quality-control review, or peer review, of
the
independent auditor, or by any inquiry or investigation by governmental
or
professional authorities, within the preceding five years, respecting
independent audits carried out by the independent auditor, and
any steps
taken to deal with these issues; and (to assess the independent
auditor’s
independence) all relationships between the independent auditor
and the
Company. The Committee shall assure the regular rotation of the
lead audit
partner every five years.
|
4. |
Evaluation
of Senior Members of Audit Team.
The Committee shall review the experience, qualifications and performance
of the senior members of the independent auditor
team.
|
5. |
Approval
of Employment of Members of Independent Auditors.
The Committee shall approve in advance the hiring of any person
who is an
employee or was a former employee of the independent auditor during
the
preceding three fiscal years.
|
Related
Party Transactions
6. |
Approval
of Related Party Policies.
The Committee shall review and approve policies and procedures
with
respect to proposed transactions between the Company and
related-parties.
|
7. |
Approval
of Related Party Transactions.
The Committee shall review and approve in advance all such related-party
transactions.
|
Financial
Statements and Related Disclosure
8. |
Review
of Financial Statements.
The Committee shall review the annual audited financial statements
and
quarterly financial statements with management and the independent
auditor, including the Company’s disclosures under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”,
before the filing with the SEC of the Company’s Form 10-K and furnishing
of interim reports on Form 10-Q. The review by the Committee shall
include
their judgment about the quality, not just the acceptability of
accounting
principles, the reasonableness of significant judgments, and the
clarity
of the disclosures in the financial
statements.
|
9. |
Report
of Audit Committee.
The Committee shall also prepare its report to be included in the
Company’s annual proxy statement as required by SEC regulations.
|
10. |
Review
of Earnings Press Releases.
The Committee (or a Committee designee) shall review the information
to be
included in management earnings press releases before they are
issued. The
Committee shall review generally with management the nature of
the
financial information and earnings guidance provided to analysts
and
rating agencies.
|
11. |
Review
of Policies and Practices.
The Committee shall review with the independent auditor: (a) all
critical
accounting policies and practices to be used by the Company in
preparing
its financial statements, (b) all alternative treatments of financial
information within GAAP that have been discussed with management,
ramifications of the use of these alternative disclosures and treatments,
and the treatment preferred by the independent auditor, and (c)
other
material communications between the independent auditor and management,
such as any management letter or schedule of unadjusted differences.
In
addition, the Committee shall review with the independent auditor
any
audit problems or difficulties and management’s
response.
|
12. |
Review
of Disclosure Controls.
The Committee shall review with management, and any outside professionals
as the Committee considers appropriate, the effectiveness of the
Company’s
disclosure controls and procedures.
|
13. |
Review
of Financial Reporting Practices.
The Committee shall review with management, and any outside professionals
as the Committee considers appropriate, important trends and developments
in financial reporting practices and requirements and their effect
on the
Company’s financial statements.
|
Performance
of the Internal Audit Function and Independent Auditors
14. |
Review
of Proposed Audit Process.
The Committee shall review with management, the internal auditor
and the
independent auditor, the scope, planning and staffing of the proposed
audit for the current year.
|
15. |
Review
of Internal Audit Department.
The Committee shall periodically review the internal audit department’s
organization, responsibilities, plans, results, budget and staffing.
In
addition, management shall consult with the Committee on the appointment,
replacement, reassignment or dismissal of the principal internal
auditor.
|
16. |
Review
of Internal Controls.
The Committee shall review with management, the internal auditor
and the
independent auditor, the quality, adequacy and effectiveness of
the
Company’s internal controls and any significant deficiencies or material
weaknesses in internal controls.
|
17. |
Review
of Risk Management.
The Committee shall periodically review the Company’s policies with
respect to risk assessment and risk management.
|
Compliance
with Legal and Regulatory Requirements
18. |
Review
of Legal Matters.
The Committee shall periodically review with management, and any
internal
or external counsel as the Committee considers appropriate, any
legal
matters (including the status of pending litigation) that may have
a
material impact on the Company, and any material reports or inquiries
from
regulatory or governmental agencies.
|
19. |
Reporting
of Complaints.
The Committee shall establish procedures for (a) the receipt, retention
and treatment of complaints received by the Company regarding accounting,
internal accounting controls, auditing matters or potential violations
of
law, and (b) the confidential, anonymous submission by employees
of the
Company of concerns regarding questionable accounting or auditing
matters
or potential violations of law.
|
20. |
Compliance
Reports.
The Committee shall obtain reports from management, the internal
auditor
and the independent auditor regarding compliance with all applicable
material legal and regulatory requirements, including the United
States
Foreign Corrupt Practices Act.
|
21. |
Retention
of Advisors.
In
discharging its oversight role, the Committee shall have access
to all
Company books, records, facilities and personnel. The Committee
may engage
and determine funding for independent external counsel or other
advisors,
in its sole discretion.
|
The
foregoing list of duties is not exhaustive, and the Committee may, in addition,
perform such other functions as may be necessary or appropriate for the
performance of its oversight function. The Committee shall have the power
to
delegate its authority and duties to subcommittees or individual members
of the
Committee, as it deems appropriate.
Clarification
of Audit Committee’s Role
The
Committee’s responsibility is to provide assistance to the Board in fulfilling
its oversight responsibility to the shareholders relating to the Company’s
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the internal audit function and
the
annual independent audit of the Company’s financial statements. It is the
responsibility of the Company’s management to prepare the consolidated financial
statements in accordance with applicable law and regulations and of the
Company’s independent auditor to audit those financial statements. In
discharging its oversight role, each member of the Committee shall be entitled
to rely, to the fullest extent permitted by law, on the integrity of those
persons and organizations within and outside the Company from whom he or
she
receives information, and the accuracy of the financial and other information
provided to the Committee by such persons or organizations.
The
Board
believes the Committee’s policies and procedures should remain flexible, in
order to best react to changing conditions and circumstances. The Committee
should take the appropriate actions to set the overall corporate “tone” for
quality financial reporting, sound business risk practices, and ethical
behavior.
EXHIBIT
B
SONIC
CORP.
2006
LONG-TERM INCENTIVE PLAN
ARTICLE
1
PURPOSE
1.1 GENERAL.
The
purpose of the Sonic Corp. 2006 Long-Term Incentive Plan (the “Plan”)
is to
promote the success, and enhance the value, of Sonic Corp., a Delaware
corporation (the “Corporation”),
by
linking the personal interests of its employees, officers and directors to
those
of Corporation shareholders and by providing such persons with an incentive
for
outstanding performance. The Plan is further intended to provide flexibility
to
the Corporation in its ability to motivate, attract and retain the services
of
employees, officers and directors upon whose judgment, interest and special
effort the successful conduct of the Corporation’s operation is largely
dependent. Accordingly, the Plan permits the grant of incentive awards from
time
to time to selected employees and officers and directors.
The
Plan
is intended to replace the 2001 Sonic Corp. Stock Option Plan and the 2001
Sonic
Corp. Directors’ Stock Option Plan and upon the Effective Date (as defined
below), no further awards shall be granted under such plans.
ARTICLE
2
EFFECTIVE
DATE
2.1 EFFECTIVE
DATE.
The
Plan shall be effective as of the date upon which it shall be approved by
the
Board and the shareholders of the Corporation (the “Effective
Date”).
In
the discretion of the Committee, Awards may be made to Covered Employees
which
are intended to constitute qualified performance-based compensation under
Section 162(m) of the Code.
ARTICLE
3
DEFINITIONS
3.1 DEFINITIONS.
When a
word or phrase appears in the Plan with the initial letter capitalized, and
the
word or phrase does not commence a sentence and is not otherwise defined
in the
Plan, the word or phrase shall generally be given the meaning ascribed to
it in
this Section 3.1.
The
following words and phrases shall have the following meanings:
(a) “1933
Act”
means
the Securities Act of 1933, as amended from time to time.
(b) “1934
Act”
means
the Securities Exchange Act of 1934, as amended from time to time.
(c) “Affiliate”
means
any Parent or Subsidiary and any person that directly, or indirectly through
one
or more intermediaries, controls, is controlled by, or is under common control
with, the Corporation.
(d) “Award”
means
any Option, Stock Appreciation Right, Restricted Stock Award, Restricted
Stock
Unit Award, Performance Share Award, Performance Share Unit Award, Dividend
Equivalent Award or Other Stock-Based Award, or any other right or interest
relating to Stock or cash, granted to a Participant under the Plan.
(e) “Award
Agreement”
means
any written agreement, contract or other instrument or document evidencing
an
Award.
(f) “Board”
means
the Board of Directors of the Corporation, as constituted from time to
time.
(g) “Cause”
as
a
reason for a Participant’s termination of employment or service shall have the
meaning assigned such term in the employment agreement, if any, between such
Participant and the Corporation or an Affiliate, provided,
however,
that if
there is no such employment agreement in which such term is defined,
“Cause”
shall
mean any of the following acts by the Participant, as determined by the Board:
gross neglect of duty, prolonged absence from duty without the consent of
the
Corporation, intentionally engaging in any activity that is in conflict with
or
adverse to the business or other interests of the Corporation, or willful
misconduct, misfeasance or malfeasance of duty which is reasonably determined
to
be detrimental to the Corporation.
(h) “Change
of Control”
means
and includes the occurrence of any one of the following events:
(i) individuals
who, at the Effective Date, constitute the Board (the “Incumbent
Directors”)
cease
for any reason to constitute at least a majority of the Board, provided
that any
person becoming a director after the Effective Date and whose election or
nomination for election was approved by a vote of at least a majority of
the
Incumbent Directors then on the Board (either by a specific vote or by approval
of the proxy statement of the Corporation in which such person is named as
a
nominee for director, without written objection to such nomination) shall
be an
Incumbent Director; provided,
however,
that no
individual initially elected or nominated as a director of the Corporation
as a
result of an actual or threatened election contest (as described in Rule
14a-11
under the 1934 Act (“Election
Contest”))
or
other actual or threatened solicitation of proxies or consents by or on behalf
of any “person” (as such term is defined in Section 3(a)(9) of the 1934 Act and
as used in Section 13(d)(3) and 14(d)(2) of the 1934 Act) other than the
Board
(“Proxy
Contest”),
including by reason of any agreement intended to avoid or settle any Election
Contest or Proxy Contest, shall be deemed an Incumbent Director;
(ii) any
person becomes a “beneficial owner” (as defined in Rule 13d-3 under the 1934
Act), directly or indirectly, of securities of the Corporation representing
20%
or more of the combined voting power of the Corporation’s then outstanding
securities eligible to vote for the election of the Board (the “Corporation
Voting Securities”);
or
(iii) the
consummation of a reorganization, merger, consolidation, statutory share
exchange or similar form of corporate transaction involving the Corporation
that
requires the approval of the Corporation’s stockholders, whether for such
transaction or the issuance of securities in the transaction (a “Reorganization”),
or
the sale or other disposition of all or substantially all of the Corporation’s
assets to an entity that is not an Affiliate (a “Sale”),
unless immediately following such Reorganization or Sale: (A) more than 50%
of
the total voting power of (x) the corporation resulting from such Reorganization
or the corporation which has acquired all or substantially all of the assets
of
the Corporation (in either case, the “Surviving
Corporation”)
or (y)
if applicable, the ultimate parent corporation that directly or indirectly
has
beneficial ownership of 100% of the voting securities eligible to elect
directors of the Surviving Corporation (the “Parent
Corporation”),
is
represented by the Corporation Voting Securities that were outstanding
immediately prior to such Reorganization or Sale (or, if applicable, is
represented by shares into which such Corporation Voting Securities were
converted pursuant to such Reorganization or Sale), and such voting power
among
the holders thereof is in substantially the same proportion as the voting
power
of such Corporation Voting Securities among the holders thereof immediately
prior to the Reorganization or Sale, (B) no person (other than (x) the
Corporation, or (y) any employee benefit plan (or related trust) sponsored
or
maintained by the Surviving Corporation or the Parent Corporation is the
beneficial owner, directly or indirectly, of 20% or more of the total voting
power of the outstanding voting securities eligible to elect directors of
the
Parent Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) and (C) at least a majority of the members of the board of
directors of the Parent Corporation (or, if there is no Parent Corporation,
the
Surviving Corporation) following the consummation of the Reorganization or
Sale
were Incumbent Directors at the time of the Board’s approval of the execution of
the initial agreement providing for such Reorganization or Sale (any
Reorganization
or Sale which satisfies all of the criteria specified in (A), (B) and (C)
above
shall be deemed to be a “Non-Qualifying
Transaction”);
provided,
however,
that
under no circumstances shall a split-off, spin-off, stock dividend or similar
transaction as a result of which the voting securities of the Corporation
are
distributed to shareholders of the Corporation or its successors constitute
a
Change of Control. Notwithstanding
the foregoing, with respect to an Award that is subject to Section 409A,
and the
payment or settlement of which is to be accelerated in connection with an
event
that would otherwise constitute a Change of Control, no event set forth in
the
definition of “Change of Control” will constitute a Change of Control for
purposes of the Plan or any Award Agreement unless such event also constitutes
a
“change in the ownership”, “change in the effective control” or “change in the
ownership of a substantial portion of the assets” of the Corporation as defined
under Section 409A.
(i) “Code”
means
the Internal Revenue Code of 1986, as amended from time to time, and the
regulations promulgated thereunder.
(j) “Committee”
means,
subject to the last sentence of Section 4.1,
the
committee of the Board described in Article
4.
(k) “Covered
Employee”
means
a
covered employee as defined in Section 162(m)(3) of the Code.
(l) “Disability”
has
the
meaning ascribed under the long-term disability plan applicable to the
Participant. Notwithstanding the above, (i) with respect to an Incentive
Stock
Option, Disability shall mean Permanent and Total Disability as defined in
Section 22(e)(3) of the Code and (ii) to the extent an Award is subject to
Section 409A, and payment or settlement of the Award is to be accelerated
solely
as a result of the Participant’s Disability, Disability shall have the meaning
ascribed thereto under Section 409A.
(m) “Dividend
Equivalent”
means
a
right granted to a Participant under Article
11.
(n) “Effective
Date”
has
the
meaning assigned such term in Section 2.1.
(o) “Eligible
Individual”
has
the
meaning assigned to such term in Section 6.1.
(p) “Fair
Market Value”,
on any
date, means, with respect to a share of Stock, (i) if the Stock is listed
on a
securities exchange or is traded over the Nasdaq National Market, the closing
sales price on such exchange or over such system on such date or, in the
absence
of reported sales on such date, the closing sales price on the immediately
preceding date on which sales were reported or (ii) if the Stock is not listed
on a securities exchange or traded over the Nasdaq National Market, Fair
Market
Value will be determined by such other method as the Committee determines
in
good faith to be reasonable.
(q) “Incentive
Stock Option”
means
an Option that is intended to meet the requirements of Section 422 of the
Code
or any successor provision thereto.
(r) “Maximum
Number”
has
the
meaning assigned to such term in Section 5.1.
(s) “Non-Employee
Director”
means
a
member of the Board who is not an employee of the Corporation or any Parent
or
Affiliate.
(t) “Non-Qualified
Stock Option”
means
an Option that is not an Incentive Stock Option.
(u) “Option”
means
a
right granted to a Participant under Article
7
to
purchase Stock at a specified price during specified time periods. An Option
may
be either an Incentive Stock Option or a Non-Qualified Stock
Option.
(v) “Other
Stock-Based Award”
means
a
right, granted to a Participant under Article
12
that
relates to or is valued by reference to Stock or other Awards relating to
Stock.
(w) “Parent”
means
a
corporation which owns or beneficially owns a majority of the outstanding
voting
stock or voting power of the Corporation. Notwithstanding the above, with
respect to an Incentive Stock Option, Parent shall have the meaning set forth
in
Section 424(e) of the Code.
(x) “Participant”
means
a
person who, as an employee, officer or director of the Corporation or any
Parent, Subsidiary or Affiliate, has been granted an Award under the
Plan.
(y) “Performance
Period”
means
the period established by the Committee and set forth in the applicable Award
Agreement over which Performance Targets are measured.
(z) “Performance
Target”
means
the performance targets established by the Committee and set forth in the
applicable Award Agreement.
(aa) “Performance
Share Award”
means
Stock granted to a Participant under Article
9
that is
subject to certain restrictions and to risk of forfeiture upon failure to
achieve Performance Targets.
(bb) “Performance
Share Unit Award”
means
a
right granted to a Participant under Article
9,
to
receive cash, Stock, or other property in the future that is subject to certain
restrictions and to risk of forfeiture upon failure to achieve Performance
Targets.
(cc) “Restricted
Stock Award”
means
Stock granted to a Participant under Article
10
that is
subject to certain restrictions and to risk of forfeiture.
(dd) “Restricted
Stock Unit Award”
means
a
right granted to a Participant under Article
10,
to
receive cash, Stock, or other Awards in the future that is subject to certain
restrictions and to risk of forfeiture.
(ee) “Section
409A”
means
Section 409A of the Internal Revenue Code of 1986, as amended, and the rules,
regulations and guidance issued thereunder.
(ff) “Stock”
means
the $.01 par value common stock of the Corporation and such other securities
of
the Corporation as may be substituted for Stock pursuant to Article
14.
(gg) “Stock
Appreciation Right”
or
“SAR”
means
a
right granted to a Participant under Article
8
to
receive a payment equal to the difference between the Fair Market Value of
a
share of Stock as of the date of exercise of the SAR over the grant price
of the
SAR, all as determined pursuant to Article
8.
(hh) “Subsidiary”
means
any corporation, limited liability company, partnership or other entity of
which
a majority of the outstanding voting equity securities or voting power is
beneficially owned directly or indirectly by the Corporation. Notwithstanding
the above, with respect to an Incentive Stock Option, Subsidiary shall have
the
meaning set forth in Section 424(f) of the Code.
(ii) “Target
Number”
means
the target number of shares of Stock established by the Committee and set
forth
in the applicable Award Agreement.
ARTICLE 4
ADMINISTRATION
4.1 COMMITTEE.
The
Plan shall be administered by a committee (the “Committee”)
appointed by the Board (which Committee shall consist of two or more directors)
or, at the discretion of the Board from time to time, the Plan may be
administered by the Board. It is intended that the directors appointed to
serve
on the Committee shall be “non-employee directors” (within the meaning of Rule
16b-3 promulgated under the 1934 Act)
and
“outside directors” (within the meaning of Section 162(m) of the Code) to the
extent that Rule 16b-3 and, if necessary for relief from the limitation under
Section 162(m) of the Code and such relief is sought by the Corporation,
Section
162(m) of the Code, respectively, are applicable. However, the mere fact
that a
Committee member shall fail to qualify under either of the foregoing
requirements shall not invalidate any Award made by the Committee, which
Award
is otherwise validly made under the Plan. The members of the Committee shall
be
appointed by, and may be changed at any time and from time to time in the
discretion of, the Board. During any time that the Board is acting as
administrator of the Plan, it shall have all the powers of the Committee
hereunder, and any reference herein to the Committee (other than in this
Section
4.1)
shall
include the Board.
4.2 ACTION
BY THE COMMITTEE.
For
purposes of administering the Plan, the following rules of procedure shall
govern the Committee. A majority of the Committee shall constitute a quorum.
The
acts of a majority of the members present at any meeting at which a quorum
is
present, and acts approved unanimously in writing by the members of the
Committee in lieu of a meeting, shall be deemed the acts of the Committee.
Each
member of the Committee is entitled to, in good faith, rely or act upon any
report or other information furnished to that member by any officer or other
employee of the Corporation or any Parent or Affiliate, the Corporation’s
independent certified public accountants, or any executive compensation
consultant or other professional retained by the Corporation to assist in
the
administration of the Plan.
4.3 AUTHORITY
OF COMMITTEE.
Except
as provided below, the Committee has the exclusive power, authority and
discretion to:
(a) Designate
Participants;
(b) Determine
the type or types of Awards to be granted to each Participant;
(c) Determine
the number of Awards to be granted and the number of shares of Stock to which
an
Award will relate;
(d) Determine
the terms and conditions of any Award granted under the Plan, including,
but not
limited to, the exercise price, grant price or purchase price, any restrictions
or limitations on the Award, any schedule for lapse of forfeiture restrictions
or restrictions on the exercisability of an Award, any effect of a Participant’s
termination of employment with the Corporation or a Parent or Subsidiary,
and
accelerations or waivers thereof, based in each case on such considerations
as
the Committee in its sole discretion determines;
(e) Accelerate
the vesting or lapse of restrictions of any outstanding Award, based in each
case on such considerations as the Committee in its sole discretion
determines;
(f) Determine
whether, to what extent, and under what circumstances an Award may be settled
in, or the exercise price of an Award may be paid in, cash, Stock, other
Awards
or other property, or an Award may be canceled, forfeited or
surrendered;
(g) Prescribe
the form of each Award Agreement, which need not be identical for each
Participant;
(h) Decide
all other matters that must be determined in connection with an
Award;
(i) Establish,
adopt or revise any rules and regulations as it may deem necessary or advisable
to administer the Plan;
(j) Make
all
other decisions and determinations that may be required under the Plan or
as the
Committee deems necessary or advisable to administer the Plan;
(k) Construe
and interpret any Award Agreement delivered under the Plan;
(l) Make
factual determinations in connection with the administration or interpretation
of the Plan;
(m) Employ
such legal counsel, independent auditors and consultants as it deems desirable
for the administration of the Plan and to rely upon any opinion or computation
received therefrom;
(n) Vary
the
terms of Awards to take account of tax, securities law and other regulatory
requirements of foreign jurisdictions or to procure favorable tax treatment
for
Participants; and
(o) Amend
the
Plan or any Award Agreement as provided herein.
4.4 DELEGATION
OF AUTHORITY.
To the
extent not prohibited by applicable laws, rules and regulations, the Board
or
the Committee may, from time to time, delegate some or all of its authority
under the Plan to a subcommittee or subcommittees thereof or to one or more
directors or executive officers of the Corporation as it deems appropriate
under
such conditions or limitations as it may set at the time of such delegation
or
thereafter, except that neither the Board nor the Committee may delegate
its
authority pursuant to Article
15
to amend
the Plan. For purposes of the Plan, references to the Committee shall be
deemed
to refer to any subcommittee, subcommittees, directors or executive officers
to
whom the Board or the Committee delegates authority pursuant to this Section
4.4.
4.5 DECISIONS
BINDING.
The
Committee’s interpretation of the Plan, any Awards granted under the Plan, any
Award Agreement and all decisions and determinations by the Committee with
respect to the Plan are final, binding and conclusive on all
parties.
ARTICLE 5
SHARES
SUBJECT TO THE PLAN
5.1 NUMBER
OF SHARES.
Subject
to adjustment as provided in Section 14.1,
the
aggregate number of shares of Stock reserved and available for Awards or
which
may be used to provide a basis of measurement for or to determine the value
of
an Award (such as with a Stock Appreciation Right or Performance Share Award)
shall be 4,500,000 shares (the “Maximum
Number”).
Not
more than the
Maximum Number of shares of Stock shall be granted in the form of Incentive
Stock Options.
5.2 PLAN
SUB-LIMITS.
Subject
to adjustment as provided in Section 14.1,
the
maximum aggregate number of shares of Stock that may be issued in conjunction
with (i) Restricted Stock Awards, unrestricted shares of Stock, Performance
Share Awards, and Dividend Equivalents, and (ii) Restricted Stock Unit
Awards, Performance Share Unit Awards and Other Awards but only if such Awards
are paid or settled in shares of Stock, is 1,000,000 shares.
5.4 LAPSED
AWARDS.
To the
fullest extent permissible under Rule 16b-3 under the 1934 Act and Section
422
of the Code and any other applicable laws, rules and regulations, (i) if
an
Award is canceled, terminates, expires, is forfeited or lapses for any
reason
without having been exercised or settled, any shares of Stock subject to
the
Award will be added back into the Maximum Number and will again be available
for
the grant of an Award under the Plan and (ii) shares of Stock subject to
SARs or
other Awards settled in cash shall be added back into the Maximum Number
and
will be available for the grant of an Award under the Plan.
5.5 LIMITED
DURATION OF CERTAIN RULES.
Any
rule set forth in Section 5.2
that is
considered a “formula” under the rules of the NASDAQ Stock Market applicable to
the Corporation shall expire on and not be applied after the tenth anniversary
of the date on which the Plan is approved by the Corporation’s stockholders. The
expiration of any such rule shall not affect any calculation of shares of
Stock
available for delivery under the Plan that was made while the rule was in
effect.
5.6 STOCK
DISTRIBUTED.
Any
Stock distributed pursuant to an Award may consist, in whole or in part,
of
authorized and unissued Stock, treasury Stock or Stock purchased on the open
market.
5.7 LIMITATION
ON AWARDS.
Notwithstanding any provision in the Plan to the contrary (but subject to
adjustment as provided in Section 14.1),
the
maximum number of shares of Stock that may be issued in respect of, or used
to
provide a basis of measurement for or to determine the value of, one or more
Options, Stock Appreciation Rights, Restricted Stock Awards, Restricted Stock
Unit Awards, Performance Share Awards, Performance Share Unit Awards, Dividend
Equivalent Awards or Other Stock-Based Awards (regardless of whether such
Awards
are settled in cash, Stock or a combination thereof) granted during any one
calendar year under the Plan to any one Participant shall be 150,000 (all
of
which may be granted as Incentive Stock Options). The maximum amount of one
or
more Awards denominated in cash that may be received by any one Participant
during any one calendar year under the Plan shall be $1,000,000.
ARTICLE
6
ELIGIBILITY
6.1 GENERAL.
Awards
may be granted only to individuals who are employees, officers or directors
of
the Corporation or a Parent or Subsidiary (each, an “Eligible
Individual”).
Under
the Plan, references to “employment” or “employed” include the service of
Participants who are Non-Employee Directors.
ARTICLE
7
STOCK
OPTIONS
7.1 GENERAL.
The
Committee is authorized to grant Options to Eligible Individuals on the
following terms and conditions:
(a) EXERCISE
PRICE.
The
exercise price per share of Stock under an Option shall be determined by
the
Committee at the time of the grant but in no event shall the exercise price
be
less than 100% of the Fair Market Value of a share of Stock on the date of
grant.
(b) TIME
AND CONDITIONS OF EXERCISE.
The
Committee shall determine the time or times at which an Option may be exercised
in whole or in part, subject to Section 7.1(e).
The
Committee also shall determine the performance or other conditions, if any,
that
must be satisfied before all or part of an Option may be exercised. The
Committee may waive any exercise provisions at any time in whole or in part
based upon factors as the Committee may determine in its sole discretion
so that
the Option becomes exerciseable at an earlier date.
(c) PAYMENT.
Unless
otherwise determined by the Committee, the exercise price of an Option may
be
paid (i) in cash, (ii) by actual delivery or attestation to ownership of
freely
transferable shares of stock already owned; provided,
however,
that to
the extent required by applicable accounting rules, such shares shall have
been
held by the Participant for at least six months, (iii) by a combination of
cash and shares of Stock equal in value to the exercise price, (iv) through
net
share settlement or a similar procedure involving the withholding of shares
of
Stock subject to the Option with a value equal to the exercise price or
(v) by such other means as the Committee, in its discretion, may authorize.
In accordance with the rules and procedures authorized by the Committee for
this
purpose, an Option may also be exercised through a “cashless exercise” procedure
authorized by the Committee that permits Participants to exercise Options
by
delivering a properly executed exercise notice to the Corporation together
with
a copy of irrevocable instructions to a broker to deliver promptly to the
Corporation the amount of sale or loan proceeds necessary to pay the exercise
price and the amount of any required tax or other withholding
obligations.
(d) EVIDENCE
OF GRANT.
All
Options shall be evidenced by an Award Agreement between the Corporation
and the
Participant. The Award Agreement shall include such provisions not inconsistent
with the Plan as may be specified by the Committee.
(e) EXERCISE
TERM.
In no
event may any Option be exercisable for more than ten years from the date
of its
grant.
7.2 INCENTIVE
STOCK OPTIONS.
The
terms of any Incentive Stock Options granted under the Plan must comply with
the
following additional rules:
(a) LAPSE
OF OPTION.
An
Incentive Stock Option shall lapse under the earliest of the following
circumstances; provided,
however,
that
the Committee may, prior to the lapse of the Incentive Stock Option under
the
circumstances described in paragraphs (3), (4) and (5) below, provide in
writing
that the Option will extend until a later date, but if an Option is exercised
after the dates specified in paragraphs (3), (4) and (5) below, it will
automatically become a Non-Qualified Stock Option:
(1) The
Incentive Stock Option shall lapse as of the option expiration date set forth
in
the Award Agreement.
(2) The
Incentive Stock Option shall lapse ten years after it is granted, unless
an
earlier time is set in the Award Agreement.
(3) If
the
Participant terminates employment for any reason other than as provided in
paragraph (4) or (5) below, the Incentive Stock Option shall lapse, unless
it is
previously exercised, three months after the Participant’s termination of
employment; provided,
however,
that if
the Participant’s employment is terminated by the Corporation for Cause, the
Incentive Stock Option shall (to the extent not previously exercised) lapse
immediately.
(4) If
the
Participant terminates employment by reason of his Disability, the Incentive
Stock Option shall lapse, unless it is previously exercised, one year after
the
Participant’s termination of employment.
(5) If
the
Participant dies while employed, or during the three-month period described
in
paragraph (3) or during the one-year period described in paragraph (4) and
before the Option otherwise lapses, the Option shall lapse one year after
the
Participant’s death. Upon the Participant’s death, any exercisable Incentive
Stock Options may be exercised by the Participant’s beneficiary, determined in
accordance with Section 13.5.
Unless
the exercisability of the Incentive Stock Option is accelerated as provided
in
Article
13,
if a
Participant exercises an Option after termination of employment, the Option
may
be exercised only with respect to the shares that were otherwise vested on
the
Participant’s termination of employment.
(b) INDIVIDUAL
DOLLAR LIMITATION.
The
aggregate Fair Market Value (determined as of the time an Award is made)
of all
shares of Stock with respect to which Incentive Stock Options are first
exercisable by a Participant in any calendar year may not exceed $100,000.
(c) TEN
PERCENT OWNERS.
No
Incentive Stock Option shall be granted to any individual who, at the date
of
grant, owns stock possessing more than ten percent of the total combined
voting
power of all classes of stock of the Corporation or any Parent or Affiliate
unless the exercise price per share of such Option is at least 110% of the
Fair
Market Value per share of Stock at the date of grant and the Option expires
no
later than five years after the date of grant.
(d) EXPIRATION
OF INCENTIVE STOCK OPTIONS.
No
Award of an Incentive Stock Option may be made pursuant to the Plan after
the
day immediately prior to the tenth anniversary of the Effective
Date.
(e) RIGHT
TO EXERCISE.
During
a Participant’s lifetime, an Incentive Stock Option may be exercised only by the
Participant or, in the case of the Participant’s Disability, by the
Participant’s guardian or legal representative.
(f) DIRECTORS.
The
Committee may not grant an Incentive Stock Option to a Non-Employee Director
or
Consultant. The Committee may grant an Incentive Stock Option to a director
who
is
also
an employee of the Corporation or any Parent or Affiliate but only in that
individual’s position as an employee and not as a director.
7.3 NO
REPRICING OF OPTIONS.
The
Committee may not “reprice” any Option. “Reprice” means any of the following or
any other action that has the same effect: (i) amending an Option to reduce
its
exercise price, (ii) canceling an Option at a time when its exercise price
exceeds the Fair Market Value of a share of Stock in exchange for an Option,
Restricted Stock Award or other equity award unless the cancellation and
exchange occurs in connection with a merger, acquisition, spin-off or other
similar corporate transaction, or (iii) taking any other action that is treated
as a repricing under GAAP, provided
that
nothing in this Section 7.3
shall
prevent the Committee from making adjustments pursuant to Section 14.1.
ARTICLE
8
STOCK
APPRECIATION RIGHTS
8.1 GRANT
OF STOCK
APPRECIATION RIGHTS.
The
Committee is authorized to grant Stock Appreciation Rights to Participants
on
the following terms and conditions:
(a) RIGHT
TO PAYMENT.
Upon
the exercise of a Stock Appreciation Right, the Participant to whom it is
granted has the right to receive the excess, if any, of:
(1) The
Fair
Market Value of one share of Stock on the date of exercise; over
(2) The
grant
price of the Stock Appreciation Right as determined by the Committee, which
shall not be less than the Fair Market Value of one share of Stock on the
date
of grant.
(b) OTHER
TERMS.
All
awards of Stock Appreciation Rights shall be evidenced by an Award Agreement.
The terms, methods of exercise, methods of settlement, form of consideration
payable in settlement, and any other terms and conditions of any Stock
Appreciation Right shall be determined by the Committee at the time of the
grant
of the Award and shall be reflected in the Award Agreement, provided that
each
Stock Appreciation Right shall lapse ten years after it is granted, unless
an
earlier time is set in the Award Agreement.
ARTICLE
9
PERFORMANCE
SHARE
AWARDS AND
PERFORMANCE
SHARE UNIT AWARDS
9.1 PERFORMANCE
SHARE AWARDS.
The
Committee is authorized to grant Performance Share Awards to Participants
on
such terms and conditions as may be selected by the Committee. The Committee
shall have the complete discretion to determine the number of Performance
Share
Awards granted to each Participant, subject to Section 5.7.
All
Performance Share Awards shall be evidenced by an Award Agreement. A grant
of a
Performance Share Award shall consist of a Target Number of shares of Stock
granted to an Eligible Individual subject to risk of forfeiture for failure
to
achieve the Performance Targets and subject to the terms, conditions and
restrictions set forth in the Plan and the applicable Award Agreement. The
Performance Targets will be evaluated at the end of the applicable Performance
Period and a Participant may receive more or less than the Target Number
of
shares of Stock subject to a Performance Share Award, subject to Section
5.7,
depending on the extent to which the Performance Targets and other terms
and
conditions to payment are met over the Performance Period.
9.2 PERFORMANCE
SHARE UNIT AWARDS.
The
Committee is authorized to grant Performance Share Unit Awards to Participants
on such terms and conditions as may be selected by the Committee. The Committee
shall have the complete discretion to determine the number of Performance
Share
Unit Awards granted to each Participant, subject to Section 5.7.
All
Performance Share Unit Awards shall be evidenced by an Award Agreement. A
Performance Stock Unit Award shall entitle a Participant to receive, subject
to
the terms, conditions and restrictions set forth in the Plan and established
by
the Committee in connection with the Award and specified in the applicable
Award
Agreement, a Target Number of shares of Stock based upon the achievement
of
Performance
Targets
over the applicable Performance Period. Performance Share Unit Awards may
be
payable in cash, Stock or other property, as determined by the Committee
and
reflected in the Award Agreement. The Performance Targets will be evaluated
at
the end of the applicable Performance Period and a Participant may receive
more
or less than the Target Number of shares of Stock subject to a Performance
Share
Unit Award, subject to Section 5.7,
depending on the extent to which the Performance Targets and other terms
and
conditions to payment are met over the Performance Period.
ARTICLE
10
RESTRICTED
STOCK AWARDS
AND
RESTRICTED
STOCK UNIT AWARDS
10.1 RESTRICTED
STOCK AWARDS.
(a) GRANT.
The
Committee is authorized to grant Restricted Stock Awards to Participants
in such
amounts and subject to such terms and conditions as may be selected by the
Committee. All Restricted Stock Awards shall be evidenced by an Award Agreement.
A Restricted Stock Award shall consist of one or more shares of Stock granted
to
an Eligible Individual, and shall be subject to the terms, conditions and
restrictions set forth in the Plan and established by the Committee in
connection with the Award and specified in the applicable Award Agreement.
(b) ISSUANCE
AND RESTRICTIONS.
Restricted Stock shall be subject to such restrictions on transferability
and
other restrictions as the Committee may impose (including, without limitation,
limitations on the right to vote Restricted Stock or the right to receive
dividends on the Restricted Stock). These restrictions may lapse separately
or
in combination at such times, under such circumstances, in such installments,
upon the satisfaction of performance goals or otherwise, as the Committee
determines at the time of the grant of the Award or thereafter.
(c) FORFEITURE.
Except
as otherwise determined by the Committee at the time of the grant of the
Award
or thereafter, upon termination of employment during the applicable restriction
period or upon failure to satisfy a performance goal during the applicable
restriction period, Restricted Stock that is at that time subject to
restrictions shall be forfeited and reacquired by the Corporation; provided,
however,
that
the Committee may provide in any Award Agreement that restrictions or forfeiture
conditions relating to Restricted Stock will be waived in whole or in part
in
the event of terminations resulting from specified causes, and the Committee
may
in other cases waive in whole or in part restrictions or forfeiture conditions
relating to Restricted Stock.
(d) CERTIFICATES
FOR RESTRICTED STOCK.
Restricted Stock granted under the Plan may be evidenced in such manner as
the
Committee shall determine. If certificates representing shares of Restricted
Stock are registered in the name of the Participant, certificates must bear
an
appropriate legend referring to the terms, conditions and restrictions
applicable to such Restricted Stock.
10.2 RESTRICTED
STOCK UNIT AWARDS.
The
Committee is authorized to grant Restricted Stock Unit Awards to Participants
in
such amounts and subject to such terms and conditions as may be selected
by the
Committee. All Restricted Stock Unit Awards shall be evidenced by an Award
Agreement. A Restricted Stock Unit shall entitle a Participant to receive,
subject to the terms, conditions and restrictions set forth in the Plan and
established by the Committee in connection with the Award, one or more shares
of
Stock. Restricted Stock Units may, among other things, be subject to
restrictions on transferability, vesting requirements or other specified
circumstances under which they may be canceled. Restricted Stock Units may
be
payable in cash, shares of Stock or other property, as determined by the
Committee and reflected in the Award Agreement.
ARTICLE
11
DIVIDEND
EQUIVALENTS
11.1 GRANT
OF DIVIDEND EQUIVALENTS.
The
Committee is authorized to grant Dividend Equivalents to Participants subject
to
such terms and conditions as may be selected by the Committee. Dividend
Equivalents shall entitle the Participant to receive payments (in cash, Stock
or
other property) equal to dividends
with
respect to all or a portion of the number of shares of Stock subject to an
Award, as determined by the Committee. The Committee may provide that Dividend
Equivalents be paid or distributed when accrued, or be deemed to have been
reinvested in additional shares of Stock or otherwise reinvested; provided,
however,
that
the terms of any reinvestment of Dividend Equivalents must comply with all
applicable laws, rules and regulations, including, without limitation, Section
409A.
ARTICLE
12
OTHER
STOCK-BASED AWARDS
12.1 GRANT
OF OTHER STOCK-BASED AWARDS.
The
Committee is authorized, subject to limitations under applicable law, to
grant
to Participants such other Awards that are payable in, valued in whole or
in
part by reference to, or otherwise based on or related to shares of Stock,
as
deemed by the Committee to be consistent with the purposes of the Plan,
including, without limitation, shares of Stock awarded purely as a “bonus” and
not subject to any restrictions or conditions, convertible or exchangeable
debt
securities, other rights convertible or exchangeable into shares of Stock,
stock
units, phantom stock and other Awards valued by reference to book value of
shares of Stock or the value of securities of or the performance of specified
Parents or Subsidiaries. The Committee shall determine the terms and conditions
of such Awards.
ARTICLE
13
PROVISIONS
APPLICABLE TO AWARDS
13.1 STAND-ALONE,
TANDEM, AND SUBSTITUTE AWARDS.
Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution for, any
other Award granted under the Plan. If an Award is granted in substitution
for
another Award, the Committee may require the surrender of such other Award
in
consideration of the grant of the new Award. Awards granted in addition to
or in
tandem with other Awards may be granted either at the same time as or at
a
different time from the grant of such other Awards.
13.2 TERM
OF AWARD.
The
term of each Award shall be for the period as determined by the Committee,
provided
that in
no event shall the term of any Incentive Stock Option or a Stock Appreciation
Right granted in tandem with the Incentive Stock Option exceed a period of
ten
years from the date of its grant (or, if Section 7.2(c)
applies,
five years from the date of its grant).
13.3 FORM
OF PAYMENT FOR AWARDS.
Subject
to the terms of the Plan and any applicable law or Award Agreement, payments
or
transfers to be made by the Corporation or a Parent or Affiliate on the grant
or
exercise of an Award may be made in such form as the Committee determines
at or
after the time of grant, including, without limitation, cash, Stock, other
Awards or other property, or any combination thereof, and may be made in
a
single payment or transfer, in installments or on a deferred basis, in each
case
determined in accordance with rules adopted by, and at the discretion of,
the
Committee.
13.4 LIMITS
ON TRANSFER.
No
right or interest of a Participant in any unexercised or restricted Award
may be
pledged, encumbered or hypothecated to or in favor of any party other than
the
Corporation or a Parent or Affiliate, or shall be subject to any lien,
obligation, or liability of such Participant to any other party other than
the
Corporation or a Parent or Affiliate. No unexercised or restricted Award
shall
be assignable or transferable by a Participant other than by will or the
laws of
descent and distribution or, except in the case of an Incentive Stock Option,
pursuant to a domestic relations order that would satisfy Section 414(p)(1)(A)
of the Code if such Section applied to an Award under the Plan; provided,
however,
that
the Committee may (but need not) permit other transfers where the Committee
concludes that such transferability (i) does not result in accelerated taxation
or other adverse tax consequences, (ii) does not cause any Option intended
to be
an Incentive Stock Option to fail to be described in Section 422(b) of the
Code,
(iii) does not result in cash or any other consideration being exchanged
for the
Award, and (iv) is otherwise appropriate and desirable, taking into account
any
factors deemed relevant, including, without limitation, state or federal
tax or
securities laws applicable to transferable Awards.
13.5 BENEFICIARIES.
Notwithstanding Section 13.4,
a
Participant may, in the manner determined by the Committee, designate a
beneficiary to exercise the rights of the Participant and to receive any
distribution with respect to any Award upon the Participant’s death. A
beneficiary, legal guardian, legal representative or other
person
claiming any rights under the Plan is subject to all terms and conditions
of the
Plan and any Award Agreement applicable to the Participant, except to the
extent
the Plan and such Award Agreement otherwise provide, and to any additional
restrictions deemed necessary or appropriate by the Committee. If no beneficiary
has been designated or survives the Participant, payment shall be made to
the
Participant’s estate. Subject to the foregoing, a beneficiary designation may be
changed or revoked by a Participant at any time, provided
the
change or revocation is filed with the Committee.
13.6 STOCK
CERTIFICATES.
All
Stock issuable under the Plan is subject to any stop-transfer orders and
other
restrictions as the Committee deems necessary or advisable to comply with
federal or state securities laws, rules and regulations and the rules of
any
national securities exchange or automated quotation system on which the Stock
is
listed, quoted or traded. The Committee may place legends on any Stock
certificate or issue instructions to the transfer agent to reference
restrictions applicable to the Stock.
13.7 ACCELERATION
UPON DEATH OR DISABILITY.
Unless
otherwise set forth in an Award Agreement, upon the Participant’s death or
Disability during his employment or service as a director, all outstanding
Options, Stock Appreciation Rights, Restricted Stock Awards and other Awards
in
the nature of rights that may be exercised shall become fully exercisable
and
all restrictions on outstanding Awards shall lapse. Any Option or Stock
Appreciation Right shall thereafter continue or lapse in accordance with
the
other provisions of the Plan and the Award Agreement. To the extent that
this
provision causes Incentive Stock Options to exceed the dollar limitation
set
forth in Section 7.2(b),
the
excess Options shall be deemed to be Non-Qualified Stock Options.
13.8 ACCELERATION
OF VESTING AND LAPSE OF RESTRICTIONS.
The
Committee may, in its sole discretion, at any time (including, without
limitation, prior to, coincident with or subsequent to a Change of Control)
determine that (a) all or a portion of a Participant’s Options, Stock
Appreciation Rights and other Awards in the nature of rights that may be
exercised shall become fully or partially exercisable, and/or (b) all or
a part
of the restrictions on all or a portion of the outstanding Awards shall lapse,
in each case, as of such date as the Committee may, in its sole discretion,
declare; provided,
however,
that,
with respect to Awards that are subject to Section 409A, the Committee shall
not
have the authority to accelerate or postpone the timing of payment or settlement
of an Award in a manner that would cause such Award to become subject to
the
interest and penalty provisions under Section 409A. The Committee may
discriminate among Participants and among Awards granted to a Participant
in
exercising its discretion pursuant to this Section 13.8.
13.9 OTHER
ADJUSTMENTS.
If (i)
an Award is accelerated under Section 13.8
or (ii)
a Change of Control occurs (regardless or whether acceleration under Section
13.8
occurs),
the Committee may, in its sole discretion, provide (a) that the Award will
expire after a designated period of time after such acceleration or Change
of
Control, as applicable, to the extent not then exercised, (b) that the Award
will be settled in cash rather than Stock, (c) that the Award will be assumed
by
another party to a transaction giving rise to the acceleration or a party
to the
Change of Control, (d) that the Award will otherwise be equitably converted
or
adjusted in connection with such transaction or Change of Control, or (e)
any
combination of the foregoing. The Committee’s determination need not be uniform
and may be different for different Participants whether or not such Participants
are similarly situated; provided,
however,
that,
with respect to Awards that are subject to Section 409A, the Committee shall
not
have the authority to accelerate or postpone the timing of payment or settlement
of an Award in a manner that would cause such Award to become subject to
the
interest and penalty provisions under Section 409A.
13.10 PERFORMANCE
GOALS.
In
order to preserve the deductibility of an Award under Section 162(m) of the
Code, the Committee may determine that any Award granted pursuant to the
Plan to
a Participant that is or is expected to become a Covered Employee shall be
determined solely on the basis of (a) the achievement by the Corporation
or a
Parent or Subsidiary of a specified target return, or target growth in return,
on equity or assets, (b) the Corporation’s stock price, (c) the Corporation’s
total shareholder return (stock price appreciation plus reinvested dividends)
relative to a defined comparison group or target over a specific performance
period, (d) the achievement by the Corporation or a Parent or Subsidiary,
or a
business unit of any such entity, of a specified target, or target growth
in,
net income, revenues, earnings per share, earnings before income and taxes,
and
earnings before income, taxes, depreciation and amortization, or (e) any
combination of the goals set forth in (a) through (d) above. If an Award
is made
on such basis, the Committee shall establish goals prior to the beginning
of the
period for which such performance goal relates (or such later date as may
be
permitted under Section 162(m) of the Code or the regulations thereunder),
and
the Committee has the right for any reason to reduce (but not increase) the
Award,
notwithstanding
the achievement of a specified goal. Any payment of an Award granted with
performance goals shall be conditioned on the written certification of the
Committee in each case that the performance goals and any other material
conditions were satisfied.
13.11 TERMINATION
OF EMPLOYMENT.
Whether
military, government or other service or other leave of absence shall constitute
a termination of employment shall be determined in each case by the Committee
at
its discretion, and any determination by the Committee shall be final and
conclusive. A termination of employment shall not occur (i) in a circumstance
in
which a Participant transfers from the Corporation to one of its Parents
or
Subsidiaries, transfers from a Parent or Affiliate to the Corporation, or
transfers from one Parent or Affiliate to another Parent or Affiliate, or
(ii)
in the discretion of the Committee as specified at or prior to such occurrence,
in the case of a split-off, spin-off, sale or other disposition of the
Participant’s employer from the Corporation or any Parent or Affiliate. To the
extent that this provision causes Incentive Stock Options to extend beyond
three
months from the date a Participant is deemed to be an employee of the
Corporation, a Parent or Affiliate for purposes of Section 424(f) of the
Code,
the Options held by such Participant shall be deemed to be Non-Qualified
Stock
Options.
ARTICLE
14
CHANGES
IN CAPITAL STRUCTURE
14.1 GENERAL.
In the
event of a corporate transaction involving the Corporation (including, without
limitation, any stock dividend, stock split, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination or exchange of shares), the authorization limits under Sections
5.1
and
5.7
shall be
adjusted proportionately, and the Committee may adjust Awards to preserve
the
benefits or potential benefits of the Awards. Action by the Committee may
include: (i) adjustment of the number and kind of shares which may be delivered
under the Plan; (ii) adjustment of the number and kind of shares subject
to
outstanding Awards; (iii) adjustment of the exercise price of outstanding
Awards; (iv) adjustments to the type or form of Award; and (v) any other
adjustments that the Committee determines to be equitable. Without limiting
the
foregoing, in the event a stock dividend or stock split is declared upon
the
Stock, the authorization limits under Sections 5.1
and
5.7
shall be
increased proportionately, and the shares of Stock then subject to each Award
shall be increased proportionately without any change in the aggregate purchase
price therefor.
ARTICLE
15
AMENDMENT,
MODIFICATION AND TERMINATION
15.1 AMENDMENT,
MODIFICATION AND TERMINATION.
The
Board or the Committee may, at any time and from time to time, amend, modify
or
terminate the Plan; provided,
however,
that
the Board or the Committee may condition any amendment or modification on
the
approval of shareholders of the Corporation if such approval is necessary
or
deemed advisable with respect to tax, securities or other applicable laws,
policies or regulations.
15.2 AWARDS
PREVIOUSLY GRANTED.
At any
time and from time to time, the Committee may amend, modify or terminate
any
outstanding Award or Award Agreement without approval of the Participant;
provided,
however,
that,
subject to the terms of the applicable Award Agreement, such amendment,
modification or termination shall not, without the Participant’s consent, reduce
or diminish the value of such Award determined as if the Award had been
exercised, vested, cashed in or otherwise settled on the date of such amendment
or termination; provided further,
however,
that
the original term of any Option may not be extended. No termination, amendment,
or modification of the Plan shall adversely affect any Award previously granted
under the Plan, without the written consent of the Participant. Notwithstanding
any provision herein to the contrary, the Committee shall have broad authority
to amend the Plan or any outstanding Award under the Plan without approval
of
the Participant to the extent necessary or desirable (i) to comply with, or
take into account changes in, applicable tax laws, securities laws, accounting
rules and other applicable laws, rules and regulations or (ii) to ensure
that an Award is not subject to interest and penalties under Section
409A.
ARTICLE
16
GENERAL
PROVISIONS
16.1 NO
RIGHTS TO AWARDS.
No
Participant or any Eligible Individual shall have any claim to be granted
any
Award under the Plan, and neither the Corporation nor the Committee is obligated
to treat Participants or Eligible Individuals uniformly.
16.2 NO
STOCKHOLDER RIGHTS.
No
Award gives the Participant any of the rights of a shareholder of the
Corporation unless and until shares of Stock are in fact issued to such person
in connection with the exercise, payment or settlement of such
Award.
16.3 WITHHOLDING.
The
Corporation or any Subsidiary, Parent or Affiliate shall have the authority
and
the right to deduct or withhold, or require a Participant to remit to the
Corporation, an amount sufficient to satisfy federal, state, local and other
taxes (including the Participant’s FICA obligation) required by law to be
withheld with respect to any taxable event arising as a result of the Plan.
With
respect to withholding required upon any taxable event under the Plan, the
Committee may, at the time the Award is granted or thereafter, require or
permit
that any such withholding requirement be satisfied, in whole or in part,
by (i)
withholding from the Award shares of Stock or (ii) delivering shares of Stock
that are already owned, having a Fair Market Value on the date of withholding
equal to the minimum amount (and not any greater amount) required to be withheld
for tax purposes, all in accordance with such procedures as the Committee
establishes. The Corporation or any Subsidiary, Parent or Affiliate, as
appropriate, shall also have the right to deduct from all cash payments made
to
a Participant (whether or not such payment is made in connection with an
Award)
any applicable taxes required to be withheld with respect to such
payments.
16.4 NO
RIGHT TO CONTINUED SERVICE.
Nothing
in the Plan or any Award Agreement shall interfere with or limit in any way
the
right of the Corporation or any Parent or Affiliate to terminate any
Participant’s employment or status as an officer or director at any time, nor
confer upon any Participant any right to continue as an employee, officer
or
director of the Corporation or any Parent or Affiliate. In its sole discretion,
the Board or the Committee may authorize the creation of trusts or other
arrangements to meet the obligations created under the Plan to deliver shares
of
Stock with respect to awards hereunder.
16.5 UNFUNDED
STATUS OF AWARDS.
The
Plan is intended to be an “unfunded” plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant
pursuant to an Award, nothing contained in the Plan or any Award Agreement
shall
give the Participant any rights that are greater than those of a general
creditor of the Corporation or any Parent or Affiliate.
16.6 INDEMNIFICATION.
To the
extent allowable under applicable law, each member of the Committee shall
be
indemnified and held harmless by the Corporation from any loss, cost, liability
or expense that may be imposed upon or reasonably incurred by such member
in
connection with or resulting from any claim, action, suit or proceeding to
which
such member may be a party or in which he may be involved by reason of any
action or failure to act under the Plan and against and from any and all
amounts
paid by such member in satisfaction of judgment in such action, suit or
proceeding against him; provided
such
member shall give the Corporation an opportunity, at its own expense, to
handle
and defend the same before such member undertakes to handle and defend it
on his
or her own behalf. The foregoing right of indemnification shall not be exclusive
of any other rights of indemnification to which such persons may be entitled
under the Corporation’s Certificate of Incorporation or Bylaws, as a matter of
law, or otherwise, or any power that the Corporation may have to indemnify
them
or hold such persons harmless.
16.7 RELATIONSHIP
TO OTHER BENEFITS.
No
payment under the Plan shall be taken into account in determining any benefits
under any pension, retirement, savings, profit sharing, group insurance,
welfare
or benefit plan of the Corporation or any Parent or Affiliate unless provided
otherwise in such other plan.
16.8 EXPENSES;
APPLICATION OF FUNDS.
The
expenses of administering the Plan shall be borne by the Corporation and
its
Parents or Subsidiaries. The proceeds received by the Corporation from the
sale
of shares of Stock pursuant to Awards will be used for general corporate
purposes.
16.9 TITLES
AND HEADINGS.
The
titles and headings of the Sections in the Plan are for convenience of reference
only, and in the event of any conflict, the text of the Plan, rather than
such
titles or headings, shall control.
16.10 GENDER
AND NUMBER.
Except
where otherwise indicated by the context, any masculine term used herein
also
shall include the feminine; the plural shall include the singular and the
singular shall include the plural.
16.11 FRACTIONAL
SHARES.
No
fractional shares of Stock shall be issued and the Committee shall determine,
in
its discretion, whether cash shall be given in lieu of fractional shares
or
whether such fractional shares shall be eliminated by rounding up or
down.
16.12 GOVERNMENT
AND OTHER REGULATIONS.
The
obligation of the Corporation to make payment of awards in Stock or otherwise
shall be subject to all applicable laws, rules and regulations, and to such
approvals by government agencies as may be required. To the extent that Awards
under the Plan are awarded to individuals who are domiciled or resident outside
of the United States or to persons who are domiciled or resident in the United
States but who are subject to the tax laws of a jurisdiction outside of the
United States, the Committee may adjust the terms of the Awards granted
hereunder to such person (i) to comply with the laws of such jurisdiction
and
(ii) to avoid adverse tax consequences relating to an Award. The authority
granted under the previous sentence shall include the discretion for the
Committee to adopt, on behalf of the Corporation, one or more sub-plans
applicable to separate classes of Participants who are subject to the laws
of
jurisdictions outside of the United States.
16.13 SECURITIES
LAW RESTRICTIONS.
An
Award may not be exercised or settled and no shares of Stock may be issued
in
connection with an Award unless the issuance of such shares of Stock has
been
registered under the 1933 Act and qualified under applicable state “blue sky”
laws and any applicable foreign securities laws, or the Corporation has
determined that an exemption from registration and from qualification under
such
state “blue sky” laws is available. The Corporation shall be under no obligation
to register under the 1933 Act, or any state securities act, any of the shares
of Stock issued in connection with the Plan. The shares issued in connection
with the Plan may in certain circumstances be exempt from registration under
the
1933 Act, and the Corporation may restrict the transfer of such shares in
such
manner as it deems advisable to ensure the availability of any such exemption.
The Committee may require each Participant purchasing or acquiring shares
of
Stock pursuant to an Award under the Plan to represent to and agree with
the
Corporation in writing that such Participant is acquiring the shares of Stock
for investment purposes and not with a view to the distribution thereof.
All
certificates for shares of Stock delivered under the Plan shall be subject
to
such stock-transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the Securities
and Exchange Commission, any exchange upon which the Stock is then listed,
and
any applicable securities law, and the Committee may cause a legend or legends
to be put on any such certificates to make appropriate reference to such
restrictions.
16.14 SATISFACTION
OF OBLIGATIONS.
Subject
to applicable law, the Corporation may apply any cash, shares of Stock,
securities or other consideration received upon exercise or settlement of
an
Award to any obligations a Participant owes to the Corporation and its Parents,
Subsidiaries or Affiliates in connection with the Plan or otherwise, including,
without limitation, any tax obligations or obligations under a currency facility
established in connection with the Plan.
16.15 SECTION
409A OF THE CODE.
If any
provision of the Plan or an Award Agreement contravenes any regulations or
Treasury guidance promulgated under Section 409A or could cause an Award
to be
subject to the interest and penalties under Section 409A, such provision
of the
Plan or any Award Agreement shall be modified to maintain, to the maximum
extent
practicable, the original intent of the applicable provision without violating
the provisions of Section 409A. Moreover, any discretionary authority that
the
Board or the Committee may have pursuant to the Plan shall not be applicable
to
an Award that is subject to Section 409A to the extent such discretionary
authority will contravene Section 409A.
16.16 GOVERNING
LAW.
To the
extent not governed by federal law, the Plan and all Award Agreements shall
be
construed in accordance with and governed by the laws of the State of
Delaware.
16.17 ADDITIONAL
PROVISIONS.
Each
Award Agreement may contain such other terms and conditions as the Board
or the
Committee may determine, provided
that
such other terms and conditions are not inconsistent with the provisions
of the
Plan. In the event of any conflict or inconsistency between the Plan and
an
Award Agreement, the Plan shall govern and the Award Agreement shall be
interpreted to minimize or eliminate such conflict or
inconsistency.