<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number
August 31, 1996 0-18859
- ------------------------- ----------------------
SONIC CORP.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 73-1371046
- ------------------------ -------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
101 Park Avenue
Oklahoma City, Oklahoma 73102
---------------------------------------- ------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (405) 280-7654
Securities Registered Pursuant to Section 12(b) of the Exchange Act:
None
Securities Registered Pursuant to Section 12(g) of the Exchange Act:
Common Stock, Par Value $.01
Indicate by check mark whether the Registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for the shorter period that the Registrant has had
to file the reports), and (2) has been subject to the filing requirements for
the past 90 days. YES X . No .
----- ----
Indicate by check mark if this Form 10-K does not contain and, to the best
of the Registrant's knowledge, the Registrant's definitive proxy statement or
information statement incorporated by reference in Part III of this Form 10-K
will not contain a disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K. YES X . No .
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As of November 22, 1996, the aggregate market value of the 12,529,424
shares of common stock of the Company held by non-affiliates of the Company
equaled approximately $291 million, based on the closing sales price for the
common stock as reported for that date. As of November 22, 1996, the Registrant
had 13,569,454 shares of common stock issued and outstanding (excluding 7,580
shares of common stock held as treasury stock).
(Facing Sheet Continued)
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this report incorporates by reference certain portions of the
definitive proxy statement which the Registrant will file with the Securities
and Exchange Commission in connection with the Company's annual meeting of
stockholders following the fiscal year ended August 31, 1996.
<PAGE>
FORM 10-K OF SONIC CORP.
TABLE OF CONTENTS
PART I
Page
----
Item 1. Business 1
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 4A. Executive Officers of the Company 10
PART II
Item 5 Market for the Company's Common Stock and Related
Stockholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 20
PART III
(Incorporated by reference from the Company's definitive
proxy statement for its annual meeting of stockholders
following the fiscal year ended August 31, 1996)
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 21
<PAGE>
FORM 10-K
SONIC CORP.
PART I
ITEM 1. BUSINESS
GENERAL
Sonic Corp. (the "Company") operates and franchises the largest chain of
drive-in restaurants in the United States. As of August 31, 1996, the Company
had 1,567 restaurants in operation, consisting of 231 Company-owned restaurants
and 1,336 franchised restaurants, principally in the south central and
southeastern United States. Sonic restaurants offer made-to-order hamburgers
and other sandwiches and feature Sonic signature items, such as footlong coney
cheese dogs, hand-battered fried onion rings, tater tots, and specialty soft
drinks, including cherry limeades and slushes. At a typical Sonic restaurant, a
customer drives into one of 24 to 36 covered drive-in spaces, orders through an
intercom, and has the food delivered by a carhop within an average of four
minutes.
In September of 1995, the Company reorganized its operating subsidiaries
into two, directly-held subsidiaries consisting of Sonic Industries Inc. and
Sonic Restaurants, Inc. Sonic Industries Inc. serves as the franchisor of the
Sonic restaurant chain, as well as the insurance and administrative services
center for the Company. Sonic Restaurants, Inc. develops and operates the
Company's Company-owned restaurants. In February of 1996, the Company sold its
equipment sales division to N. Wasserstrom & Sons, Inc. of Columbus, Ohio, and
discontinued that line of business. The Company continues to rent the large
Sonic pole signs to its franchisees.
The Company's objective is to maintain its position as, or to become, a
leading operator in terms of the number of quick-service hamburger restaurants
within each of its core and developing markets. The Company has developed and
is implementing a strategy designed to build the Sonic brand and to continue to
achieve high levels of customer satisfaction and repeat business. The key
elements of that strategy are (1) a unique drive-in concept focusing on a menu
of quality made-to-order and signature items; (2) a commitment to customer
service featuring the quick delivery of food by carhops; (3) the expansion of
Company-owned and franchised restaurants within the Company's core and
developing markets; (4) an owner/operator philosophy, in which managers have an
equity interest in their restaurant, thereby providing an incentive for managers
to operate Company-owned restaurants profitably and efficiently; and (5) a
commitment to support the Sonic system.
The Company has its principal executive offices at 101 Park Avenue,
Oklahoma City, Oklahoma 73102. Its telephone number is (405) 280-7654. As used
in this report, the word "Company" means Sonic Corp. and each of its
subsidiaries and predecessors, unless the context indicates otherwise.
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RESTAURANT LOCATIONS
As of August 31, 1996, the Company operated or franchised 1,567 drive-in
restaurants, principally in the south central and southeastern United States.
The Company's core markets, consisting of the nine contiguous states of Texas,
Oklahoma, Tennessee, Missouri, Arkansas, Kansas, Louisiana, Mississippi, and New
Mexico, contained approximately 84% of all Sonic restaurants as of August 31,
1996. Developing markets primarily are located in Alabama, Arizona, Colorado,
Florida, Georgia, Kentucky, North Carolina, and South Carolina. The following
table sets forth the number of Company-owned and franchised restaurants by core
and developing markets as of August 31, 1996:
COMPANY-OWNED FRANCHISED
CORE MARKET RESTAURANTS RESTAURANTS TOTAL
----------- ------------- ----------- -----
Texas 57 406 463
Oklahoma 22 162 184
Tennessee 22 104 126
Missouri 27 95 122
Arkansas 14 97 111
Kansas 6 85 91
Louisiana 15 74 89
Mississippi 4 78 82
New Mexico 0 56 56
--- ----- -----
Total 167 1,157 1,324
--- ----- -----
--- ----- -----
COMPANY-OWNED FRANCHISED
DEVELOPING MARKETS RESTAURANTS RESTAURANTS TOTAL
------------------ ------------- ----------- -----
Alabama 33 20 53
Arizona 0 23 23
California 0 3 3
Colorado 0 19 19
Florida 10 1 11
Georgia 1 26 27
Illinois 0 4 4
Indiana 0 2 2
Iowa 0 1 1
Kentucky 4 25 29
Nebraska 0 2 2
Nevada 0 6 6
North Carolina 10 15 25
Ohio 0 3 3
South Carolina 0 25 25
Utah 0 1 1
Virginia 6 2 8
West Virginia 0 1 1
--- ----- -----
Total 64 179 243
--- ----- -----
--- ----- -----
Total System 231 1,336 1,567
--- ----- -----
--- ----- -----
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EXPANSION
During fiscal 1996, the Company opened 30 Company-owned restaurants and its
franchisees opened 81 restaurants. During fiscal 1997, the Company plans to
open 45 Company-owned restaurants and anticipates that its franchisees will open
85 restaurants. That expansion plan involves the opening of new restaurants by
franchisees under existing area development agreements, single-store development
by existing franchisees, and development by new franchisees. The Company
believes that its existing core and developing markets offer a significant
growth opportunity for both Company-owned and franchised restaurant expansion.
However, the ability of the Company and its franchisees to open the anticipated
number of Sonic drive-in restaurants during fiscal 1997 necessarily will depend
on various factors. Those factors include (without limitation) the availability
of suitable sites, the negotiation of acceptable lease or purchase terms for new
locations, local permitting and regulatory compliance, the financial resources
of the Company's franchisees, and the general economic and business conditions
to be faced in fiscal 1997.
The Company's expansion strategy for Company-owned restaurants involves
three principal components: (1) the building-out of existing core markets, (2)
the further penetration of developing markets, and (3) the acquisition by the
Company of existing Sonic franchised restaurants. In addition, the Company may
consider the acquisition of other similar concepts for conversion to Sonic
restaurants.
RESTAURANT DESIGN AND CONSTRUCTION
The typical Sonic drive-in restaurant consists of a kitchen housed in a
one-story building flanked by two canopy-covered rows of 24 to 36 parking
spaces, with each space having its own intercom and menu board. In addition,
since the first half of fiscal 1995, the Company has incorporated a drive-
through window and patio seating area in almost all new Company-owned
restaurants. Sonic restaurants generally do not provide an indoor seating area.
MARKETING
The Company has designed its marketing program to differentiate Sonic
drive-in restaurants from the Company's competitors by emphasizing five key
areas of customer satisfaction: (1) the personal manner of service by carhops,
(2) made-to-order menu items, (3) speed of service, (4) quality, and (5) value.
The marketing plan includes monthly promotions for use throughout the Sonic
chain. The Company supports those promotions with television commercials and
point-of-sale materials. Those promotions center on a "meal deal" which
highlights signature menu items of Sonic drive-in restaurants.
Each year the Company and its advertising agency (with involvement of the
Sonic Franchisee Advisory Council) develop a marketing plan. The Company
requires the formation of advertising cooperatives among restaurant owners to
pool and direct advertising expenditures in local markets. Under each of the
Company's license agreements, the franchisee must contribute a minimum
percentage of the franchisee's gross revenues to a national media production
fund and spend an additional minimum percentage of gross revenues on local
advertising, either directly or through the Company-required participation in
advertising cooperatives. Depending on the type of license agreement, the
minimum percentages of gross revenues contributed by franchisees for local
advertising cooperative funds range from 1.125% to 3.25% and, for the Sonic
Advertising Fund (the national fund directed by the Company), the franchisees
contribute a range of 0.375% to 0.75% of gross revenues.
For fiscal 1996, franchisees participating in cooperatives contributed an
average of 2.845% of gross revenues to Sonic advertising cooperatives, exceeding
the required 2.375% under most license agreements in effect during that period.
As of August 31, 1996, 1,444 Sonic restaurants (approximately 92% of the chain)
participated in advertising cooperatives. The Company estimates that the total
amount spent on media and media production (principally television) exceeded $28
million for fiscal 1996 and should exceed $32 million for fiscal 1997.
3
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PURCHASING
The Company negotiates with suppliers for its primary food products
(hamburger patties, hot dogs, french fries, tater tots, cooking oil, fountain
syrup, and other products) and packaging supplies to ensure adequate quantities
of food and supplies and to obtain competitive prices. The Company seeks
competitive bids from suppliers on many of its food products. The Company
approves suppliers of those products and requires them to adhere to product
specifications established by the Company. Suppliers manufacture several key
products for the Company under private label and sell them to authorized
distributors for resale to Company-owned and franchised restaurants. The
Company and its franchisees purchase a majority of their food and beverage
products from authorized local or national distributors.
The Company requires its Company-owned and franchised restaurants to
participate in purchasing cooperatives. Those cooperatives have achieved cost
savings, improved food quality and consistency, and helped decrease the
volatility of food and supply costs for Sonic restaurants. For fiscal 1996, the
average cost of food and paper supplies for a Sonic restaurant, as reported to
the Company by its franchisees, equaled approximately 31.6% of revenues. The
Company believes that food purchasing cooperatives have allowed Sonic
restaurants to avoid menu price increases that otherwise might have occurred. A
planned reduction in the number of food and paper product distributors to the
Sonic chain has improved the ability of the Company to negotiate more
advantageous purchasing terms and to maintain more uniform products.
COMPANY OPERATIONS
RESTAURANT PERSONNEL. A typical Sonic restaurant employs a managing
partner, an assistant manager, and approximately 23 hourly employees, most of
whom work part-time. The managing partner has responsibility for the day-to-day
operations of the restaurant. The Company believes that its owner/operator
structure has contributed to the Company's low managerial turnover rate, thereby
resulting in decreased training costs, higher productivity, and a better
knowledge of the restaurant's customer base at the managing partner level.
The Company initially forms a partnership with its supervising partners,
each of whom on average has the responsibility of overseeing four to six
Company-owned restaurants. Those supervising partners derive their income out
of their share of partnership net profits of the restaurants they supervise.
Supervising partners generally may own up to 20% of the restaurants they
supervise.
The Company also employs six regional directors who oversee supervising
partners within their respective regions, and the Company has a Vice President
of Operations based in Oklahoma City who oversees the operations of all Company-
owned restaurants.
PARTNERSHIP PROGRAM. The Sonic restaurant philosophy stresses a
partnership relationship between restaurant owners and managers, in which most
managers of Company-owned and franchised restaurants own an equity interest in
the restaurant. The Company believes that its ownership structure provides a
substantial incentive for restaurant managers to operate their restaurants
profitably and efficiently.
Under the partnership structure, general partnerships own and operate the
Company-owned restaurants. The Company, as a general partner, owns a majority
interest and the managers involved in the day-to-day management and operation of
the restaurant own a minority interest in the partnership. Ownership equity of
a typical established Company-owned restaurant generally is distributed 60% to
the Company, 20% to the managing partner, and 20% to the supervising partner.
The Company records other partners' interest as a minority interest in earnings
of restaurant partnerships on its financial statements. Under the standard
partnership agreement, the Company has the right to purchase the interest of any
managing partner on short notice. Each supervising and managing partner
contributes his or her pro rata portion of all start-up costs, which include the
required franchise fee, opening inventory, advertising and promotion costs;
initial training and insurance costs; and some amounts for working capital. The
amount of capital contribution by a supervising partner and managing partner for
a restaurant typically equals approximately $10,000 for a 20% interest. The
partnerships usually purchase equipment with funds borrowed from the Company at
competitive
4
<PAGE>
rates. In most cases, the Company alone guarantees any third-party lease
entered into for the site. The partnerships distribute available cash flow to
partners on a monthly basis pursuant to the terms of the partnership agreements.
POINT-OF-SALE SYSTEMS. The Company has developed and is implementing a
point-of-sale system in Company-owned restaurants. The Company believes the
point-of-sale system will increase speed and accuracy in order-taking and
pricing and will allow the restaurant manager to better monitor and control food
and labor costs and reduce paper work. The system will have polling
capabilities to allow the Company to obtain current restaurant reporting
information, thereby improving the accuracy and efficiency of store-level
reporting on a next-day basis. The Company believes the system also should
enhance marketing capabilities through the development of a database with
information on customers and their buying habits with respect to the Company's
products. As of August 31, 1996, the Company had installed the point-of-sale
system in 106 Company-owned restaurants. The Company expects to install the
point-of-sale system in all Company-owned restaurants by the end of the second
quarter of fiscal 1997. Certain franchisees had installed the system in
approximately 15 restaurants as of August 31, 1996.
HOURS OF OPERATION. Sonic restaurants operate seven days a week, typically
from 10:30 a.m. to 11:00 p.m.
COMPANY-OWNED RESTAURANT DATA. The following table provides certain
financial information relating to Company-owned restaurants and the number of
Company-owned restaurants opened and closed during the past five fiscal years.
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Average Sales per
Company-owned Restaurant $601,000 $577,000 $558,000 $547,000 $526,000
Number of Restaurants
Total Open at Beginning
of Year 178 142 120 91 80
Newly-Opened and Re-Opened 30 31 20 10 1
Purchased from Franchisees 28 6 13 20 10
Sold or Closed (5) (1) (11) (1) --
--- --- --- --- ---
Total Open at Year End 231 178 142 120 91
--- --- --- --- ---
--- --- --- --- ---
FRANCHISE PROGRAM
GENERAL. During its more than 40 years in operation, the Sonic system has
produced a large number of successful multi-unit franchisee groups. Those
franchisees continue to develop new restaurants in their franchise territories
either through area development agreements or single site development. The
Company considers its franchisees a vital part of the Company's continued growth
and believes its relationship with its franchisees is good.
As of August 31, 1996, the Company had 1,336 franchised restaurants
operating in 27 states and the Company had development agreements which
contemplate the opening of 54 additional restaurants during fiscal 1997.
However, the Company cannot give any assurance that the Company's franchisees
will achieve that number of new restaurants for fiscal 1997. During fiscal
1996, the Company's franchisees opened 81 Sonic drive-in restaurants.
FRANCHISE AGREEMENTS. Each Sonic restaurant, including each Company-owned
restaurant, operates under a franchise agreement that provides for payments to
the Company of an initial franchise fee and a graduated percentage of the gross
revenues of the restaurant. In September of 1994, the Company began offering a
new Number 6 License Agreement, which provides for a franchise fee of $30,000
and an ascending royalty rate beginning at 1.0% of gross revenues and increasing
to 5.0% as the level of gross revenues increases. Pursuant to the terms of
existing area development agreements and the outstanding license option
agreements described below, almost all Sonic restaurants opening in fiscal 1997
will open under the Number 5.1 License Agreement. That agreement provides for a
franchisee fee of $15,000 and an ascending royalty rate beginning at 1.0% of
gross revenues and increasing to 4.0% as the level of gross revenues increases.
For fiscal 1996, the Company's average royalty rate equaled 2.7%. Both of the
foregoing franchise agreements provide for a term of 20 years, with one 10-year
renewal option.
5
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The Company has the right to terminate any franchise agreement for a
variety of reasons, including a franchisee's failure to make payments when due
or failure to adhere to the Company's policies and standards. Many state
franchise laws limit the ability of the Company to terminate or refuse to renew
a franchise.
DEVELOPMENT AGREEMENTS. The Company uses area development agreements to
facilitate the planned expansion of the Sonic drive-in restaurant chain through
multiple unit development. While existing franchisees continue to expand on a
single restaurant basis, approximately 41% of the new franchised restaurants
opened during fiscal 1996 occurred as a result of then-existing area development
agreements. Each area development agreement gives a developer the exclusive
right to construct, own and operate Sonic restaurants within a defined area. In
exchange, each developer agrees to open a minimum number of Sonic restaurants in
the area within a prescribed time period. If the developer does not meet the
minimum opening requirements, the Company has the right to terminate the area
development agreement and grant a new area development agreement or other
franchises in the area previously covered by the terminated area development
agreement.
During fiscal 1996, the Company entered into four new area development
agreements calling for the opening of 45 Sonic drive-in restaurants during the
next six years. As of November 22, 1996, the Company had a total of 44 area
development agreements in effect, calling for the development of 227 additional
Sonic drive-in restaurants during the next six years. Of the 96 restaurants
scheduled to open during fiscal 1996 under area development agreements in place
at the beginning of that fiscal year, 33 (or 34%) opened during the period.
Realization by the Company of the expected benefits under various existing
and future area development agreements currently depends and will continue to
depend upon the ability of franchisees to open the minimum number of restaurants
within the time periods required by the agreements. The financial resources of
the developers, as well as their experience in managing quick-service restaurant
franchises, represent critical factors in the success of area development
agreements. Although the Company grants area development agreements only to
those developers whom the Company believes possess those qualities, the Company
cannot give any assurances that the future performance by developers will result
in the opening of the minimum number of restaurants contemplated by the
development agreements or reach the compliance rate previously experienced by
the Company.
OPTION AGREEMENTS. In connection with the Company's introduction of a new
Number 6 License Agreement in fiscal 1995, the Company offered its existing
franchisees the opportunity to acquire options to purchase the Number 5.1
License Agreement for new Sonic drive-in restaurants developed by the franchisee
(the "Number 5.1 Options"). The Number 5.1 License Agreement has a lower
initial franchise fee and royalty rate than the Number 6 License Agreement. All
outstanding Number 5.1 Options have terms ending on December 31, 1996, with the
right to renew for up to four additional years upon the payment of $1,000 on
each anniversary date of the option. Unlike the area development agreements
described above, the options do not cover any specific location. The Company
currently is not offering additional option agreements to its franchisees and,
as the options expire or the franchisees exercise them, the number of
outstanding options will decrease over time. As of August 31, 1996, the Company
had 268 Number 5.1 Options outstanding.
FRANCHISED RESTAURANT DEVELOPMENT. The Company furnishes each franchisee
with assistance in selecting sites and developing restaurants. Each franchisee
has responsibility for selecting the franchisee's restaurant locations but must
obtain Company approval of each restaurant design and each location based on
accessibility and visibility of the site and targeted demographic factors,
including population, density, income, age and traffic. The Company provides
its franchisees with the physical specifications for the typical Sonic drive-in
restaurants.
FRANCHISEE FINANCING. The Company has an arrangement with Franchise
Finance Company of America ("FFCA"), pursuant to which FFCA may make loans to
Sonic franchisees who meet certain underwriting criteria set by FFCA. Under the
terms of the arrangement with FFCA, the Company may provide a guaranty of up to
10% of the outstanding balance of a loan from FFCA to a Sonic franchisee. The
Company retains the absolute right to determine which loans it will guarantee
and to impose any conditions the Company may deem appropriate.
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FRANCHISEE TRAINING. Each franchisee must have at least one individual
working full time at the Sonic drive-in restaurant who has completed the Sonic
Management Development Program before opening or operating the Sonic drive-in
restaurant. The program consists of nine weeks of on-the-job training and one
week of classroom development. The program emphasizes quality food preparation,
quick service, cleanliness of restaurants, and consistency of service.
FRANCHISEE SUPPORT. In addition to training, advertising and food
purchasing cooperatives, and marketing programs, the Company provides various
other services to its franchisees. Those services include (1) assistance with
quality control through area field representatives, to ensure that each
franchisee consistently delivers high quality food and service; (2) assistance
in selecting sites for new restaurants using demographic data and studies of
traffic patterns; (3) financing through third party sources to qualified
franchisees for purchasing restaurant equipment; and (4) one-stop shopping for
all equipment needed to open a new restaurant through N. Wasserstrom & Sons,
Inc. in Columbus, Ohio. The Company's field services organization consists of 16
field representatives and five field marketing representatives with
responsibility for defined geographic areas. The field representatives provide
operational services and support for the Company's franchisees, while the field
marketing representatives assist the franchisees with point-of-sale and local
marketing programs.
FRANCHISE OPERATIONS. All franchisees must operate their Sonic drive-in
restaurants in compliance with the Company's policies, standards and
specifications, including matters such as menu items, materials, supplies,
services, fixtures, furnishings, decor and signs. Each franchisee has full
discretion to determine the prices charged to its customers. All restaurants
must display a Sonic drive-in restaurant sign manufactured in accordance with
Company specifications. In most cases, the Company owns the sign and leases it
to the franchisee and, if the franchisee breaches its franchise agreement, the
Company may remove the sign.
FRANCHISEE ADVISORY COUNCIL. The Company has established a Franchisee
Advisory Council that primarily consists of franchisee representatives. The
Franchisee Advisory Council holds periodic meetings to discuss new marketing
ideas, operations, growth and other relevant issues.
REPORTING. The Company collects weekly and monthly sales and other
operating information from its franchisees. The Company has agreements with
many of its franchisees permitting the Company to debit electronically the
franchisees' bank accounts for the payment of royalties and advertising fund
contributions. That system significantly reduces the resources needed to
process receivables, improves cash flow, and reduces past-due accounts
receivable.
FRANCHISED RESTAURANT DATA. The following table provides certain
financial information relating to franchised restaurants and the number of
franchised restaurants opened, purchased from or sold to the Company, and closed
during the Company's last five fiscal years.
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Average Sales Per Franchised
Restaurant $657,000 $620,000 $592,000 $568,000 $526,000
Number of Restaurants:
Total Open at Beginning
of Year 1,286 1,227 1,154 1,100 1,032
New Restaurants 81 80 80 82 80
Sold to the Company (28) (6) (13) (20) (28)
Purchased from the Company 4 1 10 -- --
Closed and Terminated,
Net of Re-openings (7) (16) (4) (18) (2)
------ ------ ------ ------ ------
Total Open at Year End 1,336 1,286 1,227 1,154 1,100
----- ----- ----- ----- -----
----- ----- ----- ----- -----
7
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EQUIPMENT SALES
In fiscal 1996, the Company sold its restaurant equipment division and
discontinued that operation. Equipment sales generated revenues of approximately
$3.7 million during fiscal 1996, an amount equal to 2.5% of the Company's total
consolidated revenues, compared to approximately $9.1 million or 7.3% of total
consolidated revenues for fiscal 1995 and approximately $9.6 million or 9.6% of
total consolidated revenues for fiscal 1994.
COMPETITION
The Company competes in the quick-service restaurant industry, a highly
competitive industry in terms of price, service, restaurant location, and food
quality, and an industry often affected by changes in consumer trends, economic
conditions, demographics, traffic patterns, and concerns about the nutritional
content of quick-service foods. The Company competes on the basis of speed and
quality of service, method of food preparation (made-to-order), food quality,
signature food items, and monthly promotions. The quality of service,
featuring the Sonic carhops, constitutes one of the Company's primary marketable
points of difference with the competition. Several major chains, many of which
have substantially greater financial resources than the Company, dominate the
quick-service restaurant industry. A significant change in pricing or other
marketing strategies by one or more of those competitors could have an adverse
impact on the Company's sales, earnings and growth. In selling franchises, the
Company also competes with many franchisors of fast-food and other restaurants
and other business opportunities.
EMPLOYEES
As of August 31, 1996, the Company had 178 full-time employees. No
collective bargaining agreement covers any of its employees. Company-owned
restaurants (operated as separate partnerships or limited liability companies)
employed approximately 6,200 full-time and part-time persons as of August 31,
1996, none of whom constitute employees of the Company. The Company believes
that it has good labor relations with its employees.
TRADEMARKS AND SERVICE MARKS
The Company, through a wholly-owned subsidiary, owns numerous trademarks
and service marks. The Company has registered many of those marks, including
the "Sonic" logo and trademark, with the United States Patent and Trademark
Office. The Company believes that its trademarks and service marks have
significant value and play an important role in its marketing efforts.
GOVERNMENT REGULATION
The Company must comply with regulations adopted by the Federal Trade
Commission (the "FTC") and with several state laws that regulate the offer and
sale of franchises. The Company also must comply with a number of state laws
that regulate certain substantive aspects of the franchisor-franchisee
relationship. The FTC's Trade Regulation Rule on Franchising (the "FTC Rule")
requires that the Company furnish prospective franchisees with a franchise
offering circular containing information prescribed by the FTC Rule.
State laws that regulate the franchisor-franchisee relationship presently
exist in a substantial number of states. Those laws regulate the franchise
relationship, for example, by requiring the franchisor to deal with its
franchisees in good faith, by prohibiting interference with the right of free
association among franchisees, by regulating discrimination among franchisees
with regard to charges, royalties or fees, and by restricting the development of
other restaurants within certain proscribed distances from existing franchised
restaurants. Those laws also restrict a franchisor's rights with regard to the
termination of a franchise agreement (for example, by requiring "good cause" to
exist as a basis for the termination), by requiring the franchisor to give
advance notice and the opportunity to cure the default to the franchisee, and
by requiring the franchisor to repurchase the franchisee's inventory or
provide other compensation upon termination. To date, those laws have not
precluded the Company from seeking franchisees in any given area and have not
had a significant effect on the Company's operations.
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Each Sonic restaurant must comply with regulations adopted by federal
agencies and with licensing and other regulations enforced by state and local
health, sanitation, safety, fire and other departments. Difficulties or
failures in obtaining the required licenses or approvals can delay and sometimes
prevent the opening of a new restaurant.
Sonic restaurants must comply with federal and state environmental
regulations, but those regulations have not had a material effect on their
operations. More stringent and varied requirements of local governmental bodies
with respect to zoning, land use, and environmental factors can delay and
sometimes prevent development of new restaurants in particular locations.
The owners of Sonic restaurants must comply with the Fair Labor Standards
Act and various state laws governing various matters, such as minimum wages,
overtime and other working conditions. Significant numbers of the food service
personnel in Sonic restaurants receive compensation at rates related to the
federal minimum wage and, accordingly, increases in the minimum wage will
increase labor costs at those locations.
The owners of Sonic restaurants also must comply with the provisions of the
Americans with Disabilities Act (the "ADA"), which requires the owners to
provide reasonable accommodation for employees with disabilities and to make
their restaurants accessible to customers with disabilities. The Company has
made certain modifications to the design and construction of its restaurants in
order to comply with the ADA. However, the ADA has not had a material impact on
the Company, primarily because of a drive-in restaurant's inherent accessibility
to all customers.
Many owners of Sonic restaurants also must comply with the Family Medical
Leave Act (the "Family Leave Act"), which covers employers of 50 or more persons
at locations within any 75-mile radius. The Family Leave Act requires covered
employers to grant eligible employees up to 12 weeks of unpaid leave for family
and medical reasons and to reinstate the employee to the same or an equivalent
position at the end of the leave. An employee may take leave for the birth,
adoption, or foster care of a child; for any serious health condition of a
spouse, sibling, child or parent; or for an employee's own serious health
condition.
ITEM 2. PROPERTIES
Of the 231 Company-owned restaurants operating as of August 31, 1996, the
Company operated 101 of them on property leased from third parties and 130 of
them on property owned by the Company. The leases expire on dates ranging from
1997 to 2016, with the majority of the leases providing for renewal options.
All leases provide for specified periodic rental payments, and some leases call
for additional rentals based on sales volume. Most leases require the Company
to maintain the property and pay the cost of insurance and taxes.
The Company has its principal office located in approximately 50,000 square
feet of leased office space in Oklahoma City, Oklahoma, at an effective annual
rental rate of $9.15 per square foot. The lease for that property expires in
October of 2002. The Company believes that its leased office provides an
adequate amount of space and will meet the Company's needs for the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS
Except as set forth below, the Company does not have any material legal
proceedings pending against the Company, any of its subsidiaries, or any of
their properties.
In July of 1996, the Company filed an appeal with the Texas Supreme Court
in a case involving L & G Restaurants, Inc., Lucky Ott, and William Owen. The
circuit court of appeals previously had reinstated a jury verdict against Sonic
Land Corporation for tortious interference with contract in that case. The
damages, as originally found by the jury and reinstated by the appellate court,
consist of actual damages of $52,500 for Mr. Ott and $729,070 for Mr. Owen, as
well as punitive damages of $500,000 for Mr. Ott and $500,000 for Mr. Owen. The
appellate court affirmed that part of the previous judgment notwithstanding the
verdict which threw out the jury's original finding that Sonic
9
<PAGE>
Land Corporation had violated the Texas Deceptive Trade Practices Act. In
addition, the appellate court itself threw out a $32,000 claim by Carolyn Ott
for intentional infliction of emotional distress by Sonic Restaurants, Inc. The
Company continues to believe that the findings of the jury had no merit, and
will continue to defend its position vigorously during the appellate process.
However, the Company cannot guarantee that the Texas Supreme Court will decide
to review the case or, if it does, that the Company will receive a favorable
outcome from the appeal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter during the fourth quarter of the
Company's last fiscal year to a vote of the Company's stockholders, through the
solicitation of proxies or otherwise.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
IDENTIFICATION OF EXECUTIVE OFFICERS
The following table identifies the executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION OFFICER SINCE
----- ---- ---------- -------------
<S> <C> <C> <C>
J. Clifford Hudson 42 President, Chief Executive Officer, June of 1985
and Director
Michael R. Shumsky 45 President of Sonic Restaurants, Inc. October of 1994
Kenneth L. Keymer 48 President of Sonic Industries Inc. August of 1996
Lewis B. Kilbourne 49 Senior Vice President and Chief January of 1994
Financial Officer
Pattye T. Moore 38 Senior Vice President of Marketing June of 1992
and Brand Development
Ronald L. Matlock 45 Vice President, General Counsel, April of 1996
and Secretary
Diane C. Dolan 34 Vice President of Administration and August of 1996
Corporate Human Resources
W. Scott McLain 34 Treasurer April of 1996
Stephen C. Vaughan 30 Controller January of 1996
Larry P. Gadola 55 Vice President of Corporate Development August of 1996
of Sonic Restaurants, Inc.
Wes Jablonski 42 Vice President of Technology Services October of 1995
of Sonic Industries Inc.
Stanley S. Jeska 56 Vice President of Franchise Development September of 1993
of Sonic Industries Inc.
Robert R. Moore 47 Vice President of Operations Services
of Sonic Restaurants, Inc. July of 1996
Andrew G. Ritger, Jr. 39 Vice President of Purchasing of January of 1996
Sonic Industries Inc.
Warner Van Sciver 57 Vice President of Franchise Services April of 1988
of Sonic Industries Inc.
Frank B. Young, Jr. 45 Vice President of Operations of Sonic October of 1994
Restaurants, Inc.
</TABLE>
BUSINESS EXPERIENCE
The following material sets forth the business experience of the executive
officers of the Company for at least the past five years.
10
<PAGE>
J. Clifford Hudson has served as President and Chief Executive Officer of
the Company since April of 1995 and has served as a director of the Company
since August of 1993. He served as President and Chief Operating Officer of the
Company from August of 1994 until April of 1995, and he served as Executive Vice
President and Chief Operating Officer from August of 1993 until August of 1994.
From August of 1992 until August of 1993, Mr. Hudson served as Senior Vice
President and Chief Financial Officer of the Company. From August of 1990 until
August of 1992, Mr. Hudson served as Senior Vice President of Corporate
Development and, from June of 1985 to August of 1992, served as Vice President,
General Counsel and Secretary of the Company. Since October of 1994, Mr. Hudson
has served as Chairman of the Board of Securities Investor Protection
Corporation, the federally-chartered organization which serves as the insurer of
customer accounts with brokerage firms.
Michael R. Shumsky has served as President of Sonic Restaurants, Inc., the
Company's restaurant operations subsidiary, since October of 1994. Prior to
joining the Company, Mr. Shumsky spent 15 years with Taco Bell, serving most
recently as a Zone Vice President with responsibility for the operations of 350
Taco Bell restaurants.
Kenneth L. Keymer has served as President and a director of Sonic
Industries Inc., the Company's franchise operations subsidiary, since August of
1996. From June of 1994 to August of 1996, Mr. Keymer served as Executive Vice
President of Operations for the Memphis, Tennessee region of Perkins Family
Restaurants, a subsidiary of Tennessee Restaurant Corporation of Itasca,
Illinois. From March of 1993 to June of 1994, Mr. Keymer served as Senior Vice
President of Operations for the then Chicago-based Boston Chicken, Inc. From
August of 1990 to March of 1993, he served as the Zone Vice President in
Chicago, Illinois, for Taco Bell.
Lewis B. Kilbourne has served as Senior Vice President and Chief Financial
Officer of the Company since January of 1994, and he served as Treasurer of the
Company from January of 1994 until April of 1996. From June of 1991 through
December of 1993, Mr. Kilbourne operated Kilbourne and Associates, a consulting
firm for small private and public companies and, also, served as an Adjunct
Professor of Finance at the University of Houston. From May of 1988 until June
of 1991, Mr. Kilbourne served as Executive Vice President, Chief Financial
Officer, and a director of Church's Fried Chicken, Inc., which conducted
business as Al Copeland Enterprises Inc.
Pattye T. Moore has served as Senior Vice President of Marketing and Brand
Development of the Company since April of 1996. From August of 1995 until April
of 1996, Mrs. Moore served as Senior Vice President of Marketing and Brand
Development for Sonic Industries Inc. and served as Vice President of Marketing
of Sonic Industries Inc. from June of 1992 to August of 1995. From August of
1984 until joining Sonic Industries Inc., Ms. Moore served as Vice President of
Operations for Advertising Incorporated of Tulsa, Oklahoma. While serving as an
officer of Advertising Incorporated, Ms. Moore had responsibility for the
account service department, personnel management, and strategic planning for the
agency. She also served as the management supervisor for the accounts of Sonic
Industries Inc. and several other clients.
Ronald L. Matlock has served as Vice President, General Counsel, and
Secretary of the Company since April of 1996. Prior to joining the Company, Mr.
Matlock practiced law from January of 1995 to April of 1996 with the Matlock Law
Firm in Oklahoma City, Oklahoma, concentrating in corporate, securities and
franchise law. From November of 1987 to December of 1994, Mr. Matlock was a
shareholder and director of the law firm of Hastie & Kirschner in Oklahoma City,
Oklahoma.
Diane C. Dolan has served as Vice President of Administration and Corporate
Human Resources of the Company since August of 1996. Ms. Dolan served as a
human resources consultant for Sonic Restaurants, Inc. from January of 1995
until joining Sonic Restaurants, Inc. as Director of Field Human Resources in
July of 1995. From November of 1993 until July of 1995, Ms. Dolan served as a
human resources consultant for the American Red Cross in St. Louis, Missouri.
From June of 1993 to November of 1993, Ms. Dolan served as a co-instructor of
cross-cultural/global management training programs as part of a graduate
internship with Training Management Corporation in Princeton, New Jersey. From
June of 1991 until June of 1993, Ms. Dolan attended school full time at American
Graduate School of International Management in Glendale, Arizona.
11
<PAGE>
W. Scott McLain has served as Treasurer of the Company since April of 1996.
From August of 1993 until joining the Company, Mr. McLain served as Treasurer of
Stevens International, Inc. in Fort Worth, Texas. From March of 1991 until
August of 1993, he served as a Manager - Corporate Recovery for Price Waterhouse
in Dallas, Texas.
Stephen C. Vaughan has served as Controller of the Company since January of
1996. Mr. Vaughan joined the Company in March of 1992 as an auditor and became
Assistant Controller of the Company in March of 1993. From July of 1989 until
March of 1992, Mr. Vaughan served as an auditor with the firm of Ernst &
Young LLP in Oklahoma City, Oklahoma.
Larry P. Gadola has served as Vice President of Corporate Development of
Sonic Restaurants, Inc. since August of 1996. From December of 1994 until
joining the Company, Mr. Gadola served as Director of Corporate/Franchise
Development of Flagstar, Inc. of Spartanburg, South Carolina. From August of
1989 until December of 1994, Mr. Gadola worked for ViCorp Restaurants, Inc. in
Denver, Colorado, where he served as Vice President of Real Estate and
Construction from August of 1989 until June of 1992 and as Vice President of
Development from June of 1992 to December of 1994.
Wes Jablonski has served as Vice President of Technology Services of Sonic
Industries Inc. since October of 1995. Prior to joining the Company, Mr.
Jablonksi worked as an independent restaurant consultant. From March of 1989 to
April of 1992, Mr. Jablonski served as the Director of Franchising with El Chico
Restaurants, Inc. in Dallas, Texas.
Stanley S. Jeska has served as Vice President of Franchise Development of
Sonic Industries Inc. since July of 1996 and also served in that capacity from
September of 1993 until August of 1994. Mr. Jeska served as Vice President of
Corporate Development for Sonic Restaurants, Inc. from August of 1994 until July
of 1996. From April of 1990 until joining the Company, Mr. Jeska founded and
served as President of Corporate Real Estate Advisors of Worthington, Ohio, a
management consultant firm.
Robert R. Moore has served as Vice President of Operations Services of
Sonic Restaurants, Inc. since July of 1996. From November of 1990 until joining
the Company, Mr. Moore served as a Regional Director of Operations for
Whataburger, Inc. in Dallas, Texas.
Andrew G. Ritger, Jr. has served as Vice President of Purchasing of
Sonic Industries Inc. since January of 1996. From May of 1993 until joining
the Company, Mr. Ritger served as Vice President of Purchasing of Fast Food
Merchandisers, Inc., a subsidiary of Hardees, Inc. of Rocky Mount, North
Carolina. From August of 1987 until May of 1993, he served as General
Manager of Logistics of H.J. Heinz, Inc. in Nashville, Tennessee.
Warner L. Van Sciver has served as Vice President of Franchise Services for
Sonic Industries Inc. since April of 1988.
Frank B. Young, Jr. has served as Vice President of Operations of Sonic
Restaurants, Inc. since October of 1994. From April of 1993 until joining
the Company, Mr. Young served as the President and sole shareholder of Wendco,
Inc. of Madison, Wisconsin, a business consulting firm. From October of 1989
through March of 1993, Mr. Young engaged in business as a franchisee for three
Wendy's restaurants in the Madison area.
12
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock trades on the Nasdaq National Market ("Nasdaq")
under the symbol "SONC." The following table sets forth the high and low closing
bids for the Company's common stock during each fiscal quarter within the two
most recent fiscal years as reported on Nasdaq.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW QUARTER ENDED HIGH LOW
------------- ---- --- ------------- ---- ---
<S> <C> <C> <C> <C> <C>
November 30, 1994 $15.812 $11.812 November 30, 1995 $23.875 $20.125
February 28, 1995 16.500 13.187 February 29, 1996 21.500 15.062
May 31, 1995 18.500 14.687 May 31, 1996 24.062 18.750
August 31, 1995 21.250 17.187 August 31, 1996 25.000 20.875
</TABLE>
STOCKHOLDERS
As of November 22, 1996, the Company had 269 record holders of its common
stock. As of that date, the Company had approximately 2,300 stockholders,
including beneficial owners holding shares in street or nominee name.
DIVIDENDS
The Company did not pay any dividends on its common stock during its two
most recent fiscal years and does not intend to pay any dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data regarding the
financial condition and operating results of the Company. One should read the
following information in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operation," below, and the Company's
Consolidated Financial Statements included elsewhere in this report.
13
<PAGE>
<TABLE>
<CAPTION>
Year ended August 31,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales by Company-owned restaurants $ 120,700 $ 91,438 $ 72,629 $ 58,228 $ 44,335
Franchised restaurants:
Franchise fees 1,453 1,409 1,144 1,513 1,251
Franchise royalties 23,315 20,392 14,703 12,872 10,580
Equipment sales 3,743 9,076 9,602 9,797 8,975
Other 1,919 1,445 1,626 1,380 1,535
- -----------------------------------------------------------------------------------------------------------------------------
Total revenues 151,130 123,760 99,704 83,790 66,676
- -----------------------------------------------------------------------------------------------------------------------------
Cost of restaurant sales 92,663 72,275 56,966 45,961 34,301
Cost of equipment sales 3,101 7,354 7,775 8,082 7,304
Selling, general and administrative 14,498 13,260 10,918 9,572 8,625
Depreciation and amortization 8,896 5,910 4,165 2,918 2,130
Minority interest in earnings of
restaurant partnerships 4,806 3,259 2,723 2,640 2,678
Provision for litigation costs - - - 300 -
Provision for impairment of long-lived assets 8,627 71 4,153 246 271
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses 132,591 102,129 86,700 69,719 55,309
- -----------------------------------------------------------------------------------------------------------------------------
Income from operations 18,539 21,631 13,004 14,071 11,367
Interest expense 1,184 1,823 1,084 799 666
Interest income (708) (409) (308) (383) (549)
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 18,063 $ 20,217 $ 12,228 $ 13,655 $ 11,250
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 11,244 $ 12,484 $ 7,643 $ 8,644 $ 6,814
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Net income per share (1) $ 0.84 $ 1.05 $ 0.64 $ 0.72 $ 0.58
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding (1) 13,449 11,842 11,954 11,970 11,803
BALANCE SHEET DATA:
Working capital $ 3,491 $ 4,249 $ 7,314 $ 7,383 $ 9,486
Property, equipment and capital leases, net 100,505 70,171 40,979 31,695 20,050
Total assets 147,444 105,331 76,982 63,517 50,303
Obligations under capital leases (including
current portion) 9,808 6,274 6,823 5,836 5,328
Long-term debt (including current portion) 12,401 24,902 6,419 1,243 1,243
Stockholders' equity 109,683 63,357 54,377 46,750 35,964
</TABLE>
(1) Adjusted for a 3-for-2 stock split which had a record date of July 31, 1995
and an ex-dividend date of August 11, 1995.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
From time to time, the Company may publish forward-looking statements
relating to certain matters including anticipated financial performance,
business prospects, the future opening of Company-owned and franchised
restaurants, anticipated capital expenditures, and other similar matters. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of that safe
harbor, the Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements. In
addition, the Company disclaims any intent or obligation to update those
forward-looking statements.
RESULTS OF OPERATIONS
The Company derives its revenues primarily from sales by Company-owned
restaurants and royalty fees from franchisees. The Company also receives
revenues from initial franchise fees, area development fees, and the leasing of
signs and real estate. Costs of Company-owned restaurant sales and minority
interest in earnings of restaurant partnerships relate directly to Company-owned
restaurant sales. Other expenses, such as depreciation, amortization, and
general and administrative expenses, relate to both Company-owned restaurant
operations, as well as the Company's franchising operations. The Company's
revenues and expenses are directly affected by the number and sales volumes of
Company-owned restaurants. The Company's revenues and, to a lesser extent,
expenses also are affected by the number and sales volumes of franchised
restaurants. Initial franchise fees are directly affected by the number of
franchised restaurant openings.
15
<PAGE>
The following table sets forth the percentage relationship to total
revenues, unless otherwise indicated, of certain items included in the Company's
statements of income. The table also sets forth certain restaurant data for the
periods indicated.
PERCENTAGE RESULTS OF OPERATIONS AND RESTAURANT DATA
YEAR ENDED AUGUST 31,
($ IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Sales by Company-owned restaurants 79.9% 73.9% 72.9%
Franchised restaurants:
Franchise fees and royalties 16.4 17.6 15.9
Equipment sales 2.5 7.3 9.6
Other 1.2 1.2 1.6
-------- -------- --------
100.0% 100.0% 100.0%
-------- -------- --------
-------- -------- --------
Costs and expenses:
Company-owned restaurants (1) 76.8% 79.0% 78.4%
Equipment sales (2) 82.8 81.0 81.0
Selling, general and administrative 9.6 10.7 11.0
Depreciation and amortization 5.9 4.8 4.2
Minority interest in earnings of restaurant partnerships (1) 4.0 3.6 3.7
Provision for impairment of long-lived assets 5.7 .1 4.1
Income from operations 12.3 17.5 13.0
Net interest expense .3 1.1 .8
Net income 7.4% 10.1% 7.7%
RESTAURANT OPERATING DATA:
Company-owned restaurants (3) 231 178 142
Franchised restaurants (3) 1,336 1,286 1,227
-------- -------- --------
Total 1,567 1,464 1,369
-------- -------- --------
-------- -------- --------
System-wide sales $984,784 $880,521 $776,347
Percentage increase (4) 11.8% 13.4% 12.3%
Average sales per restaurant:
Company-owned $ 601 $ 577 $ 558
Franchise 657 620 592
System-wide 648 615 585
Change in comparable restaurant sales (5):
Company-owned 4.9% 1.9% 2.5%
Franchise 5.1 3.9 2.9
System-wide 5.0 3.6 2.8
</TABLE>
- -------------------
(1) As a percentage of sales by Company-owned restaurants.
(2) As a percentage of equipment sales.
(3) Number of restaurants open at end of period.
(4) Represents percentage increase from the comparable period in the prior
year.
(5) Represents percentage increase for restaurants open in both the reported
and prior years.
16
<PAGE>
COMPARISON OF FISCAL YEAR 1996 TO FISCAL YEAR 1995. Total revenues
increased 22.1% to $151.1 million in fiscal 1996 from $123.8 million in fiscal
1995. Sales by Company-owned restaurants increased 32.0% to $120.7 million in
fiscal 1996 from $91.4 million in fiscal 1995. Of the $29.3 million increase,
$25.3 million was due to the net addition of 89 Company-owned restaurants since
the beginning of fiscal 1995. Average sales increases of approximately 4.9% by
stores open the full reporting periods of fiscal 1996 and fiscal 1995 accounted
for $4.0 million of the increase. Franchise fee revenues increased to $1.5
million during fiscal 1996 as compared to $1.4 million during fiscal 1995.
Franchise royalties increased 14.3% to $23.3 million in fiscal 1996, compared to
$20.4 million in fiscal 1995. Increased sales by comparable franchised
restaurants resulted in an increase in royalties of approximately $1.2 million
and resulted from the franchise same store sales growth of 5.1% over fiscal
1995. Approximately $1.0 million of the $2.9 million increase resulted from the
progressive nature of the Company's franchise agreements that require a higher
royalty percentage as average monthly sales volumes increase. Additional
franchise restaurants in operation resulted in an increase in royalties of $0.7
million. Restaurant equipment sales decreased 58.8% to $3.7 million in fiscal
1996 from $9.1 million in fiscal 1995, because of the sale of the restaurant
equipment division in the second fiscal quarter of 1996.
Restaurant cost of operations, as a percentage of sales by Company-owned
restaurants, was 76.8% in fiscal 1996, compared to 79.0% in fiscal 1995.
Management believes the improvement in restaurant operating margins resulted
from (1) a 2.5% average price increase implemented during the second fiscal
quarter of 1996, (2) reductions in the percentage of promotional discounting
from standard menu prices, as a percentage of sales, of approximately 10%, (3)
reductions in cost of food and paper items due to declining beef prices and
consolidation of purchasing distribution functions, and (4) improved operational
cost controls through the implementation of a standard ideal food cost program.
The improvements mentioned above were partially offset by increased marketing
expenditures, which reflects the Company's commitment to increased media
penetration through its system of advertising cooperatives. Management bonuses
also increased, as a percentage of sales, due largely to the improved operating
margins. Minority interest in earnings of restaurant partnerships increased, as
a percentage of sales by Company-owned restaurants, to 4.0% in fiscal 1996 as
compared to 3.6% in fiscal 1995. This increase occurred primarily due to the
improvements in operating margins discussed above.
Selling, general and administrative expenses, as a percentage of total
revenues, decreased to 9.6% in fiscal 1996 compared with 10.7% in fiscal 1995.
Management expects this decrease to continue in future periods because the
Company expects a significant portion of future revenue growth to be
attributable to Company-owned restaurants. Company-owned restaurants require a
lower level of selling, general and administrative expenses than the Company's
franchising operations since most of these expenses are reflected in restaurant
cost of operations and minority interest in restaurant operations. Many of the
managers and supervisors of Company-owned restaurants own a minority interest in
the restaurant, and their compensation flows through the minority interest in
earnings of restaurant partnerships. Depreciation and amortization expense
increased approximately $3.0 million due to the purchase of buildings and
equipment for new and existing restaurants and corporate furniture and
information systems upgrades. Management expects this trend to continue due to
increased capital expenditures planned for fiscal 1997.
Effective June 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and Assets To Be Disposed Of" (SFAS 121). The provision for adoption of SFAS
121 was $8.5 million. For additional explanation of this provision, see Note 2
in the Notes to Consolidated Financial Statements.
Income from operations decreased to $18.5 million from $21.6 million in
fiscal 1995. Excluding the provision for impairment of long-lived assets
discussed above, income from operations increased 25.2% to $27.1 million.
Net interest expense decreased to $0.5 million in fiscal 1996 from $1.4
million in fiscal 1995. This decrease was the result of a pay down on the
revolving credit facility with the proceeds from the secondary stock offering,
as well as increased interest income from the investment of excess offering
proceeds during the year.
17
<PAGE>
Provision for income taxes reflects an effective federal and state tax rate
of 37.75% for fiscal year ended August 31, 1996, compared to 38.25% for the
comparable period in fiscal 1995. Net income for fiscal 1996 increased 32.7% to
$16.6 million and earnings per share increased 17.1% to $1.23, excluding the
after-tax effect of the provision for impairment of long-lived assets discussed
above.
COMPARISON OF FISCAL YEAR 1995 TO FISCAL YEAR 1994. Total revenues
increased 24.1% to $123.8 million in fiscal 1995 from $99.7 million in fiscal
1994. Sales by Company-owned restaurants increased 25.9% to $91.4 million in
fiscal 1995 from $72.6 million in fiscal 1994. Of the $18.8 million increase,
$17.5 million was due to the net addition of 58 Company-owned restaurants since
the beginning of fiscal 1994. Average sales increases of approximately 2% by
stores open the full reporting periods of fiscal 1995 and fiscal 1994 accounted
for $1.2 million of the increase. Franchise fee revenues increased to $1.4
million during fiscal 1995 as compared to $1.1 million during fiscal 1994. The
increase resulted from a larger percentage of new restaurants opening under the
1988 form of license agreement, which requires a $15,000 fee rather than the
1984 form of license agreement, which calls for a $7,500 fee, combined with an
increase in area development agreement fee forfeitures of approximately
$140,000. Franchise royalties increased 38.7% to $20.4 million in fiscal 1995,
compared to $14.7 million in fiscal 1994. Increased royalties earned from
franchisees who elected to convert their existing license agreements to a new
license agreement with a higher effective royalty rate, in exchange for a new
20-year term and other benefits, resulted in an increase in royalty revenues of
approximately $3.8 million. Increased sales by comparable franchised
restaurants resulted in an increase in royalties of approximately $1.4 million
and resulted from the franchise same store sales growth of 3.9% over fiscal
1994. Of the $1.4 million increase, approximately $600,000 resulted from the
progressive nature of the Company's franchise agreements that require a higher
royalty percentage as monthly sales volumes increase. Additional restaurants in
operation resulted in an increase in royalties of $500,000. Restaurant equipment
sales decreased 5.5% to $9.1 million in fiscal 1995 from $9.6 million in fiscal
1994, due primarily to fewer new restaurant equipment packages being sold in
fiscal 1995 as compared to fiscal 1994.
Restaurant cost of operations, as a percentage of sales by Company-owned
restaurants, was 79.0% in fiscal 1995, compared to 78.4% in fiscal 1994. An
improvement in food and packaging costs, as a percentage of sales (due primarily
to lower beef costs), was offset by increased labor and marketing costs. The
labor increase was a result of 38 drive-ins opening either during fiscal 1995 or
the month preceding the same reporting period. Newly-opened drive-ins generally
experience a higher labor cost, as a percentage of sales, than established
drive-ins. Based upon the prior performance of other newly-opened restaurants,
the Company expects labor costs, as a percentage of sales, to become consistent
with established drive-ins over time. The increase in marketing expenditures
reflects the Company's commitment to increased media expenditures through its
system of advertising cooperatives. Minority interest in earnings of restaurant
partnerships decreased, as a percentage of sales by Company-owned restaurants,
to 3.6% in fiscal 1995 as compared to 3.7% in fiscal 1994. This decline
occurred due to an increase in the Company's average ownership percentage in
Company-owned restaurants and the unfavorable variance in restaurant operating
margins discussed above. Cost of restaurant equipment sales, as a percentage of
equipment sales, was consistent with fiscal 1994.
Selling, general and administrative expenses, as a percentage of total
revenues, decreased to 10.7% in fiscal 1995 compared with 11.0% in fiscal 1994.
Management expects this decrease to continue in future periods because the
Company expects a significant portion of future revenue growth to be
attributable to Company-owned restaurants. Company-owned restaurants require a
lower level of selling, general and administrative expenses than the Company's
franchising operations since most of these expenses are reflected in restaurant
cost of operations and minority interest in restaurant operations. Many of the
managers and supervisors of Company-owned restaurants own a minority interest in
the restaurant, and their compensation flows through the minority interest in
earnings of restaurant partnerships. Depreciation and amortization expense
increased approximately $1.7 million due to the purchase of buildings and
equipment for new and existing restaurants and corporate furniture and
information systems upgrades.
18
<PAGE>
Excluding unusual write-downs in fiscal 1994 of approximately $3.9 million,
income from operations for fiscal 1995 increased 28.2% to $21.6 million from
$16.9 million for fiscal 1994.
Net interest expense increased to $1.4 million in fiscal 1995 from $775,000
in fiscal 1994. This increase was the result of the Company's restaurant growth
strategy being funded partially through advances under the revolving credit
facility.
Provision for income taxes reflects an effective federal and state tax rate
of 38.25% for fiscal year ended August 31, 1995, compared to 37.5% for the
comparable period in fiscal 1994. The increase in the Company's effective tax
rate was due primarily to the phase-out of the benefit of graduated federal tax
rates as a result of an increase in income before income taxes. Net income for
the period, excluding the special provisions discussed above, increased 24.1% to
$12.5 million.
LIQUIDITY AND SOURCES OF CAPITAL
During fiscal year 1996, the Company opened 30 new restaurants, acquired a
majority interest in 28 existing restaurants, sold four restaurants to
franchisees, and closed one restaurant. The Company funded the total capital
additions for fiscal year 1996 of $45.3 million (which included the cost of
newly-opened restaurants, acquired restaurants, restaurants under construction,
new furniture and equipment for existing restaurants and general corporate use)
internally by cash from operating activities, through borrowings under the
Company's line of credit, and through the use of capital leases. During fiscal
year 1996, the Company purchased the real estate on 21 of the 30 newly-
constructed restaurants. The Company purchased the real estate on 10 of the 28
acquired restaurants. The Company expects to own the land and building for
approximately two-thirds of its future newly-constructed restaurants.
In October of 1995, the Company completed an offering of 1,668,826 shares
of common stock, including the underwriters' over-allotment shares. Net
proceeds to the Company from the offering were approximately $33.2 million. The
Company used approximately $23 million of the proceeds to pay off the existing
balance on its line of credit. In August of 1996, the Company entered into an
agreement with a group of banks to increase its existing $40 million line of
credit to $60 million. The Company will use the line of credit to finance the
opening of newly-constructed restaurants, acquisitions of existing restaurants,
and for other general corporate purposes. As of August 31, 1996, the Company's
outstanding borrowings under the line of credit were $11.5 million, as well as
$100,000 in outstanding letters of credit. The available line of credit as of
August 31, 1996, was $48.4 million. As of August 31, 1996, the Company's total
cash balance of $7.7 million reflected the impact of the stock offering, line of
credit activity, and capital expenditures mentioned above.
The Company expects capital expenditures of approximately $50 million in
fiscal 1997, excluding potential acquisitions. Those capital expenditures
primarily relate to the development of additional Company-owned restaurants,
maintenance and remodeling of Company-owned restaurants, and enhancements to
existing financial and operating information systems, including the further
development and installation of a point-of-sale system. See "Business -
Expansion," above. The Company expects to fund those capital expenditures
through borrowings under its existing unsecured revolving credit facility and
cash flow from operations. The Company believes that existing cash and funds
generated from internal operations, as well as borrowing under the line of
credit, will meet the Company's needs for the foreseeable future.
IMPACT OF INFLATION
Though increases in labor, food or other operating costs could adversely
affect the Company's operations, management does not believe that inflation has
had a material effect on income during the past several years. During fiscal
1997, however, the Company intends to increase prices for its Company-owned
restaurants primarily because of higher labor costs resulting from increases in
the federal minimum wage.
19
<PAGE>
SEASONALITY
The Company does not expect seasonality to affect its operations in a
materially adverse manner. The Company's results during its second fiscal
quarter (the months of December, January and February) generally are lower than
other quarters because of the climate of the locations of a number of the
Company's Company-owned and franchised restaurants.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company has included the financial statements and supplementary
financial information required by this item immediately following Part IV of
this report and hereby incorporates by reference the relevant portions of those
statements and information into this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No disagreements between the Company and its accountants have occurred
within the 24-month period prior to the date of the Company's most recent
financial statements.
PART III
Except for the information on the Company's executive officers set forth
under Item 4A of Part I of this report, the Company hereby incorporates by
reference the information required by Part III of this report from the
definitive proxy statement which the Company must file with the Securities and
Exchange Commission in connection with the Company's annual meeting of
stockholders following the fiscal year ended August 31, 1996.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The following consolidated financial statements of the Company appear
immediately following this Item 14:
Pages
-----
Report of Independent Auditors F-1
Consolidated Balance Sheets at August 31, 1996 and 1995 F-2
Consolidated Statements of Income for each of the three years
in the period ended August 31, 1996 F-4
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended August 31, 1996 F-5
Consolidated Statements of Cash Flows for each of the three years
in the period ended August 31, 1996 F-6
Notes to Consolidated Financial Statements F-8
FINANCIAL STATEMENT SCHEDULES
The Company has included the following schedules immediately following this
Item 14:
Page
----
Schedule II - Valuation and Qualifying Accounts F-27
The Company has omitted all other schedules because the conditions
requiring their filing do not exist or because the required information appears
in the Company's Consolidated Financial Statements, including the notes to those
statements.
EXHIBITS
The Company has filed the exhibits listed below with this report. The
Company has marked all employment contracts and compensatory plans or
arrangements with an asterisk (*).
3.01. Certificate of Incorporation of the Company, which the Company
hereby incorporates by reference from Exhibit 3.1 to the Company's Form S-1
Registration Statement No. 33-37158.
3.02. Bylaws of the Company, which the Company hereby incorporates by
reference from Exhibit 3.2 to the Company's Form S-1 Registration Statement No.
33-37158.
4.01. Specimen Certificate for Common Stock, which the Company hereby
incorporates by reference from Exhibit 4.01 to the Company's Form 10-K for the
fiscal year ended August 31, 1995.
10.01. Form of Sonic Industries Inc. License Agreement (the Number 4
License Agreement), which the Company hereby incorporates by reference from
Exhibit 10.1 to the Company's Form S-1 Registration Statement No. 33-37158.
10.02. Form of Sonic Industries Inc. License Agreement (the Number 5
License Agreement), which the Company hereby incorporates by reference from
Exhibit 10.2 to the Company's Form S-1 Registration Statement No. 33-37158.
21
<PAGE>
10.03. Form of Sonic Industries Inc. License Agreement (the Number 4.2
License Agreement and Number 5.1 License Agreement), which the Company hereby
incorporates by reference from Exhibit 10.03 to the Company's Form 10-K for the
fiscal year ended August 31, 1994.
10.04. Form of Sonic Industries Inc. License Agreement (the Number 6
License Agreement), which the Company hereby incorporates by reference from
Exhibit 10.04 to the Company's Form 10-K for the fiscal year ended August 31,
1994.
10.05. Form of Sonic Industries Inc. Area Development Agreement, which
the Company hereby incorporates by reference from Exhibit 10.05 to the
Company's Form 10-K for the fiscal year ended August 31, 1995.
10.06. Form of Sonic Industries Inc. Sign Lease Agreement, which the
Company hereby incorporates by reference from Exhibit 10.4 to the Company's Form
S-1 Registration Statement No. 33-37158.
10.07. Form of General Partnership Agreement and Master Agreement, which
the Company hereby incorporates by reference from Exhibit 10.07 to the
Company's Form 10-K for the fiscal year ended August 31, 1995.
10.08. 1991 Sonic Corp. Stock Option Plan, which the Company hereby
incorporates by reference from Exhibit 10.5 to the Company's Form S-1
Registration Statement No. 33-37158.*
10.09. 1991 Sonic Corp. Stock Purchase Plan, which the Company hereby
incorporates by reference from Exhibit 10.6 to the Company's Form S-1
Registration Statement No. 33-37158.*
10.10. 1991 Sonic Corp. Directors' Stock Option Plan, which the Company
hereby incorporates by reference from Exhibit 10.08 to the Company's Form 10-K
for the fiscal year ended August 31, 1991.*
10.11. Sonic Corp. Savings and Profit Sharing Plan, which the Company
hereby incorporates by reference from Exhibit 10.8 to the Company's Form S-1
Registration Statement No. 33-37158.*
10.12. Net Revenue Incentive Plan, which the Company hereby incorporates
by reference from Exhibit 10.19 to the Company's Form S-1 Registration Statement
No. 33-37158.*
10.13. Form of Indemnification Agreement for Directors, which the
Company hereby incorporates by reference from Exhibit 10.7 to the Company's Form
S-1 Registration Statement No. 33-37158.*
10.14. Form of Indemnification Agreement for Officers, which the Company
hereby incorporates by reference from Exhibit 10.14 to the Company's Form 10-K
for the fiscal year ended August 31, 1995.*
10.15. Sonic Corp. 1995 Stock Incentive Plan.*
10.16. Form of Employment Agreement and Schedule of Material Differences
for the Executive Officers of the Company.*
10.17. Loan Agreement with Texas Commerce Bank National Association
dated July 31, 1995, which the Company hereby incorporates by reference from
Exhibit 10.26 to the Company's Form 10-K for the fiscal year ended August 31,
1995.
10.18. First Amendment to Loan Agreement with Texas Commerce Bank
National Association.
10.19. Second Amendment to Loan Agreement with Texas Commerce Bank
National Association.
21.01. Subsidiaries of the Company.
22
<PAGE>
23.01. Consent of Independent Auditors.
24.01. Power of Attorney.
27.01. Financial Data Schedules
REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during its last fiscal
quarter ended August 31, 1996.
23
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Sonic Corp.
We have audited the accompanying consolidated balance sheets of Sonic Corp. as
of August 31, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended August 31, 1996. Our audits also included the financial statement schedule
listed in the Index at Item 14. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sonic Corp. at
August 31, 1996 and 1995, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended August 31, 1996, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
As discussed in Note 2 to the accompanying consolidated financial statements, in
fiscal year 1996 Sonic Corp. changed its method of accounting for impairment of
long-lived assets by adopting Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of."
/s/ ERNST & YOUNG LLP
-------------------------------
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
October 18, 1996
F-1
<PAGE>
Sonic Corp.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
AUGUST 31,
1996 1995
----------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,706 $ 3,778
Accounts and notes receivable, net (NOTE 4) 5,229 5,181
Net investment in direct financing and sales-type leases (NOTE 6) 783 908
Inventories 1,868 2,252
Deferred income taxes (NOTE 11) 110 132
Prepaid expenses and other 481 463
----------------------------
Total current assets 16,177 12,714
Notes receivable, net (NOTE 4) 3,063 2,731
Net investment in direct financing and sales-type leases (NOTE 6) 3,421 3,048
Deferred income taxes (NOTE 11) 2,184 257
Property, equipment and capital leases, net (NOTES 2, 6 AND 7) 100,505 70,171
Intangibles and other assets, net (NOTE 5) 22,094 16,410
----------------------------
Total assets $147,444 $105,331
----------------------------
----------------------------
</TABLE>
F-2
<PAGE>
Sonic Corp.
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
AUGUST 31,
1996 1995
----------------------------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,904 $ 1,691
Deposits from franchisees 601 833
Accrued liabilities (NOTE 8) 7,841 5,353
Obligations under capital leases due within one year (NOTE 6) 823 481
Long-term debt due within one year (NOTE 9) 517 107
----------------------------
Total current liabilities 12,686 8,465
Obligations under capital leases due after one year (NOTE 6) 8,985 5,793
Long-term debt due after one year (NOTE 9) 11,884 24,795
Other noncurrent liabilities (NOTE 10) 4,206 2,921
Commitments and contingencies (NOTES 3, 6, 14 AND 15)
Stockholders' equity (NOTE 12):
Preferred stock, par value $.01; 1,000,000 shares authorized;
none outstanding - -
Common stock, par value $.01; 40,000,000 shares authorized;
shares issued--13,475,078 in 1996 and 12,079,886 in 1995 135 121
Paid-in capital 59,107 30,355
Retained earnings 50,584 39,340
----------------------------
109,826 69,816
Treasury stock, at cost; 7,580 shares in 1996 and
428,026 shares in 1995 (143) (6,459)
----------------------------
Total stockholders' equity 109,683 63,357
----------------------------
Total liabilities and stockholders' equity $147,444 $105,331
----------------------------
----------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
Sonic Corp.
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1996 1995 1994
--------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Sales by Company-owned restaurants $120,700 $ 91,438 $ 72,629
Franchised restaurants:
Franchise fees 1,453 1,409 1,144
Franchise royalties 23,315 20,392 14,703
Equipment and sign sales (NOTE 1) 3,743 9,076 9,602
Other 1,919 1,445 1,626
--------------------------------------
151,130 123,760 99,704
Costs and expenses:
Company-owned restaurants:
Food and packaging 37,463 30,073 24,270
Payroll and other employee benefits 34,555 27,265 20,951
Other operating expenses 20,645 14,937 11,746
--------------------------------------
92,663 72,275 56,967
Equipment and sign cost of sales (NOTE 1) 3,101 7,354 7,775
Selling, general and administrative 14,498 13,260 10,918
Depreciation and amortization 8,896 5,910 4,165
Minority interest in earnings of restaurant
partnerships 4,806 3,259 2,723
Provision for impairment of long-lived assets
(NOTE 2) 8,627 71 4,153
--------------------------------------
132,591 102,129 86,701
--------------------------------------
Income from operations 18,539 21,631 13,003
Interest expense 1,184 1,823 1,084
Interest income (708) (409) (309)
--------------------------------------
Net interest expense 476 1,414 775
--------------------------------------
Income before income taxes 18,063 20,217 12,228
Provision for income taxes (NOTE 11) 6,819 7,733 4,585
--------------------------------------
Net income $ 11,244 $ 12,484 $ 7,643
--------------------------------------
--------------------------------------
Net income per share (NOTE 12) $.84 $1.05 $.64
--------------------------------------
--------------------------------------
Weighted average shares outstanding (NOTE 12) 13,449 11,842 11,954
--------------------------------------
--------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
Sonic Corp.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
NUMBER COMMON PAID-IN RETAINED TREASURY
OF SHARES STOCK CAPITAL EARNINGS STOCK
---------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1993 7,913 $ 79 $27,948 $19,213 $ (492)
Exercise of common stock options 13 - 204 - -
Purchase of treasury stock - - - - (218)
Net income - - - 7,643 -
---------------------------------------------------------------------
Balance at August 31, 1994 7,926 79 28,152 26,856 (710)
Exercise of common stock options 134 1 2,244 - -
Purchase of treasury stock - - - - (5,749)
Three-for-two stock split, including
$1,200 paid in cash for fractional
shares (NOTE 12) 4,020 41 (41) - -
Net income - - - 12,484 -
---------------------------------------------------------------------
Balance at August 31, 1995 12,080 121 30,355 39,340 (6,459)
Exercise of common stock options 154 2 2,037 - -
Purchase of treasury stock - - - - (143)
Sale of common stock (NOTE 12) 1,241 12 26,715 - 6,459
Net income - - - 11,244 -
---------------------------------------------------------------------
Balance at August 31, 1996 13,475 $135 $59,107 $50,584 $ (143)
---------------------------------------------------------------------
---------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
Sonic Corp.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1996 1995 1994
-------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $11,244 $12,484 $ 7,643
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,896 5,910 4,165
Gains on dispositions of assets (309) (52) (230)
Amortization of franchise and development fees (1,453) (1,409) (1,131)
Accretion of interest expense 74 100 100
Franchise and development fees collected 1,460 1,376 1,091
Provision (credit) for deferred income taxes (1,905) 370 (1,291)
Provision for impairment of long-lived assets 8,627 71 4,153
(Increase) decrease in operating assets:
Accounts and notes receivable (380) (448) (1,275)
Inventories, prepaid expenses and other (766) (331) 416
Increase (decrease) in operating liabilities:
Accounts payable 1,213 (741) 526
Accrued and other liabilities 2,154 2,209 (789)
-------------------------------------
Total adjustments 17,611 7,055 5,735
-------------------------------------
Net cash provided by operating activities 28,855 19,539 13,378
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (41,107) (34,208) (14,615)
Investment in direct financing leases (1,235) (1,016) (832)
Collections on direct financing leases 987 902 729
Proceeds from sales of inventories and property,
equipment and capital leases 2,450 346 660
Increase in intangibles and other assets:
Goodwill resulting from acquisitions of restaurants (5,964) (181) (2,197)
Other (1,721) (1,592) (809)
-------------------------------------
Net cash used in investing activities (46,590) (35,749) (17,064)
</TABLE>
(CONTINUED ON FOLLOWING PAGE)
F-6
<PAGE>
Sonic Corp.
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1996 1995 1994
-------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock $33,186 $ - $ -
Proceeds from long-term borrowings 11,500 18,250 4,964
Payments on long-term debt (24,250) (222) (100)
Payments on capital lease obligations (669) (549) (547)
Exercises of stock options 1,900 550 204
Purchases of treasury stock (4) (4,054) (219)
-------------------------------------
Net cash provided by financing activities 21,663 13,975 4,302
-------------------------------------
Net increase (decrease) in cash and cash equivalents 3,928 (2,235) 616
Cash and cash equivalents at beginning of the year 3,778 6,013 5,397
-------------------------------------
Cash and cash equivalents at end of the year $ 7,706 $ 3,778 $ 6,013
-------------------------------------
-------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 1,369 $ 1,794 $ 965
Income taxes (net of refunds) 8,192 5,581 6,187
Additions to capital lease obligations 4,203 - 1,837
Property and equipment purchases financed through notes payable 175 354 211
Notes receivable from property and equipment sales - 317 370
Capital lease obligations retired in connection with
sales of property and equipment - - 303
Purchases of treasury stock in connection with
exercises of stock options 139 1,695 -
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
Sonic Corp.
Notes to Consolidated Financial Statements
August 31, 1996, 1995 and 1994
(in thousands, except share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Sonic Corp. (the "Company") operates and franchises a chain of quick-service
drive-in restaurants in the United States. In addition, the Company sells and
leases restaurant equipment and signs. In February 1996, the Company sold its
restaurant equipment division, including restaurant equipment inventories of
approximately $1,500, for $1,747 in cash and recognized a gain of $250. The
Company grants credit to its franchisees, all of whom are in the restaurant
business. Substantially all of the notes receivable and direct financing leases
are collateralized by real estate or equipment.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries and its majority-owned, Company-operated
restaurants, organized principally as general partnerships. All significant
intercompany accounts and transactions have been eliminated. Investments in
minority-owned restaurants, organized principally as general partnerships, and
other minority investments are carried at equity and are included in other
assets.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported and contingent assets and
liabilities disclosed in the financial statements and accompanying notes. Actual
results inevitably will differ from those estimates, and such differences may be
material to the financial statements.
INVENTORIES
Inventories consist principally of food and supplies which are carried at the
lower of cost (first-in, first-out basis) or market and restaurant equipment
held for sale (primarily used equipment as of August 31, 1996 and new equipment
as of August 31, 1995) which is carried at the lower of weighted average cost or
market.
F-8
<PAGE>
Sonic Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, EQUIPMENT AND CAPITAL LEASES
Property and equipment are recorded at cost, and leased assets under capital
leases are recorded at the present value of future minimum lease payments.
Depreciation of property and equipment and amortization of capital leases are
computed by the straight-line method over the estimated useful lives or initial
terms of the leases, respectively.
ACCOUNTING FOR LONG-LIVED ASSETS
Prior to the fourth quarter of fiscal year 1996, certain restaurants which were
nonoperating and were either held for disposition or were under short-term
subleases were carried at the lower of depreciated cost or estimated net
realizable values. Estimated net realizable values were determined annually
based upon appraisals or other independent assessments of the restaurants'
estimated sales values. Subsequent to restaurant closings, the related
restaurant buildings and equipment were not depreciated and the related leased
restaurant buildings under capital leases were not amortized. All estimated
costs which were expected to be incurred in the closings and disposals of
Company-owned and certain other restaurants were accrued when the decisions were
made to close such restaurants. These estimated costs included accruals for
future occupancy costs, estimated direct disposal costs and reductions of the
carrying values of property, equipment and capital leases to estimated net
realizable values. Allowances for impairment and accrued carrying costs for
restaurant closings and disposals were adjusted when necessary based on
subsequent information and events.
Effective June 1, 1996 (NOTE 2), the Company reviews long-lived assets,
identifiable intangibles, and goodwill related to those assets whenever events
or changes in circumstances indicate that the carrying amount of an asset might
not be recoverable. Assets are grouped and evaluated for impairment at the
lowest level for which there are identifiable cash flows that are largely
independent of the cash flows of other groups of assets. The Company has
determined that an individual restaurant is the level at which this review will
be applied. The Company's primary test for an indicator of potential impairment
is operating losses. If an indication of impairment is determined to be present,
the Company estimates the future cash flows expected to be generated from the
use of the asset and its eventual disposal. If the sum of undiscounted future
cash flows is less than the carrying amount of the asset, an impairment loss is
recognized. The impairment loss is measured by comparing the fair value of the
asset to its carrying amount. The fair value of the asset is measured by
calculating the present value of estimated future cash flows using a discount
rate equivalent to the rate of return the Company expects to achieve from its
investment in newly-constructed restaurants.
F-9
<PAGE>
Sonic Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-lived assets and identifiable intangibles held for disposal are carried at
the lower of depreciated cost or fair value less cost to sell. Fair values are
estimated based upon appraisals or other independent assessments of the assets'
estimated sales values. During the period in which assets are being held for
disposal, depreciation and amortization of such assets are not recognized.
PRE-OPENING COSTS
The costs of hiring, training and other direct costs associated with opening new
restaurants are capitalized and amortized over the first twelve months of
restaurant operations.
TRADEMARKS, TRADE NAMES AND OTHER GOODWILL
Trademarks, trade names and other goodwill are amortized on the straight-line
method over periods not exceeding 40 years.
FRANCHISE AGREEMENTS
Costs of franchise agreements capitalized in connection with the acquisition of
existing franchises are amortized on the straight-line method over the life of
the agreements, not exceeding 15 years.
OTHER INTANGIBLES
Other intangibles and deferred costs included in other assets are amortized on
the straight-line method over the expected period of benefit, not exceeding 15
years.
FRANCHISE FEES AND ROYALTIES
Initial franchise fees are nonrefundable and are recognized in income when all
material services or conditions relating to the sale of the franchise have been
substantially performed or satisfied by the Company. Area development fees are
nonrefundable and are recognized in income on a pro rata basis when the
conditions for revenue recognition under the individual development agreements
are met. Royalties from franchise operations are recognized in income as earned.
ADVERTISING COSTS
Costs incurred in connection with advertising and promotion of the Company's
products are expensed as incurred. Such costs amounted to $4,956, $4,204 and
$3,134 for the years ended August 31, 1996, 1995 and 1994, respectively.
F-10
<PAGE>
Sonic Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," permits stock compensation cost to be measured using
the intrinsic value based method or the fair value based method. The Company
will continue to use the intrinsic value based method of accounting as
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees"; however, expanded disclosure of the impact of the fair
value based method will be provided in the footnotes to the fiscal year 1997
financial statements as required by SFAS 123. The Company's existing stock
option plans have no intrinsic value at grant date, and no compensation cost has
been recognized for them (NOTE 12).
NET INCOME PER SHARE
Net income per share is based upon the weighted average number of common shares
and dilutive common stock equivalent shares outstanding during each year (NOTE
12).
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with a maturity of three
months or less from date of purchase.
2. IMPAIRMENT OF LONG-LIVED ASSETS
The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," at the beginning of the
fourth quarter of fiscal year 1996. Based on an evaluation of all restaurants
which had incurred operating losses through May 31, 1996, the Company determined
that certain restaurants and other assets with carrying amounts of $12,553 were
impaired and wrote them down to their fair values. The initial charge upon
adoption of SFAS 121 was $8,541 ($5,316 after-tax or $.40 per share) and
included $5,720 ($3,560 after-tax or $.27 per share) related to restaurants and
other assets held for disposal and $2,821 ($1,756 after-tax or $.13 per share)
related to restaurants to be held and used. The difference in the Company's
previous policy and fair value under SFAS 121 for assets held for disposal at
the beginning of the fourth quarter of fiscal year 1996 was not material. The
Company plans to dispose of the related assets during fiscal years 1997 and 1998
and has estimated the sales value, net of related costs to sell, at $2,651. The
charge primarily relates to
F-11
<PAGE>
Sonic Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share data)
2. IMPAIRMENT OF LONG-LIVED ASSETS (CONTINUED)
the write-down of certain restaurants to fair value consistent with the earnings
expectations of each restaurant using discounted estimated future cash flows.
Considerable management judgment is necessary to estimate future discounted cash
flows. Accordingly, actual results could vary significantly from management's
estimates. The evaluation for impairment is done for each individual restaurant,
rather than all restaurants as a group. The initial charge resulted from the
Company grouping assets at a lower level than under its previous accounting
policy for evaluating and measuring impairment. Prior to adoption of this new
standard, a write-down of a restaurant only took place when a decision was made
to close or dispose of the restaurant. As a result of the reduced carrying value
of the impaired assets, depreciation and amortization expense for fiscal year
1997 is expected to be reduced by approximately $800 ($500 after-tax or $.04
per share).
During 1994, the Company recorded a pre-tax charge of $3,144 for the expected
costs and expenses required to discontinue the Company's operation of seven
restaurants in south Florida. The provision is composed of the write-down of
property and equipment to estimated net realizable value of $2,294, the accrual
of carrying costs of $577 and the write-down of other assets of $273.
During 1994, the Company accrued $720 in equipment write-downs related to the
Company adopting an implementation plan for a new PC-based point-of-sale system.
This new system will enhance the Company's ability to monitor store level
operations through the transferring of restaurant information electronically in
a more timely manner. The implementation plan is expected to be completed by the
end of fiscal year 1997. The equipment currently in service has been written
down to the estimated net realizable value, after giving effect to normal
depreciation of historical cost during the implementation period.
3. RESTAURANT TRANSACTIONS WITH RELATED PARTY
In March 1994, the Company entered into an agreement with a director and former
officer of the Company in connection with his leaving the Company and
returning to his career as a Sonic franchisee. Under that agreement, the
director exchanged certain rights under his employment agreement, including
the right to purchase six existing Sonic restaurants, for the right to
purchase the Company's interest in two existing Sonic restaurants (with
financing provided by the Company) and to acquire certain development rights
for future Sonic restaurants. As part of the agreement, the Company also
agreed to assist the director with obtaining development financing for up to
six Sonic restaurants. Since March 1994, the Company has entered into certain
agreements with the director and the director's lender which provide that in
the event of a default by the director under the terms of the director's
F-12
<PAGE>
Sonic Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share data)
3. RESTAURANT TRANSACTIONS WITH RELATED PARTY (CONTINUED)
restaurant development loans (aggregating $3,460 as of August 31, 1996), the
Company is required to purchase the collateral (shares of the Company's common
stock and real estate related to Sonic restaurants) securing the director's
loans at fair market value as specified in the repurchase agreements. The
Company's repurchase obligations under these agreements expire in 1999 ($1,749),
2000 ($102) and 2001 ($1,609).
4. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following at August 31, 1996 and
1995:
1996 1995
------------------
Trade receivables $2,878 $3,784
Notes receivable--current 846 540
Other 1,638 1,005
------------------
5,362 5,329
Less allowance for doubtful accounts and notes receivable 133 148
------------------
$5,229 $5,181
------------------
------------------
Notes receivable--noncurrent $3,193 $2,760
Less allowance for doubtful notes receivable 130 29
------------------
$3,063 $2,731
------------------
------------------
5. INTANGIBLES AND OTHER ASSETS
Intangibles and other assets consist of the following at August 31, 1996 and
1995:
1996 1995
------------------
Trademarks, trade names, and other goodwill $20,945 $14,980
Franchise agreements 1,870 1,870
Other intangibles and other assets 3,775 3,065
------------------
26,590 19,915
Less accumulated amortization 4,496 3,505
------------------
$22,094 $16,410
------------------
------------------
F-13
<PAGE>
Sonic Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share data)
6. LEASES
DESCRIPTION OF LEASING ARRANGEMENTS
The Company's leasing operations consist principally of leasing certain land,
buildings and equipment (including signs) and subleasing certain buildings to
franchise operators. The land portions of these leases are classified as
operating leases and expire over the next six years. The buildings and equipment
portions of these leases are classified principally as direct financing or
sales-type leases and expire over the next eight years. These leases include
provisions for contingent rentals which may be received on the basis of a
percentage of sales in excess of stipulated amounts. Some leases contain
escalation clauses over the lives of the leases.
Certain Company-owned restaurants lease land and buildings from third parties.
These leases, which expire over the next twenty years, include provisions for
contingent rentals which may be paid on the basis of a percentage of sales in
excess of stipulated amounts. The land portions of these leases are classified
as operating leases and the buildings portions are classified as capital leases.
DIRECT FINANCING AND SALES-TYPE LEASES
Components of net investment in direct financing and sales-type leases are as
follows at August 31, 1996 and 1995:
1996 1995
------------------
Minimum lease payments receivable $5,670 $5,609
Less unearned income 1,466 1,653
------------------
Net investment in direct financing and sales-type leases 4,204 3,956
Less amount due within one year 783 908
------------------
Amount due after one year $3,421 $3,048
------------------
------------------
Minimum lease payments receivable for each of the five years after August 31,
1996 are $1,336 in 1997, $1,241 in 1998, $1,120 in 1999, $886 in 2000, $681 in
2001 and $406 thereafter. Initial direct costs incurred in the negotiation and
consummation of direct financing and sales-type lease transactions have not been
material during fiscal years 1996 and 1995. Accordingly, no portion of unearned
income has been recognized to offset those costs.
F-14
<PAGE>
Sonic Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share data)
6. LEASES (CONTINUED)
Equipment and sign sales include $1,340, $1,163 and $836 for the years ended
August 31, 1996, 1995 and 1994, respectively, related to sign lease transactions
that have been accounted for as sales-type leases.
CAPITAL LEASES
Components of obligations under capital leases are as follows at August 31, 1996
and 1995:
1996 1995
------------------
Total minimum lease payments $16,701 $11,249
Less amount representing interest 6,893 4,975
------------------
Present value of net minimum lease payments 9,808 6,274
Less amount due within one year 823 481
------------------
Amount due after one year $ 8,985 $ 5,793
------------------
------------------
Maturities of these obligations under capital leases, including interest, at
rates averaging approximately 13%, and future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year are as follows:
OPERATING CAPITAL
------------------
Year ending August 31:
1997 $ 2,416 $ 1,858
1998 2,344 1,836
1999 2,256 1,645
2000 2,195 1,439
2001 2,153 1,389
Thereafter 13,111 8,534
------------------
24,475 16,701
Less amount representing interest - 6,893
------------------
$24,475 $ 9,808
------------------
------------------
Total minimum lease payments do not include contingent rentals. Contingent
rentals on capital leases were $334, $291 and $284 for the years ended August
31, 1996, 1995 and 1994, respectively.
F-15
<PAGE>
Sonic Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share data)
6. LEASES (CONTINUED)
Rent expense on all operating leases was $2,443, $1,918 and $1,905 for the years
ended August 31, 1996, 1995 and 1994, respectively.
7. PROPERTY, EQUIPMENT AND CAPITAL LEASES
Property, equipment and capital leases consist of the following at August 31,
1996 and 1995:
1996 1995
-------------------
Home office:
Land and leasehold improvements $ 1,041 $ 1,180
Furniture and equipment 13,165 9,077
Restaurants, including those leased to others:
Land 24,184 15,974
Buildings, including property held for disposition 38,013 26,775
Equipment 31,702 24,057
-------------------
Property and equipment, at cost 108,105 77,063
Less accumulated depreciation and allowance for impairment 15,497 11,782
-------------------
Property and equipment, net 92,608 65,281
Leased restaurant buildings and equipment under capital
leases, including those held for sublease 10,809 7,233
Less accumulated amortization and allowance for impairment 2,912 2,343
-------------------
Capital leases, net 7,897 4,890
-------------------
Property, equipment and capital leases, net $100,505 $70,171
-------------------
-------------------
Property and equipment include land and buildings with a carrying value of $533
at August 31, 1996 and $514 at August 31, 1995 which were leased under operating
leases to franchisees or other parties. The accumulated depreciation related to
these buildings was $249 at August 31, 1996 and $270 at August 31, 1995.
Property, equipment and capital leases also include assets held for disposal or
sublease with an aggregate carrying value of $3,571, exclusive of certain
carrying costs reflected in liabilities, at August 31, 1996 and $2,092 at August
31, 1995.
F-16
<PAGE>
Sonic Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share data)
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following at August 31, 1996 and 1995:
1996 1995
-------------------
Wages and other employee benefits (NOTE 13) $1,422 $ 938
Income taxes payable (NOTE 11) 2,635 2,103
Taxes, other than income taxes 2,717 1,274
Accrued litigation costs 51 159
Accrued carrying costs for restaurant closings and disposals 592 120
Other 424 759
-------------------
$7,841 $5,353
-------------------
-------------------
9. LONG-TERM DEBT
Long-term debt consists of the following at August 31, 1996 and 1995:
1996 1995
-------------------
Borrowings under line of credit (A) $11,500 $23,000
Non-interest bearing obligation, due in 1997;
net of discount based on imputed interest rate of 8.3% 422 1,340
Notes payable to banks, at various interest rates,
due in varying annual installments through 1997 80 328
8.5% notes payable, due in monthly installments until 2011 399 234
-------------------
12,401 24,902
Less long-term debt due within one year 517 107
-------------------
Long-term debt due after one year $11,884 $24,795
-------------------
-------------------
F-17
<PAGE>
Sonic Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share data)
9. LONG-TERM DEBT (CONTINUED)
(A) In July 1995, the Company entered into an agreement with a group of banks
which provided the Company with a $40,000 line of credit expiring in June
1998. The agreement allows for annual renewal options, subject to approval
by the banks, which has not currently been exercised by the Company. In
August 1996, the line of credit was increased to $60,000. The Company uses
the line of credit to finance the opening of newly-constructed restaurants,
acquisition of existing restaurants and for general corporate purposes.
Borrowings under the line of credit are unsecured and bear interest at a
specified bank's prime rate or, at the Company's option, LIBOR plus 0.75%
to 1.25%. In addition, the Company pays an annual commitment fee ranging
from .125% to .25% on the unused portion of the line of credit. As of
August 31, 1996, the Company's effective borrowing rate was 7.07%. Under
its line of credit, the Company may borrow up to $60,000 in the form of
direct borrowings and letters of credit with a $2,000 sub-limit for letters
of credit. As of August 31, 1996 there were $100 in letters of credit
outstanding under the line of credit. Borrowings under the line of credit
are subject to various restrictive financial covenants.
Maturities of long-term debt, net of discount, for each of the five years after
August 31, 1996 are $517 in 1997, $11,516 in 1998, $18 in 1999, $19 in 2000, $21
in 2001 and $310 thereafter.
10. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consist of the following at August 31, 1996 and
1995:
1996 1995
-------------------
Deferred area development fees $ 608 $ 369
Minority interest in consolidated restaurant partnerships 2,589 2,175
Accrued carrying costs for restaurant closings and disposals 870 250
Other 139 127
-------------------
$4,206 $2,921
-------------------
-------------------
F-18
<PAGE>
Sonic Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share data)
11. INCOME TAXES
The provision for income taxes consists of the following:
YEAR ENDED AUGUST 31,
1996 1995 1994
------------------------------
Current:
Federal $8,371 $6,744 $5,394
State 353 619 482
------------------------------
8,724 7,363 5,876
Deferred:
Federal (1,839) 357 (1,246)
State (66) 13 (45)
------------------------------
(1,905) 370 (1,291)
------------------------------
Provision for income taxes $6,819 $7,733 $4,585
------------------------------
------------------------------
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate due to the following:
YEAR ENDED AUGUST 31,
1996 1995 1994
------------------------------
Amount computed by applying a tax rate of 35% $6,322 $7,076 $4,280
State income taxes (net of federal income
tax benefit) 187 411 284
Permanent differences in expenses for financial
and income tax reporting purposes (283) (56) 77
Effect of graduated tax rates - - (100)
Other, including effect of tax rate changes 593 302 44
------------------------------
Provision for income taxes $6,819 $7,733 $4,585
------------------------------
------------------------------
F-19
<PAGE>
Sonic Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share data)
11. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities consist of the following at August 31, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
---------------------
<S> <C> <C>
Deferred tax assets:
Asset valuation reserves $1,407 $1,135
Accrued carrying costs for restaurant closings and disposals 753 159
Accrued litigation costs 18 56
Investment in partnerships, including differences in
capitalization and depreciation related to direct financing
and sales-type leases and different year ends for financial
and tax reporting purposes 1,095 204
Allowance for doubtful accounts and notes receivable 94 62
Other 63 12
---------------------
3,430 1,628
Valuation allowance - -
---------------------
Deferred tax assets 3,430 1,628
Less deferred tax liabilities:
Accumulated amortization of license agreements, management
contracts and other intangibles 409 422
Net investment in direct financing and sales-type leases,
including differences related to capitalization and amortization 639 640
Other 88 177
---------------------
Deferred tax liabilities 1,136 1,239
---------------------
Net deferred tax assets $2,294 $ 389
---------------------
---------------------
</TABLE>
12. STOCKHOLDERS' EQUITY
In July 1995, the Company's board of directors authorized a three-for-two stock
split in the form of a stock dividend. A total of 4,019,321 shares of common
stock were issued in connection with the split. The stated par value of each
share was not changed from $.01. A total of $40 was reclassified from paid-in
capital to common stock. All references in the accompanying consolidated
financial statements to average numbers of shares outstanding, per share amounts
and Stock Purchase Plan and Stock Options share data have been restated to
reflect the split.
F-20
<PAGE>
Sonic Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share data)
12. STOCKHOLDERS' EQUITY (CONTINUED)
In October 1995, the Company completed a public offering of 1,668,826 shares of
common stock at $21.25 per share. The offering included 428,026 shares of
treasury stock which had a cost of $6,459. The proceeds of the offering, after
deducting the underwriting discount and offering expenses, were $33,186. A
portion of the proceeds ($23,000) was used to repay the borrowings under the
Company's line of credit.
In January 1996, the stockholders approved an increase in common stock
authorized from 20,000,000 to 40,000,000 shares.
STOCK PURCHASE PLAN
The Company has an employee stock purchase plan for all full-time regular
employees of the Company. Employees are eligible to purchase shares of common
stock each year through a payroll deduction not in excess of the lesser of 10%
of compensation or $25. The aggregate amount of stock that employees may
purchase each calendar year under this plan is limited to 150,000 shares. The
purchase price will be between 85% and 100% of the stock's fair market value.
Such price will be determined by the Company's board of directors.
STOCK OPTIONS
The Company has an Incentive Stock Option Plan (the "Incentive Plan") and a
Directors' Stock Option Plan (the "Directors' Plan"). Under the Incentive Plan,
the Company is authorized to grant options to purchase up to 1,340,000
(1,245,000 in 1995) shares of the Company's common stock to officers and key
employees of the Company and its subsidiaries. Under the Directors' Plan, the
Company is authorized to grant options to purchase up to 225,000 shares of the
Company's common stock to the Company's outside directors. The exercise price of
the options to be granted is equal to the fair market value of the Company's
common stock on the date of grant. Unless otherwise provided by the Company's
Stock Plan Committee, options under both plans become exercisable ratably over a
three-year period or immediately upon change in control of the Company, as
defined by the plans. During fiscal year 1994, the Company granted certain
options under the Incentive Plan which become exercisable ratably over a five-
year period. All options expire at the earlier of termination of employment or
ten years after the date of grant.
F-21
<PAGE>
Sonic Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share data)
Activity in the Company's stock option plans for the years ended August 31, 1996
and 1995 is as follows:
1996 1995
-----------------------
Outstanding options, beginning of year 940,438 1,148,934
Granted 378,444 275,342
Exercised (154,392) (190,321)
Canceled or expired (149,600) (293,517)
-----------------------
Outstanding options, end of year 1,014,890 940,438
-----------------------
-----------------------
At end of year:
Average option price per share $16.70 $14.90
Range of option prices $10.00 $10.00
to to
$22.63 $20.75
Options exercisable 406,533 381,981
Options available for future grants 143,326 277,170
STOCK INCENTIVE PLAN
In November 1995, the Company adopted the Sonic Corp. 1995 Stock Incentive Plan
(the "Stock Incentive Plan") whereby the Company may issue up to 120,000 shares
of common stock to certain key employees. Participants in the Stock Incentive
Plan receive awards of shares of restricted common stock (the "Restricted
Stock"), subject to not vesting if the Company does not meet certain annual
performance criteria. If the Company meets the performance criteria, the portion
of the award tied to the criteria will vest. Until the Restricted Stock vests,
an escrow agent holds the Restricted Stock. If the Company does not meet the
performance criteria, the portion of the award tied to that criteria will not
vest and the related shares are available for future awards. Upon vesting,
the participant will have the right to receive certificates representing the
shares of vested Restricted Stock.
During fiscal year 1996, the Company awarded 87,000 shares of Restricted Stock
which vest over a three-year period if specified performance goals are met. The
Company did not meet the specified performance criteria in fiscal year 1996
which resulted in 20,000 shares not vesting. Shares applicable to awards
which have not vested are not reflected as shares issued in the accompanying
financial statements.
F-22
<PAGE>
Sonic Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share data)
13. EMPLOYEE BENEFIT PLANS
SAVINGS AND PROFIT SHARING PLAN
The Company has a Savings and Profit Sharing Plan (the "Plan"), as amended, for
eligible employees. Employees who have completed one year of service with the
Company are eligible to participate in the Plan. Under the Plan, participating
employees may authorize payroll deductions up to 11% of their earnings. The
Company may elect to contribute a percentage of participants' contributions to
the Plan. Additional amounts may be contributed at the option of the Company's
board of directors. Company contributions are subject to vesting at the rate of
20% each year upon completion of two years of service, with 100% vesting after
six years. Matching contributions of $114, $101 and $97 were made by the Company
during the years ended August 31, 1996, 1995 and 1994, respectively. For the
year ended August 31, 1996, a discretionary contribution of $35 was accrued ($50
for each of the two years ended August 31, 1995 and 1994).
NET REVENUE INCENTIVE PLAN
The Company has a Net Revenue Incentive Plan (the "Incentive Plan"), as amended,
which applies to certain members of management and is at all times discretionary
with the Company's board of directors. If certain predetermined earnings goals
are met, the Incentive Plan provides that a predetermined percentage of the
employee's salary may be paid in the form of a bonus. The Company accrued
incentive bonuses of $341, $367 and $60 during the years ended August 31, 1996,
1995 and 1994, respectively.
14. EMPLOYMENT AGREEMENTS
The Company has employment contracts with its President and several members of
its senior management. These contracts provide for use of Company automobiles or
related allowances, medical, life and disability insurance, annual base
salaries, as well as an incentive bonus (NOTE 13). These contracts also contain
provisions for payments in the event of the termination of employment and
provide for payments aggregating $3,623 at August 31, 1996 due to loss of
employment in the event of a change in control (as defined in the contracts).
F-23
<PAGE>
Sonic Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share data)
15. CONTINGENCIES
In October 1993, following a jury trial, the District Court of Jefferson County,
Texas (the "District Court") entered a judgment against two subsidiaries of the
Company in the amount of $935 of actual damages and prejudgment interest, and
$1,000 of punitive damages in an action in which the plaintiffs claim the
subsidiaries interfered with contractual relations of the plaintiffs and were
guilty of deceptive trade practices. In March 1994, the District Court granted a
motion for judgment notwithstanding the verdict filed by the two subsidiaries of
the Company. The District Court's judgment eliminated the award of actual and
punitive damages in favor of certain plaintiffs. The plaintiffs appealed the
reversal of the previous judgments. In April 1996, the Texas Court of Appeals
reversed the District Court's judgment notwithstanding the verdict and
reinstated the jury's verdict in the amount of $782 of actual damages, $1,000 of
punitive damages, and pre and post judgment interest. The Company has appealed
the Court of Appeals reversal to the Supreme Court of Texas. The Company
continues to believe that the findings of the jury and the Court of Appeals had
no merit and will defend its position vigorously. The Company presently cannot
predict the ultimate outcome of this matter. A final resolution is not expected
to have a material adverse effect on the Company's financial position or results
of operations.
The Company is a party to several additional legal actions arising in the
conduct of its business. Management of the Company believes that the ultimate
resolution of these actions will not have a material adverse effect on the
Company's financial position or results of operations.
F-24
<PAGE>
Sonic Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share data)
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER FULL YEAR
1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income statement data:
Sales by Company-owned restaurants $25,444 $19,816 $23,274 $19,421 $33,642 $25,153 $38,340 $27,048 $120,700 $ 91,438
Franchised restaurants:
Franchise fees 262 334 553 269 287 228 351 578 1,453 1,409
Franchise royalties 5,810 4,926 4,894 4,305 5,717 5,284 6,894 5,877 23,315 20,392
Equipment and sign sales (a) 2,254 2,130 1,489 1,763 - 2,705 - 2,478 3,743 9,076
Other 373 364 631 263 479 399 436 419 1,919 1,445
---------------------------------------------------------------------------------------------
Total revenues 34,143 27,570 30,841 26,021 40,125 33,769 46,021 36,400 151,130 123,760
Company-owned restaurants:
Food and packaging 8,294 6,413 7,582 6,389 10,315 8,311 11,272 8,960 37,463 30,073
Payroll and other employee benefits 7,628 5,969 7,061 5,827 8,941 7,547 10,925 7,922 34,555 27,265
Other operating expenses 4,472 3,378 4,327 3,201 5,348 3,796 6,498 4,562 20,645 14,937
---------------------------------------------------------------------------------------------
20,394 15,760 18,970 15,417 24,604 19,654 28,695 21,444 92,663 72,275
Equipment and sign cost of sales (a) 1,891 1,739 1,210 1,380 - 2,207 - 2,028 3,101 7,354
Selling, general and administrative 3,299 3,331 3,375 3,322 3,776 3,483 4,048 3,124 14,498 13,260
Depreciation and amortization 1,989 1,209 2,123 1,426 2,394 1,521 2,390 1,754 8,896 5,910
Minority interest in earnings of
restaurant partnerships 794 625 615 620 1,800 965 1,597 1,049 4,806 3,259
Provision for impairment of
long-lived assets (b) 22 19 27 15 16 18 8,562 19 8,627 71
---------------------------------------------------------------------------------------------
Income from operations 5,754 4,887 4,521 3,841 7,535 5,921 729 6,982 18,539 21,631
Interest expense 399 354 231 378 258 543 296 548 1,184 1,823
Interest income (208) (105) (257) (117) (137) (94) (106) (93) (708) (409)
---------------------------------------------------------------------------------------------
Income before income taxes $ 5,563 $ 4,638 $ 4,547 $ 3,580 $ 7,414 $ 5,472 $ 539 $ 6,527 $ 18,063 $ 20,217
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net income $ 3,463 $ 2,864 $ 2,831 $ 2,211 $ 4,615 $ 3,379 $ 335 $ 4,030 $ 11,244 $ 12,484
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net income per share (NOTE 12) $.27 $.24 $.21 $.19 $.34 $.29 $.02 $.34 $.84 $1.05
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
</TABLE>
(a) Restaurant equipment sales and cost of sales declined due to the sale of
the Company's equipment division in February 1996.
(b) The Company adopted Statement of Financial Accounting Standards No. 121
during the fourth quarter of 1996 resulting in a $8,541 pre-tax impairment
provision.
F-25
<PAGE>
Sonic Corp.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share data)
17. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following discussion of fair values is not indicative of the overall fair
value of the Company's consolidated balance sheet since the provisions of SFAS
No. 107, "Disclosures About Fair Value of Financial Instruments," do not apply
to all assets, including intangibles.
The following methods and assumptions were used by the Company in estimating its
fair values of financial instruments:
CASH AND CASH EQUIVALENTS--Carrying value approximates fair value.
NOTES RECEIVABLE--For variable rate loans with no significant change in
credit risk since the loan origination, fair values approximate carrying
amounts. Fair values for fixed rate loans are estimated using discounted
cash flow analysis, using interest rates which would currently be offered
for loans with similar terms to borrowers of similar credit quality and/or
the same remaining maturities.
As of August 31, 1996 and 1995, carrying values approximate their estimated
fair values.
BORROWED FUNDS--Fair values for fixed rate borrowings are estimated using a
discounted cash flow analysis that applies interest rates currently being
offered on borrowings of similar amounts and terms to those currently
outstanding. Carrying values for variable rate borrowings approximate their
fair values.
As of August 31, 1996 and 1995, carrying values approximate their estimated
fair values.
F-26
<PAGE>
<TABLE>
<CAPTION>
Sonic Corp.
Schedule II - Valuation and Qualifying Accounts
ADDITIONS AMOUNTS
BALANCE AT CHARGED TO WRITTEN OFF BALANCE
BEGINNING COSTS AND AGAINST THE AT END
DESCRIPTION OF YEAR EXPENSES ALLOWANCE RECOVERIES OF YEAR
- ----------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS AND NOTES
RECEIVABLE
Year ended:
August 31, 1996 $177 $ 124 $ 93 $ 55 $ 263
August 31, 1995 $299 $ 99 $ 226 $ 5 $ 177
August 31, 1994 $257 $ 95 $ 53 $ - $ 299
ACCRUED CARRYING COSTS
FOR RESTAURANT CLOSINGS
AND DISPOSALS
Year ended:
August 31, 1996 $370 $1,354 $262 $ - $1,462
August 31, 1995 $596 $ 60 $286 $ - $ 370
August 31, 1994 $241 $ 648 $293 $ - $ 596
</TABLE>
F-27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has caused the undersigned, duly-
authorized, to sign this report on its behalf on this 25th day of November,
1996.
Sonic Corp.
By: /s/ J. Clifford Hudson
---------------------------------------------------------
J. Clifford Hudson, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the undersigned have signed this report on behalf of the Company, in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
---------- ----- -----
<S> <C> <C>
/s/ J. Clifford Hudson President, Chief Executive November 25, 1996
- ---------------------------------- Officer, and Director
J. Clifford Hudson, Principal
Executive Officer
/s/ Lewis B. Kilbourne Senior Vice President and Chief November 25, 1996
- ---------------------------------- Financial Officer
Lewis B. Kilbourne, Principal
Financial Officer
/s/ Stephen C. Vaughan Controller November 25, 1996
- ----------------------------------
Stephen C. Vaughan, Principal
Accounting Officer
/s/ E. Dean Werries Chairman of the Board November 14, 1996
- ---------------------------------- and Director
E. Dean Werries
/s/ Dennis H. Clark Director November 13, 1996
- ----------------------------------
Dennis H. Clark
/s/ Leonard Lieberman Director November 14, 1996
- ----------------------------------
Leonard Lieberman
/s/ H. E. Rainbolt Director November 14, 1996
- ----------------------------------
H. E. Rainbolt
/s/ Frank E. Richardson III Director November 14, 1996
- ----------------------------------
Frank E. Richardson III
/s/ Robert M. Rosenberg Director November 9, 1996
- ----------------------------------
Robert M. Rosenberg
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER AND DESCRIPTION
- ------------------------------
10.15. Sonic Corp. 1995 Stock Incentive Plan
10.16. Form of Employment Agreement and Schedule of Material Differences
for the Executive Officers of the Company
10.18. First Amendment to Loan Agreement with Texas Commerce Bank
National Association
10.19. Second Amendment to Loan Agreement with Texas Commerce Bank
National Association
21.01. Subsidiaries of the Company
23.01. Consent of Independent Auditors
24.01. Power of Attorney
27.01. Financial Data Schedules
<PAGE>
Exhibit 10.15
Sonic Corp. 1995 Stock Incentive Plan
<PAGE>
1995 STOCK INCENTIVE PLAN
SONIC CORP., a Delaware corporation (the "Company"), hereby adopts the
Sonic Corp. Stock Incentive Plan upon the following terms and conditions:
ARTICLE I
NAME AND PURPOSE OF PLAN
1.1 NAME OF PLAN. This Plan shall be hereafter known as the SONIC CORP.
1995 STOCK INCENTIVE PLAN.
1.2 PURPOSE. The purpose of the Plan is to provide Key Employees who are
selected to be Participants under the Plan an incentive to motivate and
financially reward such individuals who contribute to the long term growth and
profitability of the Company, with such reward to be based on the financial
performance of the Company, including its Subsidiaries, during Performance
Cycles.
1.3 TYPE OF PLAN. This Plan shall be considered as a "nonqualified
deferred compensation plan" which is to be sponsored by the Company solely for
the purpose of providing a supplemental income for certain Key Employees who
contribute materially to the continued growth, development and future business
success of the Company. It is the intention of the Company that this Plan and
any Agreements entered into pursuant to the Plan be administered as an unfunded
welfare benefit plan established and maintained for a select group of Key
Employees.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. Where the following capitalized words and phrases appear
in this instrument, they shall have the respective meanings set forth below
unless a different context is clearly expressed herein.
(a) AGREEMENT. The word "Agreement" shall mean that certain
agreement which will be entered into by and between the Company and the
Participant which represents the Participant's Award for a particular
Performance Cycle as provided in Section 3.3 hereof.
(b) ANNIVERSARY DATE: The words "Anniversary Date" shall mean
August 31, which is end of the fiscal year of the Company.
(c) AWARD: The word "Award" shall mean, with respect to any
Participant, the number of shares of Restricted Stock granted to the
Participant at the beginning of each Performance Cycle.
(d) BENEFICIARY: The word "Beneficiary" shall mean that person
designated by the Participant pursuant to Section 6.2 hereof who may be
entitled to receive such Participant's Award in the event of the death of
the Participant.
(e) BOARD: The word "Board" shall mean the Board of Directors of
the Company.
(f) CHANGE OF CONTROL: The words "Change of Control" shall mean the
change in the control of the Company as described in Section 9.1 hereof.
<PAGE>
(g) CODE: The word "Code" shall mean the Internal Revenue Code of
1986, as amended.
(h) COMMITTEE: The word "Committee" shall mean the committee
appointed by the Board which in accordance with Article X herein will
administer the Plan.
(i) COMMON STOCK: The words "Common Stock" shall mean the shares of
common stock, $.01 par value per share of the Company.
(j) COMPANY: The word "Company" shall mean Sonic Corp., or its
successor.
(k) DISABILITY: The word "Disability" shall mean a physical or
mental condition arising during employment with the Employer whereby a
Participant has become totally and permanently disabled.
(l) EFFECTIVE DATE: The words "Effective Date" shall mean the date
that this Plan shall have been approved by the Board, which is the date
that this Plan shall be effective for all purposes.
(m) ELIGIBLE SPOUSE: The words "Eligible Spouse" shall mean the
spouse to whom the Participant is married on his date of death.
(n) EMPLOYER: The word "Employer" shall mean either the Company or
any Subsidiary.
(o) ESCROW: The word "Escrow" shall mean that separate arrangement
under which Restricted Stock will be held pending distribution to the
Participant on the Vesting Date or as otherwise provided in the Plan.
(p) ESCROW AGENT: The words "Escrow Agent" shall mean the person or
entity who shall administer the Escrow.
(q) INCUMBENT BOARD. The words "Incumbent Board" shall mean the
individuals who, as of the date hereof, constitute the Board, provided,
however, that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs
as a result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board.
(r) KEY EMPLOYEES: The words "Key Employee" shall mean any full
time employee of the Company or a Subsidiary who holds the position of
Chairman, Chief Executive Officer, President, Executive Vice President,
Senior Vice President or Vice President or any other employee of the
Company or a Subsidiary who is selected for participation in the Plan.
(s) PARTICIPANT: The word "Participant" shall mean a Key Employee
who has been selected by the Committee.
2
<PAGE>
(t) PERFORMANCE CYCLE: The words "Performance Cycle" shall mean a
fixed period of time determined by the Committee over which Awards may be
earned by the Participant.
(u) PERFORMANCE GOALS: The words "Performance Goals" shall mean
those factors, goals and criteria selected by the Committee which must be
met by the Participant during the Performance Cycle in order for a
Participant to earn his Award, or to become vested in his Award, under the
Performance Vesting Schedule.
(v) PERFORMANCE VESTING SCHEDULE: The words "Performance Vesting
Schedule" shall mean that schedule selected by the Committee which shall
contain the Performance Goals which must be met during the applicable
Performance Cycle in order for a Participant to become vested in his Award
under the Performance Vesting Schedule.
(w) PLAN: The word "Plan" shall mean the "Sonic Corp. 1995 Stock
Incentive Plan," as set forth in this instrument, and as hereafter amended
from time to time.
(x) RESTRICTED STOCK: The words "Restricted Stock" shall mean those
shares of Common Stock which a Participant may earn as provided in Article
V hereof.
(y) RETIREMENT: The word "Retirement" shall mean a Participant's
termination of employment with the Company or a Subsidiary after attaining
the age of 65 years or later or, at the discretion of the Committee, after
attaining the age of 55 years or later.
(z) SERVICE VESTING SCHEDULE. The words "Service Vesting Schedule"
shall mean the period of employment service with the Employer established
by the Committee which must be met in order for a Participant to become
vested in his Award under the Service Vesting Schedule.
(aa) SUBSIDIARY: The word "Subsidiary" shall mean any corporation
with 80% or more of its voting common stock being owned, directly or
indirectly, by the Company.
(bb) VESTING DATE: The words "Vesting Date" shall mean the date on
which a Participant becomes vested in his Award after satisfying the
requirements, if any, of any Performance Vesting Schedule and/or Service
Vesting Schedule; provided, however, that no Participant may become vested
in his Award within six months from date the Award is granted.
(cc) YEAR: The word "Year" shall mean the fiscal year of the
Company.
2.2 CONSTRUCTION: The masculine gender, wherever appearing in the Plan,
shall be deemed to include the feminine gender, unless the context clearly
indicates to the contrary. Any word appearing herein in the plural shall include
the singular, where appropriate, and likewise the singular shall include the
plural, unless the context clearly indicates to the contrary.
3
<PAGE>
ARTICLE III
PARTICIPATION
3.1 SELECTION FOR PARTICIPATION. In order to be eligible for
participation in the Plan, a Key Employee of the Company must be selected by the
Committee. Selection for participation in the Plan shall be in the sole and
absolute discretion of the Committee.
3.2 PARTICIPATION IN CONSIDERATION FOR FUTURE SERVICES. Selection of a
Key Employee by the Committee for participation in the Plan and the granting of
any Award will be deemed to be for all purposes in consideration of future
services to be rendered by the Key Employee to the Company or its Subsidiaries.
3.3 AWARD AGREEMENTS. Any Key Employee selected by the Committee as a
Participant, shall, as a condition of participation, execute and return to the
Committee an Agreement evidencing the Key Employee's participation in the Plan,
the amount of his Award and his agreement to the terms and conditions of the
Plan and the Agreement. A separate Agreement will be entered into by the
Company and the Participant for each Performance Cycle.
ARTICLE IV
RESTRICTED STOCK SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES OF RESTRICTED STOCK. Shares of Common Stock subject
to Award under this Plan in the form of Restricted Stock shall not exceed in the
aggregate One Hundred Twenty Thousand (120,000) shares of the Common Stock of
the Company. Either authorized and unissued shares or treasury shares may be
subject to Award and delivered pursuant to the Plan. If any Restricted Stock
issued to a Participant is forfeited as provided in this Plan, the Committee may
reissue such Restricted Stock to Participants.
ARTICLE V
THE AWARDS
5.1 AMOUNT OF AWARDS. The Award granted to each Participant for each
Performance Cycle, expressed as a number of shares of Restricted Stock, is
determined solely in the discretion of the Committee. Awards of Restricted
Stock will be paid in Common Stock of the Company. Each Award of Restricted
Stock shall contain such terms, restrictions and conditions as the Committee may
determine, which terms, restrictions and conditions may or may not be the same
in each case.
5.2 RESTRICTED STOCK HELD IN ESCROW. The Committee shall cause a
certificate to be delivered to the Escrow Agent (appointed pursuant to Section
5.3 below) registered in the name of the Participant representing the total
number of shares of Restricted Stock represented by his Award and a copy of the
Agreement relating to such Award in accordance with the following:
(a) Any such certificate shall be legended to indicate that the
shares of Restricted Stock represented thereby are subject to the terms and
conditions of the Award and the Plan.
(b) Restricted Stock held by the Escrow Agent in the Escrow shall
constitute issued and outstanding shares of Common Stock of the Company for
all corporate purposes,
4
<PAGE>
and the Participant shall, unless the Agreement shall provide otherwise,
receive all dividends thereon and shall have the right to vote such shares;
provided, however, that the right to receive such dividends and to vote
such shares shall forthwith terminate with respect to unvested shares of
Restricted Stock of any Participant whose Award has been forfeited as
provided in this Plan or the Agreement.
(c) While such Restricted Stock is held in Escrow and until such
Restricted Stock has become fully vested on the Vesting Date, it shall be
subject to the restrictions set forth in Section 7.1 of the Plan.
(d) As such Restricted Stock shall vest from time to time in the
Participant in accordance with his Award, the Escrow Agent shall deliver to
such Participant or his respective Beneficiary (in the case of the
Participant's death) certificates representing such vested shares of
Restricted Stock. As a condition precedent to delivering a certificate
representing shares of Restricted Stock covered by an Award to the Escrow
Agent, the Committee may require the Participant to deliver to the Escrow
Agent a duly executed irrevocable stock power or powers (in blank) covering
the Restricted Stock represented by such certificate.
(e) Certificates representing unvested shares of Restricted Stock
held by the Escrow Agent for the benefit of any Participant whose Award (to
the extent then unvested) has been forfeited shall be returned (together
with the related stock power) by the Escrow Agent to the Company.
(f) The Company shall have no liability to issue any Restricted
Stock hereunder unless such Restricted Stock and issuance thereof comply
with any applicable federal or state securities laws or any other
applicable laws.
(g) Participants may be granted more than one Award. The granting
of an Award shall not affect any outstanding Award previously made to a
Participant under the Plan.
5.3 ESCROW AGENT. An Escrow Agent for the Escrow shall be appointed by
the Committee for such period and upon such terms and conditions as the
Committee deems appropriate. The Committee shall have the power to remove any
person from the position of Escrow Agent and to appoint a substitute or
successor Escrow Agent. The fees and expenses of the Escrow Agent shall be paid
by the Company. The Escrow Agent shall not incur liability for any action taken
pursuant to the Plan or any Award made thereunder so long as the Escrow Agent
acts in good faith in accordance with the instructions of the Committee.
ARTICLE VI
PAYMENT OF AWARD
6.1 PAYMENT OF AWARD.
(a) GENERAL. With respect to each applicable Performance Cycle,
after satisfaction of any Performance Vesting Schedule and/or Service
Vesting Schedule prescribed by the Committee, payment of Awards shall be
made as soon as practicable following the Vesting Date which relates to the
Award.
5
<PAGE>
(b) SPECIAL CIRCUMSTANCES. In the event of termination of a
Participant's employment due to death, Retirement or Disability, then any
unvested Award of a Participant shall thereupon immediately be forfeited;
provided, however, in the event of death of a Participant after the
completion of three fiscal quarters for any Year in a Performance Cycle,
the Award to such Participant shall vest for that Year if the Performance
Goals for that year are otherwise achieved, and all unvested Restricted
Stock subject to vesting for any Year thereafter shall be forfeited.
6.2 BENEFICIARY DESIGNATION. In the event of the death of a Participant
during a Performance Cycle, then, the Participant's Award, if any, to the extent
vested prior to the death of the Participant, or to become vested as provided in
Section 6.1(b), shall be paid to the then surviving Beneficiary designated by
the Participant on a form provided by the Committee, and, if there is no
Beneficiary then surviving, such benefits will automatically be paid to the
surviving Eligible Spouse of such Participant, otherwise to the estate of such
Participant.
ARTICLE VII
GENERAL BENEFIT PROVISIONS
7.1 RESTRICTIONS ON ALIENATION OF BENEFITS. No right or benefit under
this Plan or the Agreement shall be subject in any manner to garnishment,
attachment, anticipation, alienation, sale, transfer, assignment, gift, pledge,
encumbrance, disposition, hypothecation, levy, execution or the claims of
creditors, either voluntarily or involuntarily, and any attempt to so garnish,
attach, anticipate, alienate, sell, transfer, assign, gift, pledge, encumber,
dispose, hypothecate, levy or execute on the same shall be null and void, and
neither shall such benefits or beneficial interests be liable for or subject to
the debts, contracts, liabilities, engagements or torts of any person to whom
such benefits or funds are payable.
7.2 NO TRUST. Other than as specifically provided in this Plan, no action
under this Plan by the Company, its Board or the Committee shall be construed as
creating a trust, escrow or other secured or segregated fund in favor of the
Participant, his Beneficiary, or any other persons otherwise entitled to his
Award. The status of the Participant and his Beneficiary with respect to any
liabilities assumed by the Company hereunder shall be solely those of unsecured
creditors of the company who employs such Participant. Any asset acquired or
held by the Company in connection with liabilities assumed by it hereunder,
shall not be deemed to be held under any trust, escrow or other secured or
segregated fund for the benefit of the Participant or his Beneficiaries or to be
security for the performance of the obligations of the Company or any
Subsidiary, but shall be and remain a general, unpledged, unrestricted asset of
the Company at all times subject to the claims of general creditors of the
Company.
7.3 WITHHOLDING FOR INCOME AND EMPLOYMENT TAXES. Since all amounts to be
paid under the Plan and the related Agreement to a Participant are to be
considered as supplemental compensation paid for services rendered by the
Participant, the Company shall comply with all federal and state laws and
regulations respecting the withholding, deposit and payment of any income,
employment or other taxes relating to any payments made under this Plan, and
accordingly, all amounts of Awards shall be subject to and reduced by the amount
of such taxes. At such times as are required under applicable income,
employment or other tax laws or regulations, the Company shall withhold a number
of shares of Restricted Stock equal to the withholding deposit which is
otherwise required with respect to such income or other employment taxes.
Notwithstanding the withholding of such Restricted Stock, such shares shall
still be considered to be subject to withholding taxes. The additional amount
of tax which is due may be likewise paid either in cash
6
<PAGE>
or by the withholding of additional shares. The Participant may elect to pay
any employment or withholding taxes by directing the Company to withhold from
his salary, or, prior to the required time to withhold such taxes, to remit to
the Company in cash, an amount sufficient to pay such income or other employment
taxes.
7.4 NO INTEREST ON AWARDS. All Awards to be paid hereunder will be paid
without interest or investment earnings of any kind whatsoever except as
otherwise specifically provided in the Plan.
7.5 PAYMENTS BY THE COMPANY OR SUBSIDIARY. The payments required to fund
the cost of the Awards provided by the Plan shall be made solely by the Company
or any Subsidiary whose Key Employees are participating in the Plan.
7.6 ADJUSTMENT ON RECAPITALIZATION. In case of a recapitalization, stock
split, merger, stock dividend, reorganization, combination, liquidation, or
other change in the Common Stock of the Company, the Committee shall make such
adjustment, if any, as it deems appropriate in the number or kind of shares of
Common Stock which remain available under the Plan for further Awards. Unvested
shares of Restricted Stock held by the Escrow Agent for the benefit of a
Participant shall participate in any of such events to the same extent as any
other issued and outstanding shares of Common Stock of the Company, but
appropriate adjustments, if required, shall be made by the Committee, so that
after giving effect to the occurrence of any of such events, the Escrow Agent
shall continue to hold such unvested shares and/or any other securities
delivered in respect thereof for the benefit of such Participant to the extent
practicable upon the same terms and conditions of this Plan and of his Award,
subject to the Change of Control provisions of Article IX.
ARTICLE VIII
PROVISIONS RELATING TO PARTICIPANTS
8.1 INFORMATION REQUIRED OF PARTICIPANTS. Payment of Awards shall be made
as provided in this Plan and no formal claim shall be required therefor;
provided, in the interests of orderly administration of the Plan, the Committee
may make reasonable requests of Participants and Beneficiaries to furnish
information which is reasonably necessary and appropriate to the orderly
administration of the Plan, and, to that limited extent, payments under the Plan
are conditioned upon the Participants and Beneficiaries promptly furnishing
true, full and complete information as the Committee may reasonably request.
8.2 BENEFITS PAYABLE TO INCOMPETENTS. Any benefits payable hereunder to a
minor or other person under legal disability may be made, at the discretion of
the Committee, (i) directly to the said person, or (ii) to a parent, spouse,
relative by blood or marriage, or the legal representative of the said person.
The Committee shall not be required to see to the application of any such
payment, and the payee's receipt shall be a full and final discharge of the
Committee's responsibility hereunder.
8.3 CONDITIONS OF EMPLOYMENT NOT AFFECTED BY PLAN. The establishment and
maintenance of the Plan shall not be construed as conferring any legal rights
upon any Participant to the continuation of employment with the Employer, nor
shall the Plan interfere with the rights of the Employer to discharge any
Participant with or without cause.
7
<PAGE>
ARTICLE IX
STATUS OF AWARDS ON CHANGE OF CONTROL
9.1 CHANGE OF CONTROL. In the event there has been a Change of Control
which: (i) has not been approved by the Incumbent Board of Directors or (ii) is
the result of a tender offer or proxy solicitation not recommended or approved
by the Incumbent Board of Directors, then the vesting of any Award shall be
accelerated to the time of such Change of Control. In the event of any other
Change of Control, the Committee, in its sole discretion, may accelerate the
vesting of any Award, or terminate or cause the forfeiture of any unvested
Awards. For the purposes of this Plan, the term "Change of Control" shall mean:
(a) Any consolidation or merger of the Company in which the Company
is not the continuing or surviving corporation or pursuant to which shares
of the Company's capital stock would convert into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's capital stock immediately prior to the merger have the same
proportionate ownership of capital stock of the surviving corporation
immediately after the merger;
(b) Any sale, lease, exchange or other transfer (whether in one
transaction or a series of related transactions) of all or substantially
all of the assets of the Company;
(c) The stockholders of the Company approve any plan or proposal for
the liquidation or dissolution of the Company;
(d) Any person (as used in Section 13(d) and 14(d)(2) of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"))
becomes the beneficial owner (within the meaning of Rule 13D-3 under the
Exchange Act) of 50% or more of the Company's outstanding capital stock;
(e) During any period of two consecutive years, individuals who at
the beginning of that period constitute the entire Board of the Company
cease for any reason to constitute a majority of the Board unless the
election or the nomination for election by the Company's stockholders of
each new director received the approval of the Board by a vote of at least
two-thirds of the directors then and still in office and who served as
directors at the beginning of the period; or
(f) The Company becomes a subsidiary of any other corporation.
ARTICLE X
ADMINISTRATION AND COMMITTEE
10.1 ALLOCATION OF RESPONSIBILITY FOR PLAN ADMINISTRATION. The members of
the Committee shall serve at the pleasure of the Board and shall be the same as
the Stock Plan Committee appointed by the Board. Any member may serve
concurrently as a member of any other administrative committee of any other plan
of the Company or any of its affiliates entitling participants therein to
acquire stock, stock options or deferred compensation rights (including stock
appreciation rights). A member of the Committee may not be eligible to become a
Participant in the Plan. The Committee shall have the power where consistent
with the general purpose and intent of the Plan to (i) modify the requirements
of the Plan to conform with the law or to meet in special
8
<PAGE>
circumstances not anticipated or covered in the Plan, (ii) suspend or
discontinue the Plan, (iii) establish policies and (iv) adopt rules and
regulations and prescribe forms for carrying out the purposes and provisions of
the Plan including the form of any Agreements. Unless otherwise provided in the
Plan, the Committee shall have the authority to interpret and construe the Plan,
and determine all questions arising under the Plan and any Agreement made
pursuant to the Plan. Any interpretation, decision or determination made by the
Committee shall be final, binding and conclusive. A majority of the Committee
shall constitute a quorum, and an act of the majority of the members present at
any meeting at which a quorum is present shall be the act of the Committee.
10.2 APPOINTMENT OF COMMITTEE. The Plan shall be administered by the
Committee. All usual and reasonable expenses of the Committee incurred in
administering the Plan may be paid in whole or in part by the Company.
10.3 RECORDS AND REPORTS. The Committee shall exercise such authority and
responsibility as it deems appropriate in order to comply with governmental laws
and regulations.
10.4 OTHER COMMITTEE POWERS AND DUTIES. The Committee shall have such
duties and powers as may be necessary to discharge its duties hereunder,
including, but not by way of limitation, the following:
(a) to construe and interpret the Plan, decide all questions of
eligibility and determine the amount, manner and time of payment of any
Awards hereunder;
(b) to establish the Performance Goals and any other factors
relating to the Performance Vesting Schedule and the Service Vesting
Schedule as such relate to the Awards;
(c) to prepare and distribute, in such manner as the Committee
determines to be appropriate, information explaining the Plan;
(d) to receive from the Company and from Participants and
Beneficiaries such information as shall be necessary for the proper
administration of the Plan;
(e) to furnish the Company upon request, such reports with respect
to the administration of the Plan as are reasonable and appropriate; and
(f) to appoint and employ individuals and any other agents it deems
advisable, including legal counsel, to assist in the administration of the
Plan and to render advice with respect to any responsibility of the
Committee, or any of its individual members, under the Plan.
10.5 RULES AND DECISIONS. The Committee may adopt such rules as it deems
necessary, desirable, or appropriate. When making a determination or
calculation, the Committee shall be entitled to rely upon information furnished
by a Participant or Beneficiary, the Employer, the accountants of the Company or
the legal counsel of the Company.
9
<PAGE>
ARTICLE XI
AMENDMENT AND TERMINATION
11.1 RIGHT TO AMEND OR ALTER PLAN. The Plan may be amended by the Company
from time to time in any respect whatever by resolution of the Board. Any
amendments may be made, which in the judgment of the Committee are necessary or
advisable, provided that such amendments do not deprive a Participant, without
his consent, of a right to receive his Award hereunder which has been previously
vested by such Participant at the applicable point in time.
11.2 RIGHT TO TERMINATE PLAN. This Plan shall continue until terminated
as provided in this Section 11.2. The Company expressly reserves the right to
terminate this Plan in whole or in part at any time. Unless sooner terminated,
this Plan shall terminate on August 31, 2005 (the "Termination Date"). Provided,
if the Company elects to terminate the Plan prior to the Termination Date, the
Company shall determine a proposed date of termination, and the Committee shall
notify the Participants. Provided further, the termination of the Plan shall
not cause a termination of any previously vested Award.
ARTICLE XII
RESOLUTION OF DISPUTES
12.1 RESOLUTION OF DISPUTES. The following provisions shall apply to any
controversy between the Company and its Subsidiaries and the Participant
(including any director, officer, employee, agent or affiliate of the Company
and its Subsidiaries) relating to this Plan or any Award granted pursuant to
this Plan.
(a) NEGOTIATION. The parties first shall use their reasonable
efforts to discuss and negotiate a resolution of the controversy.
(b) ARBITRATION. If the efforts to negotiate a resolution do not
succeed, the parties shall resolve the controversy by final and binding
arbitration in accordance with the Rules for Commercial Arbitration (the
"Rules") of the American Arbitration Association in effect at the time of
the adoption of this Plan and pursuant to the following additional
provisions:
(1) APPLICABLE LAW. The Federal Arbitration Act (the "Federal
Act"), as supplemented by the Oklahoma Arbitration Act (to the extent
not inconsistent with the Federal Act), shall apply to the arbitration
and all procedural matters relating to the arbitration.
(2) SELECTION OF ARBITRATORS. The parties shall select one
arbitrator within ten days after filing of a demand and submission in
accordance with the Rules. If the parties fail to agree on an
arbitrator within that ten day period or fail to agree to an extension
of that period, the arbitration shall take place before an arbitrator
selected in accordance with the Rules.
(3) LOCATION OF ARBITRATION. The arbitration shall take place
in Oklahoma City, Oklahoma, and the arbitrator shall issue any award
at the place of arbitration. The arbitrator may conduct hearings and
meetings at any place
10
<PAGE>
agreeable to the parties or, upon the motion of a party, determined by
the arbitrator as necessary to obtain significant testimony or
evidence.
(4) DISCOVERY. The arbitrator shall have the power to
authorize all forms of discovery (including depositions,
interrogatories and document production) upon the showing of (i) a
specific need for the discovery, (ii) that the discovery likely will
lead to material evidence needed to resolve the controversy, and (iii)
that the scope, timing and cost of the discovery is not excessive.
(5) AUTHORITY OF ARBITRATOR. The arbitrator shall not have
the power (i) to alter, modify, amend, add to, or subtract from any
term or provision of this Agreement; (ii) to rule upon or grant any
extension, renewal or continuance of this Agreement; or (iii) to grant
interim injunctive relief prior to the award.
(6) ENFORCEMENT OF AWARD. The prevailing party shall have the
right to enter the award of the arbitrator in any court having
jurisdiction over one or more of the parties or their assets. The
parties specifically waive any right they may have to apply to any
court for relief from the provisions of this Agreement or from any
decision of the arbitrator made prior to the award.
(c) ATTORNEYS' FEES AND COSTS. The prevailing party to the
arbitration shall have the right to an award of its reasonable attorneys'
fees and costs (including the cost of the arbitrator) incurred after the
filing of the demand and submission. If the Company prevails, the award
shall include an amount for that portion of the administrative overhead
reasonably allocable to the time devoted by the in-house legal staff of the
Company.
(d) OTHER RIGHTS. The provisions of this Section 12.1 shall not
prevent the Company, its Subsidiaries, or the Participant from exercising
any of their rights under this Plan, the Agreement, or under the common
law, including (without limitation) the right to terminate any agreement
between the parties or to end or change the party's legal relationship.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 ARTICLES AND SECTION TITLES AND HEADINGS. The titles and headings at
the beginning of each Article and Section shall not be considered in construing
the meaning of any provisions in this Plan.
13.2 LAWS OF OKLAHOMA TO GOVERN. The provisions of this Plan shall be
construed, administered and enforced according to the laws of the State of
Oklahoma.
13.3 EFFECTIVE DATE OF PLAN. This Plan shall be effective as of the
Effective Date.
11
<PAGE>
Exhibit 10.16
Form of Employment Agreement and Schedule of Material Differences
for the Executive Officers of the Company
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is entered into effective as of the ______ day of
__________, 1996, by and between __________ (the "Corporation"), a ___________
corporation, and __________________ (the "Employee").
RECITALS
Whereas, the Employee is currently serving as the ________________________
of the Corporation and is an integral part of its management; and
Whereas, the Corporation's Board of Directors (the "Board") has determined
that it is appropriate to reinforce and encourage the continued attention and
dedication of certain key members of the Corporation's management, including
Employee, to their assigned duties without distraction and potentially
disturbing circumstances arising from the possibility of a Change in Control
(herein defined) of Sonic Corp.; and
Whereas, the Corporation desires to continue the services of Employee,
whose experience, knowledge and abilities with respect to the business and
affairs of the Corporation are extremely valuable to the Corporation; and
Whereas, the Board of Sonic Corp. on the _____ day of ______________, 19__,
ratified and approved this Agreement; and
Whereas, the parties hereto desire to enter into this Agreement setting
forth the terms and conditions of the continued employment relationship of the
Corporation and Employee.
Now, therefore, it is agreed as follows:
ARTICLE I
TERM OF EMPLOYMENT
1.1 TERM OF EMPLOYMENT. The Corporation shall employ Employee for a
period of _______ year from the date hereof (the "Initial Term").
1.2 EXTENSION OF INITIAL TERM. Upon each __________ anniversary date of
this Agreement, this Agreement shall be extended automatically for successive
terms of one year each, unless either the Corporation or the Employee gives
contrary written notice to the other not later than the __________ anniversary
date.
1.3 TERMINATION OF AGREEMENT AND EMPLOYMENT. The Corporation may
terminate this Agreement and the Employee's employment at any time effective
upon written notice to the Employee. The Corporation, in its sole discretion,
may terminate this Agreement without terminating the employment of the Employee.
The Employee may terminate this Agreement and
<PAGE>
the Employee's employment only after at least 30 days' written notice to the
Corporation, unless otherwise agreed by the Corporation.
ARTICLE II
DUTIES OF THE EMPLOYEE
Employee shall serve as the ______________________ of the Corporation.
Employee shall do and perform all services, acts, or things necessary or
advisable to manage and conduct the business of the Corporation consistent with
such position subject to such policies and procedures as may be established by
the Board.
ARTICLE III
COMPENSATION
3.1 SALARY. For Employee's services to the Corporation as the
______________________, Employee shall be paid a salary at the annual rate of
$____________ (herein referred to as "Salary"), payable in twenty-four equal
installments on the first and fifteenth day of each month. On the first day of
each calendar year during the term of this Agreement with the Corporation,
Employee shall be eligible for an increase in Salary based on an evaluation of
Employee's performance during the past year with the Corporation. During the
term of this Agreement, the Salary of the Employee shall not be decreased at any
time from the Salary then in effect unless agreed to in writing by the Employee.
3.2 BONUS. The Employee shall be entitled to participate in an equitable
manner with other officers of the Corporation in discretionary cash bonuses as
authorized by the Board.
ARTICLE IV
EMPLOYEE BENEFITS
4.1 USE OF AUTOMOBILE. The Corporation shall provide Employee, at the
option of Employee, with either the use of a __________automobile for business
and personal use (or a different make automobile with a comparable initial
retail value) or a cash car allowance of $__________ per month. The Corporation
shall pay all expenses of operating, maintaining and repairing the automobile
and shall procure and maintain automobile liability insurance in respect
thereof, with such coverage insuring each Employee for bodily injury and
property damage.
4.2 MEDICAL, LIFE AND DISABILITY INSURANCE BENEFITS. The Corporation
shall provide Employee with medical, life and disability insurance benefits in
accordance with the established benefit policies of the Corporation.
4.3 WORKING FACILITIES. Employee shall be provided adequate office space,
secretarial assistance, and such other facilities and services suitable to
Employee's position and adequate for the performance of Employee's duties.
2
<PAGE>
4.4 BUSINESS EXPENSES. Employee shall be authorized to incur reasonable
expenses for promoting the business of the Corporation, including expenses for
entertainment, travel, and similar items. The Corporation shall reimburse
Employee for all such expenses upon the presentation by Employee, from time to
time, of an itemized account of such expenditures.
4.5 VACATIONS. Employee shall be entitled to an annual paid vacation
commensurate with the Corporation's established vacation policy for officers.
The timing of paid vacations shall be scheduled in a reasonable manner by the
Employee.
4.6 DISABILITY. Upon disability (as defined herein) of the Employee, the
Employee shall be entitled to receive an amount equal to 50% of Employee's
Salary (in addition to any disability insurance benefits received pursuant to
Section 4.2 herein), such amount being paid semi-monthly in twelve equal
installments.
4.7 TERM LIFE INSURANCE. The Corporation shall purchase term life
insurance on the life of the Employee having a face value of four times the
Employee's Salary (to be changed as salary adjustments are made) or the face
value of life insurance that can be purchased based upon the Employee's health
history with the Corporation paying the standard premium rate for term insurance
under its then current insurance program at the Employee's age and assuming good
health, whichever amount is lesser; provided further that, such insurance can be
obtained by the Corporation in a manner which meets the requirements for
deductibility by the Corporation under Section 79 of the Internal Revenue Code
of 1986, or as hereafter amended.
4.8 COMPENSATION DEFINED. Compensation shall be defined as all monetary
compensation and all benefits described in Articles III and IV hereunder (as
adjusted during the term hereof).
ARTICLE V
TERMINATION
5.1 DEATH. Employee's employment hereunder shall be terminated upon the
Employee's death.
5.2 DISABILITY. The Corporation may terminate Employee's employment
hereunder in the event Employee is disabled and such disability continues for
more than 180 days. Disability shall be defined as the inability of Employee to
render the services required of him, with or without a reasonable accommodation,
under this Agreement as a result of physical or mental incapacity.
5.3 CAUSE.
(a) The Corporation may terminate Employee's employment hereunder for
cause. For the purpose of this Agreement, "Cause" shall mean (i) the willful
and intentional failure by Employee to substantially perform Employee's duties
hereunder, other than any failure resulting from Employee's incapacity due to
physical or mental incapacity, or (ii) commission by Employee,
3
<PAGE>
in connection with Employee's employment by the Corporation, of an illegal act
or any act (though not illegal) which is not in the ordinary course of the
Employee's responsibilities and exposes the Corporation to a significant level
of undue liability. For purposes of this paragraph, no act or failure to act on
Employee's part shall be considered to have met either of the preceding tests
unless done or omitted to be done by Employee not in good faith without a
reasonable belief that Employee's action or omission was in the best interest of
the Corporation.
(b) Notwithstanding the foregoing, Employee shall not be deemed to have
been terminated for cause unless and until there shall have been delivered to
Employee a copy of a resolution, duly adopted by the affirmative vote of not
less than two-thirds of the entire membership of the Board at a meeting held
within 30 days of such termination (after reasonable notice to Employee and an
opportunity for Employee to be heard by members of the Board) confirming that
Employee was guilty of the conduct set forth in this Section 5.3.
5.4 COMPENSATION UPON TERMINATION FOR CAUSE OR UPON RESIGNATION BY
EMPLOYEE. Except as otherwise set forth in Section 5.7 hereof, if Employee's
employment shall be terminated for Cause or if Employee shall resign Employee's
position with the Corporation, the Corporation shall pay Employee's Compensation
only through the last day of Employee's employment by the Corporation. The
Corporation shall then have no further obligation to Employee under this
Agreement.
5.5 COMPENSATION UPON TERMINATION OTHER THAN FOR CAUSE OR DISABILITY.
Except as otherwise set forth in Section 5.7 hereof, if the Company shall
terminate Employee's employment other than for Cause or Disability, the Company
shall continue to be obligated to pay Employee's Salary for a period of _____
year, beginning on the date of termination, but shall not be obligated to
provide any other benefits described in Articles III and IV hereof, except to
the extent required by law.
5.6 COMPENSATION UPON NON-RENEWAL OF AGREEMENT. Except as otherwise set
forth in Section 5.7 hereof, if the Company shall give notice to Employee in
accordance with Section 1.2 hereof that this Agreement will not be renewed but
Employee's employment is not terminated, the Company shall continue to be
obligated to pay Employee's Compensation for a period of _____ year beginning on
the date notice of non-renewal is given.
5.7 TERMINATION OF EMPLOYEE OR RESIGNATION BY EMPLOYEE FOR GOOD REASON.
If at any time within the first twelve months subsequent to a Change in Control,
the Employee's employment with the Corporation is terminated other than as
provided for in Section 5.1, 5.2 or 5.3 hereof, or the Corporation violates any
provision of this Agreement or Employee shall resign Employee's employment for
Good Reason (as defined herein), the Corporation shall be obligated to pay to
Employee a lump sum payment upon the effective date of such termination or
resignation or breach (as determined in Employee's sole discretion), in an
amount equal to _____ times the Employee's compensation payable under paragraph
5.5 above, but in no event to exceed an amount equal to $1.00 less than three
(3) times the mean average annual compensation paid to Employee by the
Corporation and any of its subsidiaries during the five calendar years ending
before the date on
4
<PAGE>
which the Change in Control occurred (or if Employee was not employed for that
entire five year period, then the mean average annual compensation paid to
employee during such shorter period, with the Employee's compensation annualized
for any calendar year during which the employee was not employed for the entire
calendar year); provided, however, that if the lump-sum severance payment under
this Section 5.7, either alone or together with any other payments or
compensation which Employee has a right to receive from the Corporation, would
constitute a "parachute payment" (as defined in Section 280G (or any equivalent
term defined in any successor or equivalent provision) of the Internal Revenue
Code of 1986, as amended (the "Code")), then such lump-sum severance payment
shall be reduced to the largest amount as will result in no portion of the
lump-sum severance payment under this Section 5.7 being subject to the excise
tax imposed by Section 4999 (or any successor or equivalent provision) of the
Code. For the purpose of this Section 5.7, the Employee's annual compensation
from the Corporation and its subsidiaries for a given year shall equal
Employee's compensation as reflected on Employee's Form W-2 for that year
(unless the Employee was not employed for the entire calendar year, in which
case Employee's Form W-2 compensation for such year shall be annualized). The
determination of any reduction in lump-sum severance payment under this Section
5.7 pursuant to the foregoing provision shall be conclusive and binding on the
Corporation. Notwithstanding any other provision of this Section 5.7, Employee
may elect to have the lump sum severance payment hereunder paid in equal monthly
installments over a period not to exceed 12 consecutive months.
"Good Reason" shall mean any of the following which occur during the term
of this Agreement without Employee's express written consent:
In the Event of a Change in Control:
(a) the assignment to Employee of duties inconsistent with
Employee's position, office, duties, responsibilities and status with
the Corporation immediately prior to a Change in Control; or, a change
in Employee's titles or offices as in effect immediately prior to a
Change in Control; or, any removal of Employee from or any failure to
reelect Employee to any such position or office, except in connection
with the termination of Employee's employment by the Corporation for
Disability or Cause or as a result of Employee's death or by Employee
other than for Good Reason as set forth in this Section 5.7(a); OR
(b) a reduction by the Corporation in Employee's Salary as
in effect as of the date of this Agreement or as the same may be
increased from time-to-time during the term of this Agreement or the
Corporation's failure to increase (within twelve months of the
Employee's last increase in Salary) Employee's Salary after a Change
in Control in an amount which at least equals, on a percentage basis,
the highest percentage increase in salary for all officers of the
Corporation or any parent or affiliated company effected in the
preceding twelve months; OR
(c) the failure of the Corporation to provide Employee with
the same fringe benefits (including, without limitation, life
insurance plans, medical or
5
<PAGE>
disability plans, retirement plans, incentive plans, stock option plans,
stock purchase plans, stock ownership plans, or bonus plans) that were
provided to Employee immediately prior to the Change in Control, or with a
package of fringe benefits that, if one or more of such benefits varies
from those in effect immediately prior to such Change in Control, is in
Employee's sole judgment substantially comparable in all material respects
to such fringe benefits taken as a whole; OR
(d) relocation of the Corporation's principal executive
offices to a location outside of Oklahoma City, Oklahoma, or
Employee's relocation to any place other than the location at which
Employee performed Employee's duties prior to a Change in Control,
except for required travel by Employee on the Corporation's business
to an extent substantially consistent with Employee's business travel
obligations at the time of the Change in Control; OR
(e) any failure by the Corporation to provide Employee with
the same number of paid vacation days to which Employee is entitled at
the time of the Change in Control; OR
(f) the failure of a successor to the Corporation to assume
the obligation of this Agreement as set forth in Section 7.1 herein.
5.8. CHANGE IN CONTROL. For the purposes of this Agreement, the phrase
"change in control" shall mean any of the following events:
(a) Any consolidation or merger of Sonic Corp. in which Sonic Corp.
is not the continuing or surviving corporation or pursuant to which shares
of the Corporation's capital stock would convert into cash, securities or
other property, other than a merger of Sonic Corp. in which the holders of
Sonic Corp.'s capital stock immediately prior to the merger have the same
proportionate ownership of capital stock of the surviving corporation
immediately after the merger;
(b) Any sale, lease, exchange or other transfer (whether in one
transaction or a series of related transactions) of all or substantially
all of the assets of the Corporation;
(c) The stockholders of Sonic Corp. approve any plan or proposal for
the liquidation or dissolution of Sonic Corp.;
(d) Any person (as used in Section 13(d) and 14(d)(2) of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"))
becomes the beneficial owner (within the meaning of Rule 13D-3 under the
Exchange Act) of 50% or more of Sonic Corp.'s outstanding capital stock;
6
<PAGE>
(e) During any period of two consecutive years, individuals who at
the beginning of that period constitute the entire Board of Directors of
Sonic Corp. cease for any reason to constitute a majority of the Board of
Directors unless the election or the nomination for election by Sonic
Corp.'s stockholders of each new director received the approval of the
Board of Directors by a vote of at least two-thirds of the directors then
and still in office and who served as directors at the beginning of the
period; or
(f) Sonic Corp. becomes a subsidiary of any other corporation.
ARTICLE VI
OBLIGATION TO MITIGATE DAMAGES; NO EFFECT
ON OTHER CONTRACTUAL RIGHTS
6.1 MITIGATION. The Employee shall not have any obligation to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise. However, all payments required under the
terms of this Agreement shall cease 30 days after the acceptance by the Employee
of employment by another employer; provided that, this limitation shall not
apply to payments due under paragraph 5.7, above.
6.2 OTHER CONTRACTUAL RIGHTS. The provisions of this Agreement, and any
payment provided for hereunder shall not reduce any amount otherwise payable, or
in any way diminish Employee's existing rights, or rights which would accrue
solely as a result of passage of time under any employee benefit plan or other
contract, plan or arrangement of which Employee is a beneficiary or in which
Employee participates.
ARTICLE VII
SUCCESSORS TO THE CORPORATION
7.1 ASSUMPTION. The Corporation will require any successor or assignee
(whether direct or indirect, by purchase, merger, consolidation or otherwise) of
all or substantially all of the business and/or assets of the Corporation, by
agreement in form and substance reasonably satisfactory to Employee, to
expressly, absolutely and unconditionally assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform it if no such succession or assignment had taken place.
Any failure by the Corporation to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material breach of
this Agreement.
7.2 EMPLOYEE'S SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be enforceable by Employee's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Employee should die while any amounts are still payable to
Employee hereunder, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to Employee's devisee,
legatee or other designee or, if there is no such designee, to Employee's
estate.
7
<PAGE>
ARTICLE VIII
RESTRICTIONS ON EMPLOYEE
8.1 CONFIDENTIAL INFORMATION. During the term of the Employee's
employment and for a period of twelve months thereafter, the Employee shall not
divulge or make accessible to any party any Confidential Information, as defined
below, of Sonic Corp. or any of its subsidiaries, except to the extent
authorized in writing by the Corporation or otherwise required by law. The
phrase "Confidential Information" shall mean the unique, proprietary and
confidential information of Sonic Corp. and its subsidiaries, consisting of: (1)
confidential financial information regarding Sonic Corp. or its subsidiaries,
(2) confidential recipes for food products; (3) confidential and copyrighted
plans and specifications for interior and exterior signs, designs, layouts and
color schemes; (4) confidential methods, techniques, formats, systems,
specifications, procedures, information, trade secrets, sales and marketing
programs; (5) knowledge and experience regarding the operation and franchising
of Sonic drive-in restaurants; (6) the identities and locations of Sonic's
franchisees, Sonic drive-in restaurants, and suppliers to Sonic's franchisees
and drive-in restaurants; (7) knowledge, financial information, and other
information regarding the development of franchised and company-store
restaurants; (8) knowledge, financial information, and other information
regarding potential acquisitions and dispositions; and (9) any other
confidential business information of Sonic Corp. or any of its subsidiaries. The
Employee shall give the Corporation written notice of any circumstances in which
Employee has actual notice of any access, possession or use of the Confidential
Information not authorized by this Agreement.
8.2 RESTRICTIVE COVENANT. During the term of Employee's employment, the
Employee shall not engage in or have any interest, directly or indirectly, in
any business competing with the business being conducted by Sonic Corp. or any
of its subsidiaries, without the Corporation's prior written consent. For the
six month period immediately following the termination of Employee's employment,
the Employee shall not engage in or have any interest, directly or indirectly,
in any fast food restaurant business that has a menu similar to that of a Sonic
drive-in restaurant (such as hamburgers, hot dogs, onion rings and similar items
customarily sold by Sonic drive-in restaurants), or which has an appearance
similar to that of a Sonic drive-in restaurant (such as color pattern, use of
canopies, use of speakers and menu housings for ordering food, or other items
that are customarily used by a Sonic drive-in restaurant), and which operates
such restaurants within a three mile radius of any Sonic drive-in restaurant.
ARTICLE IX
MISCELLANEOUS
9.1 INDEMNIFICATION. To the full extent permitted by law, the Board shall
authorize the payment of expenses incurred by or shall satisfy judgments or
fines rendered or levied against Employee in any action brought by a third-party
against Employee (whether or not the Corporation is joined as a party defendant)
to impose any liability or penalty on Employee for any act alleged to have been
committed by Employee while employed by the Corporation unless Employee was
8
<PAGE>
acting with gross negligence or willful misconduct. Payments authorized
hereunder shall include amounts paid and expenses incurred in settling any such
action or threatened action.
9.2 RESOLUTION OF DISPUTES. The following provisions shall apply to any
controversy between the Employee and Sonic Corp. and its subsidiaries and the
Employee (including any director, officer, employee, agent or affiliate of Sonic
Corp. and its subsidiaries) whether or not relating to this Agreement.
(a) ARBITRATION. The parties shall resolve all
controversies by final and binding arbitration in accordance with the
Rules for Commercial Arbitration (the "Rules") of the American
Arbitration Association in effect at the time of the execution of this
Agreement and pursuant to the following additional provisions:
(1) APPLICABLE LAW. The Federal Arbitration Act (the
"Federal Act"), as supplemented by the Oklahoma Arbitration
Act (to the extent not inconsistent with the Federal Act),
shall apply to the arbitration and all procedural matters
relating to the arbitration.
(2) SELECTION OF ARBITRATORS. The parties shall
select one arbitrator within 10 days after the filing of a
demand and submission in accordance with the Rules. If the
parties fail to agree on an arbitrator within that 10-day
period or fail to agree to an extension of that period, the
arbitration shall take place before an arbitrator selected
in accordance with the Rules.
(3) LOCATION OF ARBITRATION. The arbitration shall
take place in Oklahoma City, Oklahoma, and the arbitrator
shall issue any award at the place of arbitration. The
arbitrator may conduct hearings and meetings at any other
place agreeable to the parties or, upon the motion of a
party, determined by the arbitrator as necessary to obtain
significant testimony or evidence.
(4) DISCOVERY. The arbitrator shall have the power to
authorize all forms of discovery (including depositions,
interrogatories and document production) upon the showing of
(a) a specific need for the discovery, (b) that the
discovery likely will lead to material evidence needed to
resolve the controversy, and (c) that the scope, timing and
cost of the discovery is not excessive.
(5) AUTHORITY OF ARBITRATOR. The arbitrator shall not
have the power (a) to alter, modify, amend, add to, or
subtract from any term or provision of this Agreement; (b)
to rule upon or grant any
9
<PAGE>
extension, renewal or continuance of this Agreement; or (c) to grant
interim injunctive relief prior to the award.
(6) ENFORCEMENT OF AWARD. The prevailing party shall
have the right to enter the award of the arbitrator in any
court having jurisdiction over one or more of the parties or
their assets. The parties specifically waive any right they
may have to apply to any court for relief from the
provisions of this Agreement or from any decision of the
arbitrator made prior to the award.
(b) ATTORNEYS' FEES AND COSTS. The prevailing party to the
arbitration shall have the right to an award of its reasonable
attorneys' fees and costs (including the cost of the arbitrator)
incurred after the filing of the demand and submission. If the
Corporation or any of its subsidiaries prevails, the award shall
include an amount for that portion of the administrative overhead
reasonably allocable to the time devoted by the in-house legal staff
of Sonic Corp. or any subsidiary.
(c) EXCLUDED CONTROVERSIES. At the election of the Corporation
or its subsidiaries, the provisions of this Section 9.2 shall not
apply to any controversies relating to the enforcement of the covenant
not to compete or the use and protection of the trademarks, service
marks, tradenames, copyrights, patents, confidential information and
trade secrets of Sonic Corp. or its subsidiaries, including (without
limitation) the right of Sonic Corp. or its subsidiaries to apply to
any court of competent jurisdiction for appropriate injunctive relief
for the infringement of the rights of Sonic Corp. or its subsidiaries.
(d) OTHER RIGHTS. The provisions of this Section 9.2 shall not
prevent the Corporation, its subsidiaries, or the Employee from
exercising any of their rights under this agreement, any other
agreement, or under the common law, including (without limitation) the
right to terminate any agreement between the parties or to end or
change the party's legal relationship.
9.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties with regard to the subject matter of this Agreement and replaces and
supersedes all other written and oral agreements and statements of the parties
relating to the subject matter of this Agreement.
9.4 NOTICES. Any notices required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by mail to Employee's
residence, in the case of Employee, or to its principal office, in the case of
the Corporation.
9.5 WAIVER OF BREACH. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by any party.
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<PAGE>
9.6 AMENDMENT. No amendment or modification of this Agreement shall be
deemed effective unless or until executed in writing by the parties hereto.
9.7 VALIDITY. This Agreement, having been executed and delivered in the
State of Oklahoma, its validity, interpretation, performance and enforcement
will be governed by the laws of that state.
9.8 SECTION HEADINGS. Section and other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.9 COUNTERPART EXECUTION. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
9.10 EXCLUSIVITY. Specific arrangements referred to in this Agreement are
not intended to exclude Employee's participation in any other benefits available
to executive personnel generally or to preclude other compensation or benefits
as may be authorized by the Board from time to time.
9.11 PARTIAL INVALIDITY. If any provision in this Agreement is held by a
court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
In witness whereof, the Corporation has caused this Agreement to be
executed and its seal affixed hereto by its officers thereunto duly authorized;
and the Employee has executed this Agreement, as of the day and year first above
written.
The Corporation:
----------------------------------------
By:
-------------------------------------
(Vice) President
Attest:
- ------------------------------
(Assistant) Secretary
The Employee:
----------------------------------------
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<PAGE>
SCHEDULE OF MATERIAL DIFFERENCES FOR THE EXECUTIVE OFFICERS OF THE COMPANY
PART I
<TABLE>
<CAPTION>
TERM OF
OFFICER TITLE CONTRACTING CORPORATION AGREEMENT
- ------- ----- ----------------------- ---------
<S> <C> <C> <C>
J.C. Hudson President and CEO Sonic Corp. two years
L.B. Kilbourne Senior Vice President and Chief Sonic Corp. one year
Financial Officer
K. Keymer President Sonic Industries Inc. one year
M. Shumsky President Sonic Restaurants, Inc. one year
P. Moore Senior Vice President of Marketing Sonic Corp. one year
and Brand Development
R. Matlock Vice President, Secretary and Sonic Corp. one year
General Counsel
D. Dolan Vice President of Administration Sonic Corp. one year
and Corporate Human Resources
L. Gadola Vice President of Corporate Development Sonic Restaurants, Inc. one year
S. Jeska Vice President of Franchise Sonic Industries Inc. one year
Development
S. McLain Treasurer Sonic Corp. one year
R. Moore Vice President of Operations Services Sonic Restaurants, Inc. one year
D. Ritger Vice President of Purchasing Sonic Industries Inc. one year
W. Van Sciver Vice President of Franchise Services Sonic Industries Inc. one year
S. Vaughan Controller Sonic Corp. one year
F. Young Vice President of Operations Sonic Restaurants, Inc. one year
</TABLE>
<PAGE>
SCHEDULE OF MATERIAL DIFFERENCES FOR THE EXECUTIVE OFFICERS OF THE COMPANY
PART II
<TABLE>
<CAPTION>
AUTOMOBILE SECTION SECTION SECTION
OFFICER SALARY AUTOMOBILE ALLOWANCE 5.5 5.6 5.7
- ------- ------ ---------- --------- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
J.C. Hudson $250,000 Full-size $1,000 Two Years Two Years One and
Luxury One-half
L.B. Kilbourne $155,000 Luxury $850 One Year One Year Two
K. Keymer $187,000 Full-size $1,000 One Year One Year Two
Luxury
M. Shumsky $170,000 Full-size $1,000 One Year One Year Two
Luxury
P. Moore $120,000 Luxury $850 One Year One Year Two
R. Matlock $140,000 Luxury $850 One Year One Year Two
D. Dolan $75,000 Luxury $850 Six Months Six Months Two
L. Gadola $95,000 Luxury $850 Six Months Six Months Two
S. Jeska $100,000 Luxury $850 Six Months Six Months Two
S. McLain $95,004 Luxury $850 Six Months Six Months Two
R. Moore $100,000 Luxury $850 Six Months Six Months Two
D. Ritger $110,000 Luxury $850 Six Months Six Months Two
W. Van Sciver $111,456 Luxury $850 Six Months Six Months Two
S. Vaughan $60,000 Luxury $850 Six Months Six Months Two
F. Young $101,760 Luxury $850 Six Months Six Months Two
</TABLE>
<PAGE>
Exhibit 10.18
First Amendment to Loan Agreement with Texas Commerce Bank National Association
<PAGE>
FIRST AMENDMENT TO LOAN AGREEMENT
This FIRST AMENDMENT TO LOAN AGREEMENT (this "AMENDMENT"), dated as of
August 16, 1996, is among SONIC CORP., a Delaware corporation (the "BORROWER"),
each of the banks or other lending institutions which is or may from time to
time become a signatory or party to the Agreement (hereinafter defined) or any
successor or permitted assignee thereof (each a "BANK" and collectively, the
"BANKS"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking
association ("TCB"), as agent for itself and the other Banks and as issuer of
Letters of Credit under the Agreement (in such capacity, together with its
successors in such capacity, the "AGENT").
RECITALS:
A. Borrower, Agent and Banks have entered into that certain Loan
Agreement dated as of July 12, 1995 (the "AGREEMENT").
B. Pursuant to the Agreement, the undersigned guarantors (each a
"GUARANTOR" and, collectively, the "GUARANTORS") executed those certain Guaranty
Agreements dated as of July 12, 1995 (each a "GUARANTY" and collectively, the
"GUARANTIES"), which guarantee to Agent the payment and performance of the
Obligations (as defined in the Agreement).
C. Borrower, Agent and Banks now desire to amend the Agreement (i) to
increase the commitments of the Banks to $60,000,000 in the aggregate, (ii) to
reduce the interest rate margins applicable to Eurodollar Advances, (iii) to
modify certain covenants, and (iii) as otherwise provided herein.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. Capitalized terms used in this Amendment, to
the extent not otherwise defined herein, shall have the same meanings as in the
Agreement, as amended hereby.
<PAGE>
ARTICLE II
AMENDMENTS
Section 2.1 BANKS. Concurrently herewith, Bank of Oklahoma, N.A.
("BOK") is assigning to UMB Oklahoma Bank ("UMB") all of BOK's rights and
obligations under the Agreement and the other Loan Documents pursuant to that
certain Assignment and Acceptance of even date herewith between BOK as Assignor
and UMB as Assignee. Thereafter, one or more Banks shall make offsetting
payments to the other Banks as requested by the Agent in order to cause the
outstanding principal balance of each Bank's Note to correspond to its
Commitment as amended herein.
Section 2.2 AMENDMENT TO COMMITMENTS. Effective as of the date hereof,
the Commitment amounts set forth on the signature pages to the Agreement are
hereby amended to be the amounts set forth below for the respective Banks:
Texas Commerce Bank National Association $ 22,500,000
UMB Oklahoma Bank 11,250,000
Bank IV Oklahoma, N.A. 11,250,000
BancFirst 7,500,000
Summit Bank 7,500,000
---------------
TOTAL $ 60,000,000
---------------
---------------
Section 2.3 AMENDMENT TO DEFINITION OF APPLICABLE PERCENTAGE. Effective
as of the date hereof, the table appearing in the definition of "APPLICABLE
PERCENTAGE" set forth in Section 1.1 of the Agreement is hereby amended to read
in its entirety as follows:
<TABLE>
<CAPTION>
RATIO OF CONSOLIDATED APPLICABLE MARGIN APPLICABLE APPLICABLE
FUNDED DEBT TO OR EURODOLLAR COMMITMENT LETTER OF
CONSOLIDATED EBITDA ADVANCES FEE CREDIT FEE
- ------------------- ----------------- ----------- -----------
<S> <C> <C> <C>
Less than or equal to .50 to .75% .125% .75%
1.00
Greater than .50 to 1.00 but 1.00% .20% 1.00%
less than or equal to 1.50 to
1.00
Greater than 1.50 to 1.00 1.25% .25% 1.25%
</TABLE>
Section 2.4 AMENDMENT TO DEFINITION OF CONSOLIDATED FUNDED DEBT.
Effective as of the date hereof, clause (c) of the definition of "CONSOLIDATED
FUNDED DEBT" set forth in Section 1.1 of the Agreement is hereby amended to read
as follows:
(c) all obligations for the deferred purchase price of property,
including all Seller Financing,
-2-
<PAGE>
Section 2.5 AMENDMENT TO DEFINITION OF ENGAGEMENT LETTER. Effective as
of the date hereof, the definition of "ENGAGEMENT LETTER" set forth in
Section 1.1 of the Agreement is hereby amended to read in its entirety as
follows:
"ENGAGEMENT LETTER" means that certain letter agreement dated May
21, 1996, among Borrower, Chase Securities Inc. and TCB.
Section 2.6 AMENDMENT TO DEFINITION OF FIXED CHARGE COVERAGE RATIO.
Effective as of the date hereof, the definition of "FIXED CHARGE COVERAGE RATIO"
set forth in Section 1.1 of the Agreement is hereby amended to read in its
entirety as follows:
"FIXED CHARGE COVERAGE RATIO" means, at the end of each fiscal
quarter of the Borrower for the most recent four (4) fiscal quarters
then ended, the ratio of (a) Consolidated EBITDA minus Income Taxes
paid by the Borrower and the Subsidiaries, TO (b) the sum of the
following for the Borrower and the Subsidiaries on a consolidated
basis: (i) Operating Capital Expenditures, PLUS (ii) cash interest
expense (including the interest portion of Capital Lease Obligations
and Seller Financing), PLUS (iii) scheduled principal payments of
Consolidated Funded Debt (including, without limitation, Capital Lease
Obligations and Seller Financing), PLUS (iv) the aggregate amount of
cash dividends paid, PLUS (v) the aggregate amount paid for
repurchases by the Borrower or any Subsidiary of stock of such Person,
PLUS (vi) the amount equal to one-seventh (1/7) of the aggregate
amount of all Advances outstanding hereunder on the last day of such
fiscal quarter.
Section 2.7 NEW DEFINITIONS. Effective as of the date hereof,
Section 1.1 of the Agreement is hereby amended to add the following definitions
of "L/C SUBLIMIT," "PERMITTED GUARANTEE AMOUNT" and "SELLER FINANCING," which
definitions shall read in their respective entireties as follows:
"L/C SUBLIMIT" means $2,000,000; provided, however, that the L/C
Sublimit may be increased to $12,000,000 at the Borrower's election,
provided that (a) such election is made on or before December 31,
1996, (b) such election is made by written notice to the Agent, and
such notice states the effective date of the increased L/C Sublimit
which shall be a date not later than December 31, 1996, (c) the
aggregate amount of all Guarantees by the Borrower or any Subsidiary
of any Debt or other obligations shall not be in excess of $5,000,000,
and (d) no Event of Default or event or condition which with notice or
lapse of time or both would become an Event of Default is existing on
the date of the election notice or the effective date of the increase
and no such event or condition will result from the increase.
"PERMITTED GUARANTEE AMOUNT" means $12,000,000; provided,
however, that if the L/C Sublimit is increased to $12,000,000 in
accordance with this agreement, the Permitted Guarantee Amount shall
automatically reduce to $5,000,000 effective immediately upon the
effective date of such increase of the L/C Sublimit.
-3-
<PAGE>
"SELLER FINANCING" means Debt of the Borrower or any Subsidiary
incurred in connection with the purchase or acquisition of, and
representing the price of, all or any part of the assets of any Person
or any shares or other evidence of beneficial ownership of any Person.
Section 2.8 AMENDMENT TO LETTER OF CREDIT SUBLIMIT. Effective as of the
date hereof, clause (a) of Section 3.1 of the Agreement is hereby amended to
read in its entirety as follows:
"(a) the L/C Sublimit, or"
Section 2.9 AMENDMENT TO REPORTING REQUIREMENTS. Effective as of the
date hereof, subsection (g) of Section 8.1 of the Agreement is hereby amended
to read in its entirety as follows:
(g) GUARANTEES OF DEBT. Promptly, and in any event within five
(5) days after the date on which the Borrower or any of the
Subsidiaries enters into a Guarantee of Debt or of other obligations
in the amount of $500,000 or more, written notice stating such fact
and the nature of such Guarantee; and
Section 2.10 AMENDMENTS TO COVENANT REGARDING DEBT AND CONTINGENT
OBLIGATIONS. Effective as of the date hereof, Section 9.1 of the Agreement is
hereby amended as follows:
(a) the amount "Five Million Dollars ($5,000,000)" appearing in
subsection (d) is amended to read "Ten Million Dollars ($10,000,000)";
(b) subsection (f) is amended to read in its entirety as follows:
(f) unsecured Debt of the Borrower or any Subsidiary
evidenced by any promissory note payable to any seller,
representing a portion of the purchase price for any
acquisition permitted under this Agreement, provided that
such Debt shall not exceed Thirty-Five Million Dollars
($35,000,000) in the aggregate at any time outstanding;
(c) subsection (h) is amended to read in its entirety as follows:
(h) Guarantees of Debt and of other obligations, in an
aggregate amount outstanding at any time not to exceed the
Permitted Guarantee Amount.
Section 2.11 AMENDMENT TO LIMITATION ON ACQUISITIONS. Effective as of
the date hereof, the amount "Fifteen Million and No/100 Dollars
($15,000,000.00)" appearing in clause (a) of Section 9.3 of the Agreement is
hereby amended to read "Thirty-Five Million and No/100 Dollars
($35,000,000.00)".
Section 2.12 AMENDMENT TO MINIMUM CONSOLIDATED NET WORTH. Effective as
of the date hereof, Section 10.2 of the Agreement is hereby amended to read in
its entirety as follows:
-4-
<PAGE>
Section 10.2. MINIMUM CONSOLIDATED NET WORTH. The Borrower will
not permit the Consolidated Net Worth to be less than the sum of (a)
$103,000,000, PLUS (b) for each fiscal quarter of the Borrower ended
through the date of determination, beginning with the fiscal quarter
ending May 31, 1996, (i) 100% of the positive consolidated net income
of the Borrower and the Subsidiaries for such quarter, MINUS (ii) all
cash dividends declared and paid by the Borrower for such quarter, and
MINUS (iii) the amount of all stock of the Borrower repurchased by the
Borrower during such quarter, PLUS (c) 100% of the Net Proceeds
received by the Borrower from any issuance, sale or other disposition
of any shares of capital stock or other equity securities of the
Borrower of any class (or any securities convertible or exchangeable
for any such shares, or any rights, warrants, or options to subscribe
for or purchase any such shares), but in no event shall the sum of
(a), (b) and (c) above be less than $103,000,000.
Section 2.13 AMENDMENT TO FUNDED DEBT TO EBITDA RATIO. Effective as of
the date hereof, Section 10.4 of the Agreement is hereby amended to read in its
entirety as follows:
Section 10.4. CONSOLIDATED FUNDED DEBT TO CONSOLIDATED EBITDA
RATIO. The Borrower will maintain or cause to be maintained, as of
the end of each quarter of each fiscal year of the Borrower, a ratio
of Consolidated Funded Debt to Consolidated EBITDA of not greater than
2.00 to 1.00 for the most recent four (4) fiscal quarters then ended.
Section 2.14 AMENDMENTS TO COMPLIANCE CERTIFICATE AND LETTER OF CREDIT
REQUEST FORM. Effective as of the date hereof, (a) Exhibit "B-2" to the
Agreement is hereby amended to read in its entirety as set forth on Annex II
hereto, and (b) Exhibit "D" to the Agreement is hereby amended to read in its
entirety as set forth on Annex III hereto.
Section 2.15 AMENDMENT TO LITIGATION SCHEDULE. Effective as of the date
hereof, Schedule 1 to the Agreement is hereby amended to read in its entirety as
set forth on Annex IV hereto.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1 CONDITIONS. The effectiveness of this Amendment is subject
to the satisfaction of each of the following conditions precedent:
(a) DOCUMENTS. Agent shall have received all of the following, each
dated (unless otherwise indicated) the date of this Amendment, in form and
substance satisfactory to Agent:
(1) RESOLUTIONS. Resolutions of the Board of Directors of
Borrower and each Guarantor (other than the Partnerships), certified
by the Secretary or an Assistant Secretary of such Person, which
authorize the execution, delivery, and
-5-
<PAGE>
performance by such Person of this Amendment and the other Loan
Documents to which such Person is or is to be a party hereunder;
(2) INCUMBENCY CERTIFICATE. A certificate of incumbency
certified by the Secretary or an Assistant Secretary of Borrower and
each Guarantor (other than the Partnerships), respectively, certifying
the names of the officers of such Person authorized to sign this
Amendment and each of the other Loan Documents to which such Person is
or is to be a party hereunder (including the certificates contemplated
herein) together with specimen signatures of such officers;
(3) CERTIFICATES OF INCORPORATION. The certificates of
incorporation of Borrower and each Guarantor which is a corporation,
certified by the Secretary of State of its state of incorporation and
dated within ten (10) days prior to the date hereof;
(4) BYLAWS. The bylaws of Borrower and each Guarantor which is
a corporation, certified by the Secretary or an Assistant Secretary of
such Person;
(5) GOVERNMENTAL CERTIFICATES. (a) Certificates of the
appropriate government officials of the respective states of
incorporation of the Borrower and each Guarantor (other than the
Partnerships) as to the existence and good standing of such Persons,
and (b) with respect to the Borrower, Sonic Restaurants, Inc., Sonic
Service Corp. and Sonic Industries Inc. only, certificates of the
appropriate governmental officials of each state where the nature of
such Person's business in such state makes qualification to do
business necessary and where failure to so qualify would have a
Material Adverse Effect, as to the qualification and good standing of
such Person in such state, each dated within ten (10) days prior to
the date hereof;
(6) BUSINESS TRUST DOCUMENTATION. Appropriate organizational
documents and agreements relating to America's Drive-In Trust, as the
Agent may request, all certified to the satisfaction of the Agent;
(7) PARTNERSHIP CERTIFICATE. A certificate of an authorized
officer of Sonic Restaurants, Inc., certifying that (i) each of the
Partnerships has been duly formed and is validly existing, (ii) the
Partnerships have the power and authority to execute, deliver and
perform this Amendment and the other Loan Documents to which they are
a party, and (iii) Sonic Restaurants, Inc. has the power and authority
to execute this Amendment and such Loan Documents on behalf of the
Partnerships, as the managing general partner of each of the
Partnerships, and to thereby bind the Partnerships;
(8) NOTES. Promissory Notes, each in the form of Annex V
hereto, executed by the Borrower and payable to the order of the
respective Banks, each in the amount of the respective Bank's
Commitment, which Promissory Notes shall be in renewal and
modification of the Notes executed at the closing of the Agreement;
-6-
<PAGE>
(9) OPINION OF COUNSEL. A favorable opinion of Phillips McFall
McCaffrey McVay & Murrah, P.C., legal counsel to Borrower and the
Subsidiaries, as to the matters set forth in Annex VI hereto, and such
other matters as Agent may reasonably request; and
(10) ADDITIONAL INFORMATION. Agent shall have received such
additional documents, instruments and information as Agent or its
legal counsel, Winstead Sechrest & Minick P.C., may request;
(b) ATTORNEYS' FEES AND EXPENSES. The Borrower shall have paid the
costs and expenses (including reasonable attorneys' fees) of the Agent,
incurred in connection with the preparation, negotiation, execution and
closing of this Amendment;
(c) REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained herein and in all other Loan Documents, as amended
hereby, shall be true and correct as of the date hereof as if made on the
date hereof;
(d) NO DEFAULT. No Event of Default shall have occurred and be
continuing and no event or condition shall have occurred that with the
giving of notice or lapse of time or both would be an Event of Default.
(e) ADJUSTMENT OF PRINCIPAL BALANCES. One or more Banks shall have
made offsetting payments to the other Banks as requested by the Agent in
order to cause the outstanding principal balance of each Bank's Note to
correspond to its Commitment as amended herein.
(f) CORPORATE MATTERS. All corporate proceedings taken in connection
with the transactions contemplated by this Amendment and all documents,
instruments, and other legal matters incident thereto shall be satisfactory
to Agent and its legal counsel, Winstead Sechrest & Minick P.C.
ARTICLE IV
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
Section 4.1 RATIFICATIONS. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Agreement and except as expressly modified and superseded by this
Amendment, the terms and provisions of the Agreement are ratified and confirmed
and shall continue in full force and effect. Borrower, Agent and the Banks
agree that the Agreement as amended hereby shall continue to be legal, valid,
binding and enforceable in accordance with its terms.
Section 4.2 OUTSTANDING PRINCIPAL BALANCES. The parties hereto
acknowledge that the aggregate outstanding principal balance of the Advances as
of the date hereof is $4,000,000 and that the outstanding principal amount of
Advances held by each Bank is specified below:
-7-
<PAGE>
BANK OUTSTANDING ADVANCES
Texas Commerce Bank National Association $ 1,500,000
UMB Oklahoma Bank 750,000
Bank IV Oklahoma, N.A. 750,000
BancFirst 500,000
Summit Bank 500,000
--------------
TOTAL $ 4,000,000
--------------
--------------
Section 4.3 RELEASE OF CLAIMS. The Borrower and the Guarantors each
hereby acknowledge and agree that none of them has any and there are no claims
or offsets against or defenses or counterclaims to the terms and provisions of
or the obligations of the Borrower, any Guarantor or any Subsidiary created or
evidenced by the Agreement or any of the other Loan Documents, and to the extent
any such claims, offsets, defenses or counterclaims exist, the Borrower and the
Guarantors each hereby waive, and hereby release the Agent and each of the Banks
from, any and all claims, offsets, defenses and counterclaims, whether known or
unknown, such waiver and release being with full knowledge and understanding of
the circumstances and effects of such waiver and release and after having
consulted legal counsel with respect thereto.
Section 4.4 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents
and warrants to Agent and the Banks that (i) the execution, delivery and
performance of this Amendment and any and all other Loan Documents executed
and/or delivered in connection herewith have been authorized by all requisite
corporate, partnership and trust action on the part of Borrower and the
Guarantors and will not violate the articles of incorporation, bylaws,
partnership agreement or other organizational documents of Borrower or the
Guarantors, (ii) the representations and warranties contained in the Agreement,
as amended hereby, and any other Loan Document are true and correct on and as of
the date hereof as though made on and as of the date hereof, (iii) no Event of
Default has occurred and is continuing and no event or condition has occurred
that with the giving of notice or lapse of time or both would be an Event of
Default, and (iv) Borrower is in full compliance with all covenants and
agreements contained in the Agreement as amended hereby.
ARTICLE V
MISCELLANEOUS
Section 5.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in this Amendment or any other Loan Document
including any Loan Document furnished in connection with this Amendment shall
survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by Agent or any Bank or any closing shall affect
the representations and warranties or the right of Agent and the Banks to rely
upon them.
Section 5.2 REFERENCE TO AGREEMENT. Each of the Loan Documents,
including the Agreement and any and all other agreements, documents, or
instruments now or hereafter executed and delivered pursuant to the terms hereof
or pursuant to the terms of the Agreement
-8-
<PAGE>
as amended hereby, are hereby amended so that any reference in such Loan
Documents to the Agreement shall mean a reference to the Agreement as amended
hereby.
Section 5.3 EXPENSES OF AGENT. As provided in the Agreement, Borrower
agrees to pay on demand all costs and expenses incurred by Agent in connection
with the preparation, negotiation, and execution of this Amendment and the other
Loan Documents executed pursuant hereto and any and all amendments,
modifications, and supplements thereto, including without limitation the costs
and fees of Agent's legal counsel.
Section 5.4 SEVERABILITY. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
Section 5.5 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE
PERFORMABLE IN DALLAS, DALLAS COUNTY, TEXAS AND SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 5.6 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and
shall inure to the benefit of Borrower, Agent and the Banks and their respective
successors and permitted assigns, except Borrower may not assign or transfer any
of its rights or obligations hereunder without the prior written consent of
Agent.
Section 5.7 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
Section 5.8 EFFECT OF WAIVER. No consent or waiver, express or implied,
by Agent or any Bank to or for any breach of or deviation from any covenant,
condition or duty by Borrower or any Guarantor shall be deemed a consent or
waiver to or of any other breach of the same or any other covenant, condition or
duty.
Section 5.9 HEADINGS. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
Section 5.10 NON-APPLICATION OF CHAPTER 15 OF TEXAS CREDIT CODE. The
provisions of Chapter 15 of the Texas Credit Code (Vernon's Annotated Texas
Statutes, Article 5069-15) are specifically declared by the parties not to be
applicable to this Amendment or any of the Loan Documents or the transactions
contemplated hereby.
Section 5.11 ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER INSTRUMENTS,
DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS
AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO REGARDING
THIS AMENDMENT AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS AND
-9-
<PAGE>
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT
BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL
AGREEMENTS AMONG THE PARTIES HERETO.
Executed as of the date first written above.
BORROWER:
SONIC CORP.
By: /s/ W. Scott McLain
------------------------------------
W. Scott McLain
Treasurer
AGENT AND BANKS:
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Agent and as a Bank
By: /s/ Matthew H. Hildreth
------------------------------------
Name: Matthew H. Hildreth
------------------------------
Title: Vice President
------------------------------
UMB OKLAHOMA BANK
By: /s/ David R. Schaefer
------------------------------------
Name: David R. Schaefer
------------------------------
Title: Senior Vice President
------------------------------
BANK IV OKLAHOMA, N.A.
By: /s/ Richard A. Horton
------------------------------------
Name: Richard A. Horton
------------------------------
Title: Senior Vice President
------------------------------
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<PAGE>
BANCFIRST
By: /s/ E. G. Alexander
------------------------------------
Name: E. G. Alexander
------------------------------
Title: Senior Vice President
------------------------------
SUMMIT BANK
(formerly UNITED JERSEY BANK)
By: /s/ Arty C. Zulawski
------------------------------------
Name: Arty C. Zulawski
------------------------------
Title: Senior Vice President
------------------------------
Each Guarantor hereby (a) consents and agrees to this Amendment, (b) agrees
that its respective Guaranty shall continue to be the legal, valid and binding
obligation of such Guarantor enforceable against such Guarantor in accordance
with its terms, and (c) represents and warrants that each of the representations
and warranties set forth in this Amendment with regard to each such Guarantor
are true and correct in all respects.
GUARANTORS:
SONIC RESTAURANTS, INC.
By: /s/ W. Scott McLain
------------------------------------
W. Scott McLain
Treasurer
SONIC INDUSTRIES INC.
By: /s/ W. Scott McLain
------------------------------------
W. Scott McLain
Treasurer
AMERICA'S DRIVE-IN CORP.
By: /s/ Lewis B. Kilbourne
------------------------------------
Lewis B. Kilbourne
President
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<PAGE>
AMERICA'S DRIVE-IN TRUST
By: /s/ Lewis B. Kilbourne
------------------------------------
Lewis B. Kilbourne
President
EACH OF THE PARTNERSHIPS SPECIFIED ON ANNEX I
HERETO, each an Oklahoma general partnership
By: Sonic Restaurants, Inc.,
Managing General Partner of
each of such partnerships
By: /s/ W. Scott McLain
------------------------------------
W. Scott McLain
Treasurer
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<PAGE>
Exhibit 10.19
Second Amendment to Loan Agreement with Texas Commerce Bank National Association
<PAGE>
SECOND AMENDMENT TO LOAN AGREEMENT
This SECOND AMENDMENT TO LOAN AGREEMENT (this "AMENDMENT"), dated as of
September 27, 1996, is among SONIC CORP., a Delaware corporation (the
"BORROWER"), each of the banks or other lending institutions which is or may
from time to time become a signatory or party to the Agreement (hereinafter
defined) or any successor or permitted assignee thereof (each a "BANK" and
collectively, the "BANKS"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a
national banking association ("TCB"), as agent for itself and the other Banks
and as issuer of Letters of Credit under the Agreement (in such capacity,
together with its successors in such capacity, the "AGENT").
RECITALS:
A. Borrower, Agent and Banks have entered into that certain Loan
Agreement dated as of July 12, 1995, as amended by that certain First Amendment
to Loan Agreement dated as of August 16, 1996 (the "AGREEMENT").
B. Pursuant to the Agreement, the undersigned guarantors (each a
"GUARANTOR" and, collectively, the "GUARANTORS") executed those certain Guaranty
Agreements dated as of July 12, 1995 (each a "GUARANTY" and collectively, the
"GUARANTIES"), which guarantee to Agent the payment and performance of the
Obligations (as defined in the Agreement).
C. Borrower, Agent and Banks now desire to amend the Agreement to revise
the minimum Consolidated Net Worth covenant as provided herein.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. Capitalized terms used in this Amendment, to
the extent not otherwise defined herein, shall have the same meanings as in the
Agreement, as amended hereby.
<PAGE>
ARTICLE II
AMENDMENT
Section 2.1 AMENDMENT TO MINIMUM CONSOLIDATED NET WORTH. Effective as
of August 31, 1996 Section 10.2 of the Agreement is hereby amended to read in
its entirety as follows:
Section 10.2. MINIMUM CONSOLIDATED NET WORTH. The Borrower will not
permit the Consolidated Net Worth to be less than the sum of (a)
$103,000,000, MINUS (b) the amount of the non-cash after-tax charge to
earnings for the fiscal quarter ending August 31, 1996 due to the
Borrower's adoption of Statement of Financial Accounting Standards No. 121,
not to exceed $5,300,000, PLUS (c) for each fiscal quarter of the Borrower
ended through the date of determination, beginning with the fiscal quarter
ending May 31, 1996, (i) 100% of the positive consolidated net income of
the Borrower and the Subsidiaries for such quarter, MINUS (ii) all cash
dividends declared and paid by the Borrower for such quarter, and MINUS
(iii) the amount of all stock of the Borrower repurchased by the Borrower
during such quarter, PLUS (d) 100% of the Net Proceeds received by the
Borrower from any issuance, sale or other disposition of any shares of
capital stock or other equity securities of the Borrower of any class (or
any securities convertible or exchangeable for any such shares, or any
rights, warrants, or options to subscribe for or purchase any such shares),
but in no event shall the sum of (a), (b), (c) and (d) above be less than
$103,000,000.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1 CONDITIONS. The effectiveness of this Amendment is subject
to the satisfaction of each of the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained herein and in all other Loan Documents, as amended
hereby, shall be true and correct as of the date hereof as if made on the
date hereof; and
(b) NO DEFAULT. No Event of Default shall have occurred and be
continuing and no event or condition shall have occurred that with the
giving of notice or lapse of time or both would be an Event of Default.
-2-
<PAGE>
ARTICLE IV
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
Section 4.1 RATIFICATIONS. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Agreement and except as expressly modified and superseded by this
Amendment, the terms and provisions of the Agreement are ratified and confirmed
and shall continue in full force and effect. Borrower, Agent and the Banks
agree that the Agreement as amended hereby shall continue to be legal, valid,
binding and enforceable in accordance with its terms.
Section 4.2 RELEASE OF CLAIMS. The Borrower and the Guarantors each
hereby acknowledge and agree that none of them has any and there are no claims
or offsets against or defenses or counterclaims to the terms and provisions of
or the obligations of the Borrower, any Guarantor or any Subsidiary created or
evidenced by the Agreement or any of the other Loan Documents, and to the extent
any such claims, offsets, defenses or counterclaims exist, the Borrower and the
Guarantors each hereby waive, and hereby release the Agent and each of the Banks
from, any and all claims, offsets, defenses and counterclaims, whether known or
unknown, such waiver and release being with full knowledge and understanding of
the circumstances and effects of such waiver and release and after having
consulted legal counsel with respect thereto.
Section 4.3 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents
and warrants to Agent and the Banks that (i) the execution, delivery and
performance of this Amendment and any and all other Loan Documents executed
and/or delivered in connection herewith have been authorized by all requisite
corporate, partnership and trust action on the part of Borrower and the
Guarantors and will not violate the articles of incorporation, bylaws,
partnership agreement or other organizational documents of Borrower or the
Guarantors, (ii) the representations and warranties contained in the Agreement,
as amended hereby, and any other Loan Document are true and correct on and as of
the date hereof as though made on and as of the date hereof, (iii) no Event of
Default has occurred and is continuing and no event or condition has occurred
that with the giving of notice or lapse of time or both would be an Event of
Default, and (iv) Borrower is in full compliance with all covenants and
agreements contained in the Agreement as amended hereby.
ARTICLE V
MISCELLANEOUS
Section 5.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in this Amendment or any other Loan Document
including any Loan Document furnished in connection with this Amendment shall
survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by Agent or any Bank or any
-3-
<PAGE>
closing shall affect the representations and warranties or the right of Agent
and the Banks to rely upon them.
Section 5.2 REFERENCE TO AGREEMENT. Each of the Loan Documents,
including the Agreement and any and all other agreements, documents, or
instruments now or hereafter executed and delivered pursuant to the terms hereof
or pursuant to the terms of the Agreement as amended hereby, are hereby amended
so that any reference in such Loan Documents to the Agreement shall mean a
reference to the Agreement as amended hereby.
Section 5.3 EXPENSES OF AGENT. As provided in the Agreement, Borrower
agrees to pay on demand all costs and expenses incurred by Agent in connection
with the preparation, negotiation, and execution of this Amendment and the other
Loan Documents executed pursuant hereto and any and all amendments,
modifications, and supplements thereto, including without limitation the costs
and fees of Agent's legal counsel.
Section 5.4 SEVERABILITY. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
Section 5.5 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE
PERFORMABLE IN DALLAS, DALLAS COUNTY, TEXAS AND SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 5.6 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and
shall inure to the benefit of Borrower, Agent and the Banks and their respective
successors and permitted assigns, except Borrower may not assign or transfer any
of its rights or obligations hereunder without the prior written consent of
Agent.
Section 5.7 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
Section 5.8 EFFECT OF WAIVER. No consent or waiver, express or implied,
by Agent or any Bank to or for any breach of or deviation from any covenant,
condition or duty by Borrower or any Guarantor shall be deemed a consent or
waiver to or of any other breach of the same or any other covenant, condition or
duty.
Section 5.9 HEADINGS. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
-4-
<PAGE>
Section 5.10 NON-APPLICATION OF CHAPTER 15 OF TEXAS CREDIT CODE. The
provisions of Chapter 15 of the Texas Credit Code (Vernon's Annotated Texas
Statutes, Article 5069-15) are specifically declared by the parties not to be
applicable to this Amendment or any of the Loan Documents or the transactions
contemplated hereby.
Section 5.11 ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER INSTRUMENTS,
DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS
AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO REGARDING
THIS AMENDMENT AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS
AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES
HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.
[Remainder of page intentionally left blank]
-5-
<PAGE>
Executed as of the date first written above.
BORROWER:
SONIC CORP.
By: /s/ W. Scott McLain
-------------------------------------
W. Scott McLain
Treasurer
AGENT AND BANKS:
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Agent and as a Bank
By: /s/ Matthew H. Hildreth
-------------------------------------
Matthew H. Hildreth
Vice President
UMB OKLAHOMA BANK
By: /s/ David Schaefer
-------------------------------------
Name: David Schaefer
--------------------------------
Title: Senior Vice President
-------------------------------
BANK IV OKLAHOMA, N.A.
By: Richard A. Horton
-------------------------------------
Name: Richard A. Horton
--------------------------------
Title: Senior Vice President
-------------------------------
-6-
<PAGE>
BANCFIRST
By: /s/ E.G. Alexander
-------------------------------------
Name: E.G. Alexander
-----------------------------------
Title: Senior Vice President
----------------------------------
SUMMIT BANK
By: /s/ Christopher J. Annar
-------------------------------------
Name: Christopher J. Annar
-----------------------------------
Title: Regional Vice President
----------------------------------
Each Guarantor hereby (a) consents and agrees to this Amendment, (b) agrees
that its respective Guaranty shall continue to be the legal, valid and binding
obligation of such Guarantor enforceable against such Guarantor in accordance
with its terms, and (c) represents and warrants that each of the representations
and warranties set forth in this Amendment with regard to each such Guarantor
are true and correct in all respects.
GUARANTORS:
SONIC RESTAURANTS, INC.
By: /s/ W. Scott McLain
-------------------------------------
W. Scott McLain
Treasurer
SONIC INDUSTRIES INC.
By: /s/ W. Scott McLain
-------------------------------------
W. Scott McLain
Treasurer
-7-
<PAGE>
AMERICA'S DRIVE-IN CORP.
By: /s/ Lewis B. Kilbourne
-------------------------------------
Lewis B. Kilbourne
President
AMERICA'S DRIVE-IN TRUST
By: /s/ Lewis B. Kilbourne
-------------------------------------
Lewis B. Kilbourne
President
EACH OF THE PARTNERSHIPS SPECIFIED ON
ANNEX I HERETO, each an Oklahoma general
partnership
By: Sonic Restaurants, Inc.,
Managing General Partner of
each of such partnerships
By: /s/ W. Scott McLain
-------------------------------------
W. Scott McLain
Treasurer
-8-
<PAGE>
Exhibit 21.01
Subsidiaries of the Company
<PAGE>
SUBSIDIARIES
------------
NAME OF SUBSIDIARY JURISDICTION
------------------ ------------
America's Drive-In Corp. Nevada
America's Drive-In Trust Pennsylvania
Sonic Industries Inc. Oklahoma
Sonic Restaurants, Inc. Oklahoma
Sonic, Inc. New Zealand
<PAGE>
Exhibit 23.01
Consent of Independent Auditors
<PAGE>
Exhibit 23.01
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 333-09373, No. 33-40989 and No. 33-78576) pertaining to the 1991
Sonic Corp. Stock Option Plan, the Registration Statement (Form S-8
No. 33-40988) pertaining to the 1991 Sonic Corp. Stock Purchase Plan, the
Registration Statement (Form S-8 No. 33-40987) pertaining to the 1991 Sonic
Corp. Directors' Stock Option Plan and the Registration Statement (Form S-3 No.
33-95716) for the registration of 1,420,000 shares of its common stock, and the
related Prospectuses of our report dated October 18, 1996, with respect to the
consolidated financial statements and schedule of Sonic Corp. included in the
Annual Report (Form 10-K) for the year ended August 31, 1996.
/s/ ERNST & YOUNG LLP
-------------------------------
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
November 20, 1996
<PAGE>
Exhibit 24.01
Power of Attorney
<PAGE>
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below hereby constitutes and appoints J. Clifford Hudson and Ronald L. Matlock,
and each of them, his true and lawful attorney-in-fact, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to the Form 10-K Annual Report of
Sonic Corp. for the fiscal year ended August 31, 1996, and to file the
amendments, with exhibits, with the Securities and Exchange Commission, granting
to the foregoing attorney-in-fact, and his substitutes, the full power and
authority to do and perform each and every act and thing necessary or
appropriate to file the amendments as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that the
attorney-in-fact, or his substitutes, lawfully may do by virtue of this
instrument.
Executed as of the 25th day of November, 1996.
/s/ Dennis H. Clark
-------------------------------
Dennis H. Clark
/s/ Leonard Lieberman
-------------------------------
Leonard Lieberman
/s/ H. E. Rainbolt
-------------------------------
H. E. Rainbolt
/s/ Frank E. Richardson III
-------------------------------
Frank E. Richardson III
/s/ Robert M. Rosenberg
-------------------------------
Robert M. Rosenberg
/s/ E. Dean Werries
-------------------------------
E. Dean Werries
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY INCLUDED ELSEWHERE IN THIS
REPORT. THE COMPANY HEREBY QUALIFIES THE FOLLOWING INFORMATION IN ITS ENTIRETY
BY REFERENCE TO THOSE FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 7,706
<SECURITIES> 0
<RECEIVABLES> 5,362
<ALLOWANCES> (133)
<INVENTORY> 1,868
<CURRENT-ASSETS> 16,177
<PP&E> 118,914
<DEPRECIATION> (18,409)
<TOTAL-ASSETS> 147,444
<CURRENT-LIABILITIES> 12,686
<BONDS> 22,209
0
0
<COMMON> 135
<OTHER-SE> 109,548
<TOTAL-LIABILITY-AND-EQUITY> 147,444
<SALES> 124,443
<TOTAL-REVENUES> 151,130
<CGS> 95,764
<TOTAL-COSTS> 132,467<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 124
<INTEREST-EXPENSE> 476
<INCOME-PRETAX> 18,063
<INCOME-TAX> 6,819
<INCOME-CONTINUING> 11,244
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,244
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
<FN>
<F1>TAG 29 INCLUDES A $8.541 MILLION INITIAL CHARGE UPON ADOPTION OF FAS 121.
</FN>
</TABLE>
