The following table sets forth certain information with respect to the beneficial ownership of Company common stock,Common Stock, as of September 9, 2003,13, 2005, by (i) each director, and director nominee, (ii) each Named Executive Officer (as hereinafter defined), and (iii) all directors director nominees and executive officers as a group. To our knowledge, no person or group beneficially owns 5% or more of our common stock.Common Stock. Unless otherwise indicated, each stockholder identified in the table has sole voting and investment power with respect to his or her shares.
SECTION 16(A)16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 and the rules issued thereunder, our executive officers and directors and any persons holding more than ten percent (10%) of our common stockCommon Stock are required to file with the Securities and Exchange Commission and the New York Stock Exchange reports of initial ownership of our common stockCommon Stock and changes in ownership of such common
stock.Common Stock. To our knowledge, no person beneficially owns more than 10% of our common
stock.Common Stock. Copies of the Section 16 reports filed by our directors and executive officers are required to be furnished to us. Based solely on our review of the copies of the reports furnished to us, or written representations that no reports were required, we believe that, during fiscal 2003,2005, all of our executive officers and directors complied with the Section 16(a) requirements, with the following exceptions:
o the executive officers listed on page 11 (other than Mr. Holden who
was not subject to the requirements of Section 16 at the time) and Mr.
Cotros each inadvertently filed a late Form 4 with respect to options
granted on September 12, 2002 that were not delivered until October
2002. The Forms 4 reporting these grants were filed on September 20,
2002.
o Messrs. Campbell, Golden, Merrill and Richardson, Dr. Craven, Mrs.
Sewell and Ms. Ward each inadvertently filed a late Form 4 with
respect to options granted on September 13, 2002 that were not
delivered until October 2002. The Forms 4 reporting these grants were
filed on September 20, 2002.
o Messrs. Campbell, Golden, Merrill and Richardson, Dr. Craven, Mrs.
Sewell and Ms. Ward each inadvertently filed a late Form 4 with
respect to shares issued in lieu of retainer fees in January 2003. The
stock certificates were dated December 31, 2002, as required by the
Non-Employee Director Stock Plan, but were not delivered until January
14, 2003. The Forms 4 reporting these shares were filed on January 14,
2003.
o James Lankford inadvertently filed a late Form 4 with respect to the
exercise of an option on November 7, 2002. The Form 4 was filed on
November 12, 2002.
o Larry Pulliam filed an amended Form 3 to report the ownership of
shares in a brokerage DRIP account that were not included in his
original Form 3 filed on April 10, 2002. The amended Form 3 was filed
on June 19, 2003.
exception:
| | |
| • | Bruce L Soltis inadvertently filed a late Form 4 in connection with the exercise of options on December 15, 2004. The Form 4 was filed on May 2, 2005. |
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information regarding equity compensation plans as of June 28, 2003.
July 2, 2005.
| | | | | | | | | | | | | | |
| | | | | | | Number of Securities Remaining | |
| | | Number of Securities to be | | | | | Available for Future Issuance | |
| | | Issued Upon Exercise of | | | Weighted-Average Exercise | | | Under Equity Compensation | |
| | | Outstanding Options, | | | Price of Outstanding Options, | | | Plans (Excluding Securities | |
| | | Warrants and Rights | | | Warrants and Rights | | | Reflected in Column (a)) | |
| Plan Category | | (a) | | | (b) | | | (c) | |
| | | | | | | | | | |
| Equity compensation plans approved by security holders | | | 65,743,065 | (1)(2) | | $ | 27.87 | | | | 34,608,660 | (3)(4) |
| Equity compensation plans not approved by security holders | | | -0- | | | | -0- | | | | -0- | |
| | Total | | | 65,743,065 | (1)(2) | | $ | 27.87 | | | | 34,608,660 | (3)(4) |
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE EXERCISE FUTURE ISSUANCE UNDER
PLAN CATEGORY ISSUED UPON EXERCISE OF PRICE OF OUTSTANDING EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND (EXCLUDING SECURITIES
WARRANTS AND RIGHTS RIGHTS REFLECTED IN COLUMN (A))
(A) (B) (C)
EQUITY COMPENSATION PLANS 57,766,505 | |
(1) $24.79 38,807,389 | Does not include 220,315 shares of Common Stock subject to options that were assumed in connection with our acquisition of Guest Supply, Inc. in March 2001. These options have a weighted average exercise price per share of $13.26. |
|
(2) APPROVED BY SECURITY HOLDERS
EQUITY COMPENSATION PLANS NOT -0- -0- -0-
APPROVED BY SECURITY HOLDERS
TOTAL 57,766,505 (1) $24.79 38,807,389 (2)
| Does not give effect to options to purchase approximately 4,827,500 shares of Common Stock granted in September 2005 under our 2004 Stock Option Plan at an exercise price per share of $33.01. |
|
| (3) | Includes 23,392,000 shares of Common Stock issuable pursuant to our 2004 Stock Option Plan, 135,898 shares issuable pursuant to our Non-Employee Directors Stock Plan, 4,345,650 shares issuable under our 2000 Management Incentive Plan, and 6,735,112 shares issuable pursuant to our Employees’ Stock Purchase Plan as of July 2, 2005. Does not reflect the issuance of options to purchase approximately 4,827,500 shares of Common Stock in September 2005 pursuant to our 2004 Stock Option Plan, the issuance of 617,697 shares in August 2005 pursuant to the 2000 Management Incentive Plan, or the issuance of 410,375 shares in July 2005 pursuant to the 1974 Employees’ Stock Purchase Plan. |
- ---------------------------
(1) Does not include 332,46814
| |
| (4) | As of September 13, 2005, a total of 68,821,227 options remained outstanding under all of the Company’s option plans. These options have a weighted average exercise price of $28,31 and an average remaining term of 5.22 years. If the 2005 Management Incentive Plan and 2005 Non-Employee Directors Stock Plan are approved by stockholders, no additional shares will be issued under the current management incentive plan (other than pursuant to the fiscal 2006 management incentive program) and no additional awards will be granted under the current non-employee directors stock plan. The remaining pool of available shares under the Company’s option plans includes approximately 18,564,500 shares authorized under the 2004 Stock Option Plan, and will also include 550,000 shares under the 2005 Non-Employee Directors Stock Plan, if approved by stockholders. Additionally, there will be 2,800,000 shares available for issuance under the 2005 Management Incentive Plan, if approved by stockholders, and 1,200,000 shares remaining available for issuance under the 2000 Management Incentive Plan. There are also 6,324,737 shares remaining available for issuance under the 1974 Employees Stock Purchase Plan. |
Report of common stock subject to options that were
assumed in connection with our acquisition of Guest Supply, Inc. in March 2001.
These options have a weighted average exercise price per share of $12.31. Also
does not include options to purchase approximately 13,242,846 shares of common
stock granted in September 2003 under our 2000the Compensation and Stock Incentive Plan at a
13
weighted average price per share of $31.75 and options to purchase 64,000 shares
of common stock granted in September 2003 under the Non-Employee Directors Stock
Plan at a weighted average exercise price per share of $32.30.
(2) Includes 10,067,901 shares issuable pursuant to our Employees' Stock
Purchase Plan, 335,870 shares issuable pursuant to our Non-Employee Directors
Stock Plan, 6,287,757 shares that may be issued as incentive compensation under
our 2000 Management Incentive Plan, and up to 10,000,000 shares of common stock
we purchased in the open market or in private transactions that may be issued
pursuant to our 2000 Stock Incentive Plan. Up to 11,045,825 shares may be issued
as restricted or other stock awards under the 2000 Stock Incentive Plan. Does
not reflect the issuance of options to purchase approximately 13,242,846 shares
of common stock in September 2003 pursuant to our 2000 Stock Incentive Plan, the
issuance of options to purchase 64,000 shares of common stock in September 2003
pursuant to our Non-Employee Directors Stock Plan, the issuance of 940,943
shares in August 2003 pursuant to the 2000 Management Incentive Plan or the
issuance of 456,277 shares in July 2003 pursuant to the 1974 Employees' Stock
Purchase Plan.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEEOption Committee This report documents the components of SYSCO'sSYSCO’s compensation programs for its executive officers and describes the basis on which fiscal 20032005 compensation determinations were made with respect to the executive officers of SYSCO, including Mr. Cotros,Schnieders, who served as the Chief Executive Officer during the
portion of fiscal 2003 that ended on December 31, 2002, and Mr. Schnieders, whohas served as Chief Executive Officer during the portion of fiscal 2003 that began
onsince January 1, 2003. All fiscal 20032005 compensation decisions with respect to base salaries, annual incentive compensation and option grants under stock option plans for our executive officers, including the CEO, were made by the Compensation and Stock Option Committee.
| |
| Overall Executive Compensation Philosophy |
Since SYSCO became a publicly held corporation in 1970, we have directly linked the compensation of executive officers to SYSCO'sSYSCO’s performance. Specifically, the Committee has tied the level of SYSCO'sSYSCO’s executive compensation to increases in SYSCO'sSYSCO’s earnings per share, and return on shareholders' equity.shareholders’ equity and operating company performance. We have historically accomplished this through the following means:
o A "pay-for-performance" orientation, with respect to compensation
other than base salary, based upon SYSCO performance for corporate
officers (other than senior vice presidents, foodservice operations)
and a combination of operating company and SYSCO performance for
corporate senior vice presidents, foodservice operations and operating
company senior management;
o Base salaries generally at or below the 25th percentile of the range
of base salaries payable to corporate officers of certain surveyed
industrial corporations who have job content and/or responsibilities
comparable to those of SYSCO's corporate officers;
o Potentially significant annual incentive bonuses under SYSCO's
management incentive plan;
o The issuance of stock options; and
o Customary benefits, including a supplemental executive retirement
plan.
| | |
| • | A “pay-for-performance” orientation, with respect to compensation other than base salary, based upon a combination of SYSCO performance and operating company performance for corporate officers, and operating company performance for operating company senior management; |
|
| • | A significant portion of total cash compensation is at risk, i.e., linked to Company performance; |
|
| • | Base salaries generally at or below the 25th percentile of the range of base salaries payable to corporate officers of certain surveyed industrial corporations who have job content and/or responsibilities comparable to those of SYSCO’s corporate officers; |
|
| • | Potentially significant annual incentive bonuses under SYSCO’s management incentive plan; |
|
| • | Long-term incentives primarily in the form of stock options; and |
|
| • | The addition, in fiscal 2005, of a long-term incentive cash plan for MIP participants and a supplemental bonus plan for the CEO. |
The factors and criteria upon which the determination of the fiscal
20032005 compensation of the Chief Executive Officer were based were the same as those discussed below with respect to all executive officers, except as otherwise described below with respect to
SYSCO'sSYSCO’s senior vice presidents
of foodservice
operations.
14
operations, and as described below with respect to the CEO’s supplemental bonus plan. In fiscal 2003,2005, Mr. Schnieders earned a total compensation package equal to $4,494,964.$4,786,090, exclusive of perquisites, which were valued at less than $50,000. This compensation amount included (a) salary of $800,000;$981,250; (b) base bonus of $2,184,500$2,059,050 (40% of which was paid in restricted stock, 20% of which was deferred, and 40% of which was paid in cash); (c) additional restricted matching shares valued at $436,900;$411,810; (d) additional cash of $167,114$152,246 to coverminimize the tax effect of the additional matching shares received; (e) a deferred match of $218,450;$205,905; (f) a supplemental cash bonus of $370,629; and (f) 100,000(g) 85,000 options with a Black-ScholesBlack-
15
Scholes grant date present value of $688,000.$605,200. Further information regarding these components is included below as well as in the tables that follow.
follow this report.
We have established base salaries of our executive officers in the range of compensation payable to executive officers of U.S. industrial corporations without reference to specific SYSCO performance criteria. We reexamine this range of compensation from time to time through a survey of compensation practices by an independent compensation consultant across a broad cross-section of U.S. industrial corporations. The survey sample does not necessarily include those companies in the peer group included in the performance graph on page 2528 due to the differing size, management responsibilities and organizational structures of those corporations relative to SYSCO. We last reviewed base salaries for the executive officers on November 8, 2002,May 12, 2005, and increases were made adjustments in
compensation effective JanuaryJune 1, 2003.2005. At that time, Mr. Schnieders'Schnieders’ annual base salary was increased approximately 13%7.7% from $750,000$975,000 to $850,000 in
anticipation of his promotion to CEO. Mr. Cotros' annual base salary was not
changed subsequent to January 1, 2002 and remained at $1,000,000 until his
retirement.$1,050,000. It has been our consistent practice to maintain the Chief Executive Officer'sOfficer’s base salary at or below the 25th percentile of the range of base salaries payable to chief executive officers of the surveyed industrial corporations who have chief executive officers with job content and/or responsibilities comparable to those of SYSCO'sSYSCO’s Chief Executive Officer.
Annual Incentive Compensation
| |
| Management Incentive Bonus |
SYSCO provides annual incentive compensation to all executive officers through the SYSCO Corporation Management Incentive Plan (the "MIP"“MIP”). The current MIP was approved by stockholders in November 2000. A new Management Incentive Plan is being presented to stockholders for their approval at the 2005 Annual Meeting. If approved, the new proposed plan would be effective for fiscal year 2007 bonuses. A description of the new proposed plan begins on page 31. Participants in the MIP include all of SYSCO'sSYSCO’s corporate officers, including the executive officers, and senior management, generally the presidents and executive vice presidents, of SYSCO'sSYSCO’s operating companies. The MIP is designed to offer opportunities for compensation that is tied directly to our performance. In addition, the MIP is designed to foster significant equity ownership in SYSCO by the executive officers and all other participants in the MIP. MIP bonuses earned during the fiscal year are paid during the first quarter of the following fiscal year.
For executive officers other than senior vice presidents of foodservice operations, incentive bonuses earned in fiscal 20032005 and paid in fiscal 20042006 were calculated under the MIP in two parts. The first part was based on the overall performance of SYSCO and was based upon the interplay between the
percentage increase in earnings per share and the return on shareholders'shareholders’ equity. The MIP utilized a matrix based on these two factors to determine award levels, resulting in an award of 161%100.1% of base salary to each executive officer participating in this portion of the MIP. The second portion of the fiscal 20032005 incentive bonus under the MIP for executive officers was based upon the number of SYSCO operating companies that achieved a target return on capital. This portion of the incentive bonus is paid only when the operating companies achieving the goals, in the aggregate, represent at least 50% of the total capital of all of SYSCO'sSYSCO’s operating companies, which was the case during fiscal 2003,2005, resulting in an award of 96%96.0% of base salary to each executive officer participating in this portion of the MIP.
For senior vice presidents of foodservice operations, a portion of their bonus was based upon the two-part calculation set forth above and a portion was based upon the aggregate financial results of those operating subsidiaries or divisions for which they were responsible, considered as one company. This portion is based upon the interplay between the aggregate percentage increase in pretax earnings
and operating pretax earnings of their supervised operations and the aggregate return on
15
capital of their supervised operations, adjusted in certain instances for operating companies that are involved in SYSCO'sSYSCO’s facility expansion ("fold-out"(“fold-out”) program. For fiscal 2003,2005, Mr. Schnieders earned a total base bonus of $2,184,500.$2,059,050 under the MIP. Of this amount, $1,368,500$1,051,050 was based on earnings per share and return on shareholders'shareholders’ equity, and $816,000$1,008,000 was based on the number of operating companies achieving a target return on capital.
16
| |
| Supplemental Performance Based Bonus Plan and Agreement |
In February 2005, the Company and Mr. Cotros was not eligibleSchnieders entered into a Supplemental Performance Based Bonus Agreement under the Supplemental Performance Based Bonus Plan approved by the Committee in November 2004. Pursuant to receive an MIPthis agreement, Mr. Schnieders’ bonus for fiscal 2003, but,2005 was subject to increase or decrease by up to 25% depending upon whether he exceeded or failed to meet certain pre-established performance criteria in connectionthe areas of long-term strategy, financial performance, corporate governance, human capital and risk management/ mitigation. Supplemental bonus amounts paid under this plan do not qualify as “performance based compensation” under Section 162(m) of the Code. In approving the plan, the Committee concluded that the importance of aligning a portion of Mr. Schnieders’ 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 Mr. Schnieders’ bonus payments, outweighed the potential cost to the Company that could result from the non-deductibility of any compensation paid under such plan.
In August 2005, the Committee determined that Mr. Schnieders’ overall performance in these areas for fiscal 2005 exceeded expectations and they set the level of his retirement, he
received a cash paymentsupplemental bonus at 18% of $1,341,060 for his continuing servicebase bonus as chief
executive officer duringcalculated under the first six monthsMIP. The amount of the supplemental bonus earned by Mr. Schnieders in fiscal 2003.
Stock Election2005 and Matching Grant
In order to encourage significant equity ownershippaid in SYSCO by its
executive officers, thefiscal 2006 was $370,629.
| |
| Stock Election and Matching Grant |
The current MIP provides that participants may voluntarily elect to receive up to 40% of their annual incentive bonus in the form of SYSCO common
stock,Common Stock, based on a per-share price equal to the closing price on the New York Stock Exchange of SYSCO common stockCommon Stock on the last trading day of the fiscal year for which the MIP bonus is calculated. If such election is made, the participant is awarded additional matching shares on the basis of one additional share for each two shares received in accordance with the foregoing calculation.
Participantselection.
Under the current MIP, participants who elect to receive a portion of their bonus in common stockCommon Stock in lieu of cash and receive additional matching shares are entitled to receive additional cash equal to the product of:
o
| | |
| • | the value of such matching shares received by the participant (based on the closing price of such shares on the last trading day of the fiscal year), and |
|
| • | the effective tax rate applicable to SYSCO. |
Restricted shares
received by the participant (based
on the closing price of such shares on the last trading day of the
fiscal year), and
o the effective tax rate applicable to SYSCO.
Mr. Schnieders elected to receive 40% of his fiscal 2003 base bonus in
SYSCO common stock. In connection with this election, Mr. Schnieders received
29,570 shares valued at $873,794 in lieu of cash and a matching grant of 14,785
shares valued at $436,900. He also received a cash payment of $167,114 to offset
the tax effect of the matching grant.
Deferred Compensation Election
MIP participants may defer up to 40% of their annual incentive bonus
(without considering any election to receive a portion of the bonus in stock)issued under the
Executive Deferred Compensation Plan ("EDCP").current MIP
participants may
also elect to defer all or a portion of their salary under the EDCP. Amounts
deferred under the EDCP are generally payable upon death, disability, retirement
or termination pursuant to distribution elections made under the EDCP. Subject
to certain limitations contained in the EDCP, participants may elect to withdraw
their vested deferred account balances, less a 10% penalty, prior to a regular
distribution event.
For deferrals of up to 20% of the annual incentive bonus, the EDCP provides
for SYSCO to credit the participant's deferred compensation account in an amount
equal to 50% of the amount deferred. This matching payment vests upon the
earliest to occur of:
o the 10th anniversary of the date the matching payment is made;
o the participant's reaching age 60;
o the death or permanent disability of the participant; or
o a change in control of SYSCO.
16
Mr. Schnieders deferred 20% of his fiscal 2003 base bonus ($436,900) and
received a matching payment of $218,450.
Stock Option Plan
The Committee administers the 2000 Stock Incentive Plan. In general, it is
the practice of the Committee to consider issuing options under the plan only
when participants in the MIP are entitled to receive an annual incentive bonus.
In other words, option grants generally are considered only in years when SYSCO
achieves certain earnings per share and return on shareholders' equity targets.
It is the current intention of the Committee to continue this practice, although
it is not required by the terms of the plan. The Committee has not historically
considered the current number of outstanding options held by an individual when
making its grant decisions. Although the plan authorizes the grant of a variety
of awards such as restricted shares and stock appreciation rights, no awards
other than stock options have been granted under the plan to date.
During fiscal 2003, SYSCO granted options to purchase an aggregate of
13,650,211 shares of its common stock to approximately 4,265 employees,
including Charles Cotros and the 16 executive officers named on page 11, under
the 2000 Stock Incentive Plan. Of the total options granted in fiscal 2003, an
aggregate of 942,000 options were granted to executive officers at a weighted
average exercise price of $30.57 per share. The options granted to executive
officers in fiscal 2003 vest 20% per year at the end of each fiscal year ending
after the date of grant. Also included in the total number of options granted in
fiscal 2003 are options to purchase an aggregate of 2,311,000 shares granted to
2,267 non-executive employees based on years of service. These options vest
ratably over a five-year period and have a ten-year term. The plan provides that
in the event of a change in control, all outstanding options would vest and
become fully exercisable.
During fiscal 2003, Mr. Cotros and Mr. Schnieders each received option
grants to purchase 100,000 shares at an exercise price of $30.57 per share.
These options each have a Black-Scholes grant date present value of $688,000.
Other Benefits
Executive officers also participate in SYSCO's regular employee benefit
programs, which include a pension plan, a retirement savings plan, group medical
and dental coverage, group life insurance and other group benefit plans. Further
details with respect to SYSCO's qualified pension plan are provided on page 23
and 24.
In addition, MIP participants are provided with a Supplemental Executive
Retirement Plan (the "SERP") which is designed, generally, to provide annual
payments equal to 50% of a qualified participant's final average annual
compensation, in combination with all SYSCO and other qualified retirement plan
benefits and social security payments available to the participant upon
retirement. In the event of a change in control prior to a regular distribution
event, accrued SERP benefits will become fully vested and participants may elect
to receive such benefits in a lump sum less a 10% penalty.
Lastly, MIP participants are eligible to participate in the Equity Deferral
Plan ("EDP") pursuant to which the gain on the exercise of certain non-qualified
stock options may be deferred. Amounts deferred under the EDP are vested at all
times and are paid out in shares of SYSCO stock upon such participant's death,
disability, retirement or termination pursuant to distribution elections made
under the EDP. In the event of a change in control prior to a regular
distribution event, a participant may elect to receive his or her equity
deferral account balance in a lump sum less a 10% penalty.
17
Split-Dollar Life Insurance Plan
In September 1999, the Committee designated Mr. Cotros as a participant
under a split-dollar life insurance plan adopted in February 1999. This
split-dollar plan arrangement was provided in lieu of certain accrued and future
benefits under the EDCP and the SERP. Prior to fiscal 2003, SYSCO paid premiums
on the life insurance policies purchased for the benefit of Mr. Cotros pursuant
to the split-dollar life insurance arrangement and retained a collateral
interest in those policies equal to the amount of premiums paid by SYSCO. The
present value cost of the life insurance purchased under the split-dollar life
insurance arrangement by SYSCO did not exceed the net present value of the
projected after tax cost of the benefits waived under the Executive Deferred
Compensation Plan and SERP. In January 2003, the split-dollar arrangement with
Mr. Cotros was terminated and the benefits previously waived thereunder were
reinstated in full. In connection with the termination of his split-dollar
agreement, Mr. Cotros reimbursed the Company for the cost of prior premiums paid
less the cash surrender value of the life insurance policies.
Income Deduction Limitations
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally sets a limit of $1 million on the amount of compensation
(other than certain "performance-based" compensation that complies with the
requirements of Section 162(m)) that SYSCO can deduct for federal income tax
purposes in any given year with respect to the compensation of each of the Named
Executive Officers. The Board and the Committee have determined, after reviewing
the effect of Section 162(m), that our policy will be to structure the
performance-based compensation arrangements for such Named Executive Officers to
satisfy Section 162(m)'s conditions for deductibility, to the extent feasible
and taking into account all relevant considerations.
COMPENSATION AND STOCK OPTION COMMITTEE
Richard G. Merrill, Chairman
Phyllis S. Sewell
Richard G. Tilghman
Jackie M. Ward
18
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to each person who
served as Chief Executive Officer during the fiscal year ended June 28, 2003 and
the other four most highly compensated executive officers of SYSCO and its
subsidiaries employed at the end of fiscal 2003 whose total annual salary and
bonus exceeded $100,000 for the fiscal year ended June 28, 2003 (the "Named
Executive Officers"):
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($)(1)(3) (#)(4) ($)(5)
- --------------------------- ---- --- ------ ------------ --------- ------ ------------
Charles H. Cotros *................ 2003 $500,000 $1,341,060 -- -- 100,000 $74,074
2002 960,000 1,508,596 -- $1,337,999 115,000 864,665
2001 885,000 1,515,500 -- 1,344,115 34,000 732,328
Richard J. Schnieders *............. 2003 $800,000 $1,477,824 -- $1,310,690 100,000 $295,605
Chairman and Chief Executive 2002 705,000 1,131,453 -- 1,003,493 115,000 210,531
Officer 2001 630,000 1,087,204 -- 964,259 34,000 173,957
Thomas E. Lankford ................. 2003 $562,500 $1,043,182 -- $925,181 75,000 $226,965
President and Chief Operating 2002 500,000 792,023 -- 702,439 90,000 160,386
Officer 2001 450,000 782,478 -- 693,954 28,000 130,371
John K. Stubblefield, Jr. .......... 2003 $497,500 $904,076 -- $801,839 75,000 $211,337
Executive Vice President, Finance 2002 450,000 716,600 -- 635,533 90,000 150,846
and Administration 2001 400,000 700,097 -- 620,921 28,000 119,241
Larry J. Accardi ................... 2003 $487,500 $869,314 -- $770,989 75,000 $156,696
Executive Vice President, 2002 450,000 716,600 -- 635,533 90,000 119,540
Merchandising Services and 2001 400,000 700,097 -- 620,921 28,000 106,494
Multi-Unit Sales and President,
Specialty Distribution
Kenneth F. Spitler ................. 2003 $475,000 $869,314 -- $770,989 75,000 $175,242
Executive Vice President, 2002 400,000 541,395 -- 480,134 65,000 107,868
Foodservice Operations 2001 357,500 561,019 -- 497,551 24,000 89,081
______________
* Mr. Cotros retired as Chairman and Chief Executive Officer on December 31,
2002. Mr. Schnieders became Chairman and Chief Executive Officer on January 1,
2003.
(1) The amount reported in the "Bonus" column for Mr. Cotros in 2003 relates to
a payment made upon his retirement for his performance during the first six
months of the fiscal year. This payment was not made pursuant to the
Management Incentive Plan. All other amounts reported in the Bonus column
relate to bonuses under the Management Incentive Plan.
Pursuant to the Management Incentive Plan and Executive Deferred
Compensation Plan, each of the Named Executive Officers is eligible to
voluntarily elect to receive up to 40% of his bonus in restricted stock and
to defer up to 40% (calculated prior to any election to receive stock).
These elections, if made, entitle the participant to receive additional
stock and cash pursuant to the match features of these plans as follows:
(a) one additional share for each two shares elected to be received in lieu
of cash, (b) additional cash to offset the tax effect of matching shares
received in lieu of cash, and (c), for deferrals of up to 20%, a credit to
19
the participant's deferred compensation account in an amount equal to 50%
of the amount deferred. Bonuses earned for the fiscal year are paid the
following year, other than amounts deferred. The terms of these plans are
described in more detail in the Report of the Compensation and Stock Option
Committee beginning on page 14.
The amounts reported in the "Bonus" column include amounts paid in cash and
amounts deferred by each of the Named Executive Officers. The "Bonus"
column also includes cash received for the tax effect of any additional
shares received pursuant to the match feature of the Management Incentive
Plan. The cash and deferred portions of the bonus earned by each Named
Executive Officer (other than Mr. Cotros) in fiscal 2003 are set forth
below:
- --------------- -------------------------- --------------- ------------------ ------------------------
Name Cash Portion of Base Cash Tax Deferred Amount Bonus Column Amount
Bonus Effect
- --------------- -------------------------- --------------- ------------------ ------------------------
Schnieders $873,810 $167,114 $436,900 $1,477,824
- --------------- -------------------------- --------------- ------------------ ------------------------
Lankford 308,419 117,963 616,800 1,043,182
- --------------- -------------------------- --------------- ------------------ ------------------------
Stubblefield 267,281 102,235 534,560 904,076
- --------------- -------------------------- --------------- ------------------ ------------------------
Accardi 514,011 98,303 257,000 869,314
- --------------- -------------------------- --------------- ------------------ ------------------------
Spitler 514,011 98,303 257,000 869,314
- --------------- -------------------------- --------------- ------------------ ------------------------
The value of any shares elected to be received in lieu of cash and any
matching shares is included in the Restricted Stock Award column and
additional information about such shares is included in footnote 3 below.
Any amounts credited pursuant to the deferred match feature of the EDCP are
included in the "All Other Compensation" column and described in footnote 5
below.
(2) Does not include perquisites and other personal benefits because they did
not exceed for any individual $50,000 in the aggregate.
(3) Each of the Named Executive Officers elected to receive a portion of his
bonus in shares of restricted common stock pursuant to the Management
Incentive Plan. Pursuant to the Management Incentive Plan, the Company made
a matching grant of one additional share for each two shares received
pursuant to such election. The number of elected shares and matched shares
is set forth below. The amount presented is determined by multiplying the
number of shares earned during the fiscal year by the closing price of our
common stock on the New York Stock Exchange on the last trading day of the
applicable fiscal year.
The number of restricted shares earned by the Named Executive Officers in
fiscal 2003 and issued in fiscal 2004 was as follows:
o Mr. Cotros - none;
o Mr. Schnieders - 44,355 shares (29,570 elected shares and 14,785 match
shares);
o Mr. Lankford - 31,309 shares (20,872 elected shares and 10,437 match
shares);
o Mr. Stubblefield - 27,135 shares (18,090 elected shares and 9,045
match shares);
o Mr. Accardi - 26,091 shares (17,394 elected shares and 8,697 match
shares); and
o Mr. Spitler - 26,091 shares (17,394 elected shares and 8,697 match
shares).
The aggregate number and dollar amount (computed using the closing price of
our common stock on June 27, 2003 ($29.55)) of all restricted shares held
as of the last day of fiscal 2003 by the Named Executive Officers were as
follows:
o Mr. Cotros - none (restrictions lapsed upon retirement);
o Mr. Schnieders - 72,382 shares at $2,138,888;
o Mr. Lankford - 51,366 shares at $1,517,865;
o Mr. Stubblefield - 46,218 shares at $1,365,742;
20
o Mr. Accardi - 46,218 shares at $1,365,742; and
o Mr. Spitler - 35,965 shares at $1,062,766.
The restricted shares are not transferable by the recipient for two years following receipt and are subject to certain repurchase rights on the part of SYSCO in the event of termination of employment other than by normal retirement or disability. Mr. Schnieders elected to receive 40% of his fiscal 2005 base bonus in SYSCO Common Stock. In connection with this election, Mr. Schnieders received 22,720 shares valued at $823,600 in lieu of cash and a matching grant of 11,360 shares valued at $411,800. He also received a cash payment of $152,246 to minimize the tax effect of the matching grant.
Under the new proposed plan, participants will receive an automatic 28% stock match and will no longer be able to elect to receive a portion of their bonus in SYSCO Common Stock. No tax minimization payments will be made under the new proposed plan.
| |
| Deferred Compensation Election |
MIP participants may defer up to 40% of their annual incentive bonus (without considering any election to receive a portion of the bonus in stock) under the current Executive Deferred Compensation Plan (“EDCP”). MIP participants may also elect to defer all or a portion of their salary under the EDCP. MIP participants who defer may choose from a variety of investment options, including Moody’s Average Corporate Bond Yield plus 1%, with respect to amounts deferred. Amounts deferred under the EDCP are
17
generally payable upon death, disability, retirement or termination of employment pursuant to distribution elections made under the EDCP.
For deferrals of up to 20% of the annual incentive bonus, the EDCP currently provides for SYSCO to credit the participant’s deferred compensation account in an amount equal to 50% of the amount deferred. This matching credit and cumulative earnings, which accrue interest at a rate equal to Moody’s Average Corporate Bond Yield plus 1%, vest upon the earliest to occur of:
| | |
| • | the 10th anniversary of the date the matching payment is credited to the participant’s account; |
|
| • | the participant’s reaching age 60; |
|
| • | the death or permanent disability of the participant; or |
|
| • | a change in control of SYSCO. |
Mr. Schnieders deferred 20% of his fiscal 2005 base bonus ($411,810) and received a matching deferred compensation account credit of $205,905.
It has been the general practice of the Committee to consider issuing options on a performance basis; that is, only in years when participants in the MIP have earned a bonus under the MIP. It is the current intention of the Committee to continue this practice, although it is not required by the terms of the stock option plan. The recipient receives dividendsCommittee has not historically considered the current number of outstanding options held by an individual when making its grant decisions.
2000 Stock Incentive Plan. The 2000 Stock Incentive Plan was replaced by the 2004 Stock Option Plan in November 2004. Although the 2000 plan authorized the grant of a variety of awards such as restricted shares and stock appreciation rights, no awards other than stock options were granted under the plan. All outstanding options under the 2000 plan will vest and become fully exercisable in the event of a change of control.
In September 2004, a total of 8,515,000 options were granted to approximately 4,500 employees, including the executive officers, under the 2000 Stock Incentive Plan. Of the total options granted, an aggregate of 481,000 options were granted to the executive officers listed on page 12. Options granted to the five Named Executive Officers represented approximately 3% of all options granted. All of the options granted in September 2004 have an exercise price of $32.19, a seven-year term and, except for options granted to first-time MIP participants, vest ratably over a five-year period. Options granted to first-time MIP participants vest ratably over a three-year period. As of November 2004, there were no additional options or other securities available for grant under the 2000 Stock Incentive Plan.
2004 Stock Option Plan. The 2004 plan was approved by stockholders and became effective in November 2004. The Committee administers the 2004 plan which provides for the grant of stock options only; restricted stock is not authorized to be issued under the 2004 plan. The 2004 plan limits the number of shares that may be issued in any given year to 1.5% of common shares outstanding on the shares
duringfirst day of the two-year restricted period.
(4) Information regardingfiscal year in which grants are made. The 2004 plan also limits the number of options that may be granted to any named executive officer in any given year to 200,000. The 2004 plan prohibits repricing, discounted stock options, reload stock options and material changes without stockholder approval. Options will have a maximum term of seven years and will be subject to a minimum ratable vesting period of three years. Shares which are cancelled or forfeited from prior plans will not be again available for grant under the Plan. In the event of a change of control, the 2004 plan provides that all outstanding options would vest and become fully exercisable.
In May 2005, the Committee granted a total of 108,000 options under the 2004 plan to 20 key operating company employees. These options have a weighted average exercise price of $37.06, vest ratably over a five-year period on the anniversary of the date of grant and have a seven-year term. In September 2005, approximately 4,827,500 options were granted to approximately 1,200 employees, including the executive officers, under the 2004 plan. Of the total options granted in September 2005, an aggregate of 876,000 options
18
were granted to the executive officers listed on page 12. Options granted to the Named Executive Officers (other than Mr. Lankford who did not receive any options in fiscal 2003, includingSeptember 2005) represented approximately 7% of all options granted. All of the options granted in September 2005 have an exercise price of $33.01, a seven-year term and, except for options granted to first-time MIP participants, vest ratably over a five-year period. Options granted to first-time MIP participants vest ratably over a three-year period. As of September 13, 2005, there were approximately 18,564,500 shares remaining available for grant under the 2004 Stock Option Plan.
In September 2004 (fiscal 2005), Mr. Schnieders received an option grant under the 2000 plan to purchase 85,000 shares at an exercise price of $32.19 per share. These options have a Black-Scholes grant date present value of $605,200. In September 2005 (fiscal 2006), he received a grant under the 2004 plan to purchase 140,000 shares at an exercise price of $33.01 per share. These options have a Black-Scholes grant date present value of $1,079,400.
| |
| Long-Term Incentive Cash Plan |
In September 2004, the Committee recommended and the Board approved the SYSCO Corporation 2004 Long-Term Incentive Cash Plan (the “LTICP”) pursuant to which the executive officers and other key employees have the opportunity to receive cash incentive payments based on a performance measurement period of at least three years. At the beginning of each performance period, participants may be granted a number of performance units, the value of which is included belowestablished at that time by the Committee. A participant’s cash incentive payments under "Stock Option Grants."
(5) The amounts reported in the "All Other Compensation" column includeLTICP are based on the following:
o a SYSCO match equalnumber of performance units granted to 50% of the first 20% ofparticipant, the annual incentive
bonus which each individual elected to defer under our Executive
Deferred Compensation Plan;
o the amount we paid for term life insurance coverage for each
individual;
o the actuarially-calculated value of the benefitparticipant’s performance units, and a percentage (established by the Committee) that correlates to the level of premiums we paidperformance that is achieved under performance criteria set by the Committee. The Committee believes that the design of the LTICP focuses the Company’s executive officers and other key employees on split-dollar life insurance policiesSYSCO’s long-term financial success. The LTICP also reduces the use of option grants and their dilutive effect.
The performance criteria set by the Committee for Mr. Cotros (see page 18the three-year period ending June 30, 2007 are based on the participant’s supervised operations with respect to the following: (i) for operating company participants, the average increase in the supervised operations’ operating pre-tax earnings over the performance period, and (ii) for corporate participants, the average increase in SYSCO’s net after-tax earnings per share over the performance period. The performance criteria set by the Committee for the three-year period ending June 28, 2008 are based on the participant’s supervised operations with respect to the following: (i) for operating company participants, the average increase in the supervised operations’ operating pre-tax earnings and sales growth (sales are adjusted for inflation and deflation) over the performance period, and (ii) for corporate participants, the average increase in SYSCO’s net after-tax earnings per share and sales growth (sales are adjusted for inflation and deflation) over the performance period.
In September 2004 (fiscal 2005), the Committee approved grants of performance units under the Plan that could result in a discussion of SYSCO's split-dollar life insurance arrangements);
o the amount we paid for 401(k) Plan matching contributions during the
fiscal year; and
o above-market interest on deferred compensation account balances as ofmaximum aggregate payout after the end of eachthe three-year performance period that includes fiscal year (above-market interestyears 2005 through 2007 of $23,454,375. Mr. Schnieders’ grant with respect to the 2005 through 2007 performance period has a maximum potential value of $4,147,500.
In September 2005 (fiscal 2006), the Committee approved grants of performance units under the Plan that could result in a maximum aggregate payout after the end of the three-year performance period that includes fiscal years 2006 through 2008 of $24,808,875. Mr. Schnieders’ grant with respect to the 2006 through 2008 performance period has a maximum potential value of $5,880,000.
Executive officers also participate in SYSCO’s regular employee benefit programs, which include a pension plan, a 401(k) plan, group medical and dental coverage, group life insurance and other group benefit plans. Executive officers are also provided with additional life insurance benefits, as well as long-term disability coverage. Further details with respect to SYSCO’s tax-qualified pension plan are provided on pages 26 and 27.
19
In addition, MIP participants are provided with a Supplemental Executive Retirement Plan (the “SERP”) which is currently designed, generally, to provide post-retirement annual payments equal to 50%, subject to certain years of service and age requirements, of a qualified participant’s final average annual compensation, in combination with all SYSCO and other employer-provided qualified retirement plan benefits and Social Security payments.
MIP participants, including the executive officers, are encouraged to have their spouses accompany them at dinners and other functions in connection with certain business meetings and other corporate sponsored events, and SYSCO pays, either directly or by reimbursement, all expenses associated with their travel to and attendance at these business-related functions. The company owns fractional interests in private aircraft which are made available to executive officers and other employees for business use. Spouses may from time to time receive flights on these aircraft in connection with travel to a business-related function.
Executive officers, as well as many other employees who travel for business purposes, are reimbursed for their membership in travel clubs and may receive travel credits that may be used for personal travel. Officers, as well as many other employees, are provided with cell phones and PDA devices which are paid for by the Company and which are intended primarily for business use.
| |
| Stock Ownership Guidelines for Executive Officers |
The Company’s Corporate Governance Guidelines provide that after three years of service as an executive officer, such individuals are expected to continuously own a minimum number of shares equal in value to 200% of their base salary. All of the executive officers listed on page 12 who have served as executive officers for at least three years met this requirement as of September 13, 2005.
In May 2004, the Committee approved Severance Agreements for Messrs. Schnieders, Lankford, Stubblefield, Accardi and Spitler. The Severance Agreements are described on page 25.
| |
| Income Deduction Limitations |
Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), generally sets a limit of $1 million on the amount by
whichof compensation (other than certain “performance-based” compensation that complies with the raterequirements of interest on deferredSection 162(m)) 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. The Committee has determined, after reviewing the effect of Section 162(m), that our general policy will be to structure the performance-based compensation arrangements (other than the Supplemental Performance-Based Bonus Plan) for such Named Executive Officers to satisfy Section 162(m)’s conditions for deductibility, to the extent feasible and taking into account balancesall relevant considerations. However, the Committee also believes that the Company needs flexibility to meet its incentive and retention objectives, even if the Company may not deduct all of the compensation paid to the Named Executive Officers.
| |
| COMPENSATION AND STOCK OPTION
COMMITTEE |
|
| Colin G. Campbell |
| Richard G. Merrill, Chairman |
| Phyllis S. Sewell |
| Richard G. Tilghman |
| Jackie M. Ward |
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information with respect to the Chief Executive Officer and the other four most highly compensated executive officers of SYSCO and its subsidiaries employed at the end of fiscal 2005 whose total annual salary and bonus exceeded $100,000 for the fiscal year exceeds 120% of the applicable federal long-term rate
on a compounded basis)ended July 2, 2005 (the “Named Executive Officers”):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Long-Term Compensation | | | |
| | | | | Annual Compensation | | | | | | |
| | | | | | | | Restricted | | | Securities | | | |
| | | | | | | Other Annual | | | Stock | | | Underlying | | | All Other | |
| Name And Principal | | Fiscal | | | | | Bonus($) | | | Compensation($) | | | Awards($) | | | Options(#) | | | Compensation($) | |
| Position | | Year | | | Salary($) | | | (1) | | | (2) | | | (1)(3) | | | (4) | | | (6) | |
| | | | | | | | | | | | | | | | | | | | | | |
| Richard J. Schnieders | | | 2005 | | | $ | 981,250 | | | $ | 1,758,335 | | | | — | | | $ | 1,235,400 | | | | 85,000 | | | $ | 270,784 | |
| | Chairman, Chief Executive | | | 2004 | | | | 912,500 | | | | 1,887,835 | | | | — | | | | 1,673,080 | | | | 90,000 | | | | 370,544 | |
| | Officer and President | | | 2003 | | | | 800,000 | | | | 1,477,824 | | | | — | | | | 1,310,690 | | | | 100,000 | | | | 289,977 | |
| Thomas E. Lankford(5) | | | 2005 | | | $ | 2,227,083 | | | $ | 4,775,519 | | | | — | | | $ | 882,434 | | | | 74,000 | | | $ | 1,127,094 | |
| | | | | 2004 | | | | 662,500 | | | | 1,403,760 | | | | — | | | | 1,244,100 | | | | 90,000 | | | | 297,391 | |
| | | | | 2003 | | | | 562,500 | | | | 1,043,182 | | | | — | | | | 925,181 | | | | 75,000 | | | | 221,699 | |
| John K. Stubblefield, Jr. | | | 2005 | | | $ | 547,083 | | | $ | 753,311 | | | | — | | | $ | 670,661 | | | | 40,000 | | | $ | 175,388 | |
| | Executive Vice President, | | | 2004 | | | | 532,500 | | | | 1,055,245 | | | | — | | | | 935,215 | | | | 70,000 | | | | 246,735 | |
| | Finance and Chief | | | 2003 | | | | 497,500 | | | | 904,076 | | | | — | | | | 801,839 | | | | 75,000 | | | | 205,796 | |
| | Financial Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Larry J. Accardi | | | 2005 | | | $ | 526,250 | | | $ | 713,672 | | | | — | | | $ | 635,354 | | | | 40,000 | | | $ | 133,710 | |
| | Executive Vice President, | | | 2004 | | | | 512,500 | | | | 1,016,548 | | | | — | | | | 900,868 | | | | 70,000 | | | | 186,881 | |
| | Contract Sales and | | | 2003 | | | | 487,500 | | | | 869,314 | | | | — | | | | 770,989 | | | | 75,000 | | | | 154,562 | |
| | President, Specialty | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Distribution Companies | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Kenneth F. Spitler | | | 2005 | | | $ | 526,250 | | | $ | 713,672 | | | | — | | | $ | 635,354 | | | | 40,000 | | | $ | 148,938 | |
| | Executive Vice President; | | | 2004 | | | | 512,500 | | | | 1,016,548 | | | | — | | | | 900,868 | | | | 70,000 | | | | 204,776 | |
| | President of North | | | 2003 | | | | 475,000 | | | | 869,314 | | | | — | | | | 770,989 | | | | 75,000 | | | | 172,094 | |
| | American Foodservice Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| (1) | Pursuant to the current Management Incentive Plan and Executive Deferred Compensation Plan, each of the Named Executive Officers is eligible to voluntarily elect to receive up to 40% of his bonus in restricted stock and to defer up to 40% (calculated prior to any election to receive stock).
- ----------------- ---------- ------------ ----------- --------------- --------------- --------------- ---------------
FISCAL DEFERRED TERM LIFE SPLIT 401(K) ABOVE-MARKET ALL OTHER
NAME YEAR MATCH INSURANCE DOLLAR CONTRIBUTIONS INTEREST COMPENSATION
TOTAL
- ----------------- ---------- ------------ ----------- --------------- --------------- --------------- ---------------
Cotros 2003 n/These elections, if made, entitle the participant to receive additional stock and cash pursuant to the match features of these plans as follows: (a) one additional share for each two shares elected to be received in lieu of cash, (b) additional cash to minimize the tax effect of matching shares received in lieu of cash, and (c) for deferrals of up to 20%, a $418 n/credit to the participant’s deferred compensation account in an amount equal to 50% of the amount deferred. The terms of these plans are described in more detail in the Report of the Compensation and Stock Option Committee beginning on page 15. | | The amounts reported in the “Bonus” column include amounts paid in cash and amounts deferred by each of the Named Executive Officers, as well as supplemental bonus amounts earned by Mr. Schnieders and certain severance payments paid to Mr. Lankford (see footnote 5). The “Bonus” column also includes cash received to minimize the tax effect of any additional shares received pursuant to the match |
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| | | feature of the current Management Incentive Plan. The components of the amounts reported in the “Bonus” column for each Named Executive Officer in fiscal 2005 are set forth below: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash Portion of | | | Cash Tax | | | Deferred | | | Supplemental | | | Severance | | | Bonus Column | | | Name | | Base Bonus | | | Effect | | | Amount | | | Bonus | | | Payment(5) | | | Amount | | | | | | | | | | | | | | | | | | | | | | | Schnieders | | $ | 823,650 | | | $ | 152,246 | | | $ | 411,810 | | | $ | 370,629 | | | | — | | | $ | 1,758,335 | | | Lankford | | | 294,166 | | | | 108,747 | | | | 588,300 | | | | — | | | $ | 3,784,306 | | | | 4,775,519 | | | Stubblefield | | | 223,555 | | | | 82,648 | | | | 447,108 | | | | — | | | | — | | | | 753,311 | | | Accardi | | | 423,586 | | | | 78,298 | | | | 211,788 | | | | — | | | | — | | | | 713,672 | | | Spitler | | | 211,798 | | | | 78,298 | | | | 423,576 | | | | — | | | | — | | | | 713,672 | |
| | | The value of any shares elected to be received in lieu of cash and any matching shares is included in the “Restricted Stock Awards” column and additional information about such shares is included in footnote 3 below. Any amounts credited pursuant to the deferred match feature of the current EDCP are included in the “All Other Compensation” column and described in footnote 6 below. | | | (2) | Does not include perquisites and other personal benefits because they did not exceed for any individual $50,000 in the aggregate. See “Other Benefits” in the Report of the Compensation and Stock Option Committee. | | | (3) | Each of the Named Executive Officers elected to receive a n/portion of his bonus in shares of restricted Common Stock pursuant to the current Management Incentive Plan. Pursuant to the Management Incentive Plan, the Company made a $73,656 $74,074
2002 $223,000 731 $554,256 n/matching grant of one additional share for each two shares received pursuant to such election. The amount presented in the “Restricted Stock Awards” column is determined by multiplying the number of shares earned during the fiscal year by the closing price ($36.25) of our Common Stock on the New York Stock Exchange on the last trading day of such fiscal year. |
| | | The number of restricted shares earned by the Named Executive Officers in fiscal 2005 and issued in fiscal 2006 was as follows: |
| | | | • | Mr. Schnieders — 34,080 shares (22,720 elected shares and 11,360 match shares); | | | • | Mr. Lankford — 24,343 shares (16,229 elected shares and 8,114 match shares); | | | • | Mr. Stubblefield — 18,501 shares (12,334 elected shares and 6,167 match shares); | | | • | Mr. Accardi — 17,527 shares (11,685 elected shares and 5,842 match shares); and | | | • | Mr. Spitler — 17,527 shares (11,685 elected shares and 5,842 match shares). |
| | | The aggregate number and dollar value (computed using the closing price of our Common Stock on July 1, 2005 ($36.25)) of all restricted shares held as of the last day of fiscal 2005 by the Named Executive Officers were as follows: |
| | | | • | Mr. Schnieders — 92,432 shares at $3,350,660; | | | • | Mr. Lankford — 67,059 shares at $2,430,889; | | | • | Mr. Stubblefield — 54,009 shares at $1,957,826; | | | • | Mr. Accardi — 51,978 shares at $1,884,203; and | | | • | Mr. Spitler — 51,978 shares at $1,884,203. |
| | | The restricted shares are not transferable by the recipient for two years following receipt and are subject to certain repurchase rights on the part of SYSCO in the event of termination of employment other than by normal retirement or disability. The recipient receives dividends on the shares during the two-year restricted period. |
| | | (4) | Information regarding stock options granted to the Named Executive Officers in fiscal 2005, including the Black-Scholes grant date present value, is included below under “Stock Option Grants.” | | | (5) | Mr. Lankford resigned as President and Chief Operating Officer effective July 2, 2005. The amounts reported in the “Salary” and “Bonus” columns for fiscal 2005 include $1,500,000 and $3,784,306, |
22
| | | respectively. These severance amounts were paid on October 1, 2005 pursuant to the separation agreement entered into between the Company and Mr. Lankford in connection with his retirement. |
| | | (6) | The amounts reported in the “All Other Compensation” column include the following: |
| | | • | a 86,678 864,665
2001 224,020 1,030 485,345 n/SYSCO match equal to 50% of the first 20% of the annual incentive bonus which each individual elected to defer under our Executive Deferred Compensation Plan; | | | • | the amount we paid for term life insurance coverage for each individual; | | | • | the amount we paid for 401(k) Plan matching contributions during the fiscal year; | | | • | above-market interest credited to deferred compensation account balances as of June 30 of each fiscal year (above-market interest is the amount by which the interest actually earned on deferred account balances during the year exceeded the interest that would have been earned based on an interest rate equal to 120% of the applicable federal long-term rate as provided in Section 1274(d) of the Code on a 21,933 732,328
Schnieders 2003 218,450 835 n/a $3,750 72,570 295,605
2002 167,250 731 n/a 1,700 40,850 210,531
2001 160,710 1,030 n/a 1,700 10,517 173,957compounded basis); and | | | • | the amount paid, payable or accrued with respect to the separation agreement entered into between the Company and Mr. Lankford 2003 154,200 835 n/a 3,938 67,992 226,965
2002 117,075 696 n/a 2,550 40,065 160,386
2001 115,663 893 n/a 2,550 11,265 130,371
Stubblefield 2003 133,640 797 n/a 5,500 71,400 211,337
2002 105,925 626 n/a 5,100 39,195 150,846
2001 103,488 807 n/a 5,100 9,846 119,241
Accardi 2003 128,500 800 n/a n/a 27,396 156,696
2002 105,925 626 n/a n/a 12,989 119,540
2001 103,488 661 n/a n/a 2,345 106,494
Spitler 2003 128,500 766 n/a 5,500 40,476 175,242
2002 80,026 810 n/a 6,600 20,432 107,868
2001 82,928 882 n/a n/a 5,271 89,081
- ----------------- ---------- ------------ ----------- --------------- --------------- --------------- ---------------
in connection with his retirement (in addition to the amounts described in footnote 5 above but excluding amounts to be paid in the future under the SERP and EDCP as described on page 25). |
21
STOCK OPTION GRANTS| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | All Other | | | | | Fiscal | | | Deferred | | | Term Life | | | 401(k) | | | Above-Market | | | Severance | | | Compensation | | | Name | | Year | | | Match | | | Insurance | | | Contributions | | | Interest | | | Payments | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | Schnieders | | | 2005 | | | $ | 205,905 | | | $ | 907 | | | $ | 6,625 | | | $ | 57,347 | | | | n/a | | | $ | 270,784 | | | | | | 2004 | | | | 278,850 | | | | 871 | | | | 6,000 | | | | 84,823 | | | | n/a | | | | 370,544 | | | | | | 2003 | | | | 218,450 | | | | 835 | | | | 3,750 | | | | 66,942 | | | | n/a | | | | 289,977 | | | Lankford | | | 2005 | | | | 147,075 | | | | 907 | | | | 6,938 | | | | 58,784 | | | $ | 913,390 | | | | 1,127,094 | | | | | | 2004 | | | | 207,350 | | | | 871 | | | | 6,063 | | | | 83,107 | | | | n/a | | | | 297,391 | | | | | | 2003 | | | | 154,200 | | | | 835 | | | | 3,938 | | | | 62,726 | | | | n/a | | | | 221,699 | | | Stubblefield | | | 2005 | | | | 111,777 | | | | 907 | | | | 6,500 | | | | 56,204 | | | | n/a | | | | 175,388 | | | | | | 2004 | | | | 155,870 | | | | 868 | | | | 6,000 | | | | 83,997 | | | | n/a | | | | 246,735 | | | | | | 2003 | | | | 133,640 | | | | 797 | | | | 5,500 | | | | 65,859 | | | | n/a | | | | 205,796 | | | Accardi | | | 2005 | | | | 105,894 | | | | 907 | | | | n/a | | | | 26,909 | | | | n/a | | | | 133,710 | | | | | | 2004 | | | | 150,150 | | | | 854 | | | | n/a | | | | 35,877 | | | | n/a | | | | 186,881 | | | | | | 2003 | | | | 128,500 | | | | 800 | | | | n/a | | | | 25,262 | | | | n/a | | | | 154,562 | | | Spitler | | | 2005 | | | | 105,894 | | | | 907 | | | | 6,500 | | | | 35,637 | | | | n/a | | | | 148,938 | | | | | | 2004 | | | | 150,150 | | | | 854 | | | | 6,000 | | | | 47,772 | | | | n/a | | | | 204,776 | | | | | | 2003 | | | | 128,500 | | | | 766 | | | | 5,500 | | | | 37,328 | | | | n/a | | | | 172,094 | |
Stock Option Grants The following table provides information regarding stock option grants during the last fiscal year2005 to the Named Executive Officers. We have never granted any stock appreciation rights to executive officers under any of our
stock plans.
officers. Option Grants in Fiscal 2005 | | | | | | | | | | | | | | | | | | | | | | | | | | | Percentage of | | | | | | | | | | | | | Total Options | | | | | | | | | | | Number of Securities | | | Granted to | | | Exercise or | | | | | Grant Date | | | | | Underlying Options | | | Employees in | | | Base Price | | | Expiration | | | Present | | | Name | | Granted(#)(1) | | | Fiscal 2005 | | | ($/Share) | | | Date | | | Value($)(2) | | | | | | | | | | | | | | | | | | | | Schnieders | | | 85,000 | | | | 0.99% | | | $ | 32.19 | | | | 9/1/2011 | | | $ | 605,200 | | | Lankford | | | 74,000 | | | | 0.86% | | | | 32.19 | | | | 9/1/2011 | | | | 526,880 | | | Stubblefield | | | 40,000 | | | | 0.46% | | | | 32.19 | | | | 9/1/2011 | | | | 284,800 | | | Accardi | | | 40,000 | | | | 0.46% | | | | 32.19 | | | | 9/1/2011 | | | | 284,800 | | | Spitler | | | 40,000 | | | | 0.46% | | | | 32.19 | | | | 9/1/2011 | | | | 284,800 | |
23
OPTION GRANTS IN FISCAL 2003
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL OPTIONS GRANT
UNDERLYING GRANTED TO EXERCISE OR DATE
OPTIONS GRANTED EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME (#) | | (1) FISCAL 2003 ($/SHARE) DATE VALUE ($) | The options granted to the Named Executive Officers during fiscal 2005 vest 20% per year for five years on the anniversary date of grant. | | (2) ---- ---------------- ----------- --------- ---- ------------
Cotros............. 100,000 0.73 $30.57 09/11/2012 $688,000
Schnieders......... 100,000 0.73 30.57 09/11/2012 688,000
Lankford........... 75,000 0.55 30.57 09/11/2012 516,000
Stubblefield....... 75,000 0.55 30.57 09/11/2012 516,000
Accardi............ 75,000 0.55 30.57 09/11/2012 516,000
Spitler............ 75,000 0.55 30.57 09/11/2012 516,000
|
________________________
(1) The options granted to the Named Executive Officers during fiscal 2003 vest
20% at the end of each fiscal year beginning with the fiscal year ended
June 28, 2003.
(2) We determined the hypothetical grant date present value for the options of
$6.88 per share using a modified Black-Scholes pricing model. In applying
the model, we assumed a volatility of 25%, a 2.7% | We determined the hypothetical grant date present value for the options of $7.12 per share using a modified Black-Scholes pricing model. In applying the model, we assumed a volatility of 22%, a 3.4% risk-free rate of return, a dividend yield at the date of grant of 1.45%, and a 5-year option term. We did not assume any option exercises or risk of forfeiture during the 5-year term. Had we done so, such assumptions could have reduced the reported grant date value. The actual value, if any, an executive may realize upon exercise of options will depend on the excess of the stock price over the exercise price on the date the option is exercised. Consequently, there is no assurance that the value realized, if any, will be at or near the value estimated by the modified Black-Scholes model. |
Stock Option Exercises and a 5-year option term.
We did not assume any option exercises or risk of forfeiture during the
5-year term. If used, such assumptions could have reduced the reported
grant date value. The actual value, if any, an executive may realize upon
exercise of options will depend on the excess of the stock price over the
exercise price on the date the option is exercised. Consequently, there is
no assurance that the value realized would be at or near the value
estimated by the modified Black-Scholes model.
STOCK OPTION EXERCISES AND FISCAL YEAR-END VALUESFiscal Year-End Values
The following table provides information with respect to aggregate option exercises in the last fiscal year and fiscal year-end option values for the Named Executive Officers.
Aggregated Option Exercises in Fiscal 2005 and
Fiscal Year-End Option Values
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Number of Securities | | | Value Of Unexercised | |
| | | | | | | Underlying Unexercised | | | In-The-Money Options at | |
| | | Shares | | | | | Options at July 2, 2005(#) | | | July 2, 2005($)(2) | |
| | | Acquired on | | | Value | | | | | | | |
| Name | | Exercise(#) | | | Realized($)(1) | | | Exercisable | | | Unexercisable | | | Exercisable | | | Unexercisable | |
| | | | | | | | | | | | | | | | | | | |
| Schnieders | | | n/a | | | | n/a | | | | 275,000 | | | | 211,000 | | | $ | 3,133,602 | | | $ | 1,086,020 | |
| Lankford | | | 13,912 | | | $ | 393,744 | | | | 290,000 | | | | 185,000 | | | | 4,365,638 | | | | 942,260 | |
| Stubblefield | | | n/a | | | | n/a | | | | 276,000 | | | | 139,000 | | | | 4,209,826 | | | | 750,220 | |
| Accardi | | | 13,524 | | | $ | 366,593 | | | | 260,000 | | | | 139,000 | | | | 3,763,576 | | | | 750,220 | |
| Spitler | | | n/a | | | | n/a | | | | 230,648 | | | | 134,000 | | | | 3,477,897 | | | | 704,920 | |
AGGREGATED OPTION EXERCISES IN FISCAL 2003 AND
FISCAL YEAR-END OPTION VALUES
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE JUNE 28, 2003 (#) JUNE 28, 2003 ($) | |
| (1) | Computed based on the difference between the closing price of the Common Stock on the day of exercise and the exercise price. |
|
(2) ACQUIRED ON REALIZED ---------------------------- ------------------------------
NAME EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------ ----------- ------------- ----------- -------------
Cotros............. 6,142 $93,719 199,716 140,000 $2,000,582 $105,600
Schnieders......... -- -- 218,000 155,000 2,681,290 132,000
Lankford........... -- -- 247,000 120,000 3,761,393 105,600
Stubblefield....... -- -- 203,088 120,000 2,814,474 105,600
Accardi............ -- -- 207,200 120,000 2,936,716 105,600
Spitler............ -- -- 152,174 105,000 2,058,082 79,200
| Computed based on the difference between the closing price on July 1, 2005 and the exercise price. |
- --------------------
(1) ComputedLong Term Incentive Plan
The following table provides information regarding long-term incentive awards granted during fiscal 2005 to the Named Executive Officers under the 2004 Long-Term Incentive Cash Plan (“LTICP”).
Long-Term Incentive Plans — Awards in Last Fiscal Year
| | | | | | | | | | | | | | | | | | | | | |
| | | | | Performance or | | | Estimated Future Payouts Under Non-Stock | |
| | | Number of Shares, | | | Other Period Until | | | Price-Based Plans | |
| | | Units or Other | | | Maturation or | | | | |
| Name | | Rights(#) | | | Payout | | | Threshold($) | | | Target($) | | | Maximum($) | |
| | | | | | | | | | | | | | | | |
| Schnieders | | | 79,000 | | | | 7/4/04-6/30/07 | | | $ | 1,382,500 | | | $ | 2,765,000 | | | $ | 4,147,500 | |
| Lankford | | | 14,500 | | | | 7/4/04-6/30/07 | | | | 253,750 | | | | 507,500 | | | | 761,250 | |
| Stubblefield | | | 8,500 | | | | 7/4/04-6/30/07 | | | | 148,750 | | | | 297,500 | | | | 446,250 | |
| Accardi | | | 8,500 | | | | 7/4/04-6/30/07 | | | | 148,750 | | | | 297,500 | | | | 446,250 | |
| Spitler | | | 8,500 | | | | 7/4/04-6/30/07 | | | | 148,750 | | | | 297,500 | | | | 446,250 | |
A participant’s cash incentive payments under the LTICP are based on the difference betweennumber of performance units granted to the closing priceparticipant, the value of the common
stock onparticipant’s performance units, and a percentage (established by the dayCompensation and Stock Option Committee) that correlates to the level of exercise andperformance that is achieved
24
under performance criteria set by the exercise price.
(2) ComputedCommittee. The performance criteria set by the Committee for the Named Executive Officers for the three-year period ending June 30, 2007 are based on the difference betweenaverage increase in SYSCO’s net after-tax earnings per share over the closing price on June 27, 2003performance period.
Severance Agreements
In May 2004, the Compensation and Stock Option Committee approved, and the
exercise price.
22
RETIREMENT PLANBoard of Directors ratified, Severance Agreements for the benefit of Messrs. Schnieders, Lankford, Stubblefield, Accardi and Spitler. Termination For Cause. Under the terms of these 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 tax 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; |
25
| | |
| • | 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
with anon November 19, 2001, generally effective
dateas of January 1, 1997
to comply with
statutory
changesvarious provisions having different effective dates, as required by various laws. The amended and restated
planRetirement 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, in order to comply with various laws and regulations or other guidance published by the Internal Revenue Service and the U.S. Department of Labor, 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 JUNE 29, 2002(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 and that retirement age is 65. Pension plan benefits are not
subject to deduction by social security or any other offsets.
(2) Current law and regulations limit retirement benefits to $158,016 for
calendar 2003 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 June 28, 2003. The Pension Plan Table does not reflect
this limitation.
(1)(2)(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 equal to 50% of the
participant's final average annual compensation, in combination with all
SYSCO and other qualified retirement plan benefits and social security
payments available to the participant upon retirement.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 and 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 for benefit calculation purposes is limited by law to $200,000
for calendar 2003 and later years subject to statutory increases and
cost-of-living adjustments in future years. Pay 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“All Other Compensation"Compensation” column, are utilized to compute career average compensation, subject to the paycompensation limitations noted in footnote (4).
26
The Retirement Plan provides for an annual benefit payable monthly for five years certain and life thereafter, equal to:
o the normal retirement benefit which accrued under the prior plan as of
July 2, 1989, plus
o an amount equal to 1 1/2% of the participant's aggregate career
| | |
| • | 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'sparticipant’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,
the commencement ofif earlier, after becoming eligible for a benefit
if earlier,that has not commenced, and if the participant has five or more years of credited service, a death benefit is payable
in an amount equalmonthly 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.
23
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 havehad accrued the following annual benefits and credited benefit service under the Retirement Plan as of June 28, 2003:
o Mr. Cotros - $96,762 and 26.42 years (asJuly 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
December 31, 2002);
o Mr. Schnieders - $46,201 and 21 years;
o Mr. Lankford - $48,789 and 22 years;
o Mr. Stubblefield - $34,447 and 14 years;
o Mr. Accardi - $49,838 and 27 years; and
o Mr. Spitler - $40,357 and 16 years.
TheJuly 2, 2005, the Named Executive Officers also
havehad anticipated future service to age 65 as follows:
o Mr. Cotros - Mr. Cotros retired as of December 31, 2002 at age 65;
o Mr. Schnieders - 10 years;
o Mr. Lankford - 9 years;
o Mr. Stubblefield - 8 years;
o Mr. Accardi - 10 years; and
o Mr. Spitler - 11 years.
24
STOCK PERFORMANCE GRAPH | | |
| • | 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. |
27
Stock Performance Graph
The following stock performance graph compares the performance of SYSCO's
common stockSYSCO’s Common Stock to the S&P 500 Index and to a peer group for SYSCO'sSYSCO’s last five fiscal years. The members of the peer group are Fleming Companies, Inc., 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 business of distributing grocery products to retail supermarkets. We consider the peer group to be a more representative peer group than the "S“S&P Consumer Staples (Food Distributors)"” index maintained by Standard & Poor'sPoor’s Corporation that consists of SYSCO and Supervalu, Inc. because itthe peer group includes an additional foodservice distributor and represents a broader index.
The returns of each member of the peer group are weighted according to each
member'smember’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,Common Stock, the S&P 500 Index, and the peer group was $100 on the last trading day of fiscal
1998,2000, 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.
FIVE YEAR PERFORMANCE GRAPH
[GRAPH OMITTED]
- -------------------------------------------------------------------------------------------------------------
COMPANY NAME/INDEX JUNE 26, 1998 JULY 2, 1999 JUNE 30, 2000 JUNE 29, 2001 JUNE 28, 2002 JUNE 27, 2003
- -------------------------------------------------------------------------------------------------------------
SYSCO 100.00 122.76 169.73 221.15 224.31 247.03
- -------------------------------------------------------------------------------------------------------------
S&P 500 INDEX 100.00 122.76 131.66 112.13 91.96 92.19
- -------------------------------------------------------------------------------------------------------------
PEER GROUP 100.00 107.40 91.92 126.46 137.76 115.77
- -------------------------------------------------------------------------------------------------------------
25
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 | |
28
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 AppendixAnnex A. During fiscal
2003,Messrs. Hafner, Merrill and Tilghman (Chairman) served on the Audit Committee was composed of five directors:during the full fiscal 2005 year, and Mr. Campbell, Mr.
Merrill, Mr. Richardson, Mr. Tilghman (Chairman) and Ms. Ward.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 current and proposedExchange’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 nine12 meetings during fiscal 2003. If elected by the stockholders
in November, Joseph A. Hafner, Jr. will be appointed as a member of the audit
committee.2005. The Board has determined that Mr. Hafner is independent as defined
above and that he 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 reviewoversee 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 nonauditnon-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'sCompany’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'sSYSCO’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'sSYSCO’s independent public accountants provided to the Audit Committee the written disclosures and the letter required by the Independence Standards Board'sBoard’s Standard No. 1, and the Audit Committee discussed with the independent public accountantaccountants that firm'sfirm’s independence.
Based on the Audit Committee'sCommittee’s discussion with management and the independent public accountants and the Audit Committee'sCommittee’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'sSYSCO’s Annual Report on Form 10-K for the year ended June 28, 2003July 2, 2005 filed with the Securities and Exchange Commission.
AUDIT COMMITTEE
Richard G. Tilghman, Chairman
Colin G. Campbell
Richard G. Merrill
Frank H. Richardson
Jackie M. Ward
FEES PAID TO INDEPENDENT PUBLIC ACCOUNTANTS IN FISCAL 2002 AND 2003
| |
| AUDIT COMMITTEE |
|
| John M. Cassaday |
| Joseph A. Hafner, Jr. |
| Richard G. Merrill |
| Richard G. Tilghman, Chairman |
Fees Paid to Independent Public Accountants
During fiscal 2003,2005 and 2004, SYSCO incurred the following fees for services performed by Ernst & Young LLP:
Fiscal
| | | | | | | | | |
| | | 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 | | | — | | | | — | |
| |
| (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 |
29
| |
| 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,
Fiscal 2002 *the Audit
Fees $1,854,162 $950,000
Audit Related Fees (1) 322,400 82,680
Tax Fees (2) 2,828,000 185,190
All Other Fees -- --
________________
26
* In additionCommittee adopted a formal policy concerning approval of audit and non-audit services to be provided by the independent auditor to the fees paidCompany. The policy requires that all services, including audit services and permissible audit related, tax and non-audit services, to be provided by Ernst & Young we paid audit feesLLP to the Company, be pre-approved by the Audit Committee. All of $897,000 and other fees of $3,870,144 to Arthur Andersen LLP for work done
during fiscal 2002 prior to their dismissal on March 27, 2002.
(1) Audit related feesthe services performed by Ernst & Young in fiscal 2003 included $202,400 related2005 were approved in advance by the Audit Committee pursuant to due
diligencethe foregoing pre-approval policy and accounting consultation with respect to acquisitions and
$120,000 related to assistance with preparation for the implementation of
Section 404 ofprocedures. During fiscal 2005, Ernst & Young did not provide any services prohibited under the Sarbanes-Oxley Act of 2002. Audit related fees in fiscal
2002 were incurred primarily in connection with a comfort letter issued in
connection with a debt offering.
(2) Tax services in fiscal 2003 included $1,997,200 related to the tax
compliance outsourcing arrangement with the company's independent auditor,
$157,400 in tax consulting and $673,400 in other tax compliance assistance
and state and local tax compliance work. Tax services in fiscal 2002
related to tax compliance outsourcing.
Act. PROPOSAL TO AMEND THE RESTATED CERTIFICATERATIFY APPOINTMENT OF INCORPORATION
INDEPENDENT ACCOUNTANTS
ITEM NO. 2 ON THE PROXY CARD
The Audit Committee of the Board has appointed Ernst & Young LLP as SYSCO’s independent accountants for fiscal 2006. Ernst & Young LLP has served as the Company’s independent public accountants 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 accountants for fiscal 2007.
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 has proposedrecommends a resolution amending Article Fourth,
Section A,vote FOR the ratification of our Restated Certificatethe
appointment of Incorporation to increase the total
number of shares of common stock which we have authority to issue from one
billion (1,000,000,000) shares to two billion (2,000,000,000) shares, $1.00 par
value. The Board of Directors has unanimously approved the amendment.
The authorized shares of common stock were last increased by the
stockholders at the 1999 annual meeting when the number of shares was increased
from 500,000,000 shares to 1,000,000,000 shares. We currently have 1,500,000
authorized shares of Preferred Stock, 450,000 of which have been designated as
"Series A Junior Participating Preferred Stock." No shares of Preferred Stock
are currently outstanding. As of September 9, 2003, of the 1,000,000,000 shares
of common stock which we are authorized to issue, 648,520,955 were issued and
outstanding (excluding 116,653,945 shares which were held by SYSCO as treasury
stock) and an aggregate of 91,927,477 shares were reservedindependent accountants for issuance under
existing benefit plans and in connection with certain completed acquisitions.
The Board believes that the amendment is necessary to ensure that we will
have sufficient authorized shares available to meet our ongoing business needs
and to take advantage of future corporate opportunities. There are no present
plans to issue any of the proposed additional authorized shares of common stock.
Further stockholder authorization would not be necessary prior to any such
issuance, except for certain situations where stockholder approval may be
required under the New York Stock Exchange rules or Delaware law.
Under our Restated Certificate of Incorporation, holders of stock are not
entitled to preemptive rights.
The affirmative vote of a majority of the outstanding shares of common
stock entitled to vote is required to adopt the proposed amendment. If this
proposal is adopted, Article Fourth, Section A, will read as follows:
"FOURTH: A. The total number of shares of stock which the corporation shall
have authority to issue is Two Billion One Million Five Hundred Thousand
(2,001,500,000) shares, consisting of One Million Five Hundred Thousand
(1,500,000) shares of Preferred Stock with a par value of One Dollar
($1.00) each, and Two Billion (2,000,000,000) shares of Common Stock with a
par value of One Dollar ($1.00) each. The corporation may issue fractional
shares of stock, which will be entitled to proportionate dividends, voting
and liquidation rights."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO
OUR RESTATED CERTIFICATE OF INCORPORATION.
27
fiscal 2006. 30
PROPOSAL TO APPROVE THE 2003 STOCK2005 MANAGEMENT INCENTIVE PLAN
ITEM NO. 3 ON THE PROXY CARD
On
The 2005 Management Incentive Plan (the “2005 MIP”) was recommended by the Compensation and Stock Option Committee (the “Committee”) on September 12, 2003,8, 2005, and adopted by the Board of Directors adopted the 2003 Stock
Incentive Plan,on September 9, 2005, subject to stockholder approval. If approved, by the stockholders
at the annual meeting, the 2003 Stock Incentive Plan2005 MIP will become effective on November 7, 200311, 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 Stock Incentive Plan. UponMIP. However, awards made with respect to fiscal year 2006 will be governed by the effective dateterms of the 20032000 MIP. No more than 1,200,000 additional shares of Common Stock Incentive Plan, all outstanding optionsmay be issued under the 2000 StockMIP. See “Proposal to Approve Compensation to be Paid to Certain Executive Officers Under the 2000 Management Incentive Plan, will remain outstanding but no further grants will
be made underItem No. 4 on the 2000 Stock Incentive Plan. AsProxy Card.”
The Board of September 9, 2003, there were
options outstanding under the 2000 Stock Incentive Plan to purchase
approximately 42 million shares of Common Stock.
Under applicable New York Stock Exchange rules, the CompanyDirectors is required to
obtainseeking stockholder approval of the 2003 Stock Incentive Plan. In addition,
stockholder approval of the 2003 Stock Incentive Plan is also necessary to allow
the Company to grant incentive stock options to employees under Section 422 of
the Code and, with respect to certain compensation paid to the Named Executive
Officers under the Plan, to allow such compensation to be deductible under an
exception to the limitationsfor 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 2003 Stock Incentive
Plan does not purport to be complete and2005 MIP is qualified in its entirety by the terms of the 2003 Stock Incentive Plan,2005 MIP, a copy of which is attached as AppendixAnnex B hereto. THE BOARD OF DIRECTORS RECOMMENDS THAT THE 2003 STOCK INCENTIVE PLAN
BE APPROVED.
PURPOSE OF THE 2003 STOCK INCENTIVE PLAN
Purpose of the 2005 MIP
The purpose of the 2003 Stock Incentive Plan2005 MIP is to promote the interests of the Company and its stockholders by providing officers, directors and other
employeesincentives to (i) certain key management personnel for outstanding performance in the management of the divisions or subsidiaries of the Company and its subsidiaries with appropriate incentives and
rewards to encourage them to enter into and remain in(ii) certain corporate personnel for managing the employoperations of the Company and to acquireas a proprietary interest inwhole and/or managing the long-term successoperations of the Company,
thereby aligning their interests more closely to the interests of the Company's
stockholders.certain subsidiaries. To achieve that purpose, the 2003 Stock Incentive Plan2005 MIP permits the grant of options to purchase Common Stock (the "Options"), stock appreciation
rights with respect to Common Stock ("SARs"),performance-based bonus awards, payable in cash and shares of Common Stock, subject to
restriction and forfeiture toas further explained below.
Administration of the Company based upon continuing employment
and/or attainment of designated performance goals (the "Restricted Shares"),
rights to receive shares contingent on the achievement of performance or other
objectives during a specified period (the "Performance Shares"), and units
representing the right to receive shares of Common Stock in the future (the
"Stock Units") (collectively such Options, SARs, Restricted Shares, Performance
Shares and Stock Units are referred to as "Awards").
ADMINISTRATION OF THE 2003 STOCK INCENTIVE PLAN
Unless otherwise determined by the Board, the Compensation and Stock Option2005 MIP
The Committee will administer the 2003 Stock Incentive Plan.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"“non-employee directors” within the meaning of SEC Rule 16b-3 promulgated under the Securities Exchange Act "outside directors"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 requirements and "independent directors" within the meaning of current and proposed NYSE listing
standards.Company’s Corporate Governance Guidelines.
The Committee will have the power in its discretion to grant Awardsawards under the 2003 Stock Incentive Plan,2005 MIP, to select the individuals to whom Awardsawards are granted, to determine the terms thereof,of all awards under the 2005 MIP, to interpret the provisions of the 2003
Stock Incentive Plan2005 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 prohibited
by applicable law or stock exchange rules,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 time,
delegate all orparticipate, and such an employee will not be entitled to any of its responsibilities and powersbonus under the Plan,
including, without limitation,plan for the poweryear 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 designate participantsparticipate 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 |
32
| | |
| (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
amount, timing and term of Awards under the Plan. Such delegation may be
made to any person or persons, including, without limitation, any executive
officerrelative weights of the
Company. Whenever used hereinfactors and
in the
Plan, "Committee" shall
meanpercentage of the
Compensation and Stock Option Committee and its designee or designees,
tototal bonus comprised by the
extent there shall be any. The Committee does not currently intend to
28
delegate any of its authorityportion determined with respect to individuals who areperformance 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 Company
employees or who are subject to Section 16change the performance targets for any Senior Executive Participants after the first 90 days of the Securities Exchange Act of
1934, as amended (the "Exchange Act") or Section 162(m) of the Code. All Awards
will be evidenced byfiscal year. The Committee may formulate a written document in such form asbonus structure for each Designated Participant who is not a Senior Executive Participant which is based on performance factors determined by the Committee in its sole discretion, and which may or may not be similar to the Committeebonus 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.
33
| |
| 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 need not, require thatprior to the grantee sign.
SHARES SUBJECT TO THE 2003 STOCK INCENTIVE PLANissuance 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 2003 Stock Incentive Plan2005 MIP under all Awards shall be equal to the
sum of (i) 25 millionMIP awards is 2,800,000 shares, (ii) any shares of Common Stock which are subject to optionsadjustment for recapitalizations, stock splits and similar events. Shares issued under the 2000 Stock Incentive Plan2005 MIP may consist, in whole or the 1991 Stock Option
Plan to the extent that those options are forfeited, expire,in part, of authorized and unissued shares, treasury shares or are canceled
without delivery of shares of Common Stock after November 7, 2003 (approximately
56 million shares were subject to outstanding awards under these prior plans as
of September 9, 2003); (iii) any shares of Common Stock that have not been
issued and are not subject to outstanding awards under the 2000 Stock Incentive
Planpurchased on November 7, 2003 (approximately 21 million shares as of September 9,
2003), (iv) to the extent authorized by the Board, up to 10 million shares
reacquired by the Company in the open market or in private transactions after
November 7, 2003,market.
Transfer Restrictions on Stock Awards and (iv) up to five million shares of stock tendered by
participants in connection with the exercise of Options granted under the 2003
Stock Incentive Plan or any prior plan. The maximum number of shares of Common
Stock available for delivery under the Plan shall not be reduced for shares
subject to plans assumed by the Company in an acquisition of an interest in
another company.
The following additional maximums are imposed under the 2003 Stock
Incentive Plan: (i) Subject to the overall maximum number of shares of Common
Stock that may be issued pursuant to the Plan, the maximum aggregate number of
shares of Common Stock that may be issued pursuant to options intended to be
Incentive Stock Options and/or in the form of Restricted Shares, Performance
Shares or Stock Units is [118] million shares; (ii) the maximum number of shares
that may be covered by any Option or SAR Award granted to any one individual
during any fiscal year is 250,000; and (iii) no more than 100,000 shares of
stock may be subject to Stock Unit, Restricted Stock and Performance Share
Awards that are intended to be "performance-based" compensation (as that term is
used for purposes of Code Section 162(m)) granted to any one individual during
any one fiscal year (regardless of when such shares are deliverable).
Subject to any required action by the stockholders, if the outstanding
shares of Common Stock are changed into or exchanged for a different number or
kind of shares or other securities of the Company by reason of any
recapitalization, reclassification, stock split, stock dividend, combination,
subdivision or similar transaction then, subject to any required action by the
stockholders of the Company, the number and kind of shares of Company stock
available under the Plan or subject to any limit or maximum under the Plan shall
automatically be proportionately adjusted, with no action required on the part
of the Committee or otherwise. Subject to any required action by the
stockholders, the number of shares covered by each outstanding Award and the
price per share in each such Award may, at the discretion of the Committee, be
proportionally adjusted for any increase or decrease in the number of issued
shares of the Company resulting from a recapitalization, reclassification, stock
split, stock dividend, combination, subdivision or similar transaction or any
other increase or decrease in the number of shares effected without receipt of
consideration by the Company.
If the Company merges or consolidates with another corporation, whetherForfeiture
Whether or not the
Company isshares to be issued to a
surviving corporation, or ifparticipant are registered under the
Company is liquidated or
sellsSecurities Act of 1933, as amended, participants will be prohibited from selling or otherwise
disposes of substantially all of its assets while unexercised
Options or other Awards remain outstanding under this Plan, (A) subject to the
provisions of clause (C) below, after the effective date of the merger,
consolidation, liquidation, sale or other disposition, as the case may be, each
holder of an outstanding Option or other Award shall be entitled, upon exercise
of that Option or Award or in place of it, as the case may be, to receive, at
the option of the Committee and in lieu of shares of Stock, (i) the number and
class or classes of shares of Stock or other securities or property to which the
holder would have been entitled if, immediately prior to the merger,
29
consolidation, liquidation, sale or other disposition, the holder had been the
holder of record of a number of shares of Stock equal to the number of shares of
Stock as to which that Option may be exercised or are subject to the Award, or
(ii) shares of stock of the company that is the surviving corporation in such
merger, consolidation, liquidation, sale or other disposition having a value, as
of the date of payment as determined by the Committee in its sole discretion,
equal to the value of the shares of Stock or other securities or property
otherwise payable under subsection (i) above; (B) if Options or other Awards
have not already become exercisable under the Change in Control provisions of
the Plan, the Board of Directors may waive any limitations set forth in or
imposed pursuant to the Plan so that all Options or other Awards, from and after
a date prior to the effective date of that merger, consolidation, liquidation,
sale or other disposition, as the case may be, specified by the Board of
Directors, shall be exercisable in full; and (C) all outstanding Options or SARs
may be cancelled by the Board of Directors as of the effective date of any
merger, consolidation, liquidation, sale or other disposition provided that any
optionee or SAR holder shall have the right immediately prior to such event to
exercise his or her Option or SAR to the extent such optionee or holder is
otherwise able to do so in accordance with the Plan or his individual Option or
SAR agreement; provided, further, that any such cancellation shall be contingent
upon the payment to the affected Participants of an amount equal to (i) in the
case of any out-of-the-money Option or SAR, cash, property or a combination
thereof having an aggregate value equal to the value of such Option or SAR, as
determined by the Committee or the Board of Directors, as applicable, in its
sole discretion, and (ii) in the case of an in-the-money Option or SAR, cash,
property or a combination thereof having an aggregate value equal to the excess
of the value of the per-share amount of consideration paid pursuant to the
merger, consolidation, liquidation, sale or other disposition, as the case may
be, giving rise to such cancellation, over the exercise price of such Option or
SAR multiplied by the number of shares of Stock subject to the Option or SAR.
ELIGIBILITY AND PARTICIPATION
With respect to Incentive Stock Options ("ISOs"), eligibility to
participate in the 2003 Stock Incentive Plan is limited to employees of the
Company and its subsidiaries. With respect to Awards other than ISOs,
eligibility to participate in the 2003 Stock Incentive Plan shall be limited to
any employee, consultant or director of the Company and its subsidiaries.
Currently, approximately 47,400 employees and non-employee directors of the
Company and its subsidiaries are within the class eligible for selection to
participate in the 2003 Stock Incentive Plan.
OPTIONS AND SARS
The Committee may grant Incentive Stock Options ("ISOs") and Non-Qualified
Options ("NQOs") to eligible employees, and may grant NQOs to employees,
directors and consultants. SARs may be granted to employees, directors and
consultants. The Committee will have complete discretion, subject to the terms
of the 2003 Stock Incentive Plan, to determine the persons to whom Options
and/or SARs will be awarded, the time or times of grant, and the other terms and
conditions of the Award. SARs may be awarded either in tandem with Options or on
a stand-alone basis.
OPTION AND SAR EXERCISE PRICE AND VESTING
The Committee will determine the exercise price with respect to each Option
at the time of grant. The exercise price applicable to an Option shall also
apply in determining the base price per share for any tandem SAR granted with
respect to the Option. At the time of grant of a nontandem SAR, the Committee
will specify the base price per share to be used in determining the amount of
cash or number of shares of Common Stock paid upon the exercise of the SAR.
Neither the Option exercise price per share of Common Stock nor the base price
of any SAR will be less than 100% of the fair market value per share of the
Common Stock underlying the Award on the date of grant, and no Option or SAR may
be repriced in violation of the repricing limitations discussed in "Amendments
30
and Terminations" below. The Committee may determine at the time of grant and
any time thereafter the terms under which Options and SARs shall vest and become
exercisable.
SPECIAL LIMITATIONS ON ISOS
No ISO may be granted to an employee who owns at the time of the grant
stock representing more than 10% of the total combined voting power of all
classes of stock of the Company or its subsidiaries (a "10% Stockholder") unless
the exercise price for each share of Common Stock subject to such ISO is at
least 110% of the fair market value per share of the Common Stock on the date of
grant and such ISO award is not exercisable more than five years after its date
of grant. In addition, if the total fair market value of shares of Common Stock
subject to ISOs which are exercisable for the first time by an employee in a
given calendar year exceeds $100,000, valued as of the grant date of the ISO,
the Options for shares of Common Stock in excess of $100,000 for that year will
be treated as NQOs
EXERCISE OF OPTIONS AND SARS
Options and SARs shall be exercisable in accordance with such terms and
conditions and during such periods as may be established by the Committee.
Notice of exercise must be accompanied by payment equal to the applicable Option
exercise price plus all withholding taxes due, such amount to be paid in cash or
by tendering, either by actual delivery of shares or by attestation, shares of
Common Stock that are acceptable to the Committee and have been held by the
participanttransferring them for at least six months, such shares to be valued at fair market
value as of the day the shares are tendered, or in any combination thereof, as
determined by the Committee. To the extent permitted by applicable law, a
participant may elect to pay the exercise price through the contemporaneous sale
by a third party broker of shares of Common Stock acquired upon exercise
yielding net sales proceeds equal to the exercise price and any withholding tax
due and the remission of those sale proceeds to the Company.
Upon surrender of an SAR, the employee will be entitled to receive cash,
shares of Common Stock or a combination thereof, as determined by the Committee,
having an aggregate fair market value equal to (a) the excess of (i) the fair
market value of one share of Common Stock as of the date on which the SAR is
exercised over (ii) the base price of the shares covered by the SAR; multiplied
by (b) the number of shares of Common Stock covered by the SAR, or the portion
thereof being exercised. Any fractional shares resulting from the exercise of an
SAR will be paid in cash.
TRANSFERABILITY OF OPTIONS AND SARS
Except as otherwise provided by the Committee, Options and SARs may not be
transferred2 years after issuance, except by will or applicable laws of descent and distribution.
TERMINATION OF OPTIONS AND SARS
Options and SARs shall be exercisable during such periods as may be
established by the Committee; provided, however, that upon the death of an
employee or non-employee director while engaged by the Company or its
subsidiaries, Options and SARs, to the extent then exercisable, shall remain
exercisable by the executors or administrators of his or her estate for up to
one year following the date of death. In no event, however, may any Option or
SAR be exercised more than ten years from the date of grant, and an ISO that is
held by a 10% Stockholder may not be exercised more than five years from the
date of grant. To the extent not exercised by the applicable deadline, the
Option or SAR will terminate.
RESTRICTED SHARES
The Committee may award Restricted Shares to employees, directors and
consultants. Restricted Shares granted may not be sold, transferred, pledged or
otherwise encumbered or disposed of, and will not vest, during the restricted
period established by the Committee. To the extent provided by the Committee at
the time of grant, Restricted Shares also may not be sold, transferred, pledged
or otherwise encumbered, and will not vest, until the satisfaction of specified
31
performance objectives ("Performance Goals"). The Committee may determine at the
time of grant whether dividends declared with respect to Restricted Shares will
be paid to the grantee or credited to an account for the grantee until the
underlying shares vest. Dividends deferred will be paid to the grantee when the
Restricted Shares vest or will be forfeited if the rights to the Restricted
Shares lapse.
Performance Goals, if any, will be determined by the Committee and may be
based on any one or more of the following factors: return on capital or increase
in pretax earnings of the Company and/or one or more divisions and/or
subsidiaries, return on stockholders' equity of the Company, increase in
earnings per share of the Company, sales of the Company and/or one or more
divisions and/or subsidiaries, pretax earnings of the Company and/or one or more
divisions and/or subsidiaries, net earnings of the Company and/or one or more
divisions and/or subsidiaries, control of operating and/or non-operating
expenses of the Company and/or one or more divisions and/or subsidiaries,
margins of the Company and/or one or more divisions and/or subsidiaries, market
price of the Company's securities and other objectively measurable factors
directly tied to the performance of the Company and/or one or more divisions
and/or subsidiaries.
STOCK UNITS
The Committee may award Stock Units to employees, directors and
consultants. Stock Units will have a specified formula value and will vest based
on the attainment of designated Performance Goals over a specified performance
period.
Such formula value may, but need not be, denominated in or based on the
value of a designated number of shares of Common Stock. Stock Units will be
credited to an account established and maintained for the employee. The
Committee will determine performance periods and Performance Goals in connection
with each grant of Stock Units. Payment with respect to vested Stock Units may
be made in cash, shares of Common Stock, or any combination thereof, as
determined by the Committee. Except as the Committee may provide at the time of
grant, holders of Stock Units will not have the rights of a stockholder, such as
the right to vote the shares or receive dividends and other distributions. Stock
Units may not be transferred in any manner and will lapse if the designated
Performance Goals are not attained within the applicable performance period.
DIVIDEND EQUIVALENT RIGHTS
In conjunction with any Award (including an Option or SAR) that is payable
in shares of Common Stock, the Committee may provide in the applicable Award
agreement for "dividend equivalent rights." Dividend equivalent rights will
entitle the grantee to receive in cashevent of death or shares, as determined by the
Committee, upon exercise of the Award or at such other time as the Committee
specifies, an additional amount based on the dividends that would have been
received on the underlying shares had they been issued at the time of grant.
FORFEITURE
Notwithstanding any other provision of the 2003 Stock Incentive Plan and
except as discussed under "Change in Control" below, if the Committee finds by a
majority vote that with respect to a Plan participant who was an employee or
consultant of the Company or its subsidiary at any time that an Award is
outstanding: (i) the participant, before or after termination of hisemployment due to disability or her
employment or consulting relationship with the Company or a subsidiary
("Employer") for any reason, (a) committed fraud, embezzlement, theft, a felony,
or proven dishonesty in the course of his employment or other engagement and
that such act damaged the Employer, or (b) disclosed trade secrets of the
Employer, or (ii) the participant, before or after termination of his employment
or consulting relationship for any reason, participated, engaged in or had a
financial or other interest (whether as an employee, officer, director,
consultant, contractor, stockholder, owner, or otherwise) in any commercial
endeavor in the United States which is competitive with the business of the
32
Employer in violation of the SYSCO Code of Business Conduct as in effect on the
date of such participation or other engagement or in such a manner that would
have violated the Code of Business Conduct had the participant been employed by
the Employer at the time of the activity in question, then any outstanding
Awards which have not been exercised if Options or SARs, or vested if not
Options or SARs, will be forfeited. The decision of the Committee as to the
nature of a participant's conduct, the damage done to the Employer and the
extent of the participant's competitive activity will be final. No decision of
the Committee, however, will affect the finality of the discharge of the
participant by the Employer in any manner.
CHANGE IN CONTROLretirement. In the event of a Change inof Control, (as defined below), all Awards
outstanding on the date immediately preceding such Change in Control, including
Awards subject to Performance Goals that have not yet been met, will become
fully vested, free of restriction and exercisable unless otherwise expressly
provided in the applicable Award agreement. In the event that the employment of
a Participant who is an employee of the Company or a Subsidiary is terminated by
the Company other than for cause, as defined below, during the 24-month period
following a Change in Control, as defined below, all of such Participant's
outstanding Options and SARs may thereafter be exercised by the Participant, to
the extent that such Options and SARs were exercisable as of the date of such
termination of employment, for (x) a period of 24 months from such date of
termination or (y) until expiration of the stated term of such Option or SAR,
whichever period is the shorter. The forfeiture provisions relating to
competition as described in the immediately preceding paragraph shall not apply
to any Participant who incurs a termination of employment pursuant to this
Change in Control provision. For purposes of these provisions, the term "cause"
shall mean "cause" as defined in the participant's Award Agreement or written
employment, consulting or other agreement with the Company or a subsidiary, or
if not defined in any such agreement, "cause" shall mean conviction of the
participant for a felony, dishonesty while performing his employment duties, or
participant's willful or deliberate failure to perform his or her duties in any
material respect.
The term "Change in Control" means any of the following:
(i) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of 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 (A) the then-outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (B) 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
Securities"); provided, however, that, for purposes of this definition, the
following acquisitions shall not constitute a Change in 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 the criteria set
forth in (iii)(A), (B) and (C) below;
(ii) The occurrence of the following: Individuals who, as of ______, 2003,
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 ______, 2003 whose election, or nomination for
election by the Company's shareholders, 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;
33
(iii) 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, (A) 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, (B) 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 (C) 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
(iv) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
TAX WITHHOLDING
All distributions under the 2003 Stock Incentive Plan are subject to
withholding of all applicable taxes, and the Committee may condition the
delivery of any shares or other benefits under the Plan on satisfaction of the
applicable withholding obligations. The Committee, in its discretion, and
subject to such requirements as the Committee may impose prior to the occurrence
of such withholding, may permit such withholding obligations to be satisfied
through cash payment by the participant, through the surrender of shares of
Common Stock which the participant already owns, or through the surrender of
shares of Common Stock to which the participant is otherwise entitled under the
Stock Incentive Plan, but only to the extent of the minimum amount required to
be withheld under applicable law.
TERM OF THE 2003 STOCK INCENTIVE PLAN
Unless earlier terminated by the Board of Directors, the 2003 Stock
Incentive Plan will terminate on November 7, 2013. No award may be granted under
the Plan subsequent to that date.
AMENDMENT AND TERMINATION
The Board may, at any time, amend or terminate the 2003 Stock Incentive
Plan, except that the following actions may not be taken without shareholder
approval: (i) any increase in the number of shares that may be issued under the
Plan (except by certain adjustments provided for under the Plan); (ii) any
change in the class of persons eligible to receive ISOs under the Plan; (iii)
any change in the requirements of the Plan regarding the Exercise Price; (iv)
any repricing of any Option or SAR issued under the Plan by (A) lowering the
exercise price of that Option or SAR or (B) canceling that Option or SAR and
subsequently granting a new Option or SAR with a lower exercise price, or any
other Award, to the extent that such cancellation, replacement or grant would
fall within the definition of "repriced" contained in Item 402(i) of Regulation
S-K promulgated under the Securities Act of 1933, such definition to be applied
34
to grants to all persons, not only "named executive officers" as that term is defined in Item 402(a)(3)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 Regulation S-K;Control. If a participant’s employment terminates for any reason other than death, disability or (v)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. |
34
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 amendmentparticipant who has a severance agreement with the Company, any bonus paid pursuant to the Plan that would require approvalforegoing paragraphs shall be reduced by any portion of the Company's shareholdersparticipant’s severance which is determined by reference to payments received or to be received under applicable
law, regulationthe 2005 MIP or rule.
FEDERAL INCOME TAX CONSEQUENCESany 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 discussion addresses certain anticipatedis a general description of the federal income tax consequences to recipients of awards madecompensation paid under the 2003 Stock Incentive Plan2005 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 Company. It is based on2005 MIP. Participants in the Code and interpretations thereof as in
effect on2005 MIP should consult their own tax advisors to determine the date of this proxy statement.
Summary of Current Federal Income Tax Rates for Individuals
As a result of changes made by the Job and Growth Tax Relief Reconciliation
Act of 2003 (the "2003 Tax Act"), for tax years 2003 through 2010, ordinary
income of individuals, such as compensation income, will be taxed at a top
marginal rate of 35%. In addition, for capital assets sold on or after May 6,
2003 and before 2009, the maximum long-term capital gains rate for individuals
will be 15%. The 2003 Tax Act also reduces to 15% the maximum federal income tax
rate for qualifying dividends received by individuals for tax years 2003 through
2008.
Options
Grant of Options. There will be no federal income tax consequences to the
grantee of an Option or the Company upon the grant of either an ISO or an NQO
under the 2003 Stock Incentive Plan.
Exercise of NQOs. Upon the exercise of an NQO, the grantee generallythem based on their own particular circumstances.
| |
| Cash Bonuses; Stock Awards |
A participant will recognize ordinary compensation income subject to withholding and employment
taxes, in an amount equal to: (a)at the fair market value, ontime the datecash portion of exercise, of the acquired shares of Common Stock, less (b) the exercise price
paid for those shares. Subject to Section 162(m) of the Code (which limits to $1
million deductions for certain compensation payable to Named Executive Officers)
and the Company satisfying applicable reporting requirements, the Company will
be entitled to a tax deduction in the same amount. Gains or losses recognized by
the grantee upon a subsequent disposition of the shares will be treated as
long-term capital gain or loss if the shares are held for more than a year from
the date of exercise. Such gains or losses will be short-term gains or losses if
the shares are held for one year or less. For purposes of computing gain or
loss, the grantee's basis in the shares received will be the exercise price paid
for the shares plus the amount of income, if any, recognized upon exercise of
the Option.
Exercise of ISOs. Upon the exercise of an ISO, the grantee will recognize
no immediate taxable income for regular income tax purposes, provided the
grantee was continuously employed by the Company or a subsidiary from the date
of grant through the date whichparticipant’s bonus is three months prior to the date of exercise
(or through the date which is one year prior to the exercise date in the case of
total disability).
The exercise of an ISO will, however, result in an adjustment for
alternative minimum tax purposes in an amount equal to the excess of the fair
market value of the shares at exercise over the exercise price. That adjustment
may result in alternative minimum tax liability to the grantee upon the exercise
of the ISO. Subject to certain limitations, alternative minimum tax paid in one
year may be carried forward and credited against regular federal income tax
liability for subsequent years. If the grantee retains the shares acquired upon
the exercise of the ISO for more than two years from the date of grant and one
year from the date of exercise, any gain on a later sale of the shares will be
treated as long-term capital gain, and the Company will not be entitled to any
tax deduction withpaid.
With respect to the
ISO.
If the grantee disposes of the shares of Common Stock
received uponawards, the
exercisetransfer restrictions described above would likely constitute a substantial risk of
an ISO before the expiration of the two-year and one-year holding
periods discussed above, a "Disqualifying Disposition" occurs, and the grantee
will have ordinary compensation income, and the Company will have a
corresponding deduction, at the time of such disposition. The amount of ordinary
35
income and deduction generally will be equal to the lesser of: (a) the fair
market value of the shares of Common Stock on the date of exercise minus the
exercise price; or (b) the amount realized upon disposition of the Common Stock
minus the exercise price. If the amount realized on disposition exceeds the
value of the shares on the date of exercise, that additional amount will be
taxable as capital gain. To be entitled to a deduction as a result of a
Disqualifying Disposition, the Company must satisfy applicable reporting
requirements. In addition,forfeiture for Disqualifying Dispositions by Named Executive
Officers, the Company's deduction is subject to the limitspurposes of Section 162(m)83(b) of the Code. Stock Appreciation Rights
There will be no federal income tax consequences to either the grantee or
the Company upon the grant of an SAR. However, the grantee generally will
recognize ordinary compensation income upon the exercise of an SARThus, in an amount
equal to the aggregate amount of cash and the fair market value of any shares of
Common Stock received upon exercise. Subject to Section 162(m) of the Code and
the Company satisfying applicable reporting requirements, the Company will be
entitled togeneral, unless a deduction equal to the amount included in the grantee's taxable
income as a result of the exercise of the SAR. Any shares of Common Stock
received by the grantee upon exercise of a SAR will have a tax basis equal to
their fair market value on the date of exercise. Upon a subsequent sale of those
shares, any gain or loss realized will be capital gain or loss, long- term or
short-term, depending upon whether the shares were held for more than one year
from the date of exercise.
Restricted Shares
Unless a granteeparticipant who receives an Award of RestrictedCommon Stock makes an election under Section 83(b) of the Code as described below, there will be no federal income tax consequences to either the grantee or the Companyparticipant upon the
grantreceipt of the Restricted SharesCommon Stock until the expiration of the restricted period and the
satisfaction of any Performance Goals or other conditions applicable to the
Restricted Shares.transfer restrictions. At that time, the granteeparticipant generally will recognize ordinary compensation income equal to the then fair market value of the shares of Common Stock and,
subject to Section 162(m) of the Code and the Company satisfying applicable
reporting requirements, the Company will be entitled to a corresponding
deduction.Stock. In general, any dividends paid to the granteeparticipant while the transfer restrictions
or other conditions applicable to the Restricted Shares apply will be taxable compensation income to the grantee, and the Company will be entitled to a
corresponding deduction with respect to such dividends.participant. If the granteeparticipant makes an election under Section 83(b) of the Code with respect to the Restricted SharesCommon Stock (a "Section“Section 83(b) Election"Election”), the granteeparticipant will recognize ordinary compensation income equal to the fair market value of the Restricted
Shares as ofCommon Stock on the date of grant and the Company generally will be entitled to a
corresponding deduction.receipt. In addition, cash dividends paid to the granteeparticipant making a Section 83(b) Election would generally be taxable at a current maximum rate of 15% applicable to dividend income. The
Company would not
35
A participant will be entitledsubject to a deduction with respect to any dividends paid
towithholding for federal, and generally for state and local, income taxes at the grantee if a Section 83(b) Election is madetime the participant recognizes ordinary income under the rules described above with respect to the Restricted Shares.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 Restricted Shares,the Common Stock, any gain or loss realized by the granteeparticipant will be capital gain or loss, long-term or short-term, depending
upon whether the Restricted Shares were held for more than one year from the
date of grant if a Section 83(b) Election is made or, if no Section 83(b)
Election is made, more than one year from the date of vesting. The basis of the
Restricted Shares sold for purposes of calculating gain or loss will be the fair
market value of those shares at the time of grant if a Section 83(b) Election is
made or at the time of vesting if a Section 83(b) Election is not made.
Stock Units
There will be no federal income tax consequencesloss.
| |
| Deductibility — In General |
Subject to the
grantee or the
Company upon the grant of Stock Units. Grantees generally will recognize
ordinary income, taxable as compensation, at the time payment for the Stock
Units is received in an amount equal to the aggregate amount of cash and the
fair market value of any shares of Common Stock received. Subject to Section
36
162(m) of the Code and the Company satisfying applicable reporting requirements,discussion below, the Company will be entitled to a deduction equal to the amount included in the
grantee's income at that time.
Section 162(m) Limitation
In general, Section 162(m) of the Code limits to $1 million thefor federal income tax deductionspurposes that maycorresponds 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 claimed in any fiscal year with respectdeductible by the Company, such amounts must constitute reasonable compensation for services rendered or to compensation payable to eachbe rendered and must be ordinary and necessary business expenses.
The ability of the Named Executive OfficersCompany to obtain a deduction for future payments under the 2005 MIP could be limited by the golden parachute rules of Section 280G of the Company.
This limit does notCode. These rules could apply to bonuses paid to certain performance-basedparticipants if, following a change of control of the Company, the bonuses paid to such participants, and any other compensation paid under a
planor deemed paid to such participants that meets the requirements of Section 162(m) the Code and the regulations
promulgated thereunder. The Company believes that the Options and SARs to be
granted under the 2003 Stock Incentive Plan will qualify for the
performance-based compensation exception to the Section 162(m) limitations
because the compensation is based solely on an increase in value of the stock
after the date of the Award. Deductions attributable to Restricted Shares and
Stock Units may also qualify for this exception provided the compensation is contingent on attaining one or more Performance Goals.
Golden Parachute Tax
If an Award is accelerated as a resultchange of a Change in Control, all or a
portion of the value of the Award at that time may be a "parachute payment" for
certain employeescontrol of the Company, under the Code's provisions relating to excess
parachute payments. These provisions generally provide that if parachute
payments equal or exceedhas a present value of at least three times an Award holder'sthe participant’s average W-2annual compensation for the five tax years preceding the year of the Change in Control,from the Company willover 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 be permitted to claim its deduction, anddeductible by the recipient will beCompany. Such compensation is also subject to a nondeductible 20% excise tax, with respectin addition to that portionregular income tax, in the hands of the participant. The golden parachute payments in
excessrules of such historical average compensation. The parachute payment provisionsSection 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 Changechange in Control,control, the individual is an officer of the Company, a shareholderstockholder 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 20032005 MIP.
36
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 specified earnings per share increases over fiscal 2005 and also achieves certain return on equity targets. This portion of the bonus is calculated 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 as net after-tax earnings for fiscal 2006 divided 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.
Division/ Subsidiary Performance Component. The second component of the bonus is earned only if at least 15 operating divisions and/or subsidiaries obtain certain return on capital targets and the divisions and subsidiaries that obtain the target 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 capital is computed by dividing the operating division’s or subsidiary’s pretax earnings (excluding any gain on the sale of fixed assets and intercompany interest income) by the operating division’s or subsidiary’s total capital. Total
39
capital is computed as the sum of (a) average stockholder’s equity, (b) average long-term debt, (c) average net intercompany accounts, and (d) certain specified adjustments (amounts allocated to capital with respect to (i) fixed rate intercompany loans, (ii) capitalized leases, (iii) below market plant and equipment costs, and (iv) other adjustments affecting capital approved by the Committee).
Awards to SVPO Participants provide for a potential bonus with two components:
Company Performance Component. Under the first component, an SVPO Participant is entitled to 50% of the bonus he or she would have earned as a “Corporate Participant.”
Division/ Subsidiary Performance Components. The second component depends on the aggregate performance of all of the subsidiaries supervised by the participant (together, the “Supervised Operations”). The amount of bonus payable (if any) under this component is calculated by multiplying:
| | |
| • | 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 to receive a 2006 Award in excess of 1% of the Company’s earnings before income taxes for fiscal 2006, as publicly disclosed 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 following the end of fiscal 2006. All bonuses under the program are subject to the provisions of the 2000 MIP.
Election to Receive Common Stock
A Participant may give notice to the Committee within 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 (valued at the closing price on the New York Stock Exchange (“NYSE”) on the last trading day of such fiscal year) in lieu of cash. In the event of such election, such Participant will receive an additional number of shares equal to 50% of the number of shares determined as described above (“Additional Shares”) and an additional cash amount equal to the value of such Additional Shares multiplied by the effective tax rate applicable to the Company 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, 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.
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 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
40
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, 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 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 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.
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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 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 awards under the plan2006 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
Certain Interests of Directors
In considering the recommendation of the Board of Directors with respect to the 2003 Stock Incentive Plan,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 2003 Stock Incentive
Plan.
As discussed above,2006 Awards.
Certain of the directors
willwho are employees of the Company are 2006 Award Recipients and are likely to be
eligible for the grant of Awards
under the 2003 Stock Incentive Plan.Senior Executive Participants. Nevertheless, the Board of Directors believes that approval of the
2003 Stock Incentive Plan2006 Awards will advance the interests of the Company and its stockholders by encouraging
key officers
employees
and directors to make significant contributions to the
long-termlong term success of the Company.
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NEW 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.
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PROPOSAL TO APPROVE THE 2005 NON-EMPLOYEE DIRECTORS STOCK PLAN BENEFITS
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
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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 common stock on the New York Stock Exchange on the first business day prior to the date of grant of the Option (the “Fair Market Value”). The Board may impose such restrictions or conditions upon the shares to be received upon the exercise of an Option as it deems appropriate.
Dividends and Dividend Equivalent Rights
Under the Proposed Directors Plan, an Option may include the right to receive dividend payments or dividend equivalent payments with respect to the common stock subject to the Option. Such payments may be credited to an account for the grantee or settled in cash or common stock as determined by the Board. Any such crediting or settlements may be subject to such conditions as the Board of Directors establishes.
Means of Exercise of Options
Upon exercise of the Option, the option price for purchased shares is payable immediately in cash or by tendering, through actual delivery or attestation, shares of SYSCO common stock held for at least six months that have an aggregate Fair Market Value equal to the Option exercise price or any combination of the foregoing. Subject to compliance with applicable law, under the Proposed Directors Plan, the Board of Directors may also permit 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.
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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 award 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 such an election, the elected amount is deducted ratably from the quarterly payment of the director’s annual retainer fee, and the electing director’s account is credited on the date of each quarterly payment of the annual retainer fee (“Quarterly Payment Date”) with that number of shares of SYSCO common stock determined by dividing his or her 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 (“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% 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 wouldare currently expected to be received in connection with grants to be made in fiscal 20042006 (November 2005) under the 2003 Stock IncentiveProposed Directors Plan if it is approved by stockholders, and the estimated dollar value thereof assuming that awards are made commensurate with
those made in fiscal 2003:
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 | |
Number | |
| (1) | Assumes grants of Shares
Name and Position Underlying Grants Dollar Value (1)
----------------- ------------------ ----------------
Charles H. Cotros, CEO 100,000 $688,000
Richard J. Schnieders, CEO 100,000 688,000
Thomas E. Lankford, Pres & COO 75,000 516,000
John K. Stubblefield, Jr., EVP 75,000 516,000
Larry J. Accardi, EVP 75,000 516,000
Kenneth F. Spitler, EVP 75,000 516,000
Executive officersoptions 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 a group, includingthe hypothetical grant value determined for options granted in fiscal 2005 to the Named Executive Officers 942,000 6,480,960
Non-employee directorsOfficers. 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 a group 0 0
All non-executive officers and other employees
as a group 12,708,211 87,432,492
Total 13,650,211 93,913,452
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. |
_________________
(1) Assumes a value of $6.88 per option share which is the same as the
hypothetical grant value determined for options granted in fiscal 2003 to
the Named Executive Officers. See note (2) to the chart "Option Grants in
Fiscal 2003." If this proposal is not approved, the 2000 Stock IncentiveExisting Directors Plan will remain in effect. This proposal will not affect options or other awards already granted under the 2000 Stock IncentiveExisting Directors Plan.
REQUIRED VOTE
Required Vote
The affirmative vote of a majority of votes cast is required to approve this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
OF THE 2003 STOCK INCENTIVE PLAN.
38
SHAREHOLDER PROPOSAL
ITEM NO. 4 ON THE PROXY CARD
The following proposal was submitted by stockholders who have given notice
that they intend to present for action atFor purposes of qualifying the Annual Meeting the resolution
described below. Pursuant to Rule 14a-8(l)(1) promulgatedshares authorized under the Securities
Exchange Act of 1934, the Company will provide the name, address and number of
Company securities held by the proponents of this proposal promptly upon receipt
of a written or oral request.
"RESOLVED: Shareholders request that our Board review the Company's
policies for food products containing genetically engineered (GE)
ingredients and report to shareholders by March 2004. This report,
developed at reasonable cost and omitting proprietary information, will
identify the risks, financial costs (including opportunity costs) and
benefits, and environmental impacts of the continued use of GE-ingredients
in food products sold or manufactured by the company.
For the past three years, several SYSCO institutional investors have
presented concerns regarding GE to the company's attention.
While our Company agreed to form a task force to study issues surrounding
GE food vis-a-vis SYSCO's operations, shareholders are not aware of any
substantive report on this issue. We urge that this report:
1) Identify the scope of the Company's products that are derived from or
contain GE ingredients;
2) Outline a contingencyproposed plan for sourcing non-GE ingredients should
circumstances so require.
We believe that in undertaking this review, SYSCO addresses issues of
financial, legal and reputation risk, competitive advantage and brand name
loyalty in the marketplace.
SUPPORTING STATEMENT:
o Fearing that pollen from corn not approved for human consumption may
have spread to nearby fields of ordinary corn, the U.S. Department of
Agriculture requested that 155 acres of Iowa corn be uprooted and
incinerated (9/2002); 500,000 bushels of soybeans in Nebraska were
quarantined due to contamination by small amounts of a test
pharmaceutical/industrial crop (11/2002).
o The National Academy of Sciences report (8/2002) Animal Biotechnology:
Science-Based Concerns cautions that the current regulatory system is
inadequate to address "potential hazards, particularly in the
environmental area." (p. 14)
o Biotechnology companies are encouraged - BUT NOT REQUIRED - to submit
safety-testing data to the FDA for its review. According to the Center
for Science in the Public Interest (1/2003), the FDA lacks both the
authority and the information to adequately evaluate the safety of GE
foods.
o FDA does not assure the safety of GE products; it is the developer's
responsibility to assure that the food is safe.
o In December 2002, StarLink corn, which is not approved for human
consumption, was detected in a U.S. corn shipment to Japan. StarLink
was first discovered to have contaminated U.S. corn supplies in
September 2000, triggering a recall of 300 products. These instances
illustrate the problem controlling GE crops and the sudden and costly
impact on products and markets.
End of GMO Proposal
39
SYSCO's response:
As the leader in the foodservice distribution industry, we recognize the
importance of food safety, not only with respect to the well being of consumers,
but also as it relates to the success and reputation of our Company. The
proponents request that we undertake to review and reportlisting on the Company's
policies with respect to genetically engineered food. However, basedNYSE, the total votes cast on the contentproposal must represent over 50% of a previous proposal submitted by several of the proponents and on
conversations with representatives of the proponents, we believe that the
ultimate goal of proponents is the removal of all genetically engineered
ingredients from the products we sell. Our management and theshares outstanding.The Board of Directors believe that the proposal set forth above should be rejected.
We take every step that is mandated, as well as many more that exceed
government requirements, to verify the safetyrecommends a vote FOR approval of the foods we distribute and
that they are developed and processed in accordance with all government
regulations. This also includes our SYSCO Brand products, which are developed
and monitored by our staff of approximately 180 quality assurance professionals.
These individuals are in the fields, on the production lines and in contact with
our suppliers, and they represent a commitment to food safety that is
unsurpassed in the foodservice industry. We believe that the Food and Drug
Administration ("FDA") and other regulatory authorities who are charged with
protecting the health and safety of the public and the environment are
appropriately qualified to make judgments about the labeling and sale of food
products. We take our lead from national food-safety and regulatory authorities,
and we support their efforts to take all steps necessary, based on sound
scientific principles, to assure that any new food technology is safe for
consumers and the environment. SYSCO complies, and will continue to comply, with
all applicable government regulations.
Preparing the report requested by the proponents would require the Company
to first determine which genetic modifications constitute "genetic engineering"
and which do not - a difficult determination because almost all produce grown
for human consumption has been genetically modified to some extent. In a 2000
interview in FDA Consumer magazine, FDA Commissioner Jane E. Henney, M.D.,
pointed out, "When most people talk about bioengineered foods, they are
referring to crops produced by utilizing the modern techniques of biotechnology.
But really, if you think about it, all crops have been genetically modified
through traditional plant breeding for more than a hundred years."
Further, we understand that the use of genetic engineering with respect to
certain raw materials such as corn and soybeans is widespread. We also
understand that current agricultural storage and transportation methods make it
extremely difficult to effectively segregate modified crops from unmodified
crops. This means that any information available from growers or manufacturers
would not necessarily be consistent or accurate. As a result and given the
difficulty of differentiating genetically modified ingredients from their
unmodified counterparts with current test techniques, we believe that the report
requested by the proponents cannot be prepared at a reasonable cost or with any
significant degree of accuracy.
Current federal regulations allow for the sale of products using approved
genetically modified foods. We believe that the proponents of this resolution
should address their demands to the governmental entities overseeing food safety
rather than to a single distributor that does not have food manufacturing
facilities. In addition, the use of biotechnology in foods offers the promise of
benefiting society in several ways, including the reduction of the use of
pesticides, the creation of more nutritious foods, and the possibility of
finding new ways to help feed the world. We believe that the FDA and the
Environmental Protection Agency are in the best position to evaluate and make
decisions about the safety of biotechnology-derived food ingredients, while we
continue to focus on providing our customers with high-quality food products.
Moreover, in a May 2002 report to the U.S. Congress, the U.S. General
Accounting Office ("GAO") stated that "[genetically modified] foods pose the
same types of inherent risks to human health as conventional foods..." The GAO's
report also stated:
40
While some GM foods have contained allergens, toxins, and antinutrients,
the levels have been comparable to those foods' conventional counterparts.
In evaluating GM foods, scientists perform a regimen of tests.
Biotechnology experts whom we contacted agree that this regimen of tests is
adequate in assessing the safety of GM foods.
The text of this report is available at http://www.gao.gov/new.items/d02566.pdf.
The FDA continues to review the safety of foods, including those derived
through biotechnology. SYSCO is committed to using only safe and approved
ingredients in its products and all of our products comply with national food
laws and labeling regulations. In view of SYSCO's alignment with the current
policies of U.S. regulatory bodies on this matter, it would be inappropriate and
costly for SYSCO to undertake the report requested by the proponents.
The Company will continue to develop and revise plans as required to
address business and food safety issues as they arise. These issues are critical
to the Company's business. However, the publication of the Company's business
plans as requested would compromise its efforts and business. The proposed
report would require the Company (i) to make public confidential and proprietary
business information regarding its products and business plans; and (ii) to make
highly speculative scientific and environmental judgments about issues which the
Company is not in a position to evaluate independently. Such a report would not
advance consumer safety, but it would jeopardize the business interests of the
Company and its stockholders as a result of the publication of confidential
business plans, proprietary information and speculative scientific and
environmental judgment.
The Company opposes this proposal on the basis that it would require
significant cost and business risks without the prospect of advancing food
safety. The Company does emphasize that it is committed to the use of only those
ingredients that meet its high quality and safety standards and will continue to
support the efforts of regulatory authorities to take whatever steps are
necessary to assure that any new food technology is safe for consumers and the
environment. The Company's stockholders and consumers can count on its
compliance with all such regulations. Particularly in light of the scientific
and regulatory attention being given to the use of genetically modified
ingredients, the Company believes that preparation and publication of the report
requested in this proposal would not constitute an effective use of the
Company's assets.
The affirmative vote of a majority of votes cast is required to approve
this proposal. A similar proposal was presented to SYSCO stockholders in 2002.
That proposal was soundly defeated, receiving less than a 6% favorable vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE PROPOSAL ON
GENETICALLY ENGINEERED FOOD.
INDEPENDENT PUBLIC ACCOUNTANTS
On March 27, 2002, the company dismissed Arthur Andersen LLP as its
principal accountant and engaged Ernst & Young LLP as its principal accountant.
The decision to change principal accountants was recommended by the Audit
Committee and was approved by the Board of Directors. The Company had not
consulted with E&Y on any matter during fiscal 2000 or 2001 or prior to their
engagement in fiscal 2002.
Andersen's reports on the consolidated financial statements of the Company
for fiscal 2000 and 2001 did not contain an adverse opinion or a disclaimer of
opinion, nor were such reports qualified or modified as to uncertainty, audit
scope, or accounting principles. During fiscal 2000 and 2001, there have been no
disagreements with Andersen on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which, if not
resolved to the satisfaction of Andersen, would have caused it to make reference
41
to the subject matter in connection with its reports on the Company's
consolidated financial statements for such years, nor have there been any
reportable events as listed in Item 304(a)(1)(v) of Regulation S-K.
Ernst & Young LLP has served as the Company's independent public
accountants providing auditing, financial and tax services since their
engagement in fiscal 2002, and will continue to provide such services during
fiscal 2004. We expect that 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.
2005 Non-Employee Directors Stock Plan
48
STOCKHOLDER PROPOSALS
PRESENTING BUSINESS
Presenting Business
If you want to present a proposal under Rule 14a-8 of the Exchange Act at our 20042006 Annual Meeting of Stockholders, send the proposal in time for us to receive it by May 29, 2004.no later than June 5, 2006. If the date of our 20042006 Annual Meeting is subsequently changed by more than 30 days from the date of this year'syear’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 20042006 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 9, 2004,13, 2006, but not before June 30,
2004July 4, 2006 and you must be a stockholder of record on the date you provide notice of your proposal to stockholders
is mailedthe Company and on the record date for determining stockholders entitled to notice of the meeting and to vote.
NOMINATING DIRECTORS FOR ELECTION
Nominating Directors for Election
The Corporate Governance and Nominating Committee will consider any director nominees you recommend in writing for the 20042006 Annual Meeting if the Corporate Secretary receives notice by August 9, 2004,13, 2006, but not before June 30, 2004July 4, 2006 and you are a stockholder of record on the date you provide notice of your recommendation or nomination to stockholders is mailedthe 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:
o the name, age, business address and residence address of the person;
o the principal occupation or employment of the person;
o the class or series and number of shares of SYSCO capital stock which
the person owns beneficially or of record; and
o
| | |
| • | 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:
o your name and record address;
o the class or series and number of shares of capital stock of SYSCO
that you own beneficially or of record;
o 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;
o 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
42
o | | |
| • | 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'syear’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'syear’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.
43
APPENDIX49
ANNEX A
SYSCO CORPORATION
AUDIT COMMITTEE CHARTER
ORGANIZATION
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'sNYSE’s definition of "independent"“independent” and the definition of "independence"“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 a "financial expert"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
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.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'sSYSCO’s internal audit department ("(“Operations Review"Review”), and executive and financial management. The Audit Committee shall have full access, without restriction, to all information which it believes, in the members'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'sCommittee’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 at least four times annually.
RESPONSIBILITY WITH RESPECT TO INDEPENDENT AUDITORS
With respectas 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 Company's independent auditors,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:
o 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.
o Approve fee arrangements with the independent auditors for audit and
non-audit services and annually review fees paid to the firm.
o Review the experience and qualifications of the senior members of the
independent auditor's team.
o Pre-approve the retention of the independent auditors for any audit
(including comfort letters and statutory audits) or non-audit service.
o 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 reportauditors:
| | |
| • | 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 shareholders and Form
10-K prior to releaseIndependent Auditors
With respect to the
public or filing with the appropriate
agencies.
44
o Review and discuss with the independent auditors and with management,
the earnings press releases prior to release to the public.
o Require that the independent auditors conduct an SAS 71 Interim
Financial Review before the Company files its Form 10-Q.
o Meet with the independent auditors at the conclusion of the audit to
review the results. 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, significant auditing or
accounting issues and any management or internal control letters
issued or proposed to be issued.
o Review and discuss with management andCompany’s independent auditors, the Company's quarterly financial statements and management'sAudit 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 |
A-2
| | |
| | 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 filing Form 10-Q, including the results of the
auditor's review of the quarterly financial statements.
o Obtain and review at least annually 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;
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 and
present its conclusions to the full Board.
o 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.
o 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 MATTERSOther Matters
With respect to other matters, the Committee shall:
o Meet separately, at least quarterly with Operations Review, with the
independent auditors, and with management.
o 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.
Request recommendations for improvement of such controls, including
identified areas where new or more detailed controls or procedures are
45
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.
o Meet with the independent auditors and executive and financial
management to review the scope of the proposed audit for the ensuing
fiscal year including the audit procedures to be employed.
o Review the adoption, application and disclosure of the Company's
critical accounting policies and any changes thereto.
o 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.
o Review SYSCO's Operations Review function 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.
o Receive prior to each meeting as appropriate, from the Operations
Review function 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.
o Review and approve the Committee's report required by the SEC to be
included in the Company's annual Proxy Statement.
o Review and approve significant related party transactions.
o 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.
o 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.
o Review public reports and articles brought to the Committee's
attention by the auditors or management in which SYSCO accounting
practices are mentioned.
o 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 and financial areas.
o | | |
| • | 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. |
A-3
| | |
| • | 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. |
A-4
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 hiring any
employee or former employee(the “Board of Directors”) on September 9, 2005. This Plan shall be effective on November 11, 2005.
The purpose of the
Company's independent auditors and
set clear hiring policies with respect thereto.
o Review all allegations broughtPlan is to
reward (i) certain key management personnel for outstanding performance in the
Committee's attention,
regardless of source, of inappropriate or improper accounting
practices.
o 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
46
appropriate and shall have appropriate funding to compensate such
advisors.
o Discuss financial information and earnings guidance provided to
analysts and rating agencies.
o Submit the minutes of all meetingsmanagement of the Committee to,divisions or orally
report the matters discussed at each committee meeting with, the Board
of Directors.
o 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.
o Evaluate annually the performance of the Audit Committee.
o Review and assess the adequacy of this Charter annually and recommend
any changes to the Board for approval.
47
APPENDIX B
SYSCO CORPORATION
2003 STOCK INCENTIVE PLAN
SECTION 1
GENERAL
1.1 Purpose. The SYSCO Corporation 2003 Stock Incentive Plan (the "Plan")
has been established by SYSCO Corporation (the "Company") to (i) attract and
retain persons eligible to participate in the Plan; (ii) motivate Participantssubsidiaries (as defined in Section 1.2 below), by means of appropriate incentives, to
achieve long-range goals; (iii) provide incentive compensation opportunities
that are competitive with those of other similar companies; and (iv) further
identify Participants' interests with those of the Company's shareholders
through compensation that is based on the Company's common stock; and thereby
promote the long-term financial interesthereinafter defined) of the Company and its Subsidiaries, as
defined in Section 8(i), including(ii) certain corporate personnel for managing the growth in valueoperations of the Company's equity
and enhancementCompany as a whole and/or managing the operations of long-term shareholder return. Pursuant to the Plan,
Participants may receive Options, SARs, or Other Stock Awards, each as defined
herein (collectively referred to as "Awards.")
1.2 Participation. Subject to the terms and conditionscertain Subsidiaries (as hereinafter defined). For purposes of the Plan, the Committee (as defined in Section 6) shall determine and designate, from time to
time, from amongterm “Subsidiary” means (a) any corporation which is a member of a “controlled group of corporations” which includes the Eligible Grantees,Company, as defined in Section 8(g) (including
transferees of Eligible Grantees to the extent the transfer is permitted by the
Plan and the applicable Award Agreement), those persons who will be granted one
or more Awards under the Plan, and thereby become "Participants" in the Plan. In
the discretion of the Committee, a Participant may be granted any Award
permitted under the provisions of the Plan, and more than one Award may be
granted to a Participant. Awards may be granted as alternatives to or
replacement of awards outstanding under the Plan, or any other plan or
arrangement of the Company or a Subsidiary (including a plan or arrangement of a
business or entity, all or a portion of which is acquired by the Company or a
Subsidiary).
1.3 Operation, Administration, and Definitions. The operation and
administration of the Plan, including the Awards made under the Plan, shall be
subject to the provisions of Section 4 (relating to operation and
administration). Capitalized terms in the Plan shall be defined as set forth in
the Plan (including the definition provisions of Section 8 of the Plan).
SECTION 2
OPTIONS AND SARS
2.1 Definitions.
(a) The grant of an "Option" entitles the Participant to purchase shares of
Stock at an Exercise Price established by the Committee. Options granted under
this Section 2 may either be Incentive Stock Options ("ISOs") or Non-Qualified
Options ("NQOs"), as determined in the discretion of the Committee. An "ISO" is
an Option that is intended to satisfy the requirements applicable to an
"incentive stock option" described in section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"“Code”). An "NQO" 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 Option that is not
intended“affiliated service group” which includes the Company, as defined in Code Section 414(m), (d) any other entity required to be an "incentive stock option"aggregated with the Company pursuant to Code Section 414(o), and (e) any other organization or employment location designated as that term is described in section
422(b)a “Subsidiary” by resolution of the Code.
(b) A stock appreciation right (an "SAR") entitles the Participant to
receive, in cash or Stock (as determined in accordance with subsection 2.5),
value equal to (orBoard of Directors. Except as otherwise based on) the excess of: (a) the Fair Market Value
(as definedprovided in Section 8) of a specified8 hereof, the total number of shares of Company Common Stock, at$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
exercise; over (b) an Exercise Price established by the
Committee.
48
2.2 Exercise Price. The Exercise PricePlan and any award issued under the Plan (and any agreements relating thereto) including without limitation the manner of each Optiondetermining financial and SAR granted under
this Section 2 shall be establishedaccounting 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 orpursuant to the provisions of the Plan shall be determined bymade 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 method establishedfiscal year shall be designated by the Committee atfrom the timepersons who are employed by any Subsidiary or the OptionCompany, in the following capacities (Subsidiary Participants, Corporate Participants, Designated Participants and Senior Executive Participants are referred to collectively as “Participants” or SAR is granted;
provided, however, thatindividually 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. |
B-1
| |
| 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 Exercise Priceextent possible, the Committee shall not be less than 100%designate Participants in the Plan prior to the commencement of the Fair Market Value offiscal year for which such designated Participants will be entitled to a share of Stock on the date of grant of the Award and no
Option or SAR may be repriced in violation of Section 7 below.
2.3 Exercise. An Option and an SAR shall be exercisable in accordance with
such terms and conditions and during such periods as may be established by the
Committee; provided, however, that if a Participant shall die while in the
employ of the Company or a Subsidiary and shall not have fully exercised an
Option or SAR, to the extent that the Participant's right to exercise such
Option or SAR had accrued pursuant to this Section 2 ofbonus under the Plan, at the time of
his death and had not previously been exercised, the Option or SAR may be
exercised (subject to the condition that no Option or SAR shall be exercisable
after the expiration of ten years from the date it is granted, or beyond its
original term) at any time within one (1) year after the Participant's death, by
the executors or administrators of the Participant's estate or by any person or
persons who shall have acquired the Option or SAR directly from the Participant
by bequest or inheritance.
2.4 Payment of Option Exercise Price. The payment of the Exercise Price of
an Option granted under this Section 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 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 Committee and described in paragraph
2.4(c), payment may be made as soon as practicable afterduring the exercise).
(b) The Exercise Price shallfiscal year in which a person first becomes eligible to be payable in cash or by tendering (either by
actual deliverya Participant. Subject to Section 10 below with respect to a Change of shares or by attestation) shares of Stock that are acceptable
toControl, once designated as a Participant, the Committee have been heldcan 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 participant for at least six months, and
were valued at Fair Market Value as of the day the shares are tendered, or in
any combination of cash, shares, or attested shares, as determined by the
Committee.
(c) To the extent permitted by applicable law, a Participant may elect to
pay the Exercise Price upon the exercise of an Option by irrevocably authorizing
a third party to sell shares of Stock (or a sufficient portion of the shares)
acquired upon exercise of the Option and remit to the Company a sufficient
portion of the sale proceeds to pay the entire Exercise Price and any tax
withholding resulting from such exercise.
2.5 Settlement of Award. Shares of Stock delivered pursuant to the exercise
of an Option or SAR shall be subject to such conditions, restrictions and
contingenciesCommittee as the Committee may establish inSubsidiary by reference to which the applicable Award Agreement.
Settlementbonus is to be determined and (B) (as to Corporate and possibly Designated Participants and certain Senior Executive Participants) the performance of SARs may be made in sharesa select group of Stock (valued at their Fair Market
Value at the time of exercise)Subsidiaries ((i) and (ii), in cash,collectively or in a combination thereof, as
determined insingly, “Performance”), subject to the discretion of the Committee. The Committee in its discretion,
may impose such conditions, restrictions and contingenciesto 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 shares of Stock acquired pursuantan 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
exercise of an Option or an SAR as the
Committee determines to be desirable.
SECTION 3
OTHER STOCK AWARDS
3.1 Definitions. The term "Other Stock Awards" means anyapplication of the
following:
(a) A "Stock Unit" Award isExecutive Compensation Provisions, a portion of the
grantbonus may depend upon the return on capital and/or increase in pretax earnings of
the Subsidiary employing such Participant; a
right to receive sharesportion of
Stockthe bonus may depend upon the return on stockholder’s equity and increase in
earnings per share of the
future.
49
(b) A "Performance Share" Award isCompany as a grant of a right to receive shares of
Stock or Stock Units which is contingent on the achievement of performance or
other objectives during a specified period.
(c) A "Restricted Stock" Award is a grant of shares of Stock,whole; and a "Restricted Stock Unit" Award is the grant of a right to receive shares of Stock
in the future, with such shares of Stock or right to future delivery of such
shares of Stock subject to a risk of forfeiture or other restrictions that will
lapse upon the achievement of one or more goals relating to completion of
service by the Participant, or achievement of performance or other objectives,
as determined by the Committee.
3.2 Restrictions on Stock Awards. Each Stock Unit Award, Restricted Stock
Award, Restricted Stock Unit Award and Performance Share Award shall be subject
to the following:
(a) Any such Award shall be subject to such conditions, restrictions and
contingencies as the Committee shall determine.
(b) The Committee may designate whether any such Awards being granted to
any Participant are intended to be "performance-based compensation" as that term
is used in Section 162(m)portion of the Code. Any such Awards designated as intended to
be "performance-based compensation" shall be conditioned on the achievement of
one or more Performance Measures. The Performance Measures thatbonus may be used by
the Committee for such Awards shall be based ondepend upon any one or more of the following as selected by the Committee: return on capital or increase in pretax
earnings of the Company and/or one or more divisions and/or subsidiaries, return
on stockholders' equity of the Company, increase in earnings per share of the
Company,performance factors: (i) sales of the Company and/or one or more divisions and/or subsidiaries,Subsidiaries, (ii) pretax earnings of the Company, and/or one or more divisions and/or subsidiaries,(iii) net earnings of the Company and/or one or more divisions and/or subsidiaries,Subsidiaries, (iv) control of operating and/or non-operatingnonoperating expenses of the Company and/or one or more divisions and/or subsidiaries,Subsidiaries, (v) margins of the Company and/or one or more divisions and/or subsidiaries,Subsidiaries, (vi) market price of the Company'sCompany’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 objectively measurablethan Senior Executive Participants, other factors directly tied to the performance of the Company and/or one or more divisionsSubsidiaries. 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 B-2
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 subsidiaries.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- |
B-3
| |
| 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 entitled to receive for 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 value 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 Awards intendedexample, 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 "performance-based compensation,"issued to a Participant may be unregistered, at the grantoption of the AwardsCompany, 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 establishmentrules and regulations thereunder, and the shares shall bear a legend reflecting the investment representation and the unregistered status of the Performance Measuresshares.
(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 requiredfollowing 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 Codethis Section 162(m).
SECTION 4
OPERATION AND ADMINISTRATION
4.1 Effective Date; Duration.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:
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| (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); |
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| (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; |
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| (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 |
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| (D) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. |
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| 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. |
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| 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. |
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| 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. |
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| 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 its approvalthe amendment, unless otherwise stated by the stockholdersBoard of Directors. The Plan may be terminated at any time by the Board of Directors and termination will be effective as of the Company (the "Effective Date").commencement of the fiscal year in which such action to terminate the Plan is taken. The Plan shallwill terminate, and no further awards may be made hereunder, on November 11, 2010. Any awards granted prior to November 11, 2010 that have a durationnot yet been paid as of ten years fromthat date will continue to remain outstanding and will be payable in accordance with and to the Effective Date;extent provided that in the eventPlan and the applicable grant agreements or programs. Notwithstanding the foregoing, no amendment or termination following a Change of Plan termination,Control may in any way decrease or eliminate a payment due pursuant to Section 10.
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| 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 remainany 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 effect as long as any Awards
under it are outstanding; providedSection 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 however, that no Award mayawards will be granted under the Prior Plan on afollowing such date, that is more than ten years from the Effective
Date.
4.2 Awards Subject to Plan. Awards granted under the Plan shall be subject
to the following:
(a) Subject to the following provisions of this subsection 4.2, the maximum
number of shares of Stock that may be delivered to Participants and their
beneficiaries under the Plan shall be equal to the sum of: (i) 25 million shares
of Stock; (ii)but any shares of Stock available for future awards under the
Company's 2000 Stock Incentive Plan (the "2000 Plan") as of the Effective Date;
(iii) any shares of Stock that are represented by awards granted under the Company's 1991 Stock OptionPrior Plan or the 2000 Planprior to November 11, 2005 that have not yet been paid as of the Effective Date
(together, the "Prior Plans") which are forfeited, expire or are canceled
without delivery of shares of Stock; (iv) upthat date will continue to 10 million shares of Stock,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:
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| (i) the maximum number of shares of Common Stock that may be issued pursuant to Stock Options shall be 220,000; |
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| (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 |
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| (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
the Board, which are reacquired by the Companythis Plan, in the
open marketnumber 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
private transactions afterSection 1.2(c) below), in the
Effective Date;number and
(v) upkind 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
5
million shares of stock tendered by Participantsoutstanding Retainer Stock Awards, Restricted Stock and/or Restricted Stock Units, as hereinafter defined, shall automatically be made if, and in
connection with the
exercise
of Options grantedsame manner as, similar adjustments are made to awards issued under the
Plan or eitherCorporation’s incentive plans for management of the
Prior Plans.
50
(b)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 ParticipantNon-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
C-1
because the Award is settled in cash orthey are used to satisfy theany 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 maximum numbergrant of an Option entitles the recipient to purchase shares of Stock available for deliveryat 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 PlanBoard 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 reduced for
shares subjectless 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 Stock on the first business day prior to plans assumedthat 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 Company in an acquisition of an interest
in another company.
(c)New York Stock Exchange.
Section 2.3 Exercise. Subject to adjustmentthe provisions of this Plan, an Option shall be exercisable in accordance with paragraphs 4.2(d)such terms and 4.2(e),
the following additional maximums are imposed under the Plan:
(i) Subject to the overall maximum number of shares of Stock thatconditions and during such periods as may be issued in accordance with Section 4.2(a)established by the Board of the Plan, the aggregate maximum
number of shares of StockDirectors; provided, however, that no Option may be issued (A) pursuant to Options intended to
be ISOs and (B) in conjunction with Other Stock Awards granted pursuant to
Section 3 shall be [118,000,000];
(ii) The maximum number of shares of Stock that may be covered by Awards
granted to any one individual pursuant to Section 2 (relating to Options and
SARs) shall be 250,000 during any fiscal year; and
(iii) Noexercised more than 100,000 sharesseven years after its grant date and no Option granted hereunder may vest in excess of Stock may be subject to Stock Unit
Awards, Restricted Stock Awards, Restricted Stock Unit Awards and Performance
Share Awards that are intended to be "performance-based compensation" (as that
term is used for purposes1/3 of Code Section 162(m)) granted to any one individual
during any one fiscal-year period (regardless of when such shares are
deliverable).
(d) If the outstanding shares of Stock are changed into or exchanged for a
different number or kind of shares or other securities of the Company by reason
of any recapitalization, reclassification, stock split, stock dividend,
combination, subdivision or similar transaction (each, a "Corporate
Transaction") then, subject to any required action by the stockholders of the
Company, the number and kind of shares of Company stock available under the Plan
or subject to any limit or maximum hereunder shall automatically be
proportionately adjusted, with no action required on the part of the Committee
or otherwise. Subject to any required action by the stockholders, the number of shares covered by each outstanding Award, and the price per share in each such
Award, may, at the discretion of the Committee, be proportionately adjusted for
any increase or decrease in the number of issued shares of the Company resulting
from a Corporate Transaction or any other increase or decrease in the number of
such shares effected without receipt of consideration by the Company.
Notwithstanding the foregoing, no fractional shares shall be issued or made
subject to an Option, SAR or Stock Award in making the foregoing adjustments.
All adjustments made by the Committee under this Section shall be final,
conclusive and binding upon the holders of Options, SARS and Stock Awards.
(e) If the Company merges or consolidates with another corporation, whether
or not the Company is a surviving corporation, or if the Company is liquidated
or sells or otherwise disposes of substantially all of its assets while
unexercised Options or other Awards remain outstanding under this Plan, (A)
subject to the provisions of clause (C) below,Option per year for the first three years after the effective dategrant date.
Section 2.4 Payment of Option Exercise Price. The payment of the merger, consolidation, liquidation, sale or other disposition, as the case may
be, each holderexercise price of an outstanding Option or other Awardgranted under this Article 2 shall be entitled, upon
exercise of that Option or Award or in place of it, as the case may be, to
receive, at the option of the Committee and in lieu of shares of Stock, (i) the
number and class or classes of shares of Stock or other securities or property
to which the holder would have been entitled if, immediately prior to the
merger, consolidation, liquidation, sale or other disposition, the holder had
been the holder of record of a number of shares of Stock equal to the number of
shares of Stock as to which that Option may be exercised or are subject to the Award or (ii)following:
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| (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). |
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| (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. |
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| (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 stockAward. Shares of
the company that is the surviving corporation
in such merger, consolidation, liquidation, sale or other disposition having a
value, as of the date of payment under subjection 4.2(e)(i) as determined by the
51
Committee in its sole discretion, equalCommon Stock delivered pursuant to the valueexercise of the shares of Stock or
other securities or property otherwise payable under subsection 4.2(e)(i); (B)
if Options or other Awards have not already become exercisable under Section 5
hereof,an Option shall be subject to such conditions, restrictions and contingencies as the Board of Directors may waive any limitations set forthestablish in or imposedthe applicable Option grant agreement. The Board of Directors, in its discretion, may impose such conditions, restrictions and contingencies with respect to shares of Common Stock acquired pursuant to this Plan so that all Options or other Awards, from and after a date
prior to the effective dateexercise of that merger, consolidation, liquidation, sale or
other disposition,an Option as the case may be, specified by the Board of Directors shalldetermines to be exercisable in full;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 (C) all outstanding Options or SARsdistribution. During the grantee’s lifetime, an Option may be cancelledexercised only by the Board of Directors as of the effective date of any merger,
consolidation, liquidation, sale or other disposition provided that any optionee
or SAR holder shall have the right immediately prior to such event to exercise
his or her Option or SAR to the extent such optionee or holder is otherwise able
to do so in accordance with this Plan (including Section 5 hereof) or his
individual Option or SAR agreement; provided, further, that any such
cancellation pursuant to this Section 4.2(e) shall be contingent upon the
payment to the affected Participants of an amount equal to (i) in the case of
any out-of-the-money Option or SAR, cash, property or a combination thereof
having an aggregate value equal to the value of such Option or SAR, as
determined by the Committeegrantee or the Board of Directors, as applicable, in its
sole discretion, and (ii) in the case of an in-the-money Optiongrantee’s guardian or SAR, cash,
property or a combination thereof having an aggregate value equal to the excess
of the value of the per-share amount of consideration paid pursuant to the
merger, consolidation, liquidation, sale or other disposition, as the case may
be, giving rise to such cancellation, over the exercise price of such Option or
SAR multiplied by the number of shares of Stock subject to the Option or SAR.
(f) In the event of a change in the shares of the Company as presently
constituted, which is limited to a change of all of its authorized shares with
par value into the same number of shares with a different par value or without
par value, the shares resulting from any such change shall be deemed to be the
shares within the meaning of this Plan.
(g) Any adjustments pursuant to legal representative.
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Section 4.2(e) shall be made by the Board
or Committee, as the case may be, whose determination in that respect shall be
final, binding and conclusive, regardless of whether or not any such adjustment
shall have the result of causing an ISO to cease to qualify as an ISO.
(h) Except as hereinbefore expressly provided in this Section 4, a
Participant shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class or the payment of any stock dividend or any
other increase or decrease in the number of shares of stock of any class or by
reason of any dissolution, liquidation, merger, or consolidation or spin-off of
assets or stock of another corporation, and any issue by the Company of shares
of stock of any class, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Stock subject to
an Award, unless the Committee shall otherwise determine.
(i) The grant of any Award pursuant to this Plan shall not affect in any
way the right or power of the Company (A) to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, (B) to merge or consolidate, (C) to dissolve, liquidate or sell, or
transfer all or any part of its business or assets or (D) to issue any bonds,
debentures, preferred or other preference stock ahead of or affecting the Stock.
If any action described in the preceding sentence results in a fractional share
for any Participant under any Award hereunder, such fraction shall be completely
disregarded and the Participant shall only be entitled to the whole number of
shares resulting from such adjustment.
4.3 General Restrictions. Delivery of shares of Stock or other amounts
under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company shall have
no liability to deliver any shares of Stock under the Plan or make any other
distribution of benefits under the Plan unless such delivery or distribution
52
would comply with all applicable laws (including, without limitation, the
requirements of the Securities Act of 1933), and the applicable requirements of
any securities exchange or similar entity.
(b) To the extent that the Plan provides for issuance of stock certificates
to reflect the issuance of shares of Stock, the issuance may be effected on a
non-certificated basis, to the extent not prohibited by applicable law or the
applicable rules of any stock exchange.
4.4 Tax Withholding. All distributions under the Plan are subject to
withholding of all applicable taxes, and the Committee may condition the
delivery of any shares or other benefits under the Plan on satisfaction of the
applicable withholding obligations. The Committee, in its discretion, and
subject to such requirements as the Committee may impose prior to the occurrence
of such withholding, may permit such withholding obligations to be satisfied
through cash payment by the Participant, through the surrender of shares of
Stock which the Participant already owns, or through the surrender of shares of
Stock to which the Participant is otherwise entitled under the Plan, but only to
the extent of the minimum amount required to be withheld under applicable law.
4.5 Use of Shares. Subject to the overall limitation on the number of
shares of Stock that may be delivered under the Plan, the Committee may use
available shares of Stock as the form of payment for compensation, grants or
rights earned or due under any other compensation plans or arrangements of the
Company or a Subsidiary, including the plans and arrangements of the Company or
a Subsidiary assumed in business combinations.
4.6 2.7 Dividends and Dividend Equivalents. An
Award (including without
limitation an Option,
at the time of grant or
SAR Award)subsequent thereto, may provide the
Participantgrantee with the right to receive dividend payments or dividend equivalent payments with respect to
Common Stock subject to the
Award (both before and after the Stock subject to the Award is
earned, vested, or acquired), whichOption. Such payments may
either be
either made currently or credited to an account for the
Participant,grantee, and may be settled in cash or
Common Stock as determined by the
Committee.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
CommitteeBoard shall
establish, includingestablish. ARTICLE 3
Retainer Stock Awards
Section 3.1 Terms and Conditions.
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| (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. |
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| (b) 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. |
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| (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. |
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| (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 reinvestmentnumber of such credited amounts in Stock
equivalents.
4.7 Payments. Awardsshares that may be settled through cash payments,vested under a Retainer Stock Award for a Non-Employee Director would result in a fractional share, then the deliverynumber of shares of Stock, the granting of replacement Awards, or any combination thereof
as the Committee shall determine. Any Award settlement, including payment
deferrals, may be subject to such conditions, restrictions and contingencies as
the Committee shall determine. The Committee may permit or require the deferral
of any Award payment, subject to such rules and procedures as it may establish,
which may include provisions for the payment or crediting of interest, or
dividend equivalents, including converting such credits into deferred Stock
equivalents. Each Subsidiaryvest shall be liable for payment of cash due under the
Plan with respect to any Participantincreased to the extentnext highest number that such benefits are
attributable towould result in the services rendered for that Subsidiary by the Participant.
Any disputes relating to liabilityvesting of no fractional shares.
Section 3.3 Limitations on Stock. Common Stock granted as a Subsidiary for cash payments shall be
resolved by the Committee.
4.8 Transferability. Except as otherwise provided by the Committee, Awards
under the Plan are not transferable except as designated by the Participant by
will or by the laws of descent and distribution.
4.9 Form and Time of Elections. Unless otherwise specified herein, each
election required or permitted to be made by any Participant or other person
entitled to benefits under the Plan, and any permitted modification, or
revocation thereof, shall be in writing filed with the Committee at such times,
in such form, and subject to such restrictions and limitations, not inconsistent
with the terms of the Plan, as the Committee shall require.
4.10 Agreement With Company. AnRetainer Stock Award under the Plan shall be subject to such terms and conditions, not inconsistent with 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
the Committee
shall,a Director may elect to receive up to 50% of his or her annual retainer fee, in
its sole discretion, prescribe. The terms and conditions10% increments, exclusive of any
Award
tofees or other amounts payable for attendance at the meetings of the Board or for service on any
Participant shall be reflectedcommittee thereof, in
suchthe form of
written document as is
53
determined by the Committee. A copy of such document shall be providedCommon Stock (a “Stock Election”), subject to the Participant, andfollowing terms of this Article 4. The amount of the Committee may, but need not, require that the Participant
shall signfee which a copy of such document. Such documentNon-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 PlanElected 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 an "Award Agreement" regardlessprovided in this Article 4 (the “Stock Account”). Each Electing Director shall have credited to his or her Stock Account on the date of whether any Participant signature is
required.
4.11 Actioneach quarterly payment of the annual retainer fee (the “Quarterly Payment Date”) the sum of (i) that number of shares of Common Stock determined by Companydividing his or Subsidiary. Any action required or permitted to
be takenher Elected Amount by the Company or any SubsidiaryFair 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
by resolution of its board of
directors, or by action of one or more members100% vested as of the
board (including a
committee of the board) whodate they are
duly authorized to act for the board, or (exceptcredited to the
extent prohibited by applicable lawElecting Director’s Stock Account, but may not be sold or
applicable rules of any stock
exchange) by a duly authorized officer of such company.
4.12 Gender and Number. Where the context admits, words in any gender shall
include any other gender, words in the singular shall include the plural and the
plural shall include the singular.
4.13 Limitation of Implied Rights.
(a) Neither a Participant nor any other person shall, by reason of
participation in the Plan, acquire any right in or title to any assets, funds or
property of the Company or any Subsidiary whatsoever, including, without
limitation, any specific funds, assets, or other property which the Company or
any Subsidiary, in its sole discretion, may set aside in anticipation of a
liability under the Plan. A Participant shall have only a contractual right to
the Stock or amounts, if any, payable under the Plan, unsecured by any assets of
the Company or any Subsidiary, and nothing contained in the Plan shall
constitute a guarantee that the assets of the Company or any Subsidiary shall be
sufficient to pay any benefits to any person.
(b) The Plan does not constitute a contract of employment, and selection as
a Participant will not give any participating employee the right to be retained
in the employ of the Company or any Subsidiary, nor any right or claim to any
benefit under the Plan, unless such right or claim has specifically accrued
under the terms of the Plan. Except as otherwise provided in the Plan, no Award
under the Plan shall confer upon the holder thereof any rights as a shareholder
of the Companytransferred prior to the date
they are issued. Additional Shares, however, may not be sold or transferred for a period of two years after the date as of which they are issued 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 by the Board of Directors, the Restriction shall lapse and be of no further force or effect on
whichor after the
individual fulfills all conditions
for receiptdate of such
rights.
4.14 Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, documentdeath, disability, departure or
other information which the person acting on
it considers pertinentdetermination; and
reliable, and shall be signed, made or presented by
the proper party or parties.
4.15 Forfeiture. Notwithstanding any other provision of this Plan, except
as provided in Section 4.16 below, if the Committee finds by a majority vote
that, with respect to a Participant who was an employee or consultant of the
Company or a Subsidiary at any time that an Award hereunder is outstanding: (i)
the Participant, before or after termination of his or her employment or
consulting relationship with the Company or a Subsidiary (as used in this
Section 4, an "Employer") for any reason, (a) committed fraud, embezzlement,
theft, a felony, or proven dishonesty in the course of his employment or other
engagement by Employer, and by such act damaged Employer, or (b) disclosed trade
secrets of Employer; or (ii) the
Participant, beforeRestriction shall lapse and be of no further force or
after termination of his
employment or consulting relationship with Employer for any reason,
participated, engaged or had a financial or other interest (whether as an
employee, officer, director, consultant, contractor, shareholder, owner, or
otherwise) in any commercial endeavor in the United States competitive with the
business of Employer (a) in violation of the SYSCO Corporation Code of Business
Conduct, as in effect on the date
of such participation or other engagement, or
(b) in such a manner that would have violated the Code of Business Conduct had
Participant been employed by Employer at the time of the activity in question,
then any outstanding Awards which, in the case of Options or SARs, have not been
exercised and, in the case of Awards other than Options or SARs, have not
54
vested, will be forfeited. The decision of the Committee as to the nature of a
Participant's conduct, the damage done to Employer and the extent of the
Participant's competitive activity will be final. No decision of the Committee,
however, will affect the finality of the discharge of the Participant by
Employer in any manner.
4.16 Termination of Employment Following Change in Control. In the event
that the employment of a Participant who is an employee of the Company or a
Subsidiary is terminated by the Company other than for Cause, as defined in
Section 8(d), during the 24-month period following a Change in Control, as
defined in Section 8(e), all of such Participant's outstanding Options and SARs
may thereafter be exercised by the Participant, to the extent that such Options
and SARs were exercisable as of the date of such termination of employment, for
(x) a period of 24 months from such date of termination or (y) until expiration
of the stated term of such Option or SAR, whichever period is the shorter. The
provisions of clause (ii) of Section 4.15 of the Plan shall not apply to any
Participant who incurs a termination of employment pursuant to this Section
4.16, with respect to activity after such termination of employment.
SECTION 5
CHANGE IN CONTROL
Subject to the provisions of paragraph 4.2(d) (relating to the adjustment
of shares), and except as otherwise provided in the Plan or the Award Agreement
reflecting the applicable Award, upon the occurrence of a Change 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 pursuant 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 8(e):
(a) All outstanding Options (regardless4.1 hereof, or if December 31 is not a business day for the Corporation’s transfer agent, on the last business day of whetherthe Corporation’s transfer agent prior to December 31. As of the Issue Date, a certificate for the total number of vested shares in tandem with SARs)his or her account on the Issue Date shall become fully exercisable.
(b) All outstanding SARs (regardlessbe issued to such Electing Director subject to the other terms and conditions of whetherthis Plan and at that time, the balance in tandem with Options)each Electing Director’s Stock Account shall become fully exercisable.
(c) Allbe 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).
C-4
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 following the date 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 by 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 of shares of Restricted Stock or the number of Restricted Stock Units granted, and any such other provisions 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 conditions 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.
C-5
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 grant of the Restricted Stock Unit.
ARTICLE 6
Miscellaneous
Section 6.1 Cessation of Service. Except as set forth below and unless otherwise determined by the Board, upon cessation of service as a Non-Employee Director (for reasons other than death), all Options, whether or not exercisable at the date of cessation of service, and all unvested Restricted Stock, Restricted Stock Units and Performance Shares shall become fully vested.
SECTION 6
COMMITTEE
6.1 Administration. The authority to control and manage the operation and
administration of the PlanRetainer Stock Awards shall be vested in a committee (the "Committee") in
accordance with this Section 6. The Committee shall be selectedforfeited by the Board,
and shall consist solely of two or more members of the Board who are nonemployee
directors within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934, as amended, and are outside directors within the meaning of Code Section
162(m). If the Committee does not exist, or for any other reason determined by
the Board, the Board may take any action under the Plangrantee; provided, however, that, would otherwise be
the responsibility of the Committee. Unlessunless otherwise determined by the Board, SYSCO's Compensationif (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, Option CommitteeRestricted Stock Units and Retainer Stock Awards shall remain in effect, vest, become exercisable and expire as if the grantee had remained a Non-Employee Director of the Corporation. The status of Elected Shares and Additional Shares shall be designated asgoverned by Section 4.3.
Section 6.2 Death. Upon the "Committee" hereunder.
6.2 Powersdeath of Committee. The Committee's administrationa 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 from the Non-Employee Director by reason of his or her death, at any time within three years after the date of the Non-Employee Director’s death, but in no event later than the original termination date of the Option. In no event may 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
subject toadministered by the
following:
(a) Subject to the provisionsBoard of Directors of the
Plan, the Committee will have the
authority and discretion to select from among the Eligible Grantees those
persons who shall receive Awards, to determine the time or times of receipt, to
determine the types of Awards and the number of shares covered by the Awards, to
establish the terms, conditions, performance criteria, restrictions, and other
provisions of such Awards, and (subject to the restrictions imposed by Section
7) to cancel or suspend Awards.
55
(b) To the extent that the Committee determines that the restrictions
imposed by the Plan preclude the achievement of the material purposes of the
Awards in jurisdictions outside the United States, the Committee will have the
authority and discretion to modify those restrictions as the Committee
determines to be necessary or appropriate to conform to applicable requirements
or practices of jurisdictions outside of the United States.
(c) The Committee will have the authority and discretion to interpret the
Plan, to establish, amend, and rescind any rules and regulations relating to the
Plan, to determine the terms and provisions of any Award Agreement made pursuant
to the Plan, and to make all other determinations that may be necessary or
advisable for the administration of the Plan.
(d) Any interpretation of the Plan by the Committee and any decision made
by it under the Plan is final and binding on all persons.
(e) In controlling and managing the operation and administration of the
Plan, the Committee shall take action in a manner that conforms to the
certificate of incorporation and by-laws of the Company, and applicable state
corporate law.
6.3 Delegation by Committee. Except to the extent prohibited by applicable
law or the applicable rules of a stock exchange, the Committee may allocate all
or any portion of its responsibilities and powers to any one or more of its
members and may delegate all or any part of its responsibilities and powers
hereunder, including without limitation, the power to designate Participants
hereunder and determine the amount, timing and terms of Awards hereunder, to any
person or persons selected by it, including without limitation, any executive
officer of the Company. Any such allocation or delegation may be revoked by the
Committee at any time.
6.4 Information to be Furnished to Committee. The Company and Subsidiaries
shall furnish the Committee with such data and information as it determines may
be required for it to discharge its duties. The records of the Company and
Subsidiaries as to an employee's or Participant's employment, termination of
employment, leave of absence, reemployment and compensation shall be conclusive
unless the Committee determines such records to be incorrect. Participants and
other persons entitled to benefits under the Plan must furnish the Committee
such evidence, data or information as the Committee considers desirable to carry
out the terms of the Plan.
SECTION 7
AMENDMENT AND TERMINATION
(a) TheCorporation. This Plan may be terminated or amended by the Board of Directors atas they deem advisable. The Board may delegate its authority hereunder to the Non-Employee Directors, or to any time, except thattwo or more thereof. Section 6.4 Amendments. No amendment may revoke or alter in a manner unfavorable to the following actions may not be taken without shareholder
approval:
(i)grantees any Options, Restricted Stock, Restricted Stock Units, Retainer Stock Awards or Elected Shares then outstanding, and no amendment, unless approved by Corporation stockholders, can increase in the number of shares thatauthorized for issuance hereunder, in total or pursuant to any award type, modify the method by which 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
thethis Plan
(except by certain adjustments provided for under the Plan);
(ii) any change in the class of persons eligible to receive ISOs under the
Plan;
(iii) any change in the requirements of Section 2.2 hereof regarding the
Exercise Price;
(iv) any repricing of any Option or SAR issued under the Plan by (A)
lowering the exercise price ofafter that
Option or SAR or (B) canceling that Option
or SAR and subsequently granting a new Option or SAR with a lower exercise
price, or any other Award, to the extent that such cancellation, replacement or
grant would fall within the definition of "repriced" contained in Item 402(i) of
Regulation S-K promulgated under the Securities Act of 1933, such definition to
56
be applied to grants to all persons, not only "named executive officers" as that
termdate which is defined in Item 402(a)(3) of Regulation S-K; or
(v) any other amendment to the Plan that would require approval of the
Company's shareholders under applicable law, regulation or rule.
Notwithstanding any of the foregoing, adjustments pursuant to paragraph 4.2(d)
shall not be subject to the foregoing limitations of this Section 7.
(b) Options may not be granted under the Plan afterfive years from the date of terminationstockholder approval of thethis Plan, but Options granted prior to that date shall continue to become exercisable and may be exercisableexercised according to their terms.
SECTION 8
DEFINED TERMS
In addition to the other definitions contained herein, the following
definitions shall apply:
(a) Affiliated Company. The term "Affiliated Company" means any company
controlled by, controlling or under common control with the Company.
(b) Award. The term "Award" shall mean any award or benefit granted under
the Plan, including, without limitation, the grant of Options, SARs, Stock Unit
Awards,terms, Restricted Stock, Awards, Restricted Stock UnitUnits, and Retainer Stock Awards and Performance
Share Awards.
(c) Board. The term "Board" shall mean the Board of Directors of the
Company.
(d) Cause. The term "Cause" means, unless otherwise provided by the
Committee, (1) "Cause" as defined in any Individual Agreement, as defined below,
to which the Participant is a party, or (2) if there is no such Individual
Agreement or if it does not define Cause: (A) conviction of the Participant for
committing a felony under federal law or the law of the state in which such
action occurred, (B) dishonesty in the course of fulfilling the Participant's
employment duties or (C) willful and deliberate failure on the part of the
Participant to perform the Participant's employment duties in any material
respect. The Committee shall, unless otherwise provided in an Individual
Agreement with a Participant, have the sole discretion to determine whether
"Cause" exists, and its determination shall be final.
(e) Change in Control. The term "Change in Control" shall mean:
(i) 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 (A) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (B) 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 Securities");
provided, however, that, for purposes of this Section 8(e), the following
acquisitions shall not constitute a Change in 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
8(e)(iii)(A), 8(e)(iii)(B) and 8(e)(iii)(C);
(ii) The occurrence of the following: Individuals who, as of ______, 2003,
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 ______, 2003 whose election, or nomination for
election by the Company's shareholders, 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
57
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;
(iii) 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, (A) 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
immediatelygranted 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, (B) 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 (C) 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
(iv) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
(f) Code. The term "Code" means the Internal Revenue Code of 1986, as
amended. A reference to any provision of the Code shall include reference to any
successor provision of the Code.
(g) Eligible Grantee. With respect to Awards other than ISOs, the term
"Eligible Grantee" shall mean any employee, consultant or director of the
Company or a Subsidiary. With respect to ISOs, the term "Eligible Grantee" shall
mean any employee of the Company or a Subsidiary. An Award may be granted to an
employee, in connection with hiring, retention or otherwise, prior to the date
the employee first performs services for the Company or the Subsidiaries,
provided that such Award shall not become vested prior to the date the employee
first performs such services.
(h) Fair Market Value. For purposes of determining the "Fair Market Value"
of a share of Stock as of any date, then the "Fair Market Value" as of that date shall continue to vest in accordance with their terms, and dividend equivalents may be paid in accordance with the closing sale price of the Stock on that date on the New York Stock
Exchange or if the date of determination is not a business day, on the first
business day priorterms thereof, and Additional Shares shall continue C-6
to be subject to the
date of determination.
(i) Individual Agreement. "Individual Agreement" means a written
employment, consulting or similar agreement between a Participant and the
Company or one of its Subsidiaries or a written Award grant agreement under the
Plan.
(j) Subsidiaries. The term "Subsidiary" means any present or future
subsidiary corporation of the Company within the meaning of Section 424(f) of
the Code, and any present or future business venture designated by the Committee
58
in which the Company has a significant interest, as determined in the discretion
of the Committee.
(k) Stock. The term "Stock" shall mean shares of common stock of the
Company.
SECTION 9
GOVERNING LAWprovisions hereof. This Plan shall be governedeffective on that date that it is approved by the stockholders of the Corporation. Section 6.6 No Other Rights. Except as provided in this Plan, no Non-Employee Director shall have any claim or right 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
construedmay be exercised according to their terms, Retainer Stock Awards granted prior to that date shall continue to vest in accordance with
the laws
of the State of Texas, excepttheir terms and Additional Shares shall continue to be subject to the
extent that the General Corporation Law of
the State of Delaware shall be applicable.
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[OUTSIDE BACK COVER]
[Recycled Paper Bug] SYSCO-PS-03
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provisions thereof. C-7
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 | 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 subscribe to one of the various commercial services that offer access to the Internet. Costs normally associated with electronic access, such as usage and telephone charges, will be borne by the stockholder.
To elect this option, go towww.econsent.com/syy.syy. You will be asked to enter the nine-digiteleven-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 to vote their shares on the Internet.
If you consent to receive the Company'sCompany’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.
syy.
You may access the SYSCO Corporation annual report and proxy statement at:
www.sysco.com
PROXY
SYSCO CORPORATION
Proxy for the Annual Meeting of Stockholders
November 7, 2003
11, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Richard J. Schnieders and Thomas E. Lankford,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 7, 200311, 2005 at 10:00 a.m., at The Omni HoustonHoustonian Hotel, Four Riverway,111 North Post Oak Lane, Houston, Texas 77056,77024, or any adjournment thereof.
The undersigned acknowledges receipt of the notice of annual meeting and proxy statement, each dated September 26, 2003,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'sundersigned’s name, place and stead. The undersigned instructs said proxies, or any of them, to vote as set forth on the reverse side.
(CONTINUED
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
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SYSCO CORPORATION
1390 Enclave Parkway
Houston, Texas 77077
c/o Computershare
P.O. Box 8694
Edison, NJ 08818-8694
Your 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
http://www/eproxyvote.com/syy. (1-877-779-8683)
| | |
| 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 6, 2003
Please Mark
[X] Votes As In
This Example
10, 2005
The Board of Directors recommends a vote "FOR" Proposals 1, 2. Approval of Amendment to Restated Certificate of
2 and 3. Incorporation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
| | |
| | Please Mark |
| x | | Votes As In |
| | This Example |
The Board of Directors recommends a vote “FOR” Proposal 1.
| | | | |
| 1. | | Election of four directors in Class II
I |
| | | | |
| | NOMINEES: (01) Jonathan Golden,Judith B. Craven, (02) Joseph A. Hafner, 3. Approval of the 2003 Stock Incentive Plan
Jr.,Richard G. Merrill, (03) Thomas E.LankfordPhyllis S. Sewell, and (04) Richard J. Schnieders [ ] G. Tilghman. |
| | | | |
| | FOR [ ] AGAINST [ ] ABSTAIN
and
Election of one director in Class III
NOMINEE: (01) John K. Stubblefield, Jr.
FOR [ ] o | | WITHHELD [ ] The Board of Directors recommends a vote "AGAINST" Proposal
o |
| | ALL | | FROM ALL 4.
|
| | NOMINEES | | NOMINEES
4. Shareholder Proposal on Genetically Engineered Food
[ ]--------------------------------- Products
|
| | | | |
| o | | | | |
| | |
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.
| | | | |
o FOR [ ] | | o AGAINST [ ] | | o ABSTAIN |
3. Approval of the 2005 Management Incentive Plan.
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.
5. Approval of the 2005 Non-Employee Directors Stock Plan
All proxies signed and returned will be voted in accordance with your instructions. Those with no choice indicated will be voted "FOR"“FOR” Proposals 1, 2, 3, 4 and 3 and "AGAINST" Proposal 4,5, 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.
Signature:___________________________ Date:_______________________________
Signature:___________________________ Date:_______________________________
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| Signature: | | | | Date: | | |
| | | | | | |
| 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”):
| | | 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. |
|
| | | 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. |
|
| | | 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]
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(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]
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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.
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| Sincerely,
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| Richard J. Schnieders | |
| Chairman, CEO and President | |
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Enclosures
cc:
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| Accepted and Agreed: | | |
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Name
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| Date | | |
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 | |
| |
