<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 14(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended Commission File Number
May 31, 1997 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
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 requirement for the
past 90 days. Yes X . No .
--- ---
As of May 31, 1997, the Registrant had 12,712,768 shares of common stock
issued and outstanding (excluding 797,080 shares of common stock held as
treasury stock).
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SONIC CORP.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at May 31, 1997 and
August 31, 1996 3
Consolidated Statements of Income for the three months and nine
months ended May 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended May 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Independent Accountants' Review Report 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
<PAGE>
SONIC CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
ASSETS MAY 31, AUGUST 31,
1997 1996
--------- ---------
Current assets:
Cash and cash equivalents $ 10,761 $ 7,706
Accounts and notes receivable, net 6,070 5,229
Other current assets 2,982 3,242
--------- ---------
Total current assets 19,813 16,177
Property, equipment and capital leases 147,642 118,914
Less accumulated depreciation and amortization (24,284) (18,409)
--------- ---------
Property, equipment and capital leases, net 123,358 100,505
Trademarks, trade names and other goodwill 21,126 20,945
Other intangibles and other assets 16,534 14,313
Less accumulated amortization (5,370) (4,496)
--------- ---------
Intangibles and other assets, net 32,290 30,762
--------- ---------
Total assets $ 175,461 $ 147,444
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,615 $ 2,904
Deposits from franchisees 631 601
Accrued liabilities 7,797 7,841
Obligations under capital leases and long-term
debt due within one year 1,439 1,340
--------- ---------
Total current liabilities 15,482 12,686
Obligations under capital leases due after one year 8,454 8,985
Long-term debt due after one year (Note 2) 35,372 11,884
Other noncurrent liabilities 4,416 4,206
Contingencies (Note 3)
Stockholders' equity (Note 4):
Preferred stock, par value $.01; 1,000,000 shares
authorized; none outstanding - -
Common stock, par value $.01; 40,000,000 shares
authorized; 13,509,848 shares issued
(13,475,078 shares issued at August 31, 1996) 135 135
Paid-in capital 59,602 59,107
Retained earnings 63,342 50,584
--------- ---------
123,079 109,826
Treasury stock, at cost; 797,080 common shares
(7,580 common shares at August 31, 1996) (11,342) (143)
--------- ---------
Total stockholders' equity 111,737 109,683
--------- ---------
Total liabilities and stockholders' equity $ 175,461 $ 147,444
--------- ---------
--------- ---------
See accompanying notes.
3
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SONIC CORP.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited) (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, May 31, MAY 31, May 31,
1997 1996 1997 1996
-------- -------- --------- --------
Revenues:
Sales by Company-owned restaurants $ 41,411 $ 33,642 $ 105,661 $ 82,360
Franchised restaurants:
Franchise fees 460 287 1,271 1,102
Franchise royalties 6,620 5,717 18,581 16,421
Equipment sales - - - 3,743
Other 327 479 2,411 1,483
-------- -------- --------- --------
48,818 40,125 127,924 105,109
Cost and expenses:
Company-owned restaurants:
Food and packaging 11,850 10,315 30,414 26,191
Payroll and other employee benefits 11,229 8,941 30,072 23,630
Other operating expenses 6,530 5,348 18,258 14,147
-------- -------- --------- --------
29,609 24,604 78,744 63,968
Equipment cost of sales - - - 3,101
Selling, general and administrative 4,960 3,776 14,110 10,450
Depreciation and amortization 3,074 2,394 8,844 6,506
Minority interest in earnings of
restaurant partnerships 2,437 1,800 4,878 3,209
Provision for impairment of long-lived
assets 15 16 53 65
-------- -------- --------- --------
40,095 32,590 106,629 87,299
-------- -------- --------- --------
Income from operations 8,723 7,535 21,295 17,810
Interest expense 592 258 1,400 888
Interest income (141) (137) (436) (602)
-------- -------- --------- --------
Net interest expense 451 121 964 286
-------- -------- --------- --------
Income before income taxes 8,272 7,414 20,331 17,524
Provision for income taxes 3,081 2,799 7,573 6,615
-------- -------- --------- --------
Net income $ 5,191 $ 4,615 $ 12,758 $ 10,909
-------- -------- --------- --------
-------- -------- --------- --------
Net income per share $ 0.39 $ 0.34 $ 0.94 $ 0.82
-------- -------- --------- --------
-------- -------- --------- --------
Weighted average shares outstanding 13,299 13,606 13,595 13,353
-------- -------- --------- --------
-------- -------- --------- --------
See accompanying notes.
4
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SONIC CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
NINE MONTHS ENDED
MAY 31, MAY 31,
1997 1996
----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,758 $ 10,909
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,844 6,506
Gain on disposition of assets (1,430) -
Other 661 (172)
Increase in operating assets (483) (1,183)
Increase in operating liabilities 2,540 3,532
----------------------
Total adjustments 10,132 8,683
----------------------
Net cash provided by operating activities 22,890 19,592
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (32,162) (20,371)
Acquisitions of existing restaurants - (13,094)
Proceeds from sale of assets 2,281 1,357
Increase in intangibles and other assets (2,292) (126)
----------------------
Net cash used in investing activities (32,173) (32,234)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock - 33,187
Net change in revolving debt facilities 23,432 (18,000)
Purchases of treasury stock (11,199) -
Proceeds from exercise of stock options 495 1,289
Other (390) (440)
----------------------
Net cash provided by financing activities 12,338 16,036
----------------------
Net increase in cash and cash equivalents 3,055 3,394
Cash and cash equivalents at beginning of period 7,706 3,777
----------------------
Cash and cash equivalents at end of period $ 10,761 $ 7,171
----------------------
----------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Additions to capital lease obligations $ 569 $ 3,648
Notes receivable from sale of property, equipment,
and intangibles $ 796 $ 139
See accompanying notes.
5
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SONIC CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MAY 31, 1997 AND 1996
NOTE 1
The unaudited Condensed Consolidated Financial Statements include all
adjustments, consisting of normal, recurring accruals, which Sonic Corp. (the
"Company") considers necessary for a fair presentation of the financial
position and the results of operations for the indicated periods. The notes
to the condensed consolidated financial statements should be read in
conjunction with the notes to the consolidated financial statements contained
in the Company's Form 10-K, as amended, for the fiscal year ended August 31,
1996. The results of operations for the nine months ended May 31, 1997, are
not necessarily indicative of the results to be expected for the full year
ending August 31, 1997.
NOTE 2
Subsequent to May 31, 1997, the Company has signed an agreement with its lenders
to increase its existing line of credit from $60 million to $80 million and
extend the term of the line of credit from June 1998 to June 2000.
NOTE 3
On April 18, 1996, the Texas Court of Appeals reversed the district court's
judgment notwithstanding the verdict and reinstated the jury's verdict of
approximately $0.8 million of actual damages, $1.0 million of punitive damages,
and pre- and post-judgment interest in an action in which the plaintiffs claim a
subsidiary of the Company interfered with contractual relations of the
plaintiffs. 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 have no merit and will defend its position
vigorously during the appellate process.
NOTE 4
On June 16, 1997 the Board of Directors declared a dividend of one common stock
purchase right (a "right") for each share of the Company's common stock
outstanding on June 27, 1997. Each right would entitle shareholders to buy one
unit of a share of preferred stock for $85. The rights are not currently
exercisable, but would become exercisable if certain events occurred relating to
a person or group acquiring or attempting to acquire 15 percent or more of the
outstanding shares of common stock. The rights expire on June 16, 2007, unless
redeemed or exchanged by the Company earlier.
6
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NOTE 5
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128
"Earnings Per Share", which is required to be adopted by the Company in the
reporting period ended February 28, 1998. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating basic
earnings per share, the dilutive effect of stock options will be excluded. The
Company has determined that the impact of SFAS 128 on the calculation of
earnings per share for the three months and nine months ended May 31, 1997 and
1996 would not be material.
7
<PAGE>
Independent Accountants' Review Report
The Board of Directors
Sonic Corp.
We have reviewed the accompanying condensed consolidated balance sheet of
Sonic Corp. as of May 31, 1997, and the related consolidated statements of
income for the three-month and nine-month periods ended May 31, 1997 and
1996, and the condensed consolidated statements of cash flows for the
nine-month periods ended May 31, 1997 and 1996. These financial statements
are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, which
will be performed for the full year with the objective of expressing an
opinion regarding the financial statements taken as a whole. Accordingly, we
do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Sonic Corp. as of August 31, 1996,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the year then ended (not presented herein) and in our report
dated October 18, 1996, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of August 31, 1996, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
June 25, 1997
8
<PAGE>
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 1996 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.
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.
PERCENTAGE RESULTS OF OPERATIONS
THREE MONTHS NINE MONTHS
ENDED ENDED
MAY 31, May 31, MAY 31, May 31,
1997 1996 1997 1997
----------------- ----------------
INCOME STATEMENT DATA:
Revenues:
Sales by Company-owned restaurants 84.8% 83.8% 82.6% 78.4%
Franchised restaurants:
Franchise fees and royalties 14.5 15.0 15.5 16.7
Equipment sales - 0.0 - 3.5
Other 0.7 1.2 1.9 1.4
----------------- ----------------
100.0% 100.0% 100.0% 100.0%
----------------- ----------------
----------------- ----------------
Cost and expenses:
Company-owned restaurants (1)
Food and packaging 28.6% 30.7% 28.8% 31.8%
Payroll and other employee benefits 27.1 26.5 28.4 28.7
Other operating expenses 15.8 15.9 17.3 17.2
----------------- ----------------
71.5% 73.1% 74.5% 77.7%
Equipment sales (2) - - - 82.9
Selling, general and administrative 10.2 9.4 11.0 9.9
Depreciation and amortization 6.3 6.0 6.9 6.2
Minority interest in earnings of
restaurant partnerships (1) 5.9 5.4 4.6 3.9
Other 0.0 0.0 0.0 0.1
Income from operations 17.9 18.8 16.6 16.9
Net interest expense 0.9 0.3 0.8 0.3
Net income 10.6% 11.5% 10.0% 10.4%
- --------------------
(1) As a percentage of Sales by Company-owned restaurants.
(2) As a percentage of equipment sales.
9
<PAGE>
RESTAURANT OPERATING DATA ($ IN THOUSANDS)
<TABLE>
THREE MONTHS NINE MONTHS
ENDED ENDED
MAY 31, May 31, MAY 31, May 31,
1997 1996 1997 1996
--------------------- ---------------------
<S> <C> <C> <C> <C>
RESTAURANT COUNT (1):
Company owned restaurants:
Core markets 160 151 160 151
Developing markets 85 74 85 74
--------- -------- --------- --------
All markets 245 225 245 225
Franchised restaurants 1,394 1,310 1,394 1,310
--------- -------- --------- --------
System-wide restaurants 1,639 1,535 1,639 1,535
--------- -------- --------- --------
--------- -------- --------- --------
SALES DATA:
System-wide sales $ 309,888 $267,028 $ 798,909 $698,271
Percentage increase (2) 16.1 % 12.3 % 14.4% 10.8 %
Average sales per restaurant:
Company-owned $ 176 $ 161 $ 457 $ 428
Franchise 197 178 515 472
System-wide 193 175 505 464
Change in comparable restaurant sales (3):
Company owned restaurants:
Core markets 10.3 % 5.5 % 7.4% 4.2 %
Developing markets 2.5 0.2 (4.1) (5.9)
--------- -------- --------- --------
All markets 8.7 % 5.2 % 4.8 % 3.1 %
Franchise 9.4 5.2 8.2 3.9
System-wide 9.0 5.2 7.6 3.5
</TABLE>
- --------------------------
(1) Number of restaurants open at end of period.
(2) Represents percentage increase from the comparable period in the prior year.
(3) Represents percentage increase (decrease) for restaurants open both in the
current and prior years.
10
<PAGE>
COMPARISON OF THE THIRD FISCAL QUARTER OF 1997 TO THE
THIRD FISCAL QUARTER OF 1996.
Total revenues increased 21.7% to $48.8 million in the third fiscal
quarter of 1997 from $40.1 million in the third fiscal quarter of 1996.
Sales by Company-owned restaurants increased 23.1% to $41.4 million in the
third fiscal quarter of 1997 from $33.6 million in the third fiscal quarter
of 1996. Of the $7.8 million increase, $5.5 million was due to the net
addition of 67 Company-owned restaurants since the beginning of fiscal 1996.
Average sales increases of approximately 8.7% by stores open the full
reporting periods of fiscal 1997 and 1996 accounted for $2.3 million of the
increase. Franchise fee revenues increased approximately $0.2 million in the
third fiscal quarter of 1997 as compared to the third fiscal quarter of 1996.
This increase resulted primarily from an increase in the number of franchise
restaurant openings to 28 in the third fiscal quarter of 1997 compared to 18
in the third fiscal quarter of 1996. Franchise royalties increased 15.8% to
$6.6 million in the third fiscal quarter of 1997, compared to $5.7 million in
the third fiscal quarter of 1996. Increased sales by comparable franchised
restaurants resulted in an increase in royalties of approximately $0.7
million and resulted from the franchise same-store sales growth of 9.4% over
the third fiscal quarter of 1996. Additional franchise restaurants in
operation resulted in an increase in royalties of approximately $0.2 million.
The decrease in equipment sales was due to the sale of the Company's
restaurant equipment division in the second fiscal quarter of 1996.
Restaurant cost of operations, as a percentage of sales by Company-owned
restaurants, was 71.5% in the third fiscal quarter of 1997, compared to 73.1%
in the third fiscal quarter of 1996. Management believes the improvement in
restaurant operating margins resulted from: (1) reductions in food and
packaging costs due to consolidation of purchasing distribution functions and
renegotiation of pricing terms; (2) improved operational cost controls
through the implementation of a standard ideal food cost program; and (3) a
3.5% average price increase implemented October 1, 1996. The improvements
mentioned above were partially offset by the minimum wage increase which was
effective on October 1, 1996, and increased marketing expenditures, which
reflect the Company's commitment to increased media penetration through its
system of advertising cooperatives. Minority interest in earnings of
restaurant partnerships increased, as a percentage of sales by Company-owned
restaurants, to 5.9% in the third fiscal quarter of 1997, compared to 5.4% in
the third fiscal quarter of 1996. This increase occurred primarily due to
the improvements in operating margins discussed above.
Selling, general and administrative expenses, as a percentage of total
revenues, increased to 10.2% in the third fiscal quarter of 1997, compared
with 9.4% in the third fiscal quarter of 1996. Of the $1.2 million increase,
approximately $0.5 million is due to non-recurring expenses including an
officer severance accrual related to a departed officer and accrued expenses
related to the adoption of a shareholder rights plan. The remaining increase
is related primarily to additional headcount necessitated by the Company's
growth. Management expects selling, general and administrative expenses, as a
percentage of revenues, to decline 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, as a percentage of revenues,
than the Company's franchising operations since most of these expenses are
reflected in restaurant cost of operations
11
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and minority interest in restaurant operations. Many of the managers and
supervisors of Company-owned restaurants own a minority interest in the
restaurants, and their compensation flows through the minority interest in
earnings of restaurant partnerships. Depreciation and amortization expense
increased approximately $0.7 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 the remainder of fiscal 1997
and 1998.
Income from operations increased 15.8% to $8.7 million from $7.5 million
in the third fiscal quarter of 1996. Net interest expense in the third
fiscal quarter of 1997 increased $0.3 million over the third fiscal quarter
of 1996 due to increased borrowings to fund capital additions and the
repurchase of approximately $11.2 million of common stock. The Company
expects interest expense to continue to increase, as a percentage of sales,
due to the Company's restaurant expansion plans and the stock repurchases
mentioned above.
Provision for income taxes reflects an effective federal and state tax
rate of 37.25% for the third fiscal quarter of 1997, compared to 37.75% for
the comparable period in fiscal 1996. Net income for the third fiscal
quarter of 1997 increased 12.5% to $5.2 million, compared to $4.6 million in
the comparable period of fiscal 1996. Earnings per share increased to $.39
per share in the third fiscal quarter of 1997, compared to $.34 per share in
the third fiscal quarter of 1996, for an increase of 14.7%. Approximately
$.005 of the increase was due to the accretive impact of the common stock
repurchases mentioned above.
COMPARISON OF THE FIRST THREE FISCAL QUARTERS OF 1997 TO THE
FIRST THREE FISCAL QUARTERS OF 1996.
Total revenues increased 21.7% to $127.9 million in the first three fiscal
quarters of 1997 from $105.1 million in the first three fiscal quarters of
1996. Sales by Company-owned restaurants increased 28.3% to $105.7 million
in the first three fiscal quarters of 1997 from $82.4 million in the first
three fiscal quarters of 1996. Of the $23.3 million increase, $19.9 million
was due to the net addition of 67 Company-owned restaurants since the
beginning of fiscal 1996. Average sales increases of approximately 4.8% by
stores open the full reporting periods of fiscal 1997 and 1996 accounted for
$3.4 million of the increase. Franchise fee revenues increased approximately
$0.2 million in the first three fiscal quarters of 1997 as compared to the
first three fiscal quarters of 1996. This increase resulted primarily from
an increase in the number of franchise restaurant openings to 64 in the first
three fiscal quarters of 1997 compared to 55 in the comparable period of
1996. Franchise royalties increased 13.2% to $18.6 million in the first
three fiscal quarters of 1997, compared to $16.4 million in the first three
fiscal quarters of 1996. Increased sales by comparable franchised
restaurants resulted in an increase in royalties of approximately $1.5
million and resulted from the franchise same-store sales growth of 8.2% over
the first three fiscal quarters of 1996. Additional franchised restaurants
in operation resulted in an increase in royalties of $0.7 million. The
decrease in equipment sales was due to the sale of the Company's restaurant
equipment division in the second fiscal quarter of 1996. The increase in
other revenues of $0.9 million resulted primarily from a $1.1 million gain
recognized on the
12
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sale of the Company's minority interest in 10 restaurants. The sale of these
interests is not expected to have a material impact on income in the future.
Restaurant cost of operations, as a percentage of sales by Company-owned
restaurants, was 74.5% in the first three fiscal quarters of 1997, compared
to 77.7% in the first three fiscal quarters of 1996. Management believes the
improvement in restaurant operating margins resulted from: (1) reductions in
food and packaging costs due to consolidation of purchasing distribution
functions and renegotiation of pricing terms; (2) improved operational cost
controls through the implementation of a standard ideal food cost program;
and (3) a 3.5% average price increase implemented October 1, 1996, along with
a 2.5% average price increase implemented during the second fiscal quarter of
1996. The improvements mentioned above were partially offset by the minimum
wage increase which was effective on October 1, 1996, and increased marketing
expenditures, which reflect the Company's commitment to increased media
penetration through its system of advertising cooperatives. Minority
interest in earnings of restaurant partnerships increased, as a percentage of
sales by Company-owned restaurants, to 4.6% in the first three fiscal
quarters of 1997, compared to 3.9% in the first three fiscal quarters of
1996. This increase occurred primarily due to the improvements in operating
margins discussed above.
Selling, general and administrative expenses, as a percentage of total
revenues, increased to 11.0% in the first three fiscal quarters of 1997,
compared with 9.9% in the first three fiscal quarters of 1996. This increase
resulted primarily from a $1.1 million provision for expected litigation
costs recorded during the second fiscal quarter of 1997. Management expects
selling, general and administrative expenses, as a percentage of revenues, to
decline 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, as a percentage of revenues, 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 restaurants, and their compensation flows through
the minority interest in earnings of restaurant partnerships. Depreciation
and amortization expense increased approximately $2.3 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 the
remainder of fiscal 1997 and 1998.
Income from operations increased 19.6% to $21.3 million in the first
three fiscal quarters of 1997 from $17.8 million in the first three fiscal
quarters of 1996. Net interest expense in the first three fiscal quarters of
1997 increased $0.7 million due to increased borrowings to fund capital
additions and the repurchase of approximately $11.2 million of common stock.
The Company expects interest expense to continue to increase, as a percentage
of sales, due to the Company's restaurant expansion plans and the stock
repurchases mentioned above.
Provision for income taxes reflects an effective federal and state tax
rate of 37.25% for the first three fiscal quarters of 1997, compared to
37.75% for the comparable period in fiscal
13
<PAGE>
1996. Net income for the first three fiscal quarters of 1997 increased 17.0%
to $12.8 million, compared to $10.9 million in the comparable period of
fiscal 1996. Earnings per share increased to $.94 per share in the first
three fiscal quarters of 1997, compared to $.82 per share in the first three
fiscal quarters of 1996, for an increase of 14.6%. The accretive impact of
the common stock repurchases mentioned above was not significant.
LIQUIDITY AND SOURCES OF CAPITAL
During the first nine months of fiscal 1997, the Company opened 25
newly-constructed restaurants, sold four restaurants to a franchisee, and
closed seven restaurants. The Company funded the total capital additions for
the first nine months of 1997 of $32.7 million (which included the cost of
newly-opened 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 the nine months
ended May 31, 1997, the Company purchased the real estate on 24 of 25
newly-constructed restaurants. The Company expects to own the land and
building for most of its future newly-constructed restaurants. In addition
to the capital expenditures mentioned above, the Company repurchased 789,500
shares of common stock for approximately $11.2 million. The Company's Board
of Directors has authorized the repurchase of up to 1,333,000 shares of
common stock.
Effective June 19, 1997, the Company signed an agreement with its
lenders to increase its existing line of credit from $60.0 million to $80.0
million and extend the maturity of the line of credit from June of 1998 to
June of 2000. The Company will use the line of credit to finance the opening
of newly-constructed restaurants, acquisitions of existing restaurants,
repurchase of common stock, and other general corporate purposes. As of May
31, 1997, the Company's outstanding borrowings under the line of credit were
$35.0 million, as well as $0.1 million in outstanding letters of credit. The
available line of credit as of May 31, 1997, was $24.9 million. As of May
31, 1997, the Company's total cash balance of $10.8 million reflected the
impact of the cash generated from operating activities, line of credit
activity, capital expenditures and common stock repurchases mentioned above.
The Company plans capital expenditures of approximately $40.0 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 further
development and installation of a point-of-sale system. 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 borrowings under the line of credit, will meet the
Company's needs for the foreseeable future.
14
<PAGE>
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
the first fiscal quarter of 1997, however, the Company increased prices for
its Company-owned restaurants primarily because of higher labor costs
resulting from increases in the federal minimum wage.
SEASONALITY
The Company does not expect seasonality to affect its operations in a
materially adverse manner. The Company's results during its third 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
Company-owned and franchised restaurants.
15
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
During the fiscal quarter ended May 31, 1997, Sonic Corp. (the "Company") did
not have any new material legal proceedings brought against it, its
subsidiaries, or their properties. In addition, no material developments
occurred in connection with any previously reported legal proceedings against
the Company, its subsidiaries, or their properties during the last fiscal
quarter.
ITEM 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS. The Company has filed the following exhibits with this report:
10.01. Third Amendment to Loan Agreement with Texas Commerce Bank
National Association.
15.01. Letter re: Unaudited Interim Financial Information.
27.01. Financial Data Schedules.
FORM 8-K REPORTS. The Company did not file any Form 8-K reports during
the fiscal quarter ended May 31, 1997.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Company
has caused the undersigned, duly authorized, to sign this report on behalf of
the Company.
SONIC CORP.
By: /s/ J. Clifford Hudson Date: June 30, 1997
---------------------------------------- --------------------
J. Clifford Hudson, Principal
Executive Officer
By: /s/ Stephen C. Vaughan Date: June 30, 1997
---------------------------------------- --------------------
Stephen C. Vaughan, Chief
Accounting Officer
<PAGE>
THIRD AMENDMENT TO LOAN AGREEMENT
This THIRD AMENDMENT TO LOAN AGREEMENT (this "AMENDMENT"), dated as of
June 19, 1997, 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, and as further
amended by that certain Second Amendment to Loan Agreement dated as of
September 27, 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 (i) to
increase the commitments of the Banks to $80,000,000 in the aggregate, (ii)
to extend the Termination Date as specified herein, (iii) to modify certain
covenants, and (iv) 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 I.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.
ARTICLE II
AMENDMENTS
Section II.1 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:
<PAGE>
Texas Commerce Bank National Association $21,000,000
Boatmen's National Bank of Oklahoma 19,000,000
UMB Oklahoma Bank 15,000,000
Summit Bank 15,000,000
BancFirst 10,000,000
-----------
TOTAL $80,000,000
-----------
-----------
Section II.2 AMENDMENT TO DEFINITION OF FIXED CHARGE COVERAGE RATIO.
Effective as of May 30, 1997, 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
(except the Permitted Stock Repurchases), 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 II.3 NEW DEFINITION. Effective as of May 30, 1997, Section 1.1
of the Agreement is hereby amended to add the following definition of
"PERMITTED STOCK REPURCHASES," which definition shall read in its entirety
as follows:
"PERMITTED STOCK REPURCHASES" means the repurchase by the
Borrower of shares of its common capital stock, in an
aggregate amount not to exceed $20,000,000, during the
period from April 14, 1997 to and including December 31,
1997.
Section II.4 AMENDMENT TO TERMINATION DATE. Effective as of the date
hereof, the date "July 12, 1998" appearing in the definition of "Termination
Date" set forth in Section 1.1 of the Agreement is hereby amended to read
"July 12, 2000".
Section II.5 AMENDMENT TO USE OF PROCEEDS. Effective as of May 30,
1997, Section 2.7 of the Agreement is hereby amended to read in its entirety
as follows:
"Section 2.7 USE OF PROCEEDS. The proceeds of Advances
shall be used by the Borrower or any of the Subsidiaries
(subject to the provisions of Sections 9.1 and 9.5) for
working capital in the ordinary course of business, store
development, acquisitions permitted hereunder, Permitted
Stock Repurchases, and general corporate purposes."
<PAGE>
Section II.6 AMENDMENT TO USE OF PROCEEDS; MARGIN REQUIREMENTS.
Effective as of May 30, 1997, Section 7.11 of the Agreement is hereby
amended to add the following clause to the end thereof, which clause shall
read as follows:
", except for Permitted Stock Repurchases provided that
no violation of the margin requirements of Regulations G, T,
U and X would result therefrom."
Section II.7 AMENDMENT TO PERMITTED STOCK REPURCHASES. Effective as of
May 30, 1997, Section 9.4 of the Agreement is hereby amended to add the
following clause to the end thereof, which clause shall read as follows:
", and Permitted Stock Repurchases shall be permitted in
addition to the foregoing dollar amount."
Section II.8 AMENDMENT TO MINIMUM CONSOLIDATED NET WORTH. Effective as
of May 30, 1997, 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) $105,000,000, PLUS (b) for each
fiscal quarter of the Borrower ended through the date of
determination, beginning with the fiscal quarter ending
May 31, 1997, (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
$105,000,000.
Section II.9 AMENDMENTS TO COMPLIANCE CERTIFICATE. Effective as of May
30, 1997, Exhibit "D" to the Agreement is hereby amended to read in its
entirety as set forth on Annex II hereto.
ARTICLE III
CONDITIONS PRECEDENT
Section III.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:
<PAGE>
(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 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 thirty (30) 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 thirty
(30) 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 III hereto, executed by the Borrower and payable to
the order of the respective Banks, each in
<PAGE>
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;
(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 IV hereto, and such other
matters as Agent may reasonably request; and
(10) ADDITIONAL INFORMATION. Such additional
documents, instruments and information as Agent or its
legal counsel, Winstead Sechrest & Minick P.C., may
request;
(b) INTEREST, FEES AND EXPENSES. The Borrower shall have
paid (i) all accrued interest, fees and other amounts due under
the Agreement, and (ii) all 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; and
(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 IV.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.
<PAGE>
Section IV.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 IV.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 V.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 V.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 V.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 V.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
<PAGE>
this Amendment and the effect thereof shall be confined to the provision so
held to be invalid or unenforceable.
Section V.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 V.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 V.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 V.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 V.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 V.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 V.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.
<PAGE>
Executed as of the date first written above.
BORROWER:
SONIC CORP.
By:
-----------------------------------
W. Scott McLain
Vice President of Finance
and Treasurer
AGENT AND BANKS:
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Agent and as a Bank
By:
-----------------------------------
Name:
---------------------------
Title:
---------------------------
BOATMEN'S NATIONAL BANK OF OKLAHOMA
(formerly Bank IV Oklahoma, N.A.)
By:
-----------------------------------
Name:
---------------------------
Title:
---------------------------
UMB OKLAHOMA BANK
By:
-----------------------------------
Name:
----------------------------
Title:
----------------------------
<PAGE>
SUMMIT BANK
By:
------------------------------------
Name:
----------------------------
Title:
----------------------------
BANCFIRST
By:
------------------------------------
Name:
----------------------------
Title:
----------------------------
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:
------------------------------------
W. Scott McLain
Vice President of Finance
and Treasurer
SONIC INDUSTRIES INC.
By:
------------------------------------
W. Scott McLain
Vice President of Finance
and Treasurer
<PAGE>
AMERICA'S DRIVE-IN CORP.
By:
------------------------------------
Name:
----------------------------
Title:
----------------------------
AMERICA'S DRIVE-IN TRUST
By:
------------------------------------
Name:
----------------------------
Title:
----------------------------
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:
-----------------------------------
W. Scott McLain
Vice President of Finance
and Treasurer
<PAGE>
INDEX TO ANNEXES
ANNEX I - Partnerships
ANNEX II - Exhibit "D" (Compliance Certificate)
ANNEX III - Form of Note
ANNEX IV - Matters to be Addressed in Opinion of Counsel
<PAGE>
ANNEX I
PARTNERSHIPS
Majority Partnership Percentages
<TABLE>
CODE PARTNERSHIP NAME TYPE SRI % SII %
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A048 Sonic Drive-In of Asheboro, North Carolina Partnership M 99 1
- ----------------------------------------------------------------------------------
B002 Sonic Drive-In of Blytheville #1 Partnership
(dissolved 5/31/95) M
- ----------------------------------------------------------------------------------
B041 Sonic Drive-In of Baytown, Texas M 60
- ----------------------------------------------------------------------------------
B060 Sonic Drive-In of Beaumont, Texas (College-Major)
Partnership M 80
- ----------------------------------------------------------------------------------
B072 Sonic Drive-In of Bethany, Oklahoma (39th) M 56
- ----------------------------------------------------------------------------------
B092 Sonic Drive-In of Bay Springs, Mississippi Partnership M 99 1
- ----------------------------------------------------------------------------------
B106 Sonic Drive-In of Blytheville #2 Partnership M 80
- ----------------------------------------------------------------------------------
C048 Sonic Drive-In of Chillicothe, Missouri M 60
- ----------------------------------------------------------------------------------
C058 Sonic Drive-In of Chandler Oklahoma Partnership M 60
- ----------------------------------------------------------------------------------
C084 Sonic Drive-In #833, Houston, Channelview C084 M 60
- ----------------------------------------------------------------------------------
C104 Sonic Drive-In of Cabot Partnership M 60
- ----------------------------------------------------------------------------------
C134 Sonic Drive-In of Cameron, Missouri M 80
- ----------------------------------------------------------------------------------
C144 Sonic Drive-In of Callaway, Florida M 75
- ----------------------------------------------------------------------------------
C156 Sonic Drive-In of Columbia, Mississippi Partnership M 79 1
- ----------------------------------------------------------------------------------
C173 Sonic Drive-In of Cullman, Alabama Partnership M 80
- ----------------------------------------------------------------------------------
D038 Sonic Drive-In of Deer Park, Texas Partnership M 80
- ----------------------------------------------------------------------------------
D041 Sonic Drive-In #960, Dayton, Texas M 60
- ----------------------------------------------------------------------------------
D047 Sonic Drive-In of Dallas, Texas (Forest Lane &
Greenville Partnership M 51
- ----------------------------------------------------------------------------------
D052 Sonic Drive-In of Dallas, Texas (Ft. Worth) M 51
- ----------------------------------------------------------------------------------
D054 Sonic Drive-In of Dallas, Texas (Westmoreland) M 71
- ----------------------------------------------------------------------------------
D068 Sonic Drive-In of Dothan, Alabama Partnership M 99 1
- ----------------------------------------------------------------------------------
D082 SDI of Dothan, Alabama #2 (Ross Clark Circle)
Partnership M 80
- ----------------------------------------------------------------------------------
D083 SDI Danville, Kentucky (Baughman) Partnership M 99 1
- ----------------------------------------------------------------------------------
D084 SDI of Dallas, Texas (Wheatland Road) Partnership M 51
- ----------------------------------------------------------------------------------
D085 SDI of Dothan, Alabama #3 Partnership M 80
- ----------------------------------------------------------------------------------
D086 SDI of Dallas, Texas (Spring Valley) Partnership M 80
- ----------------------------------------------------------------------------------
E033 Sonic Drive-In of Ellisville, Mississippi Partnership M 99 1
- ----------------------------------------------------------------------------------
E055 Sonic Drive-In of Eden, North Carolina Partnership M 99 1
- ----------------------------------------------------------------------------------
EO61 SDI of Enterprise, Alabama Partnership M 80
- ----------------------------------------------------------------------------------
F074 Sonic Drive-In of Fairhope, Alabama (Greeno Road)
Partnership M 99 1
- ----------------------------------------------------------------------------------
G040 Sonic Drive-In of Groves, Texas Partnership M 60
- ----------------------------------------------------------------------------------
G054 Sonic Drive-In of Gosnell Partnership M 80
- ----------------------------------------------------------------------------------
G060 Sonic Drive-In of Gadsden, Alabama Partnership M 80
- ----------------------------------------------------------------------------------
G069 SDI of Galax, Virginia Partnership M 99 1
- ----------------------------------------------------------------------------------
G074 SDI of Gaffney, South Carolina Partnership M 99 1
- ----------------------------------------------------------------------------------
G077 SDI of Greenwood, South Carolina Partnership M 99 1
- ----------------------------------------------------------------------------------
G079 Sonic Drive-In of Gadsden, Alabama (Meighan)
Partnership M 80
- ----------------------------------------------------------------------------------
G081 SDI of Greensboro, North Carolina (Summit Avenue)
Partnership M 99 1
- ----------------------------------------------------------------------------------
H030 Sonic Drive-In #617, Houston, Aldine H030 M 60
- ----------------------------------------------------------------------------------
H032 Sonic Drive-In of Homer, Louisiana M 60
- ----------------------------------------------------------------------------------
H033 Sonic Drive-In #744, Houston, Airline H033 M 80
- ----------------------------------------------------------------------------------
H050 Sonic Drive-In #859, Houston, Little York H050 M 80
- ----------------------------------------------------------------------------------
H055 Sonic Drive-In of Houston, Texas (Telephone Road)
Partnership M 65
- ----------------------------------------------------------------------------------
H061 Sonic Drive-In #980, Humble, Texas H061 M 80
- ----------------------------------------------------------------------------------
H071 Sonic Drive-In #110, Houston, Rosstyn Rd. H071 M 60
- ----------------------------------------------------------------------------------
H072 Sonic Drive-In #1119, Houston, Dyersdale H072 M 80
- ----------------------------------------------------------------------------------
H075 Sonic Drive-In of Houston, Texas (Fuqua Drive) M 80
- ----------------------------------------------------------------------------------
H081 Sonic Drive-In #1173, Highlands, Texas H081 M 80
- ----------------------------------------------------------------------------------
H082 Sonic Drive-In of Houston, Texas (34th Street)
Partnership M 80
- ----------------------------------------------------------------------------------
H087 Sonic Drive-In of Houston, Texas (S. Post Oak)
Partnership M 60
- ----------------------------------------------------------------------------------
H104 Sonic Drive-In of Huntsville, Alabama (Bob Wallace)
Partnership M 70
- ----------------------------------------------------------------------------------
H106 Sonic Drive-In of Huntsville, Alabama (Memorial
Parkway) Partnership M 80
- ----------------------------------------------------------------------------------
H113 Sonic Drive-In of Houston, Texas (18th & Magnum)
Partnership M 55
- ----------------------------------------------------------------------------------
</TABLE>
<PAGE>
Majority Partnership Percentages
<TABLE>
CODE PARTNERSHIP NAME TYPE SRI % SII %
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
H115 Sonic Drive-In of Houston, Texas (Copperfield)
Partnership M 80
- ----------------------------------------------------------------------------------
H117 Sonic Drive-In of Houston, Texas (Gessner Road) M 80
- ----------------------------------------------------------------------------------
H120 Sonic Drive-In of Clear Lake City, Texas Partnership M 60
- ----------------------------------------------------------------------------------
H121 Sonic Drive-In of Houston, Texas (Scarsdale)
Partnership M 80
- ----------------------------------------------------------------------------------
H122 Sonic Drive-In of Houston (Jones Road) Texas
Partnership M 80
- ----------------------------------------------------------------------------------
H125 Sonic Drive-In of Houston, Texas (Veteran's Memorial
Highway) Partnership M 80
- ----------------------------------------------------------------------------------
H126 Sonic Drive-In of Houston, Texas (Tidwell) Partnership M 60
- ----------------------------------------------------------------------------------
H127 Sonic Drive-In of Houston, Texas (Blalock) Partnership M 80
- ----------------------------------------------------------------------------------
H130 Sonic Drive-In of Houston, Texas (Dairy Ashford)
Partnership M 80
- ----------------------------------------------------------------------------------
I010 Sonic Drive-In of Independence, Missouri #3 M 51
- ----------------------------------------------------------------------------------
I012 Sonic Drive-In of Independence, Missouri (23rd &
Westport) M 56
- ----------------------------------------------------------------------------------
I014 Sonic Drive-In of Independence, Missouri (40 Highway)
Partnership M 80
- ----------------------------------------------------------------------------------
I015 SDI of Independence, Missouri (Noland Road), L.C. M 51
- ----------------------------------------------------------------------------------
J012 Sonic Drive-In of Jonesboro, Louisiana, Partnership M 80
- ----------------------------------------------------------------------------------
J025 Sonic Drive-In #1174, Jacinto City, Texas J025 M 60
- ----------------------------------------------------------------------------------
K020 Sonic Drive-In #1156, Katy, Texas K020 M 60
- ----------------------------------------------------------------------------------
K022 Sonic Drive-In of Kansas City, Kansas (Leavenworth) M 51
- ----------------------------------------------------------------------------------
K023 Sonic Drive-In of Kansas City, Kansas (Strong) M 51
- ----------------------------------------------------------------------------------
K035 Sonic Drive-In of Kansas City, Missouri (Independence
Avenue) Partnership M 60
- ----------------------------------------------------------------------------------
K038 Sonic Drive-In of Kansas City, Kansas (78th Street)
Partnership M 60
- ----------------------------------------------------------------------------------
L006 Sonic Drive-In of Lee's Summit, Missouri General
Partnership M 60
- ----------------------------------------------------------------------------------
L013 Sonic Drive-In of Leavenworth, Kansas M 75
- ----------------------------------------------------------------------------------
L038 Sonic Drive-In of League City, Texas Partnership M 60
- ----------------------------------------------------------------------------------
L058 Sonic Drive-In of LaPlace, Louisiana Partnership M 99 1
- ----------------------------------------------------------------------------------
L075 Sonic Drive-In of Lynn Haven, Florida M 75
- ----------------------------------------------------------------------------------
L097 Sonic Drive-In of Lonoke Partnership M 60
- ----------------------------------------------------------------------------------
L100 Sonic Drive-In of Camp Robinson Partnership M 60
- ----------------------------------------------------------------------------------
L105 Sonic Drive-In of Little Rock (Asher) Partnership M 60
- ----------------------------------------------------------------------------------
L107 Sonic Drive-In of Lindale, Texas Partnership M 56
- ----------------------------------------------------------------------------------
L121 SDI of Laurens, South Carolina Partnership M 99 1
- ----------------------------------------------------------------------------------
L123 Sonic Drive-In of Laurel, Mississippi Partnership M 99 1
- ----------------------------------------------------------------------------------
L126 Sonic Drive-In of Little Rock, Arkansas (Westhaven
Drive) Partnership M 51
- ----------------------------------------------------------------------------------
M019 Sonic Drive-In of Minden, Louisiana M 60
- ----------------------------------------------------------------------------------
M047 Sonic Drive-In of Monroe, Louisiana (#l)
Partnership M 60
- ----------------------------------------------------------------------------------
M049 Sonic Drive-In of Maryville, Missouri M 99 1
- ----------------------------------------------------------------------------------
M053 Sonic Drive-In of Mineola, Texas Partnership M 54
- ----------------------------------------------------------------------------------
M061 Sonic Drive-In of Monroe, Louisiana (#2) Partnership M 80
- ----------------------------------------------------------------------------------
M074 Sonic Drive-In of Midwest City, Oklahoma (Douglas
Blvd) Partnership M 51
- ----------------------------------------------------------------------------------
M091 Sonic Drive-In of Mansfield, Louisiana Partnership M 65
- ----------------------------------------------------------------------------------
M093 Sonic Drive-In of Macon, Missouri M 80
- ----------------------------------------------------------------------------------
M100 Sonic Drive-In of Mountain Grove, Missouri M 51
- ----------------------------------------------------------------------------------
M117 Sonic Drive-In of Monroe, Louisiana (Winnsboro Road)
Partnership M 80
- ----------------------------------------------------------------------------------
M135 Sonic Drive-In of Monroe, Louisiana (Sterlington Road)
Partnership M 80
- ----------------------------------------------------------------------------------
M137 Sonic Drive-In of Maumelle Partnership M 60
- ----------------------------------------------------------------------------------
M148 SDI of Mt. Airy, North Carolina Partnership M 99 1
- ----------------------------------------------------------------------------------
M153 Sonic Drive-In of Marianna, Florida Partnership M 99 1
- ----------------------------------------------------------------------------------
M162 Sonic Drive-In of Missouri City, Texas Partnership M 80
- ----------------------------------------------------------------------------------
M174 Sonic Drive-In of Montgomery, Alabama (Bell and Vaughn)
Partnership M 80
- ----------------------------------------------------------------------------------
M175 SDI of Montgomery, Alabama (McGehee) Partnership M 80
- ----------------------------------------------------------------------------------
M176 Sonic Drive-In of Montgomery, Alabama (Atlanta
Highway) Partnership M 80
- ----------------------------------------------------------------------------------
M177 SDI of Milton, Florida Partnership M 99 1
- ----------------------------------------------------------------------------------
Ml78 SDI of Mobile, Alabama (Montlimar Drive) Partnership M 99 1
- ----------------------------------------------------------------------------------
M180 SDI of Mobile, Alabama (Government) Partnership M 99 1
- ----------------------------------------------------------------------------------
M181 SDI of Mobile, Alabama (Cottage Hill) Partnership M 99 1
- ----------------------------------------------------------------------------------
M182 SDI of Muscle Shoals, Alabama Partnership M 80
- ----------------------------------------------------------------------------------
N006 Sonic Drive-In, Northwest M 51
- ----------------------------------------------------------------------------------
N008 Sonic Drive-In of Neosho, Missouri M 51
- ----------------------------------------------------------------------------------
</TABLE>
<PAGE>
Majority Partnership Percentages
<TABLE>
CODE PARTNERSHIP NAME TYPE SRI % SII %
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
N010 Sonic Drive-In of Newport, Arkansas Partnership M 70
- ----------------------------------------------------------------------------------
N028 Sonic Drive-In of Newcastle, Oklahoma Partnership M 80
- ----------------------------------------------------------------------------------
N042 Sonic Drive-In of Norman, Oklahoma (East Lindsey)
Partnership M 60
- ----------------------------------------------------------------------------------
N044 Sonic Drive-In of Norman, Oklahoma (24th Avenue)
Partnership M 60
- ----------------------------------------------------------------------------------
N047 Sonic Drive-In of N. Wilkesboro, North Carolina
Partnership M 99 1
- ----------------------------------------------------------------------------------
N055 Sonic Drive-In of Norman, Oklahoma (Porter)
Partnership M 60
- ----------------------------------------------------------------------------------
N056 Sonic Drive-In of Norman, Oklahoma (West Lindsey)
Partnership M 80
- ----------------------------------------------------------------------------------
0016 Sonic Drive-In of Oklahoma City, Oklahoma (19th &
MacArthur) M 51
- ----------------------------------------------------------------------------------
0018 Sonic Drive-In of Oklahoma City, Oklahoma (50 th &
MacArthur) M 80
- ----------------------------------------------------------------------------------
0019 Sonic Drive-In of Oklahoma City, Oklahoma (SE 44th) M 51
- ----------------------------------------------------------------------------------
0027 Sonic Drive-In of Oklahoma City, Oklahoma (Meridian)
Partnership M 60
- ----------------------------------------------------------------------------------
0029 Sonic Drive-In of Oklahoma City (N.W. 23rd) M 60
- ----------------------------------------------------------------------------------
0030 Sonic Drive-In of Olathe, Kansas M 80
- ----------------------------------------------------------------------------------
0035 Sonic Drive-In of Oklahoma City, Oklahoma (SE 29th) M 60
- ----------------------------------------------------------------------------------
0042 Sonic Drive-In of Ozark, Missouri M 56
- ----------------------------------------------------------------------------------
0048 Sonic Drive-In Express of Oklahoma City, Oklahoma
(South Western) M 51
- ----------------------------------------------------------------------------------
0052 Sonic Drive-In of Oak Grove, Missouri General
Partnership M 80
- ----------------------------------------------------------------------------------
0053 Sonic Drive-In of Olathe, Kansas #2 (Santa Fe) M 60
- ----------------------------------------------------------------------------------
0055 Sonic Drive-In of Oklahoma City (119th & S. Western) M 60
- ----------------------------------------------------------------------------------
P017 SDI of Paragould, Arkansas (Kings Hwy.) Partnership M 99 1
- ----------------------------------------------------------------------------------
P027 Sonic Drive-In of Port Arthur, Texas (Gulfway)
Partnership M 80
- ----------------------------------------------------------------------------------
P031 Sonic Drive-In of Port Arthur, Texas (Memorial)
Partnership M 60
- ----------------------------------------------------------------------------------
P054 (Panama City, Florida - file missing) M 75
- ----------------------------------------------------------------------------------
P111 Sonic Drive-In of Panama City Beach, Florida
(Thomas Drive) Partnership M 75
- ----------------------------------------------------------------------------------
P112 Sonic Drive-In of Pensacola, Florida (9th Avenue)
Partnership M 99 1
- ----------------------------------------------------------------------------------
P113 Sonic Drive-In of Pensacola, Florida (Navy Blvd.)
Partnership M 99 1
- ----------------------------------------------------------------------------------
P115 Sonic Drive-In of Prattville, Alabama (E. Main)
Partnership M 80
- ----------------------------------------------------------------------------------
R018 Sonic Drive-In of Richmond, Texas Partnership M 70
- ----------------------------------------------------------------------------------
R021 Sonic Drive-In of McClennan, Texas M 61
- ----------------------------------------------------------------------------------
R041 Sonic Drive-In of Rainbow City, Alabama Partnership M 80
- ----------------------------------------------------------------------------------
R044 Sonic Drive-In of Raytown, Missouri General Partnership M 80
- ----------------------------------------------------------------------------------
R049 Sonic Drive-In of Rolla, Missouri M 60
- ----------------------------------------------------------------------------------
S024 Sonic Drive-In of Oklahoma City, Oklahoma (S.W. 29th)
Partnership M 60
- ----------------------------------------------------------------------------------
S051 Sonic Drive-In of Springfield, Missouri #2 Partnership M 80
- ----------------------------------------------------------------------------------
S060 Sonic Drive-In of Salem, Virginia M 51
- ----------------------------------------------------------------------------------
S088 Sonic Drive-In of Sugar Creek, Missouri M 56
- ----------------------------------------------------------------------------------
S092 Sonic Drive-In of St. Joseph, Missouri #1 Partnership M 99 1
- ----------------------------------------------------------------------------------
S103 Sonic Drive-In of Shreveport, Louisiana (Bert Kouns) M 60
- ----------------------------------------------------------------------------------
S115 Sonic Drive-In of Shreveport, Louisiana (West 70th) M 60
- ----------------------------------------------------------------------------------
S121 Sonic Drive-In of Shreveport (Youree Drive) M 66.66
- ----------------------------------------------------------------------------------
S129 Sonic Drive-In of Springfield, Missouri Partnership M 60
- ----------------------------------------------------------------------------------
S146 Sonic Drive-In of Stanleyville, North Carolina
Partnership M 99 1
- ----------------------------------------------------------------------------------
S147 Sonic Drive-In of St. Joseph, Missouri #2 Partnership M 99 1
- ----------------------------------------------------------------------------------
S148 Sonic Drive-In of Scottsboro, Alabama Partnership M 80
- ----------------------------------------------------------------------------------
S152 Sonic Drive-In of Sherwood, Arkansas Partnership M 60
- ----------------------------------------------------------------------------------
S154 Sonic Drive-In of Sugar Land, Texas M 80
- ----------------------------------------------------------------------------------
S160 Sonic Drive-In of Springfield, Missouri (S. Campbell)
Partnership M 80
- ----------------------------------------------------------------------------------
S164 Sonic Drive-In of Sullivan, Missouri Partnership M 80
- ----------------------------------------------------------------------------------
S167 Sonic Drive-In of Springfield, Missouri (West Sunshine)
Partnership M 80
- ----------------------------------------------------------------------------------
S179 SDI of Shalimar, Florida (Elgin Parkway) Partnership M 99 1
- ----------------------------------------------------------------------------------
T038 Sonic Drive-In #959, Tomball, Texas T038 M 60
- ----------------------------------------------------------------------------------
T041 Sonic Drive-In of Tuttle, 0klahoma M 51
- ----------------------------------------------------------------------------------
T068 SDI of Tazewell, Virginia Partnership M 99 1
- ----------------------------------------------------------------------------------
T061 SDI of Troy, Alabama (231 South) Partnership M 80
- ----------------------------------------------------------------------------------
U005 SDI of Union, Missouri Partnership M 80
- ----------------------------------------------------------------------------------
W001 Sonic Drive-In of Watonga, Oklahoma Partnership M 60
- ----------------------------------------------------------------------------------
W044 Sonic Drive-In of West Monroe, Louisiana P M 80
- ----------------------------------------------------------------------------------
</TABLE>
<PAGE>
Majority Partnership Percentages
<TABLE>
CODE PARTNERSHIP NAME TYPE SRI % SII %
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
W047 Sonic Drive-In of Wichita Falls, Texas Partnership M 55
- ----------------------------------------------------------------------------------
W053 Sonic Drive-In of Walnut Ridge Partnership M 60
- ----------------------------------------------------------------------------------
W054 Sonic Drive-In of Winnfield, Louisiana Partnership M 60
- ----------------------------------------------------------------------------------
W061 SDI of Winnsboro, Texas Partnership M 80
- ----------------------------------------------------------------------------------
W066 Sonic Drive-In of West Monroe, Louisiana (Thomas
Road West) Partnership M 60
- ----------------------------------------------------------------------------------
W080 Sonic Drive-In of Washington, Missouri General
Partnership M 60
- ----------------------------------------------------------------------------------
W086 SDI of Winston-Salem, North Carolina (Silas Creek)
Partnership M 99 1
- ----------------------------------------------------------------------------------
WO88 SDI of Webster, Texas Partnership M 80
- ----------------------------------------------------------------------------------
W090 SDI of Clemmons, North Carolina Partnership M 99 1
- ----------------------------------------------------------------------------------
</TABLE>
<PAGE>
ANNEX II
EXHIBIT "D" (COMPLIANCE CERTIFICATE)
COMPLIANCE CERTIFICATE
TO: Texas Commerce Bank National Association, as Agent
2200 Ross Avenue, Post Office Box 660197
Dallas, Texas 75266-0197
Attention: Matthew H. Hildreth
Ladies and Gentlemen:
The undersigned is the chief executive officer, the chief financial
officer, the corporate controller or the treasurer of SONIC CORP., a Delaware
corporation (the "Borrower "), and is authorized to make and deliver this
certificate pursuant to that certain Loan Agreement dated as of July 12,
1995, among the Borrower, each of the banks or other lending institutions
which is or may become a party thereto and the successors and permitted
assigns thereof (the "Banks"), and Texas Commerce Bank National Association,
a national banking association, as agent for itself and each of the other
Banks and as issuer of Letters of Credit thereunder (such Loan Agreement, as
the same has been and may be amended, supplemented or modified from time to
time, being hereinafter referred to as the "Loan Agreement"). All terms
defined in the Loan Agreement shall have the same meaning herein.
In connection with the foregoing and pursuant to the terms and provisions
of the Loan Agreement, the undersigned hereby certifies to the Agent and each
Bank that the following statements are true and correct:
A. REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained in Article VII of the Loan Agreement and in each of the other Loan
Documents are true and correct on and as of the date hereof with the same
force and effect as if made on and as of such date.
B. FINANCIAL COVENANTS. The information set forth below is true and
correct based upon the financial statements delivered herewith as of the last
day of the fiscal quarter next preceding the date of this certificate:
<TABLE>
<S> <C>
1. CURRENT RATIO as of ___________, 19___:
(a) Consolidated Current Assets as of such date $
----------
(b) Consolidated Current Liabilities as of such date $
----------
(c) Consolidated Current Ratio (Ratio of Line (a) to Line (b)) to
----- ----
(d) Minimum Consolidated Current Ratio required by Section 10.1
of Loan Agreement 1.00 to 1.00
2. CONSOLIDATED NET WORTH as of , 19 :
----------- --
(a) Stockholders' equity shown on consolidated balance
sheet of the Borrower and the Subsidiaries as of such date $
----------
(b) For each fiscal quarter of Borrower ended through such
date, beginning with the quarter ending May 31, 1997:
(i) the sum of 100% of the positive consolidated net
income of the Borrower and the Subsidiaries for
each such quarter $
----------
(ii) the sum of all cash dividends declared and paid by
the Borrower for each such quarter $
----------
(iii) the amount of all stock of the Borrower repurchased
by the Borrower during each such quarter $
----------
(c) Difference of Line (b)(i), minus Line (b)(ii), and minus
Line (b)(iii) $
----------
(d) With respect to any issuance, sale or other disposition of
any shares of capital stock or other equity securities of
Borrower of any class (or any securities convertible or
exchangeable for any such shares, or any rights, warrants or
<PAGE>
options to subscribe for or purchase any such shares), the
aggregate gross proceeds of such issuance, sale or other
disposition, less the following: (i) placement agent fees, (ii)
underwriting discounts and commissions, (iii) bank and other lender
fees, and (iv) legal fees and other expenses payable by the issuer
in connection with such issuance, sale or other disposition, to the
extent such proceeds are received by the Borrower $
----------
(e) Minimum Consolidated Net Worth required by Section 10.2 of
Loan Agreement ($105,000,000 plus Line (c) plus Line (d)) $
----------
3. FIXED CHARGE COVERAGE RATIO as of ___________, 19___ (for the
most recent four (4) fiscal quarters then ended:
(a) Consolidated EBITDA:
(i) net income (positive or negative) $
----------
(ii) to the extent actually deducted in calculating
net income:
(1) interest expense (including the interest portion
of Capital Lease Obligations) $
----------
(2) Income Taxes $
----------
(3) depreciation $
----------
(4) amortization $
----------
(5) other noncash charges $
----------
(6) Total of Lines (a)(ii)(1) through (5) $
----------
(iii) sum of Line (a)(i) plus Line (a)(ii)(6) $
----------
(iv) plus losses (or minus gains) from the sale of
fixed assets not in the ordinary course of
business and other extraordinary or nonrecurring
items $
----------
(v) Sum (or difference) of Line (a)(iii) and Line
(a)(iv) $
----------
(vi) Income Taxes paid $
----------
(vii) Difference of Line (a)(v) minus Line (a)(vi) $
----------
(b) The sum of the following for the Borrower and the Subsidiaries
on a consolidated basis:
(i) Operating Capital Expenditures $
----------
(ii) cash interest expense (including the interest portion
of Capital Lease Obligations and Seller Financing) $
----------
(iii) scheduled principal payments of Consolidated Funded
Debt (including without limitation Capital Lease
Obligations and Seller Financing) $
----------
(iv) aggregate amount of cash dividends paid $
----------
(v) aggregate amount paid for repurchases by the Borrower
or any Subsidiary of stock of such Person (except
Permitted Stock Repurchases) $
----------
(vi) amount equal to 1/7 of the aggregate amount of
all Advances outstanding on the last day of such
fiscal quarter $
----------
(vii) Total of Lines (b)(i) through (vi) $
----------
(c) Ratio of Line (a)(vii) to Line (b)(vii) to
----- ----
(d) Minimum Fixed Charge Coverage Ratio required by
Section 10.3 of Loan Agreement 1.15 to 1.00
4. CONSOLIDATED FUNDED DEBT TO CONSOLIDATED EBITDA as of
________, 19___ (for the most recent four (4) fiscal quarters
then ended):
(a) On a consolidated basis for the Parent and the Subsidiaries
in accordance with GAAP (without duplication),
(i) all obligations for borrowed money (as a direct obligor
on a promissory note, bond, debenture or other similar
instrument)
<PAGE>
as of the last day of the fiscal quarter most
recently ended $
----------
(ii) all Capital Lease Obligations as of the last day of
the fiscal quarter most recently ended $
----------
(iii) all obligations for the deferred purchase price
of property $
----------
(iv) all liabilities in connection with letters of credit $
----------
(v) Seller Financing $
----------
(vi) Consolidated Funded Debt (the total of Lines (a)(i)
through (v)) $
----------
(b) Consolidated EBITDA (Line (3)(a)(v) above) $
----------
(c) Ratio of Line (a)(v) to Line (b) to
----------
(d) Maximum Consolidated Funded Debt to Consolidated EBITDA
permitted by Section 10.4 of Loan Agreement 2.00 to 1.00
5. OUTSTANDING GUARANTEES:(1)
(a) Aggregate amount of Guarantees by Borrower or any of the
Subsidiaries of Debt or of other obligations outstanding as
of _______________, 19___: $
----------
(b) Aggregate amount of outstanding Guarantees permitted by
Section 9.1(h) $
----------
</TABLE>
The undersigned hereby certifies that (a) the above information and
calculations are true and correct and not misleading as of the date hereof,
(b) Borrower has delivered to the Agent and the Banks all financial
information and reports required by the Loan Agreement by the dates provided
therein, and (c) no Default has occurred and is continuing.
By:
---------------------------------
Name:
---------------------------
Title:
---------------------------
Dated as of:
-----------------
- --------------
(1) Item 5 is required to be completed only for the Compliance Certificate
delivered for Borrower's fiscal year-end.
<PAGE>
ANNEX III
FORM OF NOTE
PROMISSORY NOTE
$< DOLLAR > Dallas, Texas June 19, 1997
FOR VALUE RECEIVED, the undersigned, SONIC CORP., a Delaware corporation
("Maker"), hereby promises to pay to the order of < BANK > ("Payee"), at the
offices of Texas Commerce Bank National Association, as agent (together with
any successor as provided in the Agreement, hereinbelow defined, the
"Agent"), at 1111 Fannin St., 9th Floor, MS46, Houston, Texas 77002, on the
dates hereinafter specified, in lawful money of the United States of America,
the principal sum of < FIGURE > DOLLARS ($< DOLLAR > ), or so much thereof as
may be advanced and outstanding hereunder, together with interest as
hereinafter specified.
This Note is one of the Notes referred to in that certain Loan Agreement
dated as of July 12, 1995, among Maker, Payee, Agent and each of the other
banks or lending institutions which is or may from time to time become a
signatory thereto and any successors or permitted assigns thereof, as amended
by that certain First Amendment to Loan Agreement dated as of August 16,
1996, as further amended by that certain Second Amendment to Loan Agreement
dated as of September 27, 1996, and as further amended by that certain Third
Amendment to Loan Agreement of even date herewith (such Loan Agreement, as
the same has been or may be amended, modified, or supplemented from time to
time, being referred to herein as the "Agreement"). Capitalized terms used
and not otherwise defined in this Note have the respective meanings specified
in the Agreement. This Note is in renewal and modification of that certain
Promissory Note dated August 16, 1996, executed by Maker and payable to the
order of Payee, which Promissory Note was in renewal and modification of that
certain Promissory Note dated July 12, 1995, executed by Maker and payable to
the order of Payee.
The Agreement, among other things, contains provisions for acceleration of
the maturity of this Note upon the happening of certain stated events and
also for prepayments of Advances prior to the maturity of this Note upon the
terms and conditions specified in the Agreement.
This Note evidences Advances made by the Agent and the Banks to Maker
under the Agreement. In addition, as provided in Section 3.4 of the
Agreement, each payment made by Agent pursuant to a drawing under a Letter of
Credit shall constitute and be deemed an Advance by the Banks to Maker,
including an Advance by Payee to Maker under this Note, in accordance with
the terms of the Agreement. Maker may borrow, repay and reborrow hereunder
upon the terms and conditions specified in the Agreement.
The outstanding principal balance hereof shall bear interest at a varying
rate per annum which shall from day to day be equal to the lesser of the
Maximum Rate or the Applicable Rate. If
<PAGE>
at any time the Applicable Rate shall exceed the Maximum Rate, thereby
causing the interest rate hereon to be limited to the Maximum Rate, then any
subsequent reduction in the Applicable Rate shall not reduce the rate of
interest hereon below the Maximum Rate until the total amount of interest
accrued hereon equals the amount of interest which would have accrued hereon
if the Applicable Rate had at all times been in effect.
Accrued and unpaid interest on this Note shall be due and payable on the
dates specified in Section 2.4 of the Agreement. All principal of this Note
shall be due and payable on the Termination Date. All past due principal and
interest shall bear interest at the Default Rate. Interest payable at the
Default Rate shall be payable from time to time on demand.
Interest shall be computed on the basis of a year of 360 days and the
actual number of days elapsed (including the first day, but excluding the
last day) unless such calculation would result in a usurious rate, in which
case interest shall be calculated on the basis of 365 or 366 days, as the
case may be.
Notwithstanding anything to the contrary contained herein, no provisions
of this Note shall require the payment or permit the collection of interest
in excess of the Maximum Rate. If any excess of interest in such respect is
herein provided for, or shall be adjudicated to be so provided, in this Note
or otherwise in connection with this loan transaction, the provisions of this
paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the
excess amount of such interest, or any other excess sum paid for the use,
forbearance or detention of sums loaned pursuant hereto. If for any reason
interest in excess of the Maximum Rate shall be deemed charged, required or
permitted by any court of competent jurisdiction, any such excess shall be
applied as a payment and reduction of the principal of indebtedness evidenced
by this Note; and, if the principal amount hereof has been paid in full, any
remaining excess shall forthwith be paid to Maker. In determining whether or
not the interest paid or payable exceeds the Maximum Rate, Maker and Payee
shall, to the extent permitted by applicable law, (i) characterize any
non-principal payment as an expense, fee, or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, and (iii)
amortize, prorate, allocate, and spread in equal or unequal parts the total
amount of interest throughout the entire contemplated term of the
indebtedness evidenced by this Note so that the interest for the entire term
does not exceed the Maximum Rate.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA. THIS NOTE IS PERFORMABLE IN DALLAS COUNTY, TEXAS.
Maker and each surety, guarantor, endorser, and other party ever liable
for payment of any sums of money payable on this Note jointly and severally
waive notice, presentment, demand for payment, protest, notice of protest and
non-payment or dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, diligence in collecting, grace, and
all other
<PAGE>
formalities of any kind, except any notice and grace periods provided in the
Loan Agreement, and consent to all extensions without notice for any period
or periods of time and partial payments, before or after maturity, all
without prejudice to the holder. The holder shall similarly have the right
to deal in any way, at any time, with one or more of the foregoing parties
without notice to any other party, and to grant any such party any extensions
of time for payment of any of said indebtedness, or to grant any other
indulgences or forbearances whatsoever, without notice to any other party and
without in any way affecting the personal liability of any party hereunder.
Maker hereby authorizes the holder hereof to endorse on the Schedule
attached to this Note or any continuation thereof or to record in its
internal records all advances made to Maker hereunder and all payments made
on account of the principal thereof, which endorsements shall be prima facie
evidence as to the outstanding principal amount of this Note; provided,
however, any failure by the holder hereof to make any endorsement shall not
limit or otherwise affect the obligations of Maker under the Agreement or
this Note.
SONIC CORP.
By:
---------------------------------
W. Scott McLain
Treasurer
<PAGE>
ANNEX IV
MATTERS TO BE ADDRESSED IN OPINION OF COUNSEL
All capitalized terms used and not otherwise defined herein shall have
their respective meanings as set forth in the Agreement (as defined in the
Third Amendment to Loan Agreement [the "Amendment"] to which this is an
Exhibit), except that, as used in this Annex IV only, the terms "Guarantor"
and "Guarantors" shall not include the Partnerships.
1. The Borrower is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware. The Borrower is
qualified to do business in and is in good standing under the laws of the
State of Oklahoma.
2. Each Guarantor (except Drive-In Trust) is a corporation duly organized,
validly existing, and in good standing under the laws of the state of its
incorporation.
3. Drive-In Trust is a business trust duly organized, validly existing,
and in good standing under the laws of the State of Pennsylvania.
4. The Borrower has the corporate power and authority to execute, deliver,
and perform the Amendment, the Notes, and the other Loan Documents to which
the Borrower is a party. The execution, delivery, and performance by the
Borrower of the Amendment, the Notes, and the other Loan Documents to which
the Borrower is a party and compliance with the terms and provisions thereof
have been duly authorized by all requisite corporate action on the part of
the Borrower and do not and will not (a) violate or conflict with, or result
in a breach of, or require any consent under (i) the certificate of
incorporation or bylaws of the Borrower, (ii) any applicable law, rule, or
regulation or any order, writ, injunction, or decree of any Governmental
Authority or arbitrator, or (iii) any agreement or instrument to which the
Borrower is a party or by which Borrower or any of its property is bound or
subject, or (b) constitute a default under any such agreement or instrument,
or result in the creation or imposition of any Lien upon any of the revenues
or assets of the Borrower.
5. Each Guarantor has the power and authority to execute, deliver, and
perform the Amendment and the other Loan Documents to which such Guarantor is
a party. The execution, delivery, and performance by each Guarantor of the
Amendment and the other Loan Documents to which such Guarantor is a party and
compliance with the terms and provisions thereof have been duly authorized by
all requisite action on the part of such Guarantor and do not and will not
(a) violate or conflict with, or result in a breach of, or require any
consent under (i) the articles or certificate of incorporation, declaration
of trust, bylaws or other organizational documents of such Guarantor, (ii)
any applicable law, rule, or regulation or any order, writ, injunction, or
decree of any Governmental Authority or arbitrator, or (iii) any agreement or
instrument to which such Guarantor is a party or by which it or any of its
property is bound or subject, or (b) constitute a default under any such
agreement or instrument, or result in the creation or imposition of any Lien
upon any of the revenues or assets of such Guarantor.
<PAGE>
6. The Amendment, the Notes, and the other Loan Documents to which
Borrower is a party have been duly executed and delivered by Borrower. The
Amendment, the Agreement as amended by the Amendment, and the other Loan
Documents to which Borrower is a party constitute the legal, valid, and
binding obligations of Borrower enforceable against Borrower in accordance
with their respective terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium, or other
similar laws relating to the enforcement of creditors' rights generally.
7. The Amendment and the other Loan Documents to which each Guarantor is a
party have been duly executed and delivered by such Guarantor and constitute
the legal, valid, and binding obligations of such Guarantor enforceable
against such Guarantor in accordance with their respective terms, except as
the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, or other similar laws relating to the enforcement
of creditors' rights generally.
8. There are no legal or arbitral proceedings, and no proceedings by or
before any governmental or regulatory authority or agency, pending or, to our
knowledge, threatened against or affecting Borrower or any Subsidiary or any
properties or rights of any such Person, which if adversely determined, would
have a Material Adverse Effect.
9. No authorization, consent, or approval of, or filing or registration
with, any Governmental Authority is required in connection with the
execution, delivery, or performance by Borrower of the Amendment, the Notes,
and the other Loan Documents to which Borrower is a party, or the execution,
delivery, and performance by any Guarantor of the Amendment and the other
Loan Documents in which such Guarantor is a party.
10. Neither the Borrower nor any Subsidiary is an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
<PAGE>
Exhibit 15.01
The Board of Directors
Sonic Corp.
We are aware of the incorporation by reference in the Registration Statement
(Form S-8 No. 333-26359) pertaining to the Sonic Corp. Savings and Profit
Sharing Plan, the Registration Statement (Form S-8 No. 33-40987) pertaining
to the 1991 Sonic Corp. Directors' Stock Option Plan, the Registration
Statement (Form S-8 No. 33-40988) pertaining to the 1991 Sonic Corp. Stock
Purchase Plan and 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, and the related Prospectuses of our report dated June 25, 1997 relating
to the unaudited condensed consolidated interim financial statements of Sonic
Corp. which are included in its Form 10-Q for the quarter ended May 31, 1997.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a
part of the registration statements prepared or certified by accountants
within the meaning of Section 7 or 11 of the Securities Act of 1933.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
June 25, 1997
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