Sonic 2002 Annual Report Download - page 38

Sonic 02 36
Notes to Consolidated Financial Statements
August 31, 2002, 2001 and 2000 (In thousands, except share data)
Stockholder Rights Plan
The company has a stockholder rights plan which is designed to deter coercive takeover tactics and to prevent a
potential acquirer from gaining control of the company without offering a fair price to all of the company’s stockholders.
The plan provided for the issuance of one common stock purchase right for each outstanding share of the company’s
common stock. Each right initially entitles stockholders to buy one unit of a share of preferred stock for $85. The
rights will be exercisable only if a person or group acquires beneficial ownership of 15% or more of the company’s
common stock or commences a tender or exchange offer upon consummation of which such person or group would
beneficially own 15% or more of the company’s common stock. At August 31, 2002, 50,000 shares of preferred stock
have been reserved for issuance upon exercise of these rights.
If any person becomes the beneficial owner of 15% or more of the company’s common stock, other than pursuant to
a tender or exchange offer for all outstanding shares of the company approved by a majority of the independent directors
not affiliated with a 15%-or-more stockholder, then each right not owned by a 15%-or-more stockholder or related
parties will then entitle its holder to purchase, at the right’s then current exercise price, shares of the company’s common
stock having a value of twice the right’s then current exercise price. In addition, if, after any person has become a 15%-
or-more stockholder, the company is involved in a merger or other business combination transaction with another person
in which the company does not survive or in which its common stock is changed or exchanged, or sells 50% or more of
its assets or earning power to another person, each right will entitle its holder to purchase, at the right’s then current
exercise price, shares of common stock of such other person having a value of twice the right’s then current exercise
price. Unless a triggering event occurs, the rights will not trade separately from the common stock.
The company will generally be entitled to redeem the rights at $0.01 per right at any time until 10 days (subject to
extension) following a public announcement that a 15% position has been acquired. The rights expire on June 16, 2007.
13. Net Revenue Incentive Plan
The company has a Net Revenue Incentive Plan (the “Incentive Plan”), as amended, which applies to certain
members of management and is at all times discretionary with the company’s board of directors. If certain
predetermined earnings goals are met, the Incentive Plan provides that a predetermined percentage of the employee’s
salary may be paid in the form of a bonus. The company recognized as expense incentive bonuses of $2,264, $1,876, and
$1,606 during fiscal years 2002, 2001 and 2000, respectively.
14. Employment Agreements
The company has employment contracts with its Chairman and Chief Executive Officer and several members of its
senior management. These contracts provide for use of company automobiles or related allowances, medical, life and
disability insurance, annual base salaries, as well as an incentive bonus. These contracts also contain provisions for
payments in the event of the termination of employment and provide for payments aggregating $5,734 at August 31,
2002 due to loss of employment in the event of a change in control (as defined in the contracts).
15. Contingencies
The company is involved in various legal proceedings and has certain unresolved claims pending. The company’s
ultimate liability, if any, for the aggregate amounts claimed cannot be determined at this time. Management believes
that all claims currently pending are either adequately covered by insurance or would not have a material adverse effect
on the company’s business or financial condition.
The company has entered into agreements with several lenders pursuant to which such lenders may make loans to
qualified franchisees. Under the terms of these agreements, the company provides certain guarantees of a portion of the
outstanding balances of the loans to franchisees. In addition, the company has other repurchase obligations related to a
franchisee’s restaurant development loans. At August 31, 2002 these guarantees and repurchase obligations totaled
$5,796, none of which were in default.