Sonic 2005 Annual Report Download - page 48

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, 2005, 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.
Stock Repurchase Program
The Company has a stock repurchase program that is authorized by the Board of Directors. On April 7, 2005, the
Board of Directors approved an increase in the Company’s stock repurchase program from $60,000 to $150,000 and
extended the program through August 31, 2006. Pursuant to this program, the Company acquired 1,344,273 shares at
an average price of $31.48 for a total cost of $42,324 during fiscal year 2005. As of August 31, 2005, the remaining
amount authorized for repurchases was $107,676.
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
$2,997, $3,070, and $2,038 during fiscal years 2005, 2004 and 2003, 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 $8,018 at August 31,
2005 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. Based on the
information currently available, management believes that all claims currently pending are either covered by
insurance or would not have a material adverse effect on the Company’s business or financial condition.
The Company has an agreement with GE Capital Franchise Finance Corporation (”GEC”), pursuant to which GEC
made loans to existing Sonic franchisees who met certain underwriting criteria set by GEC. Under the terms of the
agreement with GEC, the Company provided a guarantee of 10% of the outstanding balance of loans from GEC to the
Sonic franchisees, limited to a maximum amount of $5,000. As of August 31, 2005, the total amount guaranteed under
the GEC agreement was $3,793. The Company ceased guaranteeing new loans under the program during fiscal year
2002 and has not been required to make any payments under its agreement with GEC. Existing loans under
guarantee will expire through 2012. In the event of default by a franchisee, the Company has the option to fulfill the
franchisee’s obligations under the note or to become the note holder, which would provide an avenue of recourse
with the franchisee under the notes.
The Company has obligations under various lease agreements with third-party lessors related to the real estate
for Partner Drive-Ins that were sold to franchisees. Under these agreements, the Company remains secondarily liable
Notes to Consolidated Financial Statements
August 31, 2005, 2004 and 2003 (In thousands, except share data)
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