SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
SONIC CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
SONIC CORP.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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Notes:
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 27, 1998
[Sonic - America's Drive-In Logo]
SONIC CORP.
101 PARK AVENUE
OKLAHOMA CITY, OKLAHOMA 73102
To the Stockholders of Sonic Corp.
The annual meeting of the stockholders of Sonic Corp. (the "Company") will
take place in the Sunnyside Room of the Harvey Hotel near the Dallas/Ft. Worth
Airport at 4545 West John Carpenter Freeway in Irving, Texas, on Tuesday,
January 27, 1998, at 3:00 p.m., for the purpose of considering and acting upon
the following matters:
(1) The election of two nominees to the Board of Directors.
(2) The approval and ratification of the selection of independent
auditors.
(3) Any other business which properly may come before the meeting
or any adjournment of the meeting.
The Board of Directors has fixed the close of business on November 28,
1997, as the record date for the determination of the holders of the Company's
voting common stock entitled to receive notice of the annual meeting and to
vote at the meeting.
To ensure the presence of a quorum at the annual meeting, please sign and
promptly return the enclosed proxy card in the accompanying self-addressed
envelope, which requires no postage if mailed in the United States.
By order of the Board of Directors,
Ronald L. Matlock, Secretary
Oklahoma City, Oklahoma
December 12, 1997
PROXY STATEMENT
FOR THE ANNUAL MEETING OF THE STOCKHOLDERS OF
SONIC CORP.
TO BE HELD TUESDAY, JANUARY 27, 1998
SOLICITATION OF PROXIES
SOLICITATION
Sonic Corp. (the "Company") is furnishing this proxy statement to the
stockholders of the Company to solicit their proxies for use at the annual
meeting of stockholders to take place on Tuesday, January 27, 1998, and at any
adjournment of the meeting. The Company also may use the services of the
Company's directors, officers and employees to solicit proxies personally or by
telephone. The Company regularly retains the services of Corporate
Communications, Inc., 523 Third Avenue South, Nashville, Tennessee, to assist
with the Company's investor relations and other stockholder communications
issues. Corporate Communications, Inc. may assist in the solicitation of the
proxies and will not receive any additional compensation for those services.
The Company will bear all of the costs of preparing, printing, assembling and
mailing this proxy statement and the proxy card and all of the costs of the
solicitation of the proxies.
REIMBURSEMENT OF NOMINEES
The Company will reimburse any bank, broker-dealer, or other custodian,
nominee or fiduciary for its reasonable expenses incurred in completing the
mailing of proxy materials to the beneficial owners of the Company's voting
common stock.
REVOCATION OF PROXY
Any stockholder giving his proxy may revoke it at any time before its
exercise by notifying Ronald L. Matlock, Secretary of the Company, by telecopy
or in writing. The persons named on the proxy card will vote the proxies at
the annual meeting, if received in time and not revoked.
MAILING OF PROXY STATEMENT AND PROXY CARD
The Company has had this proxy statement and the proxy card mailed to its
stockholders on or about December 12, 1997.
STOCKHOLDER PROPOSALS
In order for the Company to include a stockholder proposal in the proxy
materials for the next annual meeting of stockholders, a stockholder must
deliver the proposal to the Secretary of the Company no later than August 14,
1998.
VOTING RIGHTS AND PROCEDURE
Only the record holders of shares of the voting common stock of the
Company as of the close of business on November 28, 1997, will have the right
to vote at the annual meeting. As of the close of business on that date, the
Company had 12,793,005 shares of common stock issued and outstanding (excluding
807,080 shares of common stock held as treasury stock). Each stockholder of
record will have one vote for each share of common stock of the Company that
the stockholder owned as of the record date. All shares of common stock may
vote on all matters coming before the annual meeting, and a majority of all of
the outstanding shares of common stock of the Company entitled to vote at the
meeting, represented in person or by proxy, will constitute a quorum for the
meeting. The Company will treat all abstentions and nominee non-votes as
present or represented at the meeting for the purposes of determining whether a
quorum exists for the meeting.
ELECTION OF DIRECTORS
GENERAL
The Board of Directors proposes the election of two directors. Each of
the nominees, if elected, will hold office for a term of three years and until
the stockholders elect his qualified successor. All of the nominees currently
serve as directors of the Company. If any of the nominees become unable or
unwilling to accept the election or to serve as a director (an event which the
Board of Directors does not anticipate), the person or persons named in the
proxy will vote for the election of the person or persons recommended by the
Board of Directors.
The certificate of incorporation and bylaws of the Company provide for the
division of the Board of Directors into three classes, each class consisting
(as nearly as possible) of one-third of the whole. The term of office of one
class of directors expires each year, with each class of directors being
elected for a term of three years and until the stockholders elect their
qualified successors. The Company's bylaws provide that the Board of Directors
by resolution from time to time may fix the number of directors that shall
constitute the whole Board of Directors. The Board of Directors currently has
set the number of directors at nine.
Unless the context indicates otherwise, the term "Company," when used in
this proxy statement, refers to Sonic Corp. and its subsidiaries.
NOMINEES
The following table sets forth the name, principal occupation, age, year
in which the individual first became a director, and year in which the
director's term will expire (if elected) for each nominee for election as a
director at the annual meeting of stockholders.
NAME AND FIRST BECAME TERM
PRINCIPAL OCCUPATION A DIRECTOR EXPIRES AGE
-------------------- ------------ ------- ---
J. Clifford Hudson(1) August, 1993 2001 43
Robert M. Rosenberg(2) April, 1993 2001 59
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE
TWO NOMINEES FOR ELECTION AS A DIRECTOR.
- --------------------
(1) Mr. Hudson has served as President and Chief Executive Officer of the
Company since April of 1995 and has served as a director of the Company since
August of 1993. He served as President and Chief Operating Officer of the
Company from August of 1994 until April of 1995, and he served as Executive
Vice President and Chief Operating Officer from August of 1993 until August of
1994. From August of 1992 until August of 1993, Mr. Hudson served as Senior
Vice President and Chief Financial Officer of the Company. Since October of
1994, Mr. Hudson has served as Chairman of the Board of the Securities Investor
Protection Corporation, the federally-chartered organization which serves as
the insurer of customer accounts with brokerage firms.
(2) Mr. Rosenberg has served as President and Chief Executive Officer of
Allied Domecq Retailing USA ("Allied") since May of 1993. Allied is the parent
of Dunkin' Donuts, Inc. and Baskin-Robbins, Inc. Mr. Rosenberg served as
President and Chief Executive Officer of Dunkin' Donuts, Inc. from 1963 until
May of 1993, and he served as President and Chief Executive Officer of Baskin-
Robbins, Inc. from December of 1992 until May of 1993. Mr. Rosenberg currently
serves as a director of Allied and as an honorary director of the National
Restaurant Association (the "NRA"), as well as a trustee of the NRA's
educational foundation. Mr. Rosenberg is a past president of the International
Franchise Association.
2
OTHER DIRECTORS
The following table sets forth the name, principal occupation, age, year
in which the individual first became a director, and year in which the
director's term will expire for each director who will continue as a director
after the annual meeting.
NAME AND FIRST BECAME TERM
PRINCIPAL OCCUPATION A DIRECTOR EXPIRES AGE
-------------------- ------------ ------- ---
Dennis H. Clark(1) April, 1992 2000 51
Leonard Lieberman(2) December, 1988 2000 68
H. E. "Gene" Rainbolt(3) January, 1996 1999 68
Frank E. Richardson(4) March, 1991 2000 58
E. Dean Werries(5) March, 1991 1999 68
- --------------------
(1) Mr. Clark has served as President of Encore Restaurants, Inc., a
franchisee of the Company, since November of 1992. Mr. Clark served as
President of Sonic Restaurants, Inc., the Company's restaurant operations
subsidiary, from March of 1987 until October of 1994.
(2) Mr. Lieberman served as the Chief Executive Officer and a director of
Supermarkets General Corporation from 1983 to 1987. From 1987 to the present,
Mr. Lieberman has devoted his time to private investments. From January
through April of 1991, Mr. Lieberman served as Chairman, President and Chief
Executive Officer of Outlet Communications, Inc. Mr. Lieberman serves as a
director of Celestial Seasonings, Inc.; La Petite Academy, Inc.; Republic
National Bank of New York; and Republic New York Corporation.
(3) Mr. Rainbolt has served as Chairman of the Board of BancFirst Corp. of
Oklahoma City, Oklahoma, since 1989. From 1985 to 1989, Mr. Rainbolt served as
Chairman of the Board of United Community Corp., a bank holding company in
Oklahoma City, Oklahoma, and a predecessor of BancFirst Corp. From 1974 to
1985, he served as Chairman of the Board of Federal National Bank of Shawnee,
Oklahoma.
(4) Mr. Richardson has served since June of 1995, as Chairman of F. E.
Richardson & Co., Inc. of New York City, a firm specializing in acquisitions
and investments in growth companies. From 1986 to June of 1995, Mr. Richardson
served as President of Wesray Capital, a firm which also specialized in
acquisitions and investments in growth companies.
(5) Mr. Werries has served as Chairman of the Board of the Company since
April of 1995 and as a director of the Company since March of 1991. From 1988
through October of 1993, he served as the Chief Executive Officer of Fleming
Companies, Inc. ("Fleming"), a wholesale food distribution company, and served
as Chairman of the Board of Directors of Fleming from 1989 through April of
1994. Mr. Werries is a past Chairman of the Food Marketing Institute in
Washington, D.C. He is a director of Carr-Gottstein Foods Co., a retail
grocery company.
CHAIRMAN EMERITUS OF THE BOARD OF DIRECTORS
Troy Smith, Sr., founder of the Company, has served as Chairman Emeritus
of the Board of Directors since May of 1991. As Chairman Emeritus, Mr. Smith
has the right to attend and participate on a non-voting basis at all meetings
of the Board of Directors and receives the same director fees as the directors.
3
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Company has a Nominating Committee, an Audit Committee, a
Compensation Committee, a Franchise Relations Committee, and a Stock Plan
Committee.
NOMINATING COMMITTEE. The Nominating Committee's function consists of
nominating individuals to serve as directors of the Company. On November 11,
1997, the Nominating Committee met and nominated the two individuals named
above for election as directors at the annual meeting of stockholders. The
members of the Nominating Committee consist of all of the directors of the
Company. The Nominating Committee held one meeting during the Company's last
fiscal year. The Nominating Committee will consider nominees recommended by
the Company's stockholders. In order to recommend a nominee for the next
annual meeting, stockholders must deliver the recommendation in writing to
the Company on or before August 15, 1998, addressed to the attention of
Ronald L. Matlock, Secretary of the Company, and must provide the full name,
address, and business history of the recommended nominee.
AUDIT COMMITTEE. The Audit Committee's functions include (a) reviewing
and recommending to the Board of Directors (subject to stockholder approval)
the independent auditors selected to audit the Company's financial
statements, including the review and approval of the fees charged for all
services by the independent auditors; (b) reviewing the scope of the annual
audit plan; (c) reviewing the audited financial statements of the Company;
(d) reviewing the management letter comments from the Company's independent
auditors, including management's responses and plans of action; (e) reviewing
the proposed annual audit plan and objectives, quarterly reports of audit
activity, and adequacy of staff; (f) reviewing from time to time the
Company's general policies and procedures with respect to auditing,
accounting, and the application of financial resources; (g) reviewing any
other matters and making special inquiries and investigations referred to it
by the Board of Directors; and (h) making other recommendations to the Board
of Directors as the committee may deem appropriate. The members of the Audit
Committee are H. E. Rainbolt (Chairman), Robert M. Rosenberg, and E. Dean
Werries. W. Scott McLain, Vice President, Chief Financial Officer, and
Treasurer of the Company, serves as a non-voting, ex-officio member of the
committee. The Audit Committee held four meetings during the Company's last
fiscal year.
COMPENSATION COMMITTEE. The Compensation Committee's functions include
reviewing and making recommendations to the Board of Directors concerning the
base salary, annual incentive bonus awards, and other compensation awards to
the executive officers of the Company. The members of the Compensation
Committee are Leonard Lieberman (Chairman), Frank E. Richardson, and J.
Clifford Hudson. The Compensation Committee held three meetings during the
Company's last fiscal year.
FRANCHISE RELATIONS COMMITTEE. The Franchise Relations Committee's
functions include establishing and reviewing policies affecting franchisees
of the Company. The members of the Board on the Franchise Relations
Committee are Robert M. Rosenberg (Chairman), Dennis H. Clark, and J.
Clifford Hudson. The franchisee representatives on the committee are Roger
Carpenter, Chuck Harrison, Jack Hartnett, Ted Kergan, Ralph Mason, and Bobby
Merritt. The Franchise Relations Committee held no meetings during the
Company's last fiscal year.
STOCK PLAN COMMITTEE. The Stock Plan Committee's functions include
administering the Company's various stock option, stock incentive, and stock
purchase plans. The members of the Stock Plan Committee are Leonard
Lieberman (Chairman), Frank E. Richardson, and E. Dean Werries. The Stock
Plan Committee held four meetings during the Company's last fiscal year.
MEETINGS OF THE BOARD OF DIRECTORS. The Board of Directors of the
Company held six meetings during the Company's last fiscal year. During that
period, no incumbent director attended fewer than 75% of the aggregate number
of meetings of the Board of Directors and of all committees on which he
served.
4
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the
compensation paid for the last three fiscal years to the Company's chief
executive officer and the Company's four other most highly compensated
executive officers for all services rendered in all capacities to the Company
and its subsidiaries.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- ------------
OTHER SECURITIES ALL OTHER
ANNUAL UNDERLYING COMPEN-
COMPEN- STOCK SATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) SATION($)(2) OPTIONS(#) ($)(3)
- --------------------------- ---- --------- ----------- ------------ ----------- ---------
J. Clifford Hudson 1997 264,583 111,438 --- 22,917 5,328
President and Chief 1996 241,667 59,375 --- 33,654 4,779
Executive Officer 1995 185,423 96,250 --- 15,146 6,042
Kenneth L. Keymer 1997 188,750 61,849 --- 21,375 106,105
President of Sonic 1996 10,669 0 --- 20,000 0
Industries Inc. 1995 0 0 --- 0 0
Michael R. Shumsky 1997 181,667 55,941 --- 14,250 5,741
President of Sonic 1996 166,667 27,133 --- 20,596 28,871
Restaurants, Inc. 1995 154,924 60,050 --- 24,923 42,045
Pattye Moore 1997 137,500 45,571 --- 11,250 4,941
Senior Vice President of 1996 113,333 29,367 --- 13,462 4,249
Marketing and Brand 1995 94,651 33,498 --- 10,818 3,516
Development
Ronald L. Matlock 1997 143,733 42,332 --- 16,470 1,524
Vice President, General 1996 64,167 9,290 --- 20,000 0
Counsel and Secretary 1995 0 0 --- 0 0
(1) The amounts include incentive bonus awards granted pursuant to the
incentive bonus program described under "Report on Executive Compensation,"
as well as a Christmas bonus equal to one-half month's base salary.
(2) The amount of other annual compensation did not exceed the lesser of
$50,000 or 10% of the annual salary and bonus reported for the named
individual.
(3) The amounts include the Company's matching contribution to the
Company's defined contribution plan, premiums for life insurance, and moving
expenses paid on behalf of the named individuals. During the last fiscal
year, the Company made matching contributions to the Company's 401(k) defined
contribution plan in the amount of $4,125 for Mr. Hudson, $4,517 for Mr.
Shumsky, $4,692 for Ms. Moore, and $732 for Mr. Matlock. During the last
fiscal year, the Company paid life insurance premiums in the amount of $1,203
for Mr. Hudson, $1,224 for Mr. Shumsky, $600 for Mr. Keymer, $249 for Ms.
Moore, and $792 for Mr. Matlock. The Company reimbursed Mr. Keymer for
$105,505 in moving and relocation expenses incurred in connection with his
relocation to Oklahoma City during the last fiscal year.
5
STOCK OPTION TABLE. The following table sets forth information regarding
the stock options granted during the last fiscal year to the Company's chief
executive officer and the other executive officers named above.
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SH)(1) DATE 5%($) 10%($)
- ---- ----------- ------------- -------- ---------- ----- ------
J. Clifford Hudson 22,917 6.5% $18.00 5/8/2007 $259,420 $657,489
Kenneth L. Keymer 21,375 6.0% 18.00 5/8/2007 241,965 613,249
Michael R. Shumsky 14,250 4.0% 18.00 5/8/2007 161,310 408,833
Pattye T. Moore 11,250 3.2% 18.00 5/8/2007 127,350 322,763
Ronald L. Matlock 16,470 4.7% 18.00 5/8/2007 186,440 472,524
- -------------
(1) The exercise price of each option exceeded the market value of the
Company's common stock (based on the average of the closing bid and ask price)
at the date of grant of $15.125 per share. Each option becomes exercisable
with regard to one-third of the shares of common stock underlying the option on
each of the three anniversary dates of the grant of the option.
(2) The assumed annual rates of 5% and 10% would result in the Company's
common stock price increasing during the 10-year term of the option from the
$18.00 per share exercise price to $29.32 and $46.69, respectively.
OPTION EXERCISES AND YEAR END VALUE TABLE. The following table sets forth
information regarding stock options exercised during the last fiscal year by
the Company's chief executive officer and the other individuals named above and
the value of unexercised stock options as of the end of the last fiscal year.
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AS OF OPTIONS AS OF
FISCAL YEAR END FISCAL YEAR END
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) VALUE REALIZED($) UNEXERCISABLE(#) UNEXERCISABLE($)
- ---- --------------- ----------------- ---------------- ----------------
J. Clifford Hudson 0 $ 0 112,451 $679,199
50,401 183,241
Kenneth L. Keymer 0 0 6,667 19,168
34,708 126,504
Michael R. Shumsky 0 0 57,673 468,505
36,287 138,087
Pattye T. Moore 0 0 54,939 336,584
23,830 89,497
Ronald L. Matlock 0 0 6,667 19,168
29,803 106,271
6
COMPENSATION OF DIRECTORS. During the last fiscal year, the Company
compensated the non-management directors for their services in the amount of
$10,000 per year, plus $1,000 for every meeting of the Board of Directors
attended. The Company also paid Mr. Werries $2,500 a month for his services as
Chairman of the Board of Directors. The Company did not pay any additional fees
to directors for serving on its standing committees. The Company does not
compensate directors who also serve as an officer or employee of the Company or
its subsidiaries for their services as a director. The 1991 Sonic Corp.
Directors' Stock Option Plan provides for the grant of 10-year, non-qualified
stock options to purchase 15,000 shares of common stock of the Company to each
non-management director of the Company upon the individual's initial election
as a director. The exercise price of the stock options equals the market value
of the common stock at the date of the grant, and the stock options become
exercisable with regard to one-third of the shares of common stock underlying
the option on each of the first three anniversary dates of the grant of the
stock option. Pursuant to that plan, the Company previously granted options to
purchase 15,000 shares of common stock of the Company at $10.00 per share to
Messrs. Lieberman, Richardson and Werries; options to purchase 15,000 shares of
common stock at $13.83 per share to Robert M. Rosenberg; and options to
purchase 15,000 shares of common stock at $17.25 per share to Messrs. Clark and
Rainbolt.
TERMINATION AND CHANGE IN CONTROL ARRANGEMENTS. The Company has
employment contracts with J. Clifford Hudson, its President and Chief Executive
Officer, and the other members of its senior management. Mr. Hudson's contract,
which expires in August of 1999 (and which automatically extends each year for
one additional year to maintain successive terms of two years unless
specifically terminated or not renewed by the Company), provides that, if the
Company terminates Mr. Hudson's employment other than for cause or fails to
renew his contract, he will receive his base compensation for a 24-month period
after termination (at an annualized base of $275,000 as of August 31, 1997).
Mr. Hudson's contract defines "cause" as (1) the willful and intentional
failure substantially to perform his duties (other than because of physical or
mental incapacity), (2) the commission of an illegal act in connection with his
employment, or (3) the commission of any act which falls outside the ordinary
course of his responsibilities and which exposes the Company to a significant
level of undue liability. A determination of "cause" requires the affirmative
vote of at least two-thirds of all members of the Board of Directors. The
contracts for Messrs. Shumsky, Keymer and Matlock, for Ms. Moore, and for the
other officers of the Company expire in August of 1998 (and automatically renew
for successive one-year terms unless specifically terminated or not renewed by
the Company). Those contracts provide for six to 12 months' salary upon
termination of employment other than for cause. The contracts for all of the
foregoing officers contain the same definition of "cause" as Mr. Hudson's
contract.
The contracts for all of the foregoing officers also provide that, upon a
change in control of the Company, if the Company terminates the officer's
employment other than for cause or violates any term of the contract, the
Company must pay the officer a lump sum equal to a specified multiple of the
officer's then current salary, not to exceed the maximum payable without a loss
of the deduction under Section 280(g) of the Internal Revenue Code. The
specified multiple equals two times the amount of their annual salary for all
of the officers of the Company, except for Mr. Hudson (who would receive three
times his salary). The same lump sum provision applies if the officer should
resign for "good reason," which includes (without limitation) the occurrence
without the officer's consent after a change in control of the Company of (1)
the assignment to the officer of duties inconsistent with the officer's office
with the Company, (2) a change in the officer's title or office with the
Company, or (3) a reduction in the officer's salary. The officers' contracts
generally define a "change in control" to include any consolidation or merger
of the Company in which the Company does not continue or survive or pursuant to
which the shares of capital stock of the Company convert into cash, securities
or other property; any sale, lease, exchange or transfer of all or
substantially all of the assets of the Company; the acquisition of 50% or more
of the outstanding capital stock of the Company by any person; or, a change in
the make-up of the Board of Directors of the Company during any period of two
consecutive years, pursuant to which individuals who at the beginning of the
period made up the entire Board of Directors of the Company cease for any
reason to constitute a majority of the Board of Directors, unless at least two-
thirds of the directors then and still in office approved the nomination of the
new directors.
Other than the foregoing agreements, the Company has no compensatory plan
or arrangement with respect to its executive officers which would result from
the resignation, retirement or termination of any executive officer's
employment with the Company, from a change in control of the Company, or from a
change in an executive officer's responsibilities following a change in control
of the Company.
7
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. Leonard
Lieberman, Frank E. Richardson, and J. Clifford Hudson served on the Company's
Compensation Committee during the last fiscal year. Other than Mr. Hudson, who
serves as the Company's President and Chief Executive Officer, no person who
served on the Compensation Committee during the last fiscal year had any
relationship with the Company requiring disclosure under this heading.
REPORT ON EXECUTIVE COMPENSATION
The following joint report of the Compensation Committee and Stock Plan
Committee of the Board of Directors describes the committees' compensation
policies with regard to the Company's executive officers for the last fiscal
year, including the specific relationship of corporate performance to executive
compensation. The report also discusses the committees' bases for the chief
executive officer's compensation for the last fiscal year, including the
factors and criteria upon which the committees based that compensation. As
described above under "Committees and Meetings of the Board of Directors," the
Compensation Committee's functions include reviewing and making recommendations
to the Board of Directors concerning the base salary, annual incentive bonus
awards, and other compensation awards to the Company's chief executive officer
and other executive officers of the Company. The Stock Plan Committee's
functions include the administration of the Company's employee stock option
plan and the granting of stock options under that plan.
The following report shall not constitute a document deemed incorporated
by reference by any general statement incorporating this proxy statement by
reference into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent the Company specifically
incorporates the information by reference, and the report shall not constitute
information otherwise deemed filed under either of those acts.
INDEPENDENT COMPENSATION CONSULTANT REPORT
The Company for several years has retained an independent compensation
consultant to advise the Company on the structure and competitiveness of the
Company's executive compensation program and to recommend programs appropriate
for the Company in the areas of salary, annual incentive programs, long-term
incentives, and benefits and employment contract provisions. In conducting its
initial review, the consultant interviewed the senior executive officers of the
Company, as well as the members of the Compensation Committee; identified a
peer group of 11 comparable multi-outlet restaurant companies; and analyzed the
cash compensation, stock option and long-term incentive programs, and
employment contract provisions available in that peer group according to
available proxy statement information, as well as compensation data from other
published surveys. Since the initial review, the Company has obtained annual
updates of the review and report to the Company. The results of the original
and updated reviews showed and continue to show that the total compensation of
the Company's executive officers falls below the average level of total
compensation of the peer group executive officers. The Company and the
Compensation Committee intend to continue to work with the consultant to
develop appropriate changes to the Company's executive compensation program.
COMPENSATION POLICY AND OVERALL OBJECTIVES
In order to attract, retain and motivate superior executive talent, the
Compensation Committee seeks to maintain compensation programs competitive with
those provided by leading companies in the multi-unit restaurant business with
similar size and business focus as the Company. The committee has adopted a
compensation strategy to provide (1) base salaries which are competitive but
not above industry averages, (2) above-average total annual cash opportunities,
through incentives based on operating results, (3) significant long-term
incentives based on stock appreciation, and (4) other benefits for executives
which are competitive but not above industry norms.
The primary components of the Company's executive compensation package
consist of base salary, annual incentive bonus awards, stock option awards, and
restricted stock awards.
8
The Company intends to take any actions which may become necessary in
order to comply with the $1 million limitation on compensation deductions under
the Internal Revenue Code of 1986, as amended.
DISCUSSION OF COMPENSATION COMPONENTS
BASE SALARY. In reviewing each executive officer's base salary, the
Compensation Committee takes into consideration the executive officer's
responsibilities and performance, salaries for comparable positions at other
companies, and fairness issues relating to pay for other Company executives.
In making salary recommendations or decisions, the committee exercises its
discretion and judgment based on those factors. The committee does not apply
any specific formula to determine the weight of each factor.
INCENTIVE BONUS AWARDS. The Company has adopted an incentive bonus plan,
which covers all of the Company's executive officers, as well as other mid-
level management personnel. Under the plan, the Compensation Committee
measures the performance of the Company against an annual business plan
prepared by management and reviewed and approved by the Board of Directors.
Achievement of the net income target set forth in the annual business plan may
result in the payment of incentive payments equal to a percentage of the base
salary of the covered officer (50% for Mr. Hudson and 35% for Messrs. Shumsky,
Keymer and Matlock and Ms. Moore). Under the plan, the committee may award up
to 50% of the incentive payments if the Company achieves 85% of the annual
business plan and may award up to 100% of the incentive payments as the
percentage of net income achieved increases from 85% to 100%. The plan also
allows the committee to increase the incentive payments ratably to the extent
the Company exceeds the net income target. The committee has the discretion
whether and in what amounts to award any incentive bonuses.
STOCK OPTION GRANTS. The 1991 Sonic Corp. Stock Option Plan is a stock-
based incentive compensation plan under which employees selected by the Stock
Plan Committee may receive awards in the form of stock options. Under that
plan, selected employees may receive an annual grant of stock options to
purchase a number of shares of common stock computed by (1) dividing the
employee's annual salary and bonus by the current market price of the common
stock and (2) multiplying that amount by a factor ranging from zero to two. The
Stock Plan Committee grants special stock option awards to new members of
management whose position with the Company qualifies them for participation in
the plan and for existing members of management who may have received a
promotion. In selecting the multiplier for an award of stock options to a
specific individual, the committee takes into account the existing number of
options and shares of common stock already owned by the individual and,
therefore, will use a lower multiplier for an individual already owning a
substantial number of options or shares of common stock.
STOCK INCENTIVE PLAN. In November of 1995, the Stock Plan Committee
adopted and the Board of Directors approved the Stock Incentive Plan. Under
that plan, the Company may issue up to 120,000 shares of common stock of the
Company to key employees selected for participation in the plan by the Stock
Plan Committee, which administers the plan. Participants in the Stock
Incentive Plan receive awards of shares of restricted common stock (the
"Restricted Stock"), subject to not vesting if the Company fails to achieve
certain annual performance criteria. As the Company achieves the performance
criteria, the portion of the award tied to the criteria will vest. Until the
Restricted Stock vests, an escrow agent will hold the Restricted Stock.
However, the participant will have the right to vote the Restricted Stock and
receive any dividends on the stock. If the Company does not achieve the
performance criteria, the portion of the award tied to that criteria will not
vest and the right to receive dividends and to vote that portion of the
Restricted Stock will terminate. Upon vesting, all restrictions on the vested
portion will terminate and the participant will have the right to receive
certificates representing the shares of vested Restricted Stock.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Mr. Hudson has served as President and Chief Executive Officer of the
Company since April 11, 1995. On January 22, 1997, the Compensation Committee
met and set Mr. Hudson's annual compensation at $275,000. The committee
considered the results of the most recent update of the Company's independent
compensation consultant regarding the range of compensation for the chief
executive officers of the Company's competitive peer group and set Mr. Hudson's
level of compensation below the average of that group. On May 9, 1997, the
Stock Plan Committee
9
granted Mr. Hudson options to purchase 22,917 shares of common stock,
consistent with the standard formula described above. On November 11, 1997,
the Compensation Committee approved the award of 73% of Mr. Hudson's potential
incentive bonus for the fiscal year ended August 31, 1997, pursuant to the
terms of the Company's incentive bonus plan, which percentage is consistent
with the percentages approved for the other executive officers of the Company,
after taking into account the earnings of the Company for that year and the
sources of those earnings.
Respectfully Submitted,
The Compensation Committee The Stock Plan Committee
/s/ Leonard Lieberman, Chairman /s/ Leonard Lieberman, Chairman
/s/ J. Clifford Hudson /s/ Frank E. Richardson
/s/ Frank E. Richardson /s/ E. Dean Werries
PERFORMANCE GRAPH
The following graph compares the cumulative total return on the Company's
common stock with the cumulative total returns on two published indices - the
Center for Research in Securities Prices ("CRSP") Total Return Index for The
Nasdaq Stock Market (U.S. Companies) ("Nasdaq U.S. Stocks") and the CRSP Index
for Nasdaq Retail Trade Stocks ("Nasdaq Retail Stocks"), since the Company
became public in February of 1991. The graph assumes a $100 investment on
February 28, 1991, in the Company's common stock and in the stocks comprising
the two identified indices. "Cumulative total return" means the appreciation
in stock price, plus dividends paid, assuming the reinvestment of all
dividends.
The following graph shall not constitute a document deemed incorporated by
reference by any general statement incorporating this proxy statement by
reference into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent the Company specifically
incorporates the information by reference, and the graph shall not constitute
information otherwise deemed filed under either of those acts.
[GRAPH]
02/28/91 08/30/91 08/31/92 08/31/93 08/31/94 08/31/95 08/30/96 08/29/97
-------- -------- -------- -------- -------- -------- -------- --------
Sonic Corp. 100.000 183.000 176.000 210.000 152.000 246.000 282.000 265.500
NASDAQ Market (U.S.) 100.000 117.254 127.164 167.754 174.615 235.158 265.178 369.968
NASDAQ Retail Stocks 100.000 129.270 125.336 147.705 147.095 161.715 187.926 211.995
10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CERTAIN BENEFICIAL OWNERS. The following table shows the total number and
percentage of the outstanding shares of the Company's voting common stock
beneficially owned as of November 28, 1997, with respect to each person
(including any "group" as used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) the Company knows to have beneficial ownership of more
than 5% of the Company's common stock. The Company computed the percentage
ownership amounts in accordance with the provisions of Rule 13d-3(d), which
includes as beneficially owned all shares of common stock which the person or
group has the right to acquire within the next 60 days. Unless indicated
otherwise, each stockholder holds sole voting and investment power with regard
to the shares of common stock. The Company has obtained the information set
forth below from the Schedule 13G's filed by the indicated persons with the
Company.
NUMBER OF
BENEFICIAL OWNER SHARES PERCENT
---------------- --------- -------
FMR Corp.(1) 1,555,500 13.2%
82 Devonshire Street
Boston, Massachusetts 02109
Massachusetts Financial Services Company(2) 932,335 7.9%
500 Boylston Street
Boston, Massachusetts 02116
- --------------------
(1) Fidelity Management & Research Company ("Fidelity"), a wholly-owned
subsidiary of FMR Corp. and a registered investment adviser, beneficially owns
1,209,000 shares (or 10.2% of the Company's outstanding common stock) as a
result of its role as an investment adviser to Fidelity Low-Priced Stock Fund
(the "Fund"). The Fund has sole voting power with regard to those 1,209,000
shares of common stock. Fidelity Management Trust Company ("Fidelity
Management"), another wholly-owned subsidiary of FMR Corp. and a bank,
beneficially owns and has sole voting power with regard to the remaining
346,500 shares (or 2.9% of the Company's outstanding common stock) as a result
of its role as an investment manage for certain institutional accounts.
Fidelity, the Fund, and Fidelity Management have the same address as FMR Corp.
(2) Of the amount shown, the reporting person has sole voting power for
886,685 shares of common stock.
11
MANAGEMENT. The following table sets forth information obtained from the
directors and executive officers of the Company as to their beneficial
ownership of the Company's voting common stock as of November 28, 1997. The
Company computed the percentage ownership amounts in accordance with the
provisions of Rule 13d-3(d), which rule includes as beneficially owned all
shares of common stock which the person or group has the right to acquire
pursuant to stock options exercisable within the next 60 days ("Currently
Exercisable Options"). Unless indicated otherwise, each stockholder holds sole
voting and investment power with regard to the shares of common stock.
NUMBER OF NUMBER OF
BENEFICIAL OWNER SHARES OPTIONS PERCENT(1)
---------------- --------- --------- ----------
J. Clifford Hudson(2) 349,673 112,451 3.6%
Kenneth L. Keymer(3) 11,500 6,667 (4)
Michael R. Shumsky(5) 5,000 46,673 (4)
Pattye Moore(6) 4,907 54,939 (4)
Ronald L. Matlock(7) 8,062 6,667 (4)
Dennis H. Clark(8) 215,758 10,000 1.8%
Leonard Lieberman 369 15,000 (4)
H. E. Rainbolt 15,000 10,000 (4)
Frank E. Richardson 318,723 15,000 2.6%
Robert M. Rosenberg 21,000 15,000 (4)
E. Dean Werries 13,300 2,000 (4)
Directors and executive officers
as a group (20 persons)(9) 974,438 436,673 10.6%
- --------------------
(1) Pursuant to Rule 13(d)(3), the Company includes the shares of common
stock underlying the Currently Exercisable Options as outstanding for the
purposes of computing the percentage ownership of the person or group holding
those options but not for the purposes of computing the percentage ownership of
any other person.
(2) The amount shown includes (a) 184,392 shares of common stock held by
Mr. Hudson in trust for himself, (b) 148,321 shares of common stock held by
Mr. Hudson's wife in trust for herself (of which Mr. Hudson disclaims
beneficial ownership), (c) 10,960 shares of common stock held by Mr. Hudson
in trust for his two minor children (of which Mr. Hudson disclaims beneficial
ownership), and (d) 6,000 shares of restricted common stock subject to not
vesting if the Company fails to achieve either $213,926,000 in revenues or
$1.81 in earnings per share during the current fiscal year.
(3) The amount shown includes 10,000 shares of restricted common stock
subject to not vesting. One-half of the shares of restricted stock will not
vest annually if the Company fails to achieve either of the following goals
during either of the following fiscal years:
Fiscal Year Revenues Earnings Per Share
----------- -------- ------------------
1998 $213,926,000 $1.81
1999 $256,711,000 $2.17
(4) The amount represents less than 1% of the Company's outstanding shares
of common stock.
(5) The amount shown includes 5,000 shares of restricted common stock
subject to not vesting if the Company fails to achieve either $213,926,000 in
total revenues or $1.81 in earnings per share during the current fiscal year.
(6) The amount shown includes (a) 512 shares of common stock held for
Ms. Moore in the Company's 401(k) plan and (b) 4,000 shares of restricted common
stock subject to not vesting if the Company fails to achieve either
$213,926,000 in total revenues or $1.81 in earnings per share during the
current fiscal year.
12
(7) The amount shown includes (a) 62 shares of common stock held for
Mr. Matlock in the Company's 401(k) plan and (b) 8,000 shares of restricted
common stock subject to not vesting. One-half of the shares of restricted
stock will not vest annually if the Company fails to achieve either of the
following goals during either of the following fiscal years:
Fiscal Year Revenues Earnings Per Share
----------- -------- ------------------
1998 $213,926,000 $1.81
1999 $256,711,000 $2.17
(8) The amount shown includes 45,010 shares of common stock owned by
Mr. Clark's wife.
(9) The amount includes (a) 595 shares of common stock held for certain
executive officers in the Company's 401(k) plan and (b) 830 shares of common
stock held for certain executive officers in the Company's stock purchase plan.
CHANGES IN CONTROL. The Company knows of no arrangements (including the
pledge by any person of securities of the Company), the operation of which may
result at a subsequent date in a change in control of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases two parcels of real estate, upon which it operates two
Company-owned restaurants, from Plains Realty Corp. ("Plains"), a corporation
owned in part by J. Clifford Hudson, President, Chief Executive Officer, and a
director of the Company, and Dennis H. Clark, a director of the Company. The
Company is leasing both parcels pursuant to 15-year leases entered into in 1988
and 1989. One of the leases expires in June of 2004 and the other in June of
2005. During the last fiscal year, the Company paid Plains a total of $84,000
in rent pursuant to those two leases. The Company believes that the terms and
conditions of the leases are no less favorable than those it could have
obtained from third parties in arm's length transactions.
In March of 1994, the Company entered into an agreement with Dennis H.
Clark, a director of the Company and then President of Sonic Restaurants, Inc.,
relating to his leaving the Company's employment and returning to his previous
career as a Sonic franchisee. Under his employment agreement, Mr. Clark had
the right to receive an amount equal to 12 months' salary and to purchase six
Sonic drive-in restaurants in Monroe, Louisiana. In exchange for Mr. Clark's
foregoing those rights, the Company sold its interest in two Sonic drive-in
restaurants to Mr. Clark and provided him with the financing necessary to
purchase the interests pursuant to two promissory notes, having terms of 10 and
15 years, each at 7% interest, and secured by Mr. Clark's interest in the
restaurants. Pursuant to the new agreement, the Company also issued an area
development agreement to Mr. Clark for the city of Plano, Texas, and a portion
of the southwest corner of Collin County, Texas, calling for the development of
seven restaurants over five years and the waiver of the initial franchise fee
for three of those restaurants. The Company also committed to assist Mr. Clark
with obtaining financing for up to six Sonic drive-in restaurants upon terms
comparable to those which the Company could obtain. Pursuant to that
agreement, the Company has entered into asset repurchase agreements with the
lender relating to approximately $4.2 million of financing for the development
of six Sonic drive-in restaurants. Those agreements obligate the Company to
purchase the collateral securing the financing at their fair market value in
the event of a default under the terms of the financing documents. The
collateral consists of 70,016 shares of common stock of the Company and the
real estate and operating assets of the Sonic drive-in restaurants. As of
August 31, 1997, the outstanding principal balance of the financing covered by
the asset repurchase agreements equaled approximately $3.6 million. The
outstanding principal balance of the secured loans made to Mr. Clark by the
Company as of August 31, 1997, equaled approximately $510,000.
H. E. Rainbolt, a director of the Company, is Chairman of the Board and a
principal stockholder of BancFirst Corp., the holding company of BancFirst of
Oklahoma City. BancFirst is a participant in the Company's $80 million
13
revolving line of credit. During the last fiscal year, the largest amount
outstanding under that line of credit was approximately $37 million, in which
BancFirst participated in approximately $4.6 million.
In connection with Kenneth L. Keymer's employment with the Company as
President of Sonic Industries Inc. in August of 1996, the Company guaranteed a
loan to Mr. Keymer in the amount of $517,000 from Bank One Trust Company, N.A.
Mr. Keymer used the proceeds of that loan to purchase a home in the Oklahoma
City metropolitan area pending the sale of his previous residence in Memphis,
Tennessee. Mr. Keymer paid the accrued interest on that loan on a monthly
basis and paid the entire principal amount in June of 1997.
SECTION 16 COMPLIANCE
Based upon a review of the original and amended Forms 3 and 4 furnished to
the Company during its last fiscal year and the original and amended Forms 5
furnished to the Company with regard to its last fiscal year, the Company does
not know of any person who failed to file on a timely basis any reports
required by Section 16(a) of the Securities Exchange Act of 1934, as amended.
SELECTION OF INDEPENDENT AUDITORS
The Board of Directors, based on the recommendation of the Audit
Committee, has re-appointed the firm of Ernst & Young LLP, independent
auditors, as the Company's auditors for the fiscal year ending August 31, 1998,
subject to the approval and ratification by the stockholders. Ernst & Young
LLP has served as the Company's auditors since 1984. The Company expects one
or more representatives of Ernst & Young LLP to attend the annual meeting in
order to respond to any appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL AND
RATIFICATION OF THE RE-APPOINTMENT OF ERNST & YOUNG LLP.
OTHER MATTERS
The Board of Directors knows of no other matters which may come before the
annual meeting. If any other business properly comes before the meeting, the
persons named in the proxy will vote with respect to that matter in accordance
with their best judgment.
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO EACH STOCKHOLDER SOLICITED TO
VOTE AT THE ANNUAL MEETING, ON THE WRITTEN REQUEST OF THE STOCKHOLDER, A COPY
OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED AUGUST 31, 1997,
INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES, AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION. EACH WRITTEN REQUEST MUST SET FORTH A GOOD FAITH
REPRESENTATION THAT AS OF THE RECORD DATE, THE PERSON MAKING THE REQUEST WAS A
BENEFICIAL OWNER OF THE COMPANY'S COMMON STOCK ENTITLED TO VOTE AT THE ANNUAL
MEETING. STOCKHOLDERS SHOULD DIRECT THE WRITTEN REQUEST TO THE COMPANY TO
RONALD L. MATLOCK, SECRETARY, 101 PARK AVENUE, OKLAHOMA CITY, OKLAHOMA 73102.
14
PROXY
FOR THE ANNUAL MEETING
OF THE STOCKHOLDERS OF
SONIC CORP.
THE BOARD OF DIRECTORS OF SONIC CORP. IS SOLICITING THIS PROXY
The undersigned hereby appoints Ronald L. Matlock and W. Scott McLain,
and each of them, the undersigned's proxy, with full power of substitution,
to attend the annual meeting of the stockholders of Sonic Corp. (the
"Company") on Tuesday, January 27, 1998, at 3:00 p.m., in the Sunnyside Room
of The Harvey Hotel near Dallas/Fort Worth Airport at 4545 West John
Carpenter Freeway in Irving, Texas, and at any adjournment of that meeting,
and to vote the undersigned's shares of common stock as designated below.
(1) Election of Directors
__ For All Nominees Listed Below (Except as marked to the contrary below)
__ Withhold Authority to Vote for All Nominees Listed Below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE THROUGH THE NOMINEE'S NAME BELOW.)
J. Clifford Hudson Robert M. Rosenberg
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL OF THE
ABOVE-NAMED NOMINEES.
(2) Approval and Ratification of the Selection of Independent Auditors.
____ For ____ Against ____ Abstain
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL AND
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS.
(3) Any other matter properly coming before the meeting, upon which the
persons named above will vote for or against, in their sole discretion, or
upon which the persons named above will abstain from voting, in their sole
discretion.
____ To Grant Authority ____ To Withhold Authority
THE PERSONS NAMED ABOVE WILL VOTE THE SHARES OF COMMON STOCK REPRESENTED
BY THIS PROXY CARD IN ACCORDANCE WITH THE SPECIFICATIONS MADE IN ITEMS 1, 2
AND 3. IF THE UNDERSIGNED MAKES NO SPECIFICATION, THE PERSONS NAMED ABOVE
WILL VOTE THE SHARES IN FAVOR OF ITEMS 1 AND 2 AND WILL VOTE THE SHARES AS IF
THE UNDERSIGNED HAD GRANTED THE AUTHORITY IN ITEM 3.
Please sign exactly as your name appears below, date and return this
proxy card promptly, using the self-addressed, prepaid envelope enclosed for
your convenience. Please correct your address before returning this proxy
card. Persons signing in a fiduciary capacity should indicate that fact and
give their full title. If a corporation, please sign in the full corporate
name by the president or other authorized officer. If a partnership, please
sign in the partnership name by an authorized person. If joint tenants, both
persons should sign.
--------------------------------------------------
Name of Stockholder (Please Print)
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New Address (Street, City, State, Zip Code)
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Signature and Title
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Signature and Title
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Date