The following table sets forth certain information regarding equity compensation plans as of July 2, 2005.June 28, 2008.
In | Since May 2004, the Compensation and Stock Option Committee approved, and the Board of Directors ratified, Severance Agreements for the benefit of Messrs. Schnieders Lankford, Stubblefield, Accardi and Spitler.Termination For Cause. Under the terms of theseSpitler have had severance agreements, if the executive officer’s employment is terminated by reason of death or permanent disability, by the Company for cause, or by the executive officer without good reason, he is entitled to receive (i) a payment equal to his base salary through the date of death or termination to the extent not already paid, (ii) his actual earned bonus for any period not already paid, (iii) accrued but unused vacation, and (iv) reimbursable business expenses.
Termination Without Cause or For Good Reason. If the executive officer’s employment is terminated by the Company without cause, or by the executive officer for good reason (as those terms are defined in the Severance Agreements), the executive officer will be entitled to receive (i) accrued base salary through the date of termination, (ii) his actual earned bonus for any period not already paid, (iii) accrued but unused vacation, (iv) reimbursable business expenses, and (v) an amount, payable in 24 equal monthly installments, equal to the sum of two years’ base salary plus two years’ MIP bonus before any elective deferrals (based on his average MIP bonus for the last five years). In addition, if the termination occurs prior to the end of a year as to which the Company determines that the executive officer would have earned a bonus but for the termination, the executive officer shall receive a pro rata share of the cash portion of the bonus he would have earned (excluding deferred or matching amounts). If the termination occurs before age 60, the executive officer will be deemed to be age 60 under the SERP, which will result in the executive becoming 50% vested in his accrued SERP benefit. The executive officer will also receive a lump sum payment equal to 100% of his unvested and vested benefits under the EDCP, including deferrals and company matches thereon.
Excise Taxes. The Severance Agreements also provide that if the executive officer incurs excise tax due to the application of Section 280G of the Internal Revenue Code of 1986 regarding golden parachute payments, the executive officer is entitled to an additional cash payment so that he will be in the same after-tax position as if the excise taxCommittee felt were not applicable.
General. The Severance Agreements prohibit the executive officers from competing with the Company or directly or indirectly soliciting customers or employees for a period of two years after termination. The Severance Agreements also require each executive officer to release any claims against SYSCO and its affiliates.
On June 14, 2005, the Company and Mr. Lankford entered into a Separation Agreement and Mutual Release pursuant to which Mr. Lankford resigned from his positions as President, Chief Operating Officer and Director as of July 2, 2005 and retired on October 1 (“Separation Date”). The agreement amended his executive severance agreement and entitled him to receive the following benefits and payments:
| | | | • | Cash lump sum payment on October 1, 2005 equal to $6,197,696.25 representing the total of (i) 24 months of his base salary, (ii) two times his average annual bonus for fiscal years 2001 through 2005, (iii) 24 months of COBRA, (iv) earned but unused vacation time, and (v) $810,606; | | | • | Fully vested (100%) SERP benefits to be paid monthly (approximately $94,946 per month) beginning six months after the Separation Date under a joint and2/3 survivor benefit with a 10-year certain guarantee; |
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| | | | • | Fully vested (100%) EDCP benefits, including all Company matching contributions, to be paid annually for 15 years (approximately $651,611 per year including interest), beginning six months after the Separation Date; and | | | • | Vested benefits under SYSCO’s 401(k) plan and retirement plan and reimbursement of certain legal fees. |
Retirement Plan
We have a defined benefit retirement plan (the “Retirement Plan”) that was most recently amended and restated on November 19, 2001, generally effective as of January 1, 1997 with various provisions having different effective dates, as required by various laws. The amended and restated Retirement Plan also incorporated certain discretionary changes in plan provisions effective May 15, 1998 and April 1, 2000. The restated Retirement Plan was further amended effective January 1, 2002, January 1, 2003, October 1, 2004, March 28, 2005, and July 1, 2005,necessary in order to comply with various lawsretain executives in a competitive environment. These agreements help smooth any leadership transitions and regulations or other guidance published by the Internal Revenue Service and the U.S. Department of Labor,enable our executives to clarify and simplify the Retirement Plan’s administration, and to add to the Retirement Plan’s coverage (i) new participating employers, and (ii) groups of employees newly eligible pursuant to the terms of certain collective bargaining agreements. In addition to benefits accrued to date which are set forth below, each Named Executive Officer will accrue benefits in the future in accordance with the table below:
Pension Plan Table (1)(2)(3)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Years of Credited Service | | Career Average Compensation Earned | | | | On And After July 3, 2005(4) | | 10 | | | 15 | | | 20 | | | 25 | | | 30 | | | 35 | | | | | | | | | | | | | | | | | | | | | $100,000 | | $ | 15,000 | | | $ | 22,500 | | | $ | 30,000 | | | $ | 37,500 | | | $ | 45,000 | | | $ | 52,500 | | | 150,000 | | | 22,500 | | | | 33,750 | | | | 45,000 | | | | 56,250 | | | | 67,500 | | | | 78,750 | | | 200,000 | | | 30,000 | | | | 45,000 | | | | 60,000 | | | | 75,000 | | | | 90,000 | | | | 105,000 | | | 250,000 | | | 37,500 | | | | 56,250 | | | | 75,000 | | | | 93,750 | | | | 112,500 | | | | 131,250 | |
| | (1) | Assumes the annual benefit is payable for five years certain and life thereafter andconsider corporate transactions that retirement age is 65. Retirement Plan benefits are not subject to reduction by Social Security or any other offsets. | | (2) | Current law and regulations limit retirement benefits to $167,889 for calendar 2005 if they are payable for five years certain and life thereafter (assuming retirement age of 65). This limitation applies to total retirement benefits under the Retirement Plan as determined by adding benefits accrued with respect to periods of employment with SYSCO both before and after July 2, 2005. The Pension Plan Table does not reflect this limitation. | | (3) | In addition, all MIP participants, including the Named Executive Officers, are provided with a Supplemental Executive Retirement Plan which is designed, generally, to provide annual payments to participants who satisfy certain years of service, years of MIP participation, and age requirements that, in combination with all SYSCO and other qualified retirement plan benefits (to the extent not derived from participant contributions to such plans) and Social Security payments available to the participant upon retirement, are equal to 50% of a participant’s final average annual compensation (as determined over the period specified in the Supplemental Executive Retirement Plan). | | (4) | Compensation for benefit calculation purposes is limited by law to $210,000 for calendar 2005 and later years subject to cost-of-living adjustments. Compensation limitations are not taken into account in the Pension Plan Table. |
To the extent included in W-2 income, all amounts shown in the Summary Compensation Table (plus certain pre-tax contributions), other than deferred bonus and those amounts reported in the “All Other Compensation” column, are utilized to compute career average compensation, subject to the compensation limitations noted in footnote (4).
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The Retirement Plan provides for an annual benefit payable monthly for five years certain and life thereafter, equal to:
| | | | • | the normal retirement benefit that accrued under the prior plan before July 2, 1989, plus | | | • | an amount equal to 11/2% of the participant’s average monthly eligible compensation (based on the participant’s W-2 earned income, plus certain pre-tax contributions) paid on and after July 2, 1989 times years and partial years of credited service performed on and after July 2, 1989. |
In the event of a participant’s death while actively in our employ or on leave of absence or layoff status before his or her normal retirement age (age 65) or, if earlier, after becoming eligible for a benefit that has not commenced, and if the participant has five or more years of credited service, a death benefit is payable monthly to the participant’s beneficiary during a 10-year period certain and, if applicable, for the beneficiary’s life thereafter. The single-sum value of the death benefit is actuarially equivalent to the single-sum value of the monthly pension accrued by the deceased participant prior to his or her death or earlier termination of employment, with interest credited from the participant’s date of termination through his date of death, if applicable. The same death benefit, calculated on the single sum value of the participant’s monthly pension amount earned at the date of the participant’s death, is available to the beneficiary of a participant who dies while actively in our employ or on leave of absence or layoff status after his or her 65th birthday.
The Named Executive Officers had accrued the following annual benefits and credited benefit service under the Retirement Plan as of July 2, 2005:
| | | | • | Mr. Schnieders — $53,926 and 23 years; | | | • | Mr. Lankford — $56,514 and 24 years(*); | | | • | Mr. Stubblefield — $42,172 and 16 years; | | | • | Mr. Accardi — $57,563 and 29 years; and | | | • | Mr. Spitler — $48,082 and 18 years. |
As of July 2, 2005, the Named Executive Officers also had anticipated future service to age 65 as follows:
| | | | • | Mr. Schnieders — 8 years; | | | • | Mr. Lankford — 7 years (*); | | | • | Mr. Stubblefield — 6 years; | | | • | Mr. Accardi — 8 years; and | | | • | Mr. Spitler — 9 years. |
| | (*) | Mr. Lankford resigned as an executive officer on July 2, 2005. See “Severance Agreements” above for a description of the severance payments and retirement benefits paid and to be paid to Mr. Lankford subsequent to the end of fiscal 2005. |
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Stock Performance Graph
The following stock performance graph compares the performance of SYSCO’s Common Stock to the S&P 500 Index and to a peer group for SYSCO’s last five fiscal years. The members of the peer group are Nash Finch Company, Supervalu, Inc. and Performance Food Group Company. Fleming, which had been included in the peer group in the past, sold its foodservice operations in August 2003.
The companies in the peer group were selected because they comprise a broad group of publicly held corporations with food distribution operations similar in some respects to our operations. Performance Food Group is a foodservice distributor and the other members of the peer group are in the businessbest interests of distributing grocery products to retail supermarkets. We consider the peer group to be a more representative peer group than the “S&P Consumer Staples (Food Distributors)” index maintained by Standard & Poor’s Corporation that consistsstockholders and other constituents of SYSCO and Supervalu, Inc. becausewithout undue concern over whether the peer group includes an additional foodservice distributor and represents a broader index.
The returns of each member oftransactions may jeopardize the peer group are weighted according to each member’s stock market capitalization as of the beginning of each period measured. The graph assumes that the value of the investment in our Common Stock, the S&P 500 Index, and the peer group was $100 on the last trading day of fiscal 2000, and that all dividends were reinvested. Performance data for SYSCO, the S&P 500 Index and for each member of the peer group is provided as of the last trading day of each of our last five fiscal years.
Cumulative Total Return
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | 6/30/00 | | | 6/29/01 | | | 6/28/02 | | | 6/27/03 | | | 7/2/04 | | | 7/1/05 | | | | SYSCO CORPORATION | | | 100.00 | | | | 130.29 | | | | 132.15 | | | | 145.54 | | | | 174.41 | | | | 184.74 | | S&P 500 | | | 100.00 | | | | 85.17 | | | | 69.85 | | | | 70.03 | | | | 83.41 | | | | 88.68 | | PEER GROUP | | | 100.00 | | | | 115.01 | | | | 153.38 | | | | 153.14 | | | | 169.50 | | | | 192.62 | |
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REPORT OF THE AUDIT COMMITTEE
The Audit Committee operates under a written charter adopted by the Board of Directors, a copy of which is attached hereto as Annex A. Messrs. Hafner, Merrill and Tilghman (Chairman) served on the Audit Committee during the full fiscal 2005 year, and Mr. Cassaday has served on the Audit Committee since his election to the Board in November 2004. Each member of the Audit Committee is financially literate and each member is independent as defined in the New York Stock Exchange’s listing standards and Section 10A(m)(3) of the Securities Exchange Act of 1934. None of the Audit Committee members serve on the audit committees of more than two other companies. The Audit Committee held 12 meetings during fiscal 2005. The Board has determined that Mr. Hafner meets the definition of an audit committee financial expert as promulgated by the Securities and Exchange Commission.
The function of the Audit Committee is to oversee and report to the Board with respect to various auditing and accounting matters, including the selection of the independent public accountants, the scope of audit procedures, the nature of all audit and non-audit services to be performed by the independent public accountants, the fees to be paid to the independent public accountants, the performance of the independent public accountants and the Company’s accounting practices and policies.
The Audit Committee has met and held discussions with management and the independent public accountants. Management represented to the Audit Committee that SYSCO’s consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Audit Committee has reviewed and discussed the audited consolidated financial statements with management and the independent public accountants. The Audit Committee also discussed with the independent public accountants the matters required to be discussed by Statement on Auditing Standards No. 61. SYSCO’s independent public accountants provided to the Audit Committee the written disclosures and the letter required by the Independence Standards Board’s Standard No. 1, and the Audit Committee discussed with the independent public accountants that firm’s independence.
Based on the Audit Committee’s discussion with management and the independent public accountants and the Audit Committee’s review of the representations of management and the report of the independent public accountants, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in SYSCO’s Annual Report on Form 10-K for the year ended July 2, 2005 filed with the Securities and Exchange Commission.
| executives’ own employment. | | | AUDIT COMMITTEE | | | John M. Cassaday | | Joseph A. Hafner, Jr. | | Richard G. Merrill | | Richard G. Tilghman, Chairman |
Fees Paid to Independent Public AccountantsFollowing the recent changes to our compensation plans, we will continue to monitor the overall competitiveness of our compensation package. Overall, we believe our current compensation programs contain the appropriate mix of fixed and retirement compensation versus pay for performance incentives, and recognize each executive’s scope of responsibilities, demonstrated leadership abilities, management experience and effectiveness. Our compensation structure also motivates key executives to achieve both superior short-term and long-term sustained results. External and Internal Analysis For the compensation package to be effective, the Committee must balance the components so that they are both externally competitive and internally equitable. SYSCO is the largest food service distributor in North America, and other companies in the food service industry are significantly smaller. We believe that these smaller businesses would not create a satisfactory comparison group due to the greater skill levels and abilities required to manage a company of SYSCO’s size. Absent an industry peer group, the Committee concluded that the most comparable companies with respect to executive pay are companies whose business size and complexity are similar to ours and with which we compete for top executive positions. Therefore, the peer group developed for the executive compensation analysis is not the same peer group that is used in the stock performance graph in our annual report to stockholders. In order to implement these conclusions regarding external comparison of executive pay, the Committee instructed Mercer to construct a peer group for SYSCO’s executive compensation analysis. First created in 2004 and then revised in May 2007, the peer group is composed of publicly-traded U.S. companies with a revenue range of approximately one-half to three times SYSCO’s revenues that share similar business characteristics with SYSCO. In particular, Mercer examined industry leaders and other high-performing companies in logistics and distribution businesses that involve a high volume of relatively low-margin products and employ a large sales force. The Committee annually reviews the peer group based on information provided by Mercer to ensure continued applicability, considering such factors as the size and performance of each possible peer company, including sales growth, return on capital, total stockholder return and growth in earnings per share. The peer group currently consists of the 14 companies identified below: During fiscal 2005 and 2004, SYSCO incurred the following fees for services performed by Ernst & Young LLP:
| | | | | | | | | | | Fiscal 2005 | | | Fiscal 2004 | | | | | | | | | Audit Fees | | $ | 3,343,900 | | | $ | 2,312,800 | | Audit Related Fees(1) | | | 164,441 | | | | 421,541 | | Tax Fees(2) | | | 2,522,612 | | | | 2,689,970 | | All Other Fees | | | — | | | | — | |
| | | | |
• AmerisourceBergen Corporation | | • Express Scripts Inc. | | • Pepsico Inc. | • Best Buy Company, Inc. | | • FedEx Corp. | | • Target Corp. | • Cardinal Health Inc. | | • Home Depot Inc. | | • Tyson Foods, Inc. | • Costco Wholesale Corp. | | • Lowe’s Companies, Inc. | | • Walgreen Company | • Dell Inc. | | • McKesson Corp. | | | (1) | Audit related fees in fiscal 2005 included $64,350 related to acquisition due diligence, $81,310 for the audit of certain benefit plans and $18,781 for other audit-related services. Audit related fees in fiscal 2004 |
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|
Peer group compensation data is limited to information that is publicly reported and, to the extent possible, the Committee uses it to benchmark the major components of compensation for our named executive officers. In May 2007, Mercer prepared a study that used the peer group information to benchmark the base salary, total cash compensation, total mid- and long-term incentives, total direct compensation and total direct compensation plus retirement benefits of each of the named executive officers. This report was prepared prior to a May 2007 change in the compensation peer group, so it included General Mills and 22
did not include AmerisourceBergen. With respect to Mr. Carrig, the peer group information was supplemented with survey data from the Mercer 2007 Fortune 500 Survey to provide a functional match for his position. Any reference to peer group data with respect to Mr. Carrig is a reference to a blend of this peer group and survey data. For purposes of the May 2007 Mercer report, total cash compensation was defined as base salary plus the annual MIP bonus, including the stock match portion, but excluding the effect of any supplemental bonus or reduction. Total direct compensation was defined as total cash compensation plus the value of stock options and cash performance unit payouts. The supplemental bonusand/or any supplemental reduction was not taken into account in connection with Mercer’s May 2007 study. The Committee believes this was appropriate because, although the May 2007 study addressed target compensation as well as actual historical compensation, the supplemental bonus is only paid for performance that exceeds expectations and therefore is over and above the target level of performance. Furthermore, the historical compensation considered by Mercer in May 2007 was that paid in fiscal 2006, with respect to which no supplemental bonuses were awarded. To determine an annualized cost of providing retirement benefits, Mercer projected benefits to retirement age 60 for each named executive officer and each comparable peer group company executive, using each company’s specific pay mix, and then determined the amount of total cash compensation that, if deferred at 7% annual interest, for each year of executive service would equal the same lump sum value payable from all employer sponsored retirement plans. With respect to annual salary and the various incentive awards available to the named executive officers, the Committee does not perform a formal internal equity analysis, but does consider the internal equity of the compensation awarded by utilizing comparisons within the SYSCO organization. On an annual basis, the Committee compares the CEO’s compensation with that of the President and the Executive Vice Presidents to ensure that the CEO compensation, as well as its relationship to the compensation of the CEO’s direct reports, is reasonable. The Committee makes similar evaluations among the President, Executive Vice Presidents and Senior Vice Presidents. These comparisons only provide a point of reference, as we do not use specific formulas to determine compensation levels, which reflect the responsibilities of a particular officer position. Although officers at different levels of the organization receive a different percentage of their base salary as payment of the MIP bonus, the financial performance criteria used for all corporate officers for payment of the bonus are identical. Annual Compensation Base Salary The Committee typically reviews base salaries each November and sets them for the following calendar year. The Committee adjusted the base salaries of the named executive officers in November 2007, effective January 1, 2008, and May 2008, effective July 1, 2008, as set forth in the table below: | | | | | | | | | | | | | | | | | | | | | | | | | | January 1,
| | | | | | July 1,
| | | | | | | July 1, 2007
| | | 2008 Base
| | | | | | 2008 Base
| | | | | Named Executive Officer | | Base Salary | | | Salary | | | % Change | | | Salary* | | | % Change* | | | Richard J. Schnieders | | $ | 1,118,000 | | | $ | 1,175,000 | | | | 5 | % | | $ | 1,116,250 | | | | (5 | )% | Kenneth F. Spitler | | $ | 650,000 | | | $ | 730,000 | | | | 12 | % | | $ | 693,500 | | | | (5 | )% | William J. Delaney | | $ | 530,000 | | | $ | 590,000 | | | | 11 | % | | $ | 560,500 | | | | (5 | )% | Larry G. Pulliam | | $ | 540,000 | | | $ | 560,000 | | | | 4 | % | | $ | 532,000 | | | | (5 | )% | Kenneth J. Carrig | | $ | 500,000 | | | $ | 535,000 | | | | 7 | % | | $ | 508,250 | | | | (5 | )% |
| | | | related to acquisition due diligence, assistance with preparation for the implementation of Section 404 of the Sarbanes-Oxley Act of 2002 and the audit of certain benefit plans. | | (2) | Tax fees in fiscal 2005 included $2,493,874 related to the income tax compliance outsourcing arrangement with the Company’s independent auditor and $28,738 in other tax compliance and audit defense assistance. Tax fees in fiscal 2004 related to the same types of engagements. |
In February 2003,* | | Given the Audit Committee adopteddifficult market environment in which SYSCO was operating and the corresponding need to maintain strict discipline on expense control, in May 2008 the executive officers recommended a formal policy concerning approval of audit and non-audit services to be provided by the independent auditor to the Company. The policy requires that all services, including audit services and permissible audit related, tax and non-audit services, to be provided by Ernst & Young LLP to the Company, be pre-approved by the Audit Committee. All of the services performed by Ernst & Young5% reduction in fiscal 2005 were approved in advance by the Audit Committee pursuant to the foregoing pre-approval policy and procedures. During fiscal 2005, Ernst & Young did not provide any services prohibited under the Sarbanes-Oxley Act.PROPOSAL TO RATIFY APPOINTMENT OF INDEPENDENT ACCOUNTANTS
ITEM NO. 2 ON THE PROXY CARD
The Audit Committee of the Board has appointed Ernst & Young LLP as SYSCO’s independent accountantstheir salaries for fiscal 2006. Ernst & Young LLP has served2009.
| In February 2007, the Committee approved a 10% increase to Mr. Spitler’s base salary, raising it to $650,000 in conjunction with his promotion to his current position effective July 1, 2007. Similarly, in May 2007, the Committee approved a 6% increase to Mr. Delaney’s base salary, raising it to $530,000 in conjunction with his promotion effective July 1, 2007. Analysis Given the increased scope of their duties and responsibilities following their promotions, Mr. Schnieders recommended the amount of the fiscal 2007 salary increases for both Mr. Spitler and Mr. Delaney and the Committee accepted his recommendations. The Committee considered the increase in Mr. Spitler’s base salary to be appropriate in light of the increased scope of the responsibilities he would be assuming in connection with his new position, including responsibility for SYSCO’s 23
merchandising, specialty distribution companies and SYGMA. The Committee reached a similar conclusion regarding Mr. Delaney, as his promotion to Chief Financial Officer significantly increased the scope of his responsibilities. In November 2007, the Committee began its annual review of executive base salaries by reviewing the range of base salaries between the 25th and 50th percentiles of the peer group information contained in the May 2007 Mercer report as updated by Mercer in November 2007. With respect to all named executive officers, the Committee also subjectively considered each executive’s performance in the prior year and recent company performance, as well as each executive’s job responsibilities, management experience, individual contributions, number of years in his or her position and current salary. SYSCO’s culture has been built around the belief that establishing a relatively modest base salary and placing more of the executives’ annual pay at risk will drive both individual and company performance in order to achieve our business targets, and the Committee’s base salary increases reflected this policy. Although the Committee’s determination of base salary was made independent of decisions regarding other elements of compensation, the Committee did consider how each executive’s salary affects the other elements of his total cash compensation and total compensation, such as the impact on the annual target bonus, which is based on a multiple of salary, and the impact on future benefits under the SERP. With respect to Mr. Schnieders, the Committee also: | | | | • | considered its July 2007 performance evaluation undertaken in conjunction with the Company’s independent public accountants providing auditing, financialCorporate Governance and tax services since their engagementNominating Committee, which resulted in a determination that Mr. Schnieders’ performance exceeded expectations; | | | • | assessed SYSCO’s and Mr. Schnieders’ accomplishment of objectives during fiscal 2002. In determining to appoint Ernst & Young, the Audit Committee carefully considered Ernst & Young’s past performance for the Company, its independence with respect to the services to be performed and its general reputation for adherence to professional auditing standards. Although the Company is not required to seek ratification, the Audit Committee2007 and the Board believe it is sound corporate governance to do so. If stockholders do not ratify the appointmentfirst quarter of Ernst & Young, the current appointment will stand, but the Audit Committee will consider the stockholders’ action in determining whether to appoint Ernst & Young as the Company’s independent accountants for fiscal 2007.
Representatives2008, including continued successful implementation of Ernst & Young LLP will be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so. They will also be available to respond to appropriate questions.
The BoardSYSCO’s long-term strategy, development of Directors recommends a vote FOR the ratification of the
appointment of independent accountants for fiscal 2006.
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PROPOSAL TO APPROVE THE 2005 MANAGEMENT INCENTIVE PLAN
ITEM NO. 3 ON THE PROXY CARD
The 2005 Management Incentive Plan (the “2005 MIP”) was recommended by the Compensation and Stock Option Committee (the “Committee”) on September 8, 2005, and adopted by the Board of Directors on September 9, 2005, subject to stockholder approval. If approved, the 2005 MIP will become effective on November 11, 2005 and terminate on November 11, 2010 (unless earlier terminated by action of the Board of Directors). Awards made prior to termination of the plan with respect to the 2010 fiscal year will remain in effect following termination of the plan. The Committee will not make any awards under the 2005 MIP without stockholder approval.
The 2005 MIP will replace the 2000 MIP. However, awards made with respect to fiscal year 2006 will be governed by the terms of the 2000 MIP. No more than 1,200,000 additional shares of Common Stock may be issued under the 2000 MIP. See “Proposal to Approve Compensation to be Paid to Certain Executive Officers Under the 2000 Management Incentive Plan, Item No. 4 on the Proxy Card.”
The Board of Directors is seeking stockholder approval for two reasons:
| | | | • | Stockholder approval of stock awards granted under the 2005 MIP is required by Section 303A.08 of the New York Stock Exchange Listed Company Manual. It is intended that such approval apply to all shares delivered under the 2005 MIP prior to the termination date. | | | • | Payment of compensation under the 2005 MIP to the Senior Executive Participants (i.e., the Company’s chief executive officer and its other four most highly compensated executive officers) is being submitted to stockholders for approval so that such compensation will qualify as performance-based for purposes of Section 162(m) of the Code. Compensation that qualifies as performance-based for purposes of Section 162(m) of the Code is not subject to the annual Section 162(m) limit on the deductibility of compensation in excess of $1 million with respect to each of the Senior Executive Participants. It is intended that such approval apply to all awards payable with respect to fiscal years 2007, 2008, 2009 and 2010, so long as they are paid prior to the date of the Company’s Annual Meeting of Stockholders held in 2010. |
The following summary of the material terms of the 2005 MIP is qualified in its entirety by the terms of the 2005 MIP, a copy of which is attached as Annex B hereto.
Purpose of the 2005 MIP
The purpose of the 2005 MIP is to promote the interests of the Company and its stockholders by providing incentives to (i) certain key management personnel for outstanding performance in the management of the divisions or subsidiaries of the Company and (ii) certain corporate personnel for managing the operations of the Company as a whole and/or managing the operations of certain subsidiaries. To achieve that purpose, the 2005 MIP permits the grant of performance-based bonus awards, payable in cash and shares of Common Stock, as further explained below.
Administration of the 2005 MIP
The Committee will administer the 2005 MIP, except that it may delegate administrative powers with respect to awards to non-executive officers. The Committee is composed entirely of “non-employee directors” within the meaning of SEC Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code of 1986 (the “Code”). As noted elsewhere, the members of the Committee are also “independent” as that term is defined by New York Stock Exchange listing requirementsnumerous executives and the Company’s Corporate Governance Guidelines.company’s successful financial results; and
| | | • | took into account the Committee’s own subjective assessment that Mr. Schnieders’ performance since the formal July 2007 performance evaluation had also exceeded expectations. |
The Committee subjectively determined Mr. Schnieders’ base salary increase in light of the foregoing factors, based on competitive data contained in the Mercer report, as updated in November 2007. The increase placed Mr. Schnieders’ base salary slightly above the 50th percentile of the peer group. Mr. Schnieders provided the Committee with recommendations for each of the other named executive officers regarding the level of salary increases necessary to properly incentivize them. Based on the factors discussed above, and the Committee’s review of the updated Mercer report, the Committee accepted Mr. Schnieders’ recommendations. Each of these base salaries placed the other named executive officers at a level between the 25 th and 50th percentiles, or slightly above the 50th percentile, of the peer group. In May 2008, given the difficult market environment in which SYSCO was operating and the corresponding need to maintain strict discipline on expense control, Messrs. Schnieders and Spitler, with the support of the executive officers, proposed to the Compensation Committee that their salaries be reduced by 5% beginning July 1, 2008. The Committee agreed with the executives’ analysis and accepted their recommendation. These reduced base salaries place each of the named executive officers between the 25th and 50th percentiles, or slightly below the 25th percentile, of the peer group. Management Incentive Plan The MIP is designed to offer opportunities for compensation tied directly to annualand/or multi-year company performance. Under the terms of the plan, we pay the annual bonus in cash with payments made in the first quarter of the fiscal year for bonuses earned with respect to performance in the prior fiscal year. For the fiscal 2008 bonus, which was paid in August 2008, the plan also required that we issue to the participants restricted shares of SYSCO common stock with a market value equal to 28% of their cash bonus. In connection with its comprehensive review of the compensation program, in May 2008, the Committee removed this 28% stock match from the plan (beginning with the fiscal 2009 bonus to be paid in fiscal 2010). This change was made in order to shift the compensation mix emphasis from short-term to longer-term incentives, with the expectation that this portion of the bonus will be replaced with restricted stock grants vesting over at least a three-year period beginning in fiscal 2010. We currently pay the bonus pursuant to the 2005 Management Incentive Plan, which is described in further detail under “Executive Compensation — 2005 Management Incentive Plan.” Each year the Committee approves MIP agreements that are entered into between SYSCO and each of the named executive officers, as well as certain other executive officers. In May 2007 and 2008, the Committee approved respective fiscal 2008 and 2009 bonus agreements with each of the named executive officers pursuant to the 2005 Management Incentive Plan. In approving the agreements, the Committee generally targeted the cash portion of each named executive officer’s fiscal 2008 bonus at approximately 200% of his base salary. 24
For fiscal 2008, the MIP bonus was based upon our overall corporate performance and, to a lesser extent, the performance of individual operating companies. For fiscal 2009, the bonus is based solely upon SYSCO’s overall corporate performance. Fiscal 2008 We determined the portion of executives’ fiscal 2008 MIP bonus related to our overall corporate performance based on two financial objectives: The Committee will have the power in its discretion to grant awards under the 2005 MIP, to select the individuals to whom awards are granted, to determine the terms of all awards under the 2005 MIP, to interpret the provisions of the 2005 MIP and to otherwise administer the plan. 31
Eligibility and Participation
The Committee designates participants for a particular fiscal year from among the following eligible individuals:
| | | Senior Executive Participants — Persons who are “covered employees” under Code Section 162(m) during the relevant fiscal year (currently, this includes the Company’s Chief Executive Officer and the four highest compensated officers other than the Chief Executive Officer). | | | Corporate Participants — Persons who serve as officers of the Company who are also employees of the Company or a subsidiary. | | | Subsidiary Participants — Persons who serve as officers of a subsidiary. | | | Designated Participants — Persons other than Corporate Participants or Subsidiary Participants who are employed by a subsidiary or by the corporate office of the Company who are designated by the Committee from time to time. |
A Senior Executive Participant is treated as such, even if he or she would otherwise fall into another category.
To the extent possible, the Committee will designate participants for a particular fiscal year before the start of that year, or as soon as practicable during the fiscal year in which a person first becomes eligible. Except as described below in connection with a Change of Control, the Committee may remove the employee from participation in the plan, with or without cause, at any time, even if he or she has already been designated to participate, and such an employee will not be entitled to any bonus under the plan for the year in which he or she is removed, regardless of when during such year he or she is removed.
Currently, approximately 190 employees of the Company and its subsidiaries are within the class eligible to participate in the 2005 MIP.
Payment of Bonuses
| | | Corporate Participants and Certain Senior Executive Participants |
Bonus opportunities awarded to Corporate Participants, and Senior Executive Participants who would otherwise be Corporate Participants, under the 2005 MIP may consist of any or all of the following three components, based on the following criteria:
| | | | • | The Company’s return on stockholders’ equity and increases in earnings per share; | | | • | Return on capital and/or increases in pretax earnings in respect of selected divisions and/or subsidiaries of the Company; and/or | | | • | One or more of the following performance factors: |
| | | | (i) | sales of the Company and/or one or more selected divisions and/or subsidiaries; | | | (ii) | pretax earnings of the Company; |
| | | | (iii) | net earnings of the Company and/or one or more selected divisions and/or subsidiaries; |
| | | | (iv) | control of operating and/or non-operating expenses of the Company and/or one or more selected divisions and/or subsidiaries; | | | (v) | margins of the Company and/or one or more selected divisions and/or subsidiaries; | | | (vi) | market price of the Company’s securities; | | | (vii) | market share; | | | (viii) | “economic value added” defined as a formula equal to (a) net operating profit after tax less (b)(i) average total assets net of intercompany balances and non-interest liabilities times (ii) weighted average cost of capital; and |
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| | | | (ix) | with respect to participants other than Senior Executive Participants, other factors determined by the Committee that are directly tied to the performance of the Company and/or one or more selected divisions and/or subsidiaries. |
| | | Subsidiary Participants and Certain Senior Executive Participants |
Bonus opportunities awarded to Subsidiary Participants, and Senior Executive Participants who would otherwise be Subsidiary Participants, under the 2005 MIP may consist of any or all of the following three components, based on the following criteria:
| | | | • | Return on capital and increases in pretax earnings of the subsidiary or division employing such participant; | | | • | Stockholders’ equity and increases in earnings per share of the Company as a whole; and/or | | | • | One or more of the following performance factors: |
| | | | (i) | sales of the Company and/or one or more selected divisions and/or subsidiaries; | | | (ii) | pretax earnings of the Company; | | | (iii) | net earnings of the Company and/or one or more selected divisions and/or subsidiaries; |
| | | | (iv) | control of operating and/or non-operating expenses of the Company and/or one or more selected divisions and/or subsidiaries; | | | (v) | margins of the Company and/or one or more selected divisions and/or subsidiaries; | | | (vi) | market price of the Company’s securities; | | | (vii) | market share; | | | (viii) | economic value added (defined above); and | | | (ix) | with respect to participants other than Senior Executive Participants, other factors determined by the Committee that are directly tied to the performance of the Company and/or one or more selected divisions and/or subsidiaries. |
Subsidiary Participants, but not Senior Executive Participants, may also receive an additional bonus (the “Additional Bonus”) to be awarded in the sole discretion of the Committee. The Additional Bonus is based upon such criteria as the Committee may develop, in its sole discretion.
The Committee has discretion to determine the relative weights of the factors and the percentage of the total bonus comprised by the portion determined with respect to performance of divisions and/or subsidiaries versus the portion determined by Company performance. The Committee may alter the bonus formula with respect to any participant by changing the performance targets; provided, however, that the Company may not change the performance targets for any Senior Executive Participants after the first 90 days of the fiscal year.
The Committee may formulate a bonus structure for each Designated Participant who is not a Senior Executive Participant which is based on performance factors determined by the Committeeincrease in its sole discretion, and which may or may not be similar to the bonus structure formulated for other participants.
| | | Senior Executive Participants |
Bonus opportunities awarded to Senior Executive Participants depend upon the criteria described above, based upon whether such a participant would otherwise have been a Corporate or Subsidiary Participant. However, no Senior Executive Participant may receive an aggregate bonus for any given fiscal year under the 2005 MIP (including the value of all cash and securities received with respect to such fiscal year) in excess of $10,000,000.
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| | | Adjustments to Performance Measures |
In calculating whether a bonus has been earned, or the amount of any bonus earned, performance measures for fiscal years containing 53 weeks are subject to adjustment in order to provide comparability with 52-week years, at the discretion of the Committee.
Stock Awards
Participants who earn a cash bonus under the MIP will also be entitled to an award of Common Stock with a value equal to 28% of any cash bonus earned. In the event of a recapitalization of the Company or its merger into or consolidation with another corporation after the end of a fiscal year which is the measurement period for a specific award, but prior to the issuance of the award, a participant shall be entitled to receive such securities which he or she would have been entitled to receive had he or she been a stockholder of the Company holding shares pursuant to the 2005 MIP at the time of such recapitalization, merger or consolidation. The number of shares to which a Participant is entitled will be based on the closing price at the end of the relevant fiscal year. If there is a stock split, stock dividend or combination of shares with respect to the Company’s Common Stock after the end of the year, but prior to the payment of the award, the award will be subject to appropriate adjustment.
Cap on Total Stock Awards
The maximum number of shares of Common Stock that may be delivered during the term of the 2005 MIP under all MIP awards is 2,800,000 shares, subject to adjustment for recapitalizations, stock splits and similar events. Shares issued under the 2005 MIP may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares purchased on the open market.
Transfer Restrictions on Stock Awards and Forfeiture
Whether or not the shares to be issued to a participant are registered under the Securities Act of 1933, as amended, participants will be prohibited from selling or otherwise transferring them for at least 2 years after issuance, except in the event of death or termination of employment due to disability or retirement. In the event of a Change of Control, as that term is defined in the 2005 MIP, all transfer restrictions will lapse with respect to shares issued with respect to a performance period ending prior to or within one year after the Change of Control. If a participant’s employment terminates for any reason other than death, disability or retirement, and he or she is the holder of shares under the 2005 MIP the transfer of which remains restricted pursuing to the foregoing provisions at the time of termination, then transfer will remain restricted for an additional 6 months following termination of employment, or until expiration of the 2-year period, whichever is longer.
If a participant’s employment is terminated for any reason other than death, disability or retirement, within 2 years from issuance, he or she will forfeit all shares issued under the 2005 MIP within the 2-year period prior to termination, upon demand by the Committee made within 6 months following termination. However, if a Change of Control has occurred, the Company will have no rights with respect to any shares issued under the MIP with respect to a performance period ending prior to or within one year following the Change of Control.
Change of Control
If a Change of Control occurs, in lieu of any award he or she might otherwise be entitled to under the 2005 MIP, each participant will generally be entitled (subject to adjustments described below) to 128% of a bonus amount that is prorated based on:
| | | | • | the portion of the year that has elapsed; and | | | • | an amount equal to the cash portion (but not the stock award) of the award to which the participant would have been entitled based on annualized performance results for the interim period ending with the most recently completed fiscal quarter. |
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For example, if a Change of Control occurred exactly half-way through the fiscal year, and the Company’s most recently completed interim results on an annualized basis would have entitled a participant to a $50,000 bonus for that year, then he or she would instead be entitled to $32,000 (or $50,000 × 1/2 × 1.28).
Participants Remaining at End of Year. However, if a participant remains employed by the Company through the last day of the fiscal year in which the Change of Control occurs, and if the bonus that would have been paid to him or her for such fiscal year under the Plan based on the Company’s actual performance for the entire year would have been greater than the amount he or she received under the foregoing paragraph, then a cash sum equal to the difference in value will be paid.
Participants with Severance Arrangements. Notwithstanding the foregoing, with respect to the Company’s current Chairman, Chief Executive Officer and President, Richard J. Schnieders, and any other participant who has a severance agreement with the Company, any bonus paid pursuant to the foregoing paragraphs shall be reduced by any portion of the participant’s severance which is determined by reference to payments received or to be received under the 2005 MIP or any of its predecessor or successor plans.
Amendment and Early Termination
The 2005 MIP allows amendment at any time by the Board of Directors. Any such amendment shall be effective as of commencement of the fiscal year during which the 2005 MIP is amended, regardless of the date of the amendment, unless otherwise stated by the Board of Directors. Certain material amendments, such as materially increasing the number of shares, expanding the types of awards that may be granted, material expansion of the class of participants or material extension of the term, may also be subject to stockholder approval under the NYSE listing requirements. The 2005 MIP may be terminated at any time by the Board of Directors and termination will be effective as of the commencement of the fiscal year in which such action to terminate the 2005 MIP is taken.
Federal Income Tax Consequences
The following is a general description of the federal income tax consequences of compensation paid under the 2005 MIP. This summary does not address any state, local or other non-federal tax consequences associated with the payment of compensation under the 2005 MIP. This discussion is intended for the information of stockholders considering how to vote at the annual meeting and not as tax guidance to individuals who participate in the 2005 MIP. Participants in the 2005 MIP should consult their own tax advisors to determine the tax consequences to them based on their own particular circumstances.
| | | Cash Bonuses; Stock Awards |
A participant will recognize ordinary compensation income at the time the cash portion of a participant’s bonus is paid.
With respect to the Common Stock awards, the transfer restrictions described above would likely constitute a substantial risk of forfeiture for purposes of Section 83(b) of the Code. Thus, in general, unless a participant who receives Common Stock makes an election under Section 83(b) of the Code as described below, there will be no federal income tax consequences to the participant upon receipt of the Common Stock until the expiration of the transfer restrictions. At that time, the participant generally will recognize ordinary compensation income equal to the then fair market value of the Common Stock. In general, any dividends paid to the participant while the transfer restrictions apply will be taxable compensation income to the participant.
If the participant makes an election under Section 83(b) of the Code with respect to the Common Stock (a “Section 83(b) Election”), the participant will recognize ordinary compensation income equal to the fair market value of the Common Stock on the date of receipt. In addition, cash dividends paid to the participant making a Section 83(b) Election would generally be taxable at a current maximum rate of 15% applicable to dividend income.
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A participant will be subject to withholding for federal, and generally for state and local, income taxes at the time the participant recognizes ordinary income under the rules described above with respect to the Common Stock and cash received. The tax basis in the Common Stock received by a participant will equal the amount recognized by the participant as ordinary income under the rules described above. Upon a subsequent sale of the Common Stock, any gain or loss realized by the participant will be capital gain or loss.
| | | Deductibility — In General |
Subject to the discussion below, the Company will be entitled to a deduction for federal income tax purposes that corresponds as to the timing and amount of compensation income recognized by a participant under the foregoing rules.
| | | Tax Code Limitations on Deductibility |
In order for the amounts described above to be deductible by the Company, such amounts must constitute reasonable compensation for services rendered or to be rendered and must be ordinary and necessary business expenses.
The ability of the Company to obtain a deduction for future payments under the 2005 MIP could be limited by the golden parachute rules of Section 280G of the Code. These rules could apply to bonuses paid to certain participants if, following a change of control of the Company, the bonuses paid to such participants, and any other compensation paid or deemed paid to such participants that is contingent on a change of control of the Company, has a present value of at least three times the participant’s average annual compensation from the Company over the prior five years (the “average compensation”). In that event, all compensation contingent on a change of control (including the bonus paid pursuant to the 2005 MIP) that exceeds the participant’s average annual compensation, adjusted to take into account any portion thereof shown to be reasonable compensation, is not deductible by the Company. Such compensation is also subject to a nondeductible 20% excise tax, in addition to regular income tax, in the hands of the participant. The golden parachute rules of Section 280G of the Code generally apply to employees or other individuals who perform services for the Company if, within the 12-month period preceding the change in control, the individual is an officer of the Company, a stockholder owning more than 1% of the stock of the Company, or a member of the group consisting of the lesser of the highest paid 1% of the employees of the Company or the highest paid 250 employees of the Company.
As noted above, Section 162(m) of the Code generally disallows a public company’s deduction for compensation in excess of $1 million paid in any taxable year to the Company’s chief executive officer and any of its other four highest compensated officers (a “Senior Executive Participant”). The determination of whether a person is a Senior Executive Participant is made as of the last day of the Company’s fiscal year. Compensation that qualifies as “performance-based compensation,” however is excluded from the $1 million deductibility cap. The 2005 MIP has been drafted and is intended to be administered in a manner that would enable the compensation paid to Senior Executive Participants to qualify as performance-based for purposes of Section 162(m) of the Code. Stockholder approval of the 2005 MIP is necessary in order for compensation paid under the 2005 MIP to qualify as performance-based for purposes of Section 162(m) of the Code.
The discussion set forth above is intended only as a summary and does not purport to be a complete enumeration or analysis of all potential tax effects relevant to recipients of awards under the 2005 MIP.
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New Plan Benefits
Because the Committee has complete discretion to determine the number and selection of award recipients as well as the number, types, vesting requirements and other terms of all awards, and because the future value of Common Stock is uncertain, it is not possible to determine the benefits or amounts, if any, that will be received by or allocated to any person under the 2005 MIP. However, for informational purposes only, set forth below are the values of bonuses with respect to the 2005 fiscal year under the 2000 MIP for the persons and groups specified:
| | | | | | | | | | | | | | | | | Total Restricted Shares Awarded(2) | | | | | | | | | | | | | | Aggregate Value | | | | | | | | Based on Closing | | Name and Position | | Total Cash Awarded(1)(2) | | | Number of Shares | | | Price at 07/01/05 | | | | | | | | | | | | Richard J. Schnieders, Chairman, Chief Executive Officer and President | | $ | 1,387,706 | (3) | | | 34,080 | | | $ | 1,235,400 | | Thomas E. Lankford(4) | | | 991,213 | | | | 24,343 | | | | 882,434 | | John K. Stubblefield, Jr., Executive Vice President, Finance and Chief Financial Officer | | | 753,311 | | | | 18,501 | | | | 670,661 | | Larry J. Accardi, Executive Vice President, Contract Sales and President, Specialty Distribution Companies | | | 713,672 | | | | 17,527 | | | | 635,354 | | Kenneth F. Spitler, Executive Vice President; President of North American Foodservice Operations | | | 713,672 | | | | 17,527 | | | | 635,354 | | Executive officers as a group, including the Named Executive Officers | | | 9,985,728 | | | | 245,228 | | | | 8,889,517 | | All non-executive officers and other employees as a group | | | 18,128,010 | | | | 372,469 | | | | 13,502,014 | | All non-employee directors as a group | | | n/a | | | | n/a | | | | n/a | | Total | | $ | 28,113,738 | | | | 617,697 | | | $ | 22,391,531 | |
| | (1) | Excludes matching amounts credited to participant accounts under the Company’s Executive Deferred Compensation Plan (“EDCP”) with respect to any amounts of a MIP bonus that were deferred. EDCP matches for the named individuals were as follows: Mr. Schnieders, $205,905; Mr. Lankford, $147,075; Mr. Stubblefield, $111,777; Mr. Accardi, $105,894; and Mr. Spitler, $105,894. | | (2) | The Total Cash Awarded and Total Restricted Shares Awarded columns above include all cash and shares distributed, respectively, under the 2000 MIP pursuant to awards made with respect to the 2005 fiscal year, including all company matches and accompanying payments. | | (3) | Does not include $370,629 paid under the Supplemental Plan. | | (4) | Thomas E. Lankford resigned as President and Chief Operating Officer effective July 2, 2005. |
Bonus amounts paid under the 2005 MIP may vary materially from the amounts paid under the 2000 MIP with respect to the 2005 fiscal year.
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Supplemental Performance Based Bonus Plan
Mr. Schnieders also participates in the Supplemental Performance Based Bonus Plan, under the terms of which he may (a) receive a bonus payable outside the 2005 MIP, or (b) forfeit a portion of any bonus payable under the 2005 MIP. See “Report of the Compensation and Stock Option Committee — Incentive Compensation — Supplemental Performance Based Bonus Plan.”
Executive Deferred Compensation Plan
Participants in the 2005 MIP will be entitled to defer portions of any bonus payable under the 2005 MIP and receive matching contributions to their accounts under the Company’s Executive Deferred Compensation Plan. See “Report of the Compensation and Stock Option Committee — Incentive Compensation — Deferred Compensation Election.”
Supplemental Executive Retirement Plan
Bonuses payable under the 2005 MIP will be included in calculating a participant’s final average compensation for purposes of determining benefits payable under the current Supplemental Executive Retirement Plan.
Certain Interests of Directors
In considering the recommendation of the Board of Directors with respect to the 2005 MIP, stockholders should be aware that members of the Board of Directors have certain interests that may present them with conflicts of interest in connection with the proposal to approve the 2005 MIP. In particular, directors who are employees of the Company will be eligible for the grant of awards under the 2005 MIP. Nevertheless, the Board of Directors believes that approval of the 2005 MIP will advance the interests of the Company and its stockholders by encouraging officers and key employees to make significant contributions to the long term success of the Company.
Required Vote
The affirmative vote of a majority of votes cast is required to approve this proposal. For purposes of qualifying the shares authorized under the proposed plan for listing on the NYSE, the total votes cast on the proposal must represent over 50% of shares outstanding.
The Board of Directors recommends a vote FOR approval of the 2005 Management Incentive Plan.
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PROPOSAL TO APPROVE COMPENSATION TO BE PAID TO
CERTAIN EXECUTIVE OFFICERS UNDER THE 2000 MANAGEMENT INCENTIVE PLAN
ITEM NO. 4 ON THE PROXY CARD
On May 12, 2005, the Committee approved the fiscal 2006 bonus program (the “2006 Program”) under the 2000 Management Incentive Plan (the “2000 MIP”), including awards for executive officers who may be Senior Executive Participants under the 2000 MIP with respect to that fiscal year. The Senior Executive Participants include the Chief Executive Officer and the four most highly compensated executive officers other than the Chief Executive Officer. Agreements implementing the 2006 Program (the “2006 Agreements”) have been entered into with Messrs. Schnieders, Stubblefield, Accardi, Spitler, Pulliam, Carrig, Graham, Green, Holden, James Lankford, Smith and Soltis (the “2006 Award Recipients”).
Payment of awards (the “2006 Awards”) under the 2006 Agreements is being submitted to stockholders for approval so that such compensation can qualify as performance-based for purposes of Section 162(m) of the Code. Compensation that qualifies as performance-based for purposes of Section 162(m) of the Code is not subject to the annual Section 162(m) limit on the deductibility of compensation in excess of $1 million, in the event that any party to a 2006 Agreement is a Senior Executive Participant with respect to fiscal 2006.
If the 2006 Awards are not approved by the stockholders, no bonuses will be payable under the 2006 Program to any 2006 Award Participants.
The following is a summary of the material terms of the 2006 Awards and the relevant provisions of the 2000 MIP. The 2000 MIP is filed as Appendix A to the Company’s proxy statement filed with the SEC on September 25, 2000. The form of 2006 Agreements were filed as Exhibits 10(vv) and 10(yy) to the Company’s Annual Report on Form 10-K on September 15, 2005.
Payment of Bonuses
The Company is submitting for approval two kinds of awards for potential Senior Executive Participants: one type for those who would otherwise be “Corporate Participants” and who are Senior Vice Presidents of Operations; and one type for the rest of those who would otherwise be Corporate Participants, as those terms are defined in the 2000 MIP. Solely for purposes of this description, the former are referred to as “SVPO Participants” and the latter are referred to as “Corporate Participants.”
Awards to Corporate Participants provide for a potential bonus with two components. The first component is based on the performance of the Company as a whole, and the second is based on the performance of the Company’s operating divisions or subsidiaries.
Company Performance Component. The first component of the bonus is earned only if the Company achieves specifiedbasic earnings per share increases overfor fiscal 2005 and also achieves certain2008 as compared to fiscal 2007;
| |
| • | the return on stockholders’ equity targets. This portion of the bonus is calculated— determined by multiplying 100% of the Corporate Participant’s base salary by 70% of a percentage determined based upon the levels of earnings per share increases and return on equity achieved by the Company as a whole. Return on equity is computed asdividing our net after-tax earnings for fiscal 2006 divided2008 by the Company’s average stockholders’ equity for fiscal 2006, computed by dividing 5 into the sum of the Company’s stockholders’ equity at the beginning of the year and at the end of each quarter during the year. |
The portion of the executives’ 2008 bonus that was related to operating company performance was based on the number of our operating companies, or subsidiaries, that attained at least a 20% or greater return on capital during fiscal 2008. However, we would have paid no bonuses to our corporate officers under either portion of the fiscal 2008 MIP bonus agreements if SYSCO had not achievedboth a 6% increase in basic earnings per share and a 14% return on stockholders’ equity.
Payouts for the fiscal 2008 bonus were approved by the Committee and paid in August 2008, as shown in the tables below. The payouts were based on our outstanding fiscal 2008 results in a challenging environment, including an increase in basic earnings per share of 13%, a return on stockholder’s equity of 33% and on 80 of SYSCO’s 97 operating companies or subsidiaries achieving a 20% or greater return on capital.
Fiscal 2008 MIP Payouts
| | | | | | | | | | | | |
| | | | | Value of Stock
| | | | |
| | Fiscal 2008 Cash
| | | Match Portion of
| | | Total Fiscal 2008
| |
Named Executive Officer | | MIP Bonus(1) | | | MIP Bonus(2) | | | MIP Bonus(2) | |
|
Richard J. Schnieders | | $ | 3,219,500 | | | $ | 901,460 | | | $ | 4,120,960 | |
Kenneth F. Spitler | | | 2,000,200 | | | | 560,056 | | | | 2,560,256 | |
William J. Delaney | | | 1,616,600 | | | | 452,648 | | | | 2,069,248 | |
Larry G. Pulliam | | | 1,534,400 | | | | 429,632 | | | | 1,964,032 | |
Kenneth J. Carrig | | | 1,465,900 | | | | 410,452 | | | | 1,876,352 | |
Division/ Subsidiary Performance Component. | | |
(1) | | Of this amount, approximately 64% was based on overall corporate performance and approximately 36% was related to operating company performance. |
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(2) | | The second componentstock match portion of the MIP bonus is earned only if at least 15 operating divisions and/or subsidiaries obtain certainand the total MIP bonus amounts included in the table above represent the value of the automatic 28% common stock match, valued based on the closing price of SYSCO common stock on June 27, 2008. Does not include any adjustment for the supplemental bonus described under “Supplemental Performance Bonus.” Amounts shown include cash issued in lieu of any fractional shares. |
Fiscal 2009
Following the Committee’s comprehensive review of our compensation structure, the MIP bonus was revised, such that we will determine the executives’ fiscal 2009 bonus based solely on these corporate financial objectives:
| | |
| • | the percentage increase in fully diluted earnings per share for fiscal 2009 as compared to fiscal 2008; |
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| • | the average annual return on capital targets andover the divisions and subsidiaries that obtain the targetthree-fiscal year period ending with fiscal 2009 — return on capital together employ at least half of the aggregate total capital of all Company operating divisions or subsidiaries. This portion of the bonus is calculated by multiplying the Corporate Participant’s base salary by 9% with respect to the first 15 operating divisions or subsidiaries that obtain a target return on capital and by an additional 1.5% for each additional operating division or subsidiary that obtains the target return on capital. For purposes of computing the operating division or subsidiary portion of the bonus, return on capitalfiscal year is computed by dividing the operating division’s or subsidiary’s pretaxCompany’s net after-tax earnings (excluding any gain onfor the sale of fixed assets and intercompany interest income)year by the operating division’s or subsidiary’sCompany’s total capital.capital for that year. Total
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capital for any given fiscal year is computed as the sum of: |
| | |
| ◦ | stockholders’ equity, computed as the average of (a) average stockholder’s equity (b) average at the beginning of the year and at the end of each quarter during the year; and |
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| ◦ | long-term debt, (c)computed as the average net intercompany accounts,of the long-term debt at the beginning of the year and (d) certain specified adjustments (amounts allocatedat the end of each quarter during the year. |
We will pay no bonuses to our corporate officers under the fiscal 2009 MIP agreements if SYSCO does not achieveboth a 4% increase in fully diluted earnings per share and a 10% three-year average return on capital. Return on capital for fiscal 2007 and 2008 was 19.9% and 20.9%, respectively. As discussed above, the fiscal 2009 bonus will not have a stock match portion.
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Varying levels of performance will earn varying levels of bonus between 20% and 330% of base salary. The target bonus level is 200% of base salary. The various levels of performance and the percentage of base salary they would yield as a bonus are set forth in the table under “Executive Compensation — 2005 Management Incentive Plan” based on the degree to which actual results meet, exceed or fall short to pre-established performance goals. While fiscal 2008 bonuses were uncapped, fiscal 2009 bonuses will be capped at 330% of base salary.
Analysis
The Committee develops the annual bonus program with respect to the executive officers as a group and does not customize it for individuals. With respect to both the fiscal 2008 and fiscal 2009 MIP grants, SYSCO’s executive management team prepared the grids used for calculating the earnings per share and return on equity/average three-year return on capital components of the bonus. The fiscal 2008 grids were based largely on prior years’ incentive plans, while the fiscal 2009 grids were based on new performance measures and management’s expectations for future results. Management submitted the fiscal 2008 grid to the Committee and the Committee asked Mercer to review it. Mercer confirmed to the Committee that, based on payment of the cash target bonuses exclusive of the stock match portion, payment of SYSCO’s target for total cash compensation in fiscal 2008 would generally place the named executive officers near the peer group’s 75th percentile (except for Mr. Schnieders’ target total cash compensation, which would be near the 50th percentile) according to the May 2007 Mercer survey results. Similarly, Mercer reviewed the fiscal 2009 grid and confirmed to the Committee that, based on payment of the cash target bonuses exclusive of the stock match portion, payment of SYSCO’s target for total cash compensation in fiscal 2009, would generally place the named executive officers near the peer group’s 75th percentile (except for Mr. Schnieders’ target total cash compensation, which would be near the 50th percentile) according to the November 2007 adjusted Mercer survey results. The Committee approved the fiscal 2008 and fiscal 2009 grids on this basis.
The target total cash compensation of each named executive officers, excluding the stock match and the supplemental bonus, was near or somewhat above the 75th percentile, except for Mr. Schnieders’, which was near the 50th percentile. Although the May 2007 Mercer report indicated that SYSCO’s overall financial performance relative to the peer group companies approximated the median, the Committee determined that the 75th percentile was the appropriate target for total cash compensation, while acknowledging that Mr. Schnieders’ target total cash compensation is still closer to the 50th percentile. With base salaries set near or significantly below the median for each named executive officer, a significant part of the executives’ total cash compensation is at risk and is only paid based upon performance, thus justifying compensation significantly in excess of the median when that performance is attained. In performing its analysis of the bonus, the Committee determined to exclude the stock match portion of the MIP bonus, which is by definition not paid in cash, and considered it instead in connection with the Committee’s evaluation of longer-term incentives. The Committee’s consideration of the potential impact of the supplemental bonus on total cash compensation relative to the peer group is discussed under “— Supplemental Performance Bonus — Analysis.” Following this analysis and further consultation with Mercer, the Committee approved the final grids.
With respect to the fiscal 2008 MIP bonus, the Committee chose the return on stockholders equity measure because it focused the executives on taking responsibility for effective utilization of our cash and other assets and for protecting our capital. In addition, as SYSCO acquired and created more operating companies through acquisitions and fold-out programs, the executives’ jobs became more difficult and required more intensive efforts to supervise operations and administer programs to an increased number of employees. As a result, the Committee approved the operating company measure to provide a reward when a large number of operating companies performed well during the fiscal year. The return on equity measure was changed and this operating company bonus component was discontinued with the fiscal 2009 MIP grants in May 2008 for the reasons discussed below.
The changes in the MIP program design that occurred in May 2008 were driven by the Committee’s comprehensive overall compensation review. Ongoing suggestions by, and discussions among the Committee members, various members of the executive management team and Mercer led to the Committee approving the changes in the 2009 program from return on equity to three-year return on capital and from basic to fully diluted earnings per share, as well as the elimination of both the operating company performance component of the bonus and the stock match. The move to the use of the return on capital measure reflected an acknowledgement by SYSCO that, while it was previously believed that return on stockholder’s equity was an important metric to shareholders and the investment community, return on capital has now become a more significant part of such investors’ focus. These changes were also made in order to bring SYSCO more in line with the compensation programs of its peers, focus on company sales and earnings growth, focus on improved asset management, more closely link compensation to SYSCO’s growth expectations and shareholder value creation, and improve the alignment between SYSCO’s business strategy and performance. The fiscal 2008 and fiscal 2009 grids are not easily comparable because of the change in the performance metrics used for both axis. To the extent that minimum performance levels in the fiscal 2009 MIP agreements were lowered,
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though, such reduction in threshold amounts reflects the fact that SYSCO’s capitalization has grown significantly since the prior grid was developed, and the company had the desire to bring the executive’s earnings per share growth requirements in line with that of its operating company officers. The elimination of the stock match portion of the MIP was approved by the Committee, based in part on competitive compensation information provided by Mercer, in order to shift the compensation mix emphasis from short-term to longer-term incentives. The Committee expects that this portion of the bonus will be replaced with restricted stock grants vesting over at least a three-year period, with such grants beginning in fiscal 2010.
Supplemental Performance Bonus
In August 2008, we paid bonuses to each named executive officer pursuant to bonus agreements we had previously entered into with them pursuant to our 2006 Supplemental Performance Based Bonus Plan. The Committee terminated this plan in May 2008 and approved stand-alone supplemental bonus agreements with Messrs. Schnieders and Spitler for fiscal 2009. The other named executive officers are not eligible for supplemental bonuses for fiscal 2009. The Committee and Board approved changes to the SERP so that, effective September 19, 2007, payments made under the Supplemental Plan and other supplemental bonuses would not be considered in the calculation of any non-protected SERP benefits for fiscal 2008. See “Executive Compensation — Retirement/Career Incentives — Supplemental Executive Retirement Plan.”
Fiscal 2008 Supplemental Bonuses
Under the fiscal 2008 Supplemental Plan agreements that were approved in May 2007, the Committee, in its sole discretion, could increase or decrease by up to 25% the cash portion of the executives’ 2008 MIP bonuses, depending upon whether the Committee concluded that the executives’ performance “exceeded expectations” or was “below expectations,” based on the criteria described under “Executive Compensation — 2006 Supplemental Performance Based Bonus Plan.” If the executives’ performance had simply “met expectations,” the executives would neither have received an additional bonus nor have had their 2008 bonus reduced. In August 2008, the Committee completed its reviews of Mr. Schnieders, individually, and of the other named executive officers, as well as other members of management, as a group, and concluded that all officers who were parties to the fiscal 2008 Supplemental Plan agreements had exceeded expectations. These reviews were based on the factors described under “Executive Compensation — 2006 Supplemental Performance Based Bonus Plan.” Based on this evaluation, the Committee increased the cash portion of each named executive officer’s MIP bonus as follows:
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• Mr. Schnieders: 20%, or $643,900 | | • Mr. Pulliam: 20%, or $306,880 |
• Mr. Spitler: 20%, or $400,040 | | • Mr. Carrig: 20%, or $293,180 |
• Mr. DeLaney: 20%, or $323,320 | | |
May 2008 Agreements for Fiscal 2009
The May 2008 stand-alone agreements with each of Messrs. Schnieders and Spitler are similar to the prior agreements. The May 2008 agreements provide that the amount of any supplemental bonus increase or reduction will be determined based on the Committee’s separate review of each individual, including but not limited to a review of these performance areas:
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| • | implementation of SYSCO’s long-term strategy; |
| • | succession planning; and |
| • | implementation of SYSCO’s planned information technology initiatives. |
Analysis
Prior to its termination, the Supplemental Plan and related agreements were used to align a portion of the executives’ bonus compensation with non-financial performance goals not taken into account under the MIP bonus formula, such as strategy development, organizational development and alignment, the development of talent and succession planning. They also allowed the Committee to use some discretion in determining the total amount of the executives’ bonus payments. When Mercer benchmarked target cash compensation for fiscal 2008, the supplemental bonusand/or any supplemental reduction was not taken into account because the supplemental bonus is only paid for performance that exceeds expectations regarding the target level of performance. However, the Committee determined that the importance of emphasizing these non-financial performance goals outweighed any negative peer group comparisons if supplemental bonus amounts were paid.
In May 2007, the Committee, together with the Corporate Governance and Nominating Committee, met to review and approve Mr. Schnieders’ personal fiscal year goals, including the goals under his fiscal 2008 supplemental bonus agreement. The individual performance measures in the supplemental bonus agreements with Mr. Schnieders and each of the other named
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executive officers included key aspects of SYSCO’s enterprise-wide goals for the fiscal year, which were both more strategic and more operational in nature than the financial criteria required for payment of the MIP bonus, as well as some of the team’s personal goals. For fiscal 2008, the goals were submitted by Mr. Schnieders and approved by the Committee. The Committee intended that the goals and targets in the supplemental bonus agreements be different from the threshold performance levels contained in the MIP agreements, including intangible goals that might not all be achieved in a single year, but that would provide long-term benefits to our operations.
The Committee’s review of Mr. Schnieders’ fiscal 2008 performance and satisfaction of the supplemental goals, which are described in further detail under “Executive Compensation — 2006 Supplemental Performance Based Bonus Plan — Fiscal Year 2008 Supplemental Bonus Agreement with CEO,” took place in July and August 2008 and included the following:
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| • | Long-term strategy — significantly furthering SYSCO’s long-term strategy and position as a sustainable corporation, particularly though the company’s continued sourcing initiatives, business review process and reduction of expenses across all aspects of the business in a very difficult economic environment. The Committee noted that under Mr. Schnieders’ leadership, the Company continued executing upon its long-term strategy, including continued improvements in supply chain efficiencies, in a very volatile market in which SYSCO’s competitors and customers struggled. |
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| • | Human capital — development of plans and strengthening the future potential for many high-level executives, including a re-alignment of SYSCO’s regional reporting structure and the promotion of two additional individuals to capitalExecutive Vice President positions. |
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| • | Financial and operational performance — the supplemental bonus agreements contained very aggressive financial and operational goals for fiscal 2008. SYSCO exceeded its fiscal 2008 goals with respect to (i) fixed rate intercompany loans, (ii) capitalized leases, (iii) below market plantincreasing corporatemulti-unit sales and equipment costs,satisfying a return on equity of at least 32%. The Committee also noted that the Company only slightly missed meeting its goal of 5 accidents or less for every 100 employees. Although the company did not meet its other financial and (iv)operational goals, the CEO and executive management team did an excellent job of managing the Company’s assets, managing expenses and providing solid results in a very difficult and volatile environment. The Committee also noted that the Company was able to continue increasing dividends and repurchasing shares, which are important to shareholders, in such an environment. Overall, the Committee felt that such performance exceeded the Committee’s expectations. |
Also in August 2008, after consulting with the CEO, the Committee judged the executive management team’s alignment with SYSCO’s enterprise-wide goals for purposes of determining the supplemental bonus payout for the other named executive officers. Pursuant to the fiscal 2008 agreements, the Committee evaluated the executive management team’s collective performance.
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| • | Enterprise-wide goals — as discussed above, the supplemental bonus agreements contained some very aggressive financial and operational goals for fiscal 2008. SYSCO exceeded its fiscal 2008 goal with respect to satisfying a return on equity of at least 32%. The Committee also noted that the Company only slightly missed meeting its goal of 5 accidents or less for every 100 employees. Although the company did not meet its other adjustments affecting capital approved byfinancial and operational goals, the Committee). | | | SVPO ParticipantsCEO and executive management team did an excellent job of managing the Company’s assets, managing expenses and providing solid results in a very difficult and volatile environment. The Committee also noted that the Company was able to continue increasing dividends and repurchasing shares, which are important to shareholders, in such an environment. Overall, the Committee felt that such performance exceeded the Committee’s expectations. |
Awards to SVPO Participants provide for a potential bonus with two components:
Company Performance Component. Under
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| • | Developing executive leadership — the first component, an SVPO Participant is entitledyear of operations following the 2007 re-alignment of several portions of SYSCO’s operations showed continued progress in developing executive leadership for current and future needs. |
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| • | Improving communications — fiscal 2008 continued to 50%show improved communication between the operating companies, both with each other and with the corporate office, despite the distractions of operating in a challenging business environment. |
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| • | Contributing to strategy — The CEO indicated, and the Committee agreed, that the management team made significant contributions to the development and execution of strategy initiatives throughout SYSCO and its subsidiaries, including continuation of the bonus he or she wouldsourcing initiatives, business review process, reduction of expenses across all aspects of the business to compensate for increased fuel expenses in a very difficult economic environment. |
In connection with the Committee’s comprehensive compensation review, based upon discussions with and recommendations of management and Mercer, the Committee terminated the Supplemental Plan and discontinued the supplemental bonuses in May 2008 for all named executive officers except Messrs. Schnieders and Spitler. This change was based on the
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executive management team’s recommendations and the Committee’s belief that, given the improved alignment of the MIP bonus with SYSCO’s strategic goals, the supplemental bonuses provided little additional incentive for executive officers other than the Chief Executive Officer and President. Retention of the supplemental bonus for Messrs. Schnieders and Spitler also allowed the Committee to retain some discretion in determining the total amount of the top executives’ bonus payments. The fiscal 2009 agreements were simplified, including general performance areas to be identified by the Committee, but did not include specific goals so that the Committee could consider unexpected developments and changes in strategy or goals each year in determining whether or not Mr. Schnieders and Mr. Spitler have met expectations.
Longer-Term Incentives
Fiscal 2008 longer-term incentives consisted of three-year cash performance units granted in September 2007 and stock options granted in November 2007. In addition, the cash performance units that we issued in 2005 were paid out in August 2008. For details regarding these grants see “Executive Compensation — 2004 Cash Performance Unit Plan.” We granted fiscal 2008 and fiscal 2009 cash performance units under our 2004 Cash Performance Unit Plan, previously known as the 2004 Mid-Term Incentive Plan. We have adopted a new 2008 Cash Performance Plan and are asking our stockholders at the annual meeting to approve the payment of compensation to certain executive officers pursuant to the 2008 Cash Performance Unit Plan. The new plan does not differ materially from the 2004 plan, and if stockholder approval is obtained, beginning in fiscal 2010, we will grant all cash performance units under the 2008 plan. See “Proposal to Approve Material Terms of, and Compensation to be Paid to Certain Executive Officers Pursuant to, the 2008 Cash Performance Unit Plan.” We made all fiscal 2008 option grants under our 2007 Stock Incentive Plan, which was approved by stockholders in November 2007. Following the elimination of the stock match portion of the MIP bonus, as discussed above, it is the current intent of the Committee to add restricted stock, with vesting over a period of at least three years, to the mix of longer-term incentives, beginning with the fiscal 2010 grants.
The Committee’s comprehensive compensation review in May 2008 provided an opportunity for the Committee to reconsider the break-down of its long-term incentive mix. The changes in the SERP were intended to provide a long-term reduction in retirement/career incentives, while placing more emphasis on the long-term incentive component of the executive compensation program. The Committee particularly intends to place more of the executives’ compensation in options, which more closely ties their compensation to the value shareholders receive from increases in the value of SYSCO’s common stock. The fiscal 2008 MIP award included a 28% stock match, so restricted stock awards under the 2007 Stock Incentive Plan are not anticipated to occur until November 2009. Therefore, fiscal 2009 will serve as a transition year between the prior program and full implementation of the new compensation structure. While the Committee always retains discretion regarding future grants of equity-based awards and long-term incentives, it is currently anticipated that beginning in fiscal 2010, SYSCO’s CEO, President and all corporate Executive Vice Presidents will receive approximately 50% of their long-term incentives through stock options, approximately 25% through cash performance units and approximately 25% through restricted stock grants.
Cash Performance Units
Under the SYSCO Corporation 2004 Cash Performance Unit Plan, and the proposed successor 2008 plan, participants in the MIP have the opportunity to receive cash incentive payments based on SYSCO’s performance over a three-year period. We pay any awards earned under this plan in cash rather than in SYSCO stock or stock units. CPU grants are forward-looking and the grant of CPUs typically does not take into account prior SYSCO or individual performance; however, the payout on CPUs is based on the company’s actual performance in future years.
The Committee established performance criteria for grants to the named executive officers in September 2005 covering the three-year performance period ended June 28, 2008. For each of the corporate officers, one-half of the payout was based on the average growth in basic net earnings per share and one-half of the payout was based on average increase in sales, adjusted for product inflation and deflation. At the time of grant, Mr. DeLaney was serving as President of SYSCO’s Charlotte subsidiary, so one-half of his payout was based on such subsidiary’s increase in operating pre-tax earnings and one-half was based on the percentage increase in the subsidiary’s sales, adjusted for product inflation and deflation. Achievement of the target would have yielded a 100% payout, while the minimum satisfaction of only one criterion would have yielded a 25% payout and maximum performance above target on both criteria would have provided a 150% payout. The Committee took the total value that was targeted at 100% payout for CPUs for a given level of participant and divided by the $35.00 value assigned to each unit to determine the number of units to be granted to each participant.
Our average growth in basic net earnings per share over the three-year performance period ended on June 28, 2008 was 11.13%, and our adjusted sales growth was 4.42%, which yielded a payout of 81.25% of the value of the units to each corporate participant previously granted units, including Messrs. Schnieders, Spitler, Pulliam and Carrig. In order for generally accepted accounting principles to be applied consistently year-over-year, the performance measures for the CPUs may be calculated
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slightly differently from those in our financial statements. We believe that the minimum and target amounts under the CPUs are achievable, although the maximum payout would generally be difficult to obtain at the corporate level and for most of our subsidiaries. However, our Charlotte subsidiary has a strong senior management team overseeing operations that are located in a region with a relatively favorable business climate. Therefore, the exceptional performance of SYSCO’s Charlotte subsidiary yielded a payout of 150% for the units previously granted to Mr. DeLaney. Actual payout amounts are listed in footnote (3) to the Summary Compensation Table.
The grants related to the three-year performance periods ending in fiscal 2009, 2010, and 2011 each have a value of $35 per unit and have the same payout possibilities, ranging from 25% to 150% of the total value of the units granted in each year. Mr. DeLaney has one remaining CPU grant with a payout tied to our Charlotte subsidiary’s performance for the three year performance period ending in fiscal 2009, similar to his grant described above. For each of the remaining corporate grants, the Committee used the same performance criteria described above, except that:
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| • | for the three year performance period ending in fiscal 2009, we calculate basic earnings per share prior to the accruals for the MIP and supplemental bonuses; |
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| • | for the three-year performance periods ending in fiscal 2010 and 2011, we do not adjust the sales performance measure for product inflation and deflation; |
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| • | as a “Corporate Participant.”Division/ Subsidiary Performance Components. The second component depends onresult of the aggregatechange described in the bullet points above, the threshold, target and maximum sales performance measures were increased for the three-year performance periods ending in fiscal 2010 and 2011; and
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| • | for the three-year performance period ending in fiscal 2011, the threshold, target and maximum earnings performance measures were increased in order to more closely align the performance measures with the company’s long-term goal of maintaining low- to mid- double digit annualized earnings growth. |
The specific performance measures and related payouts for each year’s corporate grant are shown under “Executive Compensation — 2004 Cash Performance Unit Plan.” The cash performance unit targets and payouts were recommended by the CEO and executive management team after discussions with the Committee and Mercer. The grants the Committee made to the named executive officers in September 2007 and 2008, which are payable in fiscal 2010 and fiscal 2011, respectively, are set forth under “Executive Compensation — 2004 Cash Performance Unit Plan”.
Analysis
Prior to approving cash performance unit grants in September 2007 and stock option grants in November 2007, the Committee reviewed a September 2007 Mercer update of its May 2007 report that provided peer group benchmarking information relative to total mid-term and long-term compensation. However, the Committee did not use peer group benchmarking data to determine the amount and relative proportions of cash performance unit and option grants. Rather, the Committee confirmed that the total value of the prior year’s long-term incentive grants, valuing options using the Black Scholes model and cash performance units at their target values, were at or below the peer group 25th percentile for all named executive officers, other than Mr. Schnieders, whose grants were between the 25th and 50th percentiles.
Subject to the exceptions discussed below, the Committee then determined to maintain fiscal 2008 grant levels at approximately the same levels as in fiscal 2007 for several reasons, including:
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| • | the Committee subjectively determined that the MIP stock match, which was not included in the peer group longer-term incentive compensation comparison, would improve SYSCO’s comparison to the peer group with respect to total longer-term incentives; and |
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| • | the Committee intended to add restricted stock to the mix of long-term incentives beginning with grants in November 2009, so the Committee did not want to make significant changes to the then-existing compensation structure. |
Notwithstanding this determination, based on recommendations by Mr. Schnieders, the Committee significantly increased the size of fiscal 2008 cash performance unit and option grants for Mr. Spitler based on his promotion and increased responsibilities. Mr. Schnieders also recommended, and the Committee approved, increases in the size of the cash performance unit grants for the Company’s Executive Vice Presidents, including Messrs. Pulliam and Carrig, based on the company’s fiscal 2007 financial results and a desire to bring these officers closer to typical levels of long-term incentives granted to officers in similar positions in SYSCO’s compensation peer group. The Committee made its fiscal 2008 decisions regarding the size of the grants of cash performance units and stock options based on the position held by the grantee and the factors discussed above rather than based on any specific personal or group performance reviews. Mr. DeLaney had not previously served as an
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Executive Vice President during fiscal 2007 and, therefore, his grant at the Executive Vice President level reflected a significant increase due to his promotion and increased responsibilities.
As discussed above, the comprehensive compensation review provided an opportunity for the Committee to reconsider the break-down of its long-term incentive mix, and it is currently anticipated that beginning in fiscal 2010, SYSCO’s CEO, President and all corporate Executive Vice Presidents will receive approximately 50% of the value of their long-term incentives through stock options, approximately 25% through CPUs and approximately 25% through restricted stock grants, with the options valued using the Black Scholes model, each share of restricted stock valued at the closing price of SYSCO common stock on the business day prior to the grant and CPUs valued at $35 per unit at the target level. In July and September of 2008, in order to begin moving towards the anticipated50-25-25 split, the Committee calculated the approximate target aggregate annual long-term incentive values for each of the named executive officers. The Committee’s analysis began by adding the target value of the CPUs and the Black-Scholes value of options granted to each of the named executive officers during fiscal 2008, plus the value of the 28% stock match on the targeted 200% fiscal 2008 MIP bonus, to set a baseline for its fiscal 2009 long-term incentive value determination. The Committee also recognized that there needed to be an increase for Mr. DeLaney to provide long-term incentives that more closely matched the amounts granted to the Chief Financial Officer at peer group companies.
In September 2008, the Committee examined a September 2008 Mercer report that used updated peer group and market data similar to that used in its May 2007 report. Mercer’s recommendations included suggested targets for annual long-term incentive amounts that were near the 50th percentiles, except for Mr. Spitler, with respect to whom Mercer’s recommendation was above the 50th percentile. Mercer explained to the Committee that it believed that the higher peer group percentile comparison for Mr. Spitler was appropriate because his peer group comparative data had changed significantly since the May 2007 report and November 2007 update. Mercer explained that several new presidents or COOs had been recently appointed at peer group companies, with such individuals receiving compensation amounts significantly lower than their more experienced predecessors, thereby artificially lowering the comparative data for Mr. Spitler. Mercer also recommended a long-term incentive breakdown for fiscal 2009 of 50% stock options and 50% cash performance units, since no restricted stock would be awarded during fiscal 2009. After considering the market data provided by Mercer and Mercer’s recommendations, as well as the fact that fiscal 2009 is a transition year for SYSCO’s long-term incentive compensation, with the stock match portion of the MIP having been paid for the last time in August 2008 but no restricted stock scheduled for issuance until fiscal 2010, the Committee chose target long-term incentive amounts that were greater than the baseline values calculated using the fiscal 2008 awards, but less than Mercer’s recommended amounts. The Committee made this decision based on its subjective determination that the increases necessary to bring the long-term incentives up to Mercer’s recommended levels were too great to be made in one year and should be phased in over two or more years. The targets for fiscal 2009 long-term incentive amounts chosen by the Committee would place each of the executive officers’ total long-term incentive compensation between the 25th and 50th percentiles for total long-term incentives granted to similar positions within the peer group companies, except for Mr. Spitler, whose total long-term incentive compensation would be somewhat above the 50th percentile for the reasons discussed above.
The Committee followed Mercer’s recommendation in granting approximately half of each Executive Vice President’s anticipated fiscal 2009 long-term incentive compensation in the form of cash performance units, valued at their target levels. However, the total long-term incentives received by Messrs. Schnieders and Spitler for fiscal 2008 were significantly below the peer group 50th percentile, and the Committee determined that, if the number of options to be granted to them were increased sufficiently for the fiscal 2009 option grant value to equal half of the total long-term incentive value originally targeted, the increase in the size of the option grant would be larger than the Committee subjectively determined was appropriate in one year. As a result, in making the decisions discussed in the previous paragraph, the Committee reduced the overall value of the anticipated fiscal 2009 long-term incentive grant for Messrs. Schnieders and Spitler, with the majority of the reduction to be taken from the option piece, resulting in the target value of their fiscal 2009 CPU grants significantly exceeding the expected value of their fiscal 2009 option grants, which are currently anticipated to be made in November 2008. The Committee currently expects to further increase the value of Messrs. Schnieders’ and Spitler’s longer-term incentives in fiscal 2010, gradually increasing the number of options and decreasing the number of CPUs over a two- to three-year transition period. Therefore, in September 2008, the Committee granted each of the named executive officers cash performance units with target payouts as shown under “Executive Compensation — 2004 Cash Performance Unit Plan.”
The minimum, target and maximum performance criteria levels and the payouts for the awards made during fiscal 2008 were recommended by the executive management team and were similar to those recommended by Mercer in fiscal 2007. For the grants made in fiscal 2007 for the three-year performance period ending in fiscal 2009, the Committee provided that basic earnings per share should be calculated prior to the accrual for the MIP and supplemental bonuses due to the uncertainty of calculating basic earnings per share using these accruals and in order to avoid inconsistent results in years when we do not pay an MIPand/or supplemental bonus. In fiscal 2008, however, the Committee reevaluated its position, and determined to return to the previous method of calculation, which includes these accruals, in order to tie payment of the bonus to increases in GAAP basic
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earnings per share. The increases in the threshold, target, maximum and other sales performance levels of the grants made in fiscal 2008 were made to reflect the changes in the calculation of the sales measure, which is no longer adjusted for inflation or deflation. The Committee made this calculation change in order to tie the performance goals more closely to the Company’s internal business goals. Grants made in fiscal 2009 continue to reflect these changes, as well as an increase in the threshold, target and maximum earnings performance levels, in order to more closely align the performance measures with the company’s long-term goal of maintaining low- to mid- double digit annualized earnings growth.
The approval of the 2008 plan, and the submission to the stockholders of a request for approval of the payment of certain awards under it, was driven by the Committee’s desire that the deductibility of such compensation not be limited by Section 162(m) of the Internal Revenue Code. See “— Income Deduction Limitations”.
Stock Options
The Committee approved the fiscal 2008 stock option grants to the named executive officers in November 2007. The specific grants are shown under “Executive Compensation — Grants of Plan-Based Awards.” The 2007 Stock Incentive Plan calls for options to be priced at the closing price of our common stock on the business day prior to the grant date, and the fiscal 2008 option grant agreement provides for ratable vesting over a five-year period.
Our stock option grant administrative guidelines were adopted in February 2007, as described under “Executive Compensation — Outstanding Equity Awards at Fiscal Year-End.” Under the guidelines, the Committee will generally not make grants during a period preceding an anticipated event which is likely to cause a substantial increase or a substantial decrease in the trading price of SYSCO’s common stock, such as an earnings release. The Committee will generally authorize and grant options during normal trading windows. If we have grants scheduled to occur outside of a normal trading window or when SYSCO is in possession of material non-public information, then:
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| • | management must inform the Committee or the Board of Directors, as the case may be, of all material information in its possession regarding SYSCO; and |
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| • | if, in the Committee’s or Board’s judgment, such information is reasonably likely to affect the trading price of SYSCO’s common stock, then due consideration should be given to the number and exercise price of options that may be granted in light of such material non-public information; for example, if the Committee or Board believes that the information is likely to increase the stock price, then the Committee or Board should consider granting fewer options or setting an exercise price that is higher than the current market price. |
The Committee has not yet determined to what extent this policy will apply to grants of restricted stock, which the Committee currently anticipates will begin in fiscal 2010.
Analysis
See the first paragraph under “Cash Performance Units — Analysis” for an analysis of the Committee’s fiscal 2008 option grant decisions.
The Committee believes that option grants benefit employee performance and retention, particularly in years in which SYSCO’s performance does not create high cash compensation. They will also help to ensure that longer term strategic initiatives are not compromised by having executives focus solely on short-term profitability for payment of the annual bonus. SYSCO’s long-term performance ultimately determines the value of stock options, because gains from stock option exercises are entirely dependent on the long-term appreciation of our stock price. The Committee expects that this longer-term focus will benefit SYSCO and its stockholders, as it more closely aligns the executives’ interests with those of stockholders and focuses executives on strategies that increase long-term stockholder value. Existing ownership levels are not a factor in the Committee’s granting of options because it does not want to discourage executives from holding significant amounts of SYSCO stock.
The Committee approved the 2007 Stock Incentive Plan in order to provide it with the flexibility to issue not only stock options, but also restricted stock, stock appreciation rights and other stock-based awards. As part of the Committee’s comprehensive compensation review, based upon discussions with and recommendations of management and Mercer, the Committee removed the automatic stock match feature from the MIP and added restricted stock to SYSCO’s mix of longer-term incentives. Based on information provided by Mercer, the Committee believes that the addition of restricted stock grants to the named executive officers beginning in fiscal 2010 will bring SYSCO more in line with its peer group and provide a more desirable weighting of longer-term compensation when comparing the total mix of short- and longer-term compensation.
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Retirement/Career Incentives
Supplemental Executive Retirement Plan
We provide annual retirement benefits to all corporate employees and most of our non-union operating company employees under the broad-based tax-qualified SYSCO Corporation Retirement Plan, which we simply refer to as the “pension plan.” In addition, SYSCO offers a Supplemental Executive Retirement Plan, or SERP, to approximately 175 corporate and operating company officers, including the named executive officers. The Committee utilizes the SERP to increase the retirement benefits available to officers whose benefits under the pension plan are limited by law. The earliest an executive can retire and receive any benefits under the SERP is age 55 with a minimum of 15 years of MIP service. The SERP was designed to provide fully vested participants with post-retirement monthly payments, with the annual benefits equaling to up to 50% of a qualified participant’s final average annual compensation, as discussed below, in combination with other retirement benefits, including other pension benefits, the company match under the 401(k) plan and social security payments. Annual retirement benefits from the SERP for a participant who is 100% vested in his accrued benefit are generally limited to $2,200,000, as adjusted for cost-of-living increases. However, each of Messrs. Schnieders and Spitler qualify for a protected benefit under the SERP. This limit does not apply to the protected benefit, which we will pay if it is greater than the benefit under the current provisions. The amounts accrued by each named executive officer under the pension plan and the SERP as of July 1, 2008 are set forth under “Executive Compensation — Pension Benefits.”
Review and analysis of the SERP was one of the primary tasks involved in the Committee’s comprehensive compensation review. As a result of this in-depth review, based on information provided by Mercer regarding competitive practices and the recommendations of the executive management team, the Committee approved the following modifications that apply to all current SERP participants, including the named executive officers:
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| • | for fiscal years beginning with fiscal 2009, “final average compensation” is defined as the monthly average of eligible earnings for the last ten fiscal years preceding the year in which employment ceases; the previous definition of final average compensation calculated it as the monthly average of eligible earnings for the five fiscal years, during the last ten fiscal years, in which the executive earned the highest eligible earnings; |
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| • | beginning with fiscal 2009, the portion of a named executive officer’s MIP bonus included in eligible earnings will be capped at 150% of his base salary as of the subsidiaries supervised bylast day of the participant (together,fiscal year; |
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| • | for fiscal years beginning with fiscal 2008, the “Supervised Operations”). The amount of any supplemental bonus payable (if any) under this component is calculated by multiplying: | | | (1) the sum of:will not be included in eligible earnings; |
| | | | • | 70% times a percentage which varies, based upon the levels of operating pretax earnings increases and return on capital over fiscal 2005; plus | | | • | 30% times a percentage which varies, based upon the levels of pretax earnings increases and return on capital over fiscal 2005; |
| | | -times- | | | (2) 70% of base salary. |
Other Terms
No Senior Executive Participant is entitled | • | effective June 29, 2008, for all ten fiscal years used to receive a 2006 Awardcalculate final average compensation, the amount of base salary for each such fiscal year included in excess of 1% ofeligible earnings will be the Company’s earnings before income taxes for fiscal 2006, as publicly disclosedmonthly base salary rate in the “Consolidated Results of Operations” section of the Company’s Form 10-K for fiscal 2006 filed with the Securities and Exchange Commission. The Committee must approve the payment of any bonus under the program to Senior Executive Participants within 90 days followingeffect at the end of the fiscal 2006. All bonusesyear, regardless of the actual base salary paid during the year; and
| | | • | the SERP now contains enhanced forfeiture and non-compete provisions, including the extension of non-compete covenants from a period of five years after termination of employment to the entire remaining period over which SERP benefits are to be paid. | |
Following these amendments, we calculated accrued benefits under the SERP for each named executive officer based on the higher of accrued benefits as of June 28, 2008 and benefits under the new formula and guidelines described above. These calculations, including those for protected participants, are discussed in more detail under “Executive Compensation — Pension Benefits — Supplemental Executive Retirement Plan.”
Analysis
SYSCO’s retirement plans are an important performance and retention tool, the effectiveness of which the Committee tries to balance with the cost of providing them. Our history supports that this approach works, as our named executive officers had an average tenure of almost 20 years with SYSCO at the end of fiscal 2008. Based on the May 2007 Mercer report, compensation to the named executive officers under the SERP places SYSCO above the 75th percentile for retirement benefits relative to the peer group, but total compensation plus retirement benefits, excluding the MIP match shares and the supplemental bonus, places SYSCO between the 25th and 50th percentiles for all named executive officers. As a result, the Committee believes that these benefits, as modified during fiscal 2008, are appropriate in light of SYSCO’s overall compensation structure.
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Among the key goals of the Committee’s fiscal 2008 comprehensive compensation review were the following:
| | |
| • | maintain the SERP as a retention tool; |
|
| • | reduce the cost of the SERP; |
|
| • | bring SYSCO’s level of retirement benefits more in line with the peer group; and |
|
| • | increase the proportion of long-term and performance-based compensation in the compensation mix, relative to fixed and retirement compensation such as the SERP. |
The majority of the modifications to the SERP approved by the Committee during fiscal 2008 further these goals. The decision to include base salary in the definition of eligible earnings at the monthly rate in effect at the end of the fiscal year rather than based on the actual amount paid was made to improve the ease of administration of the SERP and give SERP participants the benefits of any promotion during the year, regardless of when it might occur. Given the nature of the benefits provided to the named executive officers under the SERP, the Committee also determined that the more extensive forfeiture and non-compete provisions were appropriate.
Nonqualified Executive Deferred Compensation Plan
SYSCO offers an Executive Deferred Compensation Plan, or EDCP, to provide MIP participants, including the named executive officers, the opportunity to save for retirement and accumulate wealth in a tax-efficient manner beyond what is available under SYSCO’s 401(k) retirement savings plan. Participants may defer up to 100% of their base salary and up to 40% of their cash MIP payment to the EDCP. SYSCO does not match any salary deferrals into the EDCP. For participants who defer a portion of their MIP bonus, SYSCO matches 15% on the first 20% deferred, making the maximum possible match to the EDCP 3% of the cash bonus. This match generally vests at the tenth anniversary of the crediting date, subject to earlier vesting in the event of death, disability, a change in control or the executive’s attaining age sixty. Participants who defer under the EDCP may choose from a variety of investment options, including Moody’s Average Corporate Bond Yield, with respect to amounts deferred. Company-matching contributions are credited with the Moody’s Average Corporate Bond Yield. The EDCP is described in further detail under “Executive Compensation — Nonqualified Deferred Compensation.”
As part of the Committee’s fiscal 2008 comprehensive compensation review, based on the competitive information provided by Mercer and the recommendations of the executive management team, the Committee approved the following EDCP modifications that impact the compensation of all EDCP participants, including the named executive officers:
| | |
| • | beginning with amounts deferred in fiscal 2009, Moody’s Average Corporate Bond Yield replaced Moody’s Average Corporate Bond Yield plus 1% as an investment crediting option under the programEDCP and as the default interest rate and the interest rate paid on company matches; all amounts already deemed invested in Moody’s Average Corporate Bond Yield plus 1%, though, will remain eligible for such rate; |
|
| • | beginning with any supplemental bonuses paid for fiscal 2009, no portion of the supplemental bonus may be deferred under the EDCP; |
|
| • | effective January 1, 2009, an executive whose employment terminates prior to reaching age 60 but after reaching age 55, and who has at least 10 years of SYSCO service, may choose between a lump sum or an installment distribution; previously, such an individual was required to take a lump sum distribution unless he had at least 15 years of MIP participation; and |
|
| • | the EDCP now contains enhanced forfeiture and non-compete provisions, including potential forfeiture of deemed investment earnings and company matches if the executive discloses trade secrets or confidential information to a competitor. |
Analysis
Currently, the 401(k) plan is limited by law to $15,500 in individual contributions per year. The Committee believes that the EDCP motivates and assists in the retention of key employees by providing them with greater flexibility in structuring the timing of their compensation payments. The EDCP is an important recruitment and retention tool for SYSCO, as the companies with which we compete for executive talent typically provide a similar plan to their senior employees.
The Committee also conducted a detailed examination of the provisions of the EDCP in connection with its comprehensive compensation review, and the considerations and goals discussed under “Supplemental Executive Retirement Plan — Analysis,” apply equally to the EDCP. The changes in the Moody’s investment option and default rate and the elimination
34
of deferrals of the supplemental bonus were designed to further these goals. The more extensive forfeiture and non-compete provisions were also deemed appropriate in light of the benefits to the executives provided by the EDCP. The decision to expand the ability of executives to designate whether they receive a lump sum or installment distribution was driven by the desire to take advantage of the transitional relief provided under Section 409A of the Internal Revenue Code and was based on management’s and the Committee’s desire to provide additional flexibility to executives who retire earlier than was originally anticipated.
Severance Agreements
In prior years, the Committee approved, and the Board of Directors ratified, severance agreements for certain executive officers, including Messrs. Schnieders and Spitler. The other named executive officers do not currently have severance agreements, although the Committee is currently considering providing them with agreements that would provide benefits upon a change in control. It is currently anticipated that these agreements will be put in place in late calendar 2008, but their terms have not yet been determined. The severance agreements for Messrs. Schnieders and Spitler do not contain any classic “single trigger” provisions that would cause an immediate payment obligation solely as a result of a change in control of SYSCO; however the agreements do provide for certain tax gross up payments in the event of a change of control. Under the terms of these agreements, if we terminate the executive without cause or the executive terminates his employment for good reason, as these terms are defined in the agreement, the executive is entitled to two years’ base salary plus two years’ MIP bonus, based on his average bonus over the prior five years, in 24 equal monthly installments. In addition, if the termination occurs before the end of a year in which a bonus would have been earned but for the termination, the executive will receive a pro rated share of the cash bonus payable. We will also pay the executive a lump sum payment equal to 100% of his vested and unvested benefits under the EDCP, including deferrals and company matches thereon, if applicable. These amounts will be paid in the form elected by the executive under the EDCP. With respect to Mr. Spitler, who is age 59, if termination occurs before age 60, we will treat him as if he retired at age 60 for vesting purposes, so that he will receive a benefit in accordance with the provisions of the SERP; however, if Mr. Spitler voluntarily leaves SYSCO’s employ prior to reaching age 60, other than for specified good reason, he will forfeit all payments under the SERP.
The agreements also provide for waivers of the provisions of the SERP and the EDCP that reduce payments thereunder to the extent that they are not deductible by SYSCO pursuant to Section 280G of the Internal Revenue Code. In addition, if we make payments to Messrs. Schnieders or Spitler that are contingent on a change in control as provided for under Section 280G, the IRS may impose an excise tax on the executives pursuant to Section 4999 of the Internal Revenue Code with respect to such payments and certain other payments conditioned on a change of control. In that event, the severance agreements provide that the executives will be entitled to receive an indemnity payment of any such tax and a “gross up” of that payment so that the executives have no out of pocket costs as a result of the tax and tax reimbursement payments. Each of the severance agreements also requires a general release from separated executives, as well as non-compete and non-disparagement provisions. The severance agreements are described under “Executive Compensation — Executive Severance Agreements.”
Analysis
The Committee and the Board believe that the severance agreements with Messrs. Schnieders and Spitler are necessary in order to retain them and to ease their transition in the event of their involuntary termination of employment with SYSCO without “cause” or for a voluntary termination for “good reason.” Based on a January 2008 Mercer review of severance provisions among our peer group companies, the Committee believes that a majority of the peer group companies offer such protections. It is the Committee’s intent that provisions in the severance agreements regarding an executive’s termination following a change of control preserve executive morale and productivity and encourage retention in the face of the disruptive impact of an actual or rumored change in control of SYSCO. In addition, these provisions align executive and stockholder interests by enabling executives to consider corporate transactions that are in the best interests of SYSCO’s stockholders and other constituents without undue concern over whether the transactions may jeopardize the executives’ own employment and compensation. The Committee does not believe that the severance agreements provide undue incentive for the executive officers to encourage a change in control. Finally, the provisions protect stockholder interests in the event of a change in control by helping assure management continuity, which could improve company performance and maintain stockholder stock value.
The Committee has reviewed the potential costs associated with thegross-up payments called for by the severance agreements and has determined that they are fair and appropriate for several reasons. The excise tax tends to penalize employees who defer compensation, as well as penalizing those employees who do not exercise options in favor of those who do. In addition, the lapse of restrictions and acceleration of vesting on equity awards can cause an executive to incur excise tax liability before actually receiving any cash severance payments. Therefore, the Committee believes that thegross-up payments are necessary to ensure proper consideration of a change in control by the executives.
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As part of the Committee’s comprehensive review of compensation, the Committee has been reviewing the provisions of the severance agreements and is considering whether or not they should be modified and whether or not agreements with change of control provisions similar to those in the severance agreements should be extended to the other named executive officers, but the Committee has not yet made any decisions in this regard.
Benefits, Perks and Other Compensation
We provide benefits for executives that we believe are reasonable, particularly since the cost of these benefits constitutes a very small percentage of each named executive officer’s total compensation.
SYSCO’s named executive officers are eligible to participate in SYSCO’s regular employee benefit programs, which include the defined benefit pension plan, a 401(k) plan, our employee stock purchase plan, group life insurance and other group benefit plans. We also provide MIP participants, including the named executive officers, with additional life insurance benefits, long-term disability coverage (including disability income coverage) and long-term care insurance, as well as reimbursement for an annual comprehensive wellness examination by a physician of their choice. We believe these benefits are required to remain competitive with our compensation peer group. Although the executive officers are eligible to participate in SYSCO’s group medical and dental coverage, we adjust employees’ contributions towards the monthly cost of the medical plan according to salary level; therefore, executives pay a higher percentage of the cost of these benefits than do non-executives.
MIP participants, including the named executive officers, are encouraged to have their spouses accompany them at business dinners and other business functions in connection with meetings of the Board of Directors, certain business meetings and other corporate-sponsored events, and SYSCO pays, either directly or by reimbursement, all expenses associated with their spouses’ travel to and attendance at these business-related functions. This payment or reimbursement is described in further detail in footnote (5) to the Summary Compensation Table. Furthermore, SYSCO owns fractional interests in private aircraft which are made available to members of the Board of Directors, executives and other members of management for business use, but are not allowed to be used for personal matters. Spouses may from time to time accompany executive officers on such flights in connection with travel to and from business-related functions if there is space available on the aircraft.
Officers, as well as many other associates, are provided with cell phones and PDA devices which are paid for by SYSCO, are intended primarily for business use and which we consider to be necessary and integral to their performance of their duties. All employees, including our named executive officers, and members of our Board of Directors are also entitled to receive discounts on all products carried by SYSCO and its subsidiaries. Consistent with SYSCO’s policies on relocation of officers, Mr. DeLaney received reimbursement for certain relocation expenses following his promotion from the President of our Charlotte, North Carolina operating company to an executive position at our headquarters in Houston, Texas.
SYSCO does not provide the named executive officers with automobiles, security monitoring or split-dollar life insurance.
Benefits Following a Change in Control
As discussed above, we have no “single trigger” provisions in the Severance Agreements that would cause an immediate payment obligation solely as a result of a change in control of SYSCO; however, the agreements do provide for certain tax gross up payments in the event of a change of control. We have included provisions regarding a change in control in several of SYSCO’s benefit plans and agreements, including 100% vesting of the SERP, unvested EDCP amounts, options, restricted stock and CPUs upon a change in control. See “Executive Compensation — Quantification of Termination/Change in Control Payments” for a detailed explanation of potential benefits under the various provisions.
Analysis
As with the Severance Agreements, the Committee believes that these provisions will preserve executive morale and productivity and encourage retention in the face of the disruptive impact of an actual or rumored change in control of SYSCO.
Potential Impact on Compensation from Executive Misconduct
If the Board determines that an executive has engaged in fraudulent or intentional misconduct, the Board will take appropriate action to remedy the misconduct, prevent its recurrence and impose discipline on the wrongdoer. Discipline would vary depending on the facts and circumstances, and could include, without limit, termination of employment, initiating an action for breach of fiduciary duty and, if the misconduct resulted in a significant restatement of SYSCO’s financial results, seeking reimbursement of any portion of performance-based incentive compensation paid or awarded to the executive that is greater than would have been paid or awarded if calculated based on the restated financial results. In addition, the executives are subject
36
to forfeiture of benefits under the SERP and EDCP in certain circumstances. These remedies would be in addition to, and not in lieu of, any actions imposed by law enforcement agencies, regulators or other authorities.
Income Deduction Limitations
Section 162(m) of the Internal Revenue Code generally sets a limit of $1 million on the amount of non-performance-based compensation that SYSCO may deduct for federal income tax purposes in any given year with respect to the compensation of each of the named executive officers other than the chief financial officer. The Committee has adopted a general policy of structuring the performance-based compensation arrangements, including the MIP bonus and CPUs but not the supplemental bonuses, in order to preserve deductibility to the extent feasible after taking into account all relevant considerations. However, the Committee also believes that SYSCO needs flexibility to meet its incentive and retention objectives, even if SYSCO may not deduct all of the compensation paid to the named executive officers.
Based on the factors discussed under “Annual Compensation — Base Salary,” the Committee has determined to pay Mr. Schnieders a base salary of in excess of $1 million in order to remain competitive. The Committee determined that the additional base salary is appropriate even though the excess over $1 million is not deductible. Furthermore, amounts paid pursuant to the supplemental bonus agreements do not qualify as “performance-based compensation” under Section 162(m). In approving these agreements, the Committee concluded that the importance of aligning a portion of the executives’ compensation with additional performance goals not taken into account under the MIP, combined with the desirability of preserving a certain level of Committee discretion over the total amount of the executives’ bonus payments, outweighs the potential cost to SYSCO that could result from the non-deductibility of any compensation paid under the plan. The removal of the automatic stock match from the MIP, potentially to be replaced by restricted stock grants with longer vesting periods beginning in fiscal 2010, will also result in these new grants of restricted stock being included in the compensation that must be aggregated to determine if the $1 million threshold has been reached. The MIP automatic share match was considered performance-based compensation and was not required to be aggregated with other compensation for this purpose. The Committee was aware of this result when it approved the removal of the stock match from the MIP but determined that this change was nonetheless desirable in order to give the Committee more flexibility over the size of the restricted share grant and to more closely align SYSCO’s longer-term incentive compensation program with those of its peer group.
Section 409A of the Internal Revenue Code
Section 409A of the Internal Revenue Code deals specifically with non-qualified deferred compensation plans. We have made amendments to the SERP, EDCP and CPU Plan in order to comply with Section 409A and have administered the SERP and EDCP in compliance with it. We intend to make amendments to the severance agreements in order to assure their compliance with Section 409A. As such, the descriptions herein of the timing of benefit payments to the executives pursuant to their severance agreements may change in order to comply with Section 409A.
Stock Ownership Guidelines
See “Stock Ownership — Stock Ownership Guidelines” for a description of our executive stock ownership guidelines.
Total Compensation
After reviewing the information discussed above and the reports prepared by Mercer regarding compensation among the peer group, in August 2008, the Committee asked Mercer to summarize the fiscal 2008 compensation and target fiscal 2009 compensation of each of the named executive officers in comparison to the most current information available for SYSCO’s compensation peer group. Mercer’s September 2008 report indicated that each named executive officer’s total compensation with respect to fiscal 2008 (including MIP bonus, supplemental bonus, 28% restricted stock match, cash performance unit grants and stock option grants, but not including retirement benefits) fell between the 50th and 75th percentiles, or slightly above the 75th percentile, for similar positions at companies within SYSCO’s compensation peer group. After reviewing the Mercer report, as well as tally sheets detailing total compensation and wealth accumulation and internal equity analyses, the Committee determined that each named executive officer’s total fiscal 2008 compensation provided the executive with adequate and reasonable compensation. The Committee also determined that each named executive officer’s total fiscal 2008 compensation was appropriate given SYSCO’s improved performance in fiscal 2008 and the executive’s performance.
37
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors of SYSCO Corporation has reviewed and discussed the foregoing Compensation Discussion and Analysis as required by Item 402(b) ofRegulation S-K with management and, based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Annual Report onForm 10-K and this Proxy Statement.
COMPENSATION COMMITTEE
John M. Cassaday, Chairman
Richard G. Merrill
Phyllis S. Sewell
Richard G. Tilghman
Jackie M. Ward
38
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information with respect to each of the named executive officers — the Chief Executive Officer, the Chief Financial Officer and the three most highly compensated of the other executive officers of SYSCO and its subsidiaries employed at the end of fiscal 2008. In determining the three other most highly compensated executive officers, we excluded the amounts shown under “Change in Pension Value and Nonqualified Deferred Compensation Earnings.”
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Change in
| | | | |
| | | | | | | | | | | | | | Pension
| | | | |
| | | | | | | | | | | | | | Value
| | | | |
| | | | | | | | | | | | Non-Equity
| | and
| | | | |
| | | | | | | | | | | | Incentive
| | Nonqualified
| | | | |
| | | | | | | | | | | | Plan
| | Deferred
| | | | |
| | | | | | | | Stock
| | Option
| | Compen-
| | Compensation
| | All Other
| | |
| | Fiscal
| | Salary
| | Bonus
| | Awards
| | Awards
| | sation
| | Earnings
| | Compensation
| | |
Name and Principal Position | | Year | | ($) | | ($) | | ($)(1)(2) | | ($)(2) | | ($)(3) | | ($)(4) | | ($)(5) | | Total ($) |
|
Richard J. Schnieders | | | 2008 | | | $ | 1,146,500 | | | | — | | | $ | 793,285 | | | $ | 1,205,228 | | | $ | 7,048,400 | | | $ | 1,657,979 | | | $ | 141,386 | | | $ | 11,992,778 | |
Chairman and Chief Executive Officer | | | 2007 | | | | 1,096,500 | | | | — | | | | 827,803 | | | | 1,388,768 | | | | 6,350,095 | | | | 4,531,447 | | | | 156,620 | | | | 14,351,233 | |
Kenneth F. Spitler | | | 2008 | | | | 690,000 | | | | — | | | | 492,850 | | | | 844,373 | | | | 2,698,836 | | | | 1,514,552 | | | | 92,325 | | | | 6,332,936 | |
President and Chief Operating Officer | | | 2007 | | | | 572,500 | | | | — | | | | 436,855 | | | | 791,038 | | | | 2,334,665 | | | | 2,281,398 | | | | 89,390 | | | | 6,505,846 | |
William J. DeLaney(6) | | | 2008 | | | | 560,000 | | | | — | | | | 398,334 | | | | 187,654 | | | | 2,084,295 | | | | 1,236,183 | | | | 210,661 | | | | 4,677,127 | |
Executive Vice President and Chief Financial Officer | | | 2007 | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | n/a | |
Larry G. Pulliam | | | 2008 | | | | 550,000 | | | | — | | | | 378,077 | | | | 463,434 | | | | 2,139,874 | | | | 573,188 | | | | 69,694 | | | | 4,174,267 | |
Executive Vice President, Global Sourcing and Supply Chain | | | 2007 | | | | 530,000 | | | | — | | | | 399,833 | | | | 406,599 | | | | 2,044,028 | | | | 1,905,992 | | | | 73,485 | | | | 5,359,937 | |
Kenneth J. Carrig(6) | | | 2008 | | | | 517,500 | | | | — | | | | 361,200 | | | | 405,551 | | | | 2,057,674 | | | | 376,556 | | | | 69,091 | | | | 3,787,572 | |
Executive Vice President and Chief Administrative Officer | | | 2007 | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | n/a | |
| | |
(1) | | These amounts relate to the provisions28% stock match on the MIP bonus earned with respect to fiscal 2007 and 2008, which we calculated without taking into account any increases from the Supplemental Bonus Plan and paid in the first quarter of fiscal 2008 and 2009, respectively. With respect to fiscal 2007 awards issued in August 2007, we valued the 2000 MIP.Election to Receive Common Stock
A Participant may give noticeshares at the June 29, 2007 closing stock price of $32.99 per share. With respect to the Committee withinfiscal 2008 awards issued in August 2008, we valued the first ninety (90) days of fiscal year 2006 that such participant irrevocably elects to receive a certain percentage (up to 40% in 5% increments) of his or her annual bonus in the form of Company Common Stock (valuedshares at the June 27, 2008 closing stock price on the New York Stock Exchange (“NYSE”) on the last trading day of such fiscal year)$28.22 per share. Amounts shown include cash issued in lieu of cash. In the event of such election, such Participant will receive an additionalany fractional shares. The number of shares equalissued are as follows:
|
| | | | | | | | |
| | Number of Shares
| | Number of Shares
|
| | Issued with Respect to
| | Issued with Respect to
|
| | Fiscal 2007 | | Fiscal 2008 |
|
Schnieders | | | 28,514 | | | | 31,944 | |
Spitler | | | 15,047 | | | | 19,846 | |
DeLaney | | | n/a | | | | 16,039 | |
Pulliam | | | 13,772 | | | | 15,224 | |
Carrig | | | n/a | | | | 14,544 | |
| | |
(2) | | The amounts in these columns reflect the dollar amount recognized as compensation expense for financial statement reporting purposes for the fiscal years ended June 30, 2007 and June 28, 2008 in accordance with Statement of Financial Accounting Standards No. 123R, “Share-based Payments.” The option awards column includes amounts from awards issued prior to 50%fiscal 2007 as well as those issued during fiscal 2007 and fiscal 2008. See Note 13 of the numberconsolidated financial statements in SYSCO’s Annual Report for the year ended June 30, 2007 and Note 15 of the consolidated financial statements in SYSCO’s Annual Report for the year ended June 28, 2008 regarding assumptions underlying valuation of equity awards. Because the shares determined as described above (“Additional Shares”) and an additional cash amount equal toin the value of such Additional Shares multipliedstock awards column are not transferable by the effective tax rate applicable to the Companyrecipient for such fiscal year.Restrictions on Awards
Participants may also be required to enter into an agreement at the time of issuance of such shares that the Participant will not sell, transfer, give or otherwise convey any of such shares for a period of two years from the date on which such shares were issued to the Participant,of issuance except in specified circumstances, they are recorded with a 12% discount from the event of death or termination of employment due to disability or retirement undervalue described in footnote (1) above.
|
|
(3) | | These amounts include the normal Company benefit plans, and such shares shall bear a legend reflecting the terms of such restriction. If a Participant’s employment is terminated at any time within the first twelve month period following the issuance of shares for any reason, with or without cause, other than the Participant’s death or termination of employment due to disability or retirement under normal Company benefit plans, then upon demandcash portion of the Company madeMIP bonus paid in writing within thirty (30) days fromAugust 2007 with respect to fiscal 2007 performance and the date of termination, such Participant will sell to the Company allcash portion of the stock issuedMIP bonus paid in August 2008 with respect to the Participant within the twelve months preceding the datefiscal 2008 performance, in each case exclusive of termination at a purchase price equal to the lower of the then market price of the stock or the price at which the stock was valued for purposes of issuing it pursuant to the plan. If a Participant’s employment is terminated after one year but before two years from the date on which any such shares of Common Stock were issued to the Participant, on the demand of the Company made in writing within thirty (30) days from the
|
39
40
date of termination, such Participant will sell | | |
| | 28% stock match included in the “Stock Awards” column, and as adjusted by the Supplemental Bonus. The amounts also include payments made in August 2007 for fiscal 2007 and August 2008 for fiscal 2008 with respect to the Company,cash performance unit grants previously made under the company’s 2004 Cash Performance Unit Plan. The following table shows the relative amounts attributable to each of these awards: |
| | | | | | | | | | | | | | | | |
| | Fiscal 2007
| | | | Fiscal 2008
| | |
| | Cash Portion of
| | | | Cash Portion of
| | |
| | MIP Bonus (as
| | | | MIP Bonus (as
| | |
| | Adjusted by
| | | | Adjusted by
| | |
| | Supplemental
| | Fiscal 2007
| | Supplemental
| | Fiscal 2008
|
| | Bonus) | | CPU Payouts | | Bonus) | | CPU Payouts |
|
Schnieders | | $ | 3,930,720 | | | $ | 2,419,375 | | | $ | 3,863,400 | | | $ | 3,185,000 | |
Spitler | | | 2,074,352 | | | | 260,313 | | | | 2,400,242 | | | | 298,594 | |
DeLaney | | | n/a | | | | n/a | | | | 1,939,920 | | | | 144,375 | |
Pulliam | | | 1,898,559 | | | | 145,469 | | | | 1,841,280 | | | | 298,594 | |
Carrig | | | n/a | | | | n/a | | | | 1,759,080 | | | | 298,594 | |
Included in the amounts shown above for the cash portion of the MIP bonus (as adjusted by the supplemental bonus) are amounts deferred by each of the named executive officers under the EDCP as follows:
| | | | | | | | |
| | Amount Deferred in
| | Amount Deferred in
|
| | Relation to Fiscal 2007 | | Relation to Fiscal 2008 |
|
Schnieders | | $ | 786,144 | | | $ | 772,680 | |
Spitler | | | 829,741 | | | | 960,096 | |
DeLaney | | | n/a | | | | 387,984 | |
Pulliam | | | 379,712 | | | | 368,256 | |
Carrig | | | n/a | | | | 703,632 | |
| | |
(4) | | The amounts reported in additionthe “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column reflect the actuarial increase in the present value of the named executive officers’ benefits under all pension plans established by SYSCO, determined using interest rate and mortality rate assumptions consistent with those used in SYSCO’s financial statements. The amounts, some of which may not be currently vested, include: |
| | |
| • | change in pension plan value, |
| • | change in Supplemental Executive Retirement Plan, or SERP, value, and |
| • | above-market interest on the EDCP. |
The following table shows the amounts attributable to each of these plans:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Total Change in
|
| | | | | | | | | | Pension Value and
|
| | | | Change in
| | Change in
| | Above-Market
| | Non-Qualified
|
| | Fiscal
| | Pension Plan
| | SERP
| | Interest on
| | Compensation
|
Name | | Year | | Value | | Value | | EDCP | | Earnings |
|
Schnieders | | | 2008 | | | $ | 35,581 | | | $ | 1,529,265 | | | $ | 93,133 | | | $ | 1,657,979 | |
| | | 2007 | | | | 59,427 | | | | 4,395,257 | | | | 76,763 | | | | 4,531,447 | |
Spitler | | | 2008 | | | | 30,960 | | | | 1,419,539 | | | | 64,053 | | | | 1,514,552 | |
| | | 2007 | | | | 52,925 | | | | 2,178,822 | | | | 49,651 | | | | 2,281,398 | |
DeLaney | | | 2008 | | | | 14,118 | | | | 1,216,725 | | | | 5,340 | | | | 1,236,183 | |
| | | 2007 | | | | n/a | | | | n/a | | | | n/a | | | | n/a | |
Pulliam | | | 2008 | | | | 14,199 | | | | 529,412 | | | | 29,577 | | | | 573,188 | |
| | | 2007 | | | | 34,185 | | | | 1,849,169 | | | | 22,638 | | | | 1,905,992 | |
Carrig | | | 2008 | | | | 12,389 | | | | 332,124 | | | | 32,043 | | | | 376,556 | |
| | | 2007 | | | | n/a | | | | n/a | | | | n/a | | | | n/a | |
| | |
(5) | | The table below shows the components of the “All Other Compensation” column, which include: |
| | |
| • | a SYSCO match equal to 15% of the first 20% of the annual incentive bonus which each individual elected to defer under the Executive Deferred Compensation Plan. (The terms of this plan are described in more detail under “Non-Qualified Deferred Compensation”); |
| • | the full amount paid for term life insurance coverage for each individual (the excess amount for such coverage over the amounts paid for other employees is not determinable since the deductibles and coverages may be different); |
40
| | |
| • | the amount of 401(k) Plan matching contributions paid in August 2008 with respect to the shares2008 fiscal year and in August 2007 with respect to the 2007 fiscal year; |
| • | perquisites, including with respect to each named executive officer: |
a. the amount paid for accidental death and dismemberment insurance coverage,
b. the amount paid for long-term care insurance,
c. the amount reimbursed to the individual for an annual medical exam,
d. the amounts paid for long-term disability coverage under the company’s disability income plan,
| | |
| e. | the amount paid for spousal travel in connection with business events (which amounts reflect only commercial travel; no incremental costs were incurred in connection with travel of spouses on the company plane with executive officers to and from business events), |
f. the estimated amount paid for spousal meals in connection with business events, and
g. with respect to Mr. DeLaney, $138,406 for reimbursement of relocation expenses.
Except for reimbursement of relocation expenses to Mr. DeLaney as discussed above, no executive received any single perquisite or benefit with a value greater than $25,000.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Term
| | 401(k)
| | | | |
| | Fiscal
| | Deferred
| | Life
| | Matching
| | | | |
Name | | Year | | Match | | Insurance | | Contributions | | Perquisites | | Total |
|
Schnieders | | | 2008 | | | $ | 115,902 | | | $ | 907 | | | $ | 6,750 | | | $ | 17,827 | | | $ | 141,386 | |
| | | 2007 | | | | 117,922 | | | | 907 | | | | 6,600 | | | | 31,191 | | | | 156,620 | |
Spitler | | | 2008 | | | | 72,007 | | | | 907 | | | | 6,750 | | | | 12,661 | | | | 92,325 | |
| | | 2007 | | | | 62,231 | | | | 907 | | | | 6,600 | | | | 19,652 | | | | 89,390 | |
DeLaney | | | 2008 | | | | 58,198 | | | | 907 | | | | 6,750 | | | | 144,806 | | | | 210,661 | |
| | | 2007 | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | n/a | |
Pulliam | | | 2008 | | | | 55,238 | | | | 907 | | | | 6,750 | | | | 6,799 | | | | 69,694 | |
| | | 2007 | | | | 56,957 | | | | 903 | | | | 6,600 | | | | 9,025 | | | | 73,485 | |
Carrig | | | 2008 | | | | 52,772 | | | | 888 | | | | 6,750 | | | | 8,681 | | | | 69,091 | |
| | | 2007 | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | n/a | |
| | |
(6) | | Compensation for Messrs. DeLaney and Carrig is provided only for fiscal 2008 because neither was a named executive officer in fiscal 2007. |
Grants of Plan-Based Awards
The following table provides information on CPU grants, stock options and MIP and Supplemental Plan awards we granted in fiscal 2008 to each of the named executive officers.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | All
| | | | | | |
| | | | | | | | | | | | Other
| | | | | | Grant
|
| | | | | | | | | | | | Option
| | | | | | Date
|
| | | | | | | | | | | | Awards:
| | | | Closing
| | Fair
|
| | | | Number
| | | | | | | | Number
| | Exercise
| | Market
| | Value
|
| | | | of
| | | | | | | | of
| | or Base
| | Price
| | of
|
| | | | Shares,
| | | | | | | | Securities
| | Price
| | on the
| | Stock
|
| | | | Units
| | Estimated Future Payouts Under Non-
| | Under-
| | of
| | Date
| | and
|
| | | | or
| | Equity Incentive Plan Awards | | lying
| | Option
| | of
| | Option
|
| | Grant
| | Other
| | Threshold
| | Target
| | Maximum
| | Options
| | Awards
| | Grant
| | Awards
|
Name | | Date | | Rights | | ($) | | ($) | | ($) | | (#)(1) | | ($/Sh)(2) | | ($) | | ($)(3) |
|
Schnieders | | | 9/18/07 | (4) | | | 112,000 | | | $ | 980,000 | | | $ | 3,920,000 | | | $ | 5,880,000 | | | | | | | | | | | | | | | | | |
| | | 11/13/07 | | | | 140,000 | | | | | | | | | | | | | | | | 140,000 | | | $ | 33.39 | | | $ | 33.62 | | | $ | 942,200 | |
| | | 5/13/08 | (5) | | | n/a | | | | 223,250 | | | | 2,232,500 | | | | 3,683,625 | | | | | | | | | | | | | | | | | |
| | | 6/27/08 | (6) | | | n/a | | | | — | | | | — | | | | 920,906 | | | | | | | | | | | | | | | | | |
Spitler | | | 9/18/07 | (4) | | | 45,000 | | | | 393,750 | | | | 1,575,000 | | | | 2,362,500 | | | | | | | | | | | | | | | | | |
| | | 11/13/07 | | | | 100,000 | | | | | | | | | | | | | | | | 100,000 | | | | 33.39 | | | | 33.62 | | | | 673,000 | |
| | | 5/13/08 | (5) | | | n/a | | | | 138,700 | | | | 1,387,000 | | | | 2,288,550 | | | | | | | | | | | | | | | | | |
| | | 6/27/08 | (6) | | | n/a | | | | — | | | | — | | | | 572,138 | | | | | | | | | | | | | | | | | |
DeLaney | | | 9/18/07 | (4) | | | 12,000 | | | | 105,000 | | | | 420,000 | | | | 630,000 | | | | | | | | | | | | | | | | | |
| | | 11/13/07 | | | | 73,000 | | | | | | | | | | | | | | | | 73,000 | | | | 33.39 | | | | 33.62 | | | | 491,290 | |
| | | 5/13/08 | (5) | | | n/a | | | | 112,100 | | | | 1,121,000 | | | | 1,849,650 | | | | | | | | | | | | | | | | | |
41
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | All
| | | | | | |
| | | | | | | | | | | | Other
| | | | | | Grant
|
| | | | | | | | | | | | Option
| | | | | | Date
|
| | | | | | | | | | | | Awards:
| | | | Closing
| | Fair
|
| | | | Number
| | | | | | | | Number
| | Exercise
| | Market
| | Value
|
| | | | of
| | | | | | | | of
| | or Base
| | Price
| | of
|
| | | | Shares,
| | | | | | | | Securities
| | Price
| | on the
| | Stock
|
| | | | Units
| | Estimated Future Payouts Under Non-
| | Under-
| | of
| | Date
| | and
|
| | | | or
| | Equity Incentive Plan Awards | | lying
| | Option
| | of
| | Option
|
| | Grant
| | Other
| | Threshold
| | Target
| | Maximum
| | Options
| | Awards
| | Grant
| | Awards
|
Name | | Date | | Rights | | ($) | | ($) | | ($) | | (#)(1) | | ($/Sh)(2) | | ($) | | ($)(3) |
|
Pulliam | | | 9/18/07 | (4) | | | 12,000 | | | | 105,000 | | | | 420,000 | | | | 630,000 | | | | | | | | | | | | | | | | | |
| | | 11/13/07 | | | | 73,000 | | | | | | | | | | | | | | | | 73,000 | | | | 33.39 | | | | 33.62 | | | | 491,290 | |
| | | 5/13/08 | (5) | | | n/a | | | | 106,400 | | | | 1,064,000 | | | | 1,755,600 | | | | | | | | | | | | | | | | | |
Carrig | | | 9/18/07 | (4) | | | 12,000 | | | | 105,000 | | | | 420,000 | | | | 630,000 | | | | | | | | | | | | | | | | | |
| | | 11/13/07 | | | | 73,000 | | | | | | | | | | | | | | | | 73,000 | | | | 33.39 | | | | 33.62 | | | | 491,290 | |
| | | 5/13/08 | (5) | | | n/a | | | | 101,650 | | | | 1,016,500 | | | | 1,677,225 | | | | | | | | | | | | | | | | | |
| | |
(1) | | The options granted to the named executive officers under the 2007 Stock Incentive Plan during fiscal 2008 vest 20% per year for five years beginning on the first anniversary of the grant date. If an executive retires in good standing or leaves our employment because of disability, his options will remain in effect, vest and be exercisable in accordance with their terms as if he or shehad remained employed. If an executive dies during the term of his option, all unvested options will vest immediately and may be requiredexercised by his estate at any time until the earlier to selloccur of three years after his death, or the option’s termination date. In addition, an executive will forfeit all of his unexercised options if the Committee finds by a majority vote that, either before or after termination of his employment, he: |
| | |
| • | committed fraud, embezzlement, theft, a felony, or proven dishonesty in the course of his employmentand by any such act, damaged us or our subsidiaries; |
| • | disclosed our trade secrets; or |
| • | participated, engaged or had a financial or other interest in any commercial venture in the United States competitive with our business in violation of our Code of Conduct or that would have violated our Code of Conduct had he been an employee when he engaged in the prohibited activity. |
| | |
(2) | | We granted all of these options under our 2007 Stock Incentive Plan, which directs that the preceding sentence, 50% of the stock issued to the Participant within twenty-four months but more than twelve months preceding the date of termination at a purchase price equal to the lower of the then marketexercise price of the stock, or the price at which the stock was valued for purposes of issuing it pursuant to the 2006 Awards. The market price of the Common Stock shall be deemed to beall options is the closing price of such stock on the primary securities exchange on which such stock is traded on the date of termination; and if such stock did not trade on such date, then on the next day on which it does trade. The shares of any Common Stock issued under the 2006 Awards shall bear a legend reflecting these restrictions.New Plan Benefits
Because the Committee has complete discretion to determine the number and selection of award recipients as well as the number, types, vesting requirements and other terms of all awards, and because the future value of Common Stock is uncertain, it is not possible to determine the benefits or amounts, if any, that will be received by or allocated to any person under the 2006 Awards. However, for informational purposes only, set forth below are the values of bonuses that would have been received with respect to the 2005 fiscal year had the 2006 Program been in effect for fiscal 2005 for each of the Named Executive Officers and the 2006 Award Recipients as a group. Because the 2006 Program is unchanged from the 2005 Program, these are also the amounts that were actually received with respect to the 2005 fiscal year under the 2005 Program.
| | | | | | | | | | | | | | | | | Total Restricted Shares Awarded(2) | | | | | | | | | | | | | | Aggregate Value | | | | | | | | Based on Closing | | Name and Position | | Total Cash Awarded(1)(2) | | | Number of Shares | | | Price at 07/01/05 | | | | | | | | | | | | Richard J. Schnieders, Chairman, Chief Executive Officer and President | | $ | 1,387,706 | (3) | | | 34,080 | | | $ | 1,235,400 | | Thomas E. Lankford(4) | | | 991,213 | | | | 24,343 | | | | 882,434 | | John K. Stubblefield, Jr., Executive Vice President, Finance and Chief Financial Officer | | | 753,311 | | | | 18,501 | | | | 670,661 | | Larry J. Accardi, Executive Vice President, Contract Sales and President, Specialty Distribution Companies | | | 713,672 | | | | 17,527 | | | | 635,354 | | Kenneth F. Spitler, Executive Vice President; President of North American Foodservice Operations | | | 713,672 | | | | 17,527 | | | | 635,354 | | All 2006 Award Recipients as a group | | | 7,410,832 | | | | 181,996 | | | | 6,597,357 | |
| | (1) | Excludes matching amounts credited to participant accounts under the Company’s Executive Deferred Compensation Plan (“EDCP”) with respect to any amounts of a MIP bonus that were deferred. EDCP matches for the named individuals were as follows: Mr. Schnieders, $205,905; Mr. Lankford, $147,075; Mr. Stubblefield, $111,777; Mr. Accardi, $105,894; and Mr. Spitler, $105,894. | | (2) | The Total Cash Awarded and Total Restricted Shares Awarded columns above include all cash and shares distributed, respectively, under the 2000 MIP pursuant to awards made with respect to the 2005 fiscal year, including all company matches and accompanying payments. | | (3) | Does not include $370,629 paid under the Supplemental Plan. | | (4) | Thomas E. Lankford resigned as President and Chief Operating Officer effective July 2, 2005. |
Bonus amounts paid pursuant to the 2006 Awards may vary materially from the amounts paid with respect to the 2005 fiscal year.
41
Supplemental Performance Based Bonus Plan
Mr. Schnieders also participates in the Supplemental Performance Based Bonus Plan, under the terms of which he may (a) receive a bonus payable outside the 2000 MIP, or (b) forfeit a portion of any bonus payable under the 2000 MIP. See “Report of the Compensation and Stock Option Committee — Incentive Compensation — Supplemental Performance Based Bonus Plan.”
Executive Deferred Compensation Plan
Participants in the 2000 MIP are entitled to defer portions of any bonus payable under the 2000 MIP and receive matching contributions to their accounts under the Company’s Executive Deferred Compensation Plan. See “Report of the Compensation and Stock Option Committee — Incentive Compensation — Deferred Compensation Election.”
Supplemental Executive Retirement Plan
Bonuses payable under the 2000 MIP will be included in calculating a participant’s final average compensation for purposes of determining benefits payable under the Supplemental Executive Retirement Plan.
Federal Income Tax Consequences
The following discussion addresses certain anticipated federal income tax consequences to Senior Executive Participants who receive the 2006 Awards and to the Company. It is based on the Code and interpretations thereof as in effect on the date of this proxy statement. Recipients of the 2006 Awards should consult their own tax advisors to determine the tax consequences to them based on their own particular circumstances.
The amount of the cash portion of a Participant’s award bonus will constitute ordinary income to the recipient when received and will be deductible to the Company in the fiscal year in which the bonus is earned. If a Participant elects to receive a portion of his or her bonus in stock of the Company, the market value of such stock (as of the last trading day of the fiscal year of the Company for which such bonus was earned) will be treated as ordinary income when received, and the Company will be entitled to an equivalent deduction in the fiscal year in which the bonus was earned. Any subsequent sale of the stock by him or her shall give rise to a capital gain or loss.
The discussion set forth above is intended only as a summary and does not purport to be a complete enumeration or analysis of all potential tax effects relevant to recipients of 2006 Awards. We have not undertaken to discuss the tax treatment of the 2006 Awards in connection with a merger, consolidation or similar transaction. Such treatment will depend on the terms of the transaction and the method of dealing with the awards in connection therewith.
Certain Interests of Directors
In considering the recommendation of the Board of Directors with respect to the 2006 Awards, stockholders should be aware that members of the Board of Directors have certain interests that may present them with conflicts of interest in connection with the proposal to approve the 2006 Awards.
Certain of the directors who are employees of the Company are 2006 Award Recipients and are likely to be Senior Executive Participants. Nevertheless, the Board of Directors believes that approval of the 2006 Awards will advance the interests of the Company and its stockholders by encouraging key officers to make significant contributions to the long term success of the Company.
Required Vote
The affirmative vote of a majority of votes cast is required to approve the payment of compensation to certain executive officers pursuant to the 2000 Management Incentive Plan.
The Board of Directors recommends a vote FOR approval of the payment of compensation to certain
executive officers pursuant to the 2000 Management Incentive Plan.
42
PROPOSAL TO APPROVE THE 2005 NON-EMPLOYEE DIRECTORS STOCK PLAN
ITEM NO. 5 ON THE PROXY CARD
Background
On September 9, 2005, the Board of Directors adopted the Sysco Corporation 2005 Non-Employee Directors Stock Plan (the “Proposed Directors Plan”), and unanimously recommended that the Proposed Directors Plan be submitted to stockholders for their approval at the 2005 annual meeting. If approved, the Proposed Directors Plan will replace the Company’s Amended and Restated Non-Employee Directors Stock Plan (the “Existing Directors Plan”) that is currently in place. If the Proposed Directors Plan is approved by stockholders, no new grants will be made under the Existing Directors Plan, although outstanding awards thereunder will remain outstanding, and may be exercised and will continue to vest in accordance with their terms. On September 26, 2005, the closing price of SYSCO’s common stock as reported by the NYSE was $32.01.
The following is a summary of the principal provisions of the Proposed Directors Plan. The full text of the Proposed Directors Plan is attached hereto as Annex C.
Purpose
The purpose of the Proposed Directors Plan is to make available shares of common stock for award to or purchase by non-employee directors of SYSCO in order to attract, retain and provide compensation for the services of experienced and knowledgeable non-employee directors for the benefit of SYSCO and its stockholders, and enable them to increase their ownership of SYSCO common stock and their personal financial stake in the Company, in addition to underscoring their common interest with stockholders in increasing the value of SYSCO over the long term.
Eligibility
All members of SYSCO’s Board of Directors who are not current employees of SYSCO or any of its subsidiaries are eligible to participate in the Proposed Directors Plan. There currently are nine non-employee directors on the Board. Assuming the Board’s nominees are elected at the Annual Meeting, there will be nine non-employee directors as of the date of the Annual Meeting.
Shares Reserved for the Proposed Directors Plan
The Proposed Directors Plan provides for the grant of options (“Options”), retainer stock awards (“Retainer Stock Awards”), restricted stock (“Restricted Stock”), restricted stock units (“Restricted Stock Units”), elected shares in lieu of a portion of annual cash retainer fees (“Elected Shares”) and additional matching shares issued with respect to Elected Shares (“Additional Shares”). Options granted may also provide for dividend equivalent rights. An aggregate maximum of 550,000 shares of the Company’s common stock may be issued under the Proposed Directors Plan. Of this total, 220,000 shares may be issued pursuant to Options, 320,000 shares may be issued pursuant to Retainer Stock Awards, Restricted Stock Awards, Restricted Stock Unit Awards, Elected Shares and Additional Shares, and 10,000 shares may be issued as dividend equivalents.
The number of shares covered by the Proposed Directors Plan is subject to adjustment in the event of stock dividends, stock splits, combinations of shares, mergers, consolidations, rights offerings, reorganizations or recapitalizations, or in the event of other changes in SYSCO’s corporate structure or shares. Any such adjustment will be made only if adjustments are made to awards under the Company’s incentive plans for management then in effect. Shares issued under the Proposed Directors Plan may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares purchased on the open market.
To the extent any Option granted under the Proposed Directors Plan expires or terminates for any reason prior to exercise, the number of shares subject to the portion of the Option not so exercised will be available for future grants under the Proposed Directors Plan. Shares subject to Retainer Stock Awards, Restricted
43
Stock Awards or Restricted Stock Unit Awards that are forfeited or cancelled will again be available for new grants.
Administration of the Proposed Directors Plan
The Proposed Directors Plan is administered by the Board. The Board has the authority to terminate or amend the Proposed Directors Plan, to determine the terms and provisions of the respective Option and award agreements, to construe Option and award agreements and the Proposed Directors Plan, and to make all other determinations in the judgment of the Board necessary or desirable for the administration of the Proposed Directors Plan, including amending the vesting and exercisability terms of any Options. However, the Proposed Directors Plan may not be amended by the Board to revoke or alter any provision in a manner which is unfavorable to the grantee of Options, Retainer Stock Awards, Restricted Stock, Restricted Stock Units, Elected Shares or Additional Shares then outstanding. In addition, certain material amendments of the Proposed Directors Plan will be subject to stockholder approval, including increasing the number of shares authorized for issuance, in total or pursuant to any award type, modifying the method by which the Option exercise price is determined, providing for the repricing of any Option, expanding the types of awards that may be granted, materially expanding the class of participants or materially extending the term of the Plan. The Board may delegate any or all of its authority under the Proposed Directors Plan to the non-employee directors, or to any two or more thereof.
Grant of Stock Options and Exercise Price
Under the Proposed Directors Plan, the Board will be entitled to grant Options in its discretion to eligible non-employee directors. Except as disclosed below, the Board may impose whatever terms or restrictions it deems appropriate in connection with any Option grant. The option exercise price per share to be established by the Board of Directors shall be not less than the last closing price of the Company’s commonour stock on the New York Stock Exchange on the first business day prior to the grant date.
|
|
(3) | | We determined the estimated grant date present value for the options of $6.73 per share using a modified Black-Scholes pricing model. In applying the model, we assumed a volatility of 24%, a 3.8% risk-free rate of return, a dividend yield at the date of grant of 2.6% and a 4.8-year expected option life. We did not assume any option exercises or risk of forfeiture during the Option (the “Fair Market Value”).4.8-year expected option life. Had we done so, such assumptions could have reduced the reported grant date value. The Boardactual value, if any, an executive may impose such restrictions or conditionsrealize upon exercise of options will depend on the shares to be received uponexcess of the stock price over the exercise of an Option as it deems appropriate.Dividends and Dividend Equivalent Rights
Underprice on the Proposed Directors Plan, an Option may includedate the rightoption is exercised. Consequently, there is no assurance that the value realized, if any, will be at or near the value estimated by the modified Black-Scholes model.
|
|
(4) | | These amounts relate to receive dividend payments or dividend equivalent paymentscash performance units with a three-year performance period. See “2004 Cash Performance Unit Plan” below. |
|
(5) | | These amounts relate to MIP awards made with respect to fiscal 2009. The minimum bonus amount if the threshold criteria are satisfied is 20% of the named executive officer’s annual salary as of the end of the fiscal year. The target bonus is approximately 200% of the named executive officer’s annual salary as of the end of the fiscal year and the maximum bonus is 330% of the named executive officer’s annual salary as of the end of the fiscal year. |
|
(6) | | These grants relate to supplemental bonus agreements, which can cause the MIP bonus to be increased or decreased by up to 25% (see “Supplemental Performance Bonuses”). These awards have no threshold or targeted values. |
2004 Cash Performance Unit Plan
The SYSCO Corporation 2004 Cash Performance Unit Plan was formerly known as the SYSCO Corporation 2004 Mid-Term Incentive Plan and the SYSCO Corporation 2004 Long-Term Incentive Cash Plan, and is referred to herein as the “Cash Performance Unit Plan”. The Cash Performance Unit Plan provides for certain key employees, including the named executive officers, the opportunity to earn cash incentive payments based on pre-established performance criteria over performance periods of at least three years. We refer to these units as “CPUs”. The Committee currently makes grants annually for performance periods ending at the end of the third fiscal year, including the year of grant. The Committee may make grants under the Cash Performance Unit Plan until September 4, 2009 unless the Board terminates it earlier. However, if the 2009 Cash
42
Performance Unit Plan is approved by the stockholders at the annual meeting, all future CPU grants to the named executive officers will be made pursuant to the 2009 Plan (see “Proposal To Approve Material Terms Of, And Compensation To Be Paid To Certain Executive Officers Pursuant To, The 2009 Cash Performance Unit Plan”).
Under the 2004 plan, the Committee may select performance goals from those specified in the plan, based on the performance of SYSCO generally or on the performance of subsidiaries or divisions. With respect to all currently outstanding corporate grants, the Committee set performance criteria based on the average increases in SYSCO’s net earnings per share and sales over the performance periods (see below regarding certain adjustments in such measures). In addition to the awards that the named executives received in September 2005 and that we paid to them in August 2008, as discussed in footnote (3) to the Summary Compensation Table, the named executives currently hold cash performance unit grants in the amounts and for the performance periods set forth below:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Number of
| | | | | | | | |
| | Fiscal Year in
| | Performance
| | | | Payout Amount |
Name | | Which Granted | | Units Held | | Performance Period | | Minimum | | Target | | Maximum |
|
Schnieders | | | 2007 | | | | 112,000 | | | | 7/2/2006-6/27/2009 | | | $ | 980,000 | | | $ | 3,920,000 | | | $ | 5,880,000 | |
| | | 2008 | | | | 112,000 | | | | 7/1/2007-7/3/2010 | | | | 980,000 | | | | 3,920,000 | | | | 5,880,000 | |
| | | 2009 | | | | 90,000 | | | | 6/29/2008-7/2/2011 | | | | 787,500 | | | | 3,150,000 | | | | 4,725,000 | |
Spitler | | | 2007 | | | | 10,500 | | | | 7/2/2006-6/27/2009 | | | | 91,875 | | | | 367,500 | | | | 551,250 | |
| | | 2008 | | | | 45,000 | | | | 7/1/2007-7/3/2010 | | | | 393,750 | | | | 1,575,000 | | | | 2,362,500 | |
| | | 2009 | | | | 40,000 | | | | 6/29/2008-7/2/2011 | | | | 350,000 | | | | 1,400,000 | | | | 2,100,000 | |
DeLaney | | | 2007 | | | | 2,750 | | | | 7/2/2006-6/27/2009 | | | | 24,063 | | | | 96,250 | | | | 144,375 | |
| | | 2008 | | | | 12,000 | | | | 7/1/2007-7/3/2010 | | | | 105,000 | | | | 420,000 | | | | 630,000 | |
| | | 2009 | | | | 18,000 | | | | 6/29/2008-7/2/2011 | | | | 157,500 | | | | 630,000 | | | | 945,000 | |
Pulliam | | | 2007 | | | | 10,500 | | | | 7/2/2006-6/27/2009 | | | | 91,875 | | | | 367,500 | | | | 551,250 | |
| | | 2008 | | | | 12,000 | | | | 7/1/2007-7/3/2010 | | | | 105,000 | | | | 420,000 | | | | 630,000 | |
| | | 2009 | | | | 15,000 | | | | 6/29/2008-7/2/2011 | | | | 131,250 | | | | 525,000 | | | | 787,500 | |
Carrig | | | 2007 | | | | 10,500 | | | | 7/2/2006-6/27/2009 | | | | 91,875 | | | | 367,500 | | | | 551,250 | |
| | | 2008 | | | | 12,000 | | | | 7/1/2007-7/3/2010 | | | | 105,000 | | | | 420,000 | | | | 630,000 | |
| | | 2009 | | | | 15,000 | | | | 6/29/2008-7/2/2011 | | | | 131,250 | | | | 525,000 | | | | 787,500 | |
Following the conclusion of each three-year performance period, if we meet the relevant performance criteria, we will pay each named executive an amount obtained by multiplying the number of performance units that the executive received by the $35 value assigned to each unit and then multiplying the resulting product by a specified percentage. At the time of the fiscal 2007 grants, Mr. DeLaney was serving as President of SYSCO’s Charlotte subsidiary, so one-half of his payout for the fiscal 2007 through fiscal 2009 performance period will be based on such subsidiary’s increase in operating pre-tax earnings and one-half will be based on the percentage increase in the subsidiary’s sales adjusted for product inflation and deflation. Each of the outstanding corporate CPU grants, including all grants to Messrs. Schnieders, Spitler, Pulliam and Carrig and the fiscal 2008 and fiscal 2009 grants to Mr. DeLaney, contains a sliding scale for each component for each of the performance periods as follows:
| | |
| • | one-half of the payout is based on average growth in net earnings per share |
| | |
| ◦ | with respect to the7/2/2006-6/27/2009 and7/1/2007-7/3/2010 performance periods, this is basic earnings per share and with respect to the6/29/2008-7/2/2011 performance period, this is fully diluted earnings per share; and |
| ◦ | with respect to the7/2/2006-6/27/2009 performance period, this excludes accruals for the MIP and supplemental bonuses, |
plus
| | |
| • | one-half of the payout is based on average increase in sales |
| | |
| ◦ | with respect to the7/2/2006-6-27-2009 performance period, we adjust for product inflation and deflation; there is no such adjustments for the three-year performance periods ending in fiscal 2010 and 2011. |
Samples of the payment criteria and payout percentages, including the threshold, target and maximum payment criteria and payout percentages, for each component of the corporate grants are set forth below. The amounts shown reflect a simplified grid of payment criteria and payout amounts; they do not include incremental criteria and payouts between the amounts shown. In between the levels shown in the table, the payout percentage increases incrementally, approximately in proportion to increases in the criteria. The minimum percentage payout would be 25% if only one of the performance criteria is satisfied at the minimum level and the maximum percentage payout would be 150% if the maximum levels for both criteria are satisfied. As an example, achievement of 12% earnings growth and 6% sales growth for the corporate CPUs covering the fiscal years2008-2010 would result in an 87.5% payout (determined by adding 62.5% and 25%), or $30.625 per unit (determined by taking 87.5% of $35 per unit).
43
| | | | | | | | | | | | | | | | | | |
| | Part 1 — Growth in Earnings Per Share |
Fiscal Years | | Minimum | | | | | | Target | | | | | | Maximum |
|
2007-2009 | | | 6 | % | | | 8 | % | | | 10 | % | | | 12 | % | | 14% and up |
2008-2010 | | | 6 | % | | | 8 | % | | | 10 | % | | | 12 | % | | 14% and up |
2009-2011 | | | 8 | % | | | 10 | % | | | 12 | % | | | 14 | % | | 16% and up |
Applicable Payout | | | 25 | % | | | 37.5 | % | | | 50 | % | | | 62.5 | % | | 75% |
PLUS
| | | | | | | | | | | | | | | | | | |
| | Part 2 — Growth in Sales |
Fiscal Years | | Minimum | | | | | | Target | | | | | | Maximum |
|
2007-2009 | | | 4 | % | | | 5 | % | | | 6 | % | | | 7 | % | | 8% and up |
2008-2010 | | | 6 | % | | | 7 | % | | | 8 | % | | | 9 | % | | 10% and up |
2009-2011 | | | 6 | % | | | 7 | % | | | 8 | % | | | 9 | % | | 10% and up |
Applicable Payout | | | 25 | % | | | 37.5 | % | | | 50 | % | | | 62.5 | % | | 75% |
The CPUs granted to Mr. DeLaney for the Charlotte subsidiary’s performance for fiscal year 2007 through fiscal year 2009 utilize a similar scale to the corporate scale for fiscal years 2007 through 2009 shown above. Our Charlotte subsidiary often has exceptional results, and Mr. DeLaney received a 150% payout on his CPUs covering the fiscal 2006 through fiscal 2008 performance period. Given such subsidiary’s historical performance due to the efforts of its strong senior management team overseeing operations that are located in a region with a relatively favorable business climate, our Charlotte subsidiary’s results could likely produce a higher payout percentage than the corporate CPUs for the grants with a three-year performance period ending with fiscal 2009.
We will make all payments due with respect to the cash performance units in cash. No payments made under the Cash Performance Unit Plan to any named executive in any fiscal year may be higher than 1% of SYSCO’s earnings before income taxes, as publicly disclosed in the “Consolidated Results of Operations” section of SYSCO’s10-K for the fiscal year ended immediately before the applicable payment date.
If the executive’s employment terminates during a performance period because the executive retires in good standing or leaves our employment due to disability, the executive will nonetheless receive the specified payment on the applicable payment date, as if he remained employed on that date. If the executive dies during the performance period, we will reduce the number of performance units that we awarded to the executive by multiplying the number of performance units we initially awarded to the executive by a fraction, the numerator being the number of months in the performance period during which the executive was an active employee of SYSCO for at least 15 days of the month and the denominator being the number of months in the performance period. If the executive’s employment terminates before the end of the performance period for any reason other than retirement, death or disability, we will cancel the executive’s performance units, and the executive will not receive any payments under the plan with respect to the cancelled performance units. The plan provides that if a change of control occurs during a performance period, the executive’s performance units with respect to that performance period will be automatically vested, and we will pay the executive the maximum amount payable under the plan for that performance period, as if the highest performance levels had been achieved.
See “Proposal To Approve Material Terms Of, And Compensation To Be Paid To Certain Executive Officers Pursuant To, The 2009 Cash Performance Unit Plan” for a description of the 2009 Cash Performance Unit Plan.
2005 Management Incentive Plan
Our 2005 Management Incentive Plan provides key executives, including the named executive officers, with the opportunity to earn bonuses through the grant of annual performance-based bonus awards, payable in cash and shares of common stock. The Committee generally makes bonus awards under the plan in May or June prior to the beginning of the fiscal year to which they relate and we pay amounts owed under such awards in August following the conclusion of such fiscal year. Bonus opportunities awarded to corporate participants, including the named executive officers, under the MIP may be based on any one or more of the following:
| | |
| • | return on stockholders’ equity and increases in earnings per share; |
| • | return on capitaland/or increases in pretax earnings of selected divisions or subsidiaries; and |
| • | one or more specified SYSCO, division or subsidiary performance factors described in the plan. |
44
All of these performance measures relate to performance for completed fiscal years or multiple completed fiscal year periods. For period to period comparisons, we compare results in accordance with generally accepted accounting principles applied on a consistent basis, and we adjust them for any fiscal year containing 53 weeks. The Committee has the discretion to determine which performance factors will be used for a particular award and the relative weights of the factors. No named executive officer may receive an aggregate bonus for any given fiscal year under the MIP, including the value of all cash and stock received, in excess of $10,000,000. The Committee will determine and pay all bonuses within 90 days following the end of the fiscal year for which the bonus was earned.
For the awards we paid with respect to fiscal 2008, we calculated the bonus in two components. The first component of overall SYSCO performance utilized a matrix based upon the annual percentage increase in basic earnings per share and the return on stockholder’s equity. The scale on the X-axis for the percentage increase in earnings per share began at 6% and continued indefinitely, while the corresponding scale on the Y-axis for return on equity began at 14% and also continued indefinitely. Where the two scales intersected determined the payout percentage of base salary for the first component. We would pay no bonus unless SYSCO achieved an increase in earnings per share of at least 6%and achieved a return on stockholders’ equity of at least 14%. The actual 13% increase in earnings per share and 33% return on equity for fiscal 2008 yielded a bonus of 175% of base salary. Because the executives earned a bonus under the first component, then a bonus opportunity was possible under the second component of the plan, as described below.
The second component of the fiscal 2008 bonus calculation was based upon the number of SYSCO operating companies or subsidiaries that attained a 20% or greater return on capital. If a minimum of 20 subsidiaries obtained a 20% or greater return on capital, and that group of subsidiaries employed at least half of the total capital of all subsidiaries, the executives would earn a percentage of base salary equal to 9%. That percentage increases at the rate of 1.5% for each additional subsidiary above 20 that achieves a 20% or greater return on capital. However, no bonus would be paid under the subsidiary component if a bonus was not earned under the first component discussed above. Because 80 SYSCO operating companies, employing more than half of the total capital of all subsidiaries, achieved a 20% or greater return on capital in fiscal 2008, the bonus from this component was approximately 99% of base salary.
We also issued to executives who earned a cash MIP bonus for fiscal 2008 an award of common stock with a value equal to 28% of the cash bonus earned, based on the closing price of our common stock on the New York Stock Exchange on the last day of fiscal 2008. Executives are prohibited from selling or otherwise transferring any shares issued under the plan for at least two years after issuance, except in the event of death or termination of employment due to disability or retirement. In addition, for this two-year period, we may require the executive to forfeit the shares within six months following termination of the executive’s employment other than termination of employment due to death, normal retirement or disability. Beginning with the bonus for fiscal 2009, we may no longer issue any shares of stock under the 2005 MIP.
The amounts paid to the named executive officers pursuant to the 2008 awards are disclosed within the Non-Equity Incentive Plan Compensation and Stock Awards columns of the Summary Compensation Table. In June 2008, we entered into agreements with each of the named executive officers under the Plan for fiscal 2009. The matrix for fiscal 2009 is similar to the matrix for the fiscal 2008 awards, except that the X-axis requires a minimum 4% increase in fully diluted earnings per share, with all other amounts on that axis adjusted as well, and the Y-axis now relates to our three-year average return on capital for the fiscal years 2007, 2008 and 2009, with the threshold set at 10%. The operating company portion of the bonus has been eliminated for fiscal 2009. Thus, the threshold targets for payout of any bonus in fiscal 2009 would require a 4% increase in earnings per share and a 10% three-year average return on capital for a payout equal to 20% of each named executive officer’s salary at the end of fiscal 2009. A simplified version of the matrix for determining fiscal 2009 payment amounts is set forth below. The criteria and payout percentages increase incrementally between the levels shown in the matrix below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Percentage Increase in Earnings per Share* | |
3-Year Average Return on Capital | | 4% | | | 6% | | | 8% | | | 10% | | | 12% | | | 14% | | | 16% | | | 18% | | | 20%+ | |
|
10% | | | 20 | | | | 60 | | | | 80 | | | | 100 | | | | 120 | | | | 140 | | | | 160 | | | | 170 | | | | 180 | |
12% | | | 40 | | | | 80 | | | | 100 | | | | 120 | | | | 140 | | | | 160 | | | | 180 | | | | 190 | | | | 200 | |
14% | | | 60 | | | | 100 | | | | 120 | | | | 140 | | | | 160 | | | | 180 | | | | 200 | | | | 210 | | | | 220 | |
16% | | | 80 | | | | 120 | | | | 140 | | | | 160 | | | | 180 | | | | 200 | | | | 220 | | | | 230 | | | | 240 | |
18% | | | 100 | | | | 140 | | | | 160 | | | | 180 | | | | 200 | | | | 220 | | | | 240 | | | | 250 | | | | 260 | |
20% | | | 100 | | | | 140 | | | | 180 | | | | 200 | | | | 220 | | | | 240 | | | | 260 | | | | 270 | | | | 280 | |
22% | | | 100 | | | | 140 | | | | 180 | | | | 220 | | | | 240 | | | | 260 | | | | 280 | | | | 290 | | | | 300 | |
24% | | | 100 | | | | 140 | | | | 180 | | | | 220 | | | | 260 | | | | 280 | | | | 300 | | | | 310 | | | | 320 | |
25%+ | | | 100 | | | | 140 | | | | 180 | | | | 220 | | | | 260 | | | | 290 | | | | 310 | | | | 320 | | | | 330 | |
| | |
* | | Numbers shown in the body of the table are percentages applied to base salary in effect at the end of fiscal 2009. |
45
If, during fiscal 2009, the sale or exchange of an operating division or subsidiary results in the recognition of a net-after tax gain, the Committee has the discretion to reduce the portion of the bonus payable under the fiscal 2009 awards. However, the bonus cannot be reduced to an amount less than the bonus otherwise payable if we had not taken into account the net-after tax gain from the sale or exchange.
Supplemental Performance Bonuses
For fiscal 2008, the purpose of the supplemental performance bonuses was to align a portion of our CEO’s overall compensation package with his individual performance and a portion of the president’s and all executive and senior vice presidents’ overall compensation package with the management team’s performance. We paid all of such fiscal 2008 bonuses under our 2006 Supplemental Performance Based Bonus Plan, and all of the named executive officers were participants in the plan for fiscal 2008. In May 2008, we terminated the Supplemental Plan, other than with respect to the outstanding fiscal 2008 bonus agreements, and the Committee determined that only the CEO and the president would be eligible for supplemental bonuses or reductions for fiscal 2009. See “Fiscal 2009 Grants,” below. After the end of fiscal 2008, the Committee completed an evaluation of the CEO’s and the management team’s performance for the year. Based on this evaluation, the Committee adjusted the executives’ compensation based on the following criteria:
| | |
| • | If the executives’ performance had “exceeded expectations,” the executives would have been entitled to receive a supplemental cash bonus of up to 25% of the cash portion of their MIP bonus for fiscal 2008, but we would not include this additional amount when determining the stock portion of the bonus. |
| • | If the executives’ performance was “below expectations,” the Committee would have reduced the cash portion of the executives’ MIP bonus by up to 25%, and we would have determined the stock portion of the MIP bonus based on the reduced amount; and |
| • | If the executives’ performance had “met expectations,” the executives’ bonus would not have been increased or reduced. |
Fiscal Year 2008 Supplemental Bonus Agreement with CEO
In June 2007, SYSCO and Mr. Schnieders entered into a fiscal year 2008 supplemental bonus agreement under the Supplemental Plan.
Pursuant to the agreement, the Committee evaluated Mr. Schnieders’ fiscal 2008 performance based on the following performance goals:
| | |
| ◦ | develop and execute strategy with input and approval by Board; |
| ◦ | continue to build on long-term relationships with all constituencies; |
| ◦ | position SYSCO as a sustainable corporation; |
| | |
| ◦ | increase marketing-associate served sales by 11%; |
| ◦ | achieve return on equity of 32%; |
| ◦ | increase return on assets by at least 3.5%; |
| ◦ | increase corporatemulti-unit sales by more than 10%; |
| ◦ | increase sales through acquisitions by at least 1.5%; |
| ◦ | reduce overall cost per case by 2 cents; |
• corporate governance:
| | |
| ◦ | assure compliance with all applicable regulations and corporate governance guidelines; |
| ◦ | focus on stockholders issues; |
| ◦ | enhance appropriate level of transparency; |
| | |
| ◦ | create individual development plans for selected individuals; |
| ◦ | promote long-term benefit cost reduction; |
| ◦ | clearly define our “learning organization”; and |
| ◦ | improve communications within the organization. |
Based on the Committee’s evaluation of Mr. Schnieders’ performance against those goals, it determined that his fiscal 2008 performance exceeded expectations, and pursuant to the agreement, it increased the cash portion of his MIP bonus for fiscal 2008 by 20%.
Fiscal Year 2008 Supplemental Bonus Agreements with Executive and Senior Vice Presidents
In June 2007, the Committee and the named executive officers other than Mr. Schnieders entered into fiscal year 2008 supplemental bonus agreements under the Supplemental Plan. Pursuant to the agreements, the Committee evaluated the executives, together with certain other designated executives, as a group, based on the Committee’s judgment of the group’s alignment with our fiscal year goals and our strategy initiatives.
46
Pursuant to these agreements, the Committee evaluated the executives’ fiscal 2008 performance based on the following performance goals:
| | |
| • | achieve positive results in enterprise-wide goals: |
◦ achieve sales growth of greater than 10%;
◦ reduce cost per case by more than 2 cents;
◦ achieve accident frequency of 5 or less per 100 employees;
◦ achieve a return on equity of at least 32%;
| | |
| • | develop executive leadership for current and future needs; |
| • | improve communications between our operating companies and between our operating companies and our corporate office; and |
| • | contribute to the development and execution of our strategy initiatives and effectively implement them throughout SYSCO, with the executive and senior management team modeling a collaborative approach in this process. |
Based on the Committee’s evaluation of the executives’ performance against those goals, it determined that each executive’s performance exceeded expectations, and pursuant to the agreement, it increased the cash portion of their MIP bonuses for fiscal 2008 by 20% each.
Fiscal 2009 Grants
In May 2008, we entered into stand-alone fiscal year 2009 supplemental bonus agreements with Messrs. Schnieders and Spitler after the Committee determined that only individuals in the positions of CEO and president would be properly motivated by, and be able to effectuate meaningful progress in relation to, the performance goals. The agreements with each of Messrs. Schnieders and Spitler are substantially similar to the prior agreements except that, rather than focusing on very specific performance goals, such as those described above, the fiscal 2009 agreements provide that the amount of any supplemental bonus or reduction to the fiscal 2009 MIP bonus will be determined based on the Committee’s separate review of each individual, including but not limited to a review of these performance areas:
| | |
| • | implementation of SYSCO’s long-term strategy; |
| • | succession planning; and |
| • | implementation of SYSCO’s planned information technology initiatives. |
Outstanding Equity Awards at Fiscal Year-End
While the 2007 Stock Incentive Plan, and its predecessor, the 2004 Stock Option Plan, allow for options to vest in no more than one-third increments each year, grants under the plans have generally become exercisable in five equal annual installments beginning one year after the grant date to create a longer-term incentive for the executives. The 2007 Stock Incentive Plan allows the Committee the discretion to grant both stock options and restricted stock, as well as other stock-based awards.
According to the terms of the 2004 and 2007 Plans, the exercise price of options may not be less than the fair market value on the date of the grant, which is defined in our plans as the closing price of our common stock on the New York Stock Exchange on the business day preceding the grant date. Our stock plans specifically prohibit repricing of outstanding grants. Historically, subject to certain minor exceptions, the Committee granted options at its regularly scheduled September meeting, which we schedule at least one year in advance. However, in February 2007, the Committee adopted stock option grant administrative guidelines which set the second Tuesday in November as the annual grant date. This is a date when we are typically in a trading “window” under our Policy on Trading in Company Securities. The guidelines also establish timelines for granting stock options related to acquisitions or newly-hired key employees, which require that the Committee generally make the grants within 90 days of the event. The guidelines also establish procedures for the Committee’s action in the event that any of these pre-established dates/time periods conflict with an unanticipated trading blackout period related to material non-public information. The guidelines provide that the Committee should generally make option grants at a point in time when we have publicly disseminated all material information likely to affect the trading price of SYSCO’s common stock. See “Compensation Discussion and Analysis — Longer Term Incentives — Stock Options”.
47
The following table provides information on each named executive officer’s stock option grants outstanding as of June 28, 2008. None of the named executive officers holds any unvested stock awards, although certain shares granted in connection with the MIP are subject to repurchase or forfeiture, as noted in footnote (1) below.
Outstanding Equity Awards at Fiscal Year-End
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards |
| | | | Number of
| | Number of
| | | | | | |
| | | | Securities
| | Securities
| | | | | | |
| | | | Underlying
| | Underlying
| | | | | | |
| | | | Unexercised
| | Unexercised
| | Option
| | Option
| | |
| | | | Options
| | Options
| | Exercise
| | Expiration
| | Stock
|
Name | | Date Granted | | (#) Exercisable | | (#) Unexercisable | | Price($) | | Date | | Awards(1) |
|
Schnieders | | | September 2001 | | | | 115,000 | | | | — | | | $ | 27.7900 | | | | 9/10/2011 | | | | | |
| | | September 2002 | | | | 100,000 | | | | — | | | | 30.5700 | | | | 9/11/2012 | | | | | |
| | | September 2003 | | | | 90,000 | | | | — | | | | 31.7500 | | | | 9/10/2013 | | | | | |
| | | September 2004 | | | | 51,000 | | | | 34,000 | (2) | | | 32.1900 | | | | 9/1/2011 | | | | | |
| | | September 2005 | | | | 56,000 | | | | 84,000 | (3) | | | 33.0100 | | | | 9/7/2012 | | | | | |
| | | September 2006 | | | | 28,000 | | | | 112,000 | (4) | | | 31.7000 | | | | 9/6/2013 | | | | | |
| | | November 2007 | | | | | | | | 140,000 | (5) | | | 33.3900 | | | | 11/12/2014 | | | | | |
Spitler | | | September 1998 | | | | 13,000 | | | | — | | | | 10.9375 | | | | 9/2/2008 | | | | | |
| | | September 1999 | | | | 18,000 | | | | ��� | | | | 16.2813 | | | | 9/1/2009 | | | | | |
| | | September 2000 | | | | 24,000 | | | | — | | | | 20.9688 | | | | 9/6/2010 | | | | | |
| | | September 2001 | | | | 62,000 | | | | 3,000 | (6) | | | 27.7900 | | | | 9/10/2011 | | | | | |
| | | September 2002 | | | | 75,000 | | | | — | | | | 30.5700 | | | | 9/11/2012 | | | | | |
| | | September 2003 | | | | 70,000 | | | | | | | | 31.7500 | | | | 9/10/2013 | | | | | |
| | | September 2004 | | | | 24,000 | | | | 16,000 | (2) | | | 32.1900 | | | | 9/1/2011 | | | | | |
| | | September 2005 | | | | 29,200 | | | | 43,800 | (3) | | | 33.0100 | | | | 9/7/2012 | | | | | |
| | | September 2006 | | | | 14,600 | | | | 58,400 | (4) | | | 31.7000 | | | | 9/6/2013 | | | | | |
| | | November 2007 | | | | | | | | 100,000 | (5) | | | 33.3900 | | | | 11/12/2014 | | | | | |
DeLaney | | | September 2001 | | | | 11,000 | | | | — | | | | 27.7900 | | | | 9/10/2011 | | | | | |
| | | September 2002 | | | | 24,000 | | | | 6,000 | (7) | | | 30.5700 | | | | 9/11/2012 | | | | | |
| | | September 2003 | | | | 12,500 | | | | — | | | | 31.7500 | | | | 9/10/2013 | | | | | |
| | | September 2004 | | | | 3,000 | | | | 2,000 | (2) | | | 32.1900 | | | | 9/1/2011 | | | | | |
| | | September 2005 | | | | 5,040 | | | | 7,560 | (3) | | | 33.0100 | | | | 9/7/2012 | | | | | |
| | | September 2006 | | | | 2,900 | | | | 11,600 | (4) | | | 31.7000 | | | | 9/6/2013 | | | | | |
| | | November 2007 | | | | | | | | 73,000 | (5) | | | 33.3900 | | | | 11/12/2014 | | | | | |
Pulliam | | | September 1999 | | | | 13,000 | | | | — | | | | 16.2813 | | | | 9/1/2009 | | | | | |
| | | September 2000 | | | | 16,000 | | | | — | | | | 20.9688 | | | | 9/6/2010 | | | | | |
| | | September 2001 | | | | 34,000 | | | | 3,000 | (6) | | | 27.7900 | | | | 9/10/2011 | | | | | |
| | | September 2002 | | | | 50,000 | | | | — | | | | 30.5700 | | | | 9/11/2012 | | | | | |
| | | September 2003 | | | | 45,000 | | | | — | | | | 31.7500 | | | | 9/10/2013 | | | | | |
| | | September 2004 | | | | 15,600 | | | | 10,400 | (2) | | | 32.1900 | | | | 9/1/2011 | | | | | |
| | | September 2005 | | | | 29,200 | | | | 43,800 | (3) | | | 33.0100 | | | | 9/7/2012 | | | | | |
| | | September 2006 | | | | 14,600 | | | | 58,400 | (4) | | | 31.7000 | | | | 9/6/2013 | | | | | |
| | | November 2007 | | | | | | | | 73,000 | (5) | | | 33.3900 | | | | 11/12/2014 | | | | | |
Carrig | | | September 1998 | | | | 2,000 | | | | — | | | | 10.9375 | | | | 9/2/2008 | | | | | |
| | | September 1999 | | | | 13,000 | | | | — | | | | 16.2813 | | | | 9/1/2009 | | | | | |
| | | September 2000 | | | | 24,000 | | | | — | | | | 20.9688 | | | | 9/6/2010 | | | | | |
| | | September 2001 | | | | 62,000 | | | | 3,000 | (6) | | | 27.7900 | | | | 9/10/2011 | | | | | |
| | | September 2002 | | | | 50,000 | | | | — | | | | 30.5700 | | | | 9/11/2012 | | | | | |
| | | September 2003 | | | | 45,000 | | | | — | | | | 31.7500 | | | | 9/10/2013 | | | | | |
| | | September 2004 | | | | 15,600 | | | | 10,400 | (2) | | | 32.1900 | | | | 9/1/2011 | | | | | |
| | | September 2005 | | | | 29,200 | | | | 43,800 | (3) | | | 33.0100 | | | | 9/7/2012 | | | | | |
| | | September 2006 | | | | 14,600 | | | | 58,400 | (4) | | | 31.7000 | | | | 9/6/2013 | | | | | |
| | | November 2007 | | | | | | | | 73,000 | (5) | | | 33.3900 | | | | 11/12/2014 | | | | | |
| | |
(1) | | Historically, pursuant to the MIP agreements, we pay the annual bonus in the first quarter of the fiscal year following the year for which we have awarded the bonus, and for fiscal years prior to fiscal 2009, we have made an automatic 28% stock match on the cash portion of the MIP bonus, without taking into account any increase from the supplemental bonus. The shares issued to the named executive officers pursuant to the MIP matching component are “vested” at the time of issuance, |
48
| | |
| | but are not transferable by the named executive officers for two years following receipt, and are subject to certain rights of SYSCO to require forfeiture of the shares in the event of termination of employment other than by death, normal retirement or disability. The named executive officers receive dividends on the shares during the two-year restricted period. The aggregate number and dollar value, calculated using the closing price of our common stock on June 27, 2008 of $28.22, of all shares subject to such two-year restrictions held as of the last day of fiscal 2008 by the named executive officers were as follows: |
| | | | | | | | |
| | Aggregate
| | |
| | Number of Shares | | Dollar Value |
|
Schnieders | | | 28,514 | | | $ | 804,665 | |
Spitler | | | 15,047 | | | | 424,626 | |
DeLaney | | | 13,559 | | | | 382,635 | |
Pulliam | | | 13,772 | | | | 388,646 | |
Carrig | | | 12,752 | | | | 359,861 | |
| | |
| | These amounts exclude the shares issued in August 2008 that are discussed under “Option Exercises and Stock Vested” below. |
|
(2) | | These options vest in equal portions on September 2 of 2008 and 2009. |
|
(3) | | These options vest in equal portions on September 8 of 2008, 2009 and 2010. |
|
(4) | | These options vest in equal portions on September 7 of 2008, 2009, 2010 and 2011. |
|
(5) | | These options vest in equal portions on November 13 of 2008, 2009, 2010, 2011 and 2012. |
|
(6) | | These unvested options relate to a special grant to MIP participants in September 2001. The agreements related to these options contain certain confidentiality and non-competition obligations on the part of the executives, including agreements to not: |
| | |
| • | communicate or disclose to any person, other than in performance of his work duties, our trade secrets or other confidential information. The executive is prohibited from disclosing confidential information until 24 months after his termination of employment with us. The executive must not disclose the trade secret information for the duration of his life or until the trade secret information becomes publicly available; |
| • | for two years following termination of employment, solicit or attempt to divert to a competitor, any operating company supplier or customer that he had responsibility for supervising, or that he dealt with, at any time during the 24 months immediately preceding termination of his employment with us without our prior written consent; and |
| • | engage in any business within a defined geographic territory in which he provides services which are the same or substantially similar to his duties during his last 12 months of employment with us for a period of one year after his termination of employment. |
| | |
| | The options have a delayed vesting schedule in that they vest ratably, on an annual basis, over five years beginning on July 2, 2005. Also, any unvested portion of the option will automatically vest when the executive reaches age sixty, provided he is still employed with us. As a result, all of these options held by Mr. Schnieders have vested. |
|
(7) | | These options are similar to the options described in footnote (6) above, but vest in equal portions on June 27, 2009 and July 3, 2010. |
All of the option awards listed above provide that if the executive’s employment terminates as a result of retirement in good standing or disability, the option will remain in effect, vest and be exercisable in accordance with its terms as if the executive remained an employee of SYSCO. Awards granted in 2002 and later provide that all unvested options will vest immediately upon the executive’s death. Furthermore, the options provide that the executive’s estate or designees may exercise the options at any time within three years after his death for grants made in 2005 and later and within one year after his death for grants made prior to 2005, but in no event later than the original termination date.
All of the options above provide for the vesting of unvested options upon a change of control. In addition, grants made in 2005 and later provide that if the named executive’s employment is terminated other than for cause, during the 24 month period following a change of control, the outstanding options under the plans will be exercisable to the extent the options were exercisable as of the date of termination for 24 months after employment termination or until the expiration of the stated term of the option, whichever period is shorter.
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Option Exercises and Stock Vested
The following table provides information with respect to aggregate option exercises and the vesting of stock awards during the last fiscal year for each of the named executive officers.
| | | | | | | | | | | | |
| | Option Awards | | Stock Awards | |
| | Number of
| | | | Number of
| | | | |
| | Shares Acquired on
| | Value Realized on
| | Shares Acquired on
| | | Value Realized on
| |
Name | | Exercise (#) | | Exercise ($)(1) | | Vesting (#)(2) | | | Vesting ($)(2) | |
|
Schnieders | | — | | — | | | 31,944 | | | $ | 901,460 | |
Spitler | | 22,000 | | $548,680 | | | 19,846 | | | | 560,054 | |
DeLaney | | — | | — | | | 16,039 | | | | 452,621 | |
Pulliam | | 12,000 | | 206,190 | | | 15,224 | | | | 429,621 | |
Carrig | | — | | — | | | 14,544 | | | | 410,432 | |
| | |
(1) | | We computed the value realized on exercise based on the difference between the closing price of the common stock on the day of exercise and the exercise price. |
|
(2) | | We issued these shares as the stock match portion of the MIP bonus in the first quarter of fiscal 2009 for fiscal 2008 performance. We based the value realized on vesting on the market value of the stock on June 28, 2008. For purposes of the Summary Compensation Table, the compensation expense related to these shares that is reported in the table reflects a 12% discount due to the two-year restriction on transfer. |
Pension Benefits
SYSCO maintains two defined benefit plans. One is the SYSCO Corporation Retirement Plan, or pension plan, which is intended to be a tax-qualified plan under the Internal Revenue Code. The second is the SYSCO Corporation Supplemental Executive Retirement Plan, or SERP, which is not a tax-qualified plan. The following table shows the years of credited service for benefit accumulational purposes and present value of the accumulated benefits for each of the named executive officers under each of the pension plan and SERP as of June 28, 2008. No named executive officer received payments under either defined benefit plan during the last fiscal year.
| | | | | | | | | | |
| | | | Number of
| | |
| | | | Years Credited
| | Present Value of
|
Name | | Plan Name | | Service (#) | | Accumulated Benefit |
|
Schnieders | | Pension Plan | | | 25.583 | | | $ | 464,534 | |
| | SERP | | | 25.583 | | | | 23,046,117 | |
Spitler | | Pension Plan | | | 22.417 | | | | 394,757 | |
| | SERP | | | 22.417 | | | | 11,985,709 | |
DeLaney | | Pension Plan | | | 19.333 | | | | 204,925 | |
| | SERP | | | 19.333 | | | | 2,626,576 | |
Pulliam | | Pension Plan | | | 21.000 | | | | 223,074 | |
| | SERP | | | 21.000 | | | | 6,441,509 | |
Carrig | | Pension Plan | | | 10.083 | | | | 126,443 | |
| | SERP | | | 10.083 | | | | 2,445,405 | |
We calculated the named executive officers’ accrued benefits under the pension plan by assuming that the named executives will remain in service with the company until age 65, which is the earliest age at which the named executive officers can retire without any reduction in benefits. We will pay the pension plan benefits in the form of a life annuity with payments guaranteed for 5 years.
For the SERP, we calculated the named executive officers’ accrued benefits by assuming that the named executives will remain in service with SYSCO until they become 100% vested in their SERP benefits, which is the earliest age they could retire without any reduction in SERP benefits. The 100% vesting date is at age 60 for Messrs. Schnieders, Spitler and Pulliam, age 60.417 for Mr. DeLaney, and age 61 for Mr. Carrig. These ages differ because SERP vesting is based on a combination of the participant’s age, SYSCO service,and/or MIP service. We pay SERP benefits as a joint life annuity, reducing to two-thirds upon the death of either the executive or his spouse, with the unreduced payment guaranteed for at least 10 years.
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We calculated the present value of these accumulated benefits based on a 6.94% discount rate for the pension plan and a 7.03% discount rate for the SERP, with a post-retirement mortality assumption based on the RP2000 Combined Healthy table, sex distinct, projected to 2008, with scale AA. Effective June 30, 2006, we modified certain provisions of the SERP for each executive to take into account payments under the 2007 Supplemental Bonus Agreements, but such payments will not be taken into account for fiscal 2008 and future years. Furthermore, certain provisions of the SERP are amended by the Executive Severance Agreements for Messrs. Schnieders and Spitler, as described in more detail under “Executive Severance Agreements — Waiver of Cut Back Provisions in SERP and Deferred Compensation Plan.”
If the named executive officers in fact remain in the service of SYSCO until the earliest age at which they would be entitled to unreduced benefits under the pension plan or SERP, as described above, we estimate that they would be entitled to the following annual benefits commencing at the earliest unreduced retirement age:
| | | | | | | | | | | | | | |
| | | | Earliest
| | Expected
| | Estimated
|
| | | | Unreduced
| | Years of
| | Annual
|
Name | | Plan Name | | Retirement Age | | Payments | | Benefit |
|
Schnieders | | Pension Plan | | | 65 | | | | 18.4 | | | $ | 64,051 | |
| | SERP | | | 60.250 | | | | 25.5 | | | | 1,971,147 | |
Spitler | | Pension Plan | | | 65 | | | | 18.4 | | | | 58,207 | |
| | SERP | | | 60 | | | | 25.7 | | | | 1,073,447 | |
DeLaney | | Pension Plan | | | 65 | | | | 18.4 | | | | 47,263 | |
| | SERP | | | 60.417 | | | | 25.4 | | | | 381,448 | |
Pulliam | | Pension Plan | | | 65 | | | | 18.4 | | | | 51,160 | |
| | SERP | | | 60 | | | | 25.7 | | | | 901,883 | |
Carrig | | Pension Plan | | | 65 | | | | 18.4 | | | | 32,250 | |
| | SERP | | | 61 | | | | 24.9 | | | | 413,538 | |
In addition to the above, the named executive officers are entitled to a temporary social security bridge benefit commencing at their earliest unreduced retirement age until the earlier of death or age 62. The amount of this monthly benefit for each named executive officer, based on the SERP early retirement assumptions above, is $1,694 for Mr. Schnieders, $1,694 for Mr. Spitler, $1,625 for Mr. DeLaney, $1,625 for Mr. Pulliam and $1,554 for Mr. Carrig.
Pension Plan
The pension plan, which is intended to be tax-qualified, is funded through an irrevocable tax-exempt trust and covered approximately 29,000 eligible employees as of the end of fiscal 2008. In general, a participant’s accrued benefit is equal to 1.5% times the participant’s average monthly eligible earnings for each year or partial year of service with SYSCO or a subsidiary. This accrued benefit is expressed in the form of a monthly annuity for the participant’s life, beginning at age 65 (the plan’s normal retirement age) and with payments guaranteed for five years. If the participant remains with SYSCO until at least age 55 with 10 years of service, the participant is entitled to early retirement payments. In such case, we reduce the benefit 6.67% per year for the first 5 years prior to normal retirement age and an additional 3.33% per year for years prior to age 60. Employees vest in the pension plan after five years of service. At the end of fiscal 2008, Messrs. Schnieders and Spitler met the age and service requirements to be eligible for early retirement.
Benefits provided under the pension plan are based on compensation up to a limit, which is $230,000 for calendar year 2008, under the Internal Revenue Code. In addition, annual benefits provided under the pension plan may not exceed a limit, which is $185,000 for calendar year 2008, under the Internal Revenue Code.
Elements Included in Benefit Formula —Compensation included in the pension plan’s benefit calculation is generally earned income excluding deferred bonuses.
Policy Regarding Extra Years of Credited Service —Generally we do not credit service in the pension plan beyond the actual number of years an employee participates in the plan. We base the years of credited service for the named executive officers only on their service while eligible for participation in the plan.
Benefit Payment Options —Participants may choose their method of payment from several options, including a life annuity option, spousal joint and survivor annuity, Social Security leveling and life annuity options with minimum guaranteed terms. Only de minimis lump sums are available.
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Supplemental Executive Retirement Plan
We offer the SERP to approximately 175 eligible executives to provide for retirement benefits beyond the amounts available under SYSCO’s various broad-based US and Canadian pension plans. It is our intent that the SERP comply with Section 409A of the Internal Revenue Code in both form and operation. The SERP is an unsecured obligation of SYSCO and is not qualified for tax purposes. As of the end of fiscal 2008, the SERP was designed to provide, in combination with other retirement benefits, 50% of final average compensation, as defined in the SERP, for the highest five of the last 10 fiscal years prior to retirement, provided an executive has at least 20 years of SYSCO service, including service with an acquired company, and is 100% vested. “Other retirement benefits” include Social Security, benefits from the pension plan, and employer-provided benefits from SYSCO’s 401(k) plan and similar qualified plans of acquired companies. We reduce the gross accrued benefit of 50% of final average compensation by 5% per year for service less than 20 years. Employees are generally not eligible for benefits if they leave the company prior to age 55. See “Amended and Restated SERP,” below, for a discussion of changes in the SERP design.
Vesting in the SERP is based upon age, MIP participation service and SYSCO service. Executives are 50% vested when they reach the earlier of age 60 with 10 years of SYSCO service or age 55 with 15 years of MIP participation service. The vesting percentage increases with additional years of ageand/or participation service. An executive with at least 20 years of SYSCO service can retire with unreduced benefits when 100% vested. The executive generally becomes 100% vested on the earliest of:
| | |
| • | age 65 if he has at least 10 years of SYSCO service; |
| • | age 55 with at least 15 years of MIP service, but only if the sum of his age and MIP service is equal to or exceeds 80; and |
| • | age 62 with at least 25 years of SYSCO service and at least 15 years of MIP service. |
Upon the occurrence of a change of control, each named executive officer will become 100% vested in his accumulated and all future accumulated benefit under the SERP. The executive will also be 100% vested in any SERP benefit that accrues after the date of the change of control.
At the end of fiscal 2008, none of the named executives except Mr. Schnieders had attained eligibility for unreduced early retirement, or were 100% vested. Mr. Schnieders is eligible for unreduced early retirement because he is at least age 55, has at least 15 years of MIP participation and the sum of his age and MIP service exceeds 80. The Executive Severance Agreement with Mr. Spitler requires forfeiture of his SERP benefits upon his voluntary resignation or retirement prior to age 60. Messrs. DeLaney, Pulliam and Carrig are not currently eligible for early retirement.
We pay the SERP benefit as a monthly life annuity with a guaranteed minimum period of 10 years if the participant is not married at the time payments commence. If the participant is married at the time payments commence, the participant and spouse are entitled to a monthly annuity for life with a guaranteed minimum period of 10 years, and generally, on the participant’s or spouse’s death, the survivor is entitled to receive a monthly annuity for life with each payment equal to two-thirds of each payment made to the couple.
We provide a temporary Social Security bridge benefit to an executive commencing SERP benefits before age 62, payable until the earlier of age 62 or death.
Elements of Compensation included in Benefit Formula —Compensation generally includes base pay, Management Incentive Plan bonus, limited to 150% of the annual rate of base salary for fiscal 2009 and later years, and for fiscal 2007 only, the supplemental performance bonus. See also “— Minimum Benefits” below.
Minimum Benefits —Due to changes in the SERP adopted in March 2006, certain executives have protected minimum benefits based on prior plan provisions. The protected benefit includes vesting provisions that are generally less generous, and a compensation definition that includes as an additional component, for years prior to fiscal 2006, stock matches under the 2005 Management Incentive Plan and predecessor plans, but excludes the supplemental performance bonus for fiscal 2007. Messrs. Schnieders and Spitler are protected participants, although for the 2008 fiscal year the protected benefit was lower than the normal calculation.
Funding Status —SYSCO’s obligations under the SERP are partially funded by a rabbi trust holding life insurance and is maintained as a book reserve account. In the event of SYSCO’s bankruptcy or insolvency, however, the life insurance and any other assets held by the rabbi trust become subject to the claims of SYSCO’s general creditors.
Policy with Regard to Extra Years of Credited Service —Generally, SYSCO does not award extra years of credited service under the SERP. However, in certain cases, the company may award extra service, MIP serviceand/or age to accelerate vesting. As of the date of this proxy statement, none of the named executive officers have been awarded additional credited service, MIP serviceand/or age credit for any purpose under the SERP. Under Mr. Spitler’s severance agreement, if he is terminated by
52
SYSCO without cause or if he terminates his employment for good reason prior to age 60, under the SERP he is treated as if he retired at age 60 for vesting purposes.
Lump Sum Availability —Retirement benefits may not be paid as a lump sum.
Monthly Payment Limit — The SERP benefit, other than a protected benefit, cannot exceed the participant’s vested percentage multiplied by the “limit” in effect during the fiscal year of his retirement. The monthly limit for participants retiring in fiscal year 2008 is $178,537. Each subsequent fiscal year, the limit will be adjusted for inflation.
Delay of Distributions to Named Executives —Distributions to a named executive for reasons other than death or disability will be delayed for six months after his separation date as required under Section 409A of the Internal Revenue Code.
Amended and Restated SERP — On May 14, 2008, the Board of Directors, upon recommendation of the Compensation Committee, adopted the Seventh Amended and Restated Sysco Corporation Supplemental Executive Retirement Plan, or revised SERP. The revised SERP was effective June 28, 2008 and replaced the Sixth Amended and Restated Sysco Corporation Supplemental Executive Retirement Plan. With respect to the compensation of SYSCO’s current corporate officers, including the named executive officers, the revised SERP is similar to the prior SERP in all material respects, except as described below.
As discussed above, the prior SERP benefit payable to a participant was targeted as a monthly benefit approximately equal to 50% of the participant’s average pay, as adjusted. While the targeted monthly benefit approximately equal to 50% of the participant’s average pay remains unchanged, the definition of average pay has changed. Where average pay was calculated under the prior SERP based on the five fiscal years, which need not be successive, in which the participant earned the highest eligible earnings during the last ten fiscal years preceding the fiscal year his service with SYSCO ends, under the revised SERP, average pay for years beginning with fiscal 2009 will equal the monthly average of a participant’s eligible earnings for the last ten fiscal years preceding the fiscal year his service with SYSCO ends, or the date he ceases to be covered under the SERP, if earlier. With respect to a participant’s accrued benefit as of June 28, 2008, as discussed below, however, average pay continues to be defined in the revised SERP as it was under the prior SERP.
Eligible earnings refers to compensation recognized for SERP purposes. As discussed above, beginning with fiscal 2009, the portion of a participant’s MIP bonus counted as eligible earnings will be capped at 150% of the participant’s rate of base salary as of the last day of the applicable fiscal year. Eligible earnings for fiscal years prior to fiscal 2009 are not affected by this plan change. The capped definition of eligible earnings for fiscal years after fiscal 2008, as described above, will be used in all benefit calculations, including protected benefits of a protected participant.
Based on these changes, a SYSCO corporate officer who is not a protected participant when his SYSCO service ends at some future date will receive a revised SERP benefit based on thegreater of:
| | |
| • | The benefit determined as of that future date under the new provisions described above, or |
|
| • | The accrued benefit determined as of June 28, 2008 under the provisions of the prior SERP, but with vesting and eligibility for immediate benefit payments determined as of that future date. Other components used in this June 28, 2008 accrued benefit calculation will be frozen as of June 28, 2008, as follows: |
| | |
| ◦ | average pay, based on the highest five fiscal years, which need not be successive, of eligible earnings in the ten fiscal year period ending June 28, 2008; |
|
| ◦ | full years of service, including pre-acquisition service, as of June 28, 2008; and |
|
| ◦ | offsets as of June 28, 2008, with the standard adjustment to reflect the form and timing of the SERP benefit payments as of that future date. |
For a protected participant, his future benefit will be the greatest of the benefits determined under four calculations using each of the regular and protected participant benefit formulas under both the revised SERP and frozen June 28, 2008 rules discussed above.
Under the revised SERP, SYSCO now has the ability to cause the forfeiture of any remaining SERP payments to a participant who was not discharged for “cause” (such as termination for fraud or embezzlement), but who after his termination was discovered by the Compensation Committee to have engaged in behavior while employed that would have constituted grounds for a discharge for “cause.” The revised SERP also contains enhanced forfeiture for competition grounds, including, without limitation, the extension of the non-competition covenants from five years after termination of employment to the entire remaining period while any SERP benefits are to be paid.
53
Executive Deferred Compensation Plan
The following table provides information regarding executive contributions and related company matches, earnings and account balances for each of the named executive officers in the EDCP. No named executive officer made any withdrawals or received any distributions during fiscal 2008.
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | Aggregate
| |
| | Executive
| | | Registrant
| | | Aggregate
| | | Balance at
| |
| | Contributions in
| | | Contributions in
| | | Earnings
| | | June 28,
| |
Name | | Fiscal 2008 ($)(1) | | | Fiscal 2008 ($)(2) | | | in Fiscal 2008 ($)(3) | | | 2008($)(4) | |
|
Schnieders | | $ | 772,680 | | | $ | 115,902 | | | $ | 539,044 | | | $ | 8,913,170 | |
Spitler | | | 960,096 | | | | 72,007 | | | | 370,723 | | | | 6,551,762 | |
DeLaney | | | 387,984 | | | | 58,198 | | | | 30,906 | | | | 906,851 | |
Pulliam | | | 368,256 | | | | 55,238 | | | | 171,185 | | | | 2,972,296 | |
Carrig | | | 703,632 | | | | 52,772 | | | | 185,457 | | | | 3,518,507 | |
| | |
(1) | | All amounts shown represent deferrals of a portion of the MIP bonus paid in August 2008. These amounts are contained in the fiscal 2008 disclosure under the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table, as more specifically described in footnote 3 to the Table. |
|
(2) | | As discussed below, SYSCO matches a portion of the MIP bonus deferred by an executive. All amounts shown represent the SYSCO matches on the executives’ deferrals of a portion of the MIP bonus paid in August 2008. These amounts are contained in the fiscal 2008 disclosure under the “All Other Compensation” column of the Summary Compensation Table, as more specifically described in footnote 5 to the Table. |
|
(3) | | The above-market interest portion of these amounts is included in the fiscal 2008 disclosure under the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column of the Summary Compensation Table, in the following amounts: $93,133 for Mr. Schnieders, $64,053 for Mr. Spitler, $5,340 for Mr. DeLaney, $29,577 for Mr. Pulliam and $32,043 for Mr. Carrig. |
|
(4) | | As discussed below, SYSCO matches a portion of the MIP bonus deferred by an executive. We credit the executive’s account with the amount of any match as of July 1 of each year with respect to bonuses paid during the following August. The aggregate balance at June 28, 2008 shown above includes amounts deferred by the executives during fiscal 2008 and the matching credits that were credited to the named executive officers’ accounts on July 1, 2008, as more specifically discussed in footnotes 1 and 2 above. Amounts shown include certain amounts disclosed in the Summary Compensation Table with respect to fiscal 2007, including amounts deferred, SYSCO matches on deferrals and above-market interest. Footnote 3 to the Summary Compensation Table discloses the fiscal 2007 bonus amounts deferred by each of Messrs. Schnieders, Spitler and Pulliam. Footnote 5 to the Summary Compensation Table discloses the matching amounts credited with respect to fiscal 2007 bonus deferrals for each of Messrs. Schnieders, Spitler and Pulliam. Footnote 4 to the Summary Compensation Table discloses the above-market interest earned in fiscal 2007 with respect to amounts deferred by each of Messrs. Schnieders, Spitler and Pulliam. |
SYSCO maintains the EDCP to provide certain executives, including the named executives, the opportunity to defer the receipt of a portion of their annual salaries, bonuses and deemed earnings thereon on a tax-deferred basis. Federal income taxes on all amounts credited under the EDCP will be deferred until payout under current tax law. The EDCP is administered by the Compensation Committee. See “Amended and Restated EDCP,” below, for a discussion of changes in the EDCP design.
Eligibility —All SYSCO executives who are participants in the MIP, excluding those whose income is subject to Canadian income tax, are eligible to participate. However, the Compensation Committee has the right to establish additional eligibility requirements and may exclude an otherwise eligible executive from participation.
Executive Deferrals and SYSCO Matching Credit —Executives may defer up to 40% of their cash bonuses under the MIP, and for years prior to fiscal 2009 only, their supplemental performance bonuses, referred to in the aggregate as “bonus,” and up to 100% of salary. SYSCO does not match salary deferrals under the EDCP. SYSCO provides matching credit of 15% of the first 20% of bonus deferred, resulting in a maximum possible match credit of 3% of an executive’s bonus. The Committee may authorize additional discretionary company contributions, although it did not authorize any in fiscal 2008.
Investment Options— An executive may invest the deferral portion of his or her account among nine investment options, which may be changed as often as daily. The returns for these options of varying risk/reward ranged from -17.3% to 7.71% for the year ended June 28, 2008.
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Prior to fiscal 2009, pursuant to the Fifth Amended and Restated Executive Deferred Compensation Plan, or revised EDCP, discussed below, the portion of an executive’s account attributable to SYSCO matches was invested in the Moody’s + 1% option. For a given calendar year, the Moody’s + 1% option provides an annual return equal to the Moody’s Average Corporate Bond Yield for the higher of the six or twelve-month period ending on the preceding October 31, plus 1%. The Moody’s + 1% return was 7.1917% for calendar year 2007 and 7.1950% for calendar year 2008.
Vesting —An executive is always 100% vested in his or her deferrals, but is at risk of forfeiting the deemed investment return on the deferrals for cause or competing against SYSCO in certain instances. Each SYSCO match and the associated deemed investment return will be 100% vested at the earliest to occur of:
| | |
| • | the tenth anniversary of the crediting date of the match, |
| • | the executive’s 60th birthday, |
| • | the executive’s death, |
| • | the executive’s disability, or |
| • | a specified change of control. |
Any matches and associated investment returns not otherwise fully vested under one of the above provisions may vest under an alternative schedule when the executive is at least age 55 and has at least 15 years of MIP participation service. Vesting under this alternative schedule is based on the sum of the executive’s age and years of MIP participation service, as follows:
| | | | | | | | | | |
Sum | | Vested% | | Sum | | Vested% | | Sum | | Vested% |
|
Under 70 | | 0% | | 73 | | 65% | | 77 | | 85% |
70 | | 50% | | 74 | | 70% | | 78 | | 90% |
71 | | 55% | | 75 | | 75% | | 79 | | 95% |
72 | | 60% | | 76 | | 80% | | 80 | | 100% |
The Committee has the discretion to accelerate vesting when it determines specific situations warrant such action. Executives may forfeit vested amounts, other than salary deferrals, as described under “Forfeiture for Cause or Competition” below.
In-Service Distribution Elections and Hardship Withdrawals —Unless an executive has previously made an in-service distribution election, an executive will generally not have access to amounts deferred under the EDCP while employed by SYSCO unless he or she requests and qualifies for a hardship withdrawal. Such withdrawals are available under very limited circumstances in connection with an unforeseeable emergency. An executive may make separate in-service distribution elections with respect to a given year’s salary deferral and bonus deferral, concurrent with that year’s deferral election. None of the named executives has made an in-service distribution election through fiscal 2008.
Distribution Events —We will distribute the vested portion of the amount credited to an executive’s EDCP account upon the earlier to occur of the executive’s death, disability, retirement or other separation event.
Distributions Following a Separation Event Other than Disability, Death or Retirement —If the executive’s employment with SYSCO ends for any reason other than disability, death or retirement prior to January 1, 2009, we will distribute the vested balance of the executive’s account to him in a lump sum, and he will forfeit the nonvested portion. However, Messrs. Schnieders and Spitler have entered into severance agreements that provide for 100% vesting if we terminate the executive without cause or the executive terminates for good reason. See “Executive Severance Agreements” below. Distributions after January 1, 2009 are discussed at “Approval of Fifth Amended and Restated EDCP,” below.
Distributions Following Disability, Death or Retirement Prior to January 1, 2009 —An executive may elect the form of payment of his vested account balance for each of the following separation events:
| | |
| • | disability, |
|
| • | death, or |
|
| • | retirement, defined as any other separation from service from SYSCO if the executive is at least age 55 with 15 or more years of MIP participation or at least age 60. Distributions after January 1, 2009 are discussed at “Approval of Fifth Amended and Restated EDCP,” below. |
An executive may choose annual or quarterly installments over a specified period of up to 20 years, a lump sum or a combination of both. An executive may change his distribution elections prior to separation in accordance with the tax law requirements of Section 409A of the Internal Revenue Code.
55
When we pay installments due to death, disability or retirement, we will credit the executive’s vested account balance with a fixed investment return during the entire payout period. This fixed return will equal the Moody’s Average Corporate Bond Yield for the six or twelve-month period ending two months prior to the month of the first installment payment, whichever is higher.
Delay of Distributions to Named Executives —Distributions to a named executive upon the named executive officer’s “separation from service” as defined under Section 409A of the Internal Revenue Code will be delayed for a period of six months to the extent that making payments during such six-month period would violate Section 409A.
Forfeiture for Cause or Competition —Any portion of an executive’s account attributable to SYSCO matches, including associated deemed investment return, and the net investment gain, if any, credited on his deferrals, is subject to forfeiture for specified cause or competition. The Committee shall determine if the executive was terminated for cause or violated the applicable non-compete provisions. However, these forfeiture provisions will not apply to an executive whose employment ends during the fiscal year in which a specified change of control occurs or during the next three fiscal years except when the Committee makes a finding of cause and an arbitrator agrees. In addition to these provisions, enhanced forfeiture provisions adopted in May 2008 are discussed under “Approval of Fifth Amended and Restated EDCP” below.
Approval of Fifth Amended and Restated EDCP —On May 14, 2008, the Board of Directors, upon recommendation of the Compensation Committee, adopted the revised EDCP. The revised EDCP was effective July 2, 2008 and replaced the Fourth Amended and Restated SYSCO Corporation Executive Deferred Compensation Plan. With respect to the compensation of SYSCO’s current corporate officers, including the named executive officers, the revised EDCP is similar to the prior EDCP in all material respects, except as described below.
Prior to the EDCP amendments, Moody’s plus 1%, or the “risk free” option, was one of nine available deemed investment options under the EDCP and was the default investment option for participants who failed to make an investment election. In addition, company matches were automatically credited with interest at the Moody’s plus 1% rate, and interest credited during an installment payout period under a fixed payment distribution option available under the EDCP was credited at Moody’s plus 1%.
Beginning as of July 2, 2008, the Moody’s plus 1%, or “risk free,” option and the default investment rate were changed to Moody’s without the addition of the 1%. As a result, the interest rate credited on company matches for fiscal 2009 and later years, and the investment return on salary deferrals after July 1, 2008 and bonus deferrals for fiscal 2009, as well as any transfers from another investment option to the risk free option after July 1, 2008, are based on Moody’s and not Moody’s plus 1%. In addition, for participants whose employment terminates after July 1, 2008, interest credited to the participant’s account during an installment payout period will be Moody’s and not Moody’s plus 1%.
Notwithstanding these amendments, interest will continue to be credited at the Moody’s plus 1% rate on each participant’s accumulated company match account as of July 1, 2008, and on that portion of the participant’s deferral account invested in the Moody’s plus 1% option on July 1, 2008, and not otherwise transferred at a later time. The variable investment option, which allowed a participant to continue to direct the investment of his account during an installment payout period, will not be available for participants who retire after July 1, 2008.
Under the prior EDCP, a participant who terminated employment prior to age 60 or age 55 with 15 years of management incentive plan participation was required to receive a mandatory lump sum payment of his account balance. Effective January 1, 2009, a participant who terminates employment prior to the earlier of age 60, age 55 with 15 years of management incentive plan participation or age 55 with 10 years of service with the company will receive a lump sum. A participant may elect the form of distribution of his account if the participant terminates employment after the earlier of age 60, age 55 with 15 years of management incentive plan participation, or age 55 with 10 years of service with the company.
The revised EDCP provides that, beginning in fiscal 2009, bonuses payable under the 2006 Supplemental Performance Based Bonus Plan or any similar arrangement, including the 2009 supplemental bonus agreements discussed above, may no longer be deferred under the EDCP and as a result are no longer eligible for the company match.
The revised EDCP provides that the Compensation Committee may cause a forfeiture of a participant’s remaining company matches and investment earnings and interest credited to his account, if after a participant terminates employment for a reason other than for “cause,” the Compensation Committee determines that the participant engaged in conduct that would have resulted in his discharge for “cause.” In addition, the revised EDCP also provides that the Compensation Committee may cause a forfeiture of a participant’s remaining company matches and investment earnings and interest credited to his account, if a participant discloses trade secrets or confidential information to a competitor.
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Executive Severance Agreements
We maintain Executive Severance Agreements with each of Messrs. Schnieders and Spitler. These agreements are identical in all material respects, except as indicated below. A description of potential payments to Messrs. Schnieders and Spitler under the agreements is included under “Quantification of Termination/Change in Control Payments.”
Definition of Good Reason —The severance agreements provide that if the executive terminates his employment for any of the following reasons, he will have terminated his employment for “good reason,” unless we remedied the underlying circumstances within 15 days of our receipt of notice of “good reason,” as follows:
| | |
| • | SYSCO demotes the executive to a lesser position; |
| • | SYSCO assigns duties to him which are materially inconsistent with his position or materially reduces the executive’s duties, responsibilities or authority; |
| • | SYSCO materially reduces the executive’s base salary, unless SYSCO also comparably reduces the base salaries of other executives who are parties to similar agreements; or |
| • | SYSCO relocates the executive’s principal place of business outside of the Houston, Texas metropolitan area without the executive’s consent. |
Obligations Upon Termination —If the executive terminates his employment for good reason or if we terminate him for any reason other than for cause, death or permanent disability, we will pay his base salary through the date of termination. If the executive signs a release in substantially the form prescribed in the agreement, starting 30 days after we receive the signed release or the date the executive’s employment terminates, whichever is later, we will pay to the executive a monthly payment for 24 months equal to the sum of:
| | |
| • | executive’s monthly base salary in effect on the date of termination, before any elective deferrals under any SYSCO plans; |
| • | an amount equal to1/12 of the average annual bonus paid to the executive under any SYSCO management incentive plan, before any elective deferrals, for the most recent five fiscal years ended prior to the date of termination; and |
| • | an amount equal to the monthly cost to the executive for continued coverage under SYSCO’s group health benefit insurance plans under Section 4980B of the Internal Revenue Code of 1986, also known as COBRA, regardless of whether the executive elects to be covered by COBRA. |
We will pay the amounts described above in lieu of any other amount of severance relating to salary or bonus continuation that the executive may be entitled to receive from us, except for any benefits under the SERP and the EDCP. Upon the later to occur of 30 days after we have received the signed release and 90 days after the end of the fiscal year during which the employment termination occurred, we will pay to the executive a fraction of the bonus he would have earned for that fiscal year under the MIP had he not been terminated, as determined by us in our sole discretion. The numerator of this fraction will be the number of days in the fiscal year prior to the termination date, and the denominator will be 365. However, in the event the executive terminates other than for disability or death, and the executive is a “specified employee” under Section 409A of the Internal Revenue Code, we will delay the executive’s payments until the date that is after six months from the date of his termination from employment, all in compliance with Section 409A.
SERP and EDCP Benefits Prior to Age 60 —With respect to the SERP and EDCP, if Mr. Spitler terminates his employment for good reason or if we terminate him for any reason other than for cause, death or permanent disability, in any case before he reaches 60 years of age, then:
| | |
| • | for purposes of vesting under the SERP, he will be entitled to benefits under the SERP as if he were 60 years of age at the date of termination; and |
| • | the unvested portion of his account in the EDCP will automatically vest, and we will pay the EDCP benefits to him in accordance with the form of payment elected by Mr. Spitler under the EDCP, commencing within 60 days after we receive his signed liability release. |
Because he has reached age 60, these provisions do not apply to Mr. Schnieders.
Non-Compete and Non-Disparagement Commitment— Each executive agrees to certain non-compete and non-disparagement provisions in his agreement. The executive will forfeit all the amounts listed above if, at any time within the two years following the date of termination, the executive, without our prior written consent directly or indirectly owns or participates in, or is employed or paid by, a business which competes or at any time did compete with SYSCO in a specified trade area, and if the executive continues to be so engaged 60 days after receiving written notice of the committee’s finding.
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TaxGross-Up Payments —We will make additional payments to an executive if an excise tax arises under Section 4999 of the Internal Revenue Code as a result of the IRS treating any payment or acceleration right under the severance agreement or any other agreement or arrangement to which we and the executive are parties or to which we are a party and the executive is a beneficiary, as contingent upon a change of control pursuant to Section 280G of the Code. The payments we will make will include the excise taxes payable by the executive, as well as any additional excise taxes, federal and state income taxes and employment taxes imposed by the IRS on our payment of the amount of the excise tax. The net effect of this will be to place the executive in the same after-tax position, so that the executive receives the same after-tax benefits he would have received, if the excise tax had not been imposed. We will make these payments either directly to the executive in cash or to the appropriate taxing authority on the executive’s behalf for taxes subject to withholding.
Waiver of Cut Back Provisions in SERP and Deferred Compensation Plan —The severance agreement provides for the inapplicability of cutback provisions of the SERP and the EDCP that would reduce amounts payable under those plans by the amount of any payments that can not be deducted for income tax purposes.
Termination for Cause —The severance agreement provides that if we terminate the executive’s employment for any of the following reasons, we will have terminated him for “cause”:
| | |
| • | his material breach of his duties and responsibilities or of any written policies and directives of SYSCO that is willful or occurs as a result of his gross negligence and which he does not remedy within 15 days after receiving a written notice from SYSCO identifying the manner in which the breach occurred; |
| • | his committing any felony or misdemeanor involving willful misconduct, not including minor violations such as traffic offenses, if his action damages SYSCO’s property, business or reputation, as determined in good faith by our board of directors; |
| • | his engaging in a fraudulent or dishonest act, as determined in good faith by our board; |
| • | his engaging in habitual insobriety or the use of illegal drugs or substances; or |
| • | his breach of his fiduciary duties to SYSCO, as determined in good faith by our board. |
SYSCO must notify the executive of any event that would constitute termination for cause under the agreement within 90 days after SYSCO becomes aware of the event; otherwise, the termination will not be considered for cause under the severance agreement. If we terminate the executive for cause, we will pay the executive’s base salary through the date of termination but will have no obligation to make any severance payments or provide any severance benefits under the severance agreement. If the executive signs a release substantially in a form prescribed in the agreement, within 30 days after we receive the signed release, we will also pay to the executive any unpaid bonuses earned in a fiscal year ended prior to the date of termination, accrued but unused vacation time, and any unreimbursed business expenses owed under SYSCO’s expense reimbursement policies.
Resignation without Good Reason —If the executive voluntarily resigns from his employment without good reason, we will pay the executive’s salary through the effective date of the resignation. We will have no obligation to make any severance payments or provide any severance benefits to the executive. Furthermore, if Mr. Spitler resigns without good reason prior to reaching age 60, pursuant to the terms of his severance agreement, he will forfeit all benefits under the SERP.
Death or Permanent Disability —If the executive’s employment terminates because of death or permanent disability this will not be considered a resignation. The executive’s employment terminates automatically upon his death. We will pay the executive’s salary through the date of death but we will have no obligation to make any severance payments or provide any severance benefits under the severance agreement. The severance agreement defines permanent disability as the failure of the executive to perform his duties to SYSCO on a full-time basis as a result of incapacity due to mental or physical illness, but only if the incapacity results in the executive being eligible for and entitled to receive disability payments under a disability income insurance plan for which we pay for coverage. If such a disability occurs, we may give written notice to the executive that we intend to terminate his employment, and if we do so, the executive’s employment will terminate on the day specified in the notice, which date will be no less than 15 and no more than 60 days after giving the notice. If we terminate the executive’s employment because of permanent disability, we will have no obligation to make any severance payments or provide any severance benefits under the severance agreement but we will pay the executive’s base salary through the date of his termination.
Quantification of Termination/Change in Control Payments
We have entered into certain agreements and maintain certain plans that will require us to provide compensation for the named executive officers in the event of specified terminations of their employment or upon a change in control of SYSCO. We have listed the amount of compensation we would be required to pay to each named executive officer in each situation in the tables below. Amounts included in the tables are estimates and are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Due to the number of factors that affect the nature and
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amount of any benefits provided upon the events discussed below, any actual amounts we pay or distribute may differ materially. Factors that could affect these amounts include the timing during the year of any such event, the amount of future bonuses, the value of our stock on the date of the change in control and the ages and life expectancy of each executive and his spouse. The amounts shown in the table below assume that the event that triggered the payment occurred on June 28, 2008. In addition to the amounts shown, within 30 days after we receive the signed release in the required form from Messrs. Schnieders and Spitler, who are parties to severance agreements, following any termination, we will also pay to Mr. Schnieders and Mr. Spitler any unpaid bonuses earned in a fiscal year ended prior to the date of termination. The executive would have been entitled to these amounts if the termination event had not occurred. However, the requirement to sign a release does not apply in the event of a change in control without termination. We have summarized the terms of the severance agreements under “Executive Severance Agreements” above. All amounts shown represent total payments, except as otherwise noted. We would time the payment of all amounts shown in compliance with Section 409A of the Internal Revenue Code.
RICHARD J. SCHNIEDERS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Compensation Components | |
| | | | | Payments
| | | Payments
| | | | | | | | | Acceleration
| | | | | | | |
| | | | | and Benefits
| | | and Benefits
| | | | | | | | | and Other
| | | | | | | |
| | Severance
| | | Under
| | | Under
| | | | | | 280G Tax
| | | Benefits from
| | | Insurance
| | | | |
| | Payment
| | | EDCP
| | | SERP
| | | CPU
| | | Gross-Up
| | | Stock Options
| | | Payments
| | | | |
Termination Scenario | | (1) | | | (2) | | | (3) | | | Payment(4) | | | Payments(5) | | | (6) | | | (7) | | | Other(8) | |
|
Retirement | | $ | — | | | $ | 4,561,719 | | | $ | 23,018,395 | | | $ | 7,840,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | 64,324 | |
Death | | | — | | | | 4,561,719 | | | | 23,315,789 | | | | 3,904,285 | | | | — | | | | — | | | | 1,200,000 | | | | 64,324 | |
Disability | | | — | | | | 4,561,719 | | | | 23,018,395 | | | | 7,840,000 | | | | — | | | | — | | | | 1,809,673 | | | | 64,324 | |
Voluntary Resignation | | | — | | | | 4,561,719 | | | | 23,018,395 | | | | 7,840,000 | | | | — | | | | — | | | | — | | | | — | |
Termination for Cause | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | — | |
Involuntary Termination w/o Cause, or Resignation for Good Reason(9) | | | 5,866,254 | | | | 4,561,719 | | | | 23,018,395 | | | | 7,840,000 | | | | — | | | | — | | | | — | | | | 64,324 | |
Change in Control w/o Termination | | | — | | | | 4,561,719 | | | | — | | | | 11,760,000 | | | | 4,228,031 | | | | 807,245 | | | | — | | | | — | |
Termination w/o Cause following a Change in Control | | | 5,866,254 | | | | 4,561,719 | | | | 24,451,742 | | | | 11,760,000 | | | | 6,912,136 | | | | 807,245 | | | | — | | | | 64,324 | |
KENNETH F. SPITLER
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Compensation Components | |
| | | | | Payments
| | | Payments
| | | | | | | | | Acceleration
| | | | | | | |
| | | | | and Benefits
| | | and Benefits
| | | | | | | | | and Other
| | | | | | | |
| | Severance
| | | Under
| | | Under
| | | | | | 280G Tax
| | | Benefits from
| | | Insurance
| | | | |
| | Payment
| | | EDCP
| | | SERP
| | | CPU
| | | Gross-Up
| | | Stock Options
| | | Payments
| | | | |
Termination Scenario | | (1) | | | (2) | | | (3) | | | Payment(4) | | | Payments(5) | | | (6) | | | (7) | | | Other(8) | |
|
Retirement | | $ | — | | | $ | 2,649,444 | | | $ | — | | | $ | 1,942,500 | | | $ | — | | | $ | — | | | $ | — | | | $ | 52,209 | |
Death | | | — | | | | 2,649,444 | | | | 12,933,487 | | | | 764,435 | | | | — | | | | — | | | | 1,200,000 | | | | 52,209 | |
Disability | | | — | | | | 2,649,444 | | | | 12,773,946 | | | | 1,942,500 | | | | — | | | | — | | | | 2,184,974 | | | | 52,209 | |
Voluntary Resignation | | | — | | | | 2,649,444 | | | | — | | | | 1,942,500 | | | | — | | | | — | | | | — | | | | — | |
Termination for Cause | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | — | |
Involuntary Termination w/o Cause, or Resignation for Good Reason(9) | | | 3,523,386 | | | | 2,649,444 | | | | 12,773,946 | | | | 1,942,500 | | | | — | | | | — | | | | — | | | | 52,209 | |
Change in Control w/o Termination | | | — | | | | 2,649,444 | | | | — | | | | 2,913,750 | | | | 910,008 | | | | 427,206 | | | | — | | | | — | |
Termination w/o Cause following a Change in Control | | | 3,523,386 | | | | 2,649,444 | | | | 13,638,284 | | | | 2,913,750 | | | | 2,514,071 | | | | 427,206 | | | | — | | | | 52,209 | |
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WILLIAM J. DELANEY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Compensation Components | |
| | | | | Payments
| | | Payments
| | | | | | | | | Acceleration
| | | | | | | |
| | | | | and Benefits
| | | and Benefits
| | | | | | | | | and Other
| | | | | | | |
| | Severance
| | | Under
| | | Under
| | | | | | 280G Tax
| | | Benefits from
| | | Insurance
| | | | |
| | Payment
| | | EDCP
| | | SERP
| | | CPU
| | | Gross-Up
| | | Stock Options
| | | Payments
| | | | |
Termination Scenario | | (1) | | | (2) | | | (3) | | | Payment(4) | | | Payments(5) | | | (6) | | | (7) | | | Other(8) | |
|
Retirement | | $ | — | | | $ | 39,776 | | | $ | — | | | $ | 516,250 | | | $ | — | | | $ | — | | | $ | — | | | $ | 35,055 | |
Death | | | — | | | | 181,804 | | | | 2,678,855 | | | | 202,684 | | | | — | | | | — | | | | 1,200,000 | | | | 35,055 | |
Disability | | | — | | | | 181,804 | | | | — | | | | 516,250 | | | | — | | | | — | | | | 4,011,758 | | | | 35,055 | |
Voluntary Resignation | | | — | | | | 39,776 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Termination for Cause | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | — | |
Involuntary Termination w/o Cause, or Resignation for Good Reason(9) | | | — | | | | 39,776 | | | | — | | | | 516,250 | | | | — | | | | — | | | | — | | | | 35,055 | |
Change in Control w/o Termination | | | — | | | | 181,804 | | | | — | | | | 774,375 | | | | — | | | | 382,635 | | | | — | | | | — | |
Termination w/o Cause following a Change in Control | | | — | | | | 181,804 | | | | 1,644,442 | | | | 774,375 | | | | — | | | | 382,635 | | | | — | | | | 35,055 | |
LARRY G. PULLIAM
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Compensation Components | |
| | | | | Payments
| | | Payments
| | | | | | | | | Acceleration
| | | | | | | |
| | | | | and Benefits
| | | and Benefits
| | | | | | 280G Tax
| | | and Other
| | | | | | | |
| | Severance
| | | Under
| | | Under
| | | | | | Gross-Up
| | | Benefits from
| | | Insurance
| | | | |
| | Payment
| | | EDCP
| | | SERP
| | | CPU
| | | Payments
| | | Stock Options
| | | Payments
| | | | |
Termination Scenario | | (1) | | | (2) | | | (3) | | | Payment(4) | | | (5) | | | (6) | | | (7) | | | Other(8) | |
|
Retirement | | $ | — | | | $ | 452,077 | | | $ | — | | | $ | 787,500 | | | $ | — | | | $ | — | | | $ | — | | | $ | 38,093 | |
Death | | | — | | | | 1,261,952 | | | | 3,161,033 | | | | 383,349 | | | | — | | | | — | | | | 1,200,000 | | | | 38,093 | |
Disability | | | — | | | | 1,261,952 | | | | — | | | | 787,500 | | | | — | | | | — | | | | 4,000,872 | | | | 38,093 | |
Voluntary Resignation | | | — | | | | 452,077 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Termination for Cause | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | — | |
Involuntary Termination w/o Cause, or Resignation for Good Reason(9) | | | — | | | | 452,077 | | | | — | | | | 787,500 | | | | — | | | | — | | | | — | | | | 38,093 | |
Change in Control w/o Termination | | | — | | | | 1,261,952 | | | | — | | | | 1,181,250 | | | | — | | | | 391,226 | | | | — | | | | — | |
Termination w/o Cause following a Change in Control | | | — | | | | 1,261,952 | | | | 4,027,995 | | | | 1,181,250 | | | | — | | | | 391,226 | | | | — | | | | 38,093 | |
KENNETH J. CARRIG
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Compensation Components | |
| | | | | Payments
| | | Payments
| | | | | | | | | Acceleration
| | | | | | | |
| | | | | and Benefits
| | | and Benefits
| | | | | | 280G Tax
| | | and Other
| | | | | | | |
| | Severance
| | | Under
| | | Under
| | | | | | Gross-Up
| | | Benefits from
| | | Insurance
| | | | |
| | Payment
| | | EDCP
| | | SERP
| | | CPU
| | | Payments
| | | Stock Options
| | | Payments
| | | | |
Termination Scenario | | (1) | | | (2) | | | (3) | | | Payment(4) | | | (5) | | | (6) | | | (7) | | | Other(8) | |
|
Retirement | | $ | — | | | $ | 493,093 | | | $ | — | | | $ | 787,500 | | | $ | — | | | $ | — | | | $ | — | | | $ | 26,555 | |
Death | | | — | | | | 1,253,024 | | | | 2,964,509 | | | | 383,349 | | | | — | | | | — | | | | 1,200,000 | | | | 26,555 | |
Disability | | | — | | | | 1,253,024 | | | | — | | | | 787,500 | | | | — | | | | — | | | | 4,321,211 | | | | 26,555 | |
Voluntary Resignation | | | — | | | | 493,093 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Termination for Cause | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | — | |
Involuntary Termination w/o Cause, or Resignation for Good Reason(9) | | | — | | | | 493,093 | | | | — | | | | 787,500 | | | | — | | | | — | | | | — | | | | 26,555 | |
Change in Control w/o Termination | | | — | | | | 1,253,024 | | | | — | | | | 1,181,250 | | | | — | | | | 362,441 | | | | — | | | | — | |
Termination w/o Cause following a Change in Control | | | — | | | | 1,253,024 | | | | 1,659,783 | | | | 1,181,250 | | | | — | | | | 362,441 | | | | — | | | | 26,555 | |
| | |
(1) | | For Messrs. Schnieders and Spitler, severance payments shown are the present value of 24 monthly payments, calculated using an annual discount rate of 2.48%. See “Executive Severance Agreements” above for a discussion of the calculation and payout of executive severance payments, including the requirement that payments are subject to execution of a release. |
|
(2) | | See “Non-qualified Deferred Compensation” above for a discussion of the Option. Suchcalculation of benefits and payout options under the EDCP. For distributions following disability, death or retirement, the named executives can elect to receive distributions in a lump sum or in annual or quarterly installments over a specified period of up to 20 years. The amounts disclosed reflect the vested value of the company match on elective deferrals, as well as investment earnings on both deferrals and vested company match amounts; these amounts do not include salary and bonus deferrals. |
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| | |
| • | Mr. Schnieders has elected to receive a lump sum distribution in the event of disability, and annual installments over 5 years following death or retirement. |
| • | Upon his retirement, or in the event of his death or disability, Mr. Spitler has elected to receive a lump sum distribution of $750,000, with the remaining balance paid in quarterly installments over 10 years. |
| • | Mr. DeLaney has elected to receive annual installments over 5 years in the event of his disability, death or retirement. |
| • | Mr. Pulliam has elected to receive annual installments over 10 years following retirement, quarterly installments over 15 years in the event of disability, and quarterly installments over 10 years following death. |
| • | Mr. Carrig has elected to receive a lump sum distribution upon his retirement or in the event of his disability and quarterly installments over 10 years in the event of his death. |
| | |
(3) | | All amounts shown are present values of eligible benefits as of June 28, 2008, calculated using an annual discount rate of 7.03%, which represents the rate used in determining the values disclosed in the “Pension Benefits” table above. See “Pension Benefits” above for a discussion of the terms of the SERP and the assumptions used in calculating the present values contained in the table. The amount and expected number of benefit payments may be credited to an accounteach executive are based on each respective termination event, the form of payment, the age of the executive and his or her spouse, and mortality assumptions. Following are specific notes regarding benefits payable to each of the named executive officers: |
| | |
| • | For vesting purposes, Mr. Spitler was assumed to have completed a full year of MIP participation for the granteelast anniversary of service from July 1, 2007 through June 28, 2008, although the anniversary of his MIP participation did not occur until July 1, 2008. |
|
| • | Retirement, Voluntary Resignation, and Termination for Cause— Pursuant to Section 2(b) of his executive severance agreement, if Mr. Spitler resigns as an employee without Good Reason prior to reaching age 60, he shall forfeit all benefits under the SERP. For purposes of this disclosure, Retirement, voluntary resignation, and termination for cause are deemed to be termination without Good Reason. The amount shown for Mr. Schnieders reflects 338 monthly payments of $158,587 plus 21 monthly payments of $1,694 attributable to the PIA Supplement. Benefits are forfeited upon termination for cause. |
|
| • | Death— Because Mr. Schnieders and Mr. Spitler have reached age 55, their death benefits would be paid on a monthly basis. The other named executive officers’ death benefits would be paid on an annual basis. The amounts shown reflect payments as follows: |
| | | | | | | | | | | | |
| | Estimated # of
| | | Amount of
| | | Payment
| |
| | Payments | | | Payment | | | Frequency | |
|
Schnieders | | | 356 | | | $ | 158,128 | | | | Monthly | |
Spitler | | | 327 | | | | 90,531 | | | | Monthly | |
DeLaney | | | 10 | | | | 356,851 | | | | Annual | |
Pulliam | | | 10 | | | | 421,082 | | | | Annual | |
Carrig | | | 10 | | | | 394,903 | | | | Annual | |
| | |
| • | Disability;Involuntary Termination without Cause, or settledResignation for Good Reason; Termination without Cause following a Change in cash or common stock as determined byControl — The amounts shown reflect the Board. Any such crediting or settlements may be subjectfollowing monthly payments plus the amounts shown below attributable to such conditions as the Board of Directors establishes.monthly PIA supplement, which is paid only until the executive reaches age 62. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Involuntary Termination Without
| | |
| | | | | | | | Cause, or Resignation for Good
| | Termination without Cause following
|
| | Disability | | Reason | | a Change in Control |
| | | | | | Monthly
| | | | | | Monthly
| | | | | | Monthly
|
| | | | | | PIA
| | | | | | PIA
| | | | | | PIA
|
| | # of
| | Monthly
| | Supplement
| | # of
| | Monthly
| | Supplement
| | # of
| | Monthly
| | Supplement
|
| | Monthly
| | Payment
| | (Until
| | Monthly
| | Payment
| | (Until
| | Monthly
| | Payment
| | (Until
|
Name | | Payments | | Amounts | | Age 62) | | Payments | | Amounts | | Age 62) | | Payments | | Amounts | | Age 62) |
|
Schnieders | | | 338 | | | $ | 158,587 | | | $ | 1,694 | | | | 338 | | | $ | 158,587 | | | $ | 1,694 | | | | 338 | | | $ | 168,476 | | | $ | 1,694 | |
Spitler | | | 326 | | | | 88,703 | | | | 1,694 | | | | 326 | | | | 88,703 | | | | 1,694 | | | | 326 | | | | 94,729 | | | | 1,694 | |
DeLaney | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 253 | | | | 29,722 | | | | — | |
Pulliam | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 247 | | | | 73,176 | | | | — | |
Carrig | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 258 | | | | 32,994 | | | | — | |
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| | |
| • | Change in Control without Termination— Benefit payments are not triggered. |
Means of Exercise of Options
Upon exercise | | |
(4) | | See “2004 Cash Performance Unit Plan” above for a discussion of the Option,CPUs. The amounts shown include payment of awards made on September 7, 2006 and September 18, 2007. For purposes of this disclosure, and as defined in the optionplan, we have assumed the following levels of performance: |
| | |
| • | Retirement, Disability, Termination for Good Reason, and Voluntary Resignation (where applicable) — Amounts reflect the target award value of awards pursuant to the fiscal2007-2009 and fiscal2008-2010 performance cycles. Mr. Schnieders and Mr. Spitler are eligible for retirement under the company’s normal policies and, therefore, the amounts shown for each of them in a voluntary resignation situation treat such resignation as a retirement for purposes of payment on the CPUs. |
|
| • | Death— Amounts reflect the target award value of awards pursuant to the fiscal2007-2009 and2008-2010 performance cycles, pro-rated for the portion of each performance cycle completed at the time of death. The pro-rata factors used are 66.6% for the fiscal2007-2009 performance cycle and 33.0% for the2008-2010 performance cycle. |
|
| • | Change in Control— Amounts are based on the maximum award value (150% of target) of awards pursuant to the fiscal2007-2009 and fiscal2008-2010 performance cycles. |
| | |
(5) | | The amounts shown represent the amounts we would pay pursuant to the severance agreements with Mr. Schnieders and Mr. Spitler in connection with excise taxes under Sections 280G and 4999 of the Code following or in connection with a change in control. |
|
(6) | | The amounts shown represent the difference between the exercise price for purchased shares is payable immediately in cash or by tendering, through actual delivery or attestation, sharesof the accelerated options and the closing price of SYSCO common stock heldon the New York Stock Exchange on June 27, 2008, the last business day of our 2008 fiscal year. See the text following the “Option Awards” table for at least six months that have an aggregate Fair Market Value equal to the Option exercise price or any combinationa discussion of the foregoing. Subject to complianceevents causing an acceleration of outstanding options. Assumes accelerated vesting of all stock options, as well as the removal of any transfer restrictions and forfeiture provisions on shares issued in association with applicable law,awards under the Proposed Directors Plan,2005 Management Incentive Plan. |
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(7) | | Includes payments we will make in connection with additional life insurance coverage, long-term disability coverage, including disability income coverage, and long-term care insurance. In the Boardevent of Directors may also permitdeath, a recipient to pay the exercise price by irrevocably authorizing a third party to sell shares of SYSCO common stock to be acquired upon exercise of the Option, or a portion thereof, and instructing that party to pay the exercise price and any required withholding to the Company. With the exception of any dividends or dividend equivalent rights specifically granted under the Proposed Directors Plan, an Option holder will have none of the rights of a stockholder with respect to any shares covered by the Option until such individual has exercised the Option, paid the Option price and been issued a stock certificate for the purchased shares.44
Vesting and Exercisability of Options
Under the Proposed Directors Plan, the Board of Directors shall establish, in its discretion, the terms under which Options shall vest and become exercisable; provided, however, that no Option shall have a term in excess of seven years, and all grants will be subject to a minimum three-year ratable vesting schedule.
Transferability of Options
Options are not assignable or transferable other than by will or the laws of descent and distribution, and during the grantee’s lifetime the option may be exercised only by the grantee or the grantee’s guardian or legal representative.
Retainer Stock Awards
The Proposed Directors Plan also provides for the automatic grant of Retainer Stock Awards. As of the date of each Annual Meeting of SYSCO’s stockholders, each newly elected director who has not previously received a retainer stock awardlump sum Basic Life Insurance benefit is granted a one-time Retainer Stock Award of 6,000 shares. Retainer Stock Awards will vest one-third on each of the first, second and third anniversaries of the date of grant.
Common stock granted as a Retainer Stock Award may not be sold, assigned, transferred or pledged prior to the date it is vested. Each director, as the owner of shares of common stock granted to him or her as a Retainer Stock Award, has all the rights of a SYSCO stockholder, including, but not limited to, the right to vote such shares and the right to receive all dividends paid on such shares.
Restricted Stock and Restricted Stock Units
The Board of Directors may grant shares of Restricted Stock and/or Restricted Stock Units to participants in such amounts and upon such terms and conditions as the Board shall determine; provided, however, that no grant of Restricted Stock or of any Restricted Stock Unit shall in any event vest more than 1/3 per year for each of the first three years following the date of grant. Grants of Restricted Stock are grants of common stock that may be subject to forfeiture based on the passage of time, the achievement of performance goals, and/or upon the occurrence of other events as determined by the Board in its discretion. Restricted Stock Units are awards denominated in units whose value is derived from common stock and which are subject to forfeiture based on the passage of time, the achievement of performance goals, and/or upon the occurrence of other events as determined by the Board in its discretion.
The Board may impose, at the time of grant or anytime thereafter, such other conditions and/or restrictions on any shares of Restricted Stock or Restricted Stock Units granted pursuant to the Plan as it may deem advisable including, without limitation, a requirement that participants pay a stipulated purchase price for each share of Restricted Stock or each Restricted Stock Unit, that specific performance goals be obtained, the imposition of time-based restrictions on vesting following the attainment of the performance goals, time-based restrictions, restrictions under applicable laws or under the requirements of any stock exchange or market upon which such shares are listed or traded, or holding requirements or sale restrictions placed on the shares following vesting.
Common stock subject to a Restricted Stock Award may not be sold, assigned, transferred, pledged or otherwise encumbered prior to the date it is vested, and except as otherwise specified by the Board. Restricted Stock Units may not be transferred.
To the extent required by law, non-employee directors in whose names shares of Restricted Stock are issued shall be granted the right to exercise full voting rights with respect to those shares during the period of restriction. A participant shall have no voting rights with respect to any Restricted Stock Units. During the period of restriction, non-employee directors holding shares of Restricted Stock or Restricted Stock Units may, if the Board so determines, be credited with dividends paid with respect to the underlying shares or dividend equivalents. The Board, in its sole discretion, may determine the form of payment of dividends or dividend equivalents, including cash, unrestricted common stock, Restricted Stock, or Restricted Stock Units. When and if Restricted Stock Units become payable a non-employee director having received the grant of
45
such units shall be entitled to receive payment from the Corporation in cash, in shares of common stock of equivalent value (based on the Fair Market Value thereof on the first business day prior to the date on which the Restricted Stock Units became payable), in some combination thereof, or in any other form determined by the Board in its sole discretion.
Elected and Additional Shares
A non-employee director who is otherwise eligible to receive an annual cash retainer fee for services provided as a director may elect to forego up to 50% of his or her annual retainer fee, in 10% increments (exclusive of any fees or other amounts payable for attendance at meetings of the Board or for service on any committee thereof), and receive in its stead SYSCO common stock, in an amount determined as set forth below. Upon making suchequal to one-times the executive’s prior yearW-2 earnings, capped at $150,000. An additional benefit is paid in the case of MIP-eligible employees in an election,amount equal to one-times the elected amountexecutive’s prior yearW-2 earnings, capped at $1,050,000. The value of the benefits payable is deducted ratably fromdoubled in the quarterlyevent of an accidental death. In the event of disability, a monthly Long-Term Disability benefit of $25,000 is payable to age 65, following a180-day elimination period.
|
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(8) | | Includes retiree medical benefits and the payment of accrued but unused vacation. |
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(9) | | The severance agreement with Mr. Spitler provides that if we terminate him without cause or he terminates his employment for good reason, prior to his reaching the director’s annual retainer fee,age of 60, the unvested portion of his EDCP account will automatically vest, and we will pay these benefits to him in a single payment within 60 days after we receive his signed liability release. Amounts shown for Mr. Spitler reflect this acceleration. |
62
DIRECTOR COMPENSATION
Fees
We currently pay non-employee directors who serve as committee chairpersons $85,000 per year and all other non-employee directors $70,000 per year plus reimbursement of expenses for all services as a director, including committee participation or special assignments. Directors are encouraged to have their spouses accompany them to dinners and other functions held in connection with board meetings, and the company pays, either directly or through reimbursement, all expenses associated with their travel to and attendance at these business-related functions. Reimbursement for non-employee director travel may include reimbursement of amounts paid in connection with travel on private aircraft excluding maintenance and ownership interests.
In addition to the annual retainer, non-employee directors receive the following fees for attendance at meetings:
| | |
| • | For committee meetings held in conjunction with regular Board meetings, committee chairmen who attend in person, or who participate by telephone because of illness or the electing director’s account is credited oninability to travel, will receive $1,750 and committee members who attend in person, or who participate by telephone because of illness or the date of each quarterly payment of the annual retainer fee (“Quarterly Payment Date”)inability to travel, will receive $1,500; |
| • | For special committee meetings not held in conjunction with regular Board meetings, committee chairmen who attend in person or who participate by telephone will receive $1,750 and committee members who attend in person or who participate by telephone will receive $1,500; and |
| • | For special Board meetings, all non-employee directors who attend in person or who participate by telephone will receive $1,500. |
Non-employee directors also receive discounts on products carried by the company and its subsidiaries comparable to the discounts offered to all company employees.
Directors Deferred Compensation Plan
Non-employee directors may defer all or a portion of their annual retainer and meeting attendance fees under the Directors Deferred Compensation Plan. Non-employee directors may choose from a variety of investment options, including Moody’s Average Corporate Bond Yield plus 1%, with respect to amounts deferred in fiscal 2008. This investment option was reduced to Moody’s Average Corporate Bond Yield, without the addition of 1%, for amounts deferred after fiscal 2008. We credit such deferred amounts with investment gains or losses until the non-employee director’s retirement from the Board or until the occurrence of certain other events.
2005 Non-Employee Directors Stock Plan
As of September 22, 2008, the non-employee directors held options and shares of restricted stock that were issued under the Amended and Restated 2005 Non-Employee Directors Stock Plan, the Non-Employee Directors Stock Plan, as amended and restated, and the Amended and Restated Non-Employee Directors Stock Option Plan. We may not make any additional grants under the Non-Employee Directors Stock Plan or the Amended and Restated Non-Employee Directors Stock Option Plan, and we may not make any additional grants under the 2005 Non-Employee Directors Stock Plan after November 11, 2010. Since we may only make grants under the 2005 Non-Employee Directors Stock Plan, the description below relates only to such plan.
Options
The 2005 Non-Employee Directors Stock Plan gives discretion to the Board to determine the size and timing of all option grants under the plan, as well as the specific terms and conditions of all options, but specifies that directors may not exercise an option more than seven years after the grant date and that no more than one-third of the options contained in any grant may vest per year for the first three years following the grant date. All options currently outstanding under the plan have seven year terms and vest ratably over three years on the anniversary of the grant date.
Generally, if a director ceases to serve as a director of SYSCO, he or she will forfeit all the options he or she holds, whether or not those options are exercisable. However, if the director leaves the Board after serving out his or her term, or at any time after reaching age 71, his or her options will remain in effect and continue to vest and become exercisable and expire as if the director had remained a director of SYSCO. All unvested options will automatically vest upon the director’s death, and the director’s estate may exercise the options at any time within three years after the director’s death, but no later than the option’s original termination date.
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Election to Receive a Portion of the Annual Retainer in Common Stock
Instead of receiving his or her full annual retainer fee in cash, a non-employee director may elect to receive up to 50% of his or her annual retainer fee, in 10% increments, in common stock. If a director makes this election, on the date we make each quarterly payment of the director’s annual retainer fee we will credit the director’s stock account with:
| | |
| • | The number of shares of SYSCO common stock determined by dividing his or her elected amount bythat the Fair Market Value of one share of SYSCO common stock as ofdirector could have purchased on that date with the first business day prior to such Quarterly Payment Date (“Elected Shares”). In addition, he or she also receives that number of shares of common stock determined by dividing 50% of the elected amount by the Fair Market Value of one share of SYSCO common stock as of the first business day prior to such Quarterly Payment Date (“Additional Shares”). The issuance date of common stock credited pursuant to a non-employee director’s election to forego up to 50%portion of his or her annual retainer fee is December 31 of the calendar year as to which the director has elected to receive stock in lieu of cash retainer payments or the last business day prior to December 31, if December 31 is not a business day of the Company’s transfer agent. If a director who has elected to receive common stock in lieu of cash retainer payments ceases to be a director for any reason, certificates for such shares shall be issued within 60 days following the date such director ceases to serve on the Board. All Elected Shares and Additional Shares are 100% vested as of the date they are credited to the electing director. Additional Shares, however, may not be sold or transferred for a period of two years after the date on which they are issued (the “Restriction”). The Restriction remains in effect after the date an electing director ceases to be a director; provided, however, that the Restriction lapses (i) if an electing director ceases to be a director under circumstances which would not cause forfeiture of Options or unvested Retainer Stock Awards, or by reason of disability; or (ii) on the date of certain defined changes of control of SYSCO.
Termination of Service
Under the Proposed Directors Plan, unless otherwise determined by the Board of Directors, upon cessation of service as a non-employee director (for reasons other than death), all unvested Options and unvested Retainer Stock Awards, Restricted Stock Awards and Restricted Stock Units are forfeited, unless:
| | | | • | The non-employee director serves out his term but does not stand for reelection at the end of the term; or | | | • | The non-employee director retires from service prior to the expiration of his or her term and after attaining age 71. |
Upon a non-employee director’s death, all Options will vest and his or her legal representatives or heirs have three years within which to exercise them, but in no event may the Options be exercised after their expiration date. In addition, all unvested Retainer Stock Awards, Restricted Stock Awards and Restricted Stock Units will vest upon a non-employee director’s death, and all restrictions with respect to Additional Shares will lapse.
No Impairment of the Company’s Rights
Nothing in the Proposed Directors Plan will be construed or interpreted so as to affect adversely or otherwise impair the Company’s right to remove any non-employee director from service on the Board at any time in accordance with the provisions of applicable law, and no non-employee director has any claim or right
46
to be granted or issued an Option, Retainer Stock Award, Restricted Stock Award, Restricted Stock Unit, Elected Shares or Additional Shares, except as provided in the Proposed Directors Plan.
Effective Date and Term of the Amended and Restated Directors Plan
The Proposed Directors Plan shall be effective as of the date of approval thereof by the Company’s stockholders. The Proposed Directors Plan will terminate upon the earliest to occur of (i) November 11, 2010, (ii) the date on which all shares available for issuance under the Proposed Directors Plan have been issued, or (iii) the date on which all outstanding grants or awards are terminated or have been forfeited. If the date of termination is determined under clause (i) or (ii) above, then any Options and Retainer Stock Awards, Restricted Stock or Restricted Stock Units outstanding on such date will not be affected by the termination of the Proposed Directors Plan and will continue to have force and effect in accordance with the provisions of the instruments evidencing such grants or awards and the Plan, and Additional Shares shall continue to be subject to the applicable provisions of the Proposed Directors Plan.
Federal Tax Consequences
The following is a general description of the federal income tax consequences under the Proposed Directors Plan. This summary does not address any state, local or other non-federal tax consequences associated with the Proposed Directors Plan. This discussion is intended for the information of stockholders considering how to vote at the annual meeting and not as tax guidance to individuals who participate in the Proposed Directors Plan. Participants in the Proposed Directors Plan should consult their own tax advisors to determine the tax consequences to them based on their own particular circumstances.
Options. The Company is generally entitled to deduct for federal income tax purposes, and the participant will recognize taxable ordinary income in an amount equal to, the difference between the (i) fair market value of the shares acquired pursuant to the exercise of the Option, and (ii) exercise price of the Option.
Retainer Stock Award/ Restricted Stock. Upon the grant of Retainer Stock Awards and Restricted Stock, no income is realized by a non-employee director (unless the director timely makes an election under Section 83(b) of the Code), and the Company is not allowed a deduction at that time. When the award vests and is no longer subject to a substantial risk of forfeiture for income tax purposes, the non-employee director realizes taxable ordinary income in an amount equal to the fair market value at the time of vesting of the shares of stock which have vested (less the purchase price therefor, if any), and the Company is entitled to a corresponding deduction at that time. If a non-employee director makes a timely election under Section 83(b) of the Code, then the non-employee director recognizes taxable ordinary income in an amount equal to the fair market value at the time of grant of the Retainer Stock Award or Restricted Stock (less the purchase price therefor, if any), and the Company is entitled to a corresponding deduction at that time.
Restricted Stock Units. Upon the grant of Restricted Stock Units, no income is realized by the non-employee director, and the Company is not allowed a deduction at that time. When the award vests and is no longer subject to a substantial risk of forfeiture for income tax purposes, the non-employee director realizes taxable ordinary income in an amount equal to the cash or the fair market value at the time of vesting of the shares received by the non-employee director (less the purchase price therefor, if any), and the Company is entitled to a corresponding deduction at that time.
Elected Shares and Additional Shares. A non-employee director who elects to receive Elected Shares and Additional Shares will recognize ordinary compensation income in the amount of the fair market value of such shares as of the date they are credited to his or her account. The Company will generally be entitled to a deduction for the amount included in the income of the non-employee director for the Company’s taxable year within which the non-employee director’s taxable year ends.
Section 409A of the Code. Section 409A was added to the Internal Revenue Code by the American Jobs Creation Act of 2004. It is generally effective January 1, 2005 and applies broadly to most forms of deferred compensation, including certain types of equity-based compensation. Section 409A provides strict
47
rules for elections to defer (if any) and timing of payouts. If the requirements of Section 409A are not met, recipients of deferred compensation may suffer adverse tax consequences, including taxation at the time of vesting of an award and interest and penalties on any deferred income. However, the failure to comply with Section 409A would not impact the Company’s ability to deduct deferred compensation. Although the IRS has issued limited guidance on the interpretation of this new law, and it is not clear how Section 409A applies to many types of equity-based compensation, the Company does not intend to grant any awards under the Plan that would not comply with the requirements of Section 409A of the Code.
New Plan Benefits
The following table indicates the number of shares of common stock that are currently expected to be received in connection with grants to be made in fiscal 2006 (November 2005) under the Proposed Directors Plan if it is approved by stockholders, and the estimated dollar value thereof:
| | | | | | | | | | | | Number of Shares | | | | Name and Position | | Underlying Grants | | | Dollar Value | | | | | | | | | Non-Employee Directors as a group (9 persons) | | | | | | | | | | Stock Options | | | 31,500 | (1) | | $ | 224,280 | (2) | | Retainer Stock Awards | | | n/a | | | | n/a | | | Restricted Stock | | | 27,000 | (3) | | | 875,340 | (4) | | Restricted Stock Units | | | n/a | | | | n/a | | | Elected Shares in Lieu of Annual Retainer Fees | | | 8,945 | (5) | | | 290,000 | (4) | | Additional Shares | | | 4,472 | (5) | | | 145,000 | (4) | | Total | | | 71,917 | | | $ | 1,534,620 | |
| | (1) | Assumes grants of options to purchase 3,500 shares are made to each non-employee director. | | (2) | Assumes a value of $7.12 per share which is the same as the hypothetical grant value determined for options granted in fiscal 2005 to the Named Executive Officers. See note (2) to the chart “Option Grants in Fiscal 2005.” | | (3) | Assumes grants of 3,000 restricted shares are made to each non-employee director. | | (4) | Assumes a fair market value of $32.42 per share based on the closing price of the Company’s common stock on the New York Stock Exchange on September 13, 2005. | | (5) | Under the Proposed Directors Plan, up to 50% of the annual retainer fee may be exchanged for common stock of the Company as described herein. The number of shares to be granted depends upon the amount of fees waived by each non-employee director. The information reported assumes each non-employee director elects to waive the maximum amount permitted in calendar 2005. |
If this proposal is not approved, the Existing Directors Plan will remain in effect. This proposal will not affect options or other awards already granted under the Existing Directors Plan.
Required Vote
The affirmative vote of a majority of votes cast is required to approve this proposal. For purposes of qualifying the shares authorized under the proposed plan for listing on the NYSE, the total votes cast on the proposal must represent over 50% of shares outstanding.
The Board of Directors recommends a vote FOR approval of the
2005 Non-Employee Directors Stock Plan
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STOCKHOLDER PROPOSALS
Presenting Business
If you want to present a proposal under Rule 14a-8 of the Exchange Act at our 2006 Annual Meeting of Stockholders, send the proposal in time for us to receive it no later than June 5, 2006. If the date of our 2006 Annual Meeting is subsequently changed by more than 30 days from the date of this year’s Annual Meeting, we will inform you of the change and the date by which we must receive proposals. If you want to present business at our 2006 Annual Meeting outside of the shareholder proposal rules of Rule 14a-8 of the Exchange Act and pursuant to Article I, Section 9 of the Company’s Bylaws, the Corporate Secretary must receive notice of your proposal by August 13, 2006, but not before July 4, 2006 and you must be a stockholder of record on the date you provide notice of your proposal to the Company and on the record date for determining stockholders entitled to notice of the meeting and to vote.
Nominating Directors for Election
The Corporate Governance and Nominating Committee will consider any director nominees you recommend in writing for the 2006 Annual Meeting if the Corporate Secretary receives notice by August 13, 2006, but not before July 4, 2006 and you are a stockholder of record on the date you provide notice of your recommendation or nomination to the Company and on the record date for determining stockholders entitled to notice of the meeting and to vote. You may also nominate someone yourself at the 2006 Annual Meeting, as long as the Corporate Secretary receives notice of such nomination between July 4, 2006 and August 13, 2006.
Your notice must include the following information for each person you are recommending or nominating for election as a director:
| | | | • | the name, age, business address and residence address of the person; | | | • | the principal occupation or employment of the person; | | | • | the class or series and number of shares of SYSCO capital stock which the person owns beneficially or of record; and | | | • | any other information relating to the person that must be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors under Section 14 of the Exchange Act and its rules and regulations. |
In addition, your notice must include the following information about yourself:
| | | | • | your name and record address; | | | • | the class or series and number of shares of capital stock of SYSCO that you own beneficially or of record; | | | • | a description of all arrangements or understandings between you and each proposed nominee and any other person or persons, including their names, pursuant to which the nomination(s) are to be made; | | | • | a representation that you intend to appear in person or by proxy at the meeting to nominate the person or persons named in your notice; and | | | • | any other information about yourself that must be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors under Section 14 of the Exchange Act and its rules and regulations. |
The notice must include a written consent by each proposed nominee to being named as a nominee and to serve as a director if elected. No person will be eligible for election as a director of SYSCO unless recommended by the Corporate Governance and Nominating Committee and nominated by the Board or nominated by a stockholder in accordance with the procedures set forth above.
Meeting Date Changes
If the date of next year’s Annual Meeting is advanced by more than 30 days prior to or delayed by more than 60 days after the date of this year’s Annual Meeting, we will inform you of the change and we must receive your director nominee notices or your shareholder proposals outside of Rule 14a-8 of the Exchange Act by the latest of 90 days before the Annual Meeting, 10 days after we mail the notice of the changed date of the Annual Meeting or 10 days after we publicly disclose the changed date of the Annual Meeting.
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ANNEX A
SYSCO CORPORATION
AUDIT COMMITTEE CHARTER
Organization
The Board of Directors of SYSCO Corporation shall establish an Audit Committee whose members shall be appointed by the Board on the recommendation of the Corporate Governance and Nominating Committee. The Audit Committee shall have a minimum of three members and be composed entirely of directors who are independent of the management of SYSCO, are free of any relationship that, in the affirmative opinion of the Board, would interfere with their exercise of independent judgment as a Committee member, who are financially literate, and who otherwise meet the NYSE’s definition of “independent” and the definition of “independence” contained in Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended. At least one member of the Committee shall be an “audit committee financial expert” as such term is defined in rules to be promulgated by the Securities and Exchange Commission. Committee members cannot serve on the audit committees of more than two other companies.
Statement of Policy
The Audit Committee shall provide assistance to the directors in fulfilling their responsibilities to shareholders, potential shareholders, and the investment community with respect to compliance with legal and regulatory requirements, corporate accounting, reporting practices, and the quality and integrity of the financial reports of SYSCO, oversight of the independent auditors’ qualifications and independence, and evaluation of the performance of SYSCO’s internal audit department and independent auditors. It is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of management and the independent auditors.
In the performance of its responsibilities, the Audit Committee must maintain free and open means of communication among the directors, the independent auditors, SYSCO’s internal audit department (“Operations Review”), and executive and financial management. The Audit Committee shall have full access, without restriction, to all information which it believes, in the members’ judgment, is required to fulfill its responsibilities. The independent auditors report directly to the Audit Committee and are accountable to the Board of Directors and the Audit Committee as shareholder representatives.
In executing its responsibilities, the Audit Committee’s policies and procedures should be flexible in order to best react to changing conditions, and to insure that the accounting and reporting practices of SYSCO meet or exceed all applicable legal and regulatory requirements. In carrying out its responsibilities, the Audit Committee shall meet as often as it determines, but not less frequently than quarterly. Sysco shall provide appropriate funding, as determined by the Audit Committee, for payment of compensation to any registered public accounting firm and for other professional advisors such as independent counsel engaged by the Audit Committee and for the ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties.
In order to assist it in fulfilling its obligations set forth herein, the Committee shall review and discuss with the independent auditors:
| | | | • | Major issues regarding accounting principles and financial statement presentations, including any significant changes in SYSCO’s selection or application of accounting principles, and major issues as to the adequacy of SYSCO’s internal controls and any special audit steps adopted in light of material control deficiencies, if any. |
A-1
| | | | • | Analyses prepared by management and/or the independent auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effect of alternative GAAP methods on the financial statements. | | | • | The effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements and on the performance of the inside and outside auditors. |
Responsibility With Respect to Independent Auditors
With respect to the Company’s independent auditors, the Audit Committee shall:
| | | | • | Select and oversee the independent auditors who shall audit the consolidated financial statements of SYSCO Corporation and its divisions and subsidiaries; with sole power of dismissal. | | | • | Approve fee arrangements with the independent auditors for audit and permitted non-audit services and annually review fees paid to the firm. | | | • | Review the experience and qualifications of the senior members of the independent auditor’s team. | | | • | Pre-approve the retention of the independent auditors for any audit services (including comfort letters and statutory audits), internal control-related services and permitted non-audit services. | | | • | Review and discuss with the independent auditors and with management, the annual audited financial statements and management’s discussion and analysis contained in the annual report to shareholders and Form 10-K prior to release to the public or filing with the appropriate agencies, and recommend to the Board whether the audited financial statements should be included in the Company’s Form 10-K. | | | • | Review and discuss with the independent auditors and with management, the earnings press releases, and the type and presentation of information therein, prior to release to the public. | | | • | Require that the independent auditors conduct an SAS 71 Interim Financial Review before the Company files its Form 10-Q. | | | • | Meet with the independent auditors at the conclusion of the audit to review the results and discuss any difficulties the auditors encountered in the course of the audit work, including any restrictions on the scope of their activities or access to requested information. In connection with this review, discuss the independent auditors’ evaluation of SYSCO’s financial, accounting, and auditing personnel, the level of cooperation that the independent auditors received during the course of the audit, accounting adjustments, including any proposed adjustments that were not made due to immateriality or otherwise, any material issues on which the national office of the independent auditor was consulted by the Company’s audit team, significant auditing or accounting issues or disagreements with management and any management response thereto, and any management or internal control letters issued or proposed to be issued. This review shall also include a discussion of the responsibilities, budget and staffing of Operations Review. | | | • | Review and discuss with management and the independent auditors the Company’s quarterly financial statements and management’s discussion and analysis prior to filing Form 10-Q, including the results of the auditor’s review of the quarterly financial statements. | | | • | Obtain and review at least annually, and discuss with the auditors, a written report from the independent auditors describing their internal quality control procedures; any material issues raised by the most recent internal quality control review, or peer review, of them, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by them and any steps taken to deal with any such issues; and all relationships between the independent auditor and the Company. After reviewing this report, the Committee should evaluate the independent auditor’s qualifications, performance and independence, including considering whether the auditor’s internal controls are adequate and the provision of any permitted non-audit services is compatible with maintaining independence, and present its conclusions to the full Board. This evaluation shall include a review and evaluation of the lead partner |
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| | | | | of the independent auditor and shall take into account the opinions of management and Operations Review. | | | • | Assure the regular rotation of the lead audit partner as required by law, and consider, in order to assure continuing auditor independence, whether there should be regular rotation of the audit firm itself. | | | • | Obtain and review at least annually a written report from the independent auditors describing all critical accounting policies and practices to be used by SYSCO; all alternative treatments of financial information within generally accepted accounting principles that have been discussed with SYSCO management; ramifications of the use of such alternative disclosures and treatments, and the treatments preferred by the independent auditors; and other material written communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences. | | | • | Require the independent auditors to provide a formal written statement that delineates all relationships between the independent auditor and SYSCO. The Committee will ensure, through communicating with the independent auditor, that no relationship or services will impact the auditor’s independence or objectivity. |
Responsibility With Respect to Other Matters
With respect to other matters, the Committee shall:
| | | | • | Meet separately in executive session, at least quarterly with Operations Review, with the independent auditors and with management. | | | • | Review at least annually, with the independent auditors, Operations Review, and executive and financial management the adequacy and effectiveness of SYSCO’s accounting and financial controls and practices. Discuss significant major financial risks and exposures and steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies. Request recommendations for improvement of such controls, including identified areas where new or more detailed controls or procedures are desirable. Particular emphasis should be given to the adequacy of such controls to expose any payments, transactions, or procedures that might be deemed illegal or otherwise improper. | | | • | Meet with the independent auditors and executive and financial management to review the scope and staffing of the proposed audit for the ensuing fiscal year including the audit procedures to be employed. | | | • | Review disclosures made to the Audit Committee by the Company’s CEO and CFO during their certification process for the Form 10-K and Form 10-Q about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Company’s internal controls. | | | • | When applicable, review and discuss with management, Operations Review and the independent auditors the Company’s internal controls report and the independent auditor’s attestation of the report prior to the filing of the Company’s Form 10-K. | | | • | Review the adoption, application and disclosure of the Company’s critical accounting policies and any changes thereto. | | | • | Review periodically SYSCO’s Code of Business Conduct, including the results of the review by Operations Review of compliance with the Code, particularly with regard to the functioning of the ethics committees at SYSCO and its subsidiaries. | | | • | Review at least annually Operations Review including its performance, independence and authority, its proposed audit plans and scope for the ensuing year, and the coordination of such plans with the independent auditors. |
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| | | | • | Receive prior to each meeting as appropriate, from Operations Review and the independent auditors, reports summarizing the findings of completed internal reviews, and a progress report of accomplished versus planned activities. Any deviations from planned activities should be adequately explained. | | | • | Review and approve the Committee’s report required by the SEC to be included in the Company’s annual Proxy Statement. | | | • | Review and approve significant related party transactions. | | | • | Determine that the disclosures and content of the financial statements are satisfactory for submission to the shareholders and for filing with the Securities and Exchange Commission. Such determination will be made through discussions with independent auditors and executive and financial management. | | | • | Establish procedures for the receipt, retention and treatment of complaints received by SYSCO regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. | | | • | Review and discuss with management and the independent auditors any correspondence with regulators or governmental agencies and any public reports or articles which raise material issues regarding the Company’s financial statements or accounting policies or practices. | | | • | Review the quality and sufficiency of the accounting and financial resources required to meet the financial and reporting objectives as determined by the Committee. Review the succession planning process for the accounting, internal audit and financial reporting areas. | | | • | Review and determine appropriateness of the Company hiring any employee or former employee of the Company’s independent auditors and set clear hiring policies with respect thereto. | | | • | Review all allegations brought to the Committee’s attention, regardless of source, of inappropriate or improper accounting practices, fraud or other illegal acts. | | | • | Investigate any matter brought to its attention within the scope of its duties. The Committee shall have the power to retain outside counsel and/or advisors, including a public accounting firm other than the current independent auditor, if, in its judgment, that is appropriate and shall have appropriate funding to compensate such advisors. | | | • | Review and discuss financial information and earnings guidance provided to analysts and rating agencies. | | | • | Discuss with the Company’s General Counsel legal matters that may have a material impact on the Company’s financial statements or internal controls. | | | • | Submit the minutes of all meetings of the Committee to, or orally report the matters discussed at each committee meeting with, the Board of Directors. | | | • | Establish a standard of conduct concerning relationships of management, the Committee, and individual Board members, with the independent auditors and review those relationships on an annual basis. | | | • | Evaluate annually the performance of the Audit Committee. | | | • | Review and assess the adequacy of this Charter annually and recommend any changes to the Board for approval. |
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ANNEX B
SYSCO CORPORATION
2005 MANAGEMENT INCENTIVE PLAN
This Sysco Corporation 2005 Management Incentive Plan (the “Plan”) was recommended by the Committee (as hereinafter defined) of Sysco Corporation (the “Company”) on September 8, 2005, and adopted by the Board of Directors of the Company (the “Board of Directors”) on September 9, 2005. This Plan shall be effective on November 11, 2005.
The purpose of the Plan is to reward (i) certain key management personnel for outstanding performance in the management of the divisions or subsidiaries (as hereinafter defined) of the Company and (ii) certain corporate personnel for managing the operations of the Company as a whole and/or managing the operations of certain Subsidiaries (as hereinafter defined). For purposes of the Plan, the term “Subsidiary” means (a) any corporation which is a member of a “controlled group of corporations” which includes the Company, as defined in Internal Revenue Code of 1986, as amended (the “Code”) Section 414(b), (b) any trade or business under “common control” with the Company, as defined in Code Section 414(c), (c) any organization which is a member of an “affiliated service group” which includes the Company, as defined in Code Section 414(m), (d) any other entity required to be aggregated with the Company pursuant to Code Section 414(o), and (e) any other organization or employment location designated as a “Subsidiary” by resolution of the Board of Directors. Except as otherwise provided in Section 8 hereof, the total number of shares of Company Common Stock, $1.00 par value (“Common Stock”), which may be awarded pursuant to the Plan shall not exceed 2,800,000 shares, subject to adjustment pursuant to Section 8 below. All references to periods in the Plan are to fiscal periods unless otherwise specifically noted.
| | 2. | Plan Compensation Committee |
The Compensation and Stock Option Committee (the “Committee”) of the Board of Directors is charged with structuring, proposing the implementation of, and implementing the terms and conditions of, the Plan. The Committee shall have the authority to adopt, alter and repeal such rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of the Plan and any award issued under the Plan (and any agreements relating thereto) including without limitation the manner of determining financial and accounting concepts discussed in the Plan; to otherwise supervise the administration of the Plan; and, except as to the application of the Plan to executive officers, to delegate such authority provided to it hereunder as it may deem necessary or appropriate to the Chairman of the Board, Chief Executive Officer, President and any Executive Vice President, and any of them individually. All decisions made by the Committee pursuant to the provisions of the Plan shall be made in the Committee’s sole discretion and shall be final and binding on all persons, including the Company and Participants (hereinafter defined).
The participants in the Plan for a fiscal year shall be designated by the Committee from the persons who are employed by any Subsidiary or the Company, in the following capacities (Subsidiary Participants, Corporate Participants, Designated Participants and Senior Executive Participants are referred to collectively as “Participants” or individually as a “Participant”):
| | | Subsidiary Participants — Persons who serve as an officer of a Subsidiary. | | | Corporate Participants — Persons who serve as an officer of the Company who are also employees of the Company or a Subsidiary. |
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| | | Designated Participants — Persons other than Corporate Participants or Subsidiary Participants who are employed by a Subsidiary or by the corporate office of the Company who are designated by the Committee from time to time. | | | Senior Executive Participants — Persons who are “covered employees” of the Company within the meaning of Code Section 162(m) and Treasury Regulation 1.162-27(c)(2) (or any successor statute or regulation section, or any administrative interpretation thereof) (the “Executive Compensation Provisions”) during a fiscal year of the Company and who have been designated by the Committee as Corporate, Subsidiary or Designated Participants in the Plan for such fiscal year. If a Participant isboth a Senior Executive Participant and a Corporate, Subsidiary or Designated Participant during a fiscal year as a result of the application of the Executive Compensation Provisions, he or she shall be considered a Senior Executive Participant, andnot a Corporate, Subsidiary or Designated Participant, during such fiscal year, and shall be subject to any and all restrictions applicable to Senior Executive Participants hereunder during such fiscal year. |
To the extent possible, the Committee shall designate Participants in the Plan prior to the commencement of the fiscal year for which such designated Participants will be entitled to a bonus under the Plan, or as soon as practicable during the fiscal year in which a person first becomes eligible to be a Participant. Subject to Section 10 below with respect to a Change of Control, once designated as a Participant, the Committee can remove an employee as a Participant with or without cause at any time and the Participant shall not be entitled to any bonus under the Plan for the year in which he or she is removed regardless of when during such year he or she is removed.
The bonus which a Participant can earn is based (i) on the performance of the Company as a whole and (ii) (A) (as to Subsidiary Participants and possibly Designated Participants and certain Senior Executive Participants) either the performance of the Subsidiary which employs such Participant or the performance of the Subsidiary designated by the Committee as the Subsidiary by reference to which the bonus is to be determined and (B) (as to Corporate and possibly Designated Participants and certain Senior Executive Participants) the performance of a select group of Subsidiaries ((i) and (ii), collectively or singly, “Performance”), subject to the discretion of the Committee to formulate a different bonus structure as to any Participant, other than Senior Executive Participants. Subject to the provisions of Paragraph (ii) of Section 4(D), the bonus is calculated with respect to an entire fiscal year and, if earned, shall be paid in accordance with Section 6 hereof.
(A) Subsidiary Participants and Certain Senior Executive Participants.
With respect to each Subsidiary Participant and each Senior Executive Participant who would be a Subsidiary Participant but for the application of the Executive Compensation Provisions, a portion of the bonus may depend upon the return on capital and/or increase in pretax earnings of the Subsidiary employing such Participant; a portion of the bonus may depend upon the return on stockholder’s equity and increase in earnings per share of the Company as a whole; and a portion of the bonus may depend upon any one or more of the following performance factors: (i) sales of the Company and/or one or more Subsidiaries, (ii) pretax earnings of the Company, (iii) net earnings of the Company and/or one or more Subsidiaries, (iv) control of operating and/or nonoperating expenses of the Company and/or one or more Subsidiaries, (v) margins of the Company and/or one or more Subsidiaries, (vi) market price of the Company’s securities, (vii) market share, (viii) “economic value added,” as determined pursuant to an objective formula approved by the Committee (“EVA”), and (ix) with respect to Participants other than Senior Executive Participants, other factors directly tied to the performance of the Company and/or one or more Subsidiaries. The relative weights of the factors considered and the percentages of the total bonus comprised by the portion of the bonus determined with respect to the Subsidiary employing the Participant or the Subsidiary designated by the Committee as the Subsidiary by reference to which the Bonus is to be determined and the portion of the bonus determined with respect to the Company shall be determined by the Committee in its sole discretion. Notwithstanding the foregoing, the Committee may alter the bonus formula with respect to any such Participant by changing the
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performance targets as determined in the sole discretion of the Committee; provided, however, the Committee cannot change the performance targets after the first ninety (90) days of the fiscal year with respect to Senior Executive Participants.
In addition to the bonus calculated in accordance with the first paragraph of Section 4(A) above, a Subsidiary Participant may also be entitled to an additional bonus (“Additional Bonus”) if awarded by the Committee in its sole discretion. The Additional Bonus may be established by the Committee at one or more times during such fiscal year or within ninety (90) days following the end of such fiscal year based on such criteria as the Committee may develop in its sole discretion.
(B) Corporate Participants and Certain Senior Executive Participants.
With respect to a Corporate Participant or Senior Executive Participant who would be a Corporate Participant but for the application of the Executive Compensation Provisions and subject to the further adjustments and additions provided for in the Plan, a portion of the bonus may depend upon the return on stockholder’s equity and increase in earnings per share of the Company; a portion of the bonus may depend upon the return on capital of one or more of the Subsidiaries and/or the increase in pretax earnings of one or more of the Subsidiaries; and a portion of the bonus may depend upon any one or more of the following performance factors: (i) sales of the Company and/or one or more Subsidiaries, (ii) pretax earnings of the Company, (iii) net earnings of the Company and/or one or more Subsidiaries, (iv) control of operating and/or nonoperating expenses of the Company and/or one or more Subsidiaries, (v) margins of the Company and/or one or more Subsidiaries, (vi) market price of the Company’s securities, (vii) market share, (viii) EVA, and (ix) with respect to Participants other than Senior Executive Participants, other factors directly tied to the performance of the Company and/or one or more Subsidiaries. The relative weights of the factors considered and the percentage of the total bonus comprised by the portion of the bonus determined with respect to the Subsidiaries of the Company and the portion determined with respect to the Company shall be determined by the Committee in its sole discretion. Notwithstanding the foregoing, the Committee may alter the bonus formula with respect to any such Participant by changing the performance targets as determined in the sole discretion of the Committee; provided, however, the Committee cannot change the performance targets after the first ninety (90) days of the fiscal year with respect to Senior Executive Participants.
(C) Designated Participants.
The Committee may formulate a bonus structure for each Designated Participant which is based on performance factors determined by the Committee in its sole discretion. The bonus structure for any Designated Participant may be similar to or may vary materially from the bonus structure for Corporate Participants or Subsidiary Participants.
(D) General Rules Regarding Bonus Calculation.
| | | (i) Subject to the provisions of Paragraph (ii) of this Section 4(D), in determining whether or not the results of operations of a Subsidiary or Subsidiaries or the Company for a given fiscal year result in a bonus, generally accepted accounting principles shall be applied on a basis consistent with prior periods, and such determination shall be based on the calculations made by the Company and binding on each Participant. Except as provided in Section 12 as to Senior Executive Participants, there is no limit to the bonus that can be obtained. Prior to payment of the bonus to a Senior Executive Participant, other than a bonus pursuant to Section 10, the Committee must certify that the performance goals and other material terms of the Plan have been achieved with respect to such Senior Executive Participant. | | | (ii) This paragraph (ii) of Section 4(D) shall apply whenever a fiscal year containing 53 weeks (a “Long Fiscal Year”) is either the fiscal year as to which a bonus may be paid, or is the prior fiscal year as to which Performance is calculated and compared to Performance in the current fiscal year. In making any determination as to whether Performance criteria have been satisfied or as to the amount of any bonus with respect to a fiscal year, every numerical measure of Performance for a Long Fiscal Year shall be deemed to be a number equal to the numerical measure of such Performance as calculated in accordance with generally accepted accounting principles (the “GAAP Measure”) minus (1/14 multi- |
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| | | plied by the GAAP Measure calculated with respect to the last quarter of such fiscal year);provided that, where any Performance measure for a Long Fiscal Year represents, or is derived from, the product or quotient of two such GAAP Measures, or is a ratio of two such GAAP Measures (each of which a “Relative Measure”), and where both components of the Relative Measure are GAAP Measures with respect to the Long Fiscal Year, the Relative Measure shall not be so adjusted. |
Notwithstanding the foregoing, the Committee may exercise discretion in determining the extent of adjustment, if any, to the calculation of any measure of Performance for a Long Fiscal Year appropriate to more accurately compare Performance during a Long Fiscal Year to that during a 52-week fiscal year;provided that, the Committee may not exercise such discretion after the first ninety (90) days of the fiscal year with respect to Senior Executive Participants.
| | 5. | No Employment Arrangements Implied |
Nothing herein shall imply any right of employment for a Participant, and except as set forth in Section 10 with respect to a Change of Control or as otherwise determined by the Committee, in its discretion, if a Participant is terminated, voluntarily or involuntarily, with or without cause, prior to the end of a given fiscal year, such Participant shall not be entitled to any bonus for such fiscal year regardless of whether or not such bonus had been or would have been earned in whole or in part, but any unpaid bonus earned with respect to a prior fiscal year shall not be affected.
Within ninety (90) days following the end of each fiscal year, the Company shall determine the amount of any bonus earned by each Participant pursuant to the provisions of Section 4 above. Such bonus shall be payable in cash. The amount of any bonus that a Participant is entitledhas chosen to receive forin stock, assuming a fiscal year shall be determined as of the last day of such fiscal year. The Company shall pay any bonus earned under the Plan no later than 90 days after the end of the fiscal year to which it relates.
Each Participant shall also receive as additional compensation a number of shares of Common Stock (the “Additional Shares”) with a valuepurchase price equal to 28% of such participant’s cash bonus earned pursuant to the provisions of Section 4 above, valued at the closing price of the Common Stock on the primary securities exchange on which such stock is traded on the last trading day of the fiscal year as to which a bonus is determined. For example, if a Participant earns a $100,000 bonus and the Common Stock closes at $50 per share on the last day of the fiscal year, the Participant would receive $100,000plus 560 shares of Common Stock.
| | 8. | Recapitalization of Company |
In the event of a recapitalization of the Company or its merger into or consolidation with another corporation after the determination of the number of shares to which a Participant is entitled but before delivery of such shares to the Participant, in lieu of the Participant’s right to receive Company Common Stock pursuant to the Plan, a Participant shall be entitled to receive such securities or other consideration which he or she would have been entitled to receive had he or she been a shareholder of the Company holding shares of Common Stock at the time of such recapitalization, merger or consolidation. In the event (a) a stock split, stock dividend or combination of shares is declared, the record date for which is prior to delivery of shares to a Participant hereunder, and (b) the closing price of the Common Stock on the last trading day of the fiscal year used to determine the number of shares to which a Participant is entitled hereunder is not calculated on a “when issued” basis with respect to such split, dividend or combination, then the number of shares that such Participant shall be entitled to receive shall be proportionately adjusted to reflect such split, dividend or combination. In the event a stock split, stock dividend or combination of shares is declared, the maximum number of shares issuable hereunder shall be proportionately adjusted to reflect such split, dividend or combination.
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| | 9. | Investment Representation, Restrictions on the Stock and Forfeiture |
(A) The shares to be issued to a Participant may be unregistered, at the option of the Company, and in such event the Participant shall execute an investment letter in form satisfactory to the Company, which letter shall contain an agreement that the Participant will not sell, transfer, give or otherwise convey any of such shares for a period of two years from the date on which such shares were issued to the Participant, except in the event of the Participant’s death or termination of employment due to disability or retirement under normal Company benefit plans, but then only in accordance with the requirements of the Securities Act of 1933, as amended, and the rules and regulations thereunder, and the shares shall bear a legend reflecting the investment representation and the unregistered status of the shares.
(B) Shares to be issued pursuant to the Plan will be issued in certificated form and may be issued in the name of a nominee for the benefit of a Participant; provided, however, that any Participant may request that any shares issued in the name of a nominee be reissued in the name of the Participant. Whether or not the shares to be issued to or for the benefit of a Participant are registered pursuant to the registration provisions of the Securities Act of 1933, as amended, the Participant may not (and, if requested by the Company, shall enter into an agreement at the time of issuance of such shares or at any time thereafter to the effect that the Participant will not) sell, transfer, give or otherwise convey any of such shares for a period (the “Restricted Period”) ending two years from the date on which such shares were issued to or for the benefit of the Participant, and will not sell, transfer, give or otherwise convey them for up to an additional six month period, to the extent such six month period extends beyond the Restricted Period, following any termination of employment during the Restricted Period that is not due to death, disability or retirement under the normal Company benefit plans. Such shares issued in certificated form in the name of the Participant shall bear a legend reflecting the terms of such restriction. Notwithstanding the foregoing, the transfer restrictions set forth above shall expire following the death or termination of employment of a Participant due to disability or retirement under the normal Company benefit plans, and following a Change of Control, the transfer restrictions set forth above shall lapse with respect to any shares issued hereunder with respect to a performance period ending prior to or within one year following a Change of Control. The certificates representing any such shares shall contain a legend to such effect, and at the election of the Company, may be held by the Company or its nominee, and will not be delivered to the Participant, until the Restricted Period and any additional applicable six month period has lapsed.
(C) If a Participant’s employment is terminated for any reason, with or without cause, other than the Participant’s death or termination of employment due to disability or retirement under the normal Company benefit plans, within two years from the date on which any Additional Shares were issued to Participant pursuant to the Plan, such Participant shall, upon demand of the Committee (which may be made at its discretion at any time during the six month period following the date of termination) forfeit all Additional Shares issued to the Participant within the period beginning two years prior to the date of termination, and will immediately surrender to the Company any certificates representing such Additional Shares that may be in Participant’s possession. Any shares of Common Stock issued in certificated form in the name of a Participant pursuant to the Plan shall bear a legend reflecting these restrictions. Notwithstanding the foregoing, if a Change of Control has occurred, the Company shall have no rights under this Section 9(C) with respect to any shares issued hereunder with respect to a performance period ending prior to or within one year following a Change of Control.
“Change of Control” means the occurrence of one or more of the following events:
| | | (A) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then-outstanding shares of Common Stock of the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting |
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| | | Securities”); provided, however, that, for purposes of this Section 10(A), the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated company or (4) any acquisition by any corporation pursuant to a transaction that complies with Sections 10(C)(i), 10(C)(ii) and 10(C)(iii); | | | (B) The occurrence of the following: Individuals who, as of September 9, 2005, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to September 9, 2005 whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; | | | (C) Consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its subsidiaries (each, a “Business Combination”), in each case unless, following such Business Combination, (i) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-outstanding shares of Common Stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or | | | (D) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. | | | Notwithstanding anything to the contrary contained herein, and in lieu of any other payments due hereunder other than pursuant to this Section 10, within ninety (90) days following the date on which a Change of Control shall have occurred, each person who was a Participant at the time of the Change of Control shall be paid a cash bonus hereunder, equal to the following (subject to reduction in the case of certain severance payments, as set forth below): the product of (i) a fraction equal to the number of days in the fiscal year in which the Change of Control occurs up to and including the date of the Change of Control divided by 365, and (ii) the bonus that would have been paid under this Plan, calculated using a Performance measure equal to the product of (a) the Company’s Performance through and including the end of the most recently completed fiscal quarter occurring prior to and in the same fiscal year as the Change of Control (the “Measurement Date”), calculated in accordance with generally accepted accounting principles (the “Change of Control GAAP Measure”), and (b) a fraction, the numerator of which is 365 and the denominator of which is the number of days in such fiscal year up to and including |
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| | | the Measurement Date;provided that, where any Performance measure represents, or is derived from, the product or quotient of two such Change of Control GAAP Measures, or is a ratio of two such Change of Control GAAP Measures (each of which a “Relative Change of Control Measure”), and where both components of the Relative Change of Control Measure are Change of Control GAAP Measures with respect to such year, the Relative Change of Control Measure shall not be multiplied by the fraction described in (b) above, but shall be calculated as of the Measurement Date and used without adjustment. In addition to the foregoing, each such Participant shall be paid in cash an amount equal to 28% of the total bonus computed pursuant to the provisions of this paragraph. No Additional Shares will be issued. | | | In addition to any bonus paid or payable pursuant to the foregoing paragraph, any Participant who remains in the employ of the Company on the last day of the fiscal year in which a Change of Control occurs shall be entitled to receive, in cash, to be paid within ninety (90) days after the end of the fiscal year, an amount equal to the difference between (a) the bonus that would have been paid to him or her for such fiscal year under the Plan as in effect on the date of the Change of Control, using the Company’s actual Performance, and (b) the amount paid pursuant to the foregoing paragraph, but only to the extent that the bonus that would have been paid hereunder is greater than the amount paid pursuant to the foregoing paragraph, valuing any Additional Shares as of the end of such fiscal year. | | | Notwithstanding the foregoing, with respect to the Company’s current Chairman, Chief Executive Officer, and President, Richard J. Schnieders, and any Participant who is a party to the Company’s form of severance agreement on file with the Securities and Exchange Commission, or any future severance agreement with the Company, any bonus paid pursuant to this Section 10 shall be reduced, but to not less than zero, by the amount of any payment pursuant to such Participant’s severance agreement that is determined or calculated with respect to payments received or to be received under this Plan or any predecessor or successor thereof. |
| | 11. | Amendments and Termination |
The Plan may be amended at any time by the Board of Directors and any such amendment shall be effective as of commencement of the fiscal year during which the Plan is amended, regardless of the date of the amendment, unless otherwise stated by the Board of Directors. The Plan may be terminated at any time by the Board of Directors and termination will be effective as of the commencement of the fiscal year in which such action to terminate the Plan is taken. The Plan will terminate, and no further awards may be made hereunder, on November 11, 2010. Any awards granted prior to November 11, 2010 that have not yet been paid as of that date will continue to remain outstanding and will be payable in accordance with and to the extent provided in the Plan and the applicable grant agreements or programs. Notwithstanding the foregoing, no amendment or termination following a Change of Control may in any way decrease or eliminate a payment due pursuant to Section 10.
| | 12. | Overall Limitation upon Payments under Plan to Senior Executive Participants |
Notwithstanding any other provision in the Plan to the contrary, in no event shall any Senior Executive Participant be entitled to a bonus amount for any fiscal year (which bonus amount shall include the value of the Additional Shares, as defined in Section 7 above) in excess of $10 million.
As of its effective date, November 11, 2005, this Plan shall supersede the Company’s 2000 Management Incentive Plan (the “Prior Plan”). No further awards will be granted under the Prior Plan following such date, but any awards granted under the Prior Plan prior to November 11, 2005 that have not yet been paid as of that date will continue to remain outstanding and will be payable in accordance with and to the extent provided in the Prior Plan and the applicable grant agreements or programs.
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ANNEX C
SYSCO CORPORATION
2005 NON-EMPLOYEE DIRECTORS STOCK PLAN
ARTICLE 1
General
This Non-Employee Directors Stock Plan (the “Plan”) is established to attract, retain and compensate for service as members of the Board of Directors highly qualified individuals who are not current employees of Sysco Corporation (the “Corporation”) and to enable them to increase their ownership in the Corporation’s common stock. This Plan will be beneficial to the Corporation and its stockholders since it will allow these Directors to have a greater personal financial stake in the Corporation through the ownership of the Corporation’s common stock, in addition to underscoring their common interest with stockholders in increasing the value of the Corporation over the longer term. The Plan provides for the grant of Stock Options, Restricted Stock, Restricted Stock Units, Retainer Stock Awards, Elected Shares and Additional Shares (all as defined herein, and collectively, “Awards”)
Section 1.1 Eligibility. All members of the Corporation’s Board of Directors who are not current employees of the Corporation or any of its subsidiaries (“Non-Employee Directors”) are eligible to participate in this Plan.
Section 1.2 Shares Available.
(a) Number of Shares Available. There are reserved for issuance under this Plan 550,000 shares of the Corporation’s Common Stock, $1.00 par value (“Common Stock”), which may be authorized but unissued shares, treasury shares, or shares purchased on the open market. For purposes of applying the limitation in the preceding sentence and subject to the adjustment and replenishment provisions included in Sections 1.2(b) and (c) below:
| | | (i) the maximum number of shares of Common Stock that may be issued pursuant to Stock Options shall be 220,000; | | | (ii) the maximum number of shares of Common Stock that may be issued pursuant to Restricted Stock Awards, Restricted Stock Unit Awards, Retainer Stock Awards, Elected Shares and Additional Shares shall be 320,000; and | | | (iii) the maximum number of shares of Common Stock that may be issued pursuant to dividends or dividend equivalents with respect to shares subject to unexercised Options, Restricted Stock or Restricted Stock Units shall be 10,000. |
(b) Recapitalization Adjustment. In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, or any other change in the corporate structure or shares of the Corporation, adjustments in the number and kind of shares authorized by this Plan, in the number and kind of shares that may or are required to be issued hereunder pursuant to any type of award hereunder (including without limitation the maximum numbers set forth in Section 1.2(c) below), in the number and kind of shares covered by outstanding stock options (“Options”) under this Plan and in the option price thereof, and in the number and kind of shares subject to outstanding Retainer Stock Awards, Restricted Stock and/or Restricted Stock Units, as hereinafter defined, shall automatically be made if, and in the same manner as, similar adjustments are made to awards issued under the Corporation’s incentive plans for management of the Corporation then in effect.
(c) Replenishment. To the extent any shares of Common Stock covered by an Option, Restricted Stock Award, Restricted Stock Unit Award or Retainer Stock Award are forfeited by or are not delivered to a Non-Employee Director or his or her beneficiary because the Option or Restricted Stock, Restricted Stock Unit or Retainer Stock Award is forfeited or canceled, or the shares of Common Stock are not delivered
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because they are used to satisfy any applicable tax withholding obligation, such shares shall not be deemed to have been delivered for purposes of determining the maximum number of shares of Common Stock available for delivery with respect to the respective type of award and with respect to all grants under the Plan.
ARTICLE 2
Option Awards
Section 2.1 Options. Awards may be made under this Plan of Options to purchase Common Stock. No Options granted pursuant to this Plan may be “Incentive Stock Options” under Section 422 of the Internal Revenue Code of 1986, as amended. The grant of an Option entitles the recipient to purchase shares of Stock at an exercise price established by the Board of Directors.
Section 2.2 Exercise Price. The exercise price of each Option granted under this Article 2 shall be established by the Board of Directors or shall be determined by a method established by the Board of Directors at the time the Option is granted. The exercise price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of the Option. For purposes of determining the “Fair Market Value” of a share of Common Stock as of any date, then the “Fair Market Value” as of that date shall be the last closing price of the Common Stockcommon stock on the first business day prior to that date on the New York Stock Exchange or, if the Common Stock is not listed on the New York Stock Exchange, on any other exchange or quotation system on which the Common Stock is listed or quoted. No Option may be “repriced,” as such term is used in rules established by the New York Stock Exchange.
Section 2.3 Exercise. Subject to the provisions of this Plan, an Option shall be exercisable in accordance with such termsdate; we call these shares elected shares; and conditions and during such periods as may be established by the Board of Directors; provided, however, that no Option may be exercised more than seven years after its grant date and no Option granted hereunder may vest in excess of 1/3
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| • | 50% of the number of elected shares subjectwe credited to the Optiondirector’s account; we call these extra shares additional shares. |
The elected shares and additional shares vest as soon as we credit the director’s account with them, but we do not issue them until the end of the calendar year. The director may not transfer the additional shares, however, until two years after we issue them, provided that certain events will cause this transfer restriction to lapse.
The two year transfer restriction on additional shares will lapse if:
| | |
| • | the director dies; |
| • | the director leaves the Board: |
| | |
| ◦ | due to disability; |
| ◦ | after having served out his or her full term; or |
| ◦ | after reaching age 71; or |
| | |
| • | a change in control, as defined in the plan, occurs. |
Restricted Stock and Restricted Stock Units
The plan provides that the Board may grant shares of restricted stock and restricted stock units in the amounts and on such terms as it determines but specifies that no more than one-third of the shares contained in any grant may vest per year for the first three years following the grant date. A restricted stock unit is an award denominated in units whose value is derived from common stock, and which is subject to similar restrictions and possibility of forfeiture as is the restricted stock. All outstanding grants of restricted stock to the non-employee directors vest ratably over three years on the anniversary of the grant date. We have not issued any restricted stock units under the plan.
Generally, if a director ceases to serve as a director of SYSCO, he or she will forfeit all the unvested restricted stock and restricted stock units that he or she holds. However, if the director leaves the board after serving out his or her term, or for any reason after reaching age 71, his or her restricted stock and restricted stock units will remain in effect and continue to vest as if the director had remained a director of SYSCO. All unvested restricted stock and restricted stock units will automatically vest upon the director’s death. In addition to the plan provisions regarding vesting upon a change in control of SYSCO, the restricted stock grant agreement which governs restricted stock grants made under the plan provides that any unvested portion of a restricted stock award will vest if a person or persons acting together acquire beneficial ownership of at least 20% of outstanding SYSCO common stock.
Change in Control
The plan provides that the unvested portion of the retainer stock award will vest if a specified change in control occurs.
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Fiscal 2008 Non-Employee Director Compensation
The following table provides compensation information for fiscal 2008 for each of our non-employee directors who served for any part of the fiscal year:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Non-Qualified
| | | | | | | |
| | | | | | | | | | | Deferred
| | | | | | | |
| | Fees Earned or Paid
| | | Stock Awards
| | | Option Awards
| | | Compensation
| | | All Other
| | | | |
Name | | in Cash($)(1) | | | ($)(2)(3) | | | ($)(3)(4) | | | Earnings($)(5) | | | Compensation($) | | | Total($) | |
|
Cassaday | | $ | 105,250 | | | $ | 196,987 | | | $ | 13,013 | | | | — | | | | (6 | ) | | $ | 315,250 | |
Craven | | | 93,346 | | | | 175,288 | | | | 22,954 | | | $ | 1,119 | | | | (6 | ) | | | 292,707 | |
Fernandez | | | 83,500 | | | | 174,970 | | | | — | | | | 267 | | | | (6 | ) | | | 258,737 | |
Golden | | | 76,500 | | | | 174,970 | | | | 22,954 | | | | 13,351 | | | | (6 | ) | | | 287,775 | |
Hafner | | | 106,500 | | | | 188,779 | | | | 24,086 | | | | 377 | | | | (6 | ) | | | 319,742 | |
Koerber | | | 45,500 | | | | 135,075 | | | | — | | | | — | | | | (6 | ) | | | 180,575 | |
Merrill | | | 96,500 | | | | 174,970 | | | | 22,954 | | | | 12,046 | | | | (6 | ) | | | 306,470 | |
Newcomb | | | 89,000 | | | | 160,005 | | | | — | | | | — | | | | (6 | ) | | | 249,005 | |
Sewell | | | 90,000 | | | | 174,970 | | | | 22,954 | | | | 61 | | | | (6 | ) | | | 287,985 | |
Tilghman | | | 111,250 | | | | 184,400 | | | | 22,954 | | | | — | | | | (6 | ) | | | 318,604 | |
Ward | | | 104,000 | | | | 179,242 | | | | 22,954 | | | | 2,780 | | | | (6 | ) | | | 308,976 | |
| | |
(1) | | Includes retainer fees and meeting fees, including any retainer fees for which the non-employee director has elected to receive shares of SYSCO common stock in lieu of cash and fees for the first three years afterfourth quarter of fiscal 2008 that were paid at the grant date.Section 2.4 Paymentbeginning of Option Exercise Price. The paymentfiscal 2009. Although we credit shares to a director’s account each quarter, the elected shares are not actually issued until the end of the exercise pricecalendar year unless the director’s service as a member of an Option granted under this Article 2 shall be subject to the following:
| | | (a) Subject to the following provisions of this subsection 2.4, the full exercise price for shares of Common Stock purchased upon the exercise of any Option shall be paid at the time of such exercise (except that, in the case of an exercise arrangement approved by the Board of Directors and described in paragraph 2.4(c), payment may be made as soon as practicable after the exercise). | | | (b) The exercise price shall be payable in cash or by tendering, by either actual delivery of shares or by attestation, shares of Common Stock acceptable to the Board of Directors that have been held by the optionee for at least six months and valued at Fair Market Value as of the day of exercise, or in any combination thereof, as determined by the Board of Directors. | | | (c) Subject to compliance with applicable law, the Board of Directors may permit an Option recipient to elect to pay the exercise price upon the exercise of an Option by irrevocably authorizing a third party to sell shares of Common Stock (or a sufficient portion of the shares) acquired upon exercise of the Option and remit to the Corporation a sufficient portion of the sale proceeds to pay the entire exercise price and any tax withholding resulting from such exercise. |
Section 2.5 Settlement of Award. Shares of Common Stock delivered pursuant to the exercise of an Option shall be subject to such conditions, restrictions and contingencies as the Board of Directors may establish interminates. Therefore, the applicable Option grant agreement. The Board of Directors, in its discretion, may impose such conditions, restrictions and contingenciesamounts shown with respect to elected shares of Common Stock acquired pursuant to the exercise of an Option as the Board of Directors determines to be desirable.
Section 2.6 Nontransferability of Options. No Option granted under this Plan is transferable other than by will or the laws of descent and distribution. During the grantee’s lifetime, an Option may be exercised only by the grantee or the grantee’s guardian or legal representative.
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Section 2.7 Dividends and Dividend Equivalents. An Option,reflect shares issued at the timeend of grant or subsequent thereto, may provide the grantee with the rightcalendar 2007 for calendar 2007 service. Dr. Koerber and Ms. Newcomb did not begin electing to receive dividend payments or dividend equivalent payments with respect to Common Stock subject to the Option. Such payments may either be made currently or credited to an account for the grantee, and may be settledshare of common stock in lieu of cash or Common Stock as determined by the Board. Any such settlements, and any such crediting of dividends or dividend equivalents or reinvestment in shares of Stock, may be subject to such conditions, restrictions and contingencies as the Board shall establish.
ARTICLE 3
Retainer Stock Awards
Section 3.1 Terms and Conditions.
| | | (a) As of the date of each Annual Meeting of Stockholders of the Corporation, each Non-Employee Director who was not a member of the Board of Directors at the previous Annual Meeting of Stockholders and who has never received a retainer stock award under any non-employee director compensation plan or arrangement of the Corporation, shall be granted a Retainer Stock Award. | | | (b)fees until calendar 2008. The Retainer Stock Award shall consist of the grant of 6,000 shares of Common Stock and shall vest one-third on the first, second and third anniversary of the date of grant. | | | (c) Any unvested portion of the Retainer Stock Award shall vest upon the occurrence of a Change in Control. For purposes of this Plan, “Change in Control” shall have the same meaning as that term is given in the Corporation’s 2004 Stock Option Plan, as amended therein from time to time. | | | (d) The Retainer Stock Awards granted under this Section 3.1 shall be subject to the limitations set forth in Section 3.3. |
Section 3.2 Fractional Shares. If the number of shares that may be vested under a Retainer Stock Award for a Non-Employee Director would result in a fractional share, then the number of shares to vest shall be increased to the next highest number that would result in the vesting of no fractional shares.
Section 3.3 Limitations on Stock. Common Stock granted as a Retainer Stock Award shall be subject to the following limitations:
| | | (a) Such Common Stock may not be sold, assigned, transferred, pledged or otherwise encumbered prior to the date it is vested. | | | (b) Each certificate issued in respect of such Common Stock shall be registered in the name of the Non-Employee Director and deposited, together with a stock power endorsed in blank, with the Corporation until such time as all restrictions have lapsed. | | | (c) Each Retainer Stock Award shall be evidenced by a written agreement duly executed on behalf of the Corporation and the Non-Employee Director for whom such award is granted, dated as of the date of issuance of the Common Stock to which it relates. Such agreement shall comply with and be subject to the terms of the Plan. | | | (d) Except as otherwise provided by this Plan, each Non-Employee Director, as owner of shares of Common Stock granted to him or her as a Retainer Stock Award, shall have all the rights of a stockholder, including but not limited to the right to vote such shares and the right to receive all dividends paid on such shares; provided, however, that no dividends shall be payable to or for the benefit of a Non-Employee Director with respect to record dates for such dividends occurring on or after the date, if any, on which the Non-Employee Director has forfeited the Common Stock. |
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ARTICLE 4
Election to Receive Common Stock
Section 4.1 Eligibility. A Non-Employee Director who is otherwise eligible to receive cash payment for services provided as a Director may elect to receive up to 50% of his or her annual retainer fee, in 10% increments, exclusive of any fees or other amounts payable for attendance at the meetings of the Board or for service on any committee thereof, in the form of Common Stock (a “Stock Election”), subject to the following terms of this Article 4. The amount of the fee which a Non-Employee Director elects to receive in Common Stock is referred to herein as the “Elected Amount.” The Elected Amount shall be deducted ratably from the quarterly payments of the annual retainer fee payable to such Non-Employer Director in that fiscal year in which the Elected Amount would have been paid but for the Stock Election.
Section 4.2 Common Stock. Any Non-Employee Director who makes a stock election pursuant to Section 4.1 (an “Electing Director”) shall have an account created on the books of the Corporation to which shares of Common Stock shall be credited and debited as provided in this Article 4 (the “Stock Account”). Each Electing Director shall have credited to his or her Stock Account on the date of each quarterly payment of the annual retainer fee (the “Quarterly Payment Date”) the sum of (i) that number of shares of Common Stock determined by dividing his or her Elected Amount by the Fair Market Value on such Quarterly Payment Date (such shares are referred to as “Elected Shares”) and (ii) that number of shares of Common Stock determined by dividing 50% of the Elected Amount by the Fair Market Value on such Quarterly Payment Date (such shares are referred to as “Additional Shares”).
Section 4.3 Vesting. All Elected Shares and Additional Shares shall be 100% vested as of the date they arestock actually credited to the Electing Director’s Stock Account, but may not be sold or transferred prior to the date they are issued. Additional Shares, however, may not be sold or transferred for a periodeach non-employee director’s account in lieu of two years after the datecash during fiscal 2008 is as of which they are issuedfollows: Mr. Cassaday — 1,267 shares, Dr. Craven — 1,214 shares, Mr. Fernandez — 1,062 shares, Mr. Golden — 1,062 shares, Mr. Hafner — 1,267 shares, Dr. Koerber — 428, Mr. Merrill — 1,062 shares, Ms. Newcomb — 612 shares, Mrs. Sewell — 1,062 shares, Mr. Tilghman — 1,267 shares and such shares shall bear a legend setting forth this restriction (the “Restriction”). The Restriction shall remain in effect after the date an Electing Director ceases to be a Director; provided, however, that (i) if an Electing Director ceases to be a Director by reason of death, disability or departure under the circumstances described in Section 6.1 (a) or (b), or as otherwise determined byMs. Ward — 1,267 shares.
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(2) | | For fiscal 2008, the Board of Directors, the Restriction shall lapse and be of no further force or effect on or after the date of such death, disability, departure or determination; and (ii) the Restriction shall lapse and be of no further force or effect on the date of a Changedetermined that it would grant approximately $160,000 in Control, as such term is defined in the Corporation’s 2004 Stock Option Plan.Section 4.4 Date of Issuance. The date of issuance of Common Stock issued pursuantlong-term incentives to this Article 4 (the “Issue Date”) shall be December 31 for any year as to which a Non-Employee Director has made a stock election as described in Section 4.1 hereof, or if December 31 is not a business day for the Corporation’s transfer agent, on the last business day of the Corporation’s transfer agent prior to December 31. As of the Issue Date, a certificate for the total number of vested shares in his or her account on the Issue Date shall be issued to such Electing Director subject to the other terms and conditions of this Plan and at that time, the balance in each Electing Director’s Stock Account shall be debited by the number of shares issued. Notwithstanding the foregoing, if a Non-Employee Director ceases to be a director for any reason when there are shares accrued to such director’s Stock Account, certificates for such shares shall be issued within 60 days of the date such Non-Employee Director ceases to be a director and the date such shares are issued shall be the Issue Date of such shares.
Section 4.5 Method of Election. A Non-Employee Director who wishes to make a Stock Election must deliver to the Secretary of the Corporation a written irrevocable election specifying the Elected Amount by January 31 of the calendar year to which the Stock Election relates (or at such other time required under rules established by the Board).
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ARTICLE 5
Restricted Stock and Restricted Stock Units
Section 5.1 Grant of Restricted Stock or Restricted Stock Units. Subject to the terms and provisions of the Plan, the Board of Directors, at any time and from time to time, may grant shares of Restricted Stock and/or Restricted Stock Units, as such terms are defined below, to participants in such amounts and upon such terms and conditions as the Board shall determine; provided, however, that no grant of Restricted Stock or of any Restricted Stock Unit shall in any event vest more than 1/3 per year for each of the first three years followingnon-employee directors. Therefore, on November 11, 2007, The Board granted each of the datenon-employee directors, except for Dr. Koerber, who did not become a director until January 2008, 4,792 shares of grant. “Restricted Stock” means an award of Common Stock subject to forfeiture based on the passage of time, the achievement of performance goals, and/or upon the occurrence of other events as determined byrestricted stock valued at $33.39 per share. On February 22, 2008, the Board in its discretion, granted subject to the terms of this Plan. “Restricted Stock Unit” means an award denominated in units whose value is derived from Common Stock and which is subject to forfeiture based on the passage of time, the achievement of performance goals, and/or upon the occurrence of other events as determined by the Board in its discretion, granted subject to the terms of this Plan.
Section 5.2 Restricted Stock or Restricted Stock Unit Agreement. Each Restricted Stock and/or Restricted Stock Unit grant shall be evidenced by an Award Agreement duly executed by the Corporation and the Non-Employer Director to whom the award is granted that shall specify the period(s) and types of restrictions, the number ofDr. Koerber 4,510 shares of Restricted Stock orrestricted stock valued at $29.57 per share. The amounts in this column reflect the numberdollar amount recognized for financial statement reporting purposes for the fiscal year ended June 28, 2008 in accordance with Statement of Restricted Stock Units granted,Financial Accounting Standards No. 123R, “Share-based Payments” and any such other provisionsinclude amounts from awards issued prior to fiscal 2008 as the Board shall determine.
Section 5.3 Other Restrictions.
| | | (a) The Board shall impose, in the Award Agreement at the time of grant or anytime thereafter, such other conditions and/or restrictions on any shares of Restricted Stock or Restricted Stock Units granted pursuant to this Plan as it may deem advisable including, without limitation, a requirement that participants pay a stipulated purchase price for each share of Restricted Stock or each Restricted Stock Unit, that specific performance goals be obtained, the imposition of time-based restrictions on vesting following the attainment of the performance goals, time-based restrictions, restrictions under applicable laws or under the requirements of any stock exchange or market upon which such shares are listed or traded, or holding requirements or sale restrictions placed on the shares by the Corporation upon vesting of such Restricted Stock or Restricted Stock Units. Except as otherwise provided in this Article 5 or the applicable award agreement, shares of Restricted Stock covered by each Restricted Stock award shall become freely transferable by the participant, subject to compliance with applicable laws, after all conditionswell as those issued during and restrictions applicable to such shares have been satisfied or lapse. | | | (b) Common Stock subject to a Restricted Stock award may not be sold, assigned, transferred, pledged or otherwise encumbered prior to the date it is vested, and except as otherwise specified by the Board, Restricted Stock Units may not be transferred. | | | (c) Each certificate issued in respect of Common Stock pursuant to a Restricted Stock award shall be registered in the name of the Non-Employee Director and deposited with the Corporation until such time as all restrictions have lapsed. |
Section 5.4 Certificate Legend. In addition to any other legends placed on certificates, each certificate representing shares of Restricted Stock granted pursuant to the Plan may bear a legend such as the following:
| | | The sale or other transfer of the shares of stock represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer as set forth in the SYSCO Corporation 2005 Non-Employee Directors Stock Plan, and in the associated Award Agreement. A copy of the Plan and such Award Agreement may be obtained from SYSCO Corporation. |
Section 5.5 Voting Rights. To the extent required by law, participants in whose names shares of Restricted Stock granted hereunder shall be issued, shall be granted the right to exercise full voting rights with respect to those shares during the period of restriction. A participant shall have no voting rights with respect to any Restricted Stock Units granted hereunder.
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Section 5.6 Dividends and Other Distributions. During the period of restriction, participants holding shares of Restricted Stock or Restricted Stock Units granted hereunder may, if the Board so determines, be credited with dividends paid with respect to the underlying shares or dividend equivalents while they are so held in a manner determined by the Board in its sole discretion. The Board may apply any restrictions to the dividends or dividend equivalents that the Board deems appropriate. The Board, in its sole discretion, may determine the form of payment of dividends or dividend equivalents, including cash, unrestricted Common Stock, Restricted Stock, or Restricted Stock Units.
Section 5.7 Payment in Consideration of Restricted Stock Units. When and if Restricted Stock Units become payable, a participant having received the grant of such units shall be entitled to receive payment from the Corporation in cash, shares of Common Stock of equivalent value (based on the Fair Market Value thereof), in some combination thereof, or in any other form determined by the Board in its sole discretion. The Board’s determination regarding the form of payout shall be set forth or reserved for later determination in the Award Agreement pertaining to the grantfiscal 2008. See Note 15 of the Restricted Stock Unit.
ARTICLE 6
Miscellaneous
Section 6.1 Cessationconsolidated financial statements in SYSCO’s Annual Report for the year ended June 28, 2008 regarding assumptions underlying valuation of Service. Exceptequity awards.
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The amounts in this column also reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended June 28, 2008 in accordance with Statement of Financial Accounting Standards No. 123R with respect to a 50% stock match for directors who elect to receive a portion of their annual retainer fee in common stock. The value of any “elected” shares is included in the column entitled “Fees Earned or Paid in Cash” as described in footnote (1) above. See “2005 Non-Employee Directors Stock Plan” above for a more detailed description. Although we credit shares to a director’s account each quarter, the shares are not actually issued until the end of the calendar year unless the director’s service as a member of the Board of Directors terminates. Therefore, the amounts shown with respect to matched shares reflect shares issued at the end of calendar 2007 for calendar 2007 service. Dr. Koerber and Ms. Newcomb did not begin electing to receive share of common stock in lieu of cash fees, and therefore receiving matching shares, until calendar 2008. The number of additional shares actually credited to each non-employee directors’ account during fiscal 2008 is as follows: Mr. Cassaday — 632 shares, Dr. Craven — 606 shares, Mr. Fernandez — 531 shares, Mr. Golden — 531 shares, Mr. Hafner — 632 shares, Dr. Koerber — 213 shares, Mr. Merrill — 531 shares, Ms. Newcomb — 306 shares, Mrs. Sewell — 531 shares, Mr. Tilghman — 632 shares and Ms. Ward — 632 shares.
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| | |
(3) | | The aggregate number of unvested stock awards and options held by each non-employee director as set forth belowof June 28, 2008 was as follows: |
| | | | | | | | |
| | Aggregate Unvested Stock
| | Aggregate Options
|
| | Awards Outstanding as of
| | Outstanding as of
|
| | June 28, 2008 | | June 28, 2008 |
|
Cassaday | | | 11,792 | | | | 15,000 | |
Craven | | | 7,792 | | | | 47,000 | |
Fernandez | | | 10,792 | | | | 3,500 | |
Golden | | | 7,792 | | | | 63,000 | |
Hafner | | | 9,126 | | | | 23,000 | |
Koerber | | | 4,510 | | | | | |
Merrill | | | 7,792 | | | | 63,000 | |
Newcomb | | | 10,792 | | | | 3,500 | |
Sewell | | | 7,792 | | | | 63,000 | |
Tilghman | | | 10,459 | | | | 31,000 | |
Ward | | | 7,792 | | | | 39,000 | |
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(4) | | None of the non-employee directors received option grants during fiscal 2008. The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended June 28, 2008 in accordance with Statement of Financial Accounting Standards No. 123R, “Share-based Payments” and unless otherwise determined by the Board, upon cessation of service as a Non-Employee Director (for reasons other than death), all Options, whetherinclude amounts from awards issued during or not exercisable at the date of cessation of service, and all unvested Restricted Stock, Restricted Stock Units and Retainer Stock Awards shall be forfeited by the grantee; provided, however, that, unless otherwise determined by the Board, if (a) any Non-Employee Director serves out his/her term but does not stand for re-election at the end thereof or (b) any Non-Employee Director shall retire from service on the Board (for reasons other than death) prior to the expiration of his or her term and on or after the date he or she attains age 71, such grantee’s Options, Restricted Stock, Restricted Stock Units and Retainer Stock Awards shall remain in effect, vest, become exercisable and expire as if the grantee had remained a Non-Employee Directorfiscal 2006. See Note 15 of the Corporation.consolidated financial statements in SYSCO’s Annual Report for the year ended June 28, 2008 regarding assumptions underlying valuation of equity awards. |
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(5) | | We do not provide a pension plan for the non-employee directors. The status of Elected Shares and Additional Shares shall be governed by Section 4.3.Section 6.2 Death. Upon the death of a Non-Employee Director, all unvested Options held by him or her will vest immediately and may be exercised by his or her estate, or by the person to whom such right devolves fromamounts shown in this column represent above-market earnings on amounts deferred under the Non-Employee Director Deferred Compensation Plan. Directors who do not have any amounts in this column were not eligible to participate in such plan, did not participate in such plan or did not have any above-market earnings.
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(6) | | The total value of all perquisites and personal benefits received by reason of his or her death, at any time within three years after the dateeach of the Non-Employee Director’s death, butnon-employee directors, including reimbursements for spousal airfare and meals associated with certain Board meetings, was less than $10,000. |
Mr. Schnieders did not receive any compensation in or for fiscal 2008 for Board service other than the compensation for his services as an executive officer that is disclosed elsewhere in this proxy statement.
Non-Employee Director Compensation Consultant
For the past several years and through the first quarter of fiscal 2009, the Corporate Governance and Nominating Committee has retained Mercer HR Consulting to provide advice regarding non-employee director compensation. At the Corporate Governance and Nominating Committee’s request, Mercer has provided data regarding the amounts and type of compensation paid to non-employee directors at the companies in SYSCO’s peer group, and has also identified trends in director compensation. All decisions regarding non-employee director compensation are recommended by the Corporate Governance and Nominating Committee and approved by the Board of Directors.
Stock Ownership Guidelines
The Corporate Governance Guidelines provide that after five years of service as a non-employee director, such individuals are expected to continuously own a minimum of 10,000 shares of SYSCO common stock. All of the current directors beneficially held the requisite number of shares as of September 22, 2008. Stock ownership guidelines applicable to executive officers are described under “Stock Ownership — Stock Ownership Guidelines.”
REPORT OF THE AUDIT COMMITTEE
The Audit Committee has met and held discussions with management and the independent public accountants regarding SYSCO’s audited consolidated financial statements for the year ending June 28, 2008. Management represented to the Audit Committee that SYSCO’s consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Audit Committee has reviewed and discussed the audited consolidated financial statements with management and the independent public accountants. The Audit Committee also discussed with the independent public accountants the matters required to be discussed by Statement on Auditing Standards No. 61, as amended and adopted by the Public Company Accounting Oversight Board. SYSCO’s independent public accountants provided to the Audit Committee the written
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disclosures and the letter required by the Independence Standards Board’s Standard No. 1, “Independence Discussions with Audit Committees,” as modified or supplemented, and the Audit Committee discussed with the independent public accountants that firm’s independence.
Based on the Audit Committee’s discussion with management and the independent public accountants and the Audit Committee’s review of the representations of management and the report of the independent public accountants, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in SYSCO’s Annual Report onForm 10-K for the year ended June 28, 2008 for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
Joseph A. Hafner, Jr.
Richard G. Merrill
Nancy S. Newcomb
Hans-Joachim Koerber
Richard G. Tilghman, Chairman
Fees Paid to Independent Registered Public Accounting Firm
During fiscal 2008 and 2007, SYSCO incurred the following fees for services performed by Ernst & Young LLP:
| | | | | | | | |
| | Fiscal 2008 | | | Fiscal 2007 | |
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Audit Fees(1) | | $ | 5,303,283 | | | $ | 4,051,410 | |
Audit-Related Fees(2) | | | 569,021 | | | | 464,454 | |
Tax Fees(3) | | | 3,458,316 | | | | 4,130,804 | |
All Other Fees | | | — | | | | — | |
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(1) | | Audit fees in no event later thanfiscal 2008 included $3,836,000 related to the original termination dateaudit and quarterly reviews of the Option. In no event mayconsolidated financial statements (including an Option be exercised after three years following the holder’s death. In addition, all unvested Restricted Stock, Restricted Stock Units and Retainer Stock Awards shall vest and all restrictions with respect to Additional Shares shall lapse.Section 6.3 Administration. This Plan shall be administered by the Board of Directorsaudit of the Corporation. This Plan may be terminated or amended byeffectiveness of the Board of Directors as they deem advisable. The Board may delegate its authority hereundercompany’s internal control over financial reporting), $1,089,538 related to the Non-Employee Directors, orpreparation of audited financial statements for one of the company’s subsidiaries, $218,500 related to any two or more thereof.
Section 6.4 Amendments. No amendment may revoke or altercomfort letters, consents, and assistance with and review of documents filed with the SEC and $159,245 for consultations regarding various accounting standards. Audit fees in a manner unfavorablefiscal 2007 included $3,618,514 related to the grantees any Options, Restricted Stock, Restricted Stock Units, Retainer Stock Awards or Elected Shares then outstanding,audit and no amendment, unless approved by Corporation stockholders, can increasequarterly reviews of the numberconsolidated financial statements (including an audit of shares authorized for issuance hereunder, in total or pursuant to any award type, modify the method by whicheffectiveness of the Option exercise price is determined or allow for the “repricing” of any Option issued hereunder, as such term is used in rules established by the New York Stock Exchange.
Section 6.5 Term. No Option, Restricted Stock, Restricted Stock Unit, Retainer Stock Award, Elected Shares or Additional Shares may be issued under this Plan after that date which is five years from the date of stockholder approval of this Plan, but Options granted prior to that date shall continue to become exercisablecompany’s internal control over financial reporting) and may be exercised according to their terms, Restricted Stock, Restricted Stock Units, and Retainer Stock Awards granted prior to that date shall continue to vest in accordance with their terms, and dividend equivalents may be paid in accordance with the terms thereof, and Additional Shares shall continue
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to be subject$432,896 related to the provisions hereof. This Plan shall be effective on that date that it is approved by the stockholderspreparation of audited financial statements for one of the Corporation.
Section 6.6 No Other Rights. Except as providedcompany’s subsidiaries, which has been reclassified from audit-related fees.
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(2) | | Audit-related fees in this Plan, no Non-Employee Director shall have any claim or rightfiscal 2008 included $489,526 related to be granted or issued an Option, Restricted Stock Award, Restricted Stock Unit, Retainer Stock Award, Elected Shares or Additional Shares under this Plan. Neither this Plan nor any actions hereunder shall be construed as giving any Director any right to be retained in the service of the Corporation.Section 6.7 Prior Plan. This Plan supersedes the Corporation’s existing Non-Employee Directors Stock Plan (the “Prior Directors Plan”). No further Options, Retainer Stock Awards, Elected Shares or Additional Shares will be granted under the Prior Directors Plan following approval of this Plan by the Corporation’s Stockholders, but Options granted prior to that date shall continue to become exercisable and may be exercised according to their terms, Retainer Stock Awards granted prior to that date shall continue to vest in accordance with their terms and Additional Shares shall continue to be subject to the provisions thereof.
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| | ![(Recycled Paper Bug)](https://capedge.com/proxy/DEF 14A/0000950129-05-009528/h28909h2890906.gif) | SYSCO-PS-05 |
ELECTION TO OBTAIN FUTURE MATERIALS
OF SYSCO CORPORATION
ELECTRONICALLY INSTEAD OF BY MAIL
SYSCO stockholders may elect to receive future materials through the Internet instead of by mail. SYSCO is offering this service to provide added convenience to its stockholders and to reduce printing and mailing costs.
To take advantage of this option, stockholders must subscribeacquisition due diligence, $39,000 for agreed upon procedures related to one of the various commercial services that offer accesssubsidiaries, $34,000 related to the Internet. Costs normally associatedaudit of one of the company’s benefit plans and $6,495 for other audit-related services. Audit-related fees in fiscal 2007 included $387,959 related to acquisition due diligence, $70,000 related to audits of the company’s benefit plans and $6,495 for other audit-related services.
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(3) | | Tax fees in fiscal 2008 included $2,691,656 related to local, state, provincial and federal income tax return preparation, $515,752 related to various tax examinations, $221,736 related to a transfer pricing study, $25,459 related to a review of certain subsidiary legal structures and $3,713 related to various state tax matters. Tax fees in fiscal 2007 included $2,862,693 related to local, state, provincial and federal income tax return preparation, $1,094,620 related to various tax examinations, $70,773 related to a transfer pricing study, $66,879 related to a review of certain subsidiary legal structures and $35,839 related to various state tax matters. |
Pre-Approval Policy
In February 2003, the Audit Committee adopted a formal policy concerning approval of audit and non-audit services to be provided by the independent auditor to the company. The policy requires that all services, including audit services and permissible audit related, tax and non-audit services, to be provided by Ernst & Young LLP to the company, be pre-approved by the Audit Committee. All of the services performed by Ernst & Young in fiscal 2007 were approved in advance by the Audit Committee pursuant to the foregoing pre-approval policy and procedures. During fiscal 2008, Ernst & Young did not provide any services prohibited under the Sarbanes-Oxley Act.
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PROPOSAL TO APPROVE MATERIAL TERMS OF, AND COMPENSATION
TO BE PAID TO CERTAIN EXECUTIVE OFFICERS PURSUANT TO,
THE 2008 CASH PERFORMANCE UNIT PLAN
ITEM NO. 2 ON THE PROXY CARD
Upon the recommendation of the Compensation Committee, the Board of Directors has adopted the 2008 Cash Performance Unit Plan (the “2008 Plan”), subject to obtaining the stockholder approval discussed below. The 2008 Plan permits us to pay cash bonuses to certain salaried employees based on the achievement of pre-established performance goals over a performance period of at least three fiscal years. The 2008 Plan is intended to replace the 2004 Cash Performance Unit Plan (the “2004 Plan”), which expires in September 2009. Upon approval of the 2008 Plan, the Board intends to cease making new awards under the 2004 Plan, although any unpaid awards previously granted will continue to be paid out under the terms of the 2004 Plan.
Payment of compensation under the 2008 Plan to the officers subject to Section 162(m) is being submitted to stockholders for approval at the 2008 Annual Meeting so that such compensation will qualify as performance-based for purposes of Section 162(m) of the Code. The 2008 Plan is designed to ensure that any compensation that may be payable under the 2008 Plan will qualify as performance-based compensation within the meaning of Section 162(m) of the Code, and therefore is fully deductible by the Company for federal income tax purposes. Section 162(m) of the Code generally denies deductions by an employer for compensation in excess of $1 million per year that is paid to “covered employees.” Covered employees are defined as the chief executive officer and the three other most highly compensated executive officers, other than the chief financial officer, at the end of the fiscal year. However, performance-based compensation is excluded from the $1 million deduction limit, provided that all of the requirements of Section 162(m) and the regulations promulgated thereunder are satisfied. One of these requirements is that the material terms pursuant to which the compensation is to be paid, including the employees eligible to receive the compensation, a description of the business criteria on which the performance goals are based and the maximum amount of compensation that could be paid to any covered employee, are disclosed to and approved by the stockholders in a separate vote prior to the payment
In light of this requirement, the material terms of, and the payment of compensation to the covered employees under, the 2008 Plan are being submitted to the stockholders for approval at the 2008 Annual Meeting. If stockholders do not approve this proposal, no bonuses will be paid under the 2008 Plan to the covered employees, regardless of whether bonuses would otherwise be earned; however, the Board may or may not adopt another cash plan in which the covered employees may participate.
A copy of the 2008 Plan is attached as Annex A to this Proxy Statement. The description that follows is qualified in its entirety by reference to the full text of the 2008 Plan set forth in the Annex.
Purpose of the 2008 Cash Performance Unit Plan
The purpose of the 2008 Plan is to increase stockholder value and to advance the interests of the Company and its Subsidiaries by providing financial incentives designed to attract, retain and motivate key employees of the Company.
Administration
The Compensation Committee of the Board will administer the 2008 Plan. The Committee is composed entirely of “non-employee directors” within the meaning ofRule 16b-3 under the Exchange Act, “outside directors” within the meaning of Section 162(m), and “independent directors” within the meaning of NYSE listing standards and the Company’s Corporate Governance Guidelines.
Eligibility and Participation
Eligibility to participate in the 2008 Plan is limited to full-time, salaried employees of the Company and its subsidiaries. Each year, within 90 days after the beginning of the applicable performance period, the Committee will determine those eligible employees who will participate in the 2008 Plan. Currently, approximately 50,000 employees of the Company and its subsidiaries are within the class eligible for selection to participate in the 2008 Plan. The Committee currently plans to designate all of the Management Incentive Plan as participants in the 2008 Plan, which is currently 174 employees.
Award Determination and Performance Goals
Within the first 90 days of each performance period, the Committee will establish performance goals for that performance period. The Committee may base performance goals on any combination of corporate, subsidiary, division, or business unit performance.
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However, with respect to covered employees, the Committee will establish the performance goals from one or more of the following criteria:
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| • | Increases in Net After-Tax Earnings Per Share, |
| • | Increases in Operating Pre-Tax Earnings, |
| • | Sales Growth, |
| • | Return on Capital Employed, |
| • | Return on Assets, |
| • | Market Share, |
| • | Margin Growth, |
| • | Return on Equity, |
| • | Total Shareholder Return, |
| • | Operating Profit or Improvements in Operating Profit, |
| • | Improvements in Working Capital, |
| • | Improvements in the Ratio of Sales to Net Working Capital, |
| • | Reductions in Inventories, Accounts Receivable or Operating Expenses, |
| • | Net Earnings, |
| • | Pre-Tax Earnings, |
| • | Economic Value Added (defined as net operating profit after taxes minus the product of weighted average cost of capital times adjusted assets, with electronic access, such as usageadjusted assets equal to total assets less intercompany balances less non-interest bearing liabilities plus present value non-cancellable lease agreements), and telephone charges, |
| • | Comparisons with other Peer Companies or Generally Recognized Industry Groups or Classifications Based on Relative Performance Using One or More of the Above Criteria |
Within 90 days after the beginning of each performance period, the Committee, in its sole discretion, will also determine (i) the length of the performance period, which shall be no less than three fiscal years in duration, (ii) the payment date for the performance period, (iii) the unit value and the method for determining the payment amount for each participant, and (iv) the maximum number of performance units that may be received by each participant for that performance period. It is anticipated that awards will be made annually under the 2008 Plan, which will result in overlapping performance periods.
The Committee may not alter or amend the performance goals or the specific performance goals of awards under the 2008 Plan with respect to “named executives” (as that term is defined in Section 402(a)(3) ofRegulation S-K) and covered employees after they have been approved by the Committee unless such exercise of discretion results in a reduction in the payment amount with respect to such participants.
The maximum payment in respect of any performance period to be paid to any covered employee shall not exceed 1% of the Company’s earnings before income taxes as reported in the Company’sForm 10-K for the fiscal year ended immediately prior to the payment date with respect to such performance period.
The 2008 Plan provides generally that the performance for any “long fiscal year” of 53 weeks during a performance period will be automatically adjusted by reducing the relevant performance measure for the last fiscal quarter of the long fiscal year by 1/14th. However, the Committee has the discretionary authority to determine the extent of an adjustment to a performance measure for a long fiscal year to more accurately compare performance during a long fiscal year to that during a 52-week fiscal year; provided that, the Committee may not exercise such discretion with respect to a covered employee more than 90 days after the beginning of a performance period unless such exercise of discretion results in a reduction of the payment amount to the covered employees.
Payments
Payments earned under the 2008 Plan will be made in cash on or before the payment date for a given performance period. Payment dates will be determined by the Committee and may not be later than the last day of the fourth month following completion of the applicable performance period. Although none of SYSCO’s executive benefit plans currently permit deferral of amounts earned under the 2008 Plan, such plans could allow participants to defer amounts earned under the 2008 Plan in the future.
Termination of Employment
Generally, a participant must be employed on the last day of a performance period to receive payments under the 2008 Plan. Therefore, if a participant’s employment terminates for any reason other than retirement, death or disability, such participant’s performance units will be cancelled and the participant will receive no payment under the 2008 Plan. If a participant’s employment terminates after the end of a performance period but before the payment date, the participant will be paid any amounts earned during the performance period on the payment date. If a participant’s employment is terminated by reason of retirement or disability, such participant will be entitled to receive payment for the full performance period. Performance units
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can be cancelled if a participant engages in activities competitive with the Company prior to the end of a performance period. If a participant dies prior to the end of a performance period, his or her beneficiaries or personal representatives will be entitled to receive a pro rata portion of any amounts earned.
Change of Control
If a change of control, as defined in the 2008 Plan, occurs during a performance period, a participant’s performance units with respect to such performance period will be considered vested, and payment will be made to the participant within 90 days after the date of the change of control. Payments will be based on the maximum amount that could be paid assuming the highest level of performance is achieved.
Duration of Plan
The 2008 Plan will expire on September 4, 2013, unless sooner terminated by the Board.
Amendments
The 2008 Plan may be withdrawn or amended by the Board or the Committee at any time, unless such withdrawal or amendment may decrease or eliminate a payment that would be made under the change of control provision described above. In addition, the Board and the Committee undertake and represent that the following amendments, to the extent that they would affect covered employees, will not be made without stockholder approval:
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| • | Modifying eligibility requirements, |
| • | Materially increasing participants’ benefits, or |
| • | Modifying the performance measures for covered employees. |
Federal Income Tax Consequences
The following is a general description of the federal income tax consequences of compensation paid under the 2008 Plan to the covered employees. This summary does not address any state, local or other non-federal tax consequences associated with the payment of compensation to covered employees under the 2008 Plan. This discussion is intended for the information of stockholders considering how to vote at the annual meeting and not as tax guidance to individuals who participate in the 2008 Plan.
Deductibility of Compensation Paid to Covered Employees
In general, subject to certain limitations, compensation that is paid to the covered employees under the 2008 Plan will be deductible by SYSCO for federal income tax purposes.
Section 162(m) of the Code generally imposes a $1 million limit on the deductibility of compensation paid to a covered employee for any taxable year. However, compensation that qualifies as performance-based for purposes of Section 162(m) of the Code is not subject to the Section 162(m) limitation. The 2008 Plan has been drafted and is intended to be administered in a manner that would enable the compensation paid to covered employees to qualify as performance-based for purposes of Section 162(m) of the Code. Shareholder approval of the payment of compensation under the 2008 Plan to the covered employees is necessary in order for such compensation to qualify as performance-based for purposes of Section 162(m) of the Code.
To the extent that compensation paid under the 2008 Plan qualifies as performance-based for purposes of Section 162(m) of the Code, the tax deduction that is generally available with respect to such compensation will not be subject to the deductibility limitation of Section 162(m) of the Code.
Parachute Payments
In general, the Company will be unable to claim a tax deduction with respect to payments under the 2008 CPU Plan following a change of control to the extent such payments are treated as a “parachute payment” for purposes of Section 280G of the Code. In addition, a covered employee will be subject to a 20% excise tax to the extent the total parachute payments made to such covered employee exceed the covered person’s five-year average compensation.
A payment is considered a “parachute payment” for purposes of Section 280G of the Code, if the total amount of all payments and benefits to be received by the covered employee that are “contingent on a change of control” for purposes of Section 280G of the Code, including payments under the 2008 CPU Plan, equal or exceed three times the covered employee’s averageW-2 compensation for the five tax years preceding the year of the change of control (“five-year average compensation”). Payments made under the 2008 Plan to a covered employee as a result of a change of control generally will be treated as being paid “contingent on a change of control” for purposes of Section 280G of the Code.
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See “Executive Compensation — Executive Severance Agreements — TaxGross-Up Payments” for a description of the Company’s payment obligations under the Severance Agreements with Messrs. Schnieders and Spitler with respect to this excise tax.
Treatment to Covered Employees
The covered employees will recognize ordinary compensation income with respect to any compensation paid under the 2008 Plan at the time of payment.
Tax Withholding
We will deduct from all 2008 Plan payments, any federal, state or local taxes required by law to be withheld with respect thereto.
New Plan Benefits
Because the number of performance units that may be granted in the future under the 2008 Plan is not determinable at this time, the following table indicates the number of performance units that were granted in September 2008 to the specified persons under the 2004 Plan, as well as the related threshold, target and maximum payout values. No additional performance units are expected to be granted during fiscal 2009 under the 2004 Plan or the 2008 Plan.
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| | Number of
| | Threshold
| | Target
| | Maximum
|
| | Performance
| | Dollar Value
| | Dollar Value
| | Dollar Value
|
Name and Position | | Units | | (1) | | (1) | | (1) |
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Richard J. Schnieders | | | 90,000 | | | $ | 787,500 | | | $ | 3,150,000 | | | $ | 4,725,000 | |
Chairman and Chief Executive Officer | | | | | | | | | | | | | | | | |
Kenneth F. Spitler | | | 40,000 | | | | 350,000 | | | | 1,400,000 | | | | 2,100,000 | |
President and Chief Operating Officer | | | | | | | | | | | | | | | | |
William J. DeLaney | | | 18,000 | | | | 157,500 | | | | 630,000 | | | | 945,000 | |
Executive Vice President and Chief Financial Officer | | | | | | | | | | | | | | | | |
Larry G. Pulliam | | | 15,000 | | | | 131,250 | | | | 525,000 | | | | 787,500 | |
Executive Vice President, Global Sourcing and Supply Chain | | | | | | | | | | | | | | | | |
Kenneth J. Carrig | | | 15,000 | | | | 131,250 | | | | 525,000 | | | | 787,500 | |
Executive Vice President and Chief Administrative Officer Executive Officers as a group, including the Named Executive Officers | | | 238,000 | | | | 2,082,500 | | | | 8,330,000 | | | | 12,495,000 | |
All non-executive officers and other employees as a group | | | 337,400 | | | | 2,952,250 | | | | 11,809,000 | | | | 17,713,500 | |
All non-employee directors as a group | | | — | | | | — | | | | — | | | | — | |
Total | | | 575,400 | | | | 5,034,750 | | | | 20,139,000 | | | | 30,208,500 | |
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(1) | | Based on a value of $35 per unit. The threshold dollar value assumes that only one performance criteria, either sales or diluted earnings per share, pays out at a minimum level, resulting in a 25% payout. The target dollar value assumes that both performance criteria pay out at target levels, resulting in a 100% payout. The maximum dollar value assumes that both performance criteria pay out at maximum levels, resulting in a 150% payout. Actual payout amounts will not be determinable until the end of the three-year performance period (fiscal 2012) and may be different than the amounts shown. If minimum performance levels of at least one of the performance criteria are not met, no payments will be borne by the stockholder.made. |
Required Vote
The affirmative vote of a majority of votes cast is required to approve the material terms of, and the payment of compensation to covered employees under, the 2008 Plan.
The Board of Directors recommends a vote FOR approval of the material terms of, and the
payment of compensation to the covered employees pursuant to, the 2008
Cash Performance Unit Plan.
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PROPOSAL TO RATIFY APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
ITEM NO. 3 ON THE PROXY CARD
The Audit Committee of the Board has appointed Ernst & Young LLP as SYSCO’s independent registered public accounting firm for fiscal 2008. Ernst & Young LLP has served as the company’s independent public registered public accounting firm providing auditing, financial and tax services since their engagement in fiscal 2002. In determining to appoint Ernst & Young, the Audit Committee carefully considered Ernst & Young’s past performance for the company, its independence with respect to the services to be performed and its general reputation for adherence to professional auditing standards.
Although the company is not required to seek ratification, the Audit Committee and the Board believe it is sound corporate governance to do so. If stockholders do not ratify the appointment of Ernst & Young, the current appointment will stand, but the Audit Committee will consider the stockholders’ action in determining whether to appoint Ernst & Young as the company’s independent registered public accounting firm for fiscal 2009.
Representatives of Ernst & Young LLP will be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so. They will also be available to respond to appropriate questions.
The Board of Directors recommends a vote FOR the ratification of the
appointment of the independent registered public accounting firm for fiscal 2009.
STOCKHOLDER PROPOSAL TO REQUEST THAT THE BOARD TAKE THE NECESSARY STEPS TO
REQUIRE THAT ALL DIRECTORS STAND FOR ELECTION ANNUALLY
ITEM NO. 4 ON THE PROXY CARD
Gerald R. Armstrong of 820 Sixteenth Street, No. 705, Denver, Colorado80202-3227, owner of 100 shares of SYSCO common stock, has notified us that he intends to present the following proposal at the Annual Meeting. In accordance with applicable proxy regulations, the proposal and supporting statement, for which the company accepts no responsibility, are set forth below exactly as they were submitted by the proponent.
RESOLUTION
That the shareholders of SYSCO CORPORATION request its Board of Directors to take the steps necessary to require thatall Directors stand for election annually. The Board declassification shall be completed in a manner that does not affect the unexpired terms of the previously-elected Directors.
STATEMENT
The proponent believes the election of directors is the strongest way that shareholders influence the directors of any corporation. Currently, our board of directors is divided into three classes with each class serving three-year terms. Because of this structure, shareholders may only vote for one-third of the directors each year. This is not in the best interests of shareholders because it reduces accountability.
Southwest Bancorp, Inc., Nash Finch Company, ConocoPhillips, ONEOK, Inc., Hess Corporation, U.S. Bancorp, Qwest Communications International, XCEL Energy, Marshall & Illsley Corporation, Devon Energy Corporation, and many other corporations have eliminated three-year terms for Directors at either the request of the proponent or his presenting a proposal, such as this, which was supported by shareholders.
The performance of our management and our Board of Directors is now being more strongly tested due to economic conditions and the accountability for performance must be given to the shareholders whose capital has been entrusted in the form of share investments.
A study by researchers at Harvard Business School and the University of Pennsylvania’s Wharton School titled “Corporate Governance and Equity Prices” (Quarterly Journal of Economics, February, 2003) looked at the relationship between corporate governance practices (including classified boards) and firm performance. The study found a significant positive link between governance practices favoring shareholders (such as annual directors election) and firm value.
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While management may argue that directors need and deserve continuity, management should become aware that continuity and tenure may be best assured when their performance as directors is exemplary and is deemed beneficial to the best interests of the corporation and its shareholders.
The proponent regards as unfounded the concern expressed by some that annual election of all directors could leave companies without experienced directors in the event that all incumbents are voted out by shareholders. In the unlikely event that shareholders do vote to replace all directors, such a decision would express dissatisfaction with the incumbent directors and reflect a need for change.
If you agree that shareholders may benefit from greater accountability afforded by annual election ofall directors, please vote FOR this proposal.
BOARD OF DIRECTORS’ STATEMENT IN OPPOSITION OF THE PROPOSAL
The Board of Directors unanimously recommends a vote “AGAINST” this stockholder proposal.
After careful consideration, SYSCO’s Board of Directors has concluded that, for the reasons described below, it is in the best interests of SYSCO and its stockholders to maintain a classified Board on which the directors serve three-year terms.
Comprehensive Corporate Governance Review
In 2006, the Board directed its Corporate Governance and Nominating Committee to study corporate governance best practices by publicly held U.S. corporations and recommend appropriate amendments to SYSCO’s Bylaws and Corporate Governance Guidelines. The Committee’s comprehensive corporate governance review was conducted with the assistance of outside counsel and was completed in May 2007. As a direct result of this review, the following corporate governance principles designed to benefit stockholders and enhance stockholder value were recommended by the Committee and approved by the Board:
To elect this option, go towww.econsent.com/syy. You will be asked | | |
| • | A Bylaw amendment to enter the eleven-digit Account Number located in the second group of numbers appearing beneath the perforation line on the reverse side. Stockholders who elect this option will be notified each year by e-mail how to access the proxy materials and how toimplement a majority vote their shares on the Internet. If you consent to receive the Company’s future materials electronically, your consent will remain in effect unless it is withdrawn. You may withdraw your consent by contacting our Transfer Agent at 1-800-730-4001 or go towww.econsent.com/syy.
You may access the SYSCO Corporation annual report and proxy statement at:
www.sysco.com
PROXY
SYSCO CORPORATION
Proxystandard for the Annual Meetingelection of Stockholders
November 11, 2005directors in uncontested elections;
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| • | An amendment to the Corporate Governance Guidelines to require any director who is not re-elected in an election in which majority voting applies to tender his or her resignation; |
| • | Simplification of the Committee’s procedures by which stockholders may suggest nominees for election to the Board; and |
| • | Retention of SYSCO’s classified Board structure. |
Analysis of Classified Board Structure
In response to this proposal, the Board, with the assistance of the Corporate Governance and Nominating Committee, once again has examined its decision to retain a classified board. The Committee began its review with the recognition that the number of companies with classified boards had declined in recent years. At the same time, however, a number of well-respected U.S. publicly held companies, including AmerisourceBergen Corporation, Best Buy Company, Inc., Costco Wholesale Corp. and Target Corp., all members of the peer group our Compensation Committee uses for executive compensation benchmarking purposes, continue to have classified boards. As part of its review, the Committee examined the advantages and disadvantages of retaining SYSCO’s classified Board structure and determined that a classified board continues to be in the best interest of SYSCO and its shareholders for the following reasons:
Continuity, Stability and Experience — SYSCO is uniquely positioned as a global leader within its industry, and a company of its size and complexity requires a high level of leadership experience. A classified board structure, which the Company has employed since its inception, provides a framework in which, each year, the majority of the directors will have had prior experience and familiarity with the Company, its operations and strategies, and the management team. Such directors are more capable of engaging in the long-term strategic planning that is critical to our success. In addition, a classified board does not interfere with the Board’s ability to add new directors. In fact, over the past seven years, the Committee has recommended, and SYSCO’s Board has nominated, seven new independent directors and has reduced the number of employee directors to one. Moreover, a classified board structure may strengthen the Company’s ability to recruit highly qualified directors who are willing to make a significant commitment to the Company and its stockholders for the long term.
Protection Against Unfair Takeover Proposals — A classified board of directors can play an important role in protecting stockholders against an unsolicited takeover proposal at a price that is not in the best long-term interests of our stockholders. While not precluding a takeover, a classified board structure affords SYSCO time to evaluate the adequacy and fairness of any
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takeover proposal, negotiate with the potential acquirer on behalf of all stockholders and weigh alternatives, including the continued operation of SYSCO’s business, in order to provide maximum value for all stockholders. With over 80% of SYSCO’S Board composed of independent directors, the majority of whom have a historical perspective of the Company’s operations and industry,the Board believes it is well-positioned to evaluate SYSCO’s value and pursue a course of action designed to maximize stockholder value, particularly in the context of a hostile takeover.
In connection with considering the continued desirability of a classified board in the context of a takeover proposal, the Committee also reviewed SYSCO’s other anti-takeover defenses. In this regard, the Committee considered that SYSCO’s stockholder rights plan expired in 2006 and a new plan has not been adopted. The Committee also considered that SYSCO’s Bylaws provide that its stockholders can act by written consent. In addition, the Committee noted that SYSCO’s governing documents do not require a supermajority vote to approve mergers.
Accountability to Stockholders — The Committee understands that some corporate governance activists view classified boards as reducing director accountability. The Board does not believe that to be the case. On the contrary, all directors are required to uphold their fiduciary duties to SYSCO and its stockholders, regardless of the length of their term of office. Moreover, as noted above, SYSCO has adopted a majority voting standard for the election of directors and any director who is not re-elected must tender his or her resignation. The Committee also noted that (1) at least 91% of votes cast and at least 77% of SYSCO’s outstanding shares voted “for” every SYSCO director nominee in the last four director elections; and (2) proxy advisory firm Institutional Shareholder Services recommended votes “for” for all of SYSCO’s director nominees in each of the last four director elections.
Conclusion
In considering the classified board structure, SYSCO’s Board has focused on the best Board structure for SYSCO and its stockholders in order to drive Company profitability and increase stockholder value, particularly in light of the current challenging economic environment and rising fuel prices. The Board believes that experienced directors who are knowledgeable about the Company’s business environment are a valuable resource and are in the best position to make decisions in the best interests of the Company and its stockholders. Sustainable companies must plan effectively over the long-term, and SYSCO’s classified Board provides greater assurance that its directors have the necessary experience and solid knowledge of the Company’s complex business and long-term strategy. As demonstrated by the Company’s results over the past several years, the Board believes that the company has benefited from this long-term focus. In this regard, the company has recently recorded significant year-over-year increases in earnings per share. For full fiscal year 2008 versus 2007, and full fiscal year 2007 versus 2006, diluted earnings per share increased by 13% and 18%, respectively.
For the foregoing reasons, the Board of Directors believes that this stockholder proposal is not in the best interests of SYSCO and its stockholders.Therefore, the Board of Directors unanimously recommends a vote “AGAINST” this stockholder proposal.
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STOCKHOLDER PROPOSALS
Presenting Business
If you would like to present a proposal underRule 14a-8 of the Securities Exchange Act of 1934 at our 2009 Annual Meeting of Stockholders, send the proposal in time for us to receive it no later than June 9, 2009. If the date of our 2009 Annual Meeting is subsequently changed by more than 30 days from the date of this year’s Annual Meeting, we will inform you of the change and the date by which we must receive proposals. If you want to present business at our 2009 Annual Meeting outside of the shareholder proposal rules ofRule 14a-8 of the Exchange Act and instead pursuant to Article I, Section 8 of the company’s Bylaws, the Corporate Secretary must receive notice of your proposal by August 21, 2009, but not before July 12, 2009, and you must be a stockholder of record on the date you provide notice of your proposal to the company and on the record date for determining stockholders entitled to notice of the meeting and to vote.
Nominating Directors for Election
The Corporate Governance and Nominating Committee will consider any director nominees you recommend in writing for the 2009 Annual Meeting by following the procedures and adhering to the deadlines discussed at “Presenting Business” above. You may also nominate someone yourself at the 2009 Annual Meeting, as long as the Corporate Secretary receives notice of such nomination between July 12, 2009 and August 21, 2009, and you follow the procedures outlined in Article I, Section 7 of the company’s Bylaws. See also “Corporate Governance and Board of Directors Matters — Nominating Committee Policies and Procedures in Identifying and Evaluating Potential Director Nominees” for information about potential director nominees.
Meeting Date Changes
If the date of next year’s Annual Meeting is advanced by more than 30 days prior to or delayed by more than 60 days after the date of this year’s Annual Meeting, we will inform you of the change, and we must receive your director nominee notices or your stockholder proposals outside ofRule 14a-8 of the Exchange Act by the latest of 90 days before the Annual Meeting, 10 days after we mail the notice of the changed date of the Annual Meeting or 10 days after we publicly disclose the changed date of the Annual Meeting.
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ANNEX A
SYSCO CORPORATION
2008 CASH PERFORMANCE UNIT PLAN
WHEREAS, Sysco Corporation (the“Company”), with the approval of the shareholders, adopted that certain Sysco Corporation Cash Performance Unit Plan, effective as of September 3, 2004, as amended and restated (the“Current Plan”);
WHEREAS, the Current Plan is set to expire on September 3, 2009; and
WHEREAS, the Company desires to adopt a new cash performance unit plan effective for awards granted on or after September 4, 2009, in order to increase stockholder value and to advance the interests of the Company and its subsidiaries by providing financial incentives designed to attract, retain and motivate key employees of the Company.
NOW, THEREFORE, the Company hereby adopts the Sysco Corporation 2008 Cash Performance Unit Plan, effective for Awards (as defined herein) issued on or after September 4, 2009, as follows:
ARTICLE I
PURPOSE OF THE PLAN
The purpose of the Plan is to increase stockholder value and to advance the interests of the Company and its Subsidiaries by providing financial incentives designed to attract, retain and motivate key employees of the Company.
ARTICLE II
DEFINITIONS
When used in the Plan, the following terms shall have the following meanings:
“Award” shall mean the determination by the Committee that a Participant should receive a given number of Performance Units, as evidenced by a document of notification given to a Participant at the time of such determination.
“Board of Directors” means the Board of Directors of the Company.
“Change of Control” means the occurrence of one or more events described in paragraphs (i) through (iii), below.
(i) Change in Ownership of the Company. A change in the ownership of the Company shall occur on the date that any one person, or more than one person acting as a group (within the meaning of paragraph (iv)), acquires ownership of Company stock that, together with Company stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company.
(A) If any one person or more than one person acting as a group (within the meaning of paragraph (iv)) is considered to own more than 50% of the total fair market value or total voting power of the stock of the Company, the acquisition of additional Company stock by such person or persons shall not be considered to cause a change in the ownership of the Company or to cause a change in the effective control of the Company (within the meaning of paragraph (ii) below).
(B) An increase in the percentage of Company stock owned by any one person, or persons acting as a group (within the meaning of paragraph (iv)), as a result of a transaction in which the Company acquires its stock in exchange for property, shall be treated as an acquisition of stock for purposes of this paragraph (i).
(C) The provisions of this paragraph (i) shall apply only to the transfer or issuance of Company stock if such Company stock remains outstanding after such transfer or issuance.
(ii) Change in Effective Control of the Company.
(A) A change in the effective control of the Company shall occur on the date that either of (1) or (2) below occurs:
(1) Any one person, or more than one person acting as a group (within the meaning of paragraph (iv)), acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company; or
(2) A majority of members of the Board is replaced during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the Board prior to the date of the appointment or election.
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(B) A change in effective control of the Company also may occur with respect to any transaction in which either of the Company or the other corporation involved in a transaction experiences a Change of Control event described in paragraphs (i) or (iii).
(C) If any one person, or more than one person acting as a group (within the meaning of paragraph (iv)), is considered to effectively control the Company (within the meaning of this paragraph (ii)), the acquisition of additional control of the Company by the same person or persons shall not be considered to cause a change in the effective control of the Company (or to cause a change in the ownership of the Company within the meaning of paragraph (i)).
(iii) Change in Ownership of a Substantial Portion of the Company’s Assets. A change in the ownership of a substantial portion of the Company’s assets shall occur on the date that any one person, or more than one person acting as a group (within the meaning of paragraph (iv)), acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value (within the meaning of paragraph (iii)(B)) equal to or more than 40% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions.
(A) A transfer of the Company’s assets shall not be treated as a change in the ownership of such assets if the assets are transferred to one or more of the following:
(1) A shareholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company stock;
(2) An entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company;
(3) A person, or more than one person acting as a group (within the meaning of paragraph (iv)) that owns, directly or indirectly, 50% or more of the total value or voting power of all of the outstanding stock of the Company; or
(4) An entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a person described in paragraph (iii)(A)(3).
For purposes of this paragraph (iii)(A), and except as otherwise provided, a person’s status is determined immediately after the transfer of assets.
(B) For purposes of this paragraph (iii), gross fair market value means the value of all Company assets, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
(iv) For purposes of this definition, persons shall be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase, or acquisition of assets, or similar business transaction with the Company. If a person, including an entity shareholder, owns stock in the Company and another entity with which the Company enters into a merger, consolidation, purchase, or acquisition of stock, or similar business transaction, such shareholder shall be considered to be acting as a group with other Company shareholders only to the extent of the ownership in the Company prior to the transaction giving rise to the change and not with respect to the ownership interest in the other corporation. Persons shall not be considered to be acting as a group solely because they purchase or own stock of the same corporation at the same time, or as a result of the same public offering.
(v) Identification of Relevant Corporations. To constitute a Change of Control hereunder, the Change of Control must relate to (A) the corporation for which the Participant is performing services at the time of the Change of Control, (B) the corporation that is liable for the payment of the awards under this Plan (or all corporations liable for the payment if more than one corporation is liable), or (C) a corporation that is a majority shareholder of a corporation identified in (A) or (B), or any corporation in a chain of corporations in which each corporation is a majority shareholder of another corporation in the chain, ending with the corporation identified in (A) or (B). For purposes of this paragraph (v), a majority shareholder is a shareholder owning more than 50% of the total fair market value and total voting power of such corporation.
“Code” means the Internal Revenue Code of 1986, as amended.
“Committee” means the Compensation Committee of the Board of Directors, or such other committee as the Board of Directors may designate to have primary responsibility for the administration of the Plan.
“Company” means Sysco Corporation, a Delaware corporation.
“Completed Fiscal Years” is defined in Section 6.3.
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“Covered Employee”means a “covered employee” within the meaning of Section 162(m)(3) of the Code.
“Disability” means a physical or mental condition that meets the eligibility requirements for the receipt of disability income under the terms of the disability income plan sponsored by the Company pursuant to which the Participant is eligible for benefits.
“Effective Date” is defined in Section 9.1.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Fiscal Year” means, as determined in the sole discretion of the Committee, a period used for purposes of measuring performance for purposes of this Plan which is based as closely as possible on the fiscal year of the Company.
“Participant” means an employee of the Company or any of its Subsidiaries who is designated as a Participant by the Committee.
“Payment Amount” means the total amount to be paid to a Participant with respect to the Performance Units awarded to such Participant for a particular Performance Period.
“Payment Date”means a date determined by the Committee for purposes of (i) making payment of amounts earned under this Plan and, (ii) in the event a Participant elects to defer receipt of amounts earned under this Plan pursuant to the terms of a deferred compensation plan sponsored by the Company, the date such amounts are credited under the applicable deferred compensation plan. This date shall be no later than the last day of the fourth month following completion of the respective Performance Period.
“Performance Goals” means the performance goals established by the Committee for each Performance Period pursuant to the Plan against which performance will be measured.
“Performance Period” means a period of no less than three Fiscal Years, as determined by the Committee, during which the Performance Goals shall be measured for purposes of determining the Payment Amount.
“Performance Unit” means a unit of participation which shall constitute the basis from which a Participant’s Payment Amount shall be determined with regard to the Performance Goals established by the Committee.
“Plan” means this Sysco Corporation 2008 Cash Performance Unit Plan, as it may be amended from time to time.
“Retirement” means any termination of employment with the Company or a Subsidiary as a result of retirement in good standing under established rules of the Company then in effect.
“Section 409A”means Section 409A of the Code. References herein to “Section 409A” shall also include any regulatory and other interpretive authority promulgated by the Treasury Department or the Internal Revenue Service under Section 409A of the Code.
“Specified Employee”means a “specified employee” as defined in Section 409(A)(a)(2)(B)(i) of the Code.
“Subsidiary” means (i) any entity in which the Company, directly or indirectly, owns more than 50% of the vote or value of the equity interests issued by such entity, and (ii) any other entity designated by the Committee as a “Subsidiary” for purposes of this Plan.
“Unit Value”means the per unit amount that is used for purposes of determining the Payment Amount to be made to Participants in respect of Performance Units awarded under the Plan.
ARTICLE III
PARTICIPATION
3.1 Designation of Participants. The Committee shall determine and designate from time to time those employees of the Company and its Subsidiaries who are to be granted Performance Units (and who thereby become Participants) and the number of Performance Units to be granted to each Participant.
3.2 Awards. Performance Units shall be granted by the Committee by a written notification to Participants evidencing the Award in such form as the Committee shall approve, which notification shall comply with and be subject to the terms and conditions of this Plan. Further Performance Units may be granted by the Committee from time to time to Participants, so long as this Plan shall continue in full force and effect.
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ARTICLE IV
DETERMINATION OF PERFORMANCE GOALS
4.1 Performance Period Determinations.
(a) In General. Within the first 90 days of each Performance Period, the Committee, in its sole discretion, shall (a) establish for that Performance Period (i) the beginning and ending dates, and the Fiscal Years, for the Performance Period, (ii) the Payment Date for the Performance Period, (iii) the Performance Goals for each Participant, (iv) the method for evaluating performance for the Performance Period, and (v) the Unit Value and the method for determining the Payment Amount for each Participant, and (b) designate the maximum number of Performance Units that may be granted to a Participant for such Performance Period.
(b) Adjustments for Long Fiscal Years. This Section 4.1(b) shall apply whenever a Performance Period contains one or more Fiscal Years of 53 weeks (each, a“Long Fiscal Year”). In making any determination as to whether the Performance Goals have been satisfied or as to the amount of the Payment Amount with respect to a Performance Period, the relevant Performance Goals for a Long Fiscal Year shall be deemed to be a number equal to the numerical measure of each such Performance Goal based on the performance of the Companyand/or its Subsidiaries for such Long Fiscal Year minus an amount equal to the product of (i) 1/14th; and (ii) the numerical measure of each such Performance Goal based on the performance of the Companyand/or its Subsidiaries for the last fiscal quarter of such Long Fiscal Year. Notwithstanding the foregoing, the Committee may exercise its discretion in determining the extent of the adjustment, if any, to the calculation of any Performance Goal for a Long Fiscal Year appropriate to more accurately compare performance during a Long Fiscal Year to that during a 52-week fiscal year; provided that, the Committee may not exercise such discretion after the first ninety (90) days of the Performance Period with respect to Covered Employees unless such exercise of discretion results in a reduction of the Payment Amount to the Covered Employees.
4.2 Performance Goals. The Performance Goals established by the Committee for a Performance Period may include any one or more of several criteria, such as, but not limited to, return on capital employed, return on assets, sales growth, market share, margin growth, return on equity, total shareholder return, increase in net after-tax earnings per share, increase in operating pre-tax earnings, operating profit or improvements in operating profit, improvements in certain asset or financial measures (including working capital and the ratio of sales to net working capital), reductions in certain costs (including reductions in inventories or accounts receivable or reductions in operating expenses), net earnings, pre-tax earnings or variations of income criteria in varying time periods, economic value added, or general comparisons with other peer companies or industry groups or classifications with regard to one or more of these criteria. The Performance Goals may be based on the performance of the Company generally, the performance of a particular Subsidiary, division or business unit, or the performance of a group of Subsidiaries, divisions or business units. The relative weights of the criteria that comprise the Performance Goals shall be determined by the Committee in its sole discretion. In establishing the Performance Goals for a Performance Period, the Committee may establish different Performance Goals for individual Participants or groups of Participants.
ARTICLE V
PAYMENT
5.1 Determination of Performance. After the end of each Performance Period, the performance of the Company and its Subsidiaries will be determined by the Company and approved by the Committee for each Performance Goal. The Committee shall certify in writing to each Participant the degree of achievement of each Performance Goal based upon the actual performance results for the Performance Period.
5.2 Determination of Payment Amount. After the end of each Performance Period, the Payment Amount for each Participant for such Performance Period shall be calculated by the Company and certified by the Committee based upon the level of performance achieved by the Company and its Subsidiaries for each Performance Goal applicable to such Participant for the Performance Period, as determined in accordance with Section 5.1.
5.3 Payment of Payment Amount. The Payment Amount payable to Participants under this Plan shall be paid solely in cash and shall be paid on or before the Payment Date;provided, however, that subject to the requirements of the applicable deferred compensation plan and such other rules and requirements as the Committee may from time to time prescribe, the Committee may allow a Participant to defer receipt of all or a portion of the Payment Amount if permitted under the terms of the deferred compensation plan sponsored by the Company in which the Participant is eligible to participate.
5.4 Overall Limitation Applicable to Covered Employees. Notwithstanding any other provision in this Plan to the contrary, in no event shall any Covered Employee be entitled to a payment in respect of any Performance Period in excess of one
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percent (1%) of the Company’s earnings before income taxes as publicly disclosed in the “Consolidated Results of Operations” section of the Company’s annual report to the Securities and Exchange Commission onForm 10-K for the Fiscal Year ended immediately before the Payment Date applicable to such Performance Period.
ARTICLE VI
TERMINATION OF EMPLOYMENT
If a Participant’s employment is terminated before the end of the Performance Period, the treatment of the Performance Units awarded with respect to such Performance Period will be as follows:
6.1 In General. If, before the end of the Performance Period, the Participant’s employment terminates for any reason other than for the reasons described in Sections 6.2 through 6.4, the Participant’s Performance Units shall be canceled, and the Participant shall receive no payment under this Plan in respect of such Performance Units. If a Participant’s employment terminates after the end of the Performance Period but before the Payment Date, the Participant (or the Participant’s designated beneficiary in the case of death) shall be paid the Payment Amount with respect to such Performance Period as determined under Article V hereof on the Payment Date.
6.2 Retirement. Subject to compliance with the conditions outlined below, if, during the Performance Period, a Participant’s employment terminates by reason of Retirement, the Payment Amount for such Performance Period shall be paid on the Payment Date for such Performance Period;provided, however, that if such Participant is a Specified Employee, the Payment Amount shall not be paid to the Participant until the later of six months following the date of Retirement or the Payment Date with respect to the applicable Performance Period, but only to the extent that making such Payment Amount would result in a violation of Section 409A. The Participant’s Payment Amount with respect to such Performance Period shall be determined by taking into account the actual performance of the Companyand/or its Subsidiaries for the entire Performance Period;provided, however, that the Company reserves the right to cancel the Performance Units of a Participant, if prior to the end of the applicable Performance Period, the Participant: (i) performs any services, whether as an employee, officer, director, agent, independent contractor, partner or otherwise, for a competitor of the Company or any of its affiliates without the consent of the Company, or (ii) takes any other action, including, but not limited to, interfering with the relationship between the Company or any of its affiliates and any of its employees, clients or agents, which is intended to damage or does damage to the business or reputation of the Company.
6.3 Death. If a Participant dies during the Performance Period, the number of Performance Units awarded to the Participant will be reduced by multiplying the number of Performance Units initially awarded to the Participant by a fraction, the numerator of which is the number of full months in the Performance Period during which the Participant was an active employee of the Company or a Subsidiary and the denominator of which is the number of months in the Performance Period. A partial month worked shall be counted as a full month if the Participant is an active employee for 15 days or more in that month. The Payment Amount to be paid to the Participant’s beneficiaries based on the resulting reduced number of Performance Units shall be determined as follows:
(a) If the Participant’s death occurs after the end of one or more Fiscal Years during the Performance Period but within six months or less of the beginning of a Fiscal Year, the Payment Amount shall be determined using the actual performance of the Companyand/or its Subsidiaries for each completed Fiscal Year prior to the Participant’s death (the“Completed Fiscal Years”);
(b) If the Participant’s death occurs more than six months after the start of a Fiscal Year included in the Performance Period but prior to the end of a Fiscal Year during such Performance Period, the Payment Amount shall be determined (i) using the actual performance of the Company for each Completed Fiscal Year, if any, and (ii) using the actual performance of the Companyand/or its Subsidiaries for the Fiscal Year in which the Participant dies; or
(c) If the Participant’s death occurs six months or less after the start of the Performance Period, the Payment Amount for the Performance Units granted with respect to such Performance Period shall be zero. The Payment Amount determined pursuant to this Section 6.3 shall be paid to the Participant’s designated beneficiary as soon as practicable following the determination of the Payment Amount.
6.4 Disability. If, before the end of the Performance Period, a Participant’s employment is terminated as a result of Disability, the Payment Amount for such Performance Period shall be paid on the Payment Date for such Performance Period, and the Participant’s Payment Amount with respect to such Performance Period shall be determined by taking into account the actual performance of the Companyand/or its Subsidiaries for the entire Performance Period.
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ARTICLE VII
CHANGE OF CONTROL
If a Change of Control has occurred during a Performance Period, the Participant’s Performance Units awarded with respect to such Performance Period shall be considered vested, and the Payment Amount shall be paid to the Participant within ninety (90) days after the date of the Change of Control. For purposes of this Article VII, the Payment Amount to be made to each Participant shall be the maximum amount that could be paid to such Participant with respect to the Participant’s Performance Units for such Performance Period assuming the highest level of performance is achieved.
ARTICLE VIII
ADMINISTRATION
8.1 In General. The Plan shall be administered under the supervision and direction of the Committee or its designees, as applicable. In administering the Plan, the Committee will determine the Participants and the number of Performance Units to be granted to individual Participants, establish appropriate Fiscal Years, Performance Periods and Performance Goals as bases for payments under the Plan, establish the methods and procedures for measuring performance, and determine the Payment Date and methods and procedures for payment of Awards under the Plan. Further, the Committee may, from time to time, change or waive requirements of the Plan, or outstanding Performance Units, to conform with the law, to meet special circumstances not anticipated or covered in the Plan, or to carry on successful operation of the Plan, and in connection therewith, the Committee or its designee shall have the full power and authority to:
(a) Prescribe, amend and rescind rules and regulations relating to the Plan, or outstanding Performance Units, establish procedures deemed appropriate for the Plan’s administration, and make any and all other determinations not herein specifically authorized which may be necessary or advisable for its effective administration;
(b) Make any amendments to or modifications of the Plan which may be required or necessary to make the Plan set forth herein comply with the provisions of any laws, federal or state, or any regulations issued thereunder, and to cause the Company at its expense to take any action related to the Plan which may be required under such laws or regulations; and
(c) Contest on behalf of Participants or the Company, at the expense of the Company, any ruling or decision on any issue related to the Plan, and conduct any such contest and any resulting litigation to a final determination, ruling or decision.
Notwithstanding anything herein to the contrary, the Committee may, unless otherwise prohibited from doing so by the Board of Directors or such committee’s charter, delegate any Plan related function it may deem necessary or appropriate to employees of the Company or its Subsidiaries or to third parties.
Nothing herein shall be deemed to authorize, and the Committee will have no discretion, to alter or amend the Performance Goals or the specific Performance Goals of Awards under the Plan with respect to “named executives” (as that term is defined in Section 402(a)(3) ofRegulation S-K) and Covered Employees after they have been approved by the Committee unless such exercise of discretion results in a reduction in the Payment Amount with respect to such Participants.
8.2 Limitation of Liability. No member of the Committee shall be liable for any act, omission, or determination taken or made in good faith with respect to the Plan or any Awards made hereunder, and the members of the Committee shall be entitled to indemnification, defense and reimbursement by the Company in respect of any claim, loss, damage, or expenses (including attorneys’ fees and expenses) arising therefrom to the full extent permitted by law and as provided for in the bylaws of the Company or under any directors’ and officers’ liability or similar insurance coverage or any indemnification agreement that may be in effect from time to time. The Company reserves the right to select counsel to defend any litigation covered by this Section 8.2.
8.3 Compliance with Section 409A. The Plan (i) is intended to comply with, (ii) shall be interpreted and its provisions shall be applied in a manner that is consistent with, and (iii) shall have any ambiguities therein interpreted, to the extent possible, in a manner that complies with Section 409A.
ARTICLE IX
TERM; WITHDRAWAL OR AMENDMENT
9.1 Effective Date and Term. The Plan has been adopted by the Board of Directors effective for Awards issued on or after September 4, 2009 (the“Effective Date”);provided, however, that no payments shall be made under this Plan to Covered Employees unless this Plan has been approved by the Company’s stockholders. The term of the Plan shall continue until
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November 30, 2014, unless sooner terminated by the Board;provided, however, that such termination must comply with the requirements of Section 409A. No new Awards may be made after the termination of the Plan, but any awards granted prior to November 30, 2014 that have not yet been paid will continue to remain outstanding and will be payable in accordance with and to the extent provided in the Plan and the applicable grant agreements or programs.
9.2 Withdrawal or Amendment. The Company’s Board of Directors or the Committee may at any time withdraw or amend the Plan. Notwithstanding the foregoing, no amendment or withdrawal following a Change of Control may in any way decrease or eliminate a payment due pursuant to Article VII.
9.3 Prior Plan. As of its Effective Date, this Plan shall supersede the Current Plan. No further awards will be granted under the Current Plan following such date, but any awards granted under the Current Plan prior to the Effective Date of this Plan that have not yet been paid as of that date will continue to remain outstanding and will be payable in accordance with and to the extent provided in the Current Plan and the applicable grant agreements or programs.
ARTICLE X
MISCELLANEOUS
10.1 Beneficiaries. Each Participant may designate a beneficiary or beneficiaries to receive, in the event of such Participant’s death, any payments remaining to be made to the Participant under the Plan. Each Participant shall have the right to revoke any such designation and to redesignate a beneficiary or beneficiaries by written notice to the Company to such effect. If any Participant dies without naming a beneficiary or if all of the beneficiaries named by a Participant predecease the Participant, then any amounts remaining to be paid under the Plan shall be paid to the Participant’s estate.
10.2 Awards Non-Transferable. Any rights of a Participant under this Plan, and in or to an Award, shall be personal in nature and may not be assigned or transferred (other than a transfer by will or the laws of descent and distribution). Any attempted assignment or transfer of the Award shall be null and void and without effect.
10.3 Withholding for Taxes. The Company or its Subsidiaries shall have the right to deduct from all payments under the Plan any federal, state, or local taxes required by law to be withheld with respect to such payments.
10.4 Plan Funding. The Plan shall at all times be unfunded and no provision shall at any time be made with respect to segregating any assets of the Company or its Subsidiaries for payment of any benefits under the Plan. The right of a Participant to receive payment under the Plan shall be an unsecured claim against the general assets of the Company or its Subsidiaries, and neither the Participant nor any other person shall have any rights in or against any specific assets of the Company or its Subsidiaries. The Company and its Subsidiaries may establish a reserve of assets to provide funds for payments under the Plan.
10.5 No Contract of Employment. The existence of this Plan, as in effect at any time or from time to time, or any grant of Performance Units under the Plan shall not be deemed to constitute a contract of employment between the Company, or its Subsidiaries, and any employee or Participant, nor shall it constitute a right to remain in the employ of the Company or its Subsidiaries.
10.6 No Right to Participate. Except as provided in Articles III and IV, no Participant or other employee shall at any time have a right to be selected for participation in the Plan, despite having previously participated in an incentive or bonus plan of the Company or its Subsidiaries.
10.7 Facilitation of Payments. Notwithstanding anything else in this Plan to the contrary, in the event that a payment is due to an employee, or former employee (or a beneficiary thereof), under this Plan and the recipient is a minor, mentally incompetent, or otherwise incapacitated, such payment shall be made to the recipient’s legal representative, or guardian. If there is no such legal representative, or guardian, the Committee, in its sole discretion, may direct that payment be made to any person the Committee, in its sole discretion, believes, by reason of a family relationship, or otherwise, will apply. Upon such payment, for the benefit of the recipient, the Company and each of its Subsidiaries shall be fully discharged of all obligations therefor.
10.8 Addresses; Missing Recipients. A recipient of any payment under this Plan who is not a current employee of the Company, or its Subsidiaries, shall have the obligation to inform the Company of his or her current address, or other location to which payments are to be sent. Neither the Company nor its Subsidiaries shall have any liability to such recipient, or any other person, for any failure of such recipient, or person, to receive any payment if it sends such payment to the address provided by such recipient by first class mail, postage paid, or other comparable delivery method. Notwithstanding anything else in this Plan to the contrary, if a recipient of any payment cannot be located within 120 days following the date on which such payment is due after reasonable efforts by the Company or its Subsidiaries, such payments and all future payments owing to such recipient shall be forfeited without notice to such recipient. If, within two years (or such longer period as the Committee, in its sole discretion,
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may determine), after the date as of which payment was forfeited (or, if later, is first due), the recipient, by written notice to the Company, requests that such payment and all future payments owing to such recipient be reinstated and provides satisfactory proof of their identity, such payments shall be promptly reinstated. To the extent the due date of any reinstated payment occurred prior to such reinstatement, such payment shall be made to the recipient (without any interest from its original due date) within 90 days after such reinstatement.
10.9 Governing Law. The laws of the State of Delaware (excluding its principles relating to conflicts of laws) shall govern the Plan.
10.10 Successors. All obligations of the Company and its Subsidiaries under the Plan shall be binding upon and inure to the benefit of any successor to the Company or such Subsidiary, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise.
10.11 Third Parties. Nothing expressed or implied in this Plan is intended or may be construed to give any person other than eligible Participants any rights or remedies under this Plan.
10.12 Headings. Section and other headings contained in this Plan are for reference purposes only, and are not intended to describe, interpret, define, or limit the scope, extent or intent of the provisions of the Plan.
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![(RECYCLED PAPER BUG)](https://capedge.com/proxy/DEF 14A/0000950134-08-017641/h60511h6051106.gif) | SYSCO-PS-08 |
SYSCO CORPORATION
1390 ENCLAVE PARKWAY
HOUSTON, TX 77077-2099
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
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Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | | | | |
| | SYSCO1 | | KEEP THIS PORTION FOR YOUR RECORDS |
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THIS PROXY CARD IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby constitutes and appoints Richard J. Schnieders and John K. Stubblefield, Jr., and each of them jointly and severally, proxies, with full power of substitution, to vote all shares of common stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders of Sysco Corporation to be held on Friday, November 11, 2005 at 10:00 a.m., at The Houstonian Hotel, 111 North Post Oak Lane, Houston, Texas 77024, or any adjournment thereof.
The undersigned acknowledges receipt of the notice of annual meeting and proxy statement, each dated October 3, 2005, grants authority to any of said proxies, or their substitutes, to act in the absence of others, with all the powers which the undersigned would possess if personally present at such meeting, and hereby ratifies and confirms all that said proxies, or their substitutes, may lawfully do in the undersigned’s name, place and stead. The undersigned instructs said proxies, or any of them, to vote as set forth on the reverse side.
(CONTINUEDVALID ONLY WHEN SIGNED AND TO BE SIGNED ON REVERSE SIDE)DATED.
| DETACH AND RETURN THIS PORTION ONLY |
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SYSCO CORPORATION
c/o Computershare
P.O. Box 8694
Edison, NJ 08818-8694Your vote is important. Please vote immediately.
| | | | | | | Vote by Internet | | Vote by Telephone | | | | Log on to the Internet and go to | | Call toll free 1-877-PRX-VOTE (1-877-779-8683) | http://www.eproxyvote.com/syy | | |
If you vote over the Internet or by telephone, please do not mail your card.
Proxies voted by Telephone or Internet must be received by
11:59 P.M. EST — November 10, 2005
| | | | | Please Mark | x | | Votes As In | | | This Example |
The Board of Directors recommends a vote “FOR” each of the nominees for director, “FOR” Proposals 2 and 3 and “AGAINST” Proposal 4. | | | | | | | | | | |
| | Vote on Directors | | | | | | | | | | |
| | 1. | | To elect as directors the three nominees named | | | | | | | | | | |
| | | | in the proxy statement to serve until the Annual | | For | | Against | | Abstain | | | | |
| | | | Meeting of Stockholders in 2011: | | | | | | | | | | |
| | | | 1a. Judith B. Craven | | o | | o | | o | | | | |
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| | | | 1b. Phyllis S. Sewell | | o | | o | | o | | | | |
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| | | | 1c. Richard G. Tilghman | | o | | o | | o | | | | |
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| | Vote on Proposals | | For | | Against | | Abstain |
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| | 2. | | To approve the material terms of, and the payment of compensation to certain executive officers pursuant to, the 2008 Cash Performance Unit Plan so that the deductibility of such compensation will not be limited by Section 162(m) of the Internal Revenue Code; | | o | | o | | o |
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| | 3. | | To ratify the appointment of Ernst & Young LLP as SYSCO’s independent accountants for fiscal 2009; | | o | | o | | o |
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| | 4. | | To consider a stockholder proposal, if presented at the meeting, requesting that the Board of Directors take the necessary steps to require that all directors stand for election annually; and | | o | | o | | o |
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| | 5. | | To transact any other business as may properly be brought before the meeting or any adjournment thereof. | | | | | | |
1. | | Election of four directors in Class I |
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| | For address changes and/or comments, please check this box and write them on the back where indicated. | | o |
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| | Only stockholders of record at the close of business on September 22, 2008 will be entitled to receive notice of and to vote at the Annual Meeting. | | |
| | | | | | | | | | | | | NOMINEES: (01) Judith B. Craven, (02) Richard G. Merrill, (03) Phyllis S. Sewell, and (04) Richard G. Tilghman. |
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| | Signature [PLEASE SIGN WITHIN BOX] | Date | | | | Signature (Joint Owners) | Date | | |
| | FORo | | WITHHELDo |
| | ALL | | FROM ALL |
| | NOMINEES | | NOMINEES |
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For all nominees except as noted above. |
The Board of Directors recommends a vote “FOR” Proposals 2, 3, 4 and 5.
2. Approval of Ratification of Appointment of Ernst & Young LLP as the Company’s Independent Accountants for Fiscal 2006.
Important Notice Regarding Internet Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.
3. Approval of the 2005 Management Incentive Plan.SYSCO CORPORATION
4. Approval of the payment of compensation to certain executive officers under the 2000 Management Incentive Plan pursuant to Section 162(m) of the Internal Revenue Code.Proxy for the Annual Meeting of Stockholders
5. Approval of the 2005 Non-Employee Directors Stock PlanNovember 19, 2008
AllTHIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Richard J. Schnieders and William J. DeLaney, and each of them jointly and severally, proxies, with full power of substitution, to vote all shares of common stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders of Sysco Corporation to be held on Wednesday, November 19, 2008 at 10:00 a.m., at The Houstonian Hotel, 111 North Post Oak Lane, Houston, Texas 77024, or any adjournment thereof.
The undersigned acknowledges receipt of the notice of annual meeting and proxy statement, each dated October 7, 2008, grants authority to any of said proxies, or their substitutes, to act in the absence of others, with all the powers which the undersigned would possess if personally present at such meeting, and hereby ratifies and confirms all that said proxies, or their substitutes, may lawfully do in the undersigned’s name, place and stead. The undersigned instructs said proxies, or any of them, to vote as set forth on the reverse side.
Those proxies signed and returned with no choice indicated will be voted “FOR” each of the nominees for director, “FOR” Proposals 2 and 3 and “AGAINST” Proposal 4, and will be voted in accordance with your instructions. Those with no choice indicated will be voted “FOR” Proposals 1, 2, 3, 4 and 5, and in the discretion of the proxy holder on any other matter that may properly come before the meeting and any adjournment or postponement of the Annual Meeting.
MARK HERE FOR ADDRESS o
CHANGE AND NOTE AT LEFT
Please sign, date and return promptly. No postage required if this proxy is returned in the enclosed envelope and mailed in the United States. Please sign as name appears on this card. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title. If signer is a corporation, please sign with the full corporation name by authorized officer or officers.
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Signature: | | | | Date: | | |
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APPENDIX A
SYSCO CORPORATION
2000 MANAGEMENT INCENTIVE PLAN
This Sysco Corporation 2000 Management Incentive Plan (the “Plan”) was adopted by unanimous action of the Plan Compensation Committee (as hereinafter defined) of Sysco Corporation (the “Company”) on May 9, 2000, and by the Board of Directors of the Company (the “Board of Directors”) on May 10, 2000.
1. Statement of Principle
The purpose of the Plan is to reward (i) certain key management personnel for outstanding performance in the management of the divisions or subsidiaries (as hereinafter defined) of the Company and (ii) certain corporate personnel for managing the operations of the Company as a whole and/or managing the operations of certain Subsidiaries (as hereinafter defined). For purposes of the Plan, the term “Subsidiary” means (a) any corporation which is a member of a “controlled group of corporations” which includes the Company, as defined in Code Section 414(b), (b) any trade or business under “common control” with the Company, as defined in Code Section 414(c), (c) any organization which is a member of an “affiliated service group” which includes the Company, as defined in Code Section 414(m), (d) any other entity required to be aggregated with the Company pursuant to Code Section 414(o), and (e) any other organization or employment location designated as a “Subsidiary” by resolution of the Board of Directors. Except as otherwise provided in Section 8 hereof, the total number of shares of Sysco Common Stock, $1.00 par value (“Common Stock”), which may be awarded pursuant to the Plan shall not exceed four million shares. All references to periods in the Plan are to fiscal periods unless otherwise specifically noted. Nothing in the Plan shall be deemed to affect incentive bonuses paid or to be paid to participants under any predecessor management incentive plan for fiscal years prior to the Company’s 2001 fiscal year.
2. Plan Compensation Committee
The Board of Directors has established a committee (the “Plan Compensation Committee”) which is charged with structuring, proposing the implementation of, and implementing the terms and conditions of, the Plan. The Plan Compensation Committee shall, at all times, consist of two or more directors of the Company. The Plan Compensation Committee shall have the authority to adopt, alter and repeal such rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of the Plan and any award issued under the Plan (and any agreements relating thereto) including without limitation the manner of determining financial and accounting concepts discussed in the Plan; to otherwise supervise the administration of the Plan; and, except as to the application of the Plan to Senior Executive Participants (as defined in Section 3 below), to delegate such authority provided to it hereunder as it may deem necessary or appropriate to the Chairman of the Board, Chief Executive Officer, President, Chief Operating Officer and any Executive Vice President, and any of them individually. All decisions made by the Plan Compensation Committee pursuant to the provisions of the Plan shall be made in the Plan Compensation Committee’s sole discretion and shall be final and binding on all persons, including the Company and Participants (hereinafter defined). Each director while a member of the Plan Compensation Committee shall (i) meet the definition of “disinterested person” contained in Rule 16b-3 promulgated pursuant to Section 16 of the Securities Exchange Act of 1934, as amended, and (ii) be an “outside director,” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), any regulations interpreting Section 162(m) of the Code, or any other applicable administrative or judicial pronouncements pertaining thereto.
3. Participants
The participants in the Plan for a fiscal year shall be designated by the Plan Compensation Committee from the persons who are employed by any Subsidiary or the Company, in the following capacities (Subsidiary Participants, Corporate Participants, Designated Participants and Senior Executive Participants are referred to collectively as “Participants” or individually as a “Participant”):
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| | | | | | Subsidiary Participants- Persons who serve as an officer of a Subsidiary. |
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| | | Corporate Participants- Persons who serve as an officer of the Company who are also employees of the Company or a Subsidiary. |
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| | | Designated Participants- Persons other than Corporate Participants or Subsidiary Participants who are employed by a Subsidiary or by the corporate office of the Company who are designated by the Plan Compensation Committee from time to time. |
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| | | Senior Executive Participants- Persons who are “covered employees” of the Company within the meaning of Code Section 162(m) and Treasury Regulation 1.162-27(c)(2) (or any successor statute or regulation section, or any administrative interpretation thereof) (the “Executive Compensation Provisions”) during a fiscal year of the Company and who have been designated by the Plan Compensation Committee as Corporate, Subsidiary or Designated Participants in the Plan for such fiscal year. If a Participant isboth a Senior Executive Participant and a Corporate, Subsidiary or Designated Participant during a fiscal year as a result of the application of the Executive Compensation Provisions, he or she shall be considered a Senior Executive Participant, andnot a Corporate, Subsidiary or Designated Participant, during such fiscal year, and shall be subject to any and all restrictions applicable to Senior Executive Participants hereunder during such fiscal year. |
To the extent possible, the Plan Compensation Committee shall designate Participants in the Plan prior to the commencement of the fiscal year in which such designated Participants will be entitled to a bonus under the Plan, or as soon as practicable during the fiscal year in which a person first becomes eligible to be a Participant. Once designated as a Participant, the Plan Compensation Committee can remove an employee as a Participant with or without cause at any time and the Participant shall not be entitled to any bonus under the Plan for the year in which he or she is removed regardless of when during such year he or she is removed.
4. Method of Operation
The bonus which a Participant can earn is based (i) on the performance of the Company as a whole and (ii) (A) (as to Subsidiary Participants and possibly Designated Participants) either the performance of the Subsidiary which employs such Participant or the performance of the Subsidiary designated by the Plan Compensation Committee as the Subsidiary by reference to which the bonus is to be determined and (B) (as to Corporate and possibly Designated Participants), the performance of a select group of Subsidiaries, subject to the discretion of the Plan Compensation Committee to formulate a different bonus structure as to any Participant, other than Senior Executive Participants. The bonus is calculated with respect to an entire fiscal year and, if earned, shall be paid in accordance with Section 6 hereof.
(A) Subsidiary Participants and Certain Senior Executive Participants.
With respect to each Subsidiary Participant and each Senior Executive Participant who would be a Subsidiary Participant but for the application of the Executive Compensation Provisions, a portion of the bonus may depend upon the return on capital and/or increase in pretax earnings of the Subsidiary employing such Participant; a portion of the bonus may depend upon the return on stockholder’s equity and increase in earnings per share of the Company as a whole; and a portion of the bonus may depend upon any one or more of the following performance factors: (i) sales of the Company and/or one or more Subsidiaries, (ii) pretax earnings of the Company, (iii) net earnings of the Company and/or one or more Subsidiaries, (iv) control of operating and/or nonoperating expenses of the Company and/or one or more Subsidiaries, (v) margins of the Company and/or one or more Subsidiaries, (vi) market price of the Company’s securities, and (vii) other objectively measurable factors directly tied to the performance of the Company and/or one or more Subsidiaries. The relative weights of the factors considered and the percentages of the total bonus comprised by the portion of the bonus determined with respect to the Subsidiary employing the Participant or the Subsidiary designated by the Plan Compensation Committee as the Subsidiary by reference to which the
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Bonus is to be determined and the portion of the bonus determined with respect to the Company shall be determined by the Plan Compensation Committee in its sole discretion. Notwithstanding the foregoing, the Plan Compensation Committee may alter the bonus formula with respect to any such Participant by changing the performance targets as determined in the sole discretion of the Committee; provided, however, the Committee cannot change the performance targets after the first ninety (90) days of the fiscal year with respect to Senior Executive Participants.
In addition to the bonus calculated in accordance with the first paragraph of Section 4(A) above, a Subsidiary Participant may also be entitled to an additional bonus (“Additional Bonus”) if awarded by the Plan Compensation Committee in its sole discretion. The Additional Bonus may be established by the Plan Compensation Committee at one or more times during such fiscal year or within ninety (90) days following the end of such fiscal year based on such criteria as the Plan Compensation Committee may develop in its sole discretion.
(B) Corporate Participants and Certain Senior Executive Participants.
With respect to a Corporate Participant or Senior Executive Participant who would be a Corporate Participant but for the application of the Executive Compensation Provisions and subject to the further adjustments and additions provided for in the Plan, a portion of the bonus may depend upon the return on stockholder’s equity and increase in earnings per share of the Company; a portion of the bonus may depend upon the return on capital of one or more of the Subsidiaries and/or the increase in pretax earnings of one or more of the Subsidiaries; and a portion of the bonus may depend upon any one or more of the following performance factors: (i) sales of the Company and/or one or more Subsidiaries, (ii) pretax earnings of the Company, (iii) net earnings of the Company and/or one or more Subsidiaries, (iv) control of operating and/or nonoperating expenses of the Company and/or one or more Subsidiaries, (v) margins of the Company and/or one or more Subsidiaries, (vi) market price of the Company’s securities, and (vii) other objectively measurable factors directly tied to the performance of the Company and/or one or more Subsidiaries. The relative weights of the factors considered and the percentage of the total bonus comprised by the portion of the bonus determined with respect to the Subsidiaries of the Company and the portion determined with respect to the Company shall be determined by the Plan Compensation Committee in its sole discretion. Notwithstanding the foregoing, the Plan Compensation Committee may alter the bonus formula with respect to any such Participant by changing the performance targets as determined in the sole discretion of the Committee; provided, however, the Committee cannot change the performance targets after the first ninety (90) days of the fiscal year with respect to Senior Executive Participants.
(C) Designated Participants.
The Plan Compensation Committee may formulate a bonus structure for each Designated Participant which is based on performance factors determined by the Plan Compensation Committee in its sole discretion. The bonus structure for any Designated Participant may be similar to or may vary materially from the bonus structure for Corporate Participants or Subsidiary Participants.
(D) General Rules Regarding Bonus Calculation.
In determining whether or not the results of operations of a Subsidiary or Subsidiaries or the Company for a given fiscal year result in a bonus, generally accepted accounting principles shall be applied on a basis consistent with prior periods, and such determination shall be based on the calculations made by the Company and binding on each Participant. Except as provided in Section 10 as to Senior Executive Participants, there is no limit to the bonus that can be obtained. Prior to payment of the bonus to Senior Executive Participants, the Plan Compensation Committee shall certify that the performance goals and other material terms of the Plan have been achieved with respect to the Senior Executive Participants.
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5. No Employment Arrangements Implied
Nothing herein shall imply any right of employment for a Participant and if a Participant is terminated, voluntarily or involuntarily, with or without cause, prior to the end of a given fiscal year, such Participant shall not be entitled to any bonus for such fiscal year regardless of whether or not such bonus had been or would have been earned in whole or in part, but any unpaid bonus earned with respect to a prior fiscal year shall not be affected.
6. Payment
Within ninety (90) days following the end of each fiscal year, the Company shall determine the amount of any bonus earned by each Participant pursuant to the provisions of Section 4 above. Such bonus shall be payable in cash unless the Participant has given notice to the Plan Compensation Committee within ninety (90) days after the commencement of such fiscal year that such Participant has elected the option provided in Section 6(A) below. The amount of any bonus that a Participant is entitled to receive for a fiscal year shall be determined as of the last day of such fiscal year and each Participant shall be deemed to have constructively received his or her bonus (including the value of the shares of stock if he or she elects to receive a portion of his or her bonus in stock) as of the last day of such fiscal year notwithstanding the fact that it may be paid or delivered to him or her thereafter.
(A) Each Participant shall be entitled to receive, in increments of 5%, up to 40% of his or her bonus in shares of Common Stock (with the exact percent fixed by the Participant) with such shares to be valued at the closing price of the Common Stock on the primary securities exchange on which such stock is traded on the last trading day of such fiscal year. Such election shall be made no later than ninety (90) days after the beginning of the fiscal year in respect of which the bonus is to be calculated and once made shall be irrevocable for such fiscal year. If the Participant elects to receive such shares, the Participant shall receive as additional compensation an additional number of shares of Common Stock equal to 50% of the number of shares received by reason of this election (the “Additional Shares”),plus the Additional Cash Bonus (as defined in Section 6(B) below). For example, if a Participant earns a $10,000 bonus and the Common Stock is selling at $50 per share, and the Participant elects to receive 40% of the bonus in the form of Common Stock in a timely manner, the Participant would receive $6,000plus 120 shares of Common Stock (80 shares pursuant to his or her election, plus 40 Additional Shares),plus the Additional Cash Bonus (as defined in Section 6(B) below).
(B) If a Participant elects to receive Common Stock in accordance with Section 6(A) above, he or she shall also receive, as an additional bonus pursuant to the Plan, a cash amount equal to the value of the Additional Shares (which shall be the aggregate closing price of the Additional Shares on the last trading day of such fiscal year),multiplied by the effective tax rate applicable to the Company for the fiscal year for which the bonus is calculated, as described in the “Summary of Accounting Policies” section of the Company’s annual report to the Securities and Exchange Commission on Form 10-K for such fiscal year (the “Additional Cash Bonus”).
7. Recapitalization of Company
In the event of a recapitalization of the Company or its merger into or consolidation with another corporation occurring during the fiscal year, a Participant shall be entitled to receive such securities which he or she would have been entitled to receive had he or she been a shareholder of the Company holding shares pursuant to the Plan at the time of such recapitalization, merger or consolidation. In the event of a stock split, stock dividend or combination of shares with respect to the Common Stock of the Company after the determination of the number of shares to which a Participant is entitled but before delivery of such shares to the Participant, then the number of shares that such Participant shall be entitled to receive shall be proportionately adjusted.
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8. Investment Representation and Restrictions on the Stock and Right of Repurchase by the Company
(A) The shares to be issued to a Participant may be unregistered, at the option of the Company, and in such event the Participant shall execute an investment letter in form satisfactory to the Company, which letter shall contain an agreement that the Participant will not sell, transfer, give or otherwise convey any of such shares for a period of two years from the date on which such shares were issued to the Participant, except in the event of the Participant’s death or termination of employment due to disability or retirement under normal Company benefit plans, but then only in accordance with the requirements of the Securities Act of 1933, as amended, and the rules and regulations thereunder, and the shares shall bear a legend reflecting the investment representation and the unregistered status of the shares.
(B) If the shares to be issued to a Participant are registered pursuant to the registration provisions of the Securities Act of 1933, as amended, then the Participant shall enter into an agreement at the time of issuance of such shares that the Participant will not sell, transfer, give or otherwise convey any of such shares for a period of two years from the date on which such shares were issued to the Participant, except in the event of death or termination of employment due to disability or retirement under the normal Company benefit plans, and such shares shall bear a legend reflecting the terms of such restriction.
(C) If a Participant’s employment is terminated at any time within the first twelve month period following the issuance of shares for any reason, with or without cause, other than the Participant’s death or termination of employment due to disability or retirement under normal Company benefit plans, then upon demand of the Company made in writing within thirty (30) days from the date of termination, such Participant will sell to the Company all of the stock issued to the Participant within the twelve months preceding the date of termination at a purchase price equal to the lower of the then market price of the stock as hereinafter determined or the price at which the stock was valued for purposes of issuing it pursuant to the Plan. If a Participant’s employment is terminated after one year but before two years from the date on which any shares of Common Stock were issued to Participant pursuant to the Plan, on the demand of the Company made in writing within thirty (30) days from the date of termination, such Participant will sell to the Company, in addition to the shares he or she may be required to sell under the preceding sentence, 50% of the stock issued to the Participant within twenty-four months but more than twelve months preceding the date of termination at a purchase price equal to the lower of the then market price of the stock as hereinafter determined, or the price at which the stock was valued for purposes of issuing it pursuant to the Plan. The market price of the Common Stock shall be deemed to be the closing price of such stock on the primary securities exchange on which such stock is traded on the date of termination; and if such stock did not trade on such date, then on the next day on which it does trade. The shares of Common Stock issued under the Plan shall bear a legend reflecting these restrictions.
9. Amendments and Termination
The Plan may be amended at any time by the Board of Directors and any such amendment shall be effective as of commencement of the fiscal year during which the Plan is amended, regardless of the date of the amendment, unless otherwise stated by the Board of Directors. The Plan may be terminated at any time by the Board of Directors and termination will be effective as of the commencement of the fiscal year in which such action to terminate the Plan is taken.
10. Overall Limitation upon Payments under Plan to Senior Executive Participants
Notwithstanding any other provision in the Plan to the contrary, in no event shall any Senior Executive Participant be entitled to a bonus amount for any fiscal year (which bonus amount shall include, if applicable, the value of the Additional Shares (as defined in Section 6(A) above, and the Additional Cash Bonus (as defined in Section 6(B) above)) in excess of one percent (1%) of the Company’s earnings before income taxes as publicly disclosed in the “Consolidated Results of Operations” section of the Company’s annual report to the Securities and Exchange Commission on Form 10-K for such fiscal year.
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APPENDIX B
[date]
PERSONAL AND CONFIDENTIAL
[Name]
[Street Address]
[City, State Zip]
RE: Fiscal 2006 Bonus
Dear[Grantee]:
In recognition of your long-term commitment to Sysco Corporation (“SYSCO”) and its customers and of your expected future contributions to our corporate financial objectives, you have been granted an opportunity to earn a performance bonus for fiscal year 2006 under theSYSCO Corporation 2000 Management Incentive Plan(the “Plan”). You will not receive any bonus unless SYSCO achieves an Increase in Earnings Per Share of at least ___% (“Target A”) and achieves a Return on Stockholders’ Equity of at least ___% (“Target B”). If Target A and Target B have been met, then subject to the further adjustments and additions provided for elsewhere in the Plan and this Agreement, a portion of your bonus (“Part A”) will depend upon the results of the Operations of SYSCO as shown on Table A attached hereto, and the balance of your bonus (“Part B”) will depend on the number of Subsidiaries obtaining or exceeding ___% Return on Capital (“Target C”).
Part A Bonus Calculation
Part A of any bonus you may earn will be equal to the product of:
(i) 70% of your annual base salary in effect at the fiscal year end (“Base Salary”); and
(ii) the appropriate percentage shown on Table A which coincides with the appropriate Increase in Earnings per Share and Return on Stockholder’s Equity for SYSCO as a whole.
Part B Bonus Calculation
Subject to the further adjustments and additions provided for in this Agreement, Part B of any bonus you may earn will be calculated by determining the number of Subsidiaries of SYSCO that have attained or exceeded Target C. If a minimum of 15 Subsidiaries have obtained or exceeded Target C, and all Subsidiaries which have obtained or exceeded Target C employ at least 50% or more of the aggregate of the Total Capital of all Subsidiaries, then you will be entitled to receive an additional bonus equal to:
(i) 9% of your Base Salary for the first 15 Subsidiaries which obtain or exceed such a Return on Capital; plus
[date]
Page 2
(ii) an additional 11/2% of your Base Salary for each additional Subsidiary which obtains or exceeds Target C.
By way of example, if 23 Subsidiaries (which, in the aggregate, employ 51% of the Total Capital of all Subsidiaries) obtain or exceed Target C, you will receive a bonus equal to the product of (i) your Salary Percentage and (ii) 21% of your Base Salary (9% for the performance of the first 15 Subsidiaries in the group, and 12% for the performance of the additional eight Subsidiaries in the group).
Maximum Bonus Amounts
Although Table A has only been calculated to 370%, the “grid” shall be deemed to continue to increase in the same ratios as set forth. However, notwithstanding the foregoing and any other provision in this Agreement to the contrary, your bonus amount for fiscal 2006 (including, if applicable, the value of any Additional Shares and Additional Cash Bonus) cannot exceed 1% of SYSCO’s earnings before income taxes as publicly disclosed in the “Consolidated Results of Operations” section of SYSCO’s annual report to the Securities and Exchange Commission on Form 10-K for fiscal year 2006.
General Rules Regarding Bonus Calculation
In determining whether or not the results of operations of a Subsidiary or SYSCO result in a bonus, SYSCO’s accounting practice and generally accepted accounting principles shall be applied on a basis consistent with prior periods, and such determination shall be based on the calculations made by SYSCO, approved by the Compensation and Stock Option Committee of SYSCO’s Board of Directors (“Plan Compensation Committee”) and binding on you.
Tax Law Changes
If the Internal Revenue Code is amended during the fiscal year and, as a result of such amendment(s), the effective tax rate applicable to the earnings of SYSCO (as described in the “Summary of Accounting Policies” section of SYSCO’s annual report to the Securities and Exchange Commission on Form 10-K) changes during the year, the calculation of the net after-tax earnings per share of SYSCO for fiscal 2006 shall be made as if such rate change had not occurred during 2006.
Payment
Within 90 days following the end of each fiscal year, SYSCO shall determine and the Plan Compensation Committee shall approve the amount of any bonus earned by you under this Agreement. Such bonus shall be payable in the manner, at the times and in the amounts provided in the Plan.
Definitions
The capitalized terms in this document have the meaning ascribed to them in the Glossary attached hereto. Any capitalized terms not included in the Glossary have the meanings ascribed to them in the Plan.
[date]
Page 3
Additional Documents
Enclosed for your review are copies of the Plan document and other explanatory materials. All of the enclosed documents are important legal documents that should be reviewed carefully and kept in a safe place. Please complete the enclosed forms as soon as possible, and return them to Connie Brooks.
Thank you for your hard work and service. Your efforts, which are an integral part of SYSCO’s growth and progress, are deeply appreciated. If you should have any questions about your bonus opportunity or the Plan, please contact Mike Nichols.
| | | | |
| Sincerely,
| |
| | |
| Richard J. Schnieders | |
| Chairman, CEO and President | |
|
| | |
Enclosures
cc:
| | |
| | |
Accepted and Agreed: | | |
| | |
| | |
| | |
Name
| | |
| | |
| | |
| | |
Date | | |
(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
(Continued and to be signed on the reverse side.)
GLOSSARY
1.Total Capital — for any Subsidiary, the sum of the following components:
(a) Stockholders’ equity — the average of the amounts outstanding for such Subsidiary at the end of each quarter for which the computation is being made (quarterly average basis).
(b) Long-term debt — the average of the long-term portion of debt of such Subsidiary outstanding at the end of each quarter for which the computation is being made (quarterly average basis).
(c) Intercompany borrowings — the average of the amount outstanding at the end of each day during the period for which the computation is being made (daily average basis).
(d) Average patronage dividend receivable — the average of the amount outstanding at the end of each period for which the computation is being made (monthly average basis).
(e) Adjustments — amounts allocated to capital with respect to (i) fixed rate intercompany loans, (ii) capitalized leases, and (iii) below market plant and equipment costs.
2.Return on Capital — the Return on Capital for any Subsidiary is expressed as a percentage and is computed by dividing the Subsidiary’s pretax earnings (the calculation of which does not include gain on the sale of fixed assets and intercompany interest income and is subject to adjustment to include taxes that would have been included but for the timing of any tax deferrals so that results are consistent with fiscal 2005) by the Subsidiary’s Total Capital.
3.Return on Stockholders’ Equity — expressed as a percentage and computed by dividing the Company’s net after-tax earnings for fiscal 2006 by the Company’s average stockholders’ equity at the end of each quarter during the year.
4.Increase in Earnings Per Share — expressed as a percentage increase of the net after-tax earnings per share for fiscal 2006 over the net after-tax earnings per share for fiscal 2005.
5.Quarterly Averages — In determining the average amount outstanding of stockholders’ equity, long-term debt and adjustments above, and the quarterly average stockholders’ equity, such averages shall be determined by dividing five (5) into the sum of the amounts outstanding of the relevant category at the end of each of the four quarters of the fiscal year plus the amount outstanding of the relevant category at the beginning of the fiscal year.
Capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Plan.
TABLE A
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | PERCENTAGE INCREASE IN EARNINGS PER SHARE: |
Return on | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity: | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% |
___% | | | 20 | | | | 24 | | | | 28 | | | | 45 | | | | 50 | | | | 55 | | | | 60 | | | | 65 | | | | 70 | | | | 75 | | | | 80 | | | | 85 | | | | 90 | | | | 100 | | | | 110 | | | | 120 | | | | 130 | | | | 140 | | | | 150 | | | | 160 | | | | 170 | | | | 180 | | | | 190 | | | | 200 | |
|
___% | | | 27 | | | | 31 | | | | 35 | | | | 55 | | | | 60 | | | | 65 | | | | 70 | | | | 75 | | | | 80 | | | | 85 | | | | 90 | | | | 95 | | | | 100 | | | | 110 | | | | 120 | | | | 130 | | | | 140 | | | | 150 | | | | 160 | | | | 170 | | | | 180 | | | | 190 | | | | 200 | | | | 210 | |
|
___% | | | 34 | | | | 38 | | | | 42 | | | | 65 | | | | 70 | | | | 75 | | | | 80 | | | | 85 | | | | 90 | | | | 95 | | | | 100 | | | | 105 | | | | 110 | | | | 120 | | | | 130 | | | | 140 | | | | 150 | | | | 160 | | | | 170 | | | | 180 | | | | 190 | | | | 200 | | | | 210 | | | | 220 | |
|
___% | | | 41 | | | | 45 | | | | 49 | | | | 75 | | | | 80 | | | | 85 | | | | 90 | | | | 95 | | | | 100 | | | | 105 | | | | 110 | | | | 115 | | | | 120 | | | | 130 | | | | 140 | | | | 150 | | | | 160 | | | | 170 | | | | 180 | | | | 190 | | | | 200 | | | | 210 | | | | 220 | | | | 230 | |
|
___% | | | 48 | | | | 52 | | | | 56 | | | | 85 | | | | 90 | | | | 95 | | | | 100 | | | | 105 | | | | 110 | | | | 115 | | | | 120 | | | | 125 | | | | 130 | | | | 140 | | | | 150 | | | | 160 | | | | 170 | | | | 180 | | | | 190 | | | | 200 | | | | 210 | | | | 220 | | | | 230 | | | | 240 | |
|
___% | | | 55 | | | | 59 | | | | 63 | | | | 95 | | | | 100 | | | | 105 | | | | 110 | | | | 115 | | | | 120 | | | | 125 | | | | 130 | | | | 135 | | | | 140 | | | | 150 | | | | 160 | | | | 170 | | | | 180 | | | | 190 | | | | 200 | | | | 210 | | | | 220 | | | | 230 | | | | 240 | | | | 250 | |
|
___% | | | 62 | | | | 66 | | | | 70 | | | | 105 | | | | 110 | | | | 115 | | | | 120 | | | | 125 | | | | 130 | | | | 135 | | | | 140 | | | | 145 | | | | 150 | | | | 160 | | | | 170 | | | | 180 | | | | 190 | | | | 200 | | | | 210 | | | | 220 | | | | 230 | | | | 240 | | | | 250 | | | | 260 | |
|
___% | | | 69 | | | | 73 | | | | 77 | | | | 115 | | | | 120 | | | | 125 | | | | 130 | | | | 135 | | | | 140 | | | | 145 | | | | 150 | | | | 155 | | | | 160 | | | | 170 | | | | 180 | | | | 190 | | | | 200 | | | | 210 | | | | 220 | | | | 230 | | | | 240 | | | | 250 | | | | 260 | | | | 270 | |
|
___% | | | 76 | | | | 80 | | | | 84 | | | | 125 | | | | 130 | | | | 135 | | | | 140 | | | | 145 | | | | 150 | | | | 155 | | | | 160 | | | | 165 | | | | 170 | | | | 180 | | | | 190 | | | | 200 | | | | 210 | | | | 220 | | | | 230 | | | | 240 | | | | 250 | | | | 260 | | | | 270 | | | | 280 | |
|
___% | | | 83 | | | | 87 | | | | 91 | | | | 135 | | | | 140 | | | | 145 | | | | 150 | | | | 155 | | | | 160 | | | | 165 | | | | 170 | | | | 175 | | | | 180 | | | | 190 | | | | 200 | | | | 210 | | | | 220 | | | | 230 | | | | 240 | | | | 250 | | | | 260 | | | | 270 | | | | 280 | | | | 290 | |
|
___% | | | 90 | | | | 94 | | | | 98 | | | | 145 | | | | 150 | | | | 155 | | | | 160 | | | | 165 | | | | 170 | | | | 175 | | | | 180 | | | | 185 | | | | 190 | | | | 200 | | | | 210 | | | | 220 | | | | 230 | | | | 240 | | | | 250 | | | | 260 | | | | 270 | | | | 280 | | | | 290 | | | | 300 | |
|
___% | | | 97 | | | | 101 | | | | 105 | | | | 155 | | | | 160 | | | | 165 | | | | 170 | | | | 175 | | | | 180 | | | | 185 | | | | 190 | | | | 195 | | | | 200 | | | | 210 | | | | 220 | | | | 230 | | | | 240 | | | | 250 | | | | 260 | | | | 270 | | | | 280 | | | | 290 | | | | 300 | | | | 310 | |
|
___% | | | 104 | | | | 108 | | | | 112 | | | | 165 | | | | 170 | | | | 175 | | | | 180 | | | | 185 | | | | 190 | | | | 195 | | | | 200 | | | | 205 | | | | 210 | | | | 220 | | | | 230 | | | | 240 | | | | 250 | | | | 260 | | | | 270 | | | | 280 | | | | 290 | | | | 300 | | | | 310 | | | | 320 | |
|
___% | | | 111 | | | | 115 | | | | 119 | | | | 175 | | | | 180 | | | | 185 | | | | 190 | | | | 195 | | | | 200 | | | | 205 | | | | 210 | | | | 215 | | | | 220 | | | | 230 | | | | 240 | | | | 250 | | | | 260 | | | | 270 | | | | 280 | | | | 290 | | | | 300 | | | | 310 | | | | 320 | | | | 330 | |
|
___% | | | 118 | | | | 122 | | | | 126 | | | | 185 | | | | 190 | | | | 195 | | | | 200 | | | | 205 | | | | 210 | | | | 215 | | | | 220 | | | | 225 | | | | 230 | | | | 240 | | | | 250 | | | | 260 | | | | 270 | | | | 280 | | | | 290 | | | | 300 | | | | 310 | | | | 320 | | | | 330 | | | | 340 | |
|
___% | | | 125 | | | | 129 | | | | 133 | | | | 195 | | | | 200 | | | | 205 | | | | 210 | | | | 215 | | | | 220 | | | | 225 | | | | 230 | | | | 235 | | | | 240 | | | | 250 | | | | 260 | | | | 270 | | | | 280 | | | | 290 | | | | 300 | | | | 310 | | | | 320 | | | | 330 | | | | 340 | | | | 350 | |
|
___% | | | 132 | | | | 136 | | | | 140 | | | | 205 | | | | 210 | | | | 215 | | | | 220 | | | | 225 | | | | 230 | | | | 235 | | | | 240 | | | | 245 | | | | 250 | | | | 260 | | | | 270 | | | | 280 | | | | 290 | | | | 300 | | | | 310 | | | | 320 | | | | 330 | | | | 340 | | | | 350 | | | | 360 | |
|
___% | | | 139 | | | | 143 | | | | 147 | | | | 215 | | | | 220 | | | | 225 | | | | 230 | | | | 235 | | | | 240 | | | | 245 | | | | 250 | | | | 255 | | | | 260 | | | | 270 | | | | 280 | | | | 290 | | | | 300 | | | | 310 | | | | 320 | | | | 330 | | | | 340 | | | | 350 | | | | 360 | | | | 370 | |
|
APPENDIX C
[date]
PERSONAL AND CONFIDENTIAL
[Name]
[Street Address]
[City, State Zip]
RE: Fiscal 2006 Bonus
Dear[Grantee]:
In recognition of your long-term commitment to Sysco Corporation (“SYSCO”) and its customers and of your expected future contributions to our corporate financial objectives, you have been granted an opportunity to earn a performance bonus for fiscal year 2006 under theSYSCO Corporation 2000 Management Incentive Plan(the “Plan”).
You will not receive any bonus unless SYSCO achieves an Increase in Earnings Per Share of at least ___% (“Target A”) and achieves a Return on Stockholders’ Equity of at least ___% (“Target B”). If Target A and Target B have been met, then subject to the further adjustments and additions provided for elsewhere in the Plan and this Agreement, a portion of your bonus (“Part A”) will depend upon the results of the Operations of SYSCO as shown on Table A attached hereto, and the balance of your bonus (“Part B”) will depend on the aggregate performance of the Subsidiaries that you supervise (the “Supervised Operations”).
Part A Bonus Calculation
Part A of any bonus you may earn will be equal to the product of:
(i) 35% of your annual base salary in effect at the fiscal year end (“Base Salary”); and
(ii) the appropriate percentage shown on Table A which coincides with the appropriate Increase in Earnings per Share and Return on Stockholder’s Equity for SYSCO as a whole.
Part B Bonus Calculation
In calculating Part B of your bonus, the financial results of the Supervised Operations will be aggregated, and the Supervised Operations will be considered a single Subsidiary which has achieved such aggregated financial results. Part B of any bonus you may earn will be equal to the product of:
(i) the sum of:
| a. | | 70% of the appropriate percentage shown on Table B which coincides for the Supervised Operations with the appropriate level of Return on Capital and Increase in Operating Pretax Earnings; and |
[date]
Page 2
| b. | | 30% of the appropriate percentage shown on Table B which coincides for the Supervised Operations with the appropriate level of Return on Capital and Increase in Pretax Earnings; and |
(ii) 70% of your Base Salary.
Maximum Bonus Amounts
Although Tables A and B have only been calculated to 370% and 172%, respectively, the “grids” shall be deemed to continue to increase in the same ratios as set forth. However, notwithstanding the foregoing and any other provision in this Agreement to the contrary, your bonus amount for fiscal 2006 (including, if applicable, the value of any Additional Shares and Additional Cash Bonus) cannot exceed 1% of SYSCO’s earnings before income taxes as publicly disclosed in the “Consolidated Results of Operations” section of SYSCO’s annual report to the Securities and Exchange Commission on Form 10-K for fiscal year 2006.
General Rules Regarding Bonus Calculation
In determining whether or not the results of operations of the Supervised Operations or SYSCO result in a bonus, SYSCO’s accounting practice and generally accepted accounting principles shall be applied on a basis consistent with prior periods, and such determination shall be based on the calculations made by SYSCO, approved by the Compensation and Stock Option Committee of SYSCO’s Board of Directors (“Plan Compensation Committee”) and binding on you.
Tax Law Changes
If the Internal Revenue Code is amended during the fiscal year and, as a result of such amendment(s), the effective tax rate applicable to the earnings of SYSCO (as described in the “Summary of Accounting Policies” section of SYSCO’s annual report to the Securities and Exchange Commission on Form 10-K) changes during the year, the calculation of the net after-tax earnings per share of SYSCO for fiscal 2006 shall be made as if such rate change had not occurred during 2006.
Payment
Within 90 days following the end of each fiscal year, SYSCO shall determine and the Plan Compensation Committee shall approve the amount of any bonus earned by you under this Agreement. Such bonus shall be payable in the manner, at the times and in the amounts provided in the Plan.
Definitions
The capitalized terms in this document have the meaning ascribed to them in the Glossary attached hereto. Any capitalized terms not included in the Glossary have the meanings ascribed to them in the Plan.
Additional Documents
Enclosed for your review are copies of the Plan document and other explanatory materials. All of the enclosed documents are important legal documents that should be reviewed carefully and kept in a safe place. Please complete the enclosed forms as soon as possible, and return them to Connie Brooks.
[date]
Page 3
Thank you for your hard work and service. Your efforts, which are an integral part of SYSCO’s growth and progress, are deeply appreciated. If you should have any questions about your bonus opportunity or the Plan, please contact Mike Nichols.
Sincerely,
Richard J. Schnieders
Chairman, CEO and President
Enclosures
cc: [ ]
Accepted and Agreed:
GLOSSARY
1. Total Capital — for any Subsidiary, the sum of the following components:
(a) Stockholders’ equity — the average of the amounts outstanding for such Subsidiary at the end of each quarter for which the computation is being made (quarterly average basis).
(b) Long-term debt — the average of the long-term portion of debt of such Subsidiary outstanding at the end of each quarter for which the computation is being made (quarterly average basis).
(c) Intercompany borrowings — the average of the amount outstanding at the end of each day during the period for which the computation is being made (daily average basis).
(d) Average patronage dividend receivable — the average of the amount outstanding at the end of each period for which the computation is being made (monthly average basis).
(e) Adjustments — amounts allocated to capital with respect to (i) fixed rate intercompany loans, (ii) capitalized leases, and (iii) below market plant and equipment costs.
2. Return on Capital — the Return on Capital for any Subsidiary is expressed as a percentage and is computed by dividing the Subsidiary’s pretax earnings (the calculation of which does not include gain on the sale of fixed assets and intercompany interest income and is subject to adjustment to include taxes that would have been included but for the timing of any tax deferrals so that results are consistent with fiscal 2005) by the Subsidiary’s Total Capital.
3. Return on Stockholders’ Equity — expressed as a percentage and computed by dividing the Company’s net after-tax earnings for fiscal 2006 by the Company’s average stockholders’ equity at the end of each quarter during the year.
4. Increase in Earnings Per Share — expressed as a percentage increase of the net after-tax earnings per share for fiscal 2006 over the net after-tax earnings per share for fiscal 2005.
5. Increase in Pretax Earnings — the Increase in Pretax Earnings is expressed as a percentage increase of the Supervised Operations’ pretax earnings for fiscal 2006 (the calculation of which does not include gain on the sale of fixed assets [discretionary provision removed]) compared to the greater of (a) the Supervised Operations’ actual pretax earnings for fiscal 2005 or (b) those pretax earnings which would have been required to have been earned by the Supervised Operations in fiscal 2005 in order to have obtained Target C.
6. Increase in Operating Pretax Earnings — the Increase in Operating Pretax Earnings is expressed as a percentage increase of the Supervised Operations’ operating pretax earnings for fiscal 2006 (the calculation of which does not include gain on the sale of fixed assets[discretionary provision removed]) compared to the Supervised Operations’ operating pretax earnings for fiscal 2005.
7. Quarterly Averages — In determining the average amount outstanding of stockholders’ equity, long-term debt and adjustments above, and the quarterly average stockholders’ equity, such averages shall be determined by dividing five (5) into the sum of the amounts outstanding of the relevant category at the end of each of the four quarters of the fiscal year plus the amount outstanding of the relevant category at the beginning of the fiscal year.
Capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Plan.
TABLE A
PERFORMANCE OF SYSCO AS A WHOLE
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Return | | |
on | | PERCENTAGE INCREASE IN EARNINGS PER SHARE: |
Equity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | __% | | __% | | __% | | __% | | __% | | __% | | __% | | __% | | __% | | __% | | __% | | __% | | __% | | __% | | __% | | __% | | __% | | __% | | __% | | __% | | __% | | __% | | __% | | __% |
|
___% | | | 20 | | | | 24 | | | | 28 | | | | 45 | | | | 50 | | | | 55 | | | | 60 | | | | 65 | | | | 70 | | | | 75 | | | | 80 | | | | 85 | | | | 90 | | | | 100 | | | | 110 | | | | 120 | | | | 130 | | | | 140 | | | | 150 | | | | 160 | | | | 170 | | | | 180 | | | | 190 | | | | 200 | |
|
___% | | | 27 | | | | 31 | | | | 35 | | | | 55 | | | | 60 | | | | 65 | | | | 70 | | | | 75 | | | | 80 | | | | 85 | | | | 90 | | | | 95 | | | | 100 | | | | 110 | | | | 120 | | | | 130 | | | | 140 | | | | 150 | | | | 160 | | | | 170 | | | | 180 | | | | 190 | | | | 200 | | | | 210 | |
|
___% | | | 34 | | | | 38 | | | | 42 | | | | 65 | | | | 70 | | | | 75 | | | | 80 | | | | 85 | | | | 90 | | | | 95 | | | | 100 | | | | 105 | | | | 110 | | | | 120 | | | | 130 | | | | 140 | | | | 150 | | | | 160 | | | | 170 | | | | 180 | | | | 190 | | | | 200 | | | | 210 | | | | 220 | |
|
___% | | | 41 | | | | 45 | | | | 49 | | | | 75 | | | | 80 | | | | 85 | | | | 90 | | | | 95 | | | | 100 | | | | 105 | | | | 110 | | | | 115 | | | | 120 | | | | 130 | | | | 140 | | | | 150 | | | | 160 | | | | 170 | | | | 180 | | | | 190 | | | | 200 | | | | 210 | | | | 220 | | | | 230 | |
|
___% | | | 48 | | | | 52 | | | | 56 | | | | 85 | | | | 90 | | | | 95 | | | | 100 | | | | 105 | | | | 110 | | | | 115 | | | | 120 | | | | 125 | | | | 130 | | | | 140 | | | | 150 | | | | 160 | | | | 170 | | | | 180 | | | | 190 | | | | 200 | | | | 210 | | | | 220 | | | | 230 | | | | 240 | |
|
___% | | | 55 | | | | 59 | | | | 63 | | | | 95 | | | | 100 | | | | 105 | | | | 110 | | | | 115 | | | | 120 | | | | 125 | | | | 130 | | | | 135 | | | | 140 | | | | 150 | | | | 160 | | | | 170 | | | | 180 | | | | 190 | | | | 200 | | | | 210 | | | | 220 | | | | 230 | | | | 240 | | | | 250 | |
|
___% | | | 62 | | | | 66 | | | | 70 | | | | 105 | | | | 110 | | | | 115 | | | | 120 | | | | 125 | | | | 130 | | | | 135 | | | | 140 | | | | 145 | | | | 150 | | | | 160 | | | | 170 | | | | 180 | | | | 190 | | | | 200 | | | | 210 | | | | 220 | | | | 230 | | | | 240 | | | | 250 | | | | 260 | |
|
___% | | | 69 | | | | 73 | | | | 77 | | | | 115 | | | | 120 | | | | 125 | | | | 130 | | | | 135 | | | | 140 | | | | 145 | | | | 150 | | | | 155 | | | | 160 | | | | 170 | | | | 180 | | | | 190 | | | | 200 | | | | 210 | | | | 220 | | | | 230 | | | | 240 | | | | 250 | | | | 260 | | | | 270 | |
|
___% | | | 76 | | | | 80 | | | | 84 | | | | 125 | | | | 130 | | | | 135 | | | | 140 | | | | 145 | | | | 150 | | | | 155 | | | | 160 | | | | 165 | | | | 170 | | | | 180 | | | | 190 | | | | 200 | | | | 210 | | | | 220 | | | | 230 | | | | 240 | | | | 250 | | | | 260 | | | | 270 | | | | 280 | |
|
___% | | | 83 | | | | 87 | | | | 91 | | | | 135 | | | | 140 | | | | 145 | | | | 150 | | | | 155 | | | | 160 | | | | 165 | | | | 170 | | | | 175 | | | | 180 | | | | 190 | | | | 200 | | | | 210 | | | | 220 | | | | 230 | | | | 240 | | | | 250 | | | | 260 | | | | 270 | | | | 280 | | | | 290 | |
|
___% | | | 90 | | | | 94 | | | | 98 | | | | 145 | | | | 150 | | | | 155 | | | | 160 | | | | 165 | | | | 170 | | | | 175 | | | | 180 | | | | 185 | | | | 190 | | | | 200 | | | | 210 | | | | 220 | | | | 230 | | | | 240 | | | | 250 | | | | 260 | | | | 270 | | | | 280 | | | | 290 | | | | 300 | |
|
___% | | | 97 | | | | 101 | | | | 105 | | | | 155 | | | | 160 | | | | 165 | | | | 170 | | | | 175 | | | | 180 | | | | 185 | | | | 190 | | | | 195 | | | | 200 | | | | 210 | | | | 220 | | | | 230 | | | | 240 | | | | 250 | | | | 260 | | | | 270 | | | | 280 | | | | 290 | | | | 300 | | | | 310 | |
|
___% | | | 104 | | | | 108 | | | | 112 | | | | 165 | | | | 170 | | | | 175 | | | | 180 | | | | 185 | | | | 190 | | | | 195 | | | | 200 | | | | 205 | | | | 210 | | | | 220 | | | | 230 | | | | 240 | | | | 250 | | | | 260 | | | | 270 | | | | 280 | | | | 290 | | | | 300 | | | | 310 | | | | 320 | |
|
___% | | | 111 | | | | 115 | | | | 119 | | | | 175 | | | | 180 | | | | 185 | | | | 190 | | | | 195 | | | | 200 | | | | 205 | | | | 210 | | | | 215 | | | | 220 | | | | 230 | | | | 240 | | | | 250 | | | | 260 | | | | 270 | | | | 280 | | | | 290 | | | | 300 | | | | 310 | | | | 320 | | | | 330 | |
|
___% | | | 118 | | | | 122 | | | | 126 | | | | 185 | | | | 190 | | | | 195 | | | | 200 | | | | 205 | | | | 210 | | | | 215 | | | | 220 | | | | 225 | | | | 230 | | | | 240 | | | | 250 | | | | 260 | | | | 270 | | | | 280 | | | | 290 | | | | 300 | | | | 310 | | | | 320 | | | | 330 | | | | 340 | |
|
___% | | | 125 | | | | 129 | | | | 133 | | | | 195 | | | | 200 | | | | 205 | | | | 210 | | | | 215 | | | | 220 | | | | 225 | | | | 230 | | | | 235 | | | | 240 | | | | 250 | | | | 260 | | | | 270 | | | | 280 | | | | 290 | | | | 300 | | | | 310 | | | | 320 | | | | 330 | | | | 340 | | | | 350 | |
|
___% | | | 132 | | | | 136 | | | | 140 | | | | 205 | | | | 210 | | | | 215 | | | | 220 | | | | 225 | | | | 230 | | | | 235 | | | | 240 | | | | 245 | | | | 250 | | | | 260 | | | | 270 | | | | 280 | | | | 290 | | | | 300 | | | | 310 | | | | 320 | | | | 330 | | | | 340 | | | | 350 | | | | 360 | |
|
___% | | | 139 | | | | 143 | | | | 147 | | | | 215 | | | | 220 | | | | 225 | | | | 230 | | | | 235 | | | | 240 | | | | 245 | | | | 250 | | | | 255 | | | | 260 | | | | 270 | | | | 280 | | | | 290 | | | | 300 | | | | 310 | | | | 320 | | | | 330 | | | | 340 | | | | 350 | | | | 360 | | | | 370 | |
|
TABLE B
PERFORMANCE OF SUPERVISED OPERATIONS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
PERCENT | | |
RETURN | | PERCENTAGE INCREASE IN OPERATING PRETAX EARNINGS AND PRETAX EARNINGS |
ON | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CAPITAL | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% |
|
___% | | | 10 | | | | 12 | | | | 15 | | | | 20 | | | | 30 | | | | 32 | | | | 35 | | | | 37 | | | | 40 | | | | 42 | | | | 45 | | | | 47 | | | | 50 | | | | 52 | | | | 55 | | | | 57 | | | | 60 | | | | 61 | | | | 63 | | | | 65 | | | | 67 | | | | 70 | |
|
___% | | | 15 | | | | 17 | | | | 20 | | | | 25 | | | | 40 | | | | 42 | | | | 45 | | | | 47 | | | | 50 | | | | 52 | | | | 55 | | | | 57 | | | | 60 | | | | 62 | | | | 65 | | | | 67 | | | | 70 | | | | 71 | | | | 73 | | | | 75 | | | | 77 | | | | 80 | |
|
___% | | | 20 | | | | 22 | | | | 25 | | | | 30 | | | | 50 | | | | 52 | | | | 55 | | | | 57 | | | | 60 | | | | 62 | | | | 65 | | | | 67 | | | | 70 | | | | 72 | | | | 75 | | | | 77 | | | | 80 | | | | 81 | | | | 83 | | | | 85 | | | | 87 | | | | 90 | |
|
___% | | | 25 | | | | 27 | | | | 30 | | | | 35 | | | | 60 | | | | 62 | | | | 65 | | | | 67 | | | | 70 | | | | 72 | | | | 75 | | | | 77 | | | | 80 | | | | 82 | | | | 85 | | | | 87 | | | | 90 | | | | 91 | | | | 93 | | | | 95 | | | | 97 | | | | 100 | |
|
___% | | | 30 | | | | 32 | | | | 35 | | | | 45 | | | | 70 | | | | 72 | | | | 75 | | | | 77 | | | | 80 | | | | 82 | | | | 85 | | | | 87 | | | | 90 | | | | 92 | | | | 95 | | | | 97 | | | | 100 | | | | 101 | | | | 102 | | | | 103 | | | | 104 | | | | 105 | |
|
___% | | | 35 | | | | 37 | | | | 40 | | | | 50 | | | | 80 | | | | 82 | | | | 85 | | | | 87 | | | | 90 | | | | 92 | | | | 95 | | | | 97 | | | | 100 | | | | 101 | | | | 102 | | | | 103 | | | | 105 | | | | 106 | | | | 107 | | | | 108 | | | | 109 | | | | 110 | |
|
___% | | | 40 | | | | 42 | | | | 45 | | | | 55 | | | | 90 | | | | 92 | | | | 95 | | | | 97 | | | | 100 | | | | 101 | | | | 102 | | | | 103 | | | | 105 | | | | 106 | | | | 107 | | | | 108 | | | | 110 | | | | 111 | | | | 112 | | | | 113 | | | | 114 | | | | 115 | |
|
___% | | | 45 | | | | 47 | | | | 50 | | | | 65 | | | | 100 | | | | 101 | | | | 102 | | | | 103 | | | | 105 | | | | 106 | | | | 107 | | | | 108 | | | | 110 | | | | 111 | | | | 112 | | | | 113 | | | | 115 | | | | 116 | | | | 117 | | | | 118 | | | | 119 | | | | 120 | |
|
___% | | | 50 | | | | 52 | | | | 55 | | | | 70 | | | | 105 | | | | 106 | | | | 107 | | | | 108 | | | | 110 | | | | 111 | | | | 112 | | | | 113 | | | | 115 | | | | 116 | | | | 117 | | | | 118 | | | | 120 | | | | 121 | | | | 122 | | | | 123 | | | | 124 | | | | 125 | |
|
___% | | | 52 | | | | 55 | | | | 60 | | | | 75 | | | | 110 | | | | 111 | | | | 112 | | | | 113 | | | | 115 | | | | 116 | | | | 117 | | | | 118 | | | | 120 | | | | 121 | | | | 122 | | | | 123 | | | | 125 | | | | 126 | | | | 127 | | | | 128 | | | | 129 | | | | 130 | |
|
___% | | | 52 | | | | 60 | | | | 65 | | | | 80 | | | | 115 | | | | 116 | | | | 117 | | | | 118 | | | | 120 | | | | 121 | | | | 122 | | | | 123 | | | | 125 | | | | 126 | | | | 127 | | | | 128 | | | | 130 | | | | 131 | | | | 132 | | | | 133 | | | | 134 | | | | 135 | |
|
___% | | | 54 | | | | 62 | | | | 70 | | | | 85 | | | | 120 | | | | 121 | | | | 122 | | | | 123 | | | | 125 | | | | 126 | | | | 127 | | | | 128 | | | | 130 | | | | 131 | | | | 132 | | | | 133 | | | | 135 | | | | 136 | | | | 137 | | | | 138 | | | | 139 | | | | 140 | |
|
___% | | | 54 | | | | 62 | | | | 70 | | | | 85 | | | | 125 | | | | 126 | | | | 127 | | | | 128 | | | | 130 | | | | 131 | | | | 132 | | | | 133 | | | | 135 | | | | 136 | | | | 137 | | | | 138 | | | | 140 | | | | 141 | | | | 142 | | | | 143 | | | | 144 | | | | 145 | |
|
___% | | | 56 | | | | 64 | | | | 75 | | | | 90 | | | | 130 | | | | 131 | | | | 132 | | | | 133 | | | | 135 | | | | 136 | | | | 137 | | | | 138 | | | | 140 | | | | 141 | | | | 142 | | | | 143 | | | | 145 | | | | 146 | | | | 147 | | | | 148 | | | | 149 | | | | 150 | |
|
TABLE B, Continued
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
PERCENT | | |
RETURN | | PERCENTAGE INCREASE IN OPERATING PRETAX EARNINGS AND PRETAX EARNINGS |
ON | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CAPITAL | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% | | ___% |
|
___% | | | 71 | | | | 73 | | | | 75 | | | | 77 | | | | 80 | | | | 81 | | | | 83 | | | | 85 | | | | 87 | | | | 90 | | | | 91 | | | | 93 | | | | 95 | | | | 97 | | | | 100 | | | | 101 | | | | 102 | | | | 103 | | | | 104 | | | | 105 | | | | 106 | | | | 107 | |
|
___% | | | 81 | | | | 83 | | | | 85 | | | | 87 | | | | 90 | | | | 91 | | | | 93 | | | | 95 | | | | 97 | | | | 100 | | | | 101 | | | | 102 | | | | 103 | | | | 104 | | | | 105 | | | | 106 | | | | 107 | | | | 108 | | | | 109 | | | | 110 | | | | 111 | | | | 112 | |
|
___% | | | 91 | | | | 93 | | | | 95 | | | | 97 | | | | 100 | | | | 101 | | | | 102 | | | | 103 | | | | 104 | | | | 105 | | | | 106 | | | | 107 | | | | 108 | | | | 109 | | | | 110 | | | | 111 | | | | 112 | | | | 113 | | | | 114 | | | | 115 | | | | 116 | | | | 117 | |
|
___% | | | 101 | | | | 102 | | | | 103 | | | | 104 | | | | 105 | | | | 106 | | | | 107 | | | | 108 | | | | 109 | | | | 110 | | | | 111 | | | | 112 | | | | 113 | | | | 114 | | | | 115 | | | | 116 | | | | 117 | | | | 118 | | | | 119 | | | | 120 | | | | 121 | | | | 122 | |
|
___% | | | 106 | | | | 107 | | | | 108 | | | | 109 | | | | 110 | | | | 111 | | | | 112 | | | | 113 | | | | 114 | | | | 115 | | | | 116 | | | | 117 | | | | 118 | | | | 119 | | | | 120 | | | | 121 | | | | 122 | | | | 123 | | | | 124 | | | | 125 | | | | 126 | | | | 127 | |
|
___% | | | 111 | | | | 112 | | | | 113 | | | | 114 | | | | 115 | | | | 116 | | | | 117 | | | | 118 | | | | 119 | | | | 120 | | | | 121 | | | | 122 | | | | 123 | | | | 124 | | | | 125 | | | | 126 | | | | 127 | | | | 128 | | | | 129 | | | | 130 | | | | 131 | | | | 132 | |
|
___% | | | 116 | | | | 117 | | | | 118 | | | | 119 | | | | 120 | | | | 121 | | | | 122 | | | | 123 | | | | 124 | | | | 125 | | | | 126 | | | | 127 | | | | 128 | | | | 129 | | | | 130 | | | | 131 | | | | 132 | | | | 133 | | | | 134 | | | | 135 | | | | 136 | | | | 137 | |
|
___% | | | 121 | | | | 122 | | | | 123 | | | | 124 | | | | 125 | | | | 126 | | | | 127 | | | | 128 | | | | 129 | | | | 130 | | | | 131 | | | | 132 | | | | 133 | | | | 134 | | | | 135 | | | | 136 | | | | 137 | | | | 138 | | | | 139 | | | | 140 | | | | 141 | | | | 142 | |
|
___% | | | 126 | | | | 127 | | | | 128 | | | | 129 | | | | 130 | | | | 131 | | | | 132 | | | | 133 | | | | 134 | | | | 135 | | | | 136 | | | | 137 | | | | 138 | | | | 139 | | | | 140 | | | | 141 | | | | 142 | | | | 143 | | | | 144 | | | | 145 | | | | 146 | | | | 147 | |
|
___% | | | 131 | | | | 132 | | | | 133 | | | | 134 | | | | 135 | | | | 136 | | | | 137 | | | | 138 | | | | 139 | | | | 140 | | | | 141 | | | | 142 | | | | 143 | | | | 144 | | | | 145 | | | | 146 | | | | 147 | | | | 148 | | | | 149 | | | | 150 | | | | 151 | | | | 152 | |
|
___% | | | 136 | | | | 137 | | | | 138 | | | | 139 | | | | 140 | | | | 141 | | | | 142 | | | | 143 | | | | 144 | | | | 145 | | | | 146 | | | | 147 | | | | 148 | | | | 149 | | | | 150 | | | | 151 | | | | 152 | | | | 153 | | | | 154 | | | | 155 | | | | 156 | | | | 157 | |
|
___% | | | 141 | | | | 142 | | | | 143 | | | | 144 | | | | 145 | | | | 146 | | | | 147 | | | | 148 | | | | 149 | | | | 150 | | | | 151 | | | | 152 | | | | 153 | | | | 154 | | | | 155 | | | | 156 | | | | 157 | | | | 158 | | | | 159 | | | | 160 | | | | 161 | | | | 162 | |
|
___% | | | 146 | | | | 147 | | | | 148 | | | | 149 | | | | 150 | | | | 151 | | | | 152 | | | | 153 | | | | 154 | | | | 155 | | | | 156 | | | | 157 | | | | 158 | | | | 159 | | | | 160 | | | | 161 | | | | 162 | | | | 163 | | | | 164 | | | | 165 | | | | 166 | | | | 167 | |
|
___% | | | 151 | | | | 152 | | | | 153 | | | | 154 | | | | 155 | | | | 156 | | | | 157 | | | | 158 | | | | 159 | | | | 160 | | | | 161 | | | | 162 | | | | 163 | | | | 164 | | | | 165 | | | | 166 | | | | 167 | | | | 168 | | | | 169 | | | | 170 | | | | 171 | | | | 172 | |
|