UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
[X]
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT
|
|
OF
1934
|
For
the fiscal year
ended: August
31, 2007
|
|
|
OR
|
|
|
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
|
|
ACT
OF 1934
|
For
the transition period from _______________ to
_________________
|
|
|
Commission
File Number 0-18859
|
|
|
|
SONIC
CORP.
|
|
(Exact
name of registrant as specified in its charter)
|
|
|
|
Delaware
|
|
73-1371046
|
(State
of
|
|
(I.R.S.
Employer
|
incorporation)
|
|
Identification
No.)
|
300
Johnny Bench Drive
|
|
Oklahoma
City, Oklahoma
|
|
73104
|
|
|
(Address
of principal executive offices)
|
|
Zip
Code
|
|
|
|
Registrant’s
telephone number, including area code: (405)
225-5000
|
Securities
registered pursuant to section 12(b) of the Act:
None
Securities
registered pursuant to section 12(g) of the Act:
Common
Stock, Par Value $.01 (Title of class)
Rights
to
Purchase Series A Junior Preferred Stock, Par Value $.01 (Title of
class)
Indicate
by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes
X
. No
.
(Facing
Sheet Continued)
Indicate
by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the
Act. Yes
. No
X
.
Indicate
by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or
15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file the reports),
and
(2) has been subject to the filing requirements for the past 90
days. Yes
X
. No
.
Indicate
by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part
III
of this Form 10-K or any amendment to this Form
10-K.
[
X
]
.
Indicate
by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of “accelerated filer and
large accelerated filer” in Rule 12b-2 of the Exchange
Act.
(Check
one):
Large
accelerated filer
X
. Accelerated
filer
___. Non-accelerated
filer __.
Indicate
by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
. No
X
.
As
of February 28, 2007, the aggregate
market value of the 62,780,894
shares of common stock of
the Company held by non-affiliates of the Company equaled $1,360,461,973 based
on the closing sales price for the common stock as reported for that
date.
As
of October 16
,
2007, the Registrant had
60,780,414
shares of common stock issued and outstanding.
Documents
Incorporated by Reference
Part
III of this report incorporates by
reference certain portions of the definitive proxy statement which the
Registrant
will
file
with the Securities and Exchange Commission no later than 120 days after August
31, 2007.
FORM
10-K OF SONIC CORP.
TABLE
OF CONTENTS
PART
I
|
|
|
|
|
Business
|
1
|
|
|
|
|
Risk
Factors
|
9
|
|
|
|
|
Unresolved
Staff Comments
|
14
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|
|
|
|
Properties
|
14
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|
|
|
|
Legal
Proceedings
|
14
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|
|
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|
Submission
of Matters to a Vote of Security Holders
|
14
|
|
|
|
|
Executive
Officers of the Company
|
15
|
|
|
|
PART
II
|
|
|
|
|
Market
for the Company’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
16
|
|
|
|
|
Selected
Financial Data
|
18
|
|
|
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
20
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|
|
|
|
Quantitative
and Qualitative Disclosures About Market Risk
|
31
|
|
|
|
Financial
Statements and Supplementary Data
|
32
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|
|
|
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
32
|
|
|
|
|
Controls
and Procedures
|
32
|
|
|
|
|
Other
Information
|
34
|
|
|
|
PART
III
|
|
|
|
|
Directors
and Executive Officers of the Company and Corporate
Governance
|
34
|
|
|
|
|
Executive
Compensation
|
34
|
|
|
|
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
34
|
|
|
|
|
Certain
Relationships and Related Transactions, and Director
Independence
|
34
|
|
|
|
|
Principal
Accounting Fees and Services
|
34
|
|
|
|
PART
IV
|
|
|
|
|
Exhibits
and Financial Statement Schedules
|
35
|
FORM
10-K
SONIC
CORP.
PART
I
General
Sonic
Corp. (the “Company”) operates
and franchises the largest chain of drive-in restaurants (“Sonic Drive-Ins”) in
the United States. As of August 31, 2007, the Company had 3,343 Sonic
Drive-Ins in operation from coast to coast, consisting of 654 Partner Drive-Ins
and 2,689 Franchise Drive-Ins. We own a majority interest, typically
at least 60%, and the supervisor and manager of the drive-in own a minority
interest in each Partner Drive-In. Franchise Drive-Ins are owned and
operated by our franchisees. At a typical Sonic Drive-In, a customer
drives into one of 24 to 36 covered drive-in spaces, orders through an intercom
speaker system, and has the food delivered by a carhop within an average of
four
minutes. Many Sonic Drive-Ins also include a drive-through lane and
patio seating.
Our
objective is to maintain our
position as, or to become, a leading operator within each of our core and
developing markets. We have developed and are implementing a strategy
designed to build the Sonic brand and to maintain high levels of customer
satisfaction and repeat business. The key elements of that strategy
are: (1) a unique drive-in concept focusing on a distinctive menu of
quality made-to-order food products including several signature items; (2)
a
commitment to customer service featuring the quick delivery of food by carhops;
(3) the expansion of Partner Drive-Ins and Franchise Drive-Ins within the
continental United States; (4) an owner/operator philosophy, in which managers
have an equity interest in their restaurants, thereby providing an incentive
for
managers to operate restaurants profitably and efficiently; and (5) a commitment
to strong franchisee relationships.
The
Sonic Drive-In restaurant chain was
begun in the early 1950’s. Sonic Corp. was incorporated in the State
of Delaware in 1990 in connection with its 1991 public offering of common
stock. Our principal executive offices are located at 300 Johnny
Bench Drive, Oklahoma City, Oklahoma 73104. Our telephone number is
(405) 225-5000.
Menu
Sonic
Drive-Ins feature Sonic signature items, such as specialty soft drinks including
cherry limeades and slushes, frozen desserts, made-to-order sandwiches and
hamburgers, extra-long cheese coneys, hand-battered onion rings, tater tots,
salads, and wraps. Sonic Drive-Ins also offer breakfast items that
include sausage, ham, or bacon with egg and cheese Breakfast Toaster
®
or Bistro
sandwiches, sausage and egg burritos, and specialty breakfast
drinks. Sonic Drive-Ins serve the full menu all day.
Restaurant
Locations
We
identify markets based on television
viewing areas and further classify markets as either core or
developing. We define our core television markets as those markets
where the penetration of Sonic Drive-Ins (as measured by population per
restaurant, advertising levels, and share of restaurant spending) has reached
a
certain level of market maturity established by management. All other
television markets where Sonic Drive-Ins are located are referred to as
developing markets. Our core markets contain approximately 75% of all
Sonic Drive-Ins as of August 31, 2007. The following table sets forth
the number of Partner Drive-Ins and Franchise Drive-Ins by core and developing
markets as of August 31, 2007:
|
Core
Markets
|
Developing
Markets
|
Total
|
States
|
Partner
|
Franchise
|
Total
|
Partner
|
Franchise
|
Total
|
|
Alabama
|
33
|
72
|
105
|
|
6
|
6
|
111
|
Arizona
|
|
|
|
|
97
|
97
|
97
|
Arkansas
|
29
|
161
|
190
|
|
|
|
190
|
California
|
|
|
|
|
36
|
36
|
36
|
Colorado
|
14
|
8
|
22
|
21
|
38
|
59
|
81
|
Delaware
|
|
|
|
|
2
|
2
|
2
|
Florida
|
16
|
10
|
26
|
20
|
76
|
96
|
122
|
Georgia
|
5
|
16
|
21
|
4
|
100
|
104
|
125
|
Idaho
|
|
|
|
|
18
|
18
|
18
|
Illinois
|
|
|
|
|
29
|
29
|
29
|
Indiana
|
|
|
|
|
17
|
17
|
17
|
Iowa
|
|
|
|
1
|
16
|
17
|
17
|
Kansas
|
41
|
95
|
136
|
|
|
|
136
|
Kentucky
|
4
|
31
|
35
|
|
39
|
39
|
74
|
Louisiana
|
23
|
139
|
162
|
|
|
|
162
|
Mississippi
|
|
123
|
123
|
|
|
|
123
|
Missouri
|
44
|
164
|
208
|
|
|
|
208
|
Nebraska
|
|
|
|
8
|
17
|
25
|
25
|
Nevada
|
|
|
|
|
20
|
20
|
20
|
New
Mexico
|
|
73
|
73
|
|
|
|
73
|
North
Carolina
|
|
|
|
|
93
|
93
|
93
|
Ohio
|
|
|
|
4
|
11
|
15
|
15
|
Oklahoma
|
94
|
175
|
269
|
|
|
|
269
|
Oregon
|
|
|
|
|
3
|
3
|
3
|
Pennsylvania
|
|
|
|
|
3
|
3
|
3
|
South
Carolina
|
|
19
|
19
|
|
53
|
53
|
72
|
South
Dakota
|
|
|
|
|
2
|
2
|
2
|
Tennessee
|
42
|
168
|
210
|
10
|
|
10
|
220
|
Texas
|
216
|
685
|
901
|
|
12
|
12
|
913
|
Utah
|
|
|
|
|
28
|
28
|
28
|
Virginia
|
|
|
|
25
|
25
|
50
|
50
|
Washington
|
|
|
|
|
1
|
1
|
1
|
West
Virginia
|
|
|
|
|
2
|
2
|
2
|
Wyoming
|
|
|
|
|
5
|
5
|
5
|
|
|
|
|
|
|
|
|
Mexico
|
|
|
|
|
1
|
1
|
1
|
Total
|
561
|
1,939
|
2,500
|
93
|
750
|
843
|
3,343
|
Expansion
During
fiscal year
2007
, we opened 175 Sonic Drive-Ins, which consisted of 29 Partner
Drive-Ins and 146 Franchise Drive-Ins. During fiscal year 2008, we
anticipate approximately 180 to 200 new Sonic Drive-In openings, including
155
to 165 openings by our franchisees. That expansion plan involves the
opening of new Sonic Drive-Ins predominantly by franchisees under existing
area
development agreements, single-store development by existing franchisees, and
development by new franchisees. We believe that our existing core and developing
markets, as well as newly-opened markets, offer significant growth opportunities
for both Partner Drive-In and Franchise Drive-In expansion. The
ability of Sonic and its franchisees to open the anticipated number of Sonic
Drive-Ins during fiscal year 2008 necessarily will depend on various factors,
including those discussed under
Item 1A. Risk Factors – Failure
to successfully implement our growth strategy could reduce, or reduce the growth
of, our revenue and net income,
of this Form 10-K.
Our
expansion strategy for Sonic
Drive-Ins involves three principal components: (1) the building-out
of existing core markets, (2) the further penetration of developing markets,
and
(3) the expansion into new markets. In addition, we may consider the
acquisition of other similar local or regional brands for conversion to Sonic
Drive-Ins.
Restaurant
Design and Construction
General.
The
typical Sonic Drive-In consists of a kitchen housed in a one-story building
flanked by canopy-covered rows of 24 to 36 parking spaces, with each space
having its own intercom speaker system and menu board. In addition,
since 1995, most new Sonic Drive-Ins have incorporated a drive-through service
and patio seating area. We have
191
Sonic
Drive-Ins that provide an indoor seating area,
49
of which
are located in non-traditional areas such as shopping mall food courts,
airports, and universities, and
21
of which
are located adjacent to convenience stores.
Retrofit
.
In
fiscal 2006, we began implementing a program to retrofit all Sonic Drive-Ins
over the next several years. The retrofit is a remodeling program which includes
significant trade dress modifications to the drive-ins. We completed
the retrofit of over 100 Partner Drive-Ins in fiscal 2006. In fiscal
2007, we completed the retrofit of an additional 173 Partner Drive-Ins and
326
Franchise Drive-Ins. In fiscal 2008, we expect to retrofit
approximately 150 additional Partner Drive-Ins and 600 to 700 Franchise
Drive-Ins. Franchisees pay the costs of the retrofit for their
drive-ins. We currently estimate the cost to complete a standard
retrofit at approximately $125,000 to $150,000 per drive-in, which may be higher
or lower depending on the configuration of the drive-in. All new
Sonic Drive-Ins being built now feature the new retrofit changes.
Marketing
We
have designed our marketing program
to differentiate Sonic Drive-Ins from our competitors by emphasizing five key
areas of customer satisfaction: (1) wide variety of distinctive
made-to-order menu items, (2) personal delivery of service by carhops, (3)
speed
of service, (4) quality, and (5) value. The marketing plan includes
promotions for use throughout the Sonic chain. We support those
promotions with television, radio, interactive media, point-of-sale materials,
and other media as appropriate. Those promotions generally center on
products which highlight limited time new product introductions or signature
menu items of Sonic Drive-Ins.
Each
year Sonic develops a marketing
plan with the involvement of the Sonic Franchise Advisory
Council. (Information concerning the Sonic Franchise Advisory Council
is set forth on page 7 under Franchise Program -
Franchise Advisory
Council
.) Funding for our marketing plan has three
components: (1) the System Marketing Fund (2) local advertising
expenditures, and (3) the Sonic Brand Fund (formerly known as the Sonic
Advertising Fund).
Depending
on the type of license
agreement, each Sonic Drive-In must spend 1.125% to 5.0% of the drive-in’s gross
revenues on local advertising, either directly or through participation in
the
local advertising cooperative. Advertising cooperatives among drive-in owners
are formed to pool and direct advertising expenditures in local markets. The
members of each local advertising cooperative may elect and frequently do elect
by majority vote to require the cooperative’s member drive-ins to contribute
more than the minimum percentage of gross revenues to the advertising
cooperative’s funds. For fiscal year 2007, drive-ins participating in
cooperatives contributed an average of 4.15% of their Sonic Drive-Ins’ gross
revenues to Sonic advertising cooperatives. As of August 31, 2007,
3,236 Sonic Drive-Ins (97% of the chain) participated in advertising
cooperatives.
The
System Marketing Fund is funded out
of the required local advertising funds by either redistributing 2.0% of each
Sonic Drive-In’s gross revenues from the local advertising cooperatives to the
System Marketing Fund or, if no advertising cooperative has been formed,
requiring the Sonic Drive-In to pay directly 2.0% of its gross revenues to
the
System Marketing Fund with a corresponding deduction in the amount the drive-in
is required to spend on local advertising. The System Marketing Fund complements
local advertising efforts in attracting customers to Sonic Drive-Ins by
promoting the Sonic brand and restaurant to an expanded audience. The
primary focus of the System Marketing Fund is to purchase advertising on
national cable and broadcast networks and other national media and sponsorship
opportunities.
The
Sonic Brand Fund is Sonic’s
national media production fund. Each Sonic Drive-In must contribute
0.375% to 0.90% of their gross revenues, depending on the type of license
agreement, to the Sonic Brand
Fund.
The
total amount spent on media
(principally television) was approximately $175 million for fiscal year 2007
and
we expect media expenditures of approximately $190 million for fiscal year
2008.
Purchasing
We
negotiate with suppliers for our
primary food products (hamburger patties, dairy products, chicken products,
hot
dogs, french fries, tater tots, cooking oil, fountain syrup, produce, and other
items) and packaging supplies to ensure adequate quantities of food and supplies
and to obtain competitive prices. We seek competitive bids from
suppliers on many of our food products. We approve suppliers of those
products and require them to adhere to our established product and food safety
specifications. Suppliers manufacture several key products for Sonic under
private label and sell them to authorized distributors for resale to Partner
Drive-Ins and Franchise Drive-Ins.
We
require our Partner Drive-Ins and
Franchise Drive-Ins to purchase from approved distribution
centers. By purchasing as a group, we have achieved cost savings,
improved food quality and consistency, and helped decrease the volatility of
food and supply costs for Sonic Drive-Ins. For fiscal year 2007, the
average cost of food and packaging for a Sonic Drive-In, as reported to us
by
our Partner Drive-Ins and Franchise Drive-Ins, equaled approximately
27
%
of
revenues.
Food
Safety and Quality Assurance
To
ensure
the consistent delivery of safe, high-quality food, we created a food safety
and
quality assurance program. Sonic’s food safety program promotes the
quality and safety of all products and procedures utilized by all Sonic
Drive-Ins, and provides certain requirements that must be adhered to by all
suppliers, distributors, and Sonic Drive-Ins. We also have a
comprehensive, restaurant-based food safety program called Sonic
Safe. Sonic Safe is a risk-based system that utilizes Hazard Analysis
& Critical Control Points (HACCP) principles for managing food safety and
quality. Our food safety system includes employee training, supplier
product testing, unannounced drive-in food safety auditing by independent
third-parties, and other detailed components that monitor the safety and quality
of Sonic’s products and procedures at every stage of the food preparation and
production cycle. Employee food safety training is covered under our
Sonic Drive-In training program, referred to as the STAR Training
Program. This program includes specific training information and
requirements for every station in the drive-in. We also require our
drive-in managers and assistant managers to pass the ServSafe training
program. ServSafe is the most recognized food safety training
certification in the restaurant industry.
General
Operations
Management
Information
Systems
. We utilize point-of-sale equipment in each of our
Partner Drive-Ins and Franchise Drive-Ins. Certain financial and
other information is polled on a daily basis from most drive-ins. We
are continuing to develop software and hardware enhancements to our management
information systems to facilitate improved communication and the exchange of
information among the corporate office and Partner Drive-Ins and Franchise
Drive-Ins. These enhancements primarily utilize an intranet designed
for that purpose, which we refer to as PartnerNet.
Reporting
. The
new
form of license agreement (Number 7) requires all Sonic Drive-Ins to submit
a
profit and loss statement on or before the 10
th
of each
month,
while all prior forms of license agreements require submission on or before
the
20
th
of each
month. All Partner Drive-Ins and
66
%
of
Franchise Drive-Ins submit their data electronically. We expect to
add more Franchise Drive-Ins to electronic reporting which will reduce resources
needed for manual processing of restaurant level data.
Hours
of Operation
. Sonic Drive-Ins typically operate seven days a
week and are open from at least 6:00 a.m. to 11:00 p.m. Some
Sonic Drive-Ins are open 24 hours a day.
Company
Operations
Restaurant
Personnel
. A typical Partner Drive-In is operated by a manager,
two to four assistant managers, and approximately 25 hourly employees, many
of
whom work part-time. The manager has responsibility for the
day-to-day operations of the Partner Drive-In. Each supervisor has
the responsibility of overseeing an average of four to seven Partner
Drive-Ins. Sonic Restaurants, Inc. (“SRI”), Sonic’s operating
subsidiary, oversees the operations and development of and provides
administrative services to all Partner Drive-Ins. SRI employs
directors of operations who oversee an average of four to seven supervisors
within their respective regions and report to either a regional vice president
or a vice president of SRI.
Ownership
Program.
The Sonic Drive-In philosophy stresses an ownership
relationship with supervisors and managers. As part of the ownership
program, either a limited liability company or a general partnership is formed
to own and operate each individual Partner Drive-In. SRI owns a majority
interest, typically at least 60%, in each of these limited liability companies
and partnerships. Generally, the supervisors and managers own a minority
interest in the limited liability company or partnership. The amount of
ownership percentage is separately negotiated for each Partner Drive-In.
Supervisors and managers are not employees of Sonic or of the limited liability
companies or partnerships in which they have an ownership interest. As
owners, they share in the cash flow and are responsible for their share of
any
losses incurred by their Partner Drive-Ins. We believe that our ownership
structure provides a substantial incentive for Partner Drive-In supervisors
and
managers to operate their restaurants profitably and efficiently.
Additional information regarding our ownership program can be found under
Ownership Program, in Part II, Item 7, at page 30 of this Form 10-K.
Sonic
records the interests of supervisors and managers
as “minority interest in earnings of Partner Drive-Ins” under costs and expenses
on its financial statements. We estimate that the average percentage
interest of a supervisor was 16% and the average percentage interest of a
manager in a Partner Drive-In was 19% in fiscal year 2007. Each Partner
Drive-In distributes its available cash flow to its supervisors and managers
and
to Sonic on a monthly basis pursuant to the terms of the operating agreement
or
partnership agreement for that restaurant. Sonic has the right, but not
the obligation, to purchase the minority interest of the supervisor or manager
in the restaurant. The amounts of the buy-in and the buy-out are generally
based on the Partner Drive-In’s sales during the preceding 12 months and
approximate the fair market value of a minority interest in that
restaurant. Most supervisors and managers finance the buy-in with a loan
from a third-party financial institution.
Each
Partner Drive-In usually purchases equipment with funds borrowed from Sonic
at
competitive rates. In most cases, Sonic also owns or leases the land and
building and guarantees any third-party lease entered into for the
site.
Partner
Drive-In Data.
The following table provides certain financial
information relating to Partner Drive-Ins and the number of Partner Drive-Ins
opened and closed during the past five fiscal years.
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Average
Sales Per Partner Drive In
|
|
|
|
|
|
|
|
|
|
|
(
in
thousands
)
|
$
|
1,017
|
|
$
|
980
|
|
$
|
957
|
|
$
|
886
|
|
$
|
799
|
|
Number
of Franchise Drive-Ins:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Open at Beginning of Year
|
|
623
|
|
|
574
|
|
|
539
|
|
|
497
|
|
|
452
|
|
Newly
Opened and Re-opened
|
|
29
|
|
|
35
|
|
|
37
|
|
|
21
|
|
|
35
|
|
Purchased
from Franchisees*
|
|
(15
|
)
|
|
(15
|
)
|
|
(4
|
)
|
|
24
|
|
|
52
|
|
Sold
to Franchisees*
|
|
10
|
|
|
--
|
|
|
5
|
|
|
(3
|
)
|
|
(41
|
)
|
Closed
|
|
(3
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
0
|
|
|
(1
|
)
|
Total
Open at Year End
|
|
654
|
|
|
623
|
|
|
574
|
|
|
539
|
|
|
497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*The
relatively large number of drive-ins sold to
franchisees in fiscal year 2003 and purchased from franchisees in fiscal
years
2003 and 2004 represent transactions where a majority of Sonic Drive-Ins
in a
certain market were sold to or purchased from a multi-unit franchisee
group. In most instances where we purchased Sonic Drive-Ins, the selling
multi-unit franchisee groups continued to own and operate multiple Franchise
Drive-Ins.
Franchise
Program
General.
As of August 31, 2007, we had 2,689 Franchise Drive-Ins in operation.
A large number of successful multi-unit franchisee groups have developed
during
the Sonic system’s 54 years of operation. Those franchisees continue to develop
new Franchise Drive-Ins in their franchise territories either through area
development agreements or single site development. Our franchisees opened
146 Franchise Drive-Ins during fiscal year 2007 and we expect our franchisees
to
open approximately 155 to 165 Franchise Drive-Ins in fiscal 2008. We
consider our franchisees a vital part of our continued growth and believe
our
relationship with our franchisees is good.
Franchise
Agreements
. Each Sonic Drive-In, including each Partner
Drive-In, operates under a franchise agreement that provides for payments to
Sonic of an initial franchise fee and a royalty fee based on a graduated
percentage of the gross revenues of the drive-in. We began offering a
new form of license agreement (Number 7) in July 2007 which provides
for an initial franchise fee of $45,000 and an ascending royalty rate beginning
at 2% of gross revenues and increasing to 5% as the level of gross revenues
increases. For non-traditional drive-ins, which are those Sonic
Drive-Ins located in venues such as shopping mall food courts, airports, and
universities, the new form of license agreement (Number 7NT) provides for a
franchise fee of $22,500 and a graduated royalty rate from 2% to 5% of gross
revenues. The most recent prior form of license agreement (Number 6A)
has a $30,000 initial license fee and a graduated royalty rate of 1% to 5%
of
gross revenues. Also in fiscal 2007, existing franchisees of
approximately 790 drive-ins with older forms of license agreement opted to
convert to a newer form of license agreement (Number 5.5) which contains a
20-year term and provides for the payment of a higher royalty rate than under
the franchisee’s previous agreement.
All
Sonic Drive-Ins opening in fiscal
year 2008 are expected to open under the Number 6A license agreement. These
drive-ins will be opening under previously entered area development agreements
which provide for the use of a Number 6A license agreement. We
have the right to terminate any franchise agreement for a variety of reasons,
including a franchisee’s failure to make payments when due or failure to adhere
to our policies and standards. Many state franchise laws affect our
ability to terminate or refuse to renew a franchise.
As
of August 31, 2007,
51
%
of all
Sonic Drive-Ins were subject to the 1% to 5% graduated royalty
rate. For fiscal year 2007, Sonic’s average royalty rate equaled
3.75
%.
Area
Development
Agreements
. We use area development agreements to facilitate the
planned expansion of the Sonic Drive-In restaurant chain through multiple unit
development. While many existing franchisees continue to expand on a
single drive-in basis, approximately
73
%
of the
new Franchise Drive-Ins opened during fiscal year 2007 occurred as a result
of
then-existing area development agreements. Each area development
agreement gives a developer the exclusive right to construct, own, and operate
Sonic Drive-Ins within a defined area. In exchange, each developer
agrees to open a minimum number of Sonic Drive-Ins in the area within a
prescribed time period. If the developer does not meet the minimum
opening requirements, we have the right to terminate the area development
agreement and grant a new area development agreement to other franchisees for
the area previously covered by the terminated area development
agreement.
During
fiscal year 2007, we entered
into 71 new area development agreements calling for the opening of
441 Franchise Drive-Ins and amended 19 existing area development agreements
calling for the opening of an additional 68 Franchise Drive-Ins, all during
the
next seven years. As of August 31, 2007, we had a total of 173 area
development agreements in effect and in compliance, calling for the development
of 908 Sonic Drive-Ins during the next seven years. We cannot give any assurance
that our franchisees will achieve that number of new Franchise Drive-Ins during
the next seven years. Of the 167 Franchise Drive-Ins scheduled to
open during fiscal year 2007 under area development agreements in place at
the
beginning of that fiscal year, 107 or 64% opened during the
period. During fiscal year 2007, we terminated 25 of the 152
area development agreements existing at the beginning of the fiscal
year. The terminated area development agreements called for the
opening of 35 Franchise Drive-Ins in fiscal year 2007 and an
additional ten Franchise Drive-Ins in the next three fiscal
years. All of these terminations were as a result of the franchisee
failing to meet the development schedule under the area development
agreement.
In
addition to the area development agreement commitments, during fiscal 2007,
existing franchisees purchased options to develop approximately 400 drive-ins,
which allow them to open new drive-ins under the more favorable Number 6A
license agreement, rather than the new Number 7 license agreement. The
development options and area development agreements together reflect a
development pipeline of over 1,300 drive-ins.
Franchise
Drive-In
Development
. We assist each franchisee in selecting sites and
developing Sonic Drive-Ins. Each franchisee has responsibility for selecting
the
franchisee’s drive-in location, but must obtain our approval of each Sonic
Drive-In design and each location based on accessibility and visibility of
the
site and targeted demographic factors, including population density, income,
age, and traffic. We provide our franchisees with the physical
specifications for the typical Sonic Drive-In.
Franchisee
Financing
. Other than the agreements described below, we do not
generally provide financing to franchisees or guarantee loans to franchisees
made by third-parties.
We
had an agreement with GE Capital
Franchise Finance Corporation (“GEC”), pursuant to which GEC made loans to
existing Sonic franchisees who met certain underwriting criteria set by
GEC. Under the terms of the agreement with GEC, Sonic provided a
guaranty of 10% of the outstanding balance of a loan from GEC to the Sonic
franchisee. The portions of loans made by GEC to Sonic franchisees
that are guaranteed by the Company total $2.2 million as of August 31, 2007.
We
ceased guaranteeing new loans made under the program during fiscal year 2003
and
have not been required to make any payments under our agreement with
GEC.
We
have an agreement with Irwin
Franchise Capital Corporation (“IFCC”) pursuant to which IFCC has agreed to make
loans to existing Sonic franchisees who meet certain underwriting criteria
set
by IFCC to finance the equipment and improvements for our retrofit program
as
described under
Restaurant Design and Construction – Retrofit
of Item 1
of this Form 10-K. Under the terms of the agreement with IFCC, we will
provide a guaranty to IFCC of the greater of (i) 5% of the outstanding balance
of a loan from IFCC to the Sonic franchisee or (ii) $250,000, provided that
in
no event will our maximum liability to IFCC exceed $2,500,000 in the
aggregate. As of August 31, 2007, the total amount guaranteed under
the IFCC agreement was $
250,000.
Franchisee
Training
. Each franchisee must have at least one full-time
employee at the Sonic Drive-In who has completed the Sonic Management
Development Program before opening or operating the Sonic
Drive-In. The program consists of a minimum of 12 weeks of on-the-job
training and one week of classroom development. The program
emphasizes food safety, quality food preparation, speed of service, cleanliness
of Sonic Drive-Ins, management techniques and consistency of
service. We also require our management teams to pass the ServSafe
training program. ServSafe is the most recognized food safety training
certification in the restaurant industry.
Franchisee
Support
. In addition to training, advertising and food
purchasing as a system, and marketing programs, we provide various other
services to our franchisees. Those services include assistance with
quality control through area field representatives, to ensure that each
franchisee consistently delivers high quality food and service. Our field
service consultants provide operational services and support for our
franchisees, and our field marketing representatives assist the franchisees
with
the development of advertising cooperative and local market promotional
activities. We also provide new franchise consultants and new
franchisee trainers to franchisees to support the successful integration of
new
franchisees into the Sonic system from training through the first months
following the opening of each of the franchisee’s first three Sonic
Drive-Ins. We provide training to franchisees in such areas as shift
management, customer service, time management, supervisory skills, and financial
controls. We additionally assist franchisees with the identification
of trade areas for new Franchise Drive-Ins and the franchisees’ selection of
sites for their Franchise Drive-Ins using demographic data and studies of
traffic patterns. Our architect and engineering personnel design,
plan, and permit new stores. Our construction personnel also assist
in the construction of new drive-ins.
Franchise
Operations
. Sonic’s franchisees operate all Franchise Drive-Ins
in accordance with uniform operating standards and
specifications. These standards pertain to the quality and
preparation of menu items, selection of menu items, maintenance and cleanliness
of premises, and employee responsibilities. We develop all standards
and specifications with input from franchisees, and they are applied on a
system-wide basis. Each franchisee has certain discretion to
determine the prices charged to its customers.
Franchise
Advisory
Council
. Our Franchise Advisory Council provides advice,
counsel, and input to Sonic on important issues impacting the business, such
as
marketing and promotions, operations, purchasing, building design, human
resources, technology, and new products. The Franchise Advisory
Council currently consists of 19 members selected by Sonic.
Currently,
we have six executive committee members who are selected at large, 12 regional
members representing four defined regions of the country, and one at large
member representing new franchisees and smaller operators.
We
have five Franchise Advisory Council task groups comprised of
48
total members who serve two-year terms and lend support
on individual key priorities.
Franchise
Drive-In
Data
. The following table provides certain financial information
relating to Franchise Drive-Ins and the number of Franchise Drive-Ins opened,
purchased from or sold to Sonic, and closed during Sonic’s last five fiscal
years.
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Average
Sales Per Franchise
|
|
|
|
|
|
|
|
|
|
|
Drive-In (
in
thousands
)
|
$
|
1,132
|
|
$
|
1,092
|
|
$
|
1,039
|
|
$
|
983
|
|
$
|
929
|
|
Number
of Franchise Drive-Ins:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Open at Beginning of Year
|
|
2,565
|
|
|
2,465
|
|
|
2,346
|
|
|
2,209
|
|
|
2,081
|
|
New
Franchise Drive-Ins
|
|
146
|
|
|
138
|
|
|
138
|
|
|
167
|
|
|
159
|
|
Sold
to the Company*
|
|
(15
|
)
|
|
(15
|
)
|
|
(4
|
)
|
|
(24
|
)
|
|
(52
|
)
|
Purchased
from the Company*
|
|
10
|
|
|
--
|
|
|
5
|
|
|
3
|
|
|
41
|
|
Closed
and Terminated,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
of Re-openings
|
|
(17
|
)
|
|
(23
|
)
|
|
(20
|
)
|
|
(9
|
)
|
|
(20
|
)
|
Total
Open at Year End
|
|
2,689
|
|
|
2,565
|
|
|
2,465
|
|
|
2,346
|
|
|
2,209
|
|
*
The
relatively large number of drive-ins purchased from Sonic in fiscal year 2003
and sold to Sonic in fiscal years 2003 and 2004 represent transactions where
a
majority of Sonic Drive-Ins in a certain market were sold to or purchased from
a
multi-unit franchisee group. In most instances where Sonic purchased
Sonic Drive-Ins, the selling multi-unit franchisee groups continued to own
and
operate multiple Franchise Drive-Ins.
Competition
We
compete in the restaurant industry,
a highly competitive industry in terms of price, service, restaurant location,
and food quality. The restaurant industry is often affected by
changes in consumer trends, economic conditions, demographics, traffic patterns,
and concerns about the nutritional content of quick-service foods. We
compete on the basis of speed and quality of service, method of food preparation
(made-to-order), food quality and variety, signature food items, and monthly
promotions. The quality of service, featuring Sonic carhops,
constitutes one of our primary marketable points of difference from the
competition. There are many well-established competitors with
substantially greater financial and other resources. These
competitors include a large number of national, regional, and local food
services, including quick-service restaurants and casual dining
restaurants. A significant change in pricing or other marketing
strategies by one or more of those competitors could have an adverse impact
on
Sonic’s sales, earnings, and growth. In selling franchises, we also
compete with many franchisors of quick-service and other restaurants and other
business opportunities.
Seasonality
Our
results during Sonic’s second
fiscal quarter (the months of December, January and February) generally are
lower than other quarters because of the lower temperatures in the locations
of
a number of Partner Drive-Ins and Franchise Drive-Ins, which tends to reduce
customer visits to our drive-ins.
Employees
As
of August 31, 2007, we had
357
full-time
corporate employees. This number does not include the approximately
19,000 full-time and part-time employees employed by separate partnerships
and
limited liability companies that operate our Partner Drive-Ins or the
supervisors or managers of the Partner Drive-Ins who own a minority interest
in
the separate partnerships or limited liability companies.
None
of our employees is subject to a
collective bargaining agreement. We believe that we have good labor
relations with our employees.
Trademarks
and Service Marks
Sonic
owns numerous trademarks and service marks. We have registered many
of those marks, including the “Sonic” logo and trademark, with the United States
Patent and Trademark Office. Trademarks and service marks generally
are valid as long as they are used or registered. We believe that our
trademarks and service marks have significant value and play an important role
in our marketing efforts.
Government
Regulations
We
must comply with regulations adopted
by the Federal Trade Commission (the “FTC”) and with several state laws that
regulate the offer and sale of franchises. We also must comply with a
number of state laws that regulate certain substantive aspects of the
franchisor-franchisee relationship. The FTC’s Trade Regulation Rule
on Franchising (the “FTC Rule”) requires that we furnish prospective franchisees
with a franchise disclosure document containing information prescribed by the
FTC Rule.
State
laws that regulate the
franchisor-franchisee relationship presently exist in a substantial number
of
states. Those laws regulate the franchise relationship, for example, by
requiring the franchisor to deal with its franchisees in good faith, by
prohibiting interference with the right of free association among franchisees,
by regulating discrimination among franchisees with regard to charges,
royalties, or fees, and by restricting the development of other restaurants
within certain prescribed distances from existing franchised
restaurants. Those laws also restrict a franchisor’s rights with
regard to the termination of a franchise agreement (for example, by requiring
“good cause” to exist as a basis for the termination), by requiring the
franchisor to give advance notice and the opportunity to cure the default to
the
franchisee, and by requiring the franchisor to repurchase the franchisee’s
inventory or provide other compensation upon termination. To date,
those laws have not precluded us from seeking franchisees in any given area
and
have not had a significant effect on our operations.
Each
Sonic Drive-In must comply with
regulations adopted by federal agencies and with licensing and other regulations
enforced by state and local health, sanitation, safety, fire, and other
departments. Difficulties or failures in obtaining the required
licenses or approvals can delay and sometimes prevent the opening of a new
Sonic
Drive-In.
Sonic
Drive-Ins must comply with
federal and state environmental regulations, but those regulations have not
had
a material effect on their operations. More stringent and varied
requirements of local governmental bodies with respect to zoning, land use,
and
environmental factors can delay and sometimes prevent development of new Sonic
Drive-Ins in particular locations.
Sonic
and its franchisees must comply
with laws and regulations governing immigration, labor, employment and wage
and
hour issues, such as employment eligibility verification, minimum wage,
overtime, family and medical leave, discrimination, and other working
conditions. Many of the food service personnel in Sonic Drive-Ins
receive compensation at rates related to federal, state, and local minimum
wage
laws and, accordingly, increases in applicable minimum wage laws will increase
labor costs at those locations.
Available
Information
We
maintain an internet website with
the address of
http://www.sonicdrivein.com
. Copies of the
Company’s reports filed with, or furnished to, the Securities and Exchange
Commission on Forms 10-K, 10-Q, and 8-K and any amendments to such reports
are
available for viewing and copying at such internet website, free of charge,
as
soon as reasonably practicable after filing such material with, or furnishing
it
to, the Securities and Exchange Commission. In addition, copies of
Sonic’s corporate governance materials, including the Corporate Governance
Guidelines, Audit Committee Charter, Compensation Committee Charter, Nominating
and Corporate Governance Committee Charter, Code of Ethics for Financial
Officers, and Code of Business Conduct and Ethics are available for viewing
and
copying at the website, free of charge.
Events
reported in the media, such as incidents involving food-borne illnesses or
food
tampering, whether or not accurate, can cause damage to our reputation and
rapidly affect sales and profitability.
Reports,
whether true or not, of food-borne illnesses, such as e-coli, avian flu, bovine
spongiform encephalopathy (commonly known as mad cow disease), hepatitis A
or
salmonella, and injuries caused by food tampering have in the past severely
injured the reputations of participants in the restaurant industry and could
in
the future affect us. The potential for terrorism of our nation’s
food supply also exists and, if such an event occurs, it could have a negative
impact on our brand’s reputation and could severely hurt sales, revenues, and
profits.
Our
brand’s reputation is an important asset to the business; as a result, anything
that damages our brand’s reputation could immediately and severely hurt sales,
revenues, and profits. If customers become ill from food-borne
illnesses or food tampering, we could also be forced to temporarily close some,
or all, Sonic Drive-Ins. In addition, instances of food-borne
illnesses or food tampering occurring at the restaurants of competitors, could,
by resulting in negative publicity about the restaurant industry, adversely
affect our sales on a local, regional, or national basis. A decrease
in customer traffic as a result of these health concerns or negative publicity,
or as a result of a temporary closure of any Sonic Drive-Ins, could materially
harm our brand, sales, and profitability.
The
restaurant industry is highly competitive, and that competition could lower
our
revenues, margins, and market share.
The
restaurant industry is intensely competitive as to price, service, location,
personnel, dietary trends, and quality of food, and is often affected by changes
in consumer tastes, economic conditions, population, and traffic patterns.
We
compete with international, regional and local restaurants, some of which
operate more restaurants and have greater financial resources. We
compete primarily through the quality, price, variety, and value of food
products offered. Other key competitive factors include the number and location
of restaurants, quality and speed of service, attractiveness of facilities,
effectiveness of advertising and marketing programs, and new product development
by us and our competitors. Some of our competitors have substantially
larger marketing budgets, which may provide them with a competitive
advantage. In addition, our system competes within the quick-service
restaurant industry not only for customers but also for management and hourly
employees, suitable real estate sites, and qualified franchisees.
Changing
dietary preferences may cause consumers to avoid our products in favor of
alternative foods.
The
restaurant industry is affected by consumer preferences and
perceptions. Although we will monitor these changing preferences and
strive to adapt to meet changing consumer needs, growth of our brand, and
ultimately system-wide sales, depend on the sustained demand for our
products. If dietary preferences and perceptions cause consumers to
avoid certain products offered by Sonic Drive-Ins in favor of alternative foods,
demand for our products may be reduced, and our business could be
harmed.
Our
earnings and business growth strategy depends in large part on the success
of
our franchisees, who exercise independent control of their
businesses.
A
portion
of our earnings comes from royalties, rents and other amounts paid by our
franchisees. Franchisees are independent contractors, and their employees are
not our employees. We provide training and support to, and monitor
the operations of, our franchisees, but the quality of their drive-in operations
may be diminished by any number of factors beyond our
control. Franchisees may not successfully operate drive-ins in a
manner consistent with our high standards and requirements, and franchisees
may
not hire and train qualified managers and other restaurant
personnel. Any operational shortcoming of a Franchise Drive-In is
likely to be attributed by consumers to the entire Sonic brand, thus damaging
our reputation and potentially affecting revenues and
profitability.
Changes
in economic, market and other conditions could adversely affect Sonic and its
franchisees, and thereby Sonic’s operating results.
The
quick-service restaurant industry
is affected by changes in economic conditions, consumer preferences and spending
patterns, demographic trends, consumer perceptions of food safety, weather,
traffic patterns, the type, number and location of competing restaurants, and
the effects of war or terrorist activities and any governmental responses
thereto. Factors such as interest rates, inflation, gasoline prices,
food costs, labor and benefit costs, legal claims, and the availability of
management and hourly employees also affect restaurant operations and
administrative expenses. Economic conditions, including interest
rates and other government policies impacting land and construction costs and
the cost and availability of borrowed funds, affect our ability and our
franchisees’ ability to finance new restaurant development, improvements and
additions to existing restaurants, and the acquisition of restaurants from,
and
sale of restaurants to, franchisees. Inflation can cause increased
food, labor and benefits costs and can increase our operating
expenses. As operating expenses increase, we recover increased costs
by increasing menu prices, to the extent permitted by competition, or by
implementing alternative products or cost reduction procedures. We
cannot ensure, however, that we will be able to recover increases in operating
expenses due to inflation in this manner.
Our
financial results may fluctuate depending on various factors, many of which
are
beyond our control.
Our
sales
and operating results can vary from quarter to quarter and year to year
depending on various factors, many of which are beyond our
control. Certain events and factors may directly and immediately
decrease demand for our products. If customer demand decreases
rapidly, our results of operations would also decline
precipitously. These events and factors include:
|
•
|
|
variations
in the timing and volume of Sonic Drive-Ins’
sales;
|
|
•
|
|
sales
promotions by Sonic and its
competitors;
|
|
•
|
|
changes
in average same-store sales and customer
visits;
|
|
•
|
|
variations
in the price, availability and shipping costs of
supplies;
|
|
•
|
|
seasonal
effects on demand for Sonic’s
products;
|
|
•
|
|
unexpected
slowdowns in new drive-in development
efforts;
|
|
•
|
|
changes
in competitive and economic conditions
generally;
|
|
•
|
|
changes
in the cost or availability of ingredients or
labor;
|
|
•
|
|
weather
and other acts of God; and
|
|
•
|
|
changes
in the number of franchise agreement
renewals.
|
Our
profitability may be adversely affected by increases in energy
costs.
Our
success depends in part on our ability to absorb increases in energy
costs. Various regions of the United States in which we operate
multiple drive-ins have experienced significant increases in energy
prices. If these increases continue to occur, it would have an
adverse effect on our profitability.
Shortages
or interruptions in the supply or delivery of perishable food products or rapid
price increases could adversely affect our operating
results.
We
are
dependent on frequent deliveries of perishable food products that meet certain
specifications. Shortages or interruptions in the supply of
perishable food products may be caused by unanticipated demand, problems in
production or distribution, financial or other difficulties of suppliers,
disease or food-borne illnesses, inclement weather or other
conditions. We purchase large quantities of food and supplies, which
can be subject to significant price fluctuations due to seasonal shifts, climate
conditions, industry demand, energy costs, changes in international commodity
markets and other factors. These shortages or rapid price increases
could adversely affect the availability, quality and cost of ingredients, which
would likely lower revenues and reduce our profitability.
Failure
to successfully implement our growth strategy could reduce, or reduce the growth
of, our revenue and net income.
We
plan
to increase the number of Sonic Drive-Ins, but may not be able to achieve our
growth objectives, and any new drive-ins may not be profitable. The
opening and success of drive-ins depends on various factors,
including:
|
•
|
|
competition
from other restaurants in current and future
markets;
|
|
•
|
|
the
degree of saturation in existing
markets;
|
|
•
|
|
consumer
interest in the Sonic Brand in new and developing
markets;
|
|
•
|
|
the
identification and availability of suitable and economically viable
locations;
|
|
•
|
|
sales
levels at existing drive-ins;
|
|
•
|
|
the
negotiation of acceptable lease or purchase terms for new
locations;
|
|
•
|
|
permitting
and regulatory compliance;
|
|
•
|
|
the
cost and availability of construction
resources;
|
|
•
|
|
the
ability to meet construction
schedules;
|
|
•
|
|
the
availability of qualified franchisees and their financial and other
development capabilities;
|
|
•
|
|
the
ability to hire and train qualified management
personnel;
|
|
•
|
|
weather;
and
|
|
•
|
|
general
economic and business conditions.
|
If
we are
unable to open as many new drive-ins as planned, if the drive-ins are less
profitable than anticipated or if we are otherwise unable to successfully
implement our growth strategy, revenue and profitability may grow more slowly
or
even decrease.
Our
outstanding and future leverage could have an effect on our
operations.
On
December 20, 2006, the Company closed on a securitized financing facility,
comprised of a $600 million fixed rate term loan and a $200 million variable
rate revolving credit facility. As of August 31, 2007, we had
$593.4 million in outstanding debt under the fixed rate note at an interest
rate
of 5.7% and $116 million outstanding under the variable rate note at an interest
rate of 6.4%.
Our
increased leverage could have the
following consequences:
|
•
|
|
We
may be more vulnerable in the event of deterioration in our business,
in
the restaurant industry or in the economy generally. In
addition, we may be limited in our flexibility in planning for
or reacting
to changes in our business and the industry in which we
operate.
|
|
•
|
|
We
may be required to dedicate a substantial portion of our cash
flow to the
payment of interest on our indebtedness, which could reduce the
amount of
funds available for operations or development of new Partner
Drive-Ins and
thus place us at a competitive disadvantage as compared with
competitors
that are less highly leveraged.
|
|
•
|
|
From
time to time, we may engage in various capital markets, bank
credit and
other financing activities to meet our cash requirements. We
may have difficulty obtaining additional financing at economically
acceptable interest rates.
|
|
•
|
|
Our
existing and future debt obligations may contain certain negative
covenants including limitations on liens, consolidations and
mergers,
indebtedness, capital expenditures, asset dispositions, sale-leaseback
transactions, stock repurchases and transactions with affiliates,
which
may reduce our flexibility in responding to changing business
and economic
conditions.
|
|
•
|
|
Our
debt obligations are subject to customary rapid amortization
events and
events of default. Although management does not anticipate an
event of default or any other event of noncompliance with the
provisions
of the Notes, if such an event occurred, the unpaid amounts outstanding
could become immediately due and payable.
|
Sonic
Drive-Ins are subject to health, employment, environmental and other government
regulations, and failure to comply with existing or future government
regulations could expose us to litigation, damage to our reputation and lower
profits.
Sonic
and
its franchisees are subject to various federal, state and local laws affecting
their businesses. The successful development and operation of
restaurants depend to a significant extent on the selection and acquisition
of
suitable sites, which are subject to zoning, land use (including the placement
of drive-thru windows), environmental (including litter), traffic and other
regulations. Restaurant operations are also subject to licensing and
regulation by state and local departments relating to health, food preparation,
sanitation and safety standards, federal and state labor and immigration laws,
(including applicable minimum wage requirements, overtime, working and safety
conditions and citizenship requirements), federal and state laws prohibiting
discrimination and other laws regulating the design and operation of facilities,
such as the Americans with Disabilities Act of 1990. If we fail to
comply with any of these laws, we may be subject to governmental action or
litigation, and our reputation could be accordingly harmed. Injury to
our reputation would, in turn, likely reduce revenues and profits.
In
recent
years, there has been an increased legislative, regulatory and consumer focus
on
nutrition and advertising practices in the food industry, particularly among
restaurants. As a result, we may become subject to regulatory
initiatives in the area of nutrition disclosure or advertising, such as
requirements to provide information about the nutritional content of our food
products, which could increase expenses. The operation of our
franchise system is also subject to franchise laws and regulations enacted
by a
number of states and rules promulgated by the U.S. Federal Trade
Commission. Any future legislation regulating franchise relationships
may negatively affect our operations, particularly our relationship with our
franchisees. Failure to comply with new or existing franchise laws
and regulations in any jurisdiction or to obtain required government approvals
could result in a ban or temporary suspension on future franchise
sales. Changes in applicable accounting rules imposed by governmental
regulators or private governing bodies could also affect our reported results
of
operations.
We
are
subject to the Fair Labor Standards Act, which governs such matters as minimum
wage, overtime and other working conditions, along with the Americans with
Disabilities Act, various family leave mandates and a variety of other laws
enacted, or rules and regulations promulgated, by federal, state and local
governmental authorities that govern these and other employment
matters. We have experienced and expect further increases in payroll
expenses as a result of federal and state mandated increases in the minimum
wage, and although such increases are not expected to be material, there may
be
material increases in the future. In addition, our vendors may be affected
by
higher minimum wage standards, which may increase the price of goods and
services they supply to us.
Litigation
from customers, franchisees, employees and others could harm our reputation
and
impact operating results.
Claims
of
illness or injury relating to food quality or food handling are common in the
quick-service restaurant industry. In addition, class action lawsuits
have been filed, and may continue to be filed, against various quick-service
restaurants alleging, among other things, that quick-service restaurants have
failed to disclose the health risks associated with high-fat foods and that
quick-service restaurants’ marketing practices have encouraged
obesity. In addition to decreasing our sales and profitability and
diverting management resources, adverse publicity or a substantial judgment
against us could negatively impact our reputation, hindering the ability to
attract and retain qualified franchisees, and grow the business.
Further,
we may be subject to employee, franchisee and other claims in the future based
on, among other things, discrimination, harassment, wrongful termination and
wage, rest break and meal break issues, including those relating to overtime
compensation.
We
may not be able to adequately protect our intellectual property, which could
decrease the value of our brand and products.
The
success of our business depends on
the continued ability to use existing trademarks, service marks and other
components of our brand in order to increase brand awareness and further develop
branded products. All of the steps we have taken to protect our
intellectual property may not be adequate.
Ownership
and leasing of significant amounts of real estate exposes us to possible
liabilities and losses.
We
own or
lease the land and building for all Partner Drive-Ins. Accordingly,
we are subject to all of the risks associated with owning and leasing real
estate. In particular, the value of our assets could decrease and our
costs could increase because of changes in the investment climate for real
estate, demographic trends and supply or demand for the use of our drive-ins,
which may result from competition from similar restaurants in the area, as
well
as liability for environmental conditions. We generally cannot cancel
the leases, so if an existing or future Sonic Drive-In is not profitable, and
we
decide to close it, we may nonetheless be committed to perform our obligations
under the applicable lease including, among other things, paying the base rent
for the balance of the lease term. In addition, as each of the leases
expires, we may fail to negotiate renewals, either on commercially acceptable
terms or at all, which could cause us to close drive-ins in desirable
locations.
Catastrophic
events may disrupt our business.
Unforeseen
events, including war, terrorism and other international conflicts, public
health issues, and natural disasters such as hurricanes, earthquakes, or other
adverse weather and climate conditions, whether occurring in the United States
or abroad, could disrupt our operations, disrupt the operations of franchisees,
suppliers or customers, or result in political or economic
instability. These events could reduce demand for our products or
make it difficult or impossible to receive products from suppliers.
None.
Of
the
654
Partner
Drive-Ins operating as of August 31, 2007, we operated
273
of them on property
leased from third-parties and
381 of them on property we
own. The leases expire on dates ranging from 2007 to 2027, with the
majority of the leases providing for renewal options. All leases
provide for specified monthly rental payments, and some of the leases call
for
additional rentals based on sales volume. All leases require Sonic to
maintain the property and pay the cost of insurance and taxes.
Our
corporate headquarters are located
in the Bricktown district of downtown Oklahoma City. We have a
15-year lease to occupy approximately 78,000 square feet. The lease
expires in November 2018 and has two five-year renewal options. Sonic
believes its properties are suitable for the purposes for which they are being
used.
The
Company is involved in various legal proceedings and has certain unresolved
claims pending. Based on the information currently available,
management believes that all claims currently pending are either covered by
insurance or would not have a material adverse effect on the Company’s business
or financial condition.
Sonic
did not submit any matter during
the fourth quarter of the Company’s last fiscal year to a vote of Sonic’s
stockholders, through the solicitation of proxies or otherwise.
Identification
of Executive Officers
The
following table identifies the
executive officers of the Company:
Name
|
Age
|
Position
|
Executive
Officer
Since
|
|
|
|
|
J.
Clifford Hudson
|
52
|
Chairman
of the Board of Directors, Chief Executive Officer and
President
|
June
1985
|
|
|
|
|
W.
Scott McLain
|
45
|
Executive
Vice President of Sonic Corp. and President of Sonic Industries Services
Inc.
|
April
1996
|
|
|
|
|
Michael
A. Perry
|
49
|
President
of Sonic Restaurants, Inc.
|
August
2003
|
|
|
|
|
Stephen
C. Vaughan
|
41
|
Vice
President and Chief Financial Officer
|
January
1996
|
|
|
|
|
V.
Todd Townsend
|
43
|
Vice
President and Chief Marketing Officer
|
August
2005
|
|
|
|
|
Paige
S. Bass
|
38
|
Vice
President and General Counsel
|
January
2007
|
|
|
|
|
Carolyn
C. Cummins
|
49
|
Vice
President of Compliance and Corporate Secretary
|
April
2004
|
|
|
|
|
Claudia
San Pedro
|
38
|
Vice
President of Investor Relations and Treasurer
|
January
2007
|
|
|
|
|
Terry
D. Harryman
|
42
|
Controller
|
January
1999
|
Business
Experience
The
following sets forth the business
experience of the executive officers of the Company for at least the past five
years:
J.
Clifford Hudson has served as the
Company’s Chairman of the Board since January 2000 and Chief Executive Officer
since April 1995. Mr. Hudson served as President of the Company from
April 1995 to January 2000 and reassumed that position in November
2004. He has served in various other offices with the Company since
1984. Mr. Hudson has served as a Director of the Company since 1993.
Mr. Hudson has served on the Board of Trustees of the Ford Foundation since
January 2006 and on the Board of Trustees of the National Trust for Historic
Preservation since January 2001, where he now serves as Chairman of the
Board. He served as Chairman of the Board of Securities Investor
Protection Corporation, the federally-chartered organization which serves as
the
insurer of customer accounts with brokerage firms, from 1994 to
2001.
W.
Scott McLain has served as Executive
Vice President of the Company and President and Director of Sonic Industries
Services Inc. since September 2004. He served as the Company’s
Executive Vice President and Chief Financial Officer from January 2004 until
November 2004 and as the Company’s Senior Vice President and Chief Financial
Officer from January 2000 until January 2004. Mr. McLain served as
the Company’s Vice President of Finance and Chief Financial Officer from August
1997 until January 2000.
Michael
A. Perry has served as
President and Director of Sonic Restaurants, Inc. since September
2004. He served as Senior Vice President of Operations and Director
of Sonic Restaurants, Inc. from August 2003 until September 2004. Mr.
Perry served as Vice President of Franchise Services of Sonic Industries
Services Inc. from September 1998 until August 2003.
Stephen
C. Vaughan has served as Vice
President and Chief Financial Officer of the Company since November
2004. Mr. Vaughan also served as Treasurer of the Company from
November 2004 until April 2005. Mr. Vaughan served as Vice President
of Planning and Analysis and Treasurer from November 2001 until November 2004
and served as Vice President of Planning and Analysis from January 1999 until
November 2001. He joined the Company in 1992.
V.
Todd Townsend has served as Vice
President and Chief Marketing Officer of the Company since joining the Company
in August 2005. Mr. Townsend served as Vice President of Marketing for Yahoo!
Inc. from 2004 until joining the Company in 2005. Mr. Townsend served
as Assistant Vice President of Marketing for Sprint Corp. from 2001 until 2003
and as
Senior Director
of
Marketing for Sprint Corp.
from 2000 until 2001.
Paige
S. Bass has served as Vice
President and General Counsel of the Company since January 2007. Ms.
Bass joined the Company as Associate General Counsel in April
2004. Prior to joining the Company, Ms. Bass was employed
seven
years
as an associate with the law firm of Crowe & Dunlevy in Oklahoma City,
Oklahoma.
Carolyn
C. Cummins has served as the
Company’s Corporate Secretary since January 2007 and as the Company’s Vice
President of Compliance since April 2004. Ms. Cummins has also served
as Assistant General Counsel since joining the Company in January
1999.
Claudia
San Pedro has served as Vice
President of Investor Relations and Treasurer of the Company since January
2007
and as Treasurer of Sonic Industries Services Inc. since November
2006. She served as the Director of the Oklahoma Office of State
Finance from June 2005 through November 2006. From July 2003 to May
2005, Ms. San Pedro served as the Budget Division Director for the Office of
State Finance. From September 2000 until June 2003, Ms. San Pedro
served as the Assistant Fiscal Staff Director and Education Fiscal Analyst
for
the Oklahoma State Senate.
Terry
D. Harryman has served as the
Company’s Controller since January 1999. Mr. Harryman has also served
as the Controller of Sonic Restaurants, Inc. and Sonic Industries Services
Inc.
since January 2002. He served as Assistant Treasurer of Sonic
Restaurants, Inc. and Sonic Industries Services Inc. from October 1996 until
January 2002. Mr. Harryman joined the Company in 1996.
PART
II
Market
Information
The
Company’s common stock trades on
the Nasdaq National Market (“Nasdaq”) under the symbol “SONC.” The following
table sets forth the high and low closing bids for the Company’s common stock
during each fiscal quarter within the two most recent fiscal years as reported
on Nasdaq. Share amounts set forth below and elsewhere in this report
have been adjusted to reflect the results of the April 2006 three-for-two stock
split.
Fiscal
Year Ended August 31, 2007
|
High
|
Low
|
Fiscal
Year Ended August 31, 2006
|
High
|
Low
|
First
Quarter
|
$24.02
|
$21.63
|
First
Quarter
|
$19.94
|
$17.99
|
Second
Quarter
|
$
24.35
|
$21.50
|
Second
Quarter
|
$
21.73
|
$18.33
|
Third
Quarter
|
$24.96
|
$20.60
|
Third
Quarter
|
$23.48
|
$20.83
|
Fourth
Quarter
|
$24.71
|
$20.29
|
Fourth
Quarter
|
$22.40
|
$19.07
|
Stockholders
As
of October 16, 2007, the Company had
629 record holders of its common stock.
Dividends
The
Company did not pay any cash
dividends on its common stock during its two most recent fiscal years and does
not intend to pay any dividends in the foreseeable future as profits are
reinvested in the Company to fund expansion of its business, acquisition of
Franchise Drive-Ins, repurchases of the Company’s common stock, and payments
under the Company’s financing arrangements. As in the past, future
payment of dividends will be considered after reviewing, among other factors,
returns to stockholders, profitability expectations and financing
needs.
Issuer
Purchases of Equity Securities
Shares
repurchased during the fourth quarter of fiscal 2007 are as follows (in
thousands, except per share amounts):
Period
|
Total
Number of Shares
Purchased
(a)
|
Average
Price Paid per
Share
(b)
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans
or Programs
(1)
(c)
|
Maximum
Dollar Value that May Yet Be Purchased Under the
Program
(d)
|
|
|
|
|
|
June
1, 2007 through June 30, 2007
|
890
|
$21.36
|
890
|
$20,425
|
|
|
|
|
|
July
1, 2007 through July 31, 2007
|
942
|
$21.68
|
942
|
$2
|
|
|
|
|
|
August
1, 2007 through August 31, 2007
|
1,481
|
$21.90
|
1,481
|
$42,571
|
|
|
|
|
|
Total
|
3,313
|
$21.89
|
3,313
|
|
(1) All
of the shares purchased during the fourth quarter of fiscal 2007 were purchased
as part of the Company’s share repurchase program which was first publicly
announced on April 14, 1997. In August 2007, the Company’s Board of
Directors approved an additional $75 million under the Company’s stock
repurchase authorization and extended the program to August 31,
2008.
The
following table sets forth selected
financial data regarding the Company’s financial condition and operating
results. One should read the following information in conjunction
with “Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” below, and the Company’s Consolidated Financial Statements included
elsewhere in this report.
[The
Remainder of this Page Intentionally Left Blank]
(In
thousands, except per share data)
|
|
Year
ended August 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
(1)
|
|
|
2004
(1)
|
|
|
2003
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partner
Drive-In sales
|
|
$
|
646,915
|
|
|
$
|
585,832
|
|
|
$
|
525,988
|
|
|
$
|
449,585
|
|
|
$
|
371,518
|
|
Franchise
Drive-Ins:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise
royalties
|
|
|
111,052
|
|
|
|
98,163
|
|
|
|
88,027
|
|
|
|
77,518
|
|
|
|
66,431
|
|
Franchise
fees
|
|
|
4,574
|
|
|
|
4,747
|
|
|
|
4,311
|
|
|
|
4,958
|
|
|
|
4,674
|
|
Other
|
|
|
7,928
|
|
|
|
4,520
|
|
|
|
4,740
|
|
|
|
4,385
|
|
|
|
4,017
|
|
Total
revenues
|
|
|
770,469
|
|
|
|
693,262
|
|
|
|
623,066
|
|
|
|
536,446
|
|
|
|
446,640
|
|
Cost
of Partner Drive-In sales
|
|
|
520,176
|
|
|
|
468,627
|
|
|
|
421,906
|
|
|
|
358,859
|
|
|
|
291,764
|
|
Selling,
general and administrative
|
|
|
58,736
|
|
|
|
52,048
|
|
|
|
47,503
|
|
|
|
44,765
|
|
|
|
41,061
|
|
Depreciation
and amortization
|
|
|
45,103
|
|
|
|
40,696
|
|
|
|
35,821
|
|
|
|
32,528
|
|
|
|
29,223
|
|
Provision
for impairment of long-lived
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets
|
|
|
1,165
|
|
|
|
264
|
|
|
|
387
|
|
|
|
675
|
|
|
|
727
|
|
Total
expenses
|
|
|
625,180
|
|
|
|
561,635
|
|
|
|
505,617
|
|
|
|
436,827
|
|
|
|
362,775
|
|
Income
from operations
|
|
|
145,289
|
|
|
|
131,627
|
|
|
|
117,449
|
|
|
|
99,619
|
|
|
|
83,865
|
|
Debt
extinguishment and other costs
|
|
|
6,076
|
|
|
─
|
|
|
─
|
|
|
─
|
|
|
─
|
|
Interest
expense, net
|
|
|
38,330
|
|
|
|
7,578
|
|
|
|
5,785
|
|
|
|
6,378
|
|
|
|
6,216
|
|
Income
before income taxes
|
|
$
|
100,883
|
|
|
$
|
124,049
|
|
|
$
|
111,664
|
|
|
$
|
93,241
|
|
|
$
|
77,649
|
|
Net
income
|
|
$
|
64,192
|
|
|
$
|
78,705
|
|
|
$
|
70,443
|
|
|
$
|
58,031
|
|
|
$
|
47,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
per share
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.94
|
|
|
$
|
0.91
|
|
|
$
|
0.78
|
|
|
$
|
0.65
|
|
|
$
|
0.55
|
|
Diluted
|
|
$
|
0.91
|
|
|
$
|
0.88
|
|
|
$
|
0.75
|
|
|
$
|
0.63
|
|
|
$
|
0.52
|
|
Weighted
average shares used in calculation
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
68,019
|
|
|
|
86,260
|
|
|
|
89,992
|
|
|
|
88,970
|
|
|
|
87,698
|
|
Diluted
|
|
|
70,592
|
|
|
|
89,239
|
|
|
|
93,647
|
|
|
|
92,481
|
|
|
|
91,365
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital (deficit)
|
|
$
|
(40,784
|
)
|
|
$
|
(35,585
|
)
|
|
$
|
(30,093
|
)
|
|
$
|
(14,537
|
)
|
|
$
|
(2,875
|
)
|
Property,
equipment and capital leases, net
|
|
|
529,993
|
|
|
|
477,054
|
|
|
|
422,825
|
|
|
|
376,315
|
|
|
|
345,551
|
|
Total
assets
|
|
|
758,520
|
|
|
|
638,018
|
|
|
|
563,316
|
|
|
|
518,633
|
|
|
|
486,119
|
|
Obligations
under capital leases (including current portion)
|
|
|
39,318
|
|
|
|
36,625
|
|
|
|
38,525
|
|
|
|
40,531
|
|
|
|
27,929
|
|
Long-term
debt (including current portion)
|
|
|
710,743
|
|
|
|
122,399
|
|
|
|
60,195
|
|
|
|
82,169
|
|
|
|
139,587
|
|
Stockholders’
equity (deficit)
|
|
|
(106,802
|
)
|
|
|
391,693
|
|
|
|
387,917
|
|
|
|
337,900
|
|
|
|
267,733
|
|
Cash
dividends declared per common share
|
|
─
|
|
|
─
|
|
|
─
|
|
|
─
|
|
|
─
|
|
(1) Previously
reported prior-year results have been adjusted to implement SFAS 123R on a
modified retrospective basis.
(2) Adjusted
for three-for-two stock splits in 2006 and 2004.
Overview
Description
of the Business
.
Sonic operates and franchises the
largest chain of drive-ins in the United States. As of August 31,
2007, the Sonic system was comprised of 3,343 drive-ins, of which 20% or 654
were Partner Drive-Ins and 80% or 2,689 were Franchise
Drive-Ins. Sonic Drive-Ins feature signature menu items such as
specialty soft drinks and frozen desserts, made-to-order sandwiches and a unique
breakfast menu. We derive our revenues primarily from Partner
Drive-In sales and royalties from franchisees. We also receive
revenues from initial franchise fees. To a lesser extent, we also
receive income from the selling and leasing of signs and real estate, as well
as
from minority ownership interests in a few Franchise Drive-Ins.
Costs
of
Partner Drive-In sales, including minority interest in earnings of drive-ins,
relate directly to Partner Drive-In sales. Other expenses, such as
depreciation, amortization, and general and administrative expenses, relate
to
the Company’s franchising operations, as well as Partner Drive-In
operations. Our revenues and expenses are directly affected by the
number and sales volumes of Partner Drive-Ins. Our revenues and, to a
lesser extent, expenses also are affected by the number and sales volumes of
Franchise Drive-Ins. Initial franchise fees and franchise royalties
are directly affected by the number of Franchise Drive-In openings.
Overview
of Business Performance
.
Business fundamentals at the drive-in
level continued to be strong during fiscal year 2007. Cumulative
results for the year, however, were impacted by costs associated with the
financing of the Company’s tender offer and other share repurchase activities
which have collectively resulted in the repurchase of approximately 30% of
the
Company’s outstanding stock during the year ended August 31,
2007. While the tender offer was dilutive to earnings per share in
the first two quarters of fiscal 2007, it was accretive to third and fourth
quarter earnings per share and is expected to continue to be accretive in the
future. Net income for the year decreased 18.4%, while earnings per share
increased 3.4% to $0.91 per diluted share from $0.88 in the previous
year. The Company’s earnings were reduced by debt extinguishment
charges related primarily to Sonic’s tender offer and financing activities
during fiscal year 2007, which totaled $0.05 per diluted share for the
year. Excluding these special charges, net income per diluted share
was $0.96 for fiscal year 2007, reflecting a 9.1% increase versus the prior
year. The Company believes this non-GAAP measure of net income per
diluted share before special items provides for comparability to prior year
net
income per diluted share, and is useful in assessing ongoing operations
performance.
We
continue to experience considerable momentum in our business fueled by solid
growth in same-store sales that led to an increase in system-wide drive-in
level
average profits. In turn, the rise in store-level profits, which have
grown handsomely over the last four years, helped produce an increase in the
number of new drive-in openings by franchisees. We believe these
results reflect our multi-layered growth strategy that features the following
components:
·
|
Solid
same-store sales growth;
|
·
|
Expansion
of the Sonic brand through new unit growth, particularly by
franchisees;
|
·
|
Increased
franchising income stemming from franchisee new unit growth, solid
same-store sales growth and our unique ascending royalty
rate;
|
·
|
Operating
leverage at both the drive-in level and the corporate level;
and
|
·
|
The
use of excess operating cash flow and issuance of new debt for share
repurchases and franchise
acquisitions.
|
The
following table provides information regarding the number of Partner Drive-Ins
and Franchise Drive-Ins in operation as of the end of the periods indicated
as
well as the system-wide growth in sales and average unit volume. System-wide
information includes both Partner Drive-In and Franchise Drive-In information,
which we believe is useful in analyzing the growth of the brand as well as
the
Company’s revenues since franchisees pay royalties based on a percentage of
sales.
System-Wide
Performance
($
in thousands)
|
|
|
|
|
|
Year
Ended August 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Percentage
increase in sales
|
|
|
8.6
|
%
|
|
|
10.7
|
%
|
|
|
12.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
System-wide
drive-ins in operation
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
at beginning of
period
|
|
|
3,188
|
|
|
|
3,039
|
|
|
|
2,885
|
|
Opened
|
|
|
175
|
|
|
|
173
|
|
|
|
175
|
|
Closed
(net of
re-openings)
|
|
|
(20
|
)
|
|
|
(24
|
)
|
|
|
(21
|
)
|
Total
at end of
period
|
|
|
3,343
|
|
|
|
3,188
|
|
|
|
3,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
markets
(2)
|
|
|
2,500
|
|
|
|
2,435
|
|
|
|
2,165
|
|
Developing
markets
(2)
|
|
|
843
|
|
|
|
753
|
|
|
|
874
|
|
All markets
|
|
|
3,343
|
|
|
|
3,188
|
|
|
|
3,039
|
|
Average
sales per drive-in:
|
|
|
|
|
|
|
|
|
|
Core
markets
|
|
$
|
1,145
|
|
|
$
|
1,105
|
|
|
$
|
1,059
|
|
Developing
markets
|
|
|
998
|
|
|
|
954
|
|
|
|
934
|
|
All markets
|
|
|
1,109
|
|
|
|
1,070
|
|
|
|
1,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in same-store sales
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
markets
|
|
|
3.6
|
%
|
|
|
5.3
|
%
|
|
|
5.6
|
%
|
Developing
markets
|
|
|
1.2
|
|
|
|
1.5
|
|
|
|
7.4
|
|
All markets
|
|
|
3.1
|
|
|
|
4.5
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Drive-ins that are temporarily closed for various reasons (repairs,
remodeling, relocations, etc.) are not considered closed unless the
Company determines that they are unlikely to reopen within a reasonable
time.
(2)
Markets are identified based on television viewing areas and further
classified as core or developing markets based upon number of drive-ins
in
a market and the level of advertising support. Market classifications
are updated periodically.
(3)
Represents percentage change for drive-ins open for a minimum of
15
months.
|
|
System-wide
same-store sales increased 3.1% during fiscal year 2007 as a result of growth
in
average check, offset somewhat by a slight decrease in traffic (number of
transactions per drive-in). The increase in average check was the result of
price increases, as well as the success of the pay-at-your-stall (PAYS) program,
which has increased credit and debit card transactions that, on average, exceed
the average cash transaction. We believe our strong sales performance
is a direct result of our specific sales-driving initiatives including, but
not
limited to:
·
|
Continued
growth of our business in non-traditional day parts including the
morning,
afternoon, and evening day parts;
|
·
|
Use
of technology to reach customers and improve the customer
experience;
|
·
|
Monthly
promotions and new product news focused on quality and expanded choice
for
our customers;
|
·
|
Growth
in brand awareness through increased media spending and greater use
of
network cable advertising; and
|
·
|
The
ongoing physical retrofit of drive-ins with a new
look.
|
Looking
forward, these strategies are expected to continue to positively impact our
business. We expect revenue growth of between 10% and 12% for fiscal
year 2008, based upon targeted same-store sales growth in the range of 2% to
4%,
with Partner Drive-In sales growth expected to be slightly ahead of this
range.
We
continue to use our monthly promotions to highlight our distinctive food
offerings and to feature new products.
We also use our promotions
and new product news to create a strong emotional link with consumers and to
align closely with consumer trends for fresh ingredients, customization, menu
variety and choice. During the past year, our new product offerings
showcased the breadth of our menu and emphasized the opportunity for choice
at
Sonic. We will continue to have new product news in the coming
months, all designed to meet customers’ evolving taste preferences including the
growing desire for fresh, quality product offerings and healthier
alternatives.
During
fiscal year 2007, our system-wide media expenditures were approximately $175
million as compared to $145 million in fiscal year 2006, which we believe
continues to increase overall brand awareness. We also continued to
spend approximately one-half of our marketing dollars on system-wide marketing
fund efforts, which are largely used for network cable television advertising,
growing this area of our advertising from approximately $72 million in fiscal
year 2006 to approximately $90 million in fiscal year 2007. We
believe increased network cable advertising provides several benefits including
the ability to more effectively target and better reach the cable audience,
which has now surpassed broadcast networks in terms of viewership. In
addition, national cable advertising also allows us to bring additional depth
to
our media and expand our message beyond our traditional emphasis on a single
monthly promotion. Looking forward, we expect system-wide media
expenditures to be approximately $190 million in fiscal 2008, with the
system-wide marketing fund representing approximately one-half of total media
expenditures.
We
continue to make investments to upgrade the exterior look of our drive-ins
including a retrofit and the use of new electronic signage. The new
retrofit features several new elements including an upgraded building exterior,
new more energy-efficient lighting, a significantly enhanced patio area, and
improved menu housings. We completed the retrofit of over 100 Partner
Drive-Ins before fiscal year 2007. During fiscal year 2007, the
retrofit was completed at 326 Franchise Drive-Ins and 173 Partner
Drive-Ins. The retrofit of the entire Sonic system is expected to
occur over the next three to four years, with an additional 600 to 700 Franchise
Drive-Ins and 150 Partner Drive-Ins expected to be retrofitted during fiscal
year 2008.
Sonic
opened 175 new drive-ins during fiscal year 2007, consisting of 29 Partner
Drive-Ins and 146 Franchise Drive-Ins, a slight increase overall from 173
drive-in openings during fiscal year 2006 (35 Partner Drive-Ins and 138
Franchise Drive-Ins). Looking forward, the Company expects to open
180 to 200 new drive-ins during fiscal year 2008, including 155 to 165 by
franchisees.
Results
of Operations
Revenues
.
Total
revenues increased 11.1% to $770.5 million in fiscal year 2007 from $693.3
million during fiscal year 2006. The increase in revenues primarily
relates to solid sales growth for Partner Drive-Ins and a rise in franchise
royalties.
Revenues
|
|
($
in thousands)
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Increase/
|
|
Year
Ended August 31,
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
Revenues:
Partner
Drive-In sales
|
|
$
|
646,915
|
|
|
$
|
585,832
|
|
|
$
|
61,083
|
|
|
|
10.4
|
%
|
Franchise
revenues:
Franchise
royalties
|
|
|
111,052
|
|
|
|
98,163
|
|
|
|
12,889
|
|
|
|
13.1
|
|
Franchise fees
|
|
|
4,574
|
|
|
|
4,747
|
|
|
|
(173
|
)
|
|
|
(3.6
|
)
|
Other
|
|
|
7,928
|
|
|
|
4,520
|
|
|
|
3,408
|
|
|
|
75.4
|
|
Total revenues
|
|
$
|
770,469
|
|
|
$
|
693,262
|
|
|
$
|
77,207
|
|
|
|
11.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Increase/
|
|
Year
Ended August 31,
|
|
2006
|
|
|
2005
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
Revenues:
Partner
Drive-In sales
|
|
$
|
585,832
|
|
|
$
|
525,988
|
|
|
$
|
59,844
|
|
|
|
11.4
|
%
|
Franchise
revenues:
Franchise
royalties
|
|
|
98,163
|
|
|
|
88,027
|
|
|
|
10,136
|
|
|
|
11.5
|
|
Franchise fees
|
|
|
4,747
|
|
|
|
4,311
|
|
|
|
436
|
|
|
|
10.1
|
|
Other
|
|
|
4,520
|
|
|
|
4,740
|
|
|
|
(220
|
)
|
|
|
(4.6
|
)
|
Total revenues
|
|
$
|
693,262
|
|
|
$
|
623,066
|
|
|
$
|
70,196
|
|
|
|
11.3
|
|
The
following table reflects the growth in Partner Drive-In sales and changes in
comparable drive-in sales for Partner Drive-Ins. It also presents
information about average unit volumes and the number of Partner Drive-Ins,
which is useful in analyzing the growth of Partner Drive-In sales.
Partner
Drive-In Sales
($
in thousands)
|
|
|
|
|
|
Year
Ended August 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Partner
Drive-In sales
|
|
$
|
646,915
|
|
|
$
|
585,832
|
|
|
$
|
525,988
|
|
Percentage
increase
|
|
|
10.4
|
%
|
|
|
11.4
|
%
|
|
|
17.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partner
Drive-Ins in operation
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
at beginning of period
|
|
|
623
|
|
|
|
574
|
|
|
|
539
|
|
Opened
|
|
|
29
|
|
|
|
35
|
|
|
|
37
|
|
Acquired
from (sold to) franchisees, net
|
|
|
5
|
|
|
|
15
|
|
|
|
(1
|
)
|
Closed
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Total
at end of period
|
|
|
654
|
|
|
|
623
|
|
|
|
574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
sales per Partner Drive-In
|
|
$
|
1,017
|
|
|
$
|
980
|
|
|
$
|
957
|
|
Percentage
increase
|
|
|
3.8
|
%
|
|
|
2.4
|
%
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in same-store sales
(2)
|
|
|
2.5
|
%
|
|
|
1.9
|
%
|
|
|
7.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Drive-ins that are temporarily closed for various reasons (repairs,
remodeling, relocations, etc.) are not considered closed unless the
Company determines that they are unlikely to reopen within a reasonable
time.
(2)
Represents percentage change for drive-ins open for a minimum of
15
months.
|
|
The
following table reflects the increase in Partner Drive-In sales by type of
activity for fiscal year 2007 and 2006:
Change
in Partner Drive-In Sales
($
in thousands)
|
|
|
|
|
|
Year
Ended August 31,
|
|
|
|
2007
|
|
|
2006
|
|
Increase
from addition of newly constructed drive-ins
(1)
|
|
$
|
42,593
|
|
|
$
|
33,332
|
|
Net
increase from drive-ins acquired and sold
(2)
|
|
|
4,409
|
|
|
|
17,197
|
|
Increase
from same-store sales
|
|
|
15,439
|
|
|
|
9,754
|
|
Decrease
from drive-ins closed
(3)
|
|
|
(1,358
|
)
|
|
|
(439
|
)
|
Net
increase in Partner Drive-In sales
|
|
$
|
61,083
|
|
|
$
|
59,844
|
|
|
|
|
|
|
|
|
|
|
(1)
Represents the increase for 64 and 72 drive-ins opened since the
beginning
of the prior fiscal year as of August 31, 2007 and 2006,
respectively.
|
|
(2)
Represents the net increase for 15 drive-ins acquired and 10 drive-ins
sold since the beginning of the prior fiscal year as of August 31,
2007
and 19 drive-ins acquired and 5 drive-ins sold since the beginning
of the
prior fiscal year as of August 31, 2006.
|
|
(3)
Represents the decrease for 4 and 2 drive-ins closed since the beginning
of the prior fiscal year as of August 31, 2007 and 2006,
respectively.
|
|
The
increase in Partner Drive-In sales for both fiscal year 2007 and 2006 was
primarily driven by the opening of newly constructed
drive-ins. Looking forward, we anticipate opening approximately 25 to
35 Partner Drive-Ins during fiscal year 2008. Same-store sales at
Partner Drive-Ins increased 2.5% in fiscal year 2007 and 1.9% in fiscal year
2006, which also contributed to the increase in total Partner Drive-In
sales. These increases also reflect the positive impact of increasing
average sales per drive-in of 3.8% for 2007 and 2.4% for 2006.
The
following table reflects the growth in franchise income (franchise royalties
and
franchise fees) as well as franchise sales, average unit volumes and the number
of Franchise Drive-Ins. While we do not record Franchise Drive-In
sales as revenues, we believe this information is important in understanding
our
financial performance since these sales are the basis on which we calculate
and
record franchise royalties. This information is also indicative of
the financial health of our franchisees.
Franchise
Information
($
in thousands)
|
|
|
|
Year
Ended August 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Franchise
fees and royalties
(1)
|
|
$
|
115,626
|
|
|
$
|
102,910
|
|
|
$
|
92,338
|
|
Percentage
increase
|
|
|
12.4
|
%
|
|
|
11.4
|
%
|
|
|
12.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise
Drive-Ins in operation
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
at beginning of
period
|
|
|
2,565
|
|
|
|
2,465
|
|
|
|
2,346
|
|
Opened
|
|
|
146
|
|
|
|
138
|
|
|
|
138
|
|
Acquired
from (sold to) Company,
net
|
|
|
(5
|
)
|
|
|
(15
|
)
|
|
|
1
|
|
Closed
|
|
|
(17
|
)
|
|
|
(23
|
)
|
|
|
(20
|
)
|
Total
at end of
period
|
|
|
2,689
|
|
|
|
2,565
|
|
|
|
2,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise
Drive-In sales
|
|
$
|
2,961,168
|
|
|
$
|
2,735,802
|
|
|
$
|
2,474,133
|
|
Percentage
increase
|
|
|
8.2
|
%
|
|
|
10.6
|
%
|
|
|
11.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
royalty rate
|
|
|
3.75
|
%
|
|
|
3.59
|
%
|
|
|
3.56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
sales per Franchise Drive-In
|
|
$
|
1,132
|
|
|
$
|
1,092
|
|
|
$
|
1,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in same-store sales
(3)
|
|
|
3.3
|
%
|
|
|
5.1
|
%
|
|
|
5.8
|
%
|
|
|
(1)
See
Revenue Recognition Related to Franchise Fees and Royalties
in the
Critical Accounting Policies and Estimates
section of
MD&A.
|
|
(2)
Drive-ins that are temporarily closed for various reasons (repairs,
remodeling, relocations, etc.) are not considered closed unless
the
Company determines that they are unlikely to reopen within a reasonable
time.
(3)
Represents percentage change for drive-ins open for a minimum of
15
months.
|
|
Franchise
royalties increased 13.1% to $111.1 million in fiscal year 2007, compared
to
$98.2 million in fiscal year 2006. Of the $12.9 million increase,
approximately $8.0 million resulted from Franchise Drive-Ins’ same-store sales
growth of 3.3% in fiscal year 2007, combined with an increase in the effective
royalty rate to 3.75% during fiscal year 2007 compared to 3.59% during fiscal
year 2006. Each of our license agreements contains an ascending
royalty rate whereby royalties, as a percentage of sales, increase as sales
increase. The balance of the increase was attributable to growth in
the number of Franchise Drive-Ins over the prior period.
Franchise
royalties were positively impacted during the latter half of fiscal year
2007
when franchisees opted to convert approximately 790 older license agreements
to
a newer form of license agreement. The conversion license provides a
20 year term and for payment of a higher royalty rate than in the previous
agreement. The rate for the converted licenses was effective April 1,
2007, and we estimate the total benefit for the last half of the fiscal
year was between $1.5 to $2.0 million. Looking forward,
franchise royalties will continue to be impacted positively by this
conversion. The benefit to the first half of fiscal year 2008 is
expected to be approximately $1.5 million in additional royalties.
Franchise
royalties increased 11.5% to $98.1 million in fiscal year 2006, compared
to
$88.0 million in fiscal year 2005. Of the $10.1 million increase,
approximately $6.1 million resulted from Franchise Drive-Ins’ same-store sales
growth of 5.1% in fiscal year 2006, combined with an increase in the effective
royalty rate to 3.59% during fiscal year 2006 compared to 3.56% during fiscal
year 2005. The balance of the increase was attributable to growth in
the number of Franchise Drive-Ins over the prior period.
Franchisees
opened 146 new drive-ins in fiscal year 2007, up from 138 new drive-ins in
fiscal year 2006. Despite the increase in new drive-in openings,
franchise fees decreased 3.6% to $4.6 million as a result of approximately
$0.3
million more in fees recognized in fiscal year 2006 from terminations of
area
development agreements. These terminations were due to an initiative
to strengthen the franchise development pipeline by terminating non-performing
agreements and were the primary reason for the 10.1% increase in franchise
fees
to $4.7 million in fiscal year 2006, when franchisees opened 138 new drive-ins
in both fiscal years 2006 and 2005.
As
of
August 31, 2007, we had 173 area development agreements representing 908
planned
Franchise Drive-In openings over the next few years, compared to 152 such
agreements at August 31, 2006 which represented approximately 576 planned
Franchise Drive-In openings. We anticipate 155 to 165 store openings
by franchisees during fiscal year 2008. As a result of these new
Franchise Drive-In openings, the impact of the conversion of older license
agreements, and the continued benefit of the ascending royalty rate contained
in
all license agreements, we expect approximately $13 to $15 million in
incremental franchise fees and royalties in fiscal year 2008.
Other
income increased 75.4% to $7.9 million in fiscal year 2007 from $4.5 million
in
fiscal year 2006. The increase relates primarily to the net favorable
impact of non-income tax matters and an approximately $2.0 million gain on
the
sale of real estate to a franchisee. Looking forward, other income is
anticipated in the range of $0.8 million to $1.0 million per quarter during
fiscal year 2008.
Operating
Expenses
.
Overall, drive-in cost of operations, as
a percentage of Partner Drive-In sales, increased to 80.3% in fiscal year
2007
from 80.0% in fiscal year 2006. Minority interest in earnings
of drive-ins is included as a part of cost of sales in the table below since
it
is directly related to Partner Drive-In operations.
Operating
Margins
|
|
|
|
|
|
Year
Ended August 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Costs
and Expenses
(1)
:
|
|
|
|
|
|
|
|
|
|
Partner
Drive-Ins:
|
|
|
|
|
|
|
|
|
|
Food
and
packaging
|
|
|
25.7
|
%
|
|
|
25.9
|
%
|
|
|
26.2
|
%
|
Payroll
and other employee
benefits
|
|
|
30.4
|
|
|
|
30.0
|
|
|
|
30.3
|
|
Minority
interest in earnings
of
Partner
Drive-Ins
|
|
|
4.1
|
|
|
|
4.3
|
|
|
|
4.1
|
|
Other
operating
expenses
|
|
|
20.1
|
|
|
|
19.8
|
|
|
|
19.6
|
|
Total
Partner Drive-In cost of operations
|
|
|
80.3
|
%
|
|
|
80.0
|
%
|
|
|
80.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
As a percentage of Partner Drive-In sales.
|
|
Food
and
packaging costs decreased by 0.2 percentage points during fiscal year 2007
compared to fiscal year 2006 following a decrease of 0.3 percentage points
during fiscal year 2006 compared to fiscal year 2005. The
decrease for fiscal year 2007 relates primarily to price increases that more
than offset generally higher commodity pricing, particularly for dairy, soybean
oil and packaging. The improvement for fiscal year 2006 relates
primarily to lower dairy costs and a favorable shift in product mix to drinks
and ice cream, which have more favorable margins than other menu
items. Looking forward, commodity pressures are expected to ease in
the second half of fiscal year 2008.
Labor
costs increased by 0.4 percentage points during fiscal year 2007 compared
to
fiscal year 2006 after a decrease of 0.3 percentage points during fiscal
year
2006 compared to fiscal year 2005. The increase for fiscal year 2007
was a result of federal and state minimum wage increases, which was partially
offset by price increases. The improvement for fiscal year 2006 was
primarily a result of leverage from higher sales volumes. Looking
forward, wage rates are expected to continue to increase as a result of federal
and state minimum wage legislation. While the Company expects to
mitigate some of the increase with menu price increases, it is likely that
labor
costs, as a percentage of sales, will rise during fiscal year 2008.
Minority
interest, which reflects our store-level partners’ pro-rata share of earnings
through our partnership program, increased by $1.4 million during fiscal
year
2007. While these costs increased in real terms during fiscal year
2007, they declined as a percentage of Partner Drive-In sales reflecting
our
partners’ share of the increased operating costs experienced during the
period. During fiscal year 2006, minority interest increased $3.7
million, reflecting the increase in average profit per store. We
continue to view the partnership program as an integral part of our culture
at
Sonic and a large factor in the success of our business, and we are pleased
that
profit distributions to our partners increased during fiscal year
2007. Since we expect our average store level profits to continue to
grow in fiscal year 2008, we expect minority interest to continue to increase
in
dollar terms.
Other
operating expenses increased by 0.3 percentage points during fiscal year
2007
after an increase of 0.2 percentage points during fiscal year
2006. The increase in fiscal year 2007 relates to a number of items,
including higher credit card fees due to increasing credit card sales and
higher
repair and maintenance costs. Leverage from higher sales partially
offset increased utility costs resulting from higher energy prices in fiscal
year 2006. Looking forward, we expect increases in credit card fees
to continue, which is expected to be offset by leverage from higher sales
to
result in flat to slightly favorable other operating expenses, as a percentage
of sales, on a year-over-year basis, in fiscal year 2008.
To
summarize, we are expecting leverage from higher sales and operations
initiatives to result in slightly favorable overall restaurant-level margins
during fiscal year 2008 on a year-over-year basis, primarily in the second
half
of the year.
Selling,
General and Administrative (“SG&A”)
.
SG&A
expenses increased 12.8% to $58.7 million during fiscal year 2007 and 9.6%
to
$52.0 million during fiscal year 2006. The increases in these fiscal
years relate to the addition of headcount and other infrastructure to support
the continued growth of our business. As a percentage of total
revenues, SG&A expenses increased to 7.6% in fiscal year 2007, compared with
7.5% in fiscal year 2006 and 7.6% in fiscal year 2005. Stock-based
compensation is included in SG&A, and, as of August 31, 2007, total
remaining unrecognized compensation cost related to unvested stock-based
arrangements was $12.9 million and is expected to be recognized over a weighted
average period of 1.6 years. See Note 1 and Note 12 of the Notes to
the Consolidated Financial Statements included in this Form 10-K for additional
information regarding our stock-based compensation. We anticipate
that SG&A costs will increase approximately 10% to 12% in fiscal year 2008
and decline slightly, as a percentage of sales.
Depreciation
and Amortization
.
Depreciation and amortization
expense increased 10.8% to $45.1 million in fiscal year 2007 as a result
of
additional capital expenditures. Depreciation and amortization
expense increased 13.6% to $40.7 million in fiscal year 2006 due, in part,
to
additional depreciation stemming from the Tennessee and Kentucky acquisitions,
as well as the reduction in remaining useful life for certain assets related
to
the retrofit of Partner Drive-Ins in the late 1990s. Capital expenditures
during
fiscal year 2007 for new drive-in construction and continued investment in
existing drive-ins, including retrofit and, in some cases, upgraded signage
were
$110.9 million. An additional $10.8 million was spent for the
acquisition of drive-ins from franchisees. Looking forward, with
approximately $75 to $85 million in capital expenditures planned for the
year, normal depreciation and amortization is expected to increase by
approximately 11% to 13% for the year.
Provision
for Impairment of Long-Lived Assets
.
We assess
drive-in assets for impairment on a quarterly basis under the guidelines
of FAS
144 – “Accounting for the Impairment or Disposal of Long-Lived
Assets.” During fiscal year 2007, three surplus or leased properties
were impaired which resulted in a charge of $0.8 million to reduce the carrying
cost of the properties to estimated fair value. In addition, during
fiscal year 2007, two operating Partner Drive-Ins were impaired resulting
in a
$0.4 million charge for carrying cost in excess of estimated fair value for
the
related assets. The total of these provisions for fiscal year
2007 was $1.2 million. During fiscal year 2006, three surplus
properties became impaired which resulted in a provision for impairment of
$0.3
million for carrying cost in excess of estimated fair value for the
assets. During fiscal year 2005, one operating Partner Drive-In and
one surplus property became impaired which resulted in provision for impairment
of $0.4 million for carrying cost in excess of estimated fair value for the
assets. We continue to perform quarterly analyses of certain
underperforming drive-ins. It is reasonably possible that the estimate of
future
cash flows associated with these drive-ins may change in the near future
resulting in the need to write-down assets associated with one or more of
these
drive-ins to fair value. While it is impossible to predict if future
write-downs will occur, we do not believe that future write-downs will impede
our ability to continue growing earnings at a solid rate.
Interest
Expense
.
Net interest expense increased $36.8
million to $44.4 million in fiscal year 2007 and increased $1.8 million to
$7.6
million in fiscal year 2006. The increase in fiscal year 2007 is the
result of interest on increased borrowings used to fund the purchase of shares
in the Company’s tender offer and subsequent repurchases, as well as $6.1
million in debt extinguishment charges related to financing the Company’s tender
offer and other share repurchase activities. The smaller increase in
net interest expense in fiscal year 2006 resulted from increased borrowings
that
were used largely to fund share repurchases and capital
expenditures. During fiscal year 2008, we expect net interest expense
of approximately $45 to $50 million, but may vary based upon the level
of share repurchases and acquisitions of Franchise Drive-Ins during the
year.
Income
taxes
. The provision for income taxes remained relatively
constant for fiscal year 2007 with an effective federal and state tax rate
of
36.4% compared with 36.6% in fiscal year 2006 and 36.9% in fiscal year 2005.
The
decrease in rate in fiscal year 2007 related to the favorable resolution
of
state tax matters and the retroactive extension of the Work Opportunity Tax
Credit. We expect our tax rate to be in the range of 36.5% to 37.5%
in fiscal year 2008. However, our tax rate may continue to vary
significantly from quarter-to-quarter depending on the timing of option
exercises and dispositions by option-holders and as circumstances on individual
tax matters change.
Financial
Position
During
fiscal year 2007, current assets increased 73.4% to $73.7 million compared
to
$42.5 million as of the end of fiscal year 2006. Cash balances
increased by $29.3 million primarily due to changes in cash processing for
the
securitized cash flows, including consideration of the current portion of
restricted cash of $13.5 million. In addition, the noncurrent portion
of restricted cash of $11.4 million was an increase associated with the
securitized cash flows. Net property, equipment and capital leases
increased by $52.9 million primarily as a result of capital expenditures
of
$112.0 million, capital lease additions of $5.2 million and $10.8 million
for
the acquisition of drive-ins from franchisees. Goodwill increased by
$5.7 million primarily as a result of the acquisition of drive-ins from
franchisees. Debt origination costs increased by $19.8 million as a
result of the costs associated with the securitized debt
transaction. These increases combined with the increase in current
assets resulted in an 18.9% increase in total assets to $758.5 million as
of the
end of fiscal year 2007.
Total
current liabilities increased $36.4 million or 46.6% during fiscal year 2007
primarily as a result of a $15.3 million increase in the current obligations
for
capital leases and debt related to the securitized debt transaction, a $14.4
million accrual for share repurchase obligations that settled in September
and a
$1.6 million increase in gift program liabilities. The noncurrent
portion of long-term debt increased $573.3 million as a result of the debt
used
to fund the repurchase of stock. Overall, total liabilities increased
$619.0 million or 251.3% as a result of the items discussed above.
Stockholders’
equity decreased $498.5 million during fiscal year 2007 primarily resulting
from
the stock repurchase activity during the year. The Company completed
a “modified Dutch auction” tender offer in October 2006, repurchasing 15.9
million shares at a purchase price of $23.00 per share for a total of $366.1
million, and incurred costs related to the transaction totaling $1.2 million
that are included in stockholders’ equity. Subsequent to the tender
offer, additional share repurchases totaling approximately $211.1 million
were
completed under Board-authorized share repurchase initiatives. The
stock repurchase activity was partially offset by earnings during the year
of
$64.2 million and proceeds and the related tax benefits from the exercise
of
stock options.
The
Company considers the non-GAAP measure of debt-to-EBITDA to be a significant
indication of the Company’s financial performance and available capital
resources. This is not a measure of financial performance or
liquidity under generally accepted accounting principles
(“GAAP”). EBITDA is a non-GAAP measure of income and does not include
the effects of interest and taxes, and excludes the “non-cash” effects of all
depreciation and amortization. While management considers EBITDA
useful in analyzing our results, it is not intended to replace any presentation
included in our consolidated financial statements. As of August 31,
2007, our debt-to-EBITDA ratio was 3.9. The following table
reconciles EBITDA to net income as of August 31, 2007 and provides the
components to calculate this ratio:
Net
Income
|
|
$
|
64,192
|
|
Provision
for income taxes
|
|
|
36,691
|
|
Depreciation
and amortization
|
|
|
45,103
|
|
Net
interest expense
|
|
|
44,406
|
|
EBITDA
|
|
$
|
190,392
|
|
Obligations
under capital leases (including current portion)
|
|
$
|
39,318
|
|
Long-term
debt (including current portion)
|
|
|
710,743
|
|
Total
debt
|
|
$
|
750,061
|
|
Debt-to-EBITDA
|
|
|
3.9
|
|
Liquidity
and Sources of Capital
Operating
Cash Flows
.
Net cash provided by operating
activities decreased $6.5 million or 5.1% to $121.0 million in fiscal year
2007
as compared to $127.5 million in fiscal year 2006. This decrease
results from lower net income excluding non-cash items as a result of increased
interest expense associated with the Company’s increased debt, the segregation
of $9.0 million of operating cash flows at year-end as restricted cash as
a
result of debt requirements, and $5.6 million from termination of a hedge
instrument. These decreases were offset by a significant increase in
operating liabilities related to the amount and timing of tax and other
liability payments, including the effect of an increase in franchise deposits
from franchise development activities.
Investing
Cash Flows.
During fiscal year 2007, we opened 29 newly
constructed Partner Drive-Ins, acquired 15 drive-ins from franchisees and
sold
ten drive-ins to franchisees. For the same period, we used cash
generated from operating activities and borrowings to fund capital additions
of
$110.9 million, which included the cost of newly opened drive-ins, retrofits
of
existing drive-ins, new equipment for existing drive-ins, drive-ins under
construction and other capital expenditures, from cash generated by operating
activities and borrowings. We purchased the real estate for 21 of the
29 newly constructed drive-ins. In addition, the acquisition of 15
drive-ins during fiscal year 2007 resulted in cash outlays of $10.8
million. We also entered into a sale-leaseback agreement during the
first fiscal quarter and disposed of the real estate underlying drive-ins
that
were acquired in the fourth quarter of fiscal year 2006 for proceeds of
approximately $12.6 million. Proceeds from dispositions of assets for the
year
of $13.7 million primarily resulted from sales of other real estate relating
to
drive-ins previously sold to franchisees.
Financing
Cash Flows.
In December 2006, the Company closed on a
securitized financing facility of Variable Rate Series 2006-1 Senior Variable
Funding Notes, Class A-1, which provides for the issuance of up to $200 million
of Variable Funding Notes and certain other credit instruments, including
letters of credit. As of August 31, 2007, our outstanding Variable Funding
Notes
totaled $116.0 million at an effective borrowing rate of 6.4%, as well as
$0.3
million in outstanding letters of credit. The amount available under the
Variable Funding Notes as of August 31, 2007, was $83.7 million. In
addition to the Class A-1 notes, the Company issued $600 million of Fixed
Rate
Series 2006-1 Senior Notes, Class A-2, in a private transaction in December
2006. This new debt has an effective borrowing rate of 6.8%, including debt
issuance costs totaling $24.3 million which were incurred in conjunction
with
the securitized debt transactions closed in December 2006. We believe that
cash
flows from operations will be adequate for repayment of any long-term debt
that
does not get refinanced or extended. We plan to use our Class A-1
notes to finance the opening of newly constructed drive-ins, acquisitions
of
existing drive-ins, purchases of the Company’s common stock and for other
general corporate purposes, as needed. See Note 9 of the Notes to Consolidated
Financial Statements for additional information regarding our long-term
debt.
The
Class
A-1 and Class A-2 notes are subject to a series of covenants and restrictions
customary for transactions of this type, including (i) required actions to
better secure collateral upon the occurrence of certain performance-related
events, (ii) application of certain disposition proceeds as note prepayments
after a set time is allowed for reinvestment, (iii) maintenance of specified
reserve accounts, (iv) maintenance of certain debt service coverage ratios,
(v)
optional and mandatory prepayments upon change in control, (vi) indemnification
payments for defective or ineffective collateral, and (vii) covenants relating
to recordkeeping, access to information and similar matters. The
Notes are also subject to customary rapid amortization events and events
of
default. Although management does not anticipate an event of default
or any other event of noncompliance with the provisions of the debt, if such
an
event occurred, the unpaid amounts outstanding could become immediately due
and
payable. See Note 1 –
Restricted Cash
of the Notes to
Consolidated Financial Statements for additional information regarding
restrictions on cash.
The
Company’s tender offer in October 2006 resulted in total cash outflow of $366.1
million, along with related costs totaling $1.2 million. In addition to the
shares purchased through the tender offer, the Company has acquired 9.6 million
shares for a total cost of $211.1 million under the share repurchase program
authorized by our Board of Directors. In August 2007, the Board of
Directors authorized an additional $75.0 million under the Company’s share
repurchase program and extended the program through August 31,
2008. As of August 31, 2007, $42.6 million remained available under
the program.
We
plan
capital expenditures of approximately $75 to $85 million in fiscal year 2008,
excluding potential acquisitions and share repurchases. These capital
expenditures primarily relate to the development of additional Partner
Drive-Ins, retrofit of existing Partner Drive-Ins and other drive-in level
expenditures. We expect to fund these capital expenditures through
cash flow from operations and borrowings under the Variable Funding
Notes.
As
of
August 31, 2007, our total cash balance of $50.3 million reflected the impact
of
the cash generated from operating activities, borrowing activity, and capital
expenditures mentioned above. We believe that existing cash and funds
generated from operations, as well as borrowings under the Variable Funding
Notes, will meet our needs for the foreseeable future.
Off-Balance
Sheet Arrangements
The
Company has obligations for
guarantees on certain franchisee loans and lease agreements. See Note 15
of the
Notes to Consolidated Financial Statements for additional information about
these guarantees. The Company has no other material off-balance sheet
arrangements.
Contractual
Obligations and Commitments
In
the
normal course of business, Sonic enters into purchase contracts, lease
agreements and borrowing arrangements. Our commitments and
obligations as of August 31, 2007 are summarized in the following
table:
Payments
Due by Period
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Less
than
|
|
|
1
–
3
|
|
3
– 5
|
|
|
More
than
|
|
|
|
|
|
|
1
Year
|
|
|
Years
|
|
Years
|
|
|
5
Years
|
|
Contractual
Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
(1)
|
|
$
|
857,836
|
|
|
$
|
54,079
|
|
|
$
|
155,041
|
|
$
|
213,579
|
|
|
$
|
435,137
|
|
Capital
leases
|
|
|
57,332
|
|
|
|
4,385
|
|
|
|
10,774
|
|
|
10,143
|
|
|
|
32,030
|
|
Operating
leases
|
|
|
190,174
|
|
|
|
11,948
|
|
|
|
23,606
|
|
|
22,661
|
|
|
|
131,959
|
|
Total
|
|
$
|
1,105,342
|
|
|
$
|
70,412
|
|
|
$
|
189,421
|
|
$
|
246,383
|
|
|
$
|
599,126
|
|
(1)
The
fixed-rate interest payments included in the table above assume that all
the
Class A-2 notes will be outstanding for the expected six-year term, and all
other fixed-rate notes will be held to maturity. Interest
payments
associated
with variable-rate debt have not been included in the table. Assuming
that the amounts outstanding under the Class A-1 notes as of August 31, 2007
are
held to maturity, and utilizing interest rates in effect at August 31, 2007,
the
interest payments will be in the range of $7 to $8 million for at least the
next
five years.
Impact
of Inflation
Though
increases in labor, food or other operating costs could adversely affect
our
operations, we do not believe that inflation has had a material effect on
income
during the past several years.
Seasonality
We
do not
expect seasonality to affect our operations in a materially adverse
manner. Our results during the second fiscal quarter (the months of
December, January and February) generally are lower than other quarters because
of the climate of the locations of a number of Partner and Franchise
Drive-Ins.
Critical
Accounting Policies and Estimates
The
Consolidated Financial Statements and Notes to Consolidated Financial Statements
included in this document contain information that is pertinent to management's
discussion and analysis. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to use
its
judgment to make estimates and assumptions that affect the reported amounts
of
assets and liabilities and disclosure of contingent assets and liabilities.
These assumptions and estimates could have a material effect on our financial
statements. We evaluate our assumptions and estimates on an ongoing
basis using historical experience and various other factors that are believed
to
be relevant under the circumstances. Actual results may differ from
these estimates under different assumptions or conditions.
We
annually review our
financial reporting and disclosure practices and accounting policies to ensure
that our financial reporting and disclosures provide accurate and transparent
information relative to the current economic and business
environment. We believe that of our significant accounting policies
(see Note 1 of Notes to Consolidated Financial Statements), the following
policies involve a higher degree of risk, judgment and/or
complexity.
Impairment
of Long-Lived Assets
.
We
review Partner Drive-In and other long-lived assets for impairment when events
or circumstances indicate they might be impaired. We test for impairment
using
historical cash flows and other relevant facts and circumstances as the primary
basis for our estimates of future cash flows. This process requires
the use of estimates and assumptions, which are subject to a high degree
of
judgment. In addition, at least annually, we assess the recoverability of
goodwill and other intangible assets related to our brand and drive-ins.
These
impairment tests require us to estimate fair values of our brand and our
drive-ins by making assumptions regarding future cash flows and other
factors. During fiscal year 2007, we reviewed Partner Drive-ins and
other long-lived assets with combined carrying amounts of $12.5 million in
property, equipment and capital leases for possible impairment, and, our
cash
flow assumptions resulted in impairment charges totaling $1.2 million to
write-down certain assets to their estimated fair value. During the
fourth quarter of fiscal year 2007, we performed our annual assessment of
recoverability of goodwill and other intangible assets and determined that
no
impairment was indicated. As of August 31, 2007, goodwill and
intangible assets totaled $114.0 million. If these assumptions change
in the future, we may be required to record impairment charges for these
assets.
Ownership
Program
.
Our drive-in philosophy
stresses an ownership relationship with supervisors and drive-in
managers. Most supervisors and managers of Partner Drive-Ins own an
equity interest in the drive-in, which is financed by third
parties. Supervisors and managers are neither employees of Sonic nor
of the drive-in in which they have an ownership interest.
The
minority ownership interests in Partner Drive-Ins of the managers and
supervisors are recorded as a minority interest liability on the Consolidated
Balance Sheets, and their share of the drive-in earnings is reflected as
Minority interest in earnings of Partner Drive-Ins in the Costs and expenses
section of the Consolidated Statements of Income. The ownership
agreements contain provisions, which give Sonic the right, but not the
obligation, to purchase the minority interest of the supervisor or manager
in a
drive-in. The amount of the investment made by a partner and the
amount of the buy-out are based on a number of factors, primarily upon the
drive-in’s financial performance for the preceding 12 months, and are intended
to approximate the fair value of a minority interest in the
drive-in.
The
Company acquires and sells minority interests in Partner Drive-Ins from time
to
time as managers and supervisors buy-out and buy-in to the partnerships or
limited liability companies. If the purchase price of a minority
interest that we acquire exceeds the net book value of the assets underlying
the
partnership interest, the excess is recorded as goodwill. The
acquisition of a minority interest for less than book value is recorded as
a
reduction in purchased goodwill. Any subsequent sale of the minority
interest to another minority partner is recorded as a pro-rata reduction
of
goodwill, and no gain or loss is recognized on the sale of the minority
ownership interest. Goodwill created as a result of the acquisition
of minority interests in Partner Drive-Ins is not amortized but is tested
annually for impairment under the provisions of FAS 142, “Goodwill and Other
Intangible Assets.”
Revenue
Recognition Related to Franchise Fees and Royalties
. Initial
franchise fees are recognized in income when we have substantially performed
or
satisfied all material services or conditions relating to the sale of the
franchise and the fees are nonrefundable. Area development fees are
nonrefundable and are recognized in income on a pro-rata basis when the
conditions for revenue recognition under the individual development agreements
are met. Both initial franchise fees and area development fees are generally
recognized upon the opening of a Franchise Drive-In or upon termination of
the
agreement between Sonic and the franchisee.
Our
franchisees are required under the provisions of the license agreements to
pay
royalties to Sonic each month based on a percentage of actual net
sales. However, the royalty payments and supporting financial
statements are not due until the 10
th
of the
following
month for the new form of license agreement (Number 7) and the 20
th
of the
following
month for all prior forms of license agreement. As a result, we
accrue royalty revenue in the month earned based on estimates of Franchise
Drive-Ins sales. These estimates are based on projections of average
unit volume growth at Franchise Drive-Ins collected from a majority of Franchise
Drive-Ins.
Accounting
for Stock-Based Compensation
.
We account for
stock-based compensation in accordance with Statement of Financial Accounting
Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS
123R”). We estimate the fair value of options granted using the
Black-Scholes option pricing model along with the assumptions shown in Note
12
of Notes to the Consolidated Financial Statements in this Form
10-K. The assumptions used in computing the fair value of share-based
payments reflect our best estimates, but involve uncertainties relating to
market and other conditions, many of which are outside of our
control. We estimate expected volatility based on historical daily
price changes of the Company’s stock for a period equal to the current expected
term of the options. The expected option term is the number of years
the Company estimates that options will be outstanding prior to exercise
considering vesting schedules and our historical exercise
patterns. If other assumptions or estimates had been used, the
stock-based compensation expense that was recorded during fiscal year 2007
could
have been materially different. Furthermore, if different assumptions
are used in future periods, stock-based compensation expense could be materially
impacted in the future.
Income
Taxes
. We estimate certain components of our provision for
income taxes. These estimates include, among other items,
depreciation and amortization expense allowable for tax purposes, allowable
tax
credits for items such as wages paid to certain employees, effective rates
for
state and local income taxes and the tax deductibility of certain other
items.
Our
estimates are based on the best available information at the time that we
prepare the provision, including legislative and judicial
developments. We generally file our annual income tax returns several
months after our fiscal year end. Income tax returns are subject to
audit by federal, state and local governments, typically several years after
the
returns are filed. These returns could be subject to material
adjustments or differing interpretations of the tax laws. Adjustments
to these estimates or returns can result in significant variability in the
tax
rate from period to period.
Leases
.
Certain
Partner Drive-Ins lease land and buildings from third parties. Rent
expense for operating leases is recognized on a straight-line basis over
the
expected lease term, including cancelable option periods when it is deemed
to be
reasonably assured that we would incur an economic penalty for not exercising
the options. Judgment is required to determine options expected to be
exercised. Within the provisions of certain of our leases, there are
rent holidays and/or escalations in payments over the base lease term, as
well
as renewal periods. The effects of the rent holidays and escalations
are reflected in rent expense on a straight-line basis over the expected
lease
term, including cancelable option periods when appropriate. The lease
term commences on the date when we have the right to control the use of lease
property, which can occur before rent payments are due under the terms of
the
lease. Contingent rent is generally based on sales levels and is
accrued at the point in time we determine that it is probable that such sales
levels will be achieved.
Sonic’s
use of debt directly exposes the Company to interest rate
risk. Floating rate debt, where the interest rate fluctuates
periodically, exposes the Company to short-term changes in market interest
rates. Fixed rate debt, where the interest rate is fixed over the
life of the instrument, exposes the Company to changes in market interest
rates
reflected in the fair value of the debt and to the risk that the Company
may
need to refinance maturing debt with new debt at a higher rate. Sonic
is also exposed to market risk from changes in commodity
prices. Sonic does not utilize financial instruments for trading
purposes. Sonic manages its debt portfolio to achieve an overall
desired position of fixed and floating rates and may employ interest rate
swaps
as a tool to achieve that goal in the future.
Interest
Rate Risk.
At the time the Company filed its Form 10-K for
the year ended August 31, 2006, the Company had refinanced the debt outstanding
as of year-end with variable rate debt and had borrowed additional amounts
for
the tender offer. The market risk disclosure for the prior year
therefore addressed interest rate risk based upon $486 million of variable
rate
debt. Our exposure to interest rate risk at August 31, 2007 is
primarily based on the fixed rate Class A-2 notes with an effective rate
of
5.7%, before amortization of debt-related costs. At August 31, 2007,
the fair value of the Class A-2 notes was estimated at $591.7 million versus
carrying value of $594.4 million (including accrued
interest). Differences between fair value versus carrying value are
attributable to interest rate increases subsequent to when the debt was
originally issued. Should interest rates increase or decrease by one
percentage point, the estimated fair value of the Class A-2 notes would decrease
by approximately $21.9 million or increase by approximately $22.9 million,
respectively. The Class A-1 notes outstanding at August 31, 2007
totaled $116.0 million, with a variable rate of 6.4%. The annual
impact on our results of operations of a one-point interest rate change for
the
balance outstanding at year-end would be approximately $1.2 million before
tax. We have made certain loans to our franchisees totaling $6.2
million as of August 31, 2007. The interest rates on these notes are
generally between 5.0% and 10.5%. We believe the fair market value of
these notes approximates their carrying amount.
Commodity
Price Risk
.
The Company and its franchisees
purchase certain commodities such as beef, potatoes, chicken and dairy
products. These commodities are generally purchased based upon market
prices established with vendors. These purchase arrangements may contain
contractual features that limit the price paid by establishing price floors
or
caps; however, we have not made any long-term commitments to purchase any
minimum quantities under these arrangements. We do not use financial instruments
to hedge commodity prices because these purchase agreements help control
the
ultimate cost.
This
market risk discussion contains forward-looking statements. Actual
results may differ materially from this discussion based upon general market
conditions and changes in financial markets.
The
Company has included the financial
statements and supplementary financial information required by this item
immediately following Part IV of this report and hereby incorporates by
reference the relevant portions of those statements and information into
this
Item 8.
None.
As
of the end of the period covered by
this report, the Company carried out an evaluation, under the supervision
and
with the participation of the Company’s management, including the Company’s
Chief Executive Officer and the Chief Financial Officer, of the effectiveness
of
the design and operation of the Company’s disclosure controls and procedures (as
defined in Rule 13a-14 under the Securities Exchange Act of
1934). Based upon that evaluation, the Chief Executive Officer and
the Chief Financial Officer concluded that the Company’s disclosure controls and
procedures were effective. There were no significant changes in the
Company’s internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation.
Management's
Report on Internal Control over Financial Reporting
The
management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting. The Company’s internal
control system was designed to provide reasonable assurance to the Company’s
management and Board of Directors regarding the preparation and fair
presentation of published financial statements. All internal control systems,
no
matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance
with
respect to financial statement preparation and presentation.
The
Company’s management assessed the effectiveness of the Company’s internal
control over financial reporting as of August 31, 2007. In making this
assessment, it used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control—Integrated
Framework. Based on our assessment, we believe that, as of August 31,
2007, the Company’s internal control over financial reporting is effective based
on those criteria.
The
Company’s independent registered public accounting firm has issued an
attestation report on the Company’s internal control over financial reporting.
This report appears on the following page.
Report
of Independent Registered Public Accounting Firm
The
Board
of Directors and Stockholders of
Sonic
Corp.
We
have audited Sonic Corp.’s internal control over financial reporting as of
August 31, 2007, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Sonic Corp.’s management is
responsible for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion
on the effectiveness of the company’s internal control over financial reporting
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary
to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company
are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or
timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls
may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In
our opinion, Sonic Corp. maintained, in all material respects, effective
internal control over financial reporting as of August 31, 2007, based on
the
COSO criteria.
We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets
of
Sonic Corp. as of August 31, 2007 and 2006, and the related consolidated
statements of income, retained earnings, and cash flows for each of the three
years in the period ended August 31, 2007 of Sonic Corp. and our report dated
October 17, 2007 expressed an unqualified opinion thereon.
Oklahoma
City, Oklahoma
October
17, 2007
No
information was required to be
disclosed in a Form 8-K during the Company’s fourth quarter of its 2007 fiscal
year which was not reported.
PART
III
Sonic
has adopted a Code of Ethics for
Financial Officers and a Code of Business Conduct and Ethics that applies
to all
directors, officers and employees. Sonic has posted copies of these codes
on the investor section of its internet website at the internet address:
http://www.sonicdrivein.com.
Information
regarding Sonic’s executive
officers is set forth under Item 4A of Part I of this report. The
other information required by this item is incorporated by reference from
the
definitive proxy statement which Sonic will file with the Securities and
Exchange Commission no later than 120 days after August 31, 2007 (the “Proxy
Statement”), under the captions “Election of Directors” and “Section 16(a)
Beneficial Ownership Reporting Compliance.”
The
information required by this item
is incorporated by reference from the Proxy Statement under the caption
“Executive Compensation – Compensation Discussion and Analysis.”
The
information required by this item
is incorporated by reference from the Proxy Statement under the captions
“Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters” and “Equity Compensation Plan Information
The
information required by this item
is incorporated by reference from the Proxy Statement under the captions
“Certain Relationships and Related Transactions,” “Director Independence,”
“Committees, Compensation, and Meetings of the Board of Directors,” and
“Compensation Committee Interlock and Insider Participation.”
The
information required by this item
is incorporated by reference from the Proxy Statement under the caption
“Ratification of Independent Registered Public Accounting Firm.”
PART
IV
Financial
Statements
The
following consolidated financial
statements of the Company appear immediately following this Item
15:
|
|
Page
s
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
Consolidated
Balance Sheets at August 31, 2007 and 2006
|
F-2
|
|
Consolidated
Statements of Income for each of the three years
|
|
|
in
the period ended August 31, 2007
|
F-4
|
|
Consolidated
Statements of Stockholders’ Equity (Deficit) for each
|
|
|
of
the three years in the period ended August 31, 2007
|
F-5
|
|
Consolidated
Statements of Cash Flows for each of the three years
|
|
|
in
the period ended August 31, 2007
|
F-6
|
|
Notes
to Consolidated Financial Statements
|
F-8
|
Financial
Statement Schedules
The
Company has included the following
schedule immediately following this Item 15:
|
|
|
|
|
|
|
|
Page
|
|
Schedule
II
|
-
|
Valuation
and Qualifying Accounts
|
|
|
|
|
F-30
|
The
Company has omitted all other
schedules because the conditions requiring their filing do not exist or
because
the required information appears in Sonic’s Consolidated Financial Statements,
including the notes to those statements.
Exhibits
The
Company has filed the exhibits
listed below with this report. The Company has marked all management
contracts and compensatory plans or arrangements with an asterisk
(*).
3.01.
Certificate of Incorporation of the Company, which the Company hereby
incorporates by reference from Exhibit 3.1 to the Company’s Form S-1
Registration Statement No. 33-37158 filed on October 3, 1990.
3.02.
Certificate of Amendment of Certificate of Incorporation of the Company,
March
4, 1996, which the Company hereby incorporates by reference from Exhibit
3.05 to
the Company’s Form 10-K for the fiscal year ended August 31, 2000.
3.03.
Certificate of Amendment of Certificate of Incorporation of the Company,
January
22, 2002, which the Company hereby incorporates by reference from Exhibit
3.06
to the Company’s Form 10-K for the fiscal year ended August 31,
2002.
3.04.
Certificate
of
Amendment of Certificate of Incorporation of the Company, January 31,
2006
, which the Company hereby incorporates by reference from Exhibit
3.04 to the Company’s Form 10-K for the fiscal year ended August 31, 2006
.
3.05.
Bylaws of the Company, which the Company hereby incorporates by reference
from
Exhibit 3.2 to the Company’s Form S-1 Registration Statement No. 33-37158 filed
on October 3, 1990.
3.06.
Certificate of Designations of Series A Junior Preferred Stock, which the
Company hereby incorporates by reference from Exhibit 99.1 to the Company’s Form
8-K filed on June 17, 1997.
4.01. Specimen
Certificate for Common Stock, which the Company hereby incorporates by
reference
from Exhibit 4.01 to the Company’s Form 10-K for the fiscal year ended August
31, 1999.
10.01. Form
of Sonic Industries Franchising LLC, successor to Sonic Industries Inc.,
License
Agreement (the Number 4 License Agreement), which the Company hereby
incorporates by reference from Exhibit 10.1 to the Company’s Form S-1
Registration Statement No. 33-37158 filed on October 3, 1990.
10.02. Form
of Sonic Industries Franchising LLC, successor to Sonic Industries Inc.,
License
Agreement (the Number 5 License Agreement), which the Company hereby
incorporates by reference from Exhibit 10.2 to the Company’s Form S-1
Registration Statement No. 33-37158 filed on October 3, 1990.
10.03. Form
of Sonic Industries Franchising LLC, successor to Sonic Industries Inc.,
License
Agreement (the Number 4.2 License Agreement and Number 5.1 License Agreement),
which the Company hereby incorporates by reference from Exhibit 10.03 to
the
Company’s Form 10-K for the fiscal year ended August 31, 1994.
10.04. Form
of Sonic Industries Franchising LLC, successor to Sonic Industries Inc.,
License
Agreement (the Number 6 License Agreement), which the Company hereby
incorporates by reference from Exhibit 10.04 to the Company’s Form 10-K for the
fiscal year ended August 31, 1994.
10.05. Form
of Sonic Industries LLC, successor to Sonic Industries Inc., License Agreement
(the Number 6A License Agreement), which the Company hereby incorporates
by
reference from Exhibit 10.05 to the Company’s Form 10-K for the fiscal year
ended August 31, 1998.
10.06. Form
of Sonic Industries Franchising LLC, successor to Sonic Industries Inc.,
License
Agreement (the Number 5.2 License Agreement), which the Company hereby
incorporates by reference from Exhibit 10.06 to the Company’s Form 10-K for the
fiscal year ended August 31, 1998.
10.07. Form
of Sonic Industries Franchising LLC, successor to Sonic Industries Inc.,
License
Agreement (the Number 6NT License Agreement), which the Company hereby
incorporates by reference from Exhibit 10.07 to the Company’s Form 10-K for the
fiscal year ended August 31, 2004.
10.08. Form
of Sonic Industries LLC License Agreement (the Number 4.4/5.4 License
Agreement).
10.09. Form
of Sonic Industries LLC License Agreement (the Number 5.5 License
Agreement).
10.10. Form
of Sonic Industries LLC License Agreement (the Number 7 License
Agreement).
10.11. Form
of Sonic Industries LLC License Agreement (the Number 7NT License
Agreement).
10.12. Form
of Sonic Industries Franchising LLC, successor to Sonic Industries Inc.,
Area
Development Agreement (the Number 6A Area Development Agreement), which
the
Company hereby incorporates by reference from Exhibit 10.05 to the Company’s
Form 10-K for the fiscal year ended August 31, 1995.
10.13. Form
of Sonic Industries LLC Area Development Agreement (the Number 7 Area
Development Agreement).
10.14. Form
of Sonic Industries Services Inc. Sign Lease Agreement, which the Company
hereby
incorporates by reference from Exhibit 10.4 to the Company’s Form S-1
Registration Statement No. 33-37158.
10.15. Form
of General Partnership Agreement, Limited Liability Company Operating Agreement
and Master Agreement, which the Company hereby incorporates by reference
from
Exhibit 10.09 to the Company’s Form 10-K for fiscal year ended August 31,
2003.
10.16. 1991
Sonic Corp. Stock Option Plan, which the Company hereby incorporates by
reference from Exhibit 10.5 to the Company’s Form S-1 Registration Statement No.
33-37158.
*
10.17. 1991
Sonic Corp. Stock Purchase Plan, which the Company hereby incorporates
by
reference from Exhibit 10.6 to the Company’s Form S-1 Registration Statement No.
33-37158.
*
10.18. 1991
Sonic Corp. Directors’ Stock Option Plan, which the Company hereby incorporates
by reference from Exhibit 10.08 to the Company’s Form 10-K for the fiscal year
ended August 31, 1991.
*
10.19. Sonic
Corp. Savings and Profit Sharing Plan, which the Company hereby incorporates
by
reference from Exhibit 10.8 to the Company’s Form S-1 Registration Statement No.
33-37158.
*
10.20. Net
Revenue Incentive Plan, which the Company hereby incorporates by reference
from
Exhibit 10.19 to the Company’s Form S-1 Registration Statement No.
33-37158.
*
10.21. Form
of Indemnification Agreement for Directors, which the Company hereby
incorporates by reference from Exhibit 10.7 to the Company’s Form S-1
Registration Statement No. 33-37158.
*
10.22. Form
of Indemnification Agreement for Officers, which the Company hereby incorporates
by reference from Exhibit 10.14 to the Company’s Form 10-K for the fiscal year
ended August 31, 1995.
*
10.23. Employment
Agreement with J. Clifford Hudson dated August 20, 1996, which the Company
hereby incorporates by reference from Exhibit 10.18 to the Company’s Form 10-K
for the fiscal year ended August 31, 2002.
*
10.24. Employment
Agreement with W. Scott McLain dated January 27, 1998, which the Company
hereby
incorporates by reference from Exhibit 10.21 to the Company’s Form 10-K for the
fiscal year ended August 31, 2002.
*
10.25.
Employment Agreement with Michael A. Perry dated August 20, 2003, which
the
Company hereby incorporates by reference from Exhibit 10.22 to the Company’s
Form 10-K for the fiscal year ended August 31, 2003.
*
10.26. Employment
Agreement with Stephen C. Vaughan dated August 20, 1996, which the Company
hereby incorporates by reference from Exhibit 10.23 to the Company’s Form 10-K
for the fiscal year ended August 31, 2002.
*
10.27.
Employment Agreement with Terry D. Harryman dated January 19, 2000, which
the
Company hereby incorporates by reference from Exhibit 10.24 to the Company’s
Form 10-K for the fiscal year ended August 31, 2002.
*
10.28. Employment
Agreement with Carolyn C. Cummins dated April 29, 2004, which the Company
hereby
incorporates by reference from Exhibit 10.25 to the Company’s Form 10-K for the
fiscal year ended August 31, 2004.
*
10.29. Employment
Agreement with V. Todd Townsend dated August 18, 2005 which the Company
hereby
incorporates by reference from Exhibit 10.26 to the Company’s Form 10-K for the
fiscal year ended August 31, 2005.
*
10.30.
Employment
Agreement
with Paige S. Bass dated January 31, 2007
,which the Company hereby
incorporates by reference from Exhibit 10.01 to the Company’s Form 10-Q for the
quarterly period ended February 28, 2007.
*
10.31.
Employment
Agreement
with Claudia San Pedro dated January 31, 2007
,which the Company hereby
incorporates by reference from Exhibit 10.02 to the Company’s Form 10-Q for the
quarterly period ended February 28, 2007.
*
10.32. 2001
Sonic Corp. Stock Option Plan, which the Company hereby incorporates by
reference from Exhibit No. 10.32 to the Company’s Form 10-K for the fiscal year
ended August 31, 2001.
*
10.33. 2001
Sonic Corp. Directors’ Stock Option Plan, which the Company hereby incorporates
by reference from Exhibit No. 10.33 to the Company’s Form 10-K for the fiscal
year ended August 31, 2001.
*
10.34. Sonic
Corp. 2006 Long Term Incentive Plan which the Company hereby incorporates
by
reference from Exhibit No. 10.31 to the Company’s Form 10-K for the fiscal year
ended August 31, 2006.
*
21.01. Subsidiaries
of the Company.
23.01. Consent
of Independent Registered Public Accounting Firm.
31.01. Certification
of Chief Executive Officer pursuant to S.E.C. Rule 13a-14.
31.02. Certification
of Chief Financial Officer pursuant to S.E.C. Rule 13a-14.
32.01.
Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350.
32.02. Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
99.01 Base
Indenture dated December 20, 2006 among Sonic Capital LLC and certain other
indirect subsidiaries of the Company, and Citibank, N.A. as Trustee and
Securities Intermediary, which the Company hereby incorporates by reference
from
Exhibit 99.1 to the Company’s Form 8-K filed on December 27, 2006.
99.02 Supplemental
Indenture dated December 20, 2006 among Sonic Capital LLC and certain other
indirect subsidiaries of the Company, and Citibank, N.A. as Trustee and
the
Series 2006-1 Securities Intermediary, which the Company hereby incorporates
by
reference from Exhibit 99.2 to the Company’s Form 8-K filed on December 27,
2006.
99.03 Class
A-1 Note Purchase Agreement dated December 20, 2006 among Sonic Capital
LLC and
certain other indirect subsidiaries of the Company, certain private conduit
investors, financial institutions and funding agents, Bank of America,
N.A. as
provider of letters of credit, and Lehman Commercial Paper Inc., as a swing
line
lender and as Administrative Agent, which the Company hereby incorporates
by
reference from Exhibit 99.3 to the Company’s Form 8-K filed on December 27,
2006.
99.04 Guarantee
and Collateral Support Agreement dated December 20, 2006 made by Sonic
Industries LLC, as Guarantor in favor of Citibank N.A. as Trustee, which
the
Company hereby incorporates by reference from Exhibit 99.4 to the Company’s Form
8-K filed on December 27, 2006.
99.05 Parent
Company Support Agreement dated December 20, 2006 made by Sonic Corp. in
favor
of Citibank N.A., as Trustee, which the Company hereby incorporates by
reference
from Exhibit 99.5 to the Company’s Form 8-K filed on December 27,
2006.
The
Board
of Directors and Stockholders of
Sonic
Corp.
We
have
audited the accompanying consolidated balance sheets of Sonic Corp. as of
August
31, 2007 and 2006, and the related consolidated statements of income,
stockholders’ equity (deficit), and cash flows for each of the three years in
the period ended August 31, 2007. Our audits also included the financial
statement schedule listed in the Index at Item 15. These financial statements
and schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Sonic Corp. at
August
31, 2007 and 2006, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended August 31, 2007,
in
conformity with U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Sonic Corp.’s internal
control over financial reporting as of August 31, 2007, based on criteria
established in Internal Control-Integrated Framework issued by the Committee
of
Sponsoring Organizations of the Treadway Commission and our report dated
October
17, 2007, expressed an unqualified opinion thereon.
ERNST
&
YOUNG
LLP
Oklahoma
City, Oklahoma
October
17, 2007
Sonic
Corp.
Consolidated
Balance Sheets
|
|
August
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
25,425
|
|
|
$
|
9,597
|
|
Restricted
cash
|
|
|
13,521
|
|
|
─
|
|
Accounts
and notes receivable, net
|
|
|
23,084
|
|
|
|
21,271
|
|
Net
investment in direct financing leases
|
|
|
1,267
|
|
|
|
1,287
|
|
Inventories
|
|
|
4,444
|
|
|
|
4,200
|
|
Deferred
income taxes
|
|
|
517
|
|
|
|
307
|
|
Prepaid
expenses and other
|
|
|
5,445
|
|
|
|
5,848
|
|
Total
current assets
|
|
|
73,703
|
|
|
|
42,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent
restricted cash
|
|
|
11,354
|
|
|
─
|
|
|
|
|
|
|
|
|
|
|
Notes
receivable, net
|
|
|
5,532
|
|
|
|
5,182
|
|
|
|
|
|
|
|
|
|
|
Net
investment in direct financing leases
|
|
|
2,593
|
|
|
|
3,815
|
|
|
|
|
|
|
|
|
|
|
Property,
equipment and capital leases, net
|
|
|
529,993
|
|
|
|
477,054
|
|
|
|
|
|
|
|
|
|
|
Goodwill,
net
|
|
|
102,628
|
|
|
|
96,949
|
|
|
|
|
|
|
|
|
|
|
Trademarks,
trade names and other intangibles, net
|
|
|
11,361
|
|
|
|
10,746
|
|
|
|
|
|
|
|
|
|
|
Debt
origination costs, net
|
|
|
20,914
|
|
|
|
1,083
|
|
|
|
|
|
|
|
|
|
|
Other
assets, net
|
|
|
442
|
|
|
|
679
|
|
Total
assets
|
|
$
|
758,520
|
|
|
$
|
638,018
|
|
Sonic
Corp.
Consolidated
Balance Sheets (continued)
|
|
August
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity (deficit)
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
25,283
|
|
|
$
|
23,438
|
|
Deposits
from franchisees
|
|
|
2,783
|
|
|
|
2,553
|
|
Accrued
liabilities
|
|
|
55,707
|
|
|
|
33,874
|
|
Income
taxes payable
|
|
|
7,863
|
|
|
|
10,673
|
|
Obligations
under capital leases and long-term debt due within one
year
|
|
|
22,851
|
|
|
|
7,557
|
|
Total
current liabilities
|
|
|
114,487
|
|
|
|
78,095
|
|
|
|
|
|
|
|
|
|
|
Obligations
under capital leases due after one year
|
|
|
36,773
|
|
|
|
34,295
|
|
Long-term
debt due after one year
|
|
|
690,437
|
|
|
|
117,172
|
|
Other
noncurrent liabilities
|
|
|
17,212
|
|
|
|
12,504
|
|
Deferred
income taxes
|
|
|
6,413
|
|
|
|
4,259
|
|
Commitments
and contingencies
(Notes 6, 7, 14, and 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity (deficit):
|
|
|
|
|
|
|
|
|
Preferred
stock, par value $.01; 1,000,000 shares authorized; none
outstanding
|
|
─
|
|
|
─
|
|
Common
stock, par value $.01; 245,000,000 shares authorized; shares issued
116,222,839 in 2007 and 114,988,369 in 2006
|
|
|
1,162
|
|
|
|
1,150
|
|
Paid-in
capital
|
|
|
193,682
|
|
|
|
173,802
|
|
Retained
earnings
|
|
|
540,886
|
|
|
|
476,694
|
|
Accumulated
other comprehensive income
|
|
|
(2,848
|
)
|
|
|
(484
|
)
|
|
|
|
732,882
|
|
|
|
651,162
|
|
Treasury
stock, at cost; 55,078,107 shares in 2007 and 29,506,003 shares
in
2006
|
|
|
(839,684
|
)
|
|
|
(259,469
|
)
|
Total
stockholders’ equity (deficit)
|
|
|
(106,802
|
)
|
|
|
391,693
|
|
Total
liabilities and stockholders’ equity (deficit)
|
|
$
|
758,520
|
|
|
$
|
638,018
|
|
Sonic
Corp.
Consolidated
Statements of Income
|
|
Year
ended August 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
Thousands, Except Per Share Data)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Partner
Drive-In sales
|
|
$
|
646,915
|
|
|
$
|
585,832
|
|
|
$
|
525,988
|
|
Franchise
Drive-Ins:
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise
royalties
|
|
|
111,052
|
|
|
|
98,163
|
|
|
|
88,027
|
|
Franchise
fees
|
|
|
4,574
|
|
|
|
4,747
|
|
|
|
4,311
|
|
Other
|
|
|
7,928
|
|
|
|
4,520
|
|
|
|
4,740
|
|
|
|
|
770,469
|
|
|
|
693,262
|
|
|
|
623,066
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Partner
Drive-Ins:
|
|
|
|
|
|
|
|
|
|
|
|
|
Food
and packaging
|
|
|
166,531
|
|
|
|
151,724
|
|
|
|
137,845
|
|
Payroll
and other employee benefits
|
|
|
196,785
|
|
|
|
175,610
|
|
|
|
159,478
|
|
Minority
interest in earnings of Partner Drive-Ins
|
|
|
26,656
|
|
|
|
25,234
|
|
|
|
21,574
|
|
Other
operating expenses, exclusive of depreciation and amortization
included
below
|
|
|
130,204
|
|
|
|
116,059
|
|
|
|
103,009
|
|
|
|
|
520,176
|
|
|
|
468,627
|
|
|
|
421,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
58,736
|
|
|
|
52,048
|
|
|
|
47,503
|
|
Depreciation
and amortization
|
|
|
45,103
|
|
|
|
40,696
|
|
|
|
35,821
|
|
Provision
for impairment of long-lived assets
|
|
|
1,165
|
|
|
|
264
|
|
|
|
387
|
|
|
|
|
625,180
|
|
|
|
561,635
|
|
|
|
505,617
|
|
Income
from operations
|
|
|
145,289
|
|
|
|
131,627
|
|
|
|
117,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
41,227
|
|
|
|
8,853
|
|
|
|
6,418
|
|
Debt
extinguishment and other costs
|
|
|
6,076
|
|
|
|
–
|
|
|
|
–
|
|
Interest
income
|
|
|
(2,897
|
)
|
|
|
(1,275
|
)
|
|
|
(633
|
)
|
Net
interest expense
|
|
|
44,406
|
|
|
|
7,578
|
|
|
|
5,785
|
|
Income
before income taxes
|
|
|
100,883
|
|
|
|
124,049
|
|
|
|
111,664
|
|
Provision
for income taxes
|
|
|
36,691
|
|
|
|
45,344
|
|
|
|
41,221
|
|
Net
income
|
|
$
|
64,192
|
|
|
$
|
78,705
|
|
|
$
|
70,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income per share
|
|
$
|
0.94
|
|
|
$
|
0.91
|
|
|
$
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
income per share
|
|
$
|
0.91
|
|
|
$
|
0.88
|
|
|
$
|
0.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sonic
Corp.
Consolidated
Statements of Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Other
|
|
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
Treasury
Stock
|
|
|
|
Shares
|
Amount
|
|
|
Paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Income
|
|
|
Shares
|
Amount
|
|
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at August 31, 2004
|
|
|
74,618
|
|
|
$
|
746
|
|
|
$
|
132,006
|
|
|
$
|
327,546
|
|
|
$
|
–
|
|
|
|
15,099
|
|
|
$
|
(122,398
|
)
|
Exercise
of common stock options
|
|
|
1,148
|
|
|
|
12
|
|
|
|
10,796
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Stock-based
compensation expense
|
|
|
–
|
|
|
|
–
|
|
|
|
6,757
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Tax
benefit related to exercise of employee stock options
|
|
|
–
|
|
|
|
–
|
|
|
|
4,595
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Purchase
of treasury stock
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,352
|
|
|
|
(42,586
|
)
|
Net
income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
70,443
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Balance
at August 31, 2005
|
|
|
75,766
|
|
|
|
758
|
|
|
|
154,154
|
|
|
|
397,989
|
|
|
|
–
|
|
|
|
16,451
|
|
|
|
(164,984
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of common stock options
|
|
|
1,003
|
|
|
|
10
|
|
|
|
7,981
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Stock-based
compensation expense, including capitalized compensation of
$216
|
|
|
–
|
|
|
|
–
|
|
|
|
7,404
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Tax
benefit related to exercise of employee stock options
|
|
|
–
|
|
|
|
–
|
|
|
|
4,645
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Purchase
of treasury stock
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
3,538
|
|
|
|
(94,485
|
)
|
Three-for-two
stock split
|
|
|
38,219
|
|
|
|
382
|
|
|
|
(382
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
9,517
|
|
|
|
–
|
|
Deferred
hedging losses, net of tax of $300
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(484
|
)
|
|
|
–
|
|
|
|
–
|
|
Net
income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
78,705
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Balance
at August 31, 2006
|
|
|
114,988
|
|
|
|
1,150
|
|
|
|
173,802
|
|
|
|
476,694
|
|
|
|
(484
|
)
|
|
|
29,506
|
|
|
|
(259,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of common stock options
|
|
|
1,235
|
|
|
|
12
|
|
|
|
8,524
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Stock-based
compensation expense, including capitalized compensation of
$232
|
|
|
–
|
|
|
|
–
|
|
|
|
7,290
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Tax
benefit related to exercise of employee stock options
|
|
|
–
|
|
|
|
–
|
|
|
|
4,066
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Purchase
of treasury stock
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
25,572
|
|
|
|
(580,215
|
)
|
Net
change in deferred hedging losses, net of tax of $1,464
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,364
|
)
|
|
|
–
|
|
|
|
–
|
|
Net
income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
64,192
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Balance
at August 31, 2007
|
|
|
116,223
|
|
|
$
|
1,162
|
|
|
$
|
193,682
|
|
|
$
|
540,886
|
|
|
$
|
(2,848
|
)
|
|
|
55,078
|
|
|
$
|
(839,684
|
)
|
Sonic
Corp.
Consolidated
Statements of Cash Flows
|
|
Year
ended August 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
Thousands)
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
64,192
|
|
|
$
|
78,705
|
|
|
$
|
70,443
|
|
Adjustments
to reconcile net income to net
cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
41,078
|
|
|
|
37,074
|
|
|
|
32,418
|
|
Amortization
of assets under capital leases and other
|
|
|
4,025
|
|
|
|
3,622
|
|
|
|
3,403
|
|
Gain
on dispositions of assets, net
|
|
|
(3,267
|
)
|
|
|
(422
|
)
|
|
|
(1,115
|
)
|
Stock-based
compensation expense
|
|
|
7,058
|
|
|
|
7,188
|
|
|
|
6,757
|
|
(Credit)
provision for deferred income taxes
|
|
|
(1,592
|
)
|
|
|
(2,713
|
)
|
|
|
1,075
|
|
Provision
for impairment of long-lived assets
|
|
|
1,165
|
|
|
|
264
|
|
|
|
387
|
|
Excess
tax benefit from exercise of employee stock options
|
|
|
(4,117
|
)
|
|
|
(4,645
|
)
|
|
|
(4,595
|
)
|
Debt
extinguishment and other costs
|
|
|
5,283
|
|
|
|
--
|
|
|
|
--
|
|
Payment
for hedge termination
|
|
|
(5,640
|
)
|
|
|
--
|
|
|
|
--
|
|
Amortization
of debt costs to interest expense
|
|
|
4,256
|
|
|
|
--
|
|
|
|
--
|
|
Other
|
|
|
185
|
|
|
|
398
|
|
|
|
500
|
|
Decrease
(increase) in operating assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
(8,965
|
)
|
|
|
--
|
|
|
|
--
|
|
Accounts
and notes receivable
|
|
|
(709
|
)
|
|
|
(2,275
|
)
|
|
|
(2,481
|
)
|
Inventories
and prepaid expenses
|
|
|
159
|
|
|
|
(2,267
|
)
|
|
|
(1,371
|
)
|
Increase
(decrease) in operating liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
106
|
|
|
|
2,821
|
|
|
|
4,334
|
|
Deposits
from franchisees
|
|
|
3,556
|
|
|
|
227
|
|
|
|
1,513
|
|
Accrued
and other liabilities
|
|
|
14,242
|
|
|
|
9,496
|
|
|
|
16,417
|
|
Total
adjustments
|
|
|
56,823
|
|
|
|
48,768
|
|
|
|
57,242
|
|
Net
cash provided by operating activities
|
|
|
121,015
|
|
|
|
127,473
|
|
|
|
127,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(110,912
|
)
|
|
|
(86,863
|
)
|
|
|
(85,905
|
)
|
Acquisition
of businesses, net of cash received
|
|
|
(10,760
|
)
|
|
|
(14,601
|
)
|
|
|
(820
|
)
|
Acquisition
of real estate, net of cash received
|
|
|
--
|
|
|
|
(12,125
|
)
|
|
|
--
|
|
Proceeds
from sale of real estate
|
|
|
12,619
|
|
|
|
--
|
|
|
|
--
|
|
Investments
in direct financing leases
|
|
|
(302
|
)
|
|
|
(237
|
)
|
|
|
(320
|
)
|
Collections
on direct financing leases
|
|
|
1,544
|
|
|
|
1,342
|
|
|
|
1,266
|
|
Proceeds
from dispositions of assets
|
|
|
13,668
|
|
|
|
5,271
|
|
|
|
8,882
|
|
Increase
in intangibles and other assets
|
|
|
(456
|
)
|
|
|
(757
|
)
|
|
|
(1,053
|
)
|
Net
cash used in investing activities
|
|
|
(94,599
|
)
|
|
|
(107,970
|
)
|
|
|
(77,950
|
)
|
(Continued
on following page)
Sonic
Corp.
Consolidated
Statements of Cash Flows (continued)
|
|
Year
ended August 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
Proceeds
from borrowings
|
|
$
|
1,404,490
|
|
|
$
|
274,763
|
|
|
$
|
127,415
|
|
Payments
on long-term debt
|
|
|
(815,396
|
)
|
|
|
(206,806
|
)
|
|
|
(149,390
|
)
|
Purchases
of treasury stock
|
|
|
(564,984
|
)
|
|
|
(93,689
|
)
|
|
|
(42,324
|
)
|
Debt
issuance costs
|
|
|
(28,166
|
)
|
|
|
--
|
|
|
|
--
|
|
Restricted
cash for debt obligations
|
|
|
(15,910
|
)
|
|
|
--
|
|
|
|
--
|
|
Payments
on capital lease obligations
|
|
|
(2,471
|
)
|
|
|
(2,444
|
)
|
|
|
(2,139
|
)
|
Exercises
of stock options
|
|
|
7,732
|
|
|
|
7,194
|
|
|
|
10,546
|
|
Excess
tax benefit from exercise of employee stock options
|
|
|
4,117
|
|
|
|
4,645
|
|
|
|
4,595
|
|
Net
cash used in financing activities
|
|
|
(10,588
|
)
|
|
|
(16,337
|
)
|
|
|
(51,297
|
)
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
15,828
|
|
|
|
3,166
|
|
|
|
(1,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of the year
|
|
|
9,597
|
|
|
|
6,431
|
|
|
|
7,993
|
|
Cash
and cash equivalents at end of the year
|
|
$
|
25,425
|
|
|
$
|
9,597
|
|
|
$
|
6,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
(net of amounts capitalized of $576, $733 and $604,
respectively)
|
|
$
|
36,501
|
|
|
$
|
8,769
|
|
|
$
|
7,144
|
|
Income
taxes (net of refunds)
|
|
|
32,651
|
|
|
|
48,225
|
|
|
|
27,377
|
|
Obligation
to acquire treasury stock
|
|
|
14,432
|
|
|
|
--
|
|
|
|
--
|
|
Additions
to capital lease obligations
|
|
|
5,164
|
|
|
|
4,958
|
|
|
|
877
|
|
Accounts
and notes receivable and decrease in capital lease
|
|
|
|
|
|
|
|
|
|
|
|
|
obligations
from property and equipment sales
|
|
|
1,500
|
|
|
|
6,514
|
|
|
|
1,063
|
|
Stock
options exercised by stock swap
|
|
|
799
|
|
|
|
787
|
|
|
|
250
|
|
Obligations
for purchases of property and equipment
|
|
|
1,134
|
|
|
|
--
|
|
|
|
--
|
|
See
accompanying notes.
Sonic
Corp.
Notes
to Consolidated Financial
Statements
August
31, 2007, 2006 and
2005
(In
Thousands, Except Per Share
Data)
1. Summary
of Significant Accounting Policies
Operations
Sonic
Corp. (the “Company”) operates and franchises a chain of quick-service drive-ins
in the United States. It derives its revenues primarily from Partner
Drive-In sales and royalty fees from franchisees. The Company also
leases signs and real estate, and owns a minority interest in several Franchise
Drive-Ins.
From
time
to time, the Company purchases existing Franchise Drive-Ins with proven track
records in core markets from franchisees and other minority investors as
a means
to deploy excess cash generated from operating activities and provide a
foundation for future earnings growth.
Principles
of Consolidation
The
accompanying financial statements include the accounts of the Company, its
wholly-owned subsidiaries and its majority-owned Partner Drive-Ins, organized
as
general partnerships and limited liability companies. All significant
intercompany accounts and transactions have been eliminated.
Certain
amounts have been reclassified in the Consolidated Financial Statements to
conform to the fiscal year 2007 presentation.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make
estimates and assumptions that affect the amounts reported and contingent
assets
and liabilities disclosed in the financial statements and accompanying
notes. Actual results may differ from those estimates, and such
differences may be material to the financial statements.
Cash
Equivalents
Cash
equivalents consist of highly liquid investments that mature in three months
or
less from date of purchase.
Restricted
Cash
As
of
August 31, 2007, the Company had restricted cash balances totaling $24,875
for
funds required to be held in trust for the benefit of senior note holders
under
the Company’s debt arrangements. The current portion of restricted
cash of $13,521 represents amounts to be returned to Sonic or paid to service
current debt obligations. The noncurrent portion of $11,354
represents interest reserves required to be set aside for the duration of
the
debt.
Accounts
and Notes Receivable
The
Company charges interest on past due accounts receivable at a rate of 18%
per
annum.
Interest
accrues on notes receivable based on contractual terms.
The Company
monitors all accounts for delinquency and provides for estimated losses for
specific receivables that are not likely to be collected. In
addition, a general provision for bad debt is estimated based on historical
trends.
Inventories
Inventories
consist principally of food and supplies that are carried at the lower of
cost
(first-in, first-out basis) or market.
Property,
Equipment and Capital Leases
Property
and equipment are recorded at cost, and leased assets under capital leases
are
recorded at the present value of future minimum lease payments. Depreciation
of
property and equipment and capital leases is computed by the straight-line
method over the estimated useful lives or the lease term, including cancelable
option periods when appropriate, and are combined for presentation in the
financial statements.
Accounting
for Long-Lived Assets
In
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal
of
Long-Lived Assets,” the Company reviews long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset might
not
be recoverable. Assets are grouped and evaluated for impairment at
the lowest level for which there are identifiable cash flows that are largely
independent of the cash flows of other groups of assets, which generally
represents the individual drive-in. The Company’s primary test for an
indicator of potential impairment is operating losses. If an
indication of impairment is determined to be present, the Company estimates
the
future cash flows expected to be generated from the use of the asset and
its
eventual disposal. If the sum of undiscounted future cash flows is
less than the carrying amount of the asset, an impairment loss is
recognized. The impairment loss is measured by comparing the fair
value of the asset to its carrying amount. Fair value is
typically determined to be the value of the land, since drive-in buildings
and
improvements are single-purpose assets and have little value to market
participants. The equipment associated with a store can be easily
relocated to another store, and therefore is not adjusted.
Surplus
property assets are carried at the lower of depreciated cost or fair value
less
cost to sell. The majority of the value in surplus property is
land. Fair values are estimated based upon appraisals or independent
assessments of the assets’ estimated sales values.
Goodwill
and Other Intangible Assets
The
Company accounts for goodwill and other intangible assets in accordance with
SFAS No. 142, “Goodwill and Other Intangible Assets”. Goodwill is
determined based on acquisition purchase price in excess of the fair value
of
identified assets. Intangible assets with lives restricted by
contractual, legal, or other means are amortized over their useful
lives. Goodwill and other intangible assets not subject to
amortization are tested for impairment annually or more frequently if events
or
changes in circumstances indicate that the asset might be
impaired. SFAS No. 142 requires a two-step process for testing
impairment. First, the fair value of each reporting unit is compared
to its carrying value to determine whether an indication of impairment
exists. If impairment is indicated, then the fair value of the
reporting unit’s goodwill is determined by allocating the unit’s fair value to
its assets and liabilities (including any unrecognized intangible assets)
as if
the reporting unit had been acquired in a business combination. The
amount of impairment for goodwill and other intangible assets is measured
as the
excess of its carrying value over its fair value.
The
Company’s intangible assets subject to amortization under SFAS No. 142 consist
primarily of acquired franchise agreements, franchise fees, and other
intangibles. Amortization expense is calculated using the
straight-line method over the expected period of benefit, not exceeding 20
years. The Company’s trademarks and trade names were deemed to have
indefinite useful lives and are not subject to amortization. See Note
5 for additional disclosures related to goodwill and other
intangibles.
Ownership
Program
The
Company’s drive-in philosophy stresses an ownership relationship with drive-in
supervisors and managers. Most supervisors and managers of Partner
Drive-Ins own an equity interest in the drive-in, which is financed by third
parties. Supervisors and managers are neither employees of the
Company nor of the drive-in in which they have an ownership
interest.
The
minority ownership interests in Partner Drive-Ins of the managers and
supervisors are recorded as a minority interest liability on the Consolidated
Balance Sheets, and their share of the drive-in earnings is reflected as
Minority interest in earnings of Partner Drive-Ins in the Costs and expenses
section of the Consolidated Statements of Income. The ownership agreements
contain provisions, which give the Company the right, but not the obligation,
to
purchase the minority interest of the supervisor or manager in a
drive-in. The amount of the investment made by a partner and
the amount of the buy-out are based on a number of factors, primarily upon
the
drive-in’s financial performance for the preceding 12 months, and is intended to
approximate the fair value of a minority interest in the drive-in.
The
Company acquires and sells minority interests in Partner Drive-Ins from time
to
time as managers and supervisors buy-out and buy-in to the partnerships or
limited liability companies. If the purchase price of a
minority interest that we acquire exceeds the net book value of the assets
underlying the partnership interest, the excess is recorded as
goodwill. The acquisition of a minority interest for less than book
value is recorded as a reduction in purchased goodwill. Any
subsequent sale of the minority interest to another minority partner is recorded
as a pro-rata reduction of goodwill, and no gain or loss is recognized on
the
sale of the minority ownership interest. Goodwill created as a
result of the acquisition of minority interests in Partner Drive-Ins is not
amortized but is tested annually for impairment under the provisions of SFAS
No.
142.
Revenue
Recognition, Franchise Fees and Royalties
Revenue
from Partner Drive-In sales is recognized when food and beverage products
are
sold.
Initial
franchise fees are recognized in income when all material services or conditions
relating to the sale of the franchise have been substantially performed or
satisfied by the Company and the fees are nonrefundable. Area
development fees are nonrefundable and are recognized in income on a pro
rata
basis when the conditions for revenue recognition under the individual
development agreements are met. Both initial franchise fees and area
development fees are generally recognized upon the opening of a franchise
drive-in or upon termination of the agreement between the Company and the
franchisee.
The
Company’s franchisees are required under the provisions of the license
agreements to pay the Company royalties each month based on a percentage
of
actual net royalty sales. However, the royalty payments and
supporting financial statements are not due until the 10
th
of the
following
month for the new form of license agreement (Number 7) and the 20
th
of the
following
month for all prior forms. As a result, the Company accrues royalty
revenue in the month earned based on estimates of Franchise Drive-In
sales. These estimates are based on actual sales at Partner Drive-Ins
and projections of average unit volume growth at Franchise
Drive-Ins.
Operating
Leases
Rent
expense is recognized on a straight-line basis over the expected lease term,
including cancelable option periods when it is deemed to be reasonably assured
that we would incur an economic penalty for not exercising the
options. Within the provisions of certain of our leases, there are
rent holidays and/or escalations in payments over the base lease term, as
well
as renewal periods. The effects of the holidays and escalations have
been reflected in rent expense on a straight-line basis over the expected
lease
term, which includes cancelable option periods when appropriate. The
lease term commences on the date when we have the right to control the use
of
the leased property, which can occur before rent payments are due under the
terms of the lease. Percentage rent expense is generally based on
sales levels and is accrued at the point in time we determine that it is
probable that such sales levels will be achieved.
Advertising
Costs
Costs
incurred in connection with the advertising and promoting of the Company’s
products are included in other operating expenses and are expensed as
incurred. Such costs amounted to $35,241, $30,948, and $28,216 for
fiscal years 2007, 2006 and 2005, respectively.
Under
the
Company’s license agreements, both Partner-Drive-Ins and Franchise Drive-Ins
must contribute a minimum percentage of revenues to a national media production
fund (Sonic Brand Fund, formerly known as the Sonic Advertising Fund) and
spend
an additional minimum percentage of gross revenues on local advertising,
either
directly or through Company-required participation in advertising cooperatives.
A portion of the local advertising contributions is redistributed to a System
Marketing Fund, which purchases advertising on national cable and broadcast
networks and other national media and sponsorship opportunities. As
stated in the terms of existing license agreements, these funds do not
constitute assets of the Company, and the Company acts with limited agency
in
the administration of these funds. Accordingly, neither the revenues
and expenses nor the
assets and liabilities of the advertising cooperatives, the Sonic Brand Fund,
or
the System Marketing Fund are included in the Company’s consolidated financial
statements. However, all advertising contributions by Partner
Drive-Ins are recorded as expense on the Company’s financial
statements.
Stock-Based
Compensation
In
accordance with Statement of Financial Accounting Standards No. 123 (revised
2004), “Share-Based Payment” (“SFAS 123R”), stock-based compensation is measured
at the grant date, based on the calculated fair value of the award, and is
recognized as an expense over the requisite employee service period (generally
the vesting period of the grant). The Company adopted SFAS 123R
effective September 1, 2005, using the modified retrospective application
method
and, as a result, financial statement amounts for all periods presented in
this
Form 10-K reflect the fair value method of expensing prescribed by SFAS
123R.
The
following table shows total stock-based compensation expense and the tax
benefit
included in the Consolidated Statements of Income and the effect on basic
and
diluted earnings per share for the years ended August 31:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
$
|
7,059
|
|
|
$
|
7,187
|
|
|
$
|
6,757
|
|
Income
tax benefit
|
|
|
(2,254
|
)
|
|
|
(2,266
|
)
|
|
|
(1,819
|
)
|
Net
stock-based compensation expense
|
|
$
|
4,805
|
|
|
$
|
4,921
|
|
|
$
|
4,938
|
|
Impact
on net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.07
|
|
|
$
|
.06
|
|
|
$
|
.05
|
|
Diluted
|
|
$
|
.07
|
|
|
$
|
.06
|
|
|
$
|
.05
|
|
Many
of
the options granted by Sonic are incentive stock options, for which a tax
benefit only results if the option holder has a disqualifying
disposition. For grants of non-qualified stock options, the Company
expects to recognize a tax benefit on exercise of the option, so the full
tax
benefit is recognized on the related stock-based compensation
expense. As a result of the limitation on the tax benefit for
incentive stock options, the tax benefit for stock-based compensation will
generally be less than the Company’s overall tax rate, and will vary depending
on the timing of employees’ exercises and sales of stock.
Income
Taxes
Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of
existing assets and liabilities and their respective tax bases. Deferred
tax
assets and liabilities are measured using enacted tax rates expected to apply
to
taxable income in the years in which those temporary differences are expected
to
be recovered or settled. The effect on deferred tax assets and liabilities
of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Income
tax benefits credited to equity relate to tax benefits associated with amounts
that are deductible for income tax purposes but do not affect earnings. These
benefits are principally generated from employee exercises of non-qualified
stock options and disqualifying dispositions of incentive stock
options.
New
Accounting Pronouncements
In
June
2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes – an
interpretation of FASB Statement 109,” which clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements
in accordance with FAS 109, “Accounting for Income Taxes.” FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected
to be
taken in a tax return. FIN 48 is effective for fiscal years beginning
after December 15, 2006. The Company is adopting the provisions of
FIN 48 effective September 1, 2007. The cumulative effect of
implementation of FIN 48 is approximately a $1 to 1.5 million increase in
the
liability for unrecognized tax benefits, which will be accounted for as a
decrease in the September 1, 2007 balance of retained earnings.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair
value, establishes a framework for using fair value to measure assets and
liabilities, and expands disclosures about fair value
measurements. This statement applies under other accounting
pronouncements that currently require or permit fair value measurements and
is
effective for fiscal year beginning after November 15, 2007, which will be
our
fiscal year beginning September 1, 2008. In February 2007, the FASB
issued Statement of Financial Accounting Standards No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities” (“SFAS
159”). SFAS 159 permits companies to choose to measure many financial
instruments and certain other items at fair value. If the fair value
option is elected, unrealized gains and losses will be recognized in earnings
at
each subsequent reporting date. SFAS 159 has the same effective date
as SFAS 157. We are currently in the process of assessing the impact
that SFAS 157 and 159 may have on the Company’s consolidated financial
statements.
2. Net
Income Per Share
The
following table sets forth the computation of basic and diluted earnings
per
share for the years ended August 31:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
64,192
|
|
|
$
|
78,705
|
|
|
$
|
70,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares
outstanding – basic
|
|
|
68,019
|
|
|
|
86,260
|
|
|
|
89,992
|
|
Effect
of dilutive employee stock
options
|
|
|
2,573
|
|
|
|
2,979
|
|
|
|
3,655
|
|
Weighted
average shares –
diluted
|
|
|
70,592
|
|
|
|
89,239
|
|
|
|
93,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share – basic
|
|
$
|
0.94
|
|
|
$
|
0.91
|
|
|
$
|
0.78
|
|
Net
income per share – diluted
|
|
$
|
0.91
|
|
|
$
|
0.88
|
|
|
$
|
0.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive
employee stock options excluded
|
|
|
1,858
|
|
|
|
1,378
|
|
|
|
249
|
|
3. Impairment
of Long-Lived Assets
During
the fiscal years ended August 31, 2007, 2006 and 2005, the Company identified
impairments for certain drive-in assets and surplus property through regular
quarterly reviews of long-lived assets. During fiscal year 2007, these analyses
resulted in provisions for impairment totaling $1,165, including $412 to
reduce
the carrying amount of assets in excess of fair value for two drive-ins,
and
$753 to reduce to fair value the carrying amount of assets for three properties
leased to franchisees. During fiscal year 2006, these analyses
resulted in provisions for impairment totaling $264 to reduce the carrying
amount of three surplus properties down to fair value. During fiscal
year 2005, these analyses resulted in provisions for impairment totaling
$387,
including $286 to writedown the carrying amount of building and leasehold
improvements on an underperforming drive-in, and $101 to reduce the carrying
amount of a surplus property down to fair value.
4. Accounts
and Notes Receivable
Accounts
and notes receivable consist of the following at August 31, 2007 and
2006:
|
|
2007
|
|
|
2006
|
|
Current
Accounts and Notes Receivable:
|
|
|
|
|
|
|
Royalties
and other trade receivables
|
|
$
|
12,792
|
|
|
$
|
12,863
|
|
Notes
receivable from franchisees
|
|
|
528
|
|
|
|
353
|
|
Notes
receivable from advertising funds
|
|
|
4,083
|
|
|
|
3,681
|
|
Other
|
|
|
6,275
|
|
|
|
4,682
|
|
|
|
|
23,678
|
|
|
|
21,579
|
|
Less
allowance for doubtful accounts and notes receivable
|
|
|
594
|
|
|
|
308
|
|
|
|
$
|
23,084
|
|
|
$
|
21,271
|
|
Noncurrent
Notes Receivable:
|
|
|
|
|
|
|
|
|
Notes
receivable from franchisees
|
|
$
|
5,649
|
|
|
$
|
5,509
|
|
Less
allowance for doubtful notes receivable
|
|
|
117
|
|
|
|
327
|
|
|
|
$
|
5,532
|
|
|
$
|
5,182
|
|
The
Company’s receivables are primarily due from franchisees, all of whom are in the
restaurant business. The notes receivable from advertising funds
represent transactions in the normal course of
business. Substantially all of the notes receivable from franchisees
are collateralized by real estate or equipment.
5. Goodwill,
Trademarks, Trade Names and Other Intangibles
The
gross
carrying amount of franchise agreements, franchise fees and other intangibles
subject to amortization was $6,529 and $5,245 at August 31, 2007 and 2006,
respectively. The estimated amortization expense for each of the five
years after August 31, 2007 is approximately $400. Accumulated amortization
related to these intangible assets was $1,212 and $543 at August 31, 2007
and
2006, respectively. The carrying amount of trademarks and trade names
not subject to amortization was $6,044 at August 31, 2007 and 2006.
The
changes in the carrying amount of goodwill for fiscal years ending August
31,
2007 and 2006 were as follows:
|
|
2007
|
|
|
2006
|
|
Balance
as of September 1,
|
|
$
|
96,949
|
|
|
$
|
88,471
|
|
Goodwill
acquired during the year
|
|
|
5,464
|
|
|
|
8,504
|
|
Goodwill
acquired (disposed of) related to the acquisitions and
|
|
|
|
|
|
|
|
|
dispositions
of
minority interests in Partner Drive-Ins, net
|
|
|
316
|
|
|
|
(26
|
)
|
Goodwill
disposed of related to the sale of Partner Drive-Ins
|
|
|
(101
|
)
|
|
─
|
|
Balance
as of August 31,
|
|
$
|
102,628
|
|
|
$
|
96,949
|
|
6. Leases
Description
of Leasing Arrangements
The
Company’s leasing operations consist principally of leasing certain land,
buildings and equipment (including signs) and subleasing certain buildings
to
franchise operators. The land and building portions of these leases are
classified as operating leases and expire over the next 16
years. The equipment portions of these leases are classified
principally as direct financing leases and expire principally over the next
10
years. These leases include provisions for contingent rentals that may be
received on the basis of a percentage of sales in excess of stipulated amounts.
Income is not recognized on contingent rentals until sales exceed the stipulated
amounts. Some leases contain escalation clauses over the lives of the
leases. Most of the leases contain one to four renewal options at the
end of the initial term for periods of five years. The Company
classifies income from leasing operations as other revenue in the Consolidated
Statements of Income.
Certain
Partner Drive-Ins lease land and buildings from third parties. These leases,
which expire over the next 18 years, include provisions for contingent rentals
that may be paid on the basis of a percentage of sales in excess of stipulated
amounts. For the majority of leases, the land portions are classified as
operating leases and the building portions are classified as capital
leases.
Direct
Financing Leases
Components
of net investment in direct financing leases are as follows at August 31,
2007
and 2006:
|
|
2007
|
|
|
2006
|
|
Minimum
lease payments receivable
|
|
$
|
5,098
|
|
|
$
|
6,827
|
|
Less
unearned income
|
|
|
1,238
|
|
|
|
1,725
|
|
Net
investment in direct financing leases
|
|
|
3,860
|
|
|
|
5,102
|
|
Less
amount due within one year
|
|
|
1,267
|
|
|
|
1,287
|
|
Amount
due after one year
|
|
$
|
2,593
|
|
|
$
|
3,815
|
|
Initial
direct costs incurred in the negotiations and consummations of direct financing
lease transactions have not been material. Accordingly, no portion of
unearned income has been recognized to offset those costs.
Future
minimum rental payments receivable as of August 31, 2007 are as
follows:
|
|
Operating
|
|
|
Direct
Financing
|
|
Year
ending August 31:
|
|
|
|
|
|
|
2008
|
|
$
|
478
|
|
|
$
|
1,725
|
|
2009
|
|
|
483
|
|
|
|
1,277
|
|
2010
|
|
|
464
|
|
|
|
703
|
|
2011
|
|
|
452
|
|
|
|
477
|
|
2012
|
|
|
433
|
|
|
|
336
|
|
Thereafter
|
|
|
2,380
|
|
|
|
580
|
|
|
|
|
4,690
|
|
|
|
5,098
|
|
Less
unearned income
|
|
─
|
|
|
|
1,238
|
|
|
|
$
|
4,690
|
|
|
$
|
3,860
|
|
Capital
Leases
Components
of obligations under capital leases are as follows at August 31, 2007 and
2006:
|
|
2007
|
|
|
2006
|
|
Total
minimum lease payments
|
|
$
|
57,332
|
|
|
$
|
54,437
|
|
Less
amount representing interest averaging 7.1% in 2007 and 8.0% in
2006
|
|
|
18,014
|
|
|
|
17,812
|
|
Present
value of net minimum lease payments
|
|
|
39,318
|
|
|
|
36,625
|
|
Less
amount due within one year
|
|
|
2,545
|
|
|
|
2,330
|
|
Amount
due after one year
|
|
$
|
36,773
|
|
|
$
|
34,295
|
|
Maturities
of these obligations under capital leases and future minimum rental payments
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of August 31, 2007 are as
follows:
|
|
Operating
|
|
|
Capital
|
|
Year
ending August 31:
|
|
|
|
|
|
|
2008
|
|
$
|
11,948
|
|
|
$
|
4,385
|
|
2009
|
|
|
11,893
|
|
|
|
5,376
|
|
2010
|
|
|
11,713
|
|
|
|
5,398
|
|
2011
|
|
|
11,454
|
|
|
|
5,199
|
|
2012
|
|
|
11,207
|
|
|
|
4,944
|
|
Thereafter
|
|
|
131,959
|
|
|
|
32,030
|
|
|
|
|
190,174
|
|
|
|
57,332
|
|
Less
amount representing interest
|
|
|
–
|
|
|
|
18,014
|
|
|
|
$
|
190,174
|
|
|
$
|
39,318
|
|
Total
rent expense for all operating leases and capital leases consists of the
following for the years ended August 31:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Operating
leases:
|
|
|
|
|
|
|
|
|
|
Minimum
rentals
|
|
$
|
13,644
|
|
|
$
|
12,731
|
|
|
$
|
11,355
|
|
Contingent
rentals
|
|
|
229
|
|
|
|
199
|
|
|
|
289
|
|
Sublease
rentals
|
|
|
(553
|
)
|
|
|
(542
|
)
|
|
|
(536
|
)
|
Capital
leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent
rentals
|
|
|
1,300
|
|
|
|
1,123
|
|
|
|
1,109
|
|
|
|
$
|
14,620
|
|
|
$
|
13,511
|
|
|
$
|
12,217
|
|
The
aggregate future minimum rentals receivable under noncancelable subleases
of
operating leases as of August 31, 2007 was $2,405.
7.
Property, Equipment and Capital Leases
Property,
equipment and capital leases consist of the following at August 31, 2007
and
2006:
|
Estimated
Useful Life
|
|
2007
|
|
|
2006
|
|
Property
and equipment:
|
|
|
|
|
|
|
|
Home
office:
|
|
|
|
|
|
|
|
Leasehold
improvements
|
Life
of lease
|
|
$
|
3,082
|
|
|
$
|
3,066
|
|
Computer
and other equipment
|
2
–
5 yrs
|
|
|
33,134
|
|
|
|
28,842
|
|
Drive-ins,
including those leased to others:
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
|
158,968
|
|
|
|
154,092
|
|
Buildings
|
8
–
25 yrs
|
|
|
331,901
|
|
|
|
275,924
|
|
Equipment
|
5
–
7 yrs
|
|
|
179,863
|
|
|
|
168,019
|
|
Property
and equipment, at cost
|
|
|
|
706,948
|
|
|
|
629,943
|
|
Less
accumulated depreciation
|
|
|
|
211,327
|
|
|
|
185,275
|
|
Property
and equipment, net
|
|
|
|
495,621
|
|
|
|
444,668
|
|
Capital
Leases:
|
|
|
|
|
|
|
|
Leased
home office building
|
Life
of lease
|
|
|
9,321
|
|
|
|
9,321
|
|
Leased
drive-in buildings, equipment and other assets under
|
|
|
|
|
|
|
|
|
|
capital
leases, including those held for sublease
|
Life
of lease
|
|
|
40,125
|
|
|
|
35,844
|
|
Less
accumulated amortization
|
|
|
|
15,074
|
|
|
|
12,779
|
|
Capital
leases, net
|
|
|
|
34,372
|
|
|
|
32,386
|
|
Property,
equipment and capital leases, net
|
|
|
$
|
529,993
|
|
|
$
|
477,054
|
|
Land,
buildings and equipment with a carrying amount of $29,245 at August 31, 2007
were leased under operating leases to franchisees or other
parties. The accumulated depreciation related to these buildings and
equipment was $6,085 at August 31, 2007. As of August 31, 2007, the
Company had drive-ins under construction with costs to complete which aggregated
$12,793.
8. Accrued
Liabilities
Accrued
liabilities consist of the following at August 31, 2007 and 2006:
|
|
2007
|
|
|
2006
|
|
Wages
and other employee benefits
|
|
$
|
8,178
|
|
|
$
|
9,707
|
|
Taxes,
other than income taxes
|
|
|
15,296
|
|
|
|
13,476
|
|
Accrued
interest
|
|
|
1,122
|
|
|
|
389
|
|
Minority
interest in consolidated drive-ins
|
|
|
3,690
|
|
|
|
2,610
|
|
Obligation
to acquire treasury stock
|
|
|
14,432
|
|
|
|
–
|
|
Unredeemed
gift cards and gift certificates
|
|
|
5,997
|
|
|
|
4,400
|
|
Other
|
|
|
6,992
|
|
|
|
3,292
|
|
|
|
$
|
55,707
|
|
|
$
|
33,874
|
|
9.
Long-Term Debt
Long-term
debt consists of the following at August 31, 2007 and 2006:
|
|
2007
|
|
|
2006
|
|
5.7%
Class A-2 senior notes, due December 2031
|
|
$
|
593,440
|
|
|
$
|
–
|
|
6.58%
Series A senior unsecured notes, due August 2008
|
|
|
–
|
|
|
|
2,000
|
|
6.87%
Series B senior unsecured notes, due August 2011
|
|
|
–
|
|
|
|
17,857
|
|
Class
A-1 senior variable funding notes
|
|
|
116,000
|
|
|
|
–
|
|
Line
of credit
|
|
|
–
|
|
|
|
101,150
|
|
Other
|
|
|
1,303
|
|
|
|
1,392
|
|
|
|
|
710,743
|
|
|
|
122,399
|
|
Less
long-term debt due within one year
|
|
|
20,306
|
|
|
|
5,227
|
|
Long-term
debt due after one year
|
|
$
|
690,437
|
|
|
$
|
117,172
|
|
Maturities
of long-term debt for each of the five years after August 31, 2007 are $20,306
in 2008, $38,472 in 2009, $55,143 in 2010, $73,437 in 2011, $93,416 in 2012,
and
$429,969 thereafter.
In
October 2006, the Company refinanced its senior unsecured notes and line
of
credit and funded a tender offer to repurchase shares of its common stock
with
proceeds from a senior secured credit facility until the Class A-2 senior
notes
were financed in December 2006. Loan origination costs associated
with this debt totaled $4,631 and the unamortized loan origination costs
of
$4,544 were expensed as debt extinguishment costs when the financing was
closed
in December 2006.
In
December 2006, various subsidiaries of the Company issued $600,000 of Class
A-2
senior notes in a private transaction. The proceeds were used to
refinance the outstanding balance under the senior secured credit facility,
along with costs associated with the transaction. The Class A-2 notes
are the first issuance under a facility that will allow Sonic to issue
additional series of notes in the future subject to certain
conditions. These notes have a fixed interest rate of 5.7%, subject
to upward adjustment after the expected six-year repayment term. Loan
origination costs associated with this debt totaled $24,329, and the unamortized
balance is categorized as debt origination costs, net, on the Consolidated
Balance Sheet as of August 31, 2007. Amortization of these loan costs
and the hedge loss discussed below produces an overall weighted average interest
cost of 6.8%. The Class A-2 notes have an expected life of six years,
with a legal final repayment date in December 2031. If the debt extends beyond
the expected life, rapid amortization and cash trapping provisions of the
debt
agreements will be triggered which will cause the remaining principle
balance to be given higher priority of payment from the secured sources.
The
Company anticipates paying the debt in full based on the expected life.
In
connection with issuance of the Class A-2 notes, various subsidiaries of
the
Company also completed a securitized financing facility of Class A-1 senior
variable funding notes. This facility allows for the issuance of up
to $200,000 of notes and certain other credit instruments, including letters
of
credit. Considering the $116,000 outstanding at August 31, 2007 and
$325 in outstanding letters of credit, $83,675 was unused and available under
the Class A-2 notes. The effective interest rate on the $116,000
outstanding at August 31, 2007 was 6.44%, and there is a commitment fee on
the
unused portion of the Class A-1 notes of 0.5%.
The
Class
A-1 and Class A-2 senior notes were issued by special purpose, bankruptcy
remote, indirect subsidiaries of the Company that hold substantially all
of
Sonic’s franchising assets and Partner Drive-In real estate used in operation of
the Company’s existing business. As of August 31, 2007, total assets
for these combined indirect subsidiaries were approximately $410,000, including
receivables for royalties, Partner Drive-In real estate, intangible assets,
loan
origination costs and restricted cash balances of $24,875. The Class
A-1 and Class A-2 notes are secured by Sonic’s franchise royalty payments,
certain lease and other payments and fees and, as a result, the repayment
of
these notes is expected to be made solely from the income derived from these
indirect subsidiaries’ assets. Sonic Industries LLC, which is the
subsidiary that acts as franchisor, has guaranteed the obligations of the
co-issuers and pledged substantially all of its assets to secure such
obligations.
Although
the Company does not guarantee the Class A-1 and Class A-2 notes, the Company
has agreed to cause the performance of certain obligations of its subsidiaries,
principally related to the servicing of the assets included as collateral
for
the notes and certain indemnity obligations.
In
August
2006, the Company entered into a forward starting swap agreement with a
financial institution to hedge part of the exposure to changing interest
rates
until new financing was closed in December 2006. The forward starting
swap was designated as a cash flow hedge, and was subsequently settled in
conjunction with the closing of the Class A-2 notes, as planned. The
loss resulting from settlement of $5,640 ($3,483, net of tax) was recorded
in
accumulated other comprehensive income and is being amortized to interest
expense over the expected term of the Class A-2 notes. Amortization
of this loss during fiscal year 2007 totaled $753 ($465, net of tax) in interest
expense, and over the next 12 months, the Company expects to amortize $1,063
($656, net of tax) to interest expense for this loss. The ineffective
portion of the hedge was $275 ($170, net of tax) and is reflected in debt
extinguishment and other costs on the Consolidated Income
Statement. The cash flows resulting from these hedge transactions are
included in cash flows from operating activities on the Consolidated Statement
of Cash Flows.
The
following table presents the components of comprehensive income for the years
ended August 31, 2007 and 2006:
|
|
2007
|
|
|
2006
|
|
Net
Income
|
|
$
|
64,192
|
|
|
$
|
78,705
|
|
Increase
in deferred hedging loss, net of tax
|
|
|
(2,364
|
)
|
|
|
(484
|
)
|
Total
comprehensive income
|
|
$
|
61,828
|
|
|
$
|
78,221
|
|
10.
Other Noncurrent Liabilities
Other
noncurrent liabilities consist of the following at August 31, 2007 and
2006:
|
|
2007
|
|
|
2006
|
|
Minority
interests in consolidated drive-ins
|
|
$
|
3,789
|
|
|
$
|
4,566
|
|
Deferred
area development fees
|
|
|
6,227
|
|
|
|
2,385
|
|
Other
|
|
|
7,196
|
|
|
|
5,553
|
|
|
|
$
|
17,212
|
|
|
$
|
12,504
|
|
11.
Income Taxes
The
Company’s income before the provision for income taxes is classified by source
as domestic income.
The
components of the provision for income taxes consist of the following for
the
years ended August 31:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
31,369
|
|
|
$
|
42,629
|
|
|
$
|
37,572
|
|
State
|
|
|
3,859
|
|
|
|
4,163
|
|
|
|
3,269
|
|
|
|
|
35,228
|
|
|
|
46,792
|
|
|
|
40,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,272
|
|
|
|
(1,127
|
)
|
|
|
284
|
|
State
|
|
|
191
|
|
|
|
(321
|
)
|
|
|
96
|
|
|
|
|
1,463
|
|
|
|
(1,448
|
)
|
|
|
380
|
|
Provision
for income taxes
|
|
$
|
36,691
|
|
|
$
|
45,344
|
|
|
$
|
41,221
|
|
The
provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate due to the following for the years ended
August 31:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Amount
computed by applying a tax rate of 35%
|
|
$
|
35,309
|
|
|
$
|
43,417
|
|
|
$
|
39,083
|
|
State
income taxes (net of federal income tax benefit)
|
|
|
2,726
|
|
|
|
2,767
|
|
|
|
2,481
|
|
Employment
related and other tax credits, net
|
|
|
(1,443
|
)
|
|
|
(1,014
|
)
|
|
|
(1,092
|
)
|
Other
|
|
|
99
|
|
|
|
174
|
|
|
|
749
|
|
Provision
for income taxes
|
|
$
|
36,691
|
|
|
$
|
45,344
|
|
|
$
|
41,221
|
|
11. Income
Taxes (continued)
Deferred
tax assets and liabilities consist of the following at August 31, 2007 and
2006:
|
|
2007
|
|
|
2006
|
|
Current
deferred tax assets (liabilities):
|
|
|
|
|
|
|
Allowance
for doubtful accounts and notes receivable
|
|
$
|
176
|
|
|
$
|
83
|
|
Property,
equipment and capital leases
|
|
|
197
|
|
|
|
272
|
|
Accrued
litigation costs
|
|
|
371
|
|
|
|
76
|
|
Prepaid
expenses
|
|
|
(424
|
)
|
|
─
|
|
Deferred
income from franchisees
|
|
|
79
|
|
|
|
(327
|
)
|
Deferred
income from affiliated technology fund
|
|
|
118
|
|
|
|
203
|
|
Current
deferred tax assets, net
|
|
$
|
517
|
|
|
$
|
307
|
|
|
|
|
|
|
|
|
|
|
Noncurrent
deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Net
investment in direct financing leases including differences related
to
capitalization and amortization
|
|
$
|
(2,458
|
)
|
|
$
|
(2,390
|
)
|
Investment
in partnerships, including differences in capitalization
and
|
|
|
|
|
|
|
|
|
depreciation
related to direct financing leases and different year ends
for
|
|
|
|
|
|
|
|
|
financial
and tax reporting purposes
|
|
|
(13,466
|
)
|
|
|
(8,764
|
)
|
Capital
loss carryover
|
|
|
1,695
|
|
|
─
|
|
State
net operating losses
|
|
|
3,319
|
|
|
|
4,247
|
|
Property,
equipment and capital leases
|
|
|
(2,720
|
)
|
|
|
(1,150
|
)
|
Allowance
for doubtful accounts and notes receivable
|
|
|
97
|
|
|
|
160
|
|
Deferred
income from affiliated franchise fees
|
|
|
1,976
|
|
|
|
1,830
|
|
Accrued
liabilities
|
|
|
241
|
|
|
|
296
|
|
Intangibles
and other assets
|
|
|
117
|
|
|
|
107
|
|
Deferred
income from franchisees
|
|
|
798
|
|
|
|
877
|
|
Stock
compensation
|
|
|
5,544
|
|
|
|
4,420
|
|
Loss
on cash flow hedge
|
|
|
1,765
|
|
|
|
300
|
|
Other
|
|
|
(2
|
)
|
|
|
55
|
|
|
|
|
(3,094
|
)
|
|
|
(12
|
)
|
Valuation
allowance
|
|
|
(3,319
|
)
|
|
|
(4,247
|
)
|
Noncurrent
deferred tax liabilities, net
|
|
$
|
(6,413
|
)
|
|
$
|
(4,259
|
)
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets and (liabilities):
|
|
|
|
|
|
|
|
|
Deferred
tax assets (net of valuation allowance)
|
|
$
|
13,174
|
|
|
$
|
8,679
|
|
Deferred
tax liabilities
|
|
|
(19,070
|
)
|
|
|
(12,631
|
)
|
Net
deferred tax liabilities
|
|
$
|
(5,896
|
)
|
|
$
|
(3,952
|
)
|
State
net
operating loss carryforwards expire generally beginning in
2010. Management does not believe the Company will be able to realize
the state net operating loss carryforwards and therefore has provided a
valuation allowance as of August 31, 2007 and 2006.
The
Company has capital loss carryovers of approximately $4.4 million which expire
beginning in fiscal year 2011. Management believes the Company will
realize these carryovers before they expire.
12. Stockholders’
Equity
On
April
6, 2006, the Company’s board of directors authorized a three-for-two stock split
in the form of a stock dividend. A total of 38,219 shares of common
stock were issued in connection with the split, and an aggregate amount equal
to
the par value of the common stock issued of $382 was reclassified from paid-in
capital to common stock.
Stock
Purchase Plan
The
Company has an employee stock purchase plan for all full-time regular
employees. Employees are eligible to purchase shares of common stock
each year through a payroll deduction not in excess of the lesser of 10%
of
compensation or $25. The aggregate amount of stock that employees may purchase
under this plan is limited to 759,375 shares. The purchase price will be
between
85% and 100% of the stock’s fair market value and will be determined by the
Company’s board of directors.
Stock-Based
Compensation
The
Sonic
Corp. 2006 Long-Term Incentive Plan (the “2006 Plan”) provides flexibility to
award various forms of equity compensation, such as stock options, stock
appreciation rights, performance shares, restricted stock and other stock-based
awards. At August 31, 2007, 4,871 shares were available for grant
under the 2006 Plan. The Company has historically granted only stock
options with an exercise price equal to the market price of the Company’s stock
at the date of grant, a contractual term of seven to ten years, and a vesting
period of three years. The Company’s policy is to recognize
compensation cost for these options on a straight-line basis over the requisite
service period for the entire award. Additionally, the Company’s
policy is to issue new shares of common stock to satisfy stock option
exercises.
The
Company measures the compensation cost associated with share-based payments
by
estimating the fair value of stock options as of the grant date using the
Black-Scholes option pricing model. The Company believes that the
valuation technique and the approach utilized to develop the underlying
assumptions are appropriate in calculating the fair values of the Company’s
stock options granted during 2007, 2006 and 2005. Estimates of fair
value are not intended to predict actual future events or the value ultimately
realized by the employees who receive equity awards.
The
per
share weighted average fair value of stock options granted during 2007, 2006
and
2005 was $7.10, $7.90 and $8.94, respectively. In addition to the
exercise and grant date prices of the awards, certain weighted average
assumptions that were used to estimate the fair value of stock option grants
in
the respective periods are listed in the table below:
|
2007
|
2006
|
2005
|
Expected
term (years)
|
4.5
|
4.5
|
5.1
|
Expected
volatility
|
28%
|
34%
|
41%
|
Risk-free
interest rate
|
4.6%
|
4.7%
|
4.0%
|
Expected
dividend yield
|
0%
|
0%
|
0%
|
The
Company estimates expected volatility based on historical daily price changes
of
the Company’s common stock for a period equal to the current expected term of
the options. The risk-free interest rate is based on the United
States treasury yields in effect at the time of grant corresponding with
the
expected term of the options. The expected option term is the number
of years the Company estimates that options will be outstanding prior to
exercise considering vesting schedules and our historical exercise
patterns.
SFAS
123R
requires the cash flows resulting from the tax benefits for tax deductions
in
excess of the compensation expense recorded for those options (excess tax
benefits) to be classified as financing cash flows. These excess tax
benefits were $4,117, $4,645 and $4,595
for the years ended August 31, 2007, 2006 and 2005, respectively, and are
classified as a financing cash inflow in the Company’s Consolidated Statements
of Cash Flows. The proceeds from exercises of stock options are also
classified as cash flows from financing activities and totaled $7,732, $7,194
and $10,546 for each of the years ended August 31, 2007, 2006 and 2005,
respectively.
A
summary
of stock option activity under the Company’s share-based compensation plans for
the year ended August 31, 2007 is presented in the following table:
|
|
Options
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Life (Yrs.)
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding-beginning
of year
|
|
|
7,230
|
|
|
$
|
11.98
|
|
|
|
|
|
|
|
Granted
|
|
|
1,259
|
|
|
|
22.36
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,234
|
)
|
|
|
6.91
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(132
|
)
|
|
|
21.18
|
|
|
|
|
|
|
|
Outstanding
August 31, 2007
|
|
|
7,123
|
|
|
$
|
14.53
|
|
|
|
5.08
|
|
|
$
|
53,436
|
|
Exercisable
August 31, 2007
|
|
|
5,054
|
|
|
$
|
11.40
|
|
|
|
4.45
|
|
|
$
|
52,895
|
|
The
total
intrinsic value of options exercised during the years ended August 31, 2007,
2006 and 2005 was $19,408, $19,567 and $20,923, respectively. At
August 31, 2007, total remaining unrecognized compensation cost related to
unvested stock-based arrangements was $12,893 and is expected to be recognized
over a weighted average period of 1.6 years.
Stockholder
Rights Plan
The
Company had a stockholder rights plan designed to deter coercive takeover
tactics and to prevent a potential acquirer from gaining control of the Company
without offering a fair price to all of the Company’s
stockholders. This plan expired by its terms on June 16,
2007.
Stock
Repurchase Program
The
Company has a stock repurchase program that is authorized by the Board of
Directors. In addition to the ongoing stock repurchase program, the
Board authorized a “modified Dutch auction” tender offer that resulted in the
repurchase of 15,918 shares of common stock at a purchase price of $23.00
per
share for a total purchase price of $366,117 in October 2006. Costs
incurred in relation to the tender offer totaled $1,205 and are included
in
treasury stock, resulting in an average cost of $23.08 per share for the
tender
offer shares. Subsequent to the tender offer, the Board authorized
the continuation of the stock repurchase program. On January 31,
2007, the Board of Directors approved an increase in the stock repurchase
program from $10,705 to $100,000, followed by an additional authorization
on
August 2, 2007 of $75,000 and extension of the program through August 31,
2008. Pursuant to this program, the Company acquired 9,574 shares for
a total cost of $211,135 during fiscal year 2007. The total remaining
amount authorized for repurchase as of August 31, 2007 was $42,571 and is
scheduled to expire August 31, 2008.
Accumulated
Other Comprehensive Income
In
August
2006, the Company entered into a forward starting swap agreement with a
financial institution to hedge part of the interest rate risk associated
with
the pending securitized debt transaction. The forward starting swap
was designated as a cash flow hedge, and was subsequently settled in conjunction
with the closing of the Class A-2 notes, as planned. The loss
resulting from settlement was recorded net of tax in accumulated other
comprehensive income and is being amortized to interest expense over the
expected term of the debt. See Note 9 for additional
information.
13. Net
Revenue Incentive Plan
The
Company has a Net Revenue Incentive Plan (the “Incentive Plan”), as amended,
which applies to certain members of management and is at all times discretionary
with the Company’s board of directors. If certain predetermined
earnings goals are met, the Incentive Plan provides that a predetermined
percentage of the employee’s salary may be paid in the form of a
bonus. The Company recognized as expense incentive bonuses of $2,943,
$3,247, and $2,997 during fiscal years 2007, 2006 and 2005,
respectively.
14.
Employment Agreements
The
Company has employment contracts with its Chairman and Chief Executive Officer
and several members of its senior management. These contracts provide for
use of
Company automobiles or related allowances, medical, life and disability
insurance, annual base salaries, as well as an incentive bonus. These
contracts also contain provisions for payments in the event of the termination
of employment and provide for payments aggregating $8,710 at August 31, 2007
due
to loss of employment in the event of a change in control (as defined in
the
contracts).
15.
Contingencies
The
Company is involved in various legal proceedings and has certain unresolved
claims pending. Based on the information currently available,
management believes that all claims currently pending are either covered
by
insurance or would not have a material adverse effect on the Company’s business
or financial condition.
The
Company initiated a new agreement with Irwin Franchise Capital Corporation
(“Irwin”) in September 2006, pursuant to which existing Sonic franchisees may
qualify with Irwin to finance drive-in retrofit projects. The
agreement provides that Sonic will guarantee at least $250 of such financing,
limited to 5% of the aggregate amount of loans, not to exceed
$2,500. As of August 31, 2007, the total amount guaranteed under the
Irwin agreement was $250. The agreement provides for release of
Sonic’s guarantee on individual loans under the program that meet certain
payment history criteria at the mid-point of each loans’
term. Existing loans under the program have terms through
2014. In the event of default by a franchisee, the Company is
obligated to pay Irwin the outstanding balances, plus limited interest
and
charges up to Sonic’s guarantee limitation. Irwin is obligated to
pursue collections as if Sonic’s guarantee were not in place, therefore,
providing recourse with the franchisee under the notes.
The
Company has an agreement with GE Capital Franchise Finance Corporation
(“GEC”),
pursuant to which GEC made loans to existing Sonic franchisees who met
certain
underwriting criteria set by GEC. Under the terms of the agreement
with GEC, the Company provided a guarantee of 10% of the outstanding balance
of
loans from GEC to the Sonic franchisees, limited to a maximum amount of
$5,000. As of August 31, 2007, the total amount guaranteed under the
GEC agreement was $2,201. The Company ceased guaranteeing new loans
under the program during fiscal year 2002 and has not been required to
make any
payments under its agreement with GEC. Existing loans under
guarantee will expire through 2012. In the event of default by a
franchisee, the Company has the option to fulfill the franchisee’s obligations
under the note or to become the note holder, which would provide an avenue
of
recourse with the franchisee under the notes.
The
Company has obligations under various lease agreements with third-party
lessors
related to the real estate for Partner Drive-Ins that were sold to
franchisees. Under these agreements, the Company remains secondarily
liable for the lease payments for which it was responsible as the original
lessee. As of August 31, 2007, the amount remaining under the
guaranteed lease obligations totaled $3,653.
Effective
November 30, 2005, the Company extended a note purchase agreement to a
bank that
serves to guarantee the repayment of a franchisee loan and also benefits
the
franchisee with a lower financing rate. In the event of default by
the franchisee, the Company would purchase the franchisee loan from the
bank,
thereby becoming the note holder and providing an avenue of recourse with
the
franchisee. As of August 31, 2007, the balance of the loan was
$1,880.
The
Company has not recorded a liability for its obligations under the guarantees,
other than immaterial amounts related to the fair value of the Irwin guarantee
and the guarantee associated with the note purchase agreement, and has
not been
required to make any payments under any of these guarantees.
16.
Selected Quarterly
Financial
Data
(Unaudited)
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Full
Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Income
statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partner
Drive-In sales
|
|
$
|
146,419
|
|
|
$
|
135,422
|
|
|
$
|
137,007
|
|
|
$
|
126,376
|
|
|
$
|
175,027
|
|
|
$
|
156,921
|
|
|
$
|
188,
462
|
|
|
$
|
167,113
|
|
|
$
|
646,915
|
|
|
$
|
585,832
|
|
Other
|
|
|
28,371
|
|
|
|
24,378
|
|
|
|
24,445
|
|
|
|
22,572
|
|
|
|
34,894
|
|
|
|
29,548
|
|
|
|
35,844
|
|
|
|
30,932
|
|
|
|
123,554
|
|
|
|
107,430
|
|
Total
revenues
|
|
|
174,790
|
|
|
|
159,800
|
|
|
|
161,452
|
|
|
|
148,948
|
|
|
|
209,921
|
|
|
|
186,469
|
|
|
|
224,306
|
|
|
|
198,045
|
|
|
|
770,469
|
|
|
|
693,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partner
Drive-In operating expenses
|
|
|
119,480
|
|
|
|
110,125
|
|
|
|
112,050
|
|
|
|
102,615
|
|
|
|
139,402
|
|
|
|
123,755
|
|
|
|
149,244
|
|
|
|
132,132
|
|
|
|
520,176
|
|
|
|
468,627
|
|
Selling,
general and administrative
|
|
|
14,033
|
|
|
|
12,196
|
|
|
|
14,401
|
|
|
|
13,214
|
|
|
|
15,236
|
|
|
|
13,293
|
|
|
|
15,066
|
|
|
|
13,345
|
|
|
|
58,736
|
|
|
|
52,048
|
|
Other
|
|
|
10,758
|
|
|
|
9,897
|
|
|
|
11,099
|
|
|
|
9,997
|
|
|
|
11,967
|
|
|
|
10,361
|
|
|
|
12,444
|
|
|
|
10,705
|
|
|
|
46,268
|
|
|
|
40,960
|
|
Total
expenses
|
|
|
144,271
|
|
|
|
132,218
|
|
|
|
137,550
|
|
|
|
125,826
|
|
|
|
166,605
|
|
|
|
147,409
|
|
|
|
176,754
|
|
|
|
156,182
|
|
|
|
625,180
|
|
|
|
561,635
|
|
Income
from operations
|
|
|
30,519
|
|
|
|
27,582
|
|
|
|
23,902
|
|
|
|
23,122
|
|
|
|
43,316
|
|
|
|
39,060
|
|
|
|
47,552
|
|
|
|
41,863
|
|
|
|
145,289
|
|
|
|
131,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
extinguishment and other costs
|
|
|
1,258
|
|
|
─
|
|
|
|
4,818
|
|
|
─
|
|
|
─
|
|
|
─
|
|
|
─
|
|
|
─
|
|
|
|
6,076
|
|
|
─
|
|
Interest
expense, net
|
|
|
5,759
|
|
|
|
1,307
|
|
|
|
10,304
|
|
|
|
2,096
|
|
|
|
10,921
|
|
|
|
2,215
|
|
|
|
11,346
|
|
|
|
1,960
|
|
|
|
38,330
|
|
|
|
7,578
|
|
Income
before income taxes
|
|
|
23,502
|
|
|
|
26,275
|
|
|
|
8,780
|
|
|
|
21,026
|
|
|
|
32,395
|
|
|
|
36,845
|
|
|
|
36,206
|
|
|
|
39,903
|
|
|
|
100,883
|
|
|
|
124,049
|
|
Provision
for income
taxes
|
|
|
8,216
|
|
|
|
9,845
|
|
|
|
2,555
|
|
|
|
8,122
|
|
|
|
11,747
|
|
|
|
13,011
|
|
|
|
14,173
|
|
|
|
14,366
|
|
|
|
36,691
|
|
|
|
45,344
|
|
Net
income
|
|
$
|
15,286
|
|
|
$
|
16,430
|
|
|
$
|
6,225
|
|
|
$
|
12,904
|
|
|
$
|
20,648
|
|
|
$
|
23,834
|
|
|
$
|
22,033
|
|
|
$
|
25,537
|
|
|
$
|
64,192
|
|
|
$
|
78,705
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.20
|
|
|
$
|
0.19
|
|
|
$
|
0.09
|
|
|
$
|
0.15
|
|
|
$
|
0.32
|
|
|
$
|
0.28
|
|
|
$
|
0.35
|
|
|
$
|
0.30
|
|
|
$
|
0.94
|
|
|
$
|
0.91
|
|
Diluted
|
|
$
|
0.19
|
|
|
$
|
0.18
|
|
|
$
|
0.09
|
|
|
$
|
0.14
|
|
|
$
|
0.31
|
|
|
$
|
0.27
|
|
|
$
|
0.34
|
|
|
$
|
0.29
|
|
|
$
|
0.91
|
|
|
$
|
0.88
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
76,606
|
|
|
|
87,415
|
|
|
|
67,325
|
|
|
|
86,227
|
|
|
|
64,985
|
|
|
|
85,993
|
|
|
|
63,162
|
|
|
|
85,405
|
|
|
|
68,019
|
|
|
|
86,260
|
|
Diluted
|
|
|
79,489
|
|
|
|
90,521
|
|
|
|
70,026
|
|
|
|
89,261
|
|
|
|
67,408
|
|
|
|
89,007
|
|
|
|
65,445
|
|
|
|
88,168
|
|
|
|
70,592
|
|
|
|
89,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17. Fair
Values of Financial Instruments
The
following discussion of fair values is not indicative of the overall fair
value
of the Company’s consolidated balance sheet since the provisions of SFAS No.
107, “Disclosures About Fair Value of Financial Instruments,” do not apply to
all assets, including intangibles.
The
following methods and assumptions were used by the Company in estimating
its
fair values of financial instruments:
Cash
and cash equivalents
—Carrying value approximates fair value due to the
short duration to maturity.
Notes
receivable
—For variable rate loans with no significant change in credit
risk since the loan origination, fair values approximate carrying
amounts. Fair values for fixed-rate loans are estimated using
discounted cash flow analysis, using interest rates that would currently
be
offered for loans with similar terms to borrowers of similar credit quality
and/or the same remaining maturities.
As
of
August 31, 2007 and 2006, carrying values approximate their estimated fair
values.
Borrowed
funds
—Fair values for fixed rate borrowings are estimated using a
discounted cash flow analysis that applies interest rates currently being
offered on borrowings of similar amounts and terms to those currently
outstanding. Carrying values for variable-rate borrowings
approximate their fair values.
The
carrying amounts, including accrued interest, and estimated fair values of
the
Company’s fixed-rate borrowings at August 31, 2007 were $594,364 and $591,668,
respectively, and at August 31, 2006 were $19,857 and $19,925,
respectively.
Sonic
Corp
.
Schedule
II – Valuation and Qualifying Accounts
Description
|
Balance
at Beginning of Year
|
Additions
Charged to Costs and Expenses
|
Amounts
Written Off Against the Allowance
|
(Transfer)
Recoveries
|
Balance
at
End
of
Year
|
|
(In
Thousands)
|
|
|
|
|
|
|
Allowance
for doubtful accounts and notes receivable
|
|
|
|
|
|
Year
ended:
|
|
|
|
|
|
August
31, 2007
|
635
|
269
|
235
|
42
|
711
|
August
31, 2006
|
507
|
(5)
|
86
|
219
|
635
|
August
31, 2005
|
526
|
414
|
542
|
109
|
507
|
|
|
|
|
|
|
Accrued
carrying costs
for
drive-in closings and disposals
|
|
|
|
|
|
Year
ended:
|
|
|
|
|
|
August
31, 2007
|
113
|
–
|
22
|
–
|
91
|
August
31, 2006
|
162
|
–
|
49
|
–
|
113
|
August
31, 2005
|
198
|
–
|
36
|
–
|
162
|
SIGNATURES
Pursuant
to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant
has caused the undersigned, duly-authorized, to sign this report on its behalf
on this 26th day of October, 2007.
Sonic
Corp.
By:
/s/ J.
Clifford Hudson
J.
Clifford
Hudson
Chairman,
Chief Executive Officer and
President
Pursuant
to the requirements of the
Securities Exchange Act of 1934, as amended, the undersigned have signed
this
report on behalf of the registrant, in the capacities and as of the dates
indicated.
|
|
|
Signature
|
Title
|
Date
|
|
|
|
/s/
J. Clifford Hudson
|
Chairman
of the Board of Directors, Chief Executive Officer and President
|
October
26, 2007
|
J.
Clifford Hudson,
Principal
Executive Officer
|
|
|
|
|
|
/s/
Stephen C. Vaughan
|
Vice
President and Chief Financial Officer
|
October
26, 2007
|
Stephen
C. Vaughan,
Principal
Financial Officer
|
|
|
|
|
|
/s/
Terry D. Harryman
|
Controller
|
October
26, 2007
|
Terry
D. Harryman,
Principal
Accounting Officer
|
|
|
|
|
|
/s/
Leonard Lieberman
|
Director
|
October
26, 2007
|
Leonard
Lieberman
|
|
|
|
|
|
/s/
Michael J. Maples
|
Director
|
October
26, 2007
|
Michael
J. Maples
|
|
|
|
|
|
/s/
Federico F. Pena
|
Director
|
October
26, 2007
|
Federico
F. Peña
|
|
|
|
|
|
/s/
J. Larry Nichols
|
Director
|
October
26, 2007
|
J.
Larry Nichols
|
|
|
|
|
|
/s/
H. E. Rainbolt
|
Director
|
October
26, 2007
|
H.E.
Rainbolt
|
|
|
|
|
|
/s/
Frank E. Richardson
|
Director
|
October
26, 2007
|
Frank
E. Richardson
|
|
|
|
|
|
/s/
Robert M. Rosenberg
|
Director
|
October
26, 2007
|
Robert
M. Rosenberg
|
|
|
|
|
|
EXHIBIT
INDEX
Exhibit Number and Description
SONIC
INDUSTRIES LLC
NUMBER
4.4/5.4 LICENSE AGREEMENT
BY
AND BETWEEN SONIC INDUSTRIES LLC, Licensor and
________________________,
Licensee
Sonic
Drive-In of ____________________, ______________________
located
at _____________________________
_________________________,
______________________.
Dated: ___________,
_______.
Store
No.
_________
CIF
No.
__________
TABLE
OF
CONTENTS
1.DEFINITIONS.
|
|
2
|
|
1.01.
|
Affiliate.
|
2
|
|
1.02.
|
Control.
|
2
|
|
1.03.
|
DMA.
|
2
|
|
1.04.
|
Gross
Sales.
|
2
|
|
1.05.
|
License.
|
3
|
|
1.06.
|
MSA.
|
3
|
|
1.07.
|
Person.
|
3
|
|
1.08.
|
Proprietary
Marks.
|
3
|
|
1.09.
|
Protected
Area.
|
4
|
|
1.10.
|
Sonic
Restaurant.
|
4
|
|
1.11.
|
Sonic
System.
|
4
|
|
1.12.
|
Non-traditional
Locations.
|
4
|
2. LICENSE
GRANT.
|
4
|
|
2.01.
|
Location.
|
5
|
|
2.02.
|
Trade
Radius.
|
5
|
|
2.03.
|
Efficient
Market Development and Sales Dilution.
|
6
|
|
2.04.
|
Licensee.
|
7
|
|
2.05.
|
Use
of Sonic’s Marks.
|
7
|
|
2.06.
|
Site
Selection.
|
7
|
|
2.07.
|
Relocation.
|
7
|
3. TERM.
|
|
8
|
|
3.01.
|
Initial
Term.
|
8
|
|
3.02.
|
Opening
of Restaurant.
|
8
|
|
3.03.
|
Option.
|
8
|
4. DUTIES
OF LICENSOR.
|
|
9
|
|
4.01.
|
Plans.
|
9
|
|
4.02.
|
Operations
Manual.
|
9
|
|
4.03.
|
Marketing
Assistance.
|
9
|
|
4.04.
|
Communication.
|
10
|
|
4.05.
|
Evaluation
Program.
|
10
|
5. FEES.
|
|
|
10
|
|
5.01.
|
License
Fee.
|
10
|
|
5.02.
|
Royalty
Fees.
|
10
|
|
5.03.
|
Brand
Fee.
|
14
|
|
5.04.
|
Transfer
Fee.
|
14
|
|
5.05.
|
Late
Charges.
|
14
|
6. DUTIES
OF LICENSEE.
|
|
15
|
|
6.01.
|
Sonic
Restaurant Site.
|
15
|
|
6.02.
|
Construction.
|
15
|
|
6.03.
|
Equipment
and Sign.
|
16
|
|
6.04.
|
Training.
|
17
|
|
6.05.
|
Compliance
with Entire System.
|
17
|
|
6.06.
|
Approved
Suppliers and Advertising Agencies.
|
19
|
|
6.07.
|
Best
Efforts.
|
20
|
|
6.08.
|
Interference
with Employment Relations of Others.
|
20
|
|
6.09.
|
SONIC’s
Standards.
|
21
|
|
6.10.
|
Majority
Interest Owner.
|
21
|
7. PROPRIETARY
MARKS.
|
|
21
|
|
7.01.
|
SONIC’s
Representations.
|
21
|
|
7.02.
|
Use
of Marks.
|
21
|
|
7.03.
|
Licensee’s
Understanding.
|
22
|
8. MANUAL.
|
|
|
23
|
9. CONFIDENTIAL
INFORMATION.
|
23
|
|
9.01.
|
SONIC
Proprietary and Confidential Information.
|
23
|
|
9.02.
|
Licensee’s
Use of Proprietary and Confidential Information.
|
24
|
|
9.03.
|
Licensee’s
Use of Sonic Operations Manual.
|
24
|
10. ACCOUNTING
AND RECORDS.
|
25
|
|
10.01.
|
Due
Date.
|
25
|
|
10.02.
|
Record
Retention.
|
25
|
|
10.03.
|
Charitable
Contributions and Discounts.
|
25
|
|
10.04.
|
Annual
Reports.
|
25
|
|
10.05.
|
Audit
by SONIC.
|
26
|
|
10.06.
|
Third
–Party Audit.
|
26
|
|
10.07.
|
Licensee’s
Failure to Timely Deliver Financial Records.
|
26
|
|
10.08.
|
Financial
Disclosure.
|
27
|
11. ADVERTISING
AND BRAND EXPENDITURES.
|
27
|
|
11.01.
|
Standard
Program.
|
27
|
|
11.02.
|
Publicity.
|
30
|
1
2. INSURANCE.
|
|
|
30
|
|
12.01.
|
Insurance
Amounts.
|
30
|
|
12.02.
|
SONIC
as Additional Insured.
|
30
|
|
12.03.
|
General
Conditions.
|
31
|
13. TRANSFER
OF INTEREST.
|
|
31
|
|
13.01.
|
Assignment.
|
31
|
|
13.02.
|
Death
or Permanent Incapacity of Licensee.
|
31
|
|
13.03.
|
Assignment
to Licensee’s Corporation.
|
32
|
|
13.04.
|
Other
Assignment.
|
33
|
|
13.05.
|
SONIC’s
Right of First Refusal.
|
34
|
|
13.06.
|
Consent
to Assignments.
|
35
|
14. DEFAULT
AND TERMINATION.
|
35
|
|
14.01.
|
Automatic
Termination.
|
35
|
|
14.02.
|
Optional
Termination.
|
36
|
|
14.03.
|
Period
to Cure.
|
36
|
|
14.04.
|
Resolution
of Disputes.
|
38
|
|
(a)
|
Negotiation.
|
38
|
|
(b)
|
Mediation.
|
38
|
|
(c)
|
Arbitration.
|
38
|
|
(d)
|
Excluded
Controversies.
|
39
|
|
(e)
|
Attorneys’
Fees and Costs.
|
40
|
15. OBLIGATIONS
UPON TERMINATION.
|
40
|
|
15.01.
|
Effect
of Termination, Cancellation or Expiration of this
Agreement.
|
40
|
|
15.02.
|
SONIC’s
Option to Purchase.
|
41
|
|
15.03.
|
SONIC’s
Obligation to Purchase.
|
42
|
|
15.04.
|
Fair
Market Value Determination.
|
42
|
16. COVENANTS.
|
|
|
42
|
|
16.01.
|
Restrictions
on Licensee.
|
42
|
|
16.02.
|
Covenants
by Others.
|
44
|
17. INDEPENDENT
CONTRACTOR & INDEMNIFICATION.
|
45
|
|
17.01.
|
Licensee
not an Agent of SONIC.
|
45
|
|
17.02.
|
Cost
of Enforcement.
|
45
|
|
17.03.
|
Indemnification.
|
45
|
1
8. EFFECT
OF WAIVERS.
|
|
46
|
19. NOTICES.
|
|
46
|
|
19.01.
|
Address.
|
46
|
|
19.02.
|
Failure
to Accept.
|
46
|
|
19.03.
|
Licensee’s
Principal.
|
46
|
20. ENTIRE
AGREEMENT.
|
|
46
|
|
20.01.
|
No
Oral Agreements.
|
46
|
|
20.02.
|
Scope
and Modification of License.
|
47
|
21. CONSTRUCTION
AND SEVERABILITY.
|
47
|
|
21.01.
|
Interpretation.
|
47
|
|
21.02.
|
Scope
of Protected Area.
|
47
|
|
21.03.
|
Invalidity.
|
47
|
|
21.04.
|
Binding
Effect.
|
47
|
|
21.05.
|
Survival.
|
47
|
|
21.06.
|
Liability
of Multiple Licensees.
|
48
|
22. BUSINESS
ENTITY LICENSEES
|
48
|
|
22.01.
|
Corporate
Licensee.
|
48
|
|
22.02.
|
Partnership
Licensee.
|
48
|
|
22.03.
|
Limited
Liability Company Licensee.
|
49
|
|
22.04.
|
Other
Entity Licensee.
|
50
|
|
22.05.
|
Employee
Stock Purchase Plans.
|
50
|
23. APPLICABLE
LAWS.
|
|
50
|
24. ACKNOWLEDGEMENT.
|
|
50
|
|
24.01.
|
Initial
Term.
|
51
|
|
24.02.
|
Consultation
with Counsel.
|
51
|
|
24.03.
|
Profitability.
|
51
|
|
24.04.
|
Licensee’s
Investigation.
|
51
|
|
24.05.
|
Contrary
Representations.
|
51
|
|
24.06.
|
Variances
to Other Licensees.
|
52
|
|
24.07.
|
Complete
Agreement.
|
52
|
25. INPUT
AND ADVICE FROM LICENSEES.
|
52
|
26. INJUNCTIVE
RELIEF.
|
|
52
|
27. GENERAL
RELEASE AND COVENANT NOT TO SUE.
|
52
|
SCHEDULE
I – GUARANTY AND RESTRICTION AGREEMENT
Store
No._________
CIF
No. _______
LICENSE
AGREEMENT
THIS
AGREEMENT made this ___day of
______, 200_, by and between SONIC INDUSTRIES LLC, a Delaware limited liability
company (“SONIC”), and
_________________________ (“Principal”)
_________________________
(all
of whom shall be jointly
referred to herein as the “Licensee”).
RECITALS
SONIC
is the developer and the sole and
exclusive owner of the right to license the distinctive and proprietary
drive-in, food service system under which food is sold to the public from
drive-in restaurants operated under the trade name and federally registered
trademark and service mark “Sonic”. The Sonic System so developed now
includes, among other things, the following elements, all or some of which
may
be deleted, changed, improved or further developed by SONIC from time to
time:
A.
Methods
and procedures for the
preparation and serving of food and beverage products.
B.
Confidential
recipes for food
products and distinctive service accessories (including, but not limited to,
uniforms, menus, packages, containers and additional paper or plastic
items).
C.
Plans
and specifications for
distinctive standardized premises featuring characteristic exterior style,
colors, and design (including angled parking stalls equipped with menu housings,
speakers and tray supports), interior furnishings, equipment layout, exterior
signage, and marketing techniques and materials.
D.
A
uniform method of operating
which is described in the
Sonic Operations Manual
.
E.
Distinctive
and characteristic
trade names, trade dress, trademarks and service marks, including, but not
limited to: “Sonic”, “Sonic Happy Eating,” “America’s Favorite Drive-In Sonic,”
signs, menu housings, designs, color schemes, standardized premises featuring
characteristic exterior style, canopies, colors, and design (including angled
parking stalls equipped with menu housings, speakers and tray supports),
interior furnishings and equipment layout, and emblems as SONIC designates
in
the
Sonic Operations Manual
or otherwise in writing or through usage as
prescribed for use with the Sonic System and as may from time to time be
developed.
F.
Such
exclusive and trade
secrets as have been and may from time to time be developed, which are owned
by
SONIC and which are disclosed to its licensees in confidence in connection
with
the construction and operation of a Sonic drive-in restaurant.
Licensee
wishes to obtain a license
from SONIC to operate a Sonic drive-in restaurant pursuant to the Sonic System
and to be afforded the assistance provided by SONIC in connection therewith,
and
understands and accepts the terms, conditions and covenants set forth herein
as
those which are reasonably necessary to maintain SONIC’s high and uniform
standards of quality and service designed to protect the goodwill and enhance
the public image of the Proprietary Marks and the Sonic System, and recognizes
the necessity of operating the licensed Sonic drive-in restaurant in faithful
compliance therewith, and with SONIC’s standards and
specifications.
1.
DEFINITIONS
.
Unless
the context of their use in this
Agreement requires otherwise, the following words and phrases shall have the
following meanings when used in initially-capitalized form in this
Agreement.
1.01.
Affiliate
.
The
word “Affiliate” shall mean (a) any
stockholder, director or officer of a specified Person (if the specified Person
is a corporation), (b) any partner of a specified Person (if the specified
Person is a partnership), (c) any member of a specified Person (if the specified
Person is a limited liability company), (d) any employee of a specified Person,
and (e) any Person which directly or indirectly through one or more
intermediaries Controls the specified Person, the specified Person Controls,
or
shares a common Control with the specified Person.
1.02.
Control
.
The
word “Control” means the
possession, direct or indirect, of the power to direct or cause the direction
of
the management and policies of a Person or entity, whether through the ownership
of voting securities, by contract, or otherwise.
1.03.
DMA
.
The
term “DMA” shall mean a Designated
Market Area as defined by A.C. Nielsen Company from time to time.
1.04.
Gross Sales
.
The
phrase “Gross Sales” shall mean all
revenues from sales resulting from all business conducted upon or from the
Sonic
Restaurant, whether evidenced by check, cash, credit, charge account, exchange
or otherwise, and shall include (without limitation) the amounts received from
the sale of goods, wares and merchandise, including sales of food, beverages
and
tangible property of every kind and nature, promotional or otherwise (excluding
restaurant
equipment)
and for services performed from or at the Sonic Restaurant, whether the Licensee
fills the orders from the Sonic Restaurant or elsewhere. Each charge
or sale upon credit shall constitute a sale for the full price in the month
during which the charge or sale occurs, regardless of the time when the Licensee
receives payment (in whole or in part) for the charge or sale. The
phrase “Gross Sales” shall not include (a) sales of merchandise for which the
Licensee makes a cash refund, if previously included in Gross Sales; (b) the
price of merchandise returned by customers for exchange, if the Licensee
previously included the sales price of the merchandise returned by the customer
in Gross Sales and includes the sales price of merchandise delivered to the
customer in exchange in Gross Sales; (c) amounts received from the sale of
tobacco products; (d) the amount of any sales tax imposed by any governmental
authority directly on sales and collected from customers, if the Licensee adds
the amount of the tax to the sales price or absorbs the amount of the sales
tax
in the sales price and the Licensee actually pays the tax to the governmental
authority; and (e) amounts not received for menu items because of discounts
or
coupons, if properly documented. The phrase “Gross Sales” also shall
not include any proceeds received by the Licensee pursuant to an assignment
made
in accordance with the provisions of Section 13.
1.05.
License
.
The
word “License” shall mean the
rights granted the Licensee pursuant to Section 2 of this
Agreement.
1.06.
MSA
.
The
term “MSA” shall mean a
Metropolitan Statistical Area as defined by the United States Census Bureau
from
time to time. An MSA shall not include any city or town otherwise
falling within the MSA which has at least 10 miles of continuous undeveloped
and
sparsely populated rural land between every portion of its boundary and the
boundary of the city which serves as the primary metropolitan area for the
MSA.
1.07.
Person
.
The
word “Person” shall mean any
individual or business entity, including (without limitation) corporation,
joint
venture, general partnership, limited partnership, limited liability company,
or
trust.
1.08.
Proprietary
Marks
.
The
phrase “Proprietary Marks” shall
mean the distinctive and characteristic trade names, trademarks, service marks,
and trade dress which SONIC designates in writing or through usage from time
to
time as prescribed for use with the Sonic System, including (without limitation)
the terms “Sonic,” “Happy Eating,” and “America’s Favorite Drive-In”; signs;
emblems; menu housings; designs; color schemes; standardized premises featuring
characteristic
exterior
style, canopies, colors and design (including angled parking stalls equipped
with menu housings, speakers and tray supports); interior furnishings; and
equipment layout.
1.09.
Protected
Area
.
The
phrase “Protected Area” shall mean
the area defined by Sections 2.02 and 2.03 of this Agreement.
1.10.
Sonic
Restaurant
.
The
phrase “Sonic Restaurant” shall
mean the Sonic drive-in restaurant licensed by this Agreement.
1.11.
Sonic
System
.
The
phrase “Sonic System” shall mean
the unique, proprietary and confidential information of SONIC, including
(without limitation) the
Sonic Operations Manual
and consisting of (a)
methods and procedures for the preparation of food and beverage products; (b)
confidential recipes for food products; (c) distinctive service and accessories;
(d) plans and specifications for interior and exterior signs, designs, layouts
and color schemes (whether copyrighted or not); (e) methods, techniques,
formats, systems, specifications, procedures, information, trade secrets, sales
and marketing programs; (f) methods of business operations and management;
and
(g) knowledge and experience regarding the operation and franchising of Sonic
drive-in restaurants.
1.12.
Non-traditional
Locations
.
The
phrase “Non-traditional Locations” shall mean permanent or temporary food
service facilities operating under one or more of the Proprietary Marks at
locations featuring facilities other than free-standing buildings with canopies
devoted solely to the operation of a Sonic drive-in restaurant and accessible
to
the general public by automobile from public
thoroughfares. Non-traditional Locations shall include (without
limitation) (a) military bases and other governmental facilities; (b)
universities and schools; (c) airports and other transportation facilities;
(d)
stadiums, arenas and other sports and entertainment venues; (e) amusement and
theme parks; (f) cafeterias and food courts in shopping centers, shopping malls,
office buildings, and industrial buildings; (g) hotels and convention centers;
(h) hospitals and nursing facilities; (i) museums, zoos and other public
facilities; and (j) highway travel plazas, convenience stores, and gasoline
filling stations.
2.
LICENSE
GRANT
.
SONIC
grants to Licensee for the
following stated term the right, license and privilege:
2.01.
Location
.
(a) To
adopt and use the Sonic System at the Sonic Restaurant located at
__________________________, ______________, _______________.
(b) To
have the exclusive rights to adopt and use the Sonic System for a Sonic
Restaurant to be constructed within the current boundaries of the town or city
of __________________, ________________, for a period of six months from the
date hereof, with the obligation of selecting and having such site approved
within such six month period and completing Section 2.01(a), above, within
such
six month period.
2.02.
Trade
Radius
.
Subject
to the provisions of paragraphs
(c) and (d), below, SONIC shall not own or operate a Sonic Restaurant and shall
not franchise any other Person to own or operate a Sonic Restaurant (other
than
a Sonic drive-in restaurant licensed prior to the date of this Agreement) within
the area determined by the following provisions:
|
(a)
|
(i)
|
An
area defined by a radius extending one and one-half miles from the
front
door of the Sonic Restaurant if located within a city, town or MSA
having
a population of 75,000 or more.
|
|
(ii)
|
An
area defined by a radius extending two miles from the front door
of the
Sonic Restaurant if located within a city, town or MSA having a population
of less than 75,000 but more than
25,000.
|
|
(iii)
|
An
area defined by a radius extending three miles from the front door
of the
Sonic Restaurant if located within a city, town or MSA having a population
of 25,000 or less.
|
|
(iv)
|
An
area defined by a radius extending three miles from the front door
of the
Sonic Restaurant if located outside a city, town or
MSA.
|
(b) The
foregoing radius shall not extend into the contractually-granted protected
radius of any Sonic drive-in restaurant in existence as of the date of this
Agreement and shall not extend into the franchised area of any developer under
an existing area development agreement with SONIC. SONIC shall
determine the population of an MSA from time to time after the date of this
Agreement according to the latest published federal census.
(c) SONIC
shall not own, operate or license any other Person to own or operate a
Non-traditional Location (other than a Non-traditional Location owned, operated
or licensed prior to the date of this Agreement) within the Protected Area
without the Licensee’s prior written consent. Simultaneously with the
request for that written consent, SONIC shall offer the Licensee a right of
first refusal to develop the Non-traditional Location. The Licensee
must notify SONIC in writing of its decision regarding the right of first
refusal to license and operate the Non-traditional Location within 30 days
after
SONIC notifies the Licensee of SONIC’s request for the Licensee’s written
consent to own, operate and/or license the Non-traditional
Location. If the Licensee chooses to exercise its right of first
refusal, the Licensee must sign SONIC’s then current form of license agreement
for a Non-traditional Location for the applicable jurisdiction within 30 days
after the Licensee notifies SONIC of its decision. The Licensee then
must open the Non-traditional Location within the time period specified in
the
license agreement (if specified) or within 12 months after the date of the
license agreement (if not specified). If the Licensee does not
execute that agreement within the foregoing 30-day period or does not exercise
its right of first refusal within the foregoing 30-day period, SONIC shall
have
the right to proceed with the ownership, operation and/or licensing of the
Non-traditional Location as disclosed to the Licensee only if the Licensee
has
given its written consent to SONIC. If the Licensee elects, in its
sole and absolute discretion, not to give its written consent, SONIC shall
not
own, operate or license any other Person to own or operate the Non-traditional
Location.
(d) SONIC
has and hereby further reserves the right, in its sole discretion, to acquire
the assets or controlling ownership of an existing restaurant within the
Protected Area. However, prior to converting an acquired restaurant to a Sonic
drive-in restaurant or a Non-traditional Location within the Protected Area,
SONIC shall offer the Licensee a right of first refusal to acquire the
restaurant at a price equal to SONIC’s cost of acquiring the
restaurant. If the restaurant represents a part of an acquisition of
multiple restaurants, SONIC shall make a reasonable allocation of its cost
to
acquire the restaurant. The Licensee must notify SONIC of its
decision regarding the right of first refusal within 30 days after SONIC gives
the Licensee written notice of its intention to convert the restaurant to a
Sonic drive-in restaurant or Non-traditional Location. If the
Licensee chooses to exercise its right of first refusal, the Licensee must
sign
SONIC’s then current form of license agreement for a Sonic drive-in restaurant
or Non-traditional Location, and pay the required license fee, as applicable,
within 20 days after the Licensee notifies SONIC of its decision. In
the event the Licensee fails to convert the restaurant to a Sonic drive-in
restaurant or Non-traditional Location pursuant to the terms of the applicable
license agreement, SONIC shall have the right to repurchase the restaurant
from
the Licensee at the same purchase price. If the Licensee does not
exercise its right of first refusal, SONIC shall have the right to own, operate
and/or license other Persons to operate the restaurant in any manner which
does
not violate the provisions of this Agreement or SONIC may sell or otherwise
dispose of the restaurant to any person or entity under any terms or conditions
SONIC deems appropriate. SONIC shall not own, operate or license any
Person to operate the restaurant if the ownership or operation of the restaurant
otherwise would violate the non-compete provisions of 16.01 of this Agreement
if
owned or operated by a Sonic licensee.
2.03.
Efficient
Market Development and Sales Dilution
.
The
following additional provisions
shall apply to the Sonic Restaurant:
(a) In
utilizing its best efforts to reduce the dilution of sales and profitability,
in
the event SONIC develops or licenses another Person to develop a Sonic drive-in
restaurant on the same street as the Sonic Restaurant (according to the Sonic
Restaurant’s designated street address) and no traffic barrier or break (such as
a river or other waterway, interceding roadway, unpaved landmass, or other
similar structure blocking through traffic) exists between the Sonic Restaurant
and the proposed new site, notwithstanding the provisions of Section 2.02,
above, the Protected Area provided by Section 2.02 shall equal two and one-half
miles (each way) on that street and an additional 500 feet (each way from the
center of the intersection) on any street crossing that street within the
foregoing 2 1/2-mile distance.
(b) In
order to achieve efficient market development and in utilizing its best efforts
to reduce the dilution of sales and profitability, in the event SONIC develops
or licenses another Person to develop a Sonic drive-in restaurant within two
miles of the Sonic Restaurant (if permitted under Section 2.02, above), SONIC
shall apply at least the level of demographic analysis, market impact analysis,
and site and market review used by SONIC as of the date of this Agreement in
considering the additional site for the development of a Sonic drive-in
restaurant.
2.04.
Licensee
.
Licensee
shall advertise to the public
as a Licensee of SONIC.
2.05.
Use
of Sonic’s Marks
.
Licensee
shall adopt and use, but only
in connection with the sale of those food and beverage products which have
been
designated in the Sonic menu as specified in the
Sonic Operations
Manual
, the trade names, trademarks and service marks which SONIC shall
designate from time to time to be part of the Sonic System.
2.06.
Site
Selection
.
In
the event the Licensee receives this
license pursuant to Section 2.01(b), above, the selection of a site by Licensee
shall be subject to the approval of SONIC in accordance with the standard site
approval procedures required by this Agreement and the standard practices of
SONIC. In the event a site for the Sonic Restaurant has not been
approved by SONIC before the expiration of the six month period provided for
by
Section 2.01(b), above, then this Agreement shall expire and be of no further
force or effect.
2.07.
Relocation
.
If
the Licensee relocates the Sonic
Restaurant during the term of this Agreement with the written consent of SONIC
(which consent SONIC shall not withhold unreasonably), this Agreement shall
continue to apply to the Sonic Restaurant in accordance with the terms contained
in this Agreement, except that SONIC and the Licensee shall enter into an
amendment to this Agreement to change the address of the Sonic Restaurant
accordingly.
3.
TERM
.
3.01.
Initial
Term
.
Unless
sooner terminated as hereafter
provided, the term of this License shall end 20 years from the effective date
of
this Agreement as set forth on the cover page to this Agreement.
3.02.
Opening
of Restaurant
.
Licensee
expressly acknowledges and
agrees that a pre-condition to opening the Sonic Restaurant shall be SONIC’s
written authorization to open, which authorization shall be given only upon
Licensee’s completing, to SONIC’s satisfaction, (i) construction of the Sonic
Restaurant, (ii) preparation of the Sonic Restaurant for commencement of
operations, and (iii) training as required by Section 6.04 of this
Agreement.
3.03.
Option
.
At
the end of the term, if Licensee
desires, Licensee may renew the License to adopt and use the Sonic System at
the
Sonic Restaurant for an additional 10-year term, provided that prior to the
expiration of the initial term:
(a) Licensee
gives SONIC written notice of Licensee’s election to renew not less than six
months nor more than 12 months prior to the end of the initial
term.
(b) Licensee
is not, when notice is given, in material default of any provision of this
Agreement or any amendment hereof or successor agreement hereto or in material
default of any other agreement between Licensee and SONIC or SONIC’s Affiliates
involving any other License Agreement and has substantially complied with the
terms and conditions of this Agreement and all other such agreements, during
the
term thereof.
(c) All
monetary obligations owed by Licensee to SONIC or SONIC’s Affiliates from any
source whatsoever (whether under this Agreement or otherwise) have been
satisfied prior to renewal.
(d) The
Licensee executes a license agreement containing the same terms and conditions
as this Agreement, except that the license agreement shall provide for a term
of
10 years and shall contain the then current royalty rate and the then current
national and local advertising and brand expenditure requirements; provided,
however, that in lieu of an initial license fee, a renewal fee shall be paid
to
SONIC in the amount of: (i) $3,000.00, or (ii) 20% of the then
current initial license fee, whichever is greater. However, the
renewal fee shall not exceed $6,000 as adjusted for inflation on September
1 of
each year in accordance with the consumer price index and using August of 1994
as the base amount.
(e) Licensee
performs such remodeling, repairs, replacements and redecorations as SONIC
may
reasonably require to cause the restaurant equipment and fixtures to conform
to
the plans and specifications being used for new or remodeled Sonic drive-in
restaurants on the renewal date, provided SONIC notifies Licensee of such
requirements within 30 days after receipt of Licensee’s notice of
renewal.
(f) SONIC
and the Licensee execute a general release of each other, in a form satisfactory
to SONIC, of any and all claims the Licensee may have against SONIC and its
Affiliates, including (without limitation) all claims arising under any federal,
state or local law, rule or ordinance, but excluding (as to SONIC) any claims
against the Licensee for (a) unpaid moneys due SONIC or its Affiliates, (b)
a
material breach of the provisions of this Agreement regarding the Proprietary
Marks, or (c) the violation of SONIC’s legal rights regarding the Proprietary
Marks. SONIC may waive the requirements of this paragraph (f) at
SONIC’s election.
(g) Licensee
principal and/or manager at their expense attend and satisfactorily complete
such retraining program as SONIC may require at its sole
discretion.
(h) Licensee
meets the remodeling requirements set forth in Section 6.02(d)
herein.
4.
DUTIES
OF LICENSOR
.
SONIC
agrees to regularly advise and consult with Licensee in connection with the
operation of the Sonic Restaurant and to provide to Licensee:
4.01.
Plans
.
Standard
Sonic Plans and Specifications
for a free standing building, equipment layout and signs (See Subsection 6.03),
together with advice and consultation. Any modifications for
nonstandard buildings, whether required by local zoning or building laws or
otherwise, must be approved in writing by SONIC and are to be paid by
Licensee.
4.02.
Operations
Manual
.
The
Sonic
Operations Manual
containing the standards, specifications, procedures and methods for operating
a
Sonic drive-in restaurant, a copy of which will be loaned to Licensee for the
term of this Agreement.
4.03.
Marketing Assistance
.
Certain
marketing materials and such
merchandising, marketing and advertising research data and advice as may be
developed from time to time by SONIC and deemed to be helpful in the operation
of a Sonic drive-in restaurant.
4.04.
Communication
.
Certain
management development and
motivational seminars and periodic newsletters which communicate to Licensee
available advertising materials and new developments, techniques and
improvements in areas of restaurant equipment, management, food preparation
and
service which are pertinent to the operation of a restaurant using the Sonic
System.
4.05.
Evaluation
Program
.
A
field evaluation of the Restaurant
will be conducted for the mutual benefit of both SONIC and Licensee to promote
uniform standards of operation and quality control.
5.
FEES
.
5.01.
License
Fee
.
The
Licensee shall not pay any
conversion fee or initial license fee for this Agreement.
5.02.
Royalty
Fees
.
On
or before the 20th day of each
calendar month, the Licensee shall pay a royalty fee determined by the following
provisions:
|
(a)
|
Number
4.4 License Agreement
.
|
(i)
Converting
from Number 4.0 License Agreements and Number 4.1 License
Agreements
. For all Number 4.0 license agreements and Number 4.1
license agreements converting to this Agreement, the following provisions shall
apply:
(A)
Through
Original Expiration Date
. Through the original expiration date of
the license agreement converted to this Agreement, the Licensee shall pay a
royalty fee determined by the following scale based on Gross Sales:
|
Gross
Sales
|
But
Not
|
Royalty
|
|
Greater
Than
|
More
Than
|
Rate
|
|
$0.00
|
$10,000.00
|
1.00%
|
|
$10,000.00
|
$20,000.00
|
1.50%
|
|
$20,000.00
|
$30,000.00
|
2.00%
|
|
$30,000.00
|
$40,000.00
|
2.50%
|
|
$40,000.00
|
N/A
|
3.00%
|
The
calculation of Gross Sales and the corresponding royalty fees shall take place
on a cumulative basis. For example, the formula for determining the
royalty amount for monthly Gross Sales of $50,000 is: ($10,000 x .01) + ($10,000
x .015) + ($10,000 x .02) + ($10,000 x .025) + ($10,000 x .03).
(B)
Conversion
of Rate
. After the original expiration date of the license
agreement converted to this Agreement, the Licensee shall pay a monthly amount
equal to the royalty fee determined pursuant to the Conversion Royalty Table,
below.
CONVERSION
ROYALTY TABLE
|
Gross
Sales
|
But
Not
|
Royalty
|
|
Greater
Than
|
More
Than
|
Rate
|
|
$
0.00
|
$
5,000.00
|
1.00%
|
|
$
5,000.00
|
$10,000.00
|
2.00%
|
|
$10,000.00
|
$15,000.00
|
3.00%
|
|
$15,000.00
|
$30,000.00
|
4.00%
|
|
$30,000.00
|
$40,000.00
|
4.25%
|
|
$40,000.00
|
$50,000.00
|
4.50%
|
|
$50,000.00
|
$60,000.00
|
4.75%
|
|
$60,000.00
|
N/A
|
5.00%
|
The
calculation of Gross Sales and the corresponding royalty fees shall take place
on a cumulative basis. For example, the following formula results in
the calculation of the royalty fee on $50,000 of gross sales: Royalty
Fee = ($5,000 x .01) + ($5,000 x .02) + ($5,000 x .03) + ($15,000 x .04) +
($10,000 x .0425) + ($10,000 x .0450).
(ii)
Converting
from Number 4.2 License Agreements
. For all Number 4.2 license
agreements converting to this Agreement, the following provisions shall
apply:
(A) For
conversions from Number 4.2 license agreements operating under the Table I
royalty rate, as elected in the Number 4.2 license agreement from which Licensee
is converting:
(1)
Through
First Original Expiration Date
. Through the original expiration
date of the license agreement converted to the Number 4.2 license agreement
or
through the date elected for the royalty rate conversion pursuant to Section
5.02(a)(3) of the Number 4.2 license agreement, whichever date is earlier (the
“First Original Expiration
Date”), the Licensee shall pay a monthly
amount equal to the sum of (a) the royalty fee determined pursuant to Table
I,
below, plus (b) either (i) $625.00 if Option A was elected by Licensee in the
Number 4.2 license agreement from which Licensee is converting or (ii) $416.67
if Option B was elected by Licensee in the Number 4.2 license agreement from
which Licensee is converting.
TABLE
I
|
Gross
Sales
|
But
Not
|
Royalty
|
|
Greater
Than
|
More
Than
|
Rate
|
|
$
0.00
|
$10,000.00
|
1.00%
|
|
$10,000.00
|
$20,000.00
|
1.50%
|
|
$20,000.00
|
$30,000.00
|
2.00%
|
|
$30,000.00
|
$40,000.00
|
2.50%
|
|
$40,000.00
|
N/A
|
3.00%
|
The
calculation of Gross Sales and the corresponding royalty fees shall take place
on a cumulative basis. For example, the formula for determining the
royalty amount for monthly Gross Sales of $50,000 is: ($10,000 x .01) + ($10,000
x .015) + ($10,000 x .02) + ($10,000 x .025) + ($10,000 x .03).
(2)
Through
Second Original Expiration Date
. After the First Original
Expiration Date and through the original expiration date of the Number 4.2
license agreement converted to this Agreement (the “Second Original Expiration
Date”), the Licensee shall pay a monthly amount equal to the royalty fee
determined pursuant to Table II, below.
TABLE
II
|
Gross
Sales
|
But
Not
|
Royalty
|
|
Greater
Than
|
More
Than
|
Rate
|
|
$
0.00
|
$
5,000.00
|
1.00%
|
|
$
5,000.00
|
$10,000.00
|
1.50%
|
|
$10,000.00
|
$15,000.00
|
2.00%
|
|
$15,000.00
|
$20,000.00
|
2.50%
|
|
$20,000.00
|
$30,000.00
|
3.00%
|
|
$30,000.00
|
$40,000.00
|
3.50%
|
|
$40,000.00
|
N/A
|
4.00%
|
The
calculation of Gross Sales and the corresponding royalty fees shall take place
on a cumulative basis. For example, the following formula results in
the calculation of the royalty fee on $50,000 of Gross Sales: ($5,000 x .01)
+
($5,000 x .015) + ($5,000 x .02) + ($5,000 x .025) + ($10,000 x .03) + ($10,000
x .035) + ($10,000 x .04).
(3)
Conversion
of Rate
. After the Second Original Expiration Date, the Licensee
shall pay a monthly amount equal to the royalty fee determined pursuant to
the
Conversion Royalty Table, above.
(B) For
conversions from Number 4.2 license agreements operating under the Table II
royalty rate, as elected in the Number 4.2 license agreement from which Licensee
is converting:
(1)
Through
Original Expiration Date
. Through the original expiration date of
the Number 4.2 license agreement converted to this Agreement, the Licensee
shall
pay a monthly amount equal to the royalty fee determined pursuant to Table
II,
above.
(2)
Conversion
of Rate
. After the original expiration date of the Number 4.2
license agreement converted to this Agreement, the Licensee shall pay a monthly
amount equal to the royalty fee determined pursuant to the Conversion Royalty
Table, above.
(b)
Number
5.4 License Agreement
. For all Number 5.0 license agreements and
Number 5.1 license agreements converting to this Agreement, the following
provisions shall apply:
(i)
Through
Original Expiration Date
. Through the original expiration date of
the license agreement converted to this Agreement, the licensee shall pay a
royalty fee determined pursuant to Table II, above.
(ii)
Conversion
of Rate
. After the original expiration date of the license
agreement converted to this Agreement, the Licensee shall pay a monthly amount
equal to the royalty fee determined pursuant to the Conversion Royalty Table,
above.
5.03.
Brand
Fee
.
(a) On
or before the 20th day of each calendar month throughout the term of this
Agreement, Licensee shall pay to Sonic Brand Fund, which is administered by
SONIC, a brand contribution fee in an amount equal to .75% of the Gross Sales
received by Licensee from the operation of the Sonic Restaurant during the
calendar month next preceding the date of such payment. Such payment
shall be forwarded with the profit and loss statement required to be provided
pursuant to Section 10.01 herein.
(b) The
amount due to SONIC by Licensee pursuant to Section 5.03, above, shall be in
addition to and separate from that which Licensee is obligated to spend pursuant
to Section 11.01(a) of this Agreement.
5.04.
Transfer
Fee
.
(a) A
transfer fee in the amount of $500 shall be paid by Licensee in the event of
a
transfer or assignment of this Agreement (resulting in a change in Control
of
the License) to a licensee then-currently qualified as a licensee, excluding
assignments under Subsections 13.02 and 13.03.
(b) A
transfer fee in the amount of $1,500 shall be paid by Licensee in the event
of a
transfer or assignment of this Agreement (resulting in a change in Control
of
this license) to a new licensee not then-currently qualified as a licensee,
excluding assignments under Subsections 13.02 and 13.03.
5.05.
Late
Charges
.
In
the event any payments required by
Sections 5.02, 5.03 or 5.04, above, are not paid on or before the date on which
they are due, a late charge in an amount equal to 1.75% per month shall be
levied against such amounts due and shall be owing to SONIC by the Licensee
from
the date on which such obligations were due until any such obligations are
paid
in full. In the event the interest rate set out in this Section 5.05
exceeds that amount permitted by Oklahoma law, then the maximum interest rate
permitted by Oklahoma law shall be charged.
6.
DUTIES
OF LICENSEE
.
6.01.
Sonic Restaurant Site
.
(a) The
site at which Licensee shall operate the Sonic Restaurant is more fully
described in paragraph (a) of Section 2.01. During the term of this
Agreement, the site shall be used exclusively for the purpose of operating
a
franchised Sonic drive-in restaurant.
(b) In
the event the Sonic Restaurant premises suffers some physical casualty, the
minimum acceptable quality and appearance for the restored restaurant will
be
that which existed just prior to the casualty, unless the Sonic Restaurant
was
below minimum acceptable standards for SONIC at the time of casualty in which
event the Sonic Restaurant will be restored to a condition which meets the
minimum acceptable standard according to SONIC. However, Licensee agrees
to make all reasonable effort to have the restored Sonic Restaurant reflect
the
then current image, design and specifications of Sonic drive-in
restaurants. If the Sonic Restaurant is substantially destroyed by fire or
other casualty, Licensee may, with the written consent of SONIC elect to
terminate this Agreement in lieu of Licensee reconstructing the restaurant,
provided that for a period of 18 months after said election, Licensee shall
not
enter into, become landlord of or loan money to any restaurant business within
a
three- mile radius of the drive-in site which is similar in nature to, or
competitive with a Sonic drive-in restaurant or considered a fast food
establishment.
6.02.
Construction
.
(a) Licensee
agrees to complete the construction of the Sonic Restaurant within a minimum
of
365 days from the effective date of this Agreement. Unless Licensee is
remodeling an existing building, Licensee shall construct the Sonic Restaurant
in accordance with the site plan approved by SONIC for such site and with
SONIC’s standard construction plans and specifications (“Sonic Plans and
Specifications”) and layout subject, however, to any alterations thereto that
may be required by any applicable law, regulation or ordinance. If
alterations of any kind are required to be made to the site plan, as approved
by
SONIC, or to the Sonic Plans and Specifications or layouts for any reason,
such
alterations must be approved by SONIC in writing before any work is begun on
the
Sonic Restaurant. The Licensee shall submit the final site layout and
construction plans for the Sonic Restaurant to SONIC for its written
approval. Any costs including engineering and architectural fees incurred
in obtaining approvals by the appropriate governmental authorities of the
construction plans, specifications and layouts shall be paid by
Licensee.
(b) If
Licensee is remodeling the existing restaurant, SONIC shall have the right
to
inspect and approve all plans and specifications prior to the commencement
of
any work. The Licensee shall submit the final remodeling plans and
specifications for the Sonic Restaurant to SONIC for its written approval.
Nothing in this section shall be construed as an endorsement or guarantee of
the
conformity of such plans to applicable local, state or federal building or
safety codes, or a guarantee that construction will be done in conformity with
such approved plans. In any event, Licensee shall obtain written approval
of such plans or written notice of SONIC’s waiver of the rights reserved
hereunder prior to the commencement of construction.
(c) Licensee
shall not deviate from the approved plans and specifications in any manner
in
the construction or remodeling of the restaurant without the prior written
approval of SONIC. If at any time SONIC determines (prior to opening date)
that Licensee has not constructed or remodeled the Sonic Restaurant in
accordance with the plans and specifications approved by SONIC, SONIC shall,
in
addition to any other remedies, have the right to obtain an injunction from
a
court of competent authority against the continued construction and opening
of
the Sonic Restaurant, and Licensee hereby consents to any such
injunction.
(d) SONIC
may require the Licensee to undertake extensive remodeling and renovation and
substantial modifications to existing buildings necessary for the Licensee’s
restaurant to conform with SONIC’s then existing system image. SONIC
may exercise the foregoing right at any time during the term of this Agreement,
but may not require (1) the remodeling of the restaurant more than once every
seven years or (2) the remodeling of a restaurant built within the preceding
three years, unless the required remodeling will not exceed 15% of the original
cost of the building, equipment and land improvements (as adjusted for increases
in the consumer price index after the construction date of the
restaurant). Notwithstanding the foregoing, SONIC shall have the
right to require the Licensee to modify or replace the large Sonic sign for
the
restaurant at any time during the term of this Agreement. If SONIC
exercises its right to require the Licensee to undertake extensive remodeling
or
renovation or substantial modification within five years of the end of the
term
of this Agreement, the Licensee may exercise any right to renew the term of
this
Agreement at that point in time in accordance with the applicable provisions
of
this Agreement, which renewal then shall take effect as of the expiration the
then current term of this Agreement.
6.03.
Equipment
and Sign
.
(a) Licensee
shall only install in and about the Sonic Restaurant such equipment, fixtures,
furnishings and other personal property as are required and which strictly
conform to the appearance, uniform standards and specifications of SONIC
existing from time to time, which shall be communicated to Licensee in the
Sonic Operations Manual
or otherwise in writing. Licensee may
purchase the equipment from SONIC if SONIC at that time is offering such
equipment for sale on a regular basis, but is not required by this or any other
agreement to do so.
(b) In
order to provide maximum exposure of the Sonic name and marks, Licensee shall
prominently display and maintain at Licensee’s own expense one (1) Sonic
drive-in sign (“Sign”) which complies with the specifications required by SONIC
from time to time and in such location as SONIC may approve. Licensee
shall not display any other sign or advertising at the Sonic Restaurant without
SONIC’s prior written approval.
(c) Licensee
may lease the required Sign from SONIC or may acquire or lease the Sign from
any
other source approved by SONIC. Licensee agrees to require in any lease
agreement with SONIC or other suppliers a clause giving SONIC the right to
remove the Sign from the Sonic Restaurant upon termination of this
Agreement.
(d) Licensee
hereby agrees that it shall, upon SONIC’s request, obtain from the landlord of
the property at which the Sonic Restaurant is located, a landlord’s lien and
waiver releasing all claims against any equipment or sign which belongs to
SONIC.
(e) If
Licensee is or becomes a lessee of the Sonic Restaurant premises, he shall
provide SONIC with a true and correct, complete copy of any such lease, and
shall have included therein provisions, in form satisfactory to SONIC, expressly
permitting both the Licensee and SONIC to take all actions and make all
alterations referred to under subsection 15.01(c). Any such lease
shall also require the lessor thereunder to give SONIC reasonable notice of
any
contemplated termination and a reasonable time in which to take and make the
above actions and alterations and provide that the Licensee has the unrestricted
right to assign such lease to SONIC.
6.04.
Training
.
(a) Licensee
acknowledges the importance of the quality of business operations among all
restaurants in the Sonic System and, agrees that it will not allow any of its
licensed establishments to be opened or operated without having at least one
individual working full time at the Sonic Restaurant who has completed the
Stage
Career Development Program. If the trained individual ceases to work
full time at the Sonic Restaurant for whatever reason, the Licensee shall have
120 days in which to replace the individual with a person who has completed
the
Stage Career Development Program.
(b) Licensee
shall pay all traveling expenses, living expenses, and any other personal
expenses for themselves and managers while enrolled in the training
program. As part of the initial franchise fee paid pursuant to
Section 5.01 herein, Licensee shall have the right to have one principal and
one
manager of the Sonic Restaurant attend the Stage Career Development Program
for
no cost other than those set out in the preceding sentence. Any
additional parties attending the Stage Career Development Program shall bear
the
cost, including any fees and tuition due for such training program.
6.05.
Compliance
with Entire System
.
(a) Licensee
acknowledges that every component of the Sonic System is important to SONIC
and
to the operation of the Sonic Restaurant as a Sonic drive-in restaurant,
including a designated menu of food and beverage products; uniformity of food
specifications, preparation methods, quality and appearance; and uniformity
of
facilities and service.
(b) SONIC
shall have the right to inspect the Sonic Restaurant at all reasonable times
to
ensure that Licensee’s operation thereof is in compliance with the standards and
policies of the Sonic System. In the event that such inspection reveals
any deficiency or unsatisfactory condition with respect to any aspect of the
drive-in operation, Licensee shall, within 72 hours of Licensee’s receipt of
notice of such condition or such other time as SONIC in its sole discretion
may
provide, correct or repair such deficiency or unsatisfactory condition if it
is
correctable or repairable within such time period, and, if not, shall within
such time commence such correction or repair and thereafter diligently pursue
same to completion. The preceding sentence notwithstanding, the
Licensee shall take immediate action to correct or repair any deficiency or
unsatisfactory condition which poses a risk to public health or
safety. In the event Licensee fails to comply with the foregoing
obligations to correct and repair, SONIC, upon 24 hours’ notice to Licensee,
shall have the right, without being guilty of trespass or tort, to forthwith
make or cause to be made such corrections or repairs, and the expense thereof,
including board, wages, lodging and transportation of SONIC personnel, if
utilized, shall be paid by Licensee upon billing by SONIC. The foregoing
shall be in addition to any other right or remedies SONIC may have.
(c) Licensee
shall comply with the entire Sonic System as described herein and in the
Sonic Operations Manual
, including but not limited to the
following:
(i) Operate
the Sonic Restaurant in a clean, wholesome manner in compliance with prescribed
standards of quality, service and cleanliness; comply with all business
policies, practices and procedures imposed by SONIC; and maintain the building,
equipment and parking area in a good, clean, wholesome condition and repair,
well lighted and in compliance with designated standards as may be prescribed
from time to time by SONIC.
(ii) Purchase
and install kitchen fixtures, lighting, and equipment, and office equipment
and
signs in accordance with the equipment specifications and layout initially
designated by SONIC.
(iii) Licensee
shall not, without prior written consent of SONIC: (a) make any building
design conversion or (b) make any alterations, conversions or additions to
the
building or parking area.
(iv) Make
repairs or replacements required because of damage, wear and tear or in order
to
maintain the Sonic Restaurant building and parking area in good condition and
in
conformity with blueprints and plans.
(v) Maintain
the parking stalls, as required in the standard Sonic Plans and Specifications,
for the exclusive use of Sonic Restaurant customers.
(vi) Operate
the Sonic Restaurant everyday of the year (except Easter, Thanksgiving and
Christmas), and at least 10 hours per day or such other hours as may from time
to time be reasonably prescribed by SONIC (except when the Sonic Restaurant
is
untenantable as a result of fire or other casualty), maintain sufficient
supplies of food and paper products and employ adequate personnel so as to
operate the Sonic Restaurant at its maximum capacity and
efficiency.
(vii) Cause
all employees of Licensee, while working in the Sonic Restaurant, to: (a)
wear uniforms of such color, design and other specifications as SONIC may
designate from time to time, (b) present a neat and clean appearance and (c)
render competent and courteous service to Sonic Restaurant
customers.
(viii) All
menu items which SONIC may deem appropriate to take fullest advantage of the
potential market and achieve standardization in the Sonic System will be served,
and no items which are not set forth in the
Sonic Operations Manual
or
otherwise authorized and approved in writing by SONIC will be
served.
(ix) In
the dispensing and sale of food products: (a) use only containers, cartons,
bags, napkins and other paper goods and packaging bearing the approved
trademarks and which meet the Sonic System specifications and quality standards,
(b) use only those flavorings, garnishments and food and beverage ingredients
which meet the Sonic System specifications and quality standards, which SONIC
may designate from time to time and (c) employ only those methods of food
handling, preparation, and serving which SONIC may designate from time to
time.
(x) Make
prompt payment in accordance with the terms of invoices rendered to Licensee
including but not limited to, his purchase of fixtures, equipment and food
and
paper supplies.
(xi) At
his own expense, comply with all federal, state, and local laws, ordinances
and
regulations affecting the operation of the Sonic Restaurant.
(xii) Licensee
shall not install any electronic games or other games of chance at the Sonic
Restaurant without the express prior written consent of SONIC.
(xiii) Furnish
SONIC with current changes in home addresses and phone number of its owners
and
manager and, upon SONIC’s reasonable request, provide updates of personal
financial statements or other credit information.
(xiv) The
Licensee shall notify SONIC’s Director of Corporate Communications or, if not
available, the most senior executive officer of SONIC as soon as possible and,
in any event, within 12 hours after the occurrence at the Sonic Restaurant
of
any event which could have an adverse impact on the Sonic Restaurant and/or
the
Sonic System, including (without limitation) the death or serious bodily injury
of any employee or customer for any reason or the risk of infection by a
contagious disease.
6.06.
Approved
Suppliers and Advertising Agencies
.
(a)
SONIC may require the Licensee (i)
to purchase food, beverages, signs and equipment which meet the specifications
established by SONIC, (ii) to participate in SONIC’s approved purchasing
cooperative for the area in which the Sonic Restaurant is located, and (iii)
to
retain and utilize exclusively the marketing and advertising services of SONIC
approved advertising agency of record. In addition, the Licensee
immediately shall use the Licensee’s vote or votes in all advertising
cooperatives in which the Licensee participates to support the use of the
advertising agency of record for the Sonic drive-in restaurant
chain.
(b) SONIC
may require the Licensee to support the use of and to use the products and
programs of the cola syrup supplier approved by SONIC and used by a majority
of
all Sonic drive-in restaurants, to the exclusion of any other supplier of cola
syrup.
(c) SONIC
may require the Licensee to comply with the foregoing provisions not only for
the Sonic Restaurant, but also (to the extent the Licensee exercises Control)
for all other Sonic drive-in restaurants for which the Licensee serves as a
licensee.
(d) SONIC
hereby explicitly retains the exclusive right to consider, review or approve
any
and all distributors which may hold, sell or distribute Sonic-labeled goods
or
products, except that SONIC shall not withhold unreasonably its approval of
a
supplier approved for use by a duly constituted purchasing
cooperative.
(e) The
terms of this Section 6.06 shall continue in effect for as long as the Licensee
serves as a licensee for a Sonic drive-in restaurant and shall survive the
expiration or termination of this Agreement.
(f) If
at least 95% of all Sonic drive-in restaurants are in compliance with paragraphs
(a) and (b) of Section 6.06, SONIC periodically shall submit the approved
advertising agency or cola syrup supplier to competitive bid or review, but
shall not be obligated to do so more often than once every three
years.
Licensee
shall diligently and fully
exploit his rights in this License by personally devoting his best efforts
and,
in case more than one (1) individual has executed this License as the Licensee,
at least one (1) individual Licensee shall devote his full time and best efforts
to the operation of the Sonic Restaurant. Licensee shall keep free from
any activities which would be detrimental to or interfere with the business
of
the Sonic Restaurant, the Sonic System, or SONIC.
6.08.
Interference
with Employment Relations of Others
.
During
the term of this License,
Licensee shall not employ or seek to employ any person who is at the time
employed by SONIC or any of its subsidiaries in a management level
position. In addition, during the term of this License, SONIC agrees not to
employ or seek to employ any person who is at the time employed by Licensee
in a
management level position. This Subsection 6.08 shall not be violated if such
person has left the employ of any of the foregoing parties for a period in
excess of six months.
6.09.
SONIC’s
Standards
.
Licensee
shall operate the Sonic
Restaurant specified in this License in conformity with the Sonic System and
the
obligations set forth in this Agreement and shall strictly adhere to SONIC’s
standards and policies as they exist now and as they may be from time to time
modified.
6.10.
Majority
Interest Owner
.
Licensee
represents, warrants and
agrees that Licensee actually owns the majority interest in the legal and equity
ownership and Control of the operation of the Sonic Restaurant, and that
Licensee shall maintain such interest during the term of this License except
only as otherwise permitted pursuant to the terms and conditions of this
License. Licensee shall furnish SONIC with such evidence as SONIC may
request from time to time for the purpose of assuring SONIC that Licensee’s
interest remains as represented herein.
7.
PROPRIETARY
MARKS
.
7.01.
SONIC’s Representations
.
SONIC
represents with respect to the
Proprietary Marks that SONIC will use and permit Licensee and other licensees
to
use the Proprietary Marks only in accordance with the Sonic System and the
standards and specifications attendant thereto which underlie the goodwill
associated with and symbolized by the Proprietary Marks.
7.02.
Use
of Marks
.
With
respect to Licensee’s licensed use
of the Proprietary Marks pursuant to this Agreement, Licensee agrees
that:
(a) Licensee
shall use only the Proprietary Marks designated by SONIC and shall use them
only
in the manner authorized and permitted by SONIC.
(b) Licensee
shall use the Proprietary Marks only for the operation of the Sonic
Restaurant.
(c) During
the term of this Agreement and any renewal hereof, Licensee shall identify
itself as the owner of the Sonic Restaurant in conjunction with any use of
the
Proprietary Marks, including, but not limited to, invoices, order forms,
receipts, and contracts, as well as at such conspicuous locations on the
premises of the Sonic Restaurant as SONIC shall designate in writing. The
identification shall be in the form which specifies Licensee’s name, followed by
the term “Licensed Proprietor”, or such other identification as shall be
approved by SONIC.
(d) Licensee’s
rights to use the Proprietary Marks is limited to such uses as are authorized
under this Agreement, and any unauthorized use thereof shall constitute an
infringement of SONIC’s rights.
(e) Licensee
shall not use the Proprietary Marks to incur any obligation or indebtedness
on
behalf of SONIC.
(f) Licensee
shall not use the Proprietary Marks as part of its corporate or other legal
name
if not already in existence prior to the effective date of this
Agreement.
(g) Licensee
shall comply with SONIC’s instructions in filing and maintaining the requisite
trade name or fictitious name registrations, and shall execute any documents
deemed necessary by SONIC or its counsel to obtain protection for the
Proprietary Marks or to maintain their continued validity and
enforceability.
(h) In
the event that litigation involving the Proprietary Marks is instituted or
threatened against Licensee, Licensee shall promptly notify SONIC and shall
cooperate fully in defending or settling such litigation.
7.03.
Licensee’s
Understanding
.
Licensee
expressly understands and
acknowledges that:
(a) As
between the parties hereto, SONIC has the exclusive right and interest in and
to
the Proprietary Marks and the goodwill associated with and symbolized by them,
and any and all use thereof by Licensee inures to the benefit of
SONIC.
(b) The
Proprietary Marks are valid and serve to identify the Sonic System and those
who
are licensed under the Sonic System.
(c) Licensee
shall not directly or indirectly contest the validity or the ownership of the
Proprietary Marks.
(d) Licensee’s
use of the Proprietary Marks pursuant to this Agreement does not give Licensee
any ownership interest or other interest in or to the Proprietary Marks, except
the nonexclusive license granted herein.
(e) Any
and all goodwill arising from Licensee’s use of the Proprietary Marks in its
licensed operations under the Sonic System shall inure solely and exclusively
to
SONIC’s benefit, and upon expiration or termination of this Agreement and the
License herein granted, no monetary amount shall be assigned as attributable
to
any goodwill associated with Licensee’s use of the Sonic System or the
Proprietary Marks.
(f) The
right and license of the Proprietary Marks granted hereunder to Licensee is
nonexclusive except as provided in subsection 2.01(a) of this Agreement, and
SONIC thus has and retains the right among others:
(i) To
grant other licenses for the Proprietary Marks, in addition to those licenses
already granted to existing licensees.
(ii) To
use the Proprietary Marks in connection with selling products and
services.
(iii) To
develop and establish other systems for the same or similar Proprietary Marks,
or any other Proprietary Marks, and grant licenses or franchises thereto without
providing any rights therein to Licensee.
(g) SONIC
reserves the right to substitute different Proprietary Marks for use in
identifying the Sonic System and the businesses operating thereunder if SONIC’s
currently owned Proprietary Marks no longer can be used.
8.
MANUAL
.
SONIC
shall loan to Licensee for use at
the Sonic Restaurant the
Sonic Operations Manual
prepared by SONIC for
use by licensees of Sonic drive-in restaurants similar to the Sonic Restaurant
to be operated by Licensee. Licensee recognizes that the
Sonic
Operations Manual
contains detailed information relating to operation of
the Sonic Restaurant including: (a) food formulas and specifications for
designated food and beverage products; (b) methods of inventory control; (c)
bookkeeping and accounting procedures; (d) business practices and policies;
and
(e) other management, advertising, and personnel policies. Licensee agrees
to promptly adopt and use exclusively the formulas, methods and policies
contained in the
Sonic Operations Manual
, now and as they may be
modified by SONIC from time to time and to return said manual to SONIC at the
expiration or earlier termination of this License.
9.
CONFIDENTIAL
INFORMATION
.
9.01.
SONIC
Proprietary and Confidential Information
.
SONIC
possesses certain unique,
proprietary and confidential information, consisting of methods and procedures
for preparation of food and beverage products, confidential recipes for food
products, distinctive service and accessories, plans and specifications for
interior and exterior signs, designs, layouts and color schemes, and methods,
techniques, formats, systems, specifications, procedures, information, trade
secrets, sales and marketing programs, methods of business operations and
management, and knowledge of and experience in the operation and franchising
of
Sonic drive-in restaurants and the Sonic System (collectively, the “Confidential
Information”). SONIC will disclose the Confidential Information to
Licensee in furnishing Licensee the Sonic Plans and Specifications for a Sonic
drive-in restaurant, the training program, and the
Sonic Operations
Manual
, and in providing guidance and assistance to Licensee during the
term of this Agreement. The
Sonic Operations Manual
, as
modified by SONIC from time to time, and the policies contained therein, are
incorporated in this Agreement by reference.
9.02.
Licensee’s
Use of Proprietary and Confidential Information
.
Licensee
acknowledges and agrees that
Licensee shall not acquire any interest in the Confidential Information, other
than the right to utilize it in the development and operation of the Sonic
Restaurant (and other Sonic drive-in restaurants under license agreements with
SONIC) during the term of this Agreement, and that the use or duplication of
the
Confidential Information in any other business would constitute an unfair method
of competition. Licensee acknowledges and agrees that the
Confidential Information is proprietary to SONIC, may constitute trade secrets
of SONIC and is disclosed to Licensee solely on the condition that Licensee
agrees, and Licensee does hereby agree, that Licensee:
(i) shall
not use the
Confidential Information in any other business or capacity, or for the benefit
of any other Person or entity;
(ii)
shall maintain the absolute
confidentiality of the Confidential Information, and shall not disclose or
divulge the Confidential Information to any unauthorized Person or entity,
during and after the term of the License;
(iii)
shall not make unauthorized
copies of any portion of the Confidential Information disclosed in printed,
audio, or video form (except in connection with instruction of employees in
the
operation of the Sonic Restaurant); and
(iv)
shall adopt and implement all
procedures prescribed from time to time by SONIC to prevent unauthorized use
or
disclosure of the Confidential Information, including, without limitation,
restrictions on disclosure thereof to employees of the Sonic Restaurant and
the
use of nondisclosure and non-competition clauses in employment agreements with
employees (including all owners, shareholders and partners of Licensee) who
have
access to the Confidential Information.
9.03.
Licensee’s
Use of Sonic Operations Manual
.
Licensee
may not at any time, in any
manner, directly or indirectly, and whether or not intentionally, copy any
part
of the
Sonic Operations Manual
, permit any part of it to be copied,
disclose any part of it except to employees or other having a need to know
its
contents for purposes of operating the Sonic Restaurant, or permit its removal
from the Sonic Restaurant without prior written consent from
SONIC. Notwithstanding anything to the contrary contained in this
Agreement and provided Licensee shall have obtained SONIC’s prior written
consent, the restrictions on Licensee’s disclosure and use of the Confidential
Information shall not apply to the following:
(a) information,
processes or techniques which are or become generally known in the food service
industry, other than through disclosure (whether deliberate or inadvertent)
by
Licensee; and
(b) disclosure
of the Confidential Information in judicial or administrative proceedings to
the
extent that Licensee is legally compelled to disclose such information, provided
Licensee shall have used its best efforts, and shall have afforded SONIC the
opportunity, to obtain an appropriate protective order or other assurance
satisfactory to SONIC of confidential treatment for the information required
to
be so disclosed.
10.
ACCOUNTING
AND RECORDS
.
10.01.
Due
Date
.
On
or before the 20th day of each
month, Licensee shall submit to SONIC a complete profit and loss statement
in a form prescribed by SONIC and such statistical reports in such form as
SONIC
shall reasonably require from time to time, for the previous month immediately
ended.
10.02.
Record Retention
.
Licensee
shall keep and preserve full
and complete records of the Sonic Restaurant business for at least three years
in a manner and form satisfactory to SONIC and shall also deliver such
additional financial, operating and other information and reports as SONIC
may
reasonably request on the forms and in the manner prescribed by SONIC; provided,
however, that Licensee shall maintain, at a minimum, those books and records
required to be kept by the Internal Revenue Service under the Internal Revenue
Code for purposes of its regulation of Licensee’s business and make the same
books available to SONIC.
10.03.
Charitable
Contributions and Discounts
.
In
meeting the requirements set forth
in Sections 10.01 and 10.02 above, Licensee shall keep records substantiating
and enter as a line item on its financial statements amounts representing the
valuation for goods (whether food, paper or otherwise) which constitute
charitable contributions to third parties from the same goods out of the Sonic
Restaurant. Likewise, the Licensee shall maintain records and enter
on its financial statements (particularly a line item on its profit and loss
statement) information representing the value or amount of sales represented
by
coupons traded with and discounts granted by the Licensee at the Sonic
Restaurant.
10.04.
Annual
Reports
.
Licensee
further agrees to submit,
within 90 days following the close of each fiscal year of the Sonic Restaurant’s
operation, a profit and loss statement covering operations during such fiscal
year and the balance sheet taken as of the close of such fiscal
year.
10.05.
Audit
by SONIC
.
SONIC
shall have the right to inspect
and audit Licensee’s accounts, books, records and tax returns at all times
during and after the term of this Agreement. If such inspection
discloses that Gross Sales actually exceeded the amount reported by Licensee
or
that Licensee failed to make advertising expenditures required by Sections
11.01(a) or 11.01(b), Licensee shall immediately pay SONIC: (i) the
additional royalty fee, brand fee and advertising expenditures; (ii) interest
on
all unpaid amounts (from the original due date) at a rate equal to that provided
by Section 5.05 herein; and (iii) a 10% surcharge on all unpaid amounts.
If such inspection discloses that Gross Sales actually exceeded the amount
reported by Licensee as Licensee’s Gross Sales by an amount equal to 3% or more
of the Gross Sales originally reported to SONIC or, in the case of failing
to
make required advertising expenditures, that such unpaid expenditures exceeded
3% of the amount required to be expended, Licensee shall bear the cost of such
inspection and audit at rates and fees customarily charged by SONIC for such
auditing and inspecting services and duties. Unpaid brand fees,
including interest and surcharges collected by SONIC pursuant to this section,
shall be used in accordance with the expenditures authorized by Section 5.03;
nevertheless, SONIC may, on a case by case basis, at SONIC’s sole discretion,
use such collected amounts in accordance with the expenditures authorized by
Sections 11.01(a) and 11.01(b). SONIC shall have the right to bring
an action in its own name to collect unpaid advertising and brand expenditures
required by Section 11 herein.
10.06.
Third
–party Audit
.
If
SONIC has reason to believe that the
Licensee may not have reported all of its Gross Sales, SONIC may require the
Licensee to have its profit and loss statement and balance sheet certified
by an
independent public accountant. Licensee shall at his expense cause a
Certified Public Accountant to consult with SONIC concerning such statement
and
balance sheet. The original of each such reports required by this Section
10.06 shall be mailed to SONIC’s business office at the address designated in
Section 19 below.
10.07.
Licensee’s
Failure to Timely Deliver Financial Records
.
If
Licensee fails to timely provide
SONIC with complete profit and loss statements, accounts, books, records and
tax
returns pertaining to the Sonic Restaurant business, or fails to fully cooperate
with SONIC’s audit of the Sonic Restaurant business, SONIC shall have the right
to estimate Licensee’s Gross Sales for the Sonic Restaurant using information
available on the Sonic Restaurant or other Sonic drive-in
restaurants. Licensee agrees to accept SONIC’s estimates as
conclusively correct until Licensee fully complies with SONIC’s accounting and
disclosure requirements under this Agreement. However, if the
Licensee’s subsequent accounting and disclosures reveal that Licensee
under-reported Gross Sales or underpaid fees due under this Agreement, SONIC
may
recover all deficiencies and may litigate claims of fraud even though SONIC
may
have already obtained a judgment using SONIC’s
estimates. Furthermore, nothing in this Agreement or any judgment
using estimates shall prevent or hinder SONIC’s further efforts and rights to
obtain the accounting and disclosures which Licensee is required to give to
SONIC under this Agreement.
10.08.
Financial
Disclosure
.
SONIC
shall have the right to assemble
and disseminate to third parties financial and other information regarding
the
Licensee and other licensees of SONIC to the extent required by law or to the
extent necessary or appropriate to further the interests of the Sonic System
as
a whole. SONIC shall have the right to disclose the business name,
address and telephone number of the Licensee as they appear in SONIC’s records
to any Person making inquiry as to the ownership of the Sonic
Restaurant. SONIC shall not disclose specific financial information
regarding the Licensee or the Sonic Restaurant to any Person without (a) the
Licensee’s prior, written consent or (b) being directed to disclose the
information pursuant to the order of a court or other governmental
agency.
11.
ADVERTISING
AND BRAND EXPENDITURES
.
11.01.
Standard
Program
.
Recognizing
the value of advertising
and the importance of the standardization of advertising programs to the
furtherance of the goodwill and public image of the System, the parties agree
as
follows:
(a) In
the event the Sonic Restaurant lies within a DMA for which a SONIC-approved
advertising cooperative has been formed, Licensee shall contribute to such
advertising cooperative an amount required by such advertising cooperative
on a
schedule required by such advertising cooperative, provided that such
contributions shall occur no less often than each calendar quarter and shall
be
of an amount not less than 3.25% of Licensee’s Gross Sales from the operation of
the Sonic Restaurant during each partial or full calendar month.
(b) In
the event there exists no SONIC-approved advertising cooperative in the DMA
in
which the Sonic Restaurant is located, during each calendar quarter of the
term
of this Agreement, Licensee shall spend for approved advertising and promotion
of the Sonic Restaurant (including, but not limited to, television time, radio
time, newspaper display space, distributed promotional materials, but not
including any amount spent on sign rent, paper products, candy or other foods
which evidence SONIC’s trademarks or color patterns and the like) an amount
equal to but not less than 3.25% of Licensee’s Gross Sales from the operation of
the Sonic Restaurant during each partial or full calendar month.
(c) For
purposes of determining the amount which the Licensee is required to spend
pursuant to Sections 11.01(a), 11.01(b) and 5.03, above, for each calendar
quarter which is the subject of review, the parties hereto agree that the first
two months of such calendar quarter and last month of the preceding calendar
quarter shall be used in determining the Gross Sales of the Sonic Restaurant
to
determine the expenditures required hereunder. For example, to
determine the expenditures required for January, February and March, the parties
hereto agree that they will look to December, January, and February’s sales in
order to determine the Gross Sales to determine the amount which must be
expended by the Licensee under these Sections 11.01(a), 11.01(b) and
5.03. In the event the amounts required by Section 11.01(a) or
11.01(b) are not spent in a timely fashion, Licensee shall pay SONIC in
accordance with Section 10.05.
(d) All
advertising by Licensee in any medium which utilizes the Proprietary Marks
or
refers in any way to the Sonic Restaurant shall be conducted in a dignified
manner and shall conform to such standards and requirements as SONIC may specify
from time to time in writing. Licensee shall submit to SONIC (in
accordance with the notice provisions contained herein), for SONIC’s prior
approval (except with respect to prices to be charged), samples of all
advertising and promotional plans and materials that Licensee desires to use,
that use the Proprietary Marks or refer to the Sonic Restaurant and that have
not been prepared or previously approved by SONIC. If written disapproval
thereof is not received by Licensee within 15 days from the date of receipt
by
SONIC of such materials, SONIC shall be deemed to have given the required
approval. Upon notice from SONIC, Licensee shall discontinue and/or remove
any objectionable advertising material, whether or not same was previously
approved by Franchisor. If said materials are not discontinued and/or
removed within five days after notice, Franchisor or its authorized agents,
may,
at any time, enter upon Franchisor’s premises, or elsewhere, and remove any
objectionable signs or advertising media and may keep or destroy such signs
or
other media without paying therefore, and without being guilty of trespass
or
other tort.
(e) SONIC
may offer from time to time to provide, upon terms subject to the discretion
of
SONIC, approved local advertising and promotional plans and materials,
including, without limitation, newspaper display space, distributed promotional
materials.
(f) SONIC
or its designee shall maintain and administer a fund for the System as
follows:
(i) As
provided in Subsection 5.03 hereof, Licensee shall pay a brand contribution
fee
to the Sonic Brand Fund (formerly known as Sonic Advertising Fund), which shall
be administered by SONIC, and shall be deposited in a separate bank account
denoted as the Sonic Brand Fund (the “Fund”).
(ii) SONIC
shall direct all brand programs with sole discretion over the creative concepts,
materials, and media used in such programs. The Fund is intended to
enhance the Sonic System and maximize general public recognition and acceptance
of the Proprietary Marks for the benefit of the System and the Licensee
acknowledges that SONIC and its designees undertake no obligation in
administering the Fund to make expenditures for Licensee which are equivalent
or
proportionate to Licensee’s contribution, and nothing in this Subsection shall
contravene the intent in Subparagraph (iv) of Paragraph (f) of this Subsection
11.01.
(iii) The
Fund and all earnings thereof shall be used exclusively to meet any and all
costs of maintaining, administering, directing and preparing advertising
(including, without limitation, the cost of preparing and conducting television,
radio, magazine and newspaper advertising campaigns and other public relations
activities; employing advertising agencies to assist therein; and providing
promotional brochures and other marketing materials to licensees in the Sonic
System) as well as any other purpose that promotes, enhances or protects the
Sonic System. All sums paid by licensees to the Fund shall be maintained
in a separate account from the other funds of SONIC. The Fund shall
pay SONIC monthly an amount equal to 15% of the Fund’s receipts during the
preceding month, but not to exceed SONIC’s actual administrative costs and
overhead, if any, as SONIC may incur in activities reasonably related to the
administration or direction of the Fund for the licensees and the Sonic System,
including without limitation, conducting market research, preparing marketing
and advertising materials, and collecting and accounting for assessments for
the
Fund. The Fund and its earnings shall not inure to the benefit of
SONIC.
(iv) All
materials produced by the Fund shall be made available to all licensees without
cost on a regular basis, excluding distribution costs. This Subparagraph
(iv) of Paragraph (f) of Subsection 11.01 shall not preclude SONIC from offering
other materials not produced by the Fund upon terms subject to the discretion
of
SONIC. (See Paragraph (e) of this Subsection 11.01.)
(v) The
Fund is not an asset of SONIC, and an independent certified public accountant
designated by SONIC shall review the operation of the Fund annually, and the
report shall be made available to Licensee upon
request. Notwithstanding the foregoing, the body approved and
designated by SONIC as the body to consult with regarding SONIC’s maintenance
and administration of the Fund (such as the current Franchise Advisory Council
or its successor) may designate the independent public accountant to conduct
the
required review of the operation of the Fund, if requested in writing at least
30 but not more than 60 days prior to the end of each fiscal year.
(vi) It
is anticipated that most contributions to the Fund shall be expended during
the
year within which the contributions are made. If, however, excess amounts
remain in the Fund at the end of such year, all expenditures in the following
year(s) shall be made first out of accumulated earnings, next out of current
earnings, and finally from contributions.
(vii) Although
SONIC intends the Fund to be of perpetual duration, SONIC maintains the right
to
terminate the Fund. Such Fund shall not be terminated, however, until all
monies in the Fund have been expended for ad purposes as aforesaid.
(g) On
at least a quarterly basis, SONIC shall consult with the body approved and
designated by Sonic (such as the current Franchise Advisory Council or its
successor) regarding SONIC’s maintenance and administration of the Fund and
shall report to that body on the Fund’s operation.
11.02.
Publicity
.
SONIC
shall have the right to
photograph the Sonic Restaurant’s exterior and/or interior, and the various
foods served, and to use any such photographs in any of its publicity or
advertising, and Licensee shall cooperate in securing such photographs and
consent of Persons pictured.
12.
INSURANCE
.
12.01.
Insurance
Amounts
.
Prior
to opening or taking possession
of the Sonic Restaurant, the Licensee shall acquire and thereafter maintain
insurance from insurance companies acceptable to SONIC. The Licensee
shall determine the appropriate limits of liability insurance but SONIC shall
require the following minimum amounts and policy forms of
insurance:
(a) The
Licensee shall maintain statutory worker’s compensation insurance and employer’s
liability insurance having a minimum limit of liability of the greater of
$500,000 or the minimum amount otherwise required by applicable state
law. SONIC shall accept participation in the Texas Sonic Employee
Accident Program (“TSEAP”) or in the non-subscriber program for Sonic drive-in
restaurants located in Texas as long as Texas law does not require statutory
worker’s compensation insurance.
(b) The
Licensee shall maintain commercial general liability insurance, including bodily
injury, property damage, products, personal and advertising injury coverage
on
an occurrence policy form having a minimum per occurrence and general aggregate
limits of at least $1,000,000 per location.
(c) The
Licensee shall maintain non-owned automobile liability insurance having a
minimum limit of $1,000,000. The automobile policy also shall provide
coverage for owned automobiles if owned or leased in the name of the
Licensee.
(d) SONIC
shall have the right to require the Licensee to increase the insurance specified
above by giving the Licensee 60 days’ written notice in accordance with the
notice provisions of this Agreement, and the Licensee shall comply no later
than
the first policy renewal date after that 60-day period.
12.02.
SONIC as Additional Insured
.
The
Licensee shall name SONIC and
SONIC’s subsidiaries and Affiliates as additional insureds under the insurance
policies specified in paragraphs (a), (b) and (c) of Section 12.01,
above. The Licensee’s policies shall constitute primary policies of
insurance with regard to other insurance, shall contain a waiver of subrogation
provision in favor of SONIC as it relates to the operation of the Sonic
Restaurant, and shall provide for at least 30 days’ written notice to SONIC
prior to their cancellation or amendment.
12.03.
General
Conditions
.
Prior
to opening or taking possession
of the Sonic Restaurant, the Licensee shall furnish SONIC with certificates
of
insurance evidencing that the Licensee has obtained the required insurance
in
the form and amounts as specified above. In addition, the Licensee
shall deliver evidence of the continuation of the required insurance policies
at
least 30 days prior to the expiration dates of each existing insurance
policy. If the Licensee at any time fails to acquire and maintain the
required insurance coverage, SONIC shall have the right, at the Licensee’s
expense, to acquire and administer the required minimum insurance coverage
on
behalf of the Licensee. However, SONIC shall not have any obligation
to assume the premium expense and nothing in this Agreement shall constitute
a
guaranty by SONIC against any losses sustained by the Licensee. SONIC
may relieve itself of all duties with respect to the administration of any
required insurance policies by giving 10 days’ written notice to the
Licensee.
13.
TRANSFER OF INTEREST
.
13.01.
Assignment
.
The
rights and duties created by this
Agreement are personal to Licensee and SONIC has granted the License in reliance
on the collective character, skill, aptitude and business and financial capacity
of Licensee and Licensee’s principals. Accordingly, except as may be
otherwise permitted by this Section 13, neither Licensee nor any Person or
entity with an interest in Licensee shall directly or indirectly, through one
or
more intermediaries, without SONIC’s prior written consent, sell, assign,
transfer, convey, give away, pledge, mortgage or otherwise encumber any direct
or indirect interest in the License; any interest in Licensee, if Licensee
is a
partnership, joint venture or closely held corporation; or any interest which,
together with other related previous simultaneous or proposed transfers,
constitutes a transfer of Control of Licensee where Licensee is registered
under
the Securities Exchange Act of 1934. Any such purported assignment
occurring by operation of law or without SONIC’s prior written consent and
pursuant to the terms of this Section 13, shall constitute a default of this
Agreement by Licensee and such purported assignment shall be null and
void.
13.02.
Death
or Permanent Incapacity of Licensee
.
Upon
the death or permanent incapacity
of Licensee, the interest of Licensee in the License may be assigned either
pursuant to the terms of Subsection 13.04 herein or to one or more of the
following Persons: Licensee’s spouse, heirs or nearest relatives by blood
or marriage, subject to the following conditions: (1) If, in the sole
discretion of SONIC, such persons shall be capable of conducting the Sonic
Restaurant business in accordance with the terms and conditions of the License,
and (2) if such persons shall also execute an agreement by which they personally
assume full and unconditional liability for and agree to perform all the terms
and conditions of the License to the same extent as the original Licensee.
In the event that Licensee’s heirs do not obtain the consent of SONIC as
assignees of the License, the personal representative of Licensee shall have
the
greater of 120 days or the completion of the probate of the Licensee’s estate to
dispose of Licensee’s interest hereunder, which disposition shall be subject to
all the terms and conditions for assignments under Subsection
13.04.
13.03.
Assignment
to Licensee’s Corporation
.
SONIC
may, upon Licensee’s compliance
with the following requirements, consent to an assignment of the License to
a
corporation whose shares are owned and Controlled by Licensee. Such
written materials shall be supplied to SONIC within 15 days after the request
by
SONIC.
(a) Licensee’s
corporation shall be newly organized, and its charter shall provide that its
activities are confined exclusively to operating the Sonic
Restaurant.
(b) Licensee
and Licensee’s corporation shall maintain stop transfer instructions against the
transfer on Licensee’s corporation’s records of any securities with any voting
rights subject to the restrictions of Section 13 hereof, and shall issue no
securities upon the face of which the following printed legend does not legibly
and conspicuously appear.
The
transfer of this stock is subject to terms and conditions of one or more license
agreements with Sonic Industries LLC. Reference is made to said license
agreement(s) and the restrictive provisions of the Articles and By-Laws of
this
corporation. By agreeing to receive these securities, the transferee
hereby agrees to be bound by the terms of such agreements, articles and
by-laws.
(c) At
any time upon SONIC’s request, Licensee and Licensee’s corporation shall furnish
company with a list of all shareholders having an interest in Licensee’s
corporation, the percentage interest of such shareholder and a list of all
officers and directors in such form as SONIC may require.
(d) The
corporate name of Licensee’s corporation shall not include any of the
Proprietary Marks granted by the License. Licensee and Licensee’s
corporation shall not use any mark nor any name deceptively similar thereto
in a
public or private offering of its securities, except to reflect Licensee’s
corporation’s franchise relationship with SONIC. Any prospectus or
registration Licensee or Licensee’s corporation would propose to use in such a
public or private offering shall be submitted to SONIC within a reasonable
time
prior to the effective date thereof for the purpose of permitting SONIC to
verify compliance with this requirement by Licensee and Licensee’s
corporation.
(e) Articles
of Incorporation, By-Laws and all other documents governing Licensee’s
corporation shall be forwarded to SONIC for approval. The Articles of
Incorporation, By-Laws and other organization and governing documents shall
recite that the issuance and transfer of any interest in Licensee’s corporation
are restricted by the terms of Section 13 of this Agreement.
(f) Each
shareholder of the Licensee’s corporation shall personally guarantee performance
under this Agreement and shall be personally bound by the terms
thereof.
(g) Any
breach of this Agreement by Licensee’s corporation shall be deemed a breach of
this Agreement by each shareholder of Licensee’s corporation and each
shareholder shall be personally and fully liable and obligated by any and all
such breaches.
(h) Licensee
and Licensee’s corporation shall submit to SONIC, prior to any assignment
hereunder, a shareholders agreement executed by the Board of Directors and
ratified by all shareholders, which states that, except as may be permitted
by
Section 13 of this Agreement, no shares of stock or other interest in Licensee’s
corporation shall be issued, transferred, or assigned to any Person or entity
without SONIC’s prior written consent.
(i) Each
and every shareholder of Licensee’s corporation or any party owning a security
issued by, or owning any legal or equitable interest in Licensee’s corporation
or in any security convertible to a legal or equitable interest in Licensee’s
corporation shall meet those same standards of approval as an individual
licensee shall be required to meet prior to being included as a licensee on
a
standard license agreement with SONIC.
13.04.
Other
Assignment
.
(a) In
addition to any assignments or contingent assignments contemplated by the terms
of Subsections 13.02 and 13.03 of this Section 13, Licensee shall not sell,
transfer or assign the License to any Person or Persons without SONIC’s prior
written consent. Such consent shall not be unreasonably
withheld.
(b) In
determining whether to grant or to withhold such consent, the following
requirements must be met by Licensee:
(i) All
of Licensee’s accrued monetary obligations shall have been satisfied whether due
under this Agreement or otherwise.
(ii) SONIC
and the Licensee execute a general release of each other, in a form satisfactory
to SONIC, of any and all claims the Licensee may have against SONIC and its
Affiliates, including (without limitation) all claims arising under any federal,
state or local law, rule or ordinance, but excluding (as to SONIC) any claims
against the Licensee for (a) unpaid moneys due SONIC or its Affiliates, (b)
a
material breach of the provisions of this Agreement regarding the Proprietary
Marks, or (c) the violation of SONIC’s legal rights regarding the Proprietary
Marks. SONIC may waive the requirements of this subparagraph (ii) at
SONIC’s election.
(iii) Licensee
shall not be in material breach of this Agreement or any other agreement between
SONIC and Licensee.
(iv) Assignee
(or the assignee’s management, as the case may be) shall at SONIC’s sole
discretion, enroll in and successfully complete such training programs as SONIC
shall at that time designate according to Section 6.04 hereof.
(v) SONIC
shall consider of each prospective transferee, by way of illustration, the
following: (a) work experience and aptitude, (b) financial background, (c)
character, (d) ability to personally devote full time and best efforts to
managing the Sonic Restaurant, (e) residence in the locality of the Sonic
Restaurant, (f) equity interest in the Sonic Restaurant, (g) conflicting
interests and (h) such other criteria and conditions as SONIC shall apply in
the
case of an application for a new license to operate a Sonic drive-in
restaurant. SONIC’s consent shall also be conditioned each upon such
transferee’s execution of an agreement by which transferee personally assumes
full and unconditional liability for and agrees to perform from the date of
such
transfer all obligations, covenants and agreements contained in the License
to
the same extent as if transferee had been an original party to the
License.
13.05.
SONIC’s
Right of First Refusal
.
(a) If
Licensee or any Person or entity with an interest in Licensee has received
and
desires to accept any bona fide offer to purchase all or any part of Licensee’s
interest in this Agreement or in Licensee and the transfer of such interest
would: (1) result in a change of Control of Licensee of this Agreement or (2)
constitute a transfer of interest held by a Controlling Person of Licensee
or of
the License, Licensee or such Person shall notify SONIC in writing of each
such
offer, with such notice including the name and address of the proposed
purchaser, the amount and terms of the proposed purchase price, a copy of the
proposed purchase contract (signed by the parties, but expressly subject to
SONIC’s right of first refusal), and all other terms and conditions of such
offer. SONIC shall have the right and option, exercisable within 20
days after SONIC’s receipt of such written notification, to send written notice
to Licensee or such Person or entity that SONIC or its designee intends to
purchase the interest which is proposed to be transferred on the same terms
and
conditions offered by the third party. Any material change in the terms of
an offer prior to closing shall cause it to be deemed a new offer, subject
to
the same right of first refusal by SONIC or its designee as in the initial
offer. SONIC’s failure to exercise such option shall not constitute a
waiver of any other provision of this Agreement, including any of the
requirements of this Section with respect to the proposed transfer.
Silence on the part of SONIC shall constitute rejection. If the proposed
sale includes assets of Licensee not related to the operation of a licensed
Sonic drive-in restaurant, SONIC may purchase not only the assets related to
the
operation of a licensed Sonic drive-in restaurant, but may also purchase the
other assets. An equitable purchase price shall be allocated to each
asset included in the proposed sale.
(b) The
election by SONIC not to exercise its right of first refusal as to any offer
shall not affect its right of first refusal as to any subsequent
offer.
(c) Any
sale or attempted sale effected without first giving SONIC the right of first
refusal described above shall be void and of no force and
effect.
(d) If
SONIC does not accept the offer to purchase the Sonic Restaurant, Licensee
may
conclude the sale to the purchaser who made the offer so long as the terms
and
conditions of such sale are identical to those originally offered to SONIC;
provided, however, that SONIC’s approval of the assignee be first obtained,
which consent shall not be unreasonably withheld upon compliance with the
conditions on assignment imposed by this Agreement.
(e) The
provisions of this Section 13.05 shall not apply to any proposed transfers
to
members of the Licensee’s immediate family. For the purposes of this
Section 13.05, a member of the Licensee’s immediate family shall mean the
Licensee’s spouse and children (by birth or adoption). In addition,
the provisions of this Section 13.05 shall not apply to any proposed transfers
to Person who already own an interest (directly or indirectly) in this Agreement
or the License as long as the transfer will not result in a change in Control
of
the Licensee or the License.
13.06.
Consent
to Assignments
.
With
regard to any transfer, assignment
or pledge of any interest in this Agreement or in the Licensee pursuant to
the
foregoing provisions of this Section 13, SONIC shall not withhold its consent
unreasonably as long as the proposed transfer, assignment or pledge otherwise
complies with the other requirements set forth in this Section 13.
14.
DEFAULT AND TERMINATION
.
14.01.
Automatic
Termination
.
Licensee
shall be deemed to be in
breach of this Agreement and all rights granted herein shall automatically
terminate with notice from SONIC if any of the following events
occur:
(a) Licensee
shall become insolvent.
(b) Licensee,
either personally, through an equity owner, or through Licensee’s attorney,
shall give oral or written notice to SONIC of Licensee’s intent to file a
voluntary petition under any bankruptcy law.
(c) A
final judgment aggregating in excess of $5,000 against the Sonic Restaurant
or
property connected with the Sonic Restaurant which remains unpaid for 30
days.
(d) Suit
to foreclose any lien against any assets of the Sonic Restaurant is instituted
against Licensee and (i) is not dismissed within 30 days, (ii) such lien is
not
contested and challenged through the applicable administrative agencies or
courts, or (iii) a bond is not posted (if such remedy is available) to delay
any
such foreclosure and guarantee performance.
(e) The
assets of the Sonic Restaurant are sold after being levied thereupon by sheriff,
marshal or a constable.
(f) Transfer
of this Agreement, in whole or in part, is effected in any manner inconsistent
with Section 13 hereof.
14.02.
Optional
Termination
.
Licensee
shall be deemed to be in
breach of this Agreement and SONIC may, at its option, terminate this Agreement
and all rights granted herein at any time during the term hereof without
affording Licensee any opportunity to cure the breach, effective immediately
upon Licensee’s receipt of a notice of termination, upon the occurrence of any
of the following events:
(a) If
Licensee ceases to operate the Sonic Restaurant or otherwise abandons the Sonic
Restaurant (other than closure permitted pursuant to Section 6.05(c)(vi) herein)
or forfeits the legal right to do or transact business at the location licensed
herein.
(b) If
Licensee is convicted of a felony, a crime involving moral turpitude, or
any other crime or offense that is reasonably likely, in the sole
opinion of SONIC, to adversely affect the Sonic System, the Proprietary
Marks, the goodwill associated therewith or SONIC’s rights therein.
(c) If
Licensee misuses or makes any unauthorized use of any of the Proprietary Marks
or any other identifying characteristic of the Sonic System or otherwise
materially impairs the goodwill associated therewith or SONIC’s rights therein
and the Licensee cannot cure the default within 30 days.
(d) If
Licensee improperly discloses trade secrets or confidential information and
the
Licensee cannot cure the default within 30 days.
(e) If
continued operation of the Sonic Restaurant might endanger public health or
safety.
(f) If
Licensee knowingly or through gross negligence maintains false books or records
or knowingly or through gross negligence submits any false report to
SONIC.
14.03.
Period
to Cure
.
Except
as provided in Subsections 14.01
and 14.02, Licensee shall have 30 days after receipt from SONIC of a written
notice of breach of this Agreement or such notice period as is required by
the
law of the state where the Sonic Restaurant is located, within which to remedy
any breach hereunder. However, this period to cure will not be available
to Licensee, and SONIC will not be required to delay termination of this
Agreement, where the breach involved is one which Licensee cannot cure within
the prescribed cure period or is one which is impossible to
cure. SONIC shall have the right to terminate this Agreement and the
License upon written notice to the Licensee and without any opportunity to
cure
after three willful and material breaches of the same provision of this
Agreement within any 12-month period for which the Licensee has received written
notice and an opportunity to cure. If any such breach is not cured
within that time, SONIC may, at its option, terminate this Agreement and all
rights granted hereunder effective immediately on the date of receipt by
Licensee of written notice of termination. Licensee shall be in breach
hereunder for any failure to comply with any of the terms of this Agreement
or to carry out the terms of this Agreement in good faith. Such
breach shall include, but shall not be limited to, the occurrence of any of
the
following illustrative events:
(a) If
the Licensee fails to pay any past due amounts owed to SONIC after SONIC has
mailed the Licensee two or more statements at least 20 days apart.
(b) If
Licensee fails to promptly pay, or repeatedly delays the prompt payment of
undisputed invoices from his suppliers or in the remittance of rent and property
tax as required in Licensee’s lease.
(c) If
Licensee fails to maintain and operate the Sonic Restaurant in a good, clean,
and wholesome manner or otherwise is not in compliance with the standards
prescribed by the Sonic System.
(d) If
Licensee attempts to assign or transfer any interest in this Agreement in
violation of Section 13 herein.
(e) If
Licensee denies SONIC the right to inspect the Sonic Restaurant at reasonable
times, which includes the right to photograph the interior and exterior of
the
Sonic Restaurant in its entirety.
(f) If
Licensee fails, refuses, or neglects to obtain SONIC’s prior written approval or
consent as required by this Agreement.
(g) If
Licensee acquires any interest in another business in violation of Section
16.
(h) If
Licensee fails, refuses or neglects to provide SONIC with Licensee’s home
address and home telephone number.
(i) If
Licensee breaches any other requirement set forth in this
Agreement.
(j) If
Licensee, upon the destruction of the Sonic Restaurant, fails to rebuild the
franchise premises and resume operation within a reasonable time (cessation
of
the business from a franchise premises shall not constitute default of this
Agreement if caused by condemnation, expiration of a location lease pursuant
to
its terms at execution or when failure to rebuild following destruction of
the
franchised premises is prohibited by law or the location
lease).
14.04.
Resolution
of Disputes
.
The
following provisions shall apply to
any controversy between the Licensee and SONIC (including an Affiliate of SONIC)
and relating (a) to this Agreement (including any claim that any part of this
Agreement is invalid, illegal or otherwise void or voidable), (b) to the
parties’ business activities conducted as a result of this Agreement, or (c) the
parties’ relationship or business dealings with one another generally, including
all disputes and litigation pending or in existence as of the date of this
Agreement.
(a)
Negotiation
.
The
parties first shall use their best
efforts to discuss and negotiate a resolution of the controversy.
(b)
Mediation
.
If
the efforts to negotiate a
resolution do not succeed, the parties shall submit the controversy to mediation
by a mediation firm agreeable to the parties or by the American Arbitration
Association, if the parties cannot agree. The mediation shall take
place in Oklahoma City, Oklahoma.
(c)
Arbitration
.
If
the efforts to negotiate and mediate
a resolution do not succeed, the parties shall resolve the controversy by final
and binding arbitration in accordance with the Rules for Commercial Arbitration
(the “Rules”) of the American Arbitration Association in effect at the time of
the execution of this Agreement and pursuant to the following additional
provisions:
(i)
Applicable
Law
. The Federal Arbitration Act (the “Federal Act”), as
supplemented by the Oklahoma Arbitration Act (to the extent not inconsistent
with the Federal Act), shall apply to the arbitration.
(ii)
Selection
of Arbitrators
. The parties shall select three arbitrators within
10 days after the filing of a demand and submission in accordance with the
Rules. If the parties fail to agree on three arbitrators within that
10-day period or fail to agree to an extension of that period, the arbitration
shall take place before three arbitrators selected in accordance the
Rules. At least one of the arbitrators shall constitute an individual
selected by Sonic (or its Affiliate) who has experience with franchise law
or
franchise relations. A decision or award by a majority of the
arbitrators shall constitute the decision or award of the
arbitrators.
(iii)
Location
of Arbitration
. The arbitration shall take place in Oklahoma
City, Oklahoma, and the arbitrators shall issue any award at the place of
arbitration. The arbitrators may conduct hearings and meetings at any
other place agreeable to the parties or, upon the motion of a party, determined
by the arbitrators as necessary to obtain significant testimony or
evidence.
(iv)
Discovery
. The
arbitrators shall have the power to authorize all forms of discovery (including
depositions, interrogatories and document production) upon the showing of (a)
a
specific need for the discovery, (b) that the discovery likely will lead to
material evidence needed to resolve the controversy, and (c) that the scope,
timing and cost of the discovery is not excessive.
(v)
Authority
of Arbitrators
. The arbitrators shall not have the power (a) to
alter, modify, amend, add to, or subtract from any term or provision of this
Agreement; (b) to rule upon or grant any extension, renewal or continuance
of
this Agreement; (c) to award damages or other remedies expressly prohibited
by
this Agreement; or (d) to grant interim injunctive relief prior to the
award.
(vi)
Scope
of Proceeding
. The parties shall conduct any arbitration
proceeding and resolve any controversy on an individual basis only and not
on a
class-wide, multiple-party, or similar basis.
(vii)
Enforcement
of Award
. The prevailing party shall have the right to enter the
award of the arbitrators in any court having jurisdiction over one or more
of
the parties or their assets. The parties specifically waive any right
they may have to apply to any court for relief from the provisions of this
Agreement or from any decision of the arbitrators made prior to the
award. The award of the arbitrators shall not have any precedential
or collateral estoppel effect on any other controversy involving SONIC or its
Affiliates.
(d)
Excluded
Controversies
.
At
the election of SONIC or its
Affiliate, the provisions of this Section 14.04 shall not apply to any
controversies relating to any fee due SONIC or its Affiliate; any promissory
note payments due SONIC or its Affiliate; or any trade payables due SONIC or
its
Affiliate as a result of the purchase of equipment, goods or
supplies. The provisions of this Section 14.04 also shall not apply
to any controversies relating to the use and protection of the Proprietary
Marks
or the Sonic System, including (without limitation) SONIC’s right to apply to
any court of competent jurisdiction for appropriate injunctive relief for the
infringement of the Proprietary Marks or the Sonic System.
(e)
Attorneys’
Fees and Costs
.
The
prevailing party to the arbitration
shall have the right to an award of its reasonable attorneys’ fees and costs
incurred after the filing of the demand and submission, including a portion
of
the direct costs of any in-house legal staff reasonably allocable to the time
devoted to the arbitration.
15.
OBLIGATIONS UPON TERMINATION
.
15.01.
Effect of Termination, Cancellation or Expiration of this
Agreement
.
Except
as otherwise authorized pursuant
to the terms of any other license agreement between SONIC and the Licensee,
the
Licensee shall comply with the following provisions after the expiration or
termination of this Agreement and the License:
(a) Licensee,
upon any termination, cancellation or expiration of this Agreement, shall
promptly pay to SONIC and SONIC’s subsidiaries any and all sums owed to
them. In the event of termination for any breach by Licensee, such sums
shall include all damages, costs and expenses, including reasonable attorneys’
fees, incurred by SONIC as a result of the breach, which obligation shall give
rise to and remain, until paid in full, a lien in favor of SONIC against any
and
all of the assets of the Sonic Restaurant owned by Licensee at the time of
default.
(b) Upon
termination, cancellation or expiration hereof for any reason, all Licensee’s
rights hereunder shall terminate. Licensee shall not thereafter use or adopt
any
trade secrets disclosed to Licensee hereunder or any paper goods, emblems,
signs, displays, menu housings or other property on which SONIC’s name or
Proprietary Marks are imprinted or otherwise form a part thereof or any
confusing simulations thereof. Licensee shall not otherwise use or
duplicate the Sonic System or any portion thereof or assist others to do
so. Licensee shall remove from the premises all signs, emblems and displays
identifying it as associated with SONIC or the Sonic System. Licensee
shall cease to use and shall return to SONIC all copies of the Sonic
Operations Manual, instructions or materials delivered to Licensee
hereunder.
(c) Upon
termination, cancellation or expiration of this Agreement, unless otherwise
directed in writing by SONIC, Licensee shall change the exterior and interior
design and the decor of said premises, including, but not limited to, changing
the color scheme, and shall make or cause to be made such changes in signs,
buildings and structures (excluding major structural changes) as SONIC shall
reasonably direct so as to effectively distinguish the same from its former
appearance and from any other Sonic drive-in restaurant unit, and if Licensee
fails or refuses to comply herewith, then SONIC shall have the right to enter
upon the premises where said business is being conducted without being guilty
of
trespass or any other tort for the purpose of making or causing to be made
such
changes at the expense of Licensee which expense Licensee agrees to pay on
demand.
(d) Upon
termination, cancellation or expiration of this Agreement, in the event Licensee
is the owner of the Sign, SONIC shall have an irrevocable option to purchase
the
Sign for its fair market value. In any event, Licensee shall not
thereafter use any sign panels displaying SONIC’s name or Proprietary Marks or
which primarily display the colors used in any other such sign at any other
Sonic drive-in restaurant unit (See Subsection 15.04 for determining fair market
value). Any agent, servant or employee of SONIC may remove the Sign or any
objectionable signs or advertising from the Sonic Restaurant without being
guilty of trespass or other tort, and Licensee shall be liable for SONIC’s costs
plus attorneys’ fees for any interference therewith.
(e) Upon
termination, cancellation or expiration of this Agreement, Licensee shall cease
to hold Licensee out in any way as a licensee of SONIC or to do anything which
would indicate any relationship between Licensee and SONIC.
(f) The
covenants set forth in Paragraphs (a), (b), (c), (d) and (e) of this Subsection
15.01 shall survive the termination, cancellation or expiration of this
Agreement.
(g) All
rights, claims and indebtedness which may accrue to SONIC prior to termination,
cancellation or expiration of this Agreement shall survive termination,
cancellation or expiration and be enforceable by SONIC.
(h) Licensee
shall complete all such modifications within 30 days after this Agreement has
been terminated or canceled or has expired. Licensee and SONIC agree
that SONIC’s damages resulting from a breach of the provisions of this
Subsection are difficult to estimate or determine accurately. In the event
of a breach by Licensee of the provisions of this Subsection, Licensee, in
addition to any and all other remedies available to SONIC herein and elsewhere,
will pay SONIC double the royalty and brand fees prescribed in this Agreement
until Licensee satisfactorily de-identifies the restaurant premises in the
manner prescribed by this Section. This payment shall constitute
liquidated damages and shall not be construed as a penalty since such payment
has been agreed to by Licensee and SONIC as reasonably representative of the
actual damage sustained by SONIC in the event of such a breach. The
liquidated damages shall start on the 31st day after this Agreement has been
terminated or canceled or has expired. These liquidated damages shall
not constitute either a waiver of Licensee’s obligation to de-identify or a
license to use the Sonic System. These remedies will be in addition
to any other remedies SONIC may have hereunder or under federal or state
law.
15.02.
SONIC’s
Option to Purchase
.
(a) Upon
termination, cancellation or expiration hereof, SONIC shall have the right
and
option to purchase all or any patented, special or unique Sonic restaurant
equipment, menu housings, signs, menus and supplies of Licensee at their fair
market value (See Subsection 15.04 for determining fair market value).
Such right or option of SONIC shall be exercised as provided in Paragraph (b)
of
this Subsection 15.02. If SONIC elects to exercise any option to
purchase herein provided, it shall have the right to set off all amounts due
from Licensee to SONIC and one-half of the cost of any appraisals against any
payment therefor.
(b) In
the case of termination by expiration, SONIC shall exercise SONIC’s option
contained in this Subsection 15.02 by giving Licensee written notice at least
30
days prior to expiration. In the case of termination for any other reason,
SONIC shall exercise its option by giving Licensee written notice within 30
days
after termination.
(c) SONIC’s
option hereunder is without prejudice to SONIC’s rights under any security
agreement held by SONIC or with respect to which SONIC may have a guarantor’s or
surety’s subrogation interest. If SONIC exercises this option, SONIC may
pay any debt which Licensee owes to SONIC and shall remit any balance of the
purchase price to Licensee. There shall be no allowance for
goodwill.
15.03.
SONIC’s
Obligation to Purchase
.
(a) Upon
termination, cancellation or expiration of this Agreement, if Licensee desires
to sell Licensee’s unbroken inventory packages of approved imprinted items and
supplies with Proprietary Marks to SONIC, excluding all food items,
SONIC shall have the obligation to repurchase such items at
Licensee’s cost.
(b) If
Licensee desires to sell such items to SONIC, Licensee shall, not later than
10
days after termination, cancellation or expiration of this Agreement, give
SONIC 10 days written notice of Licensee’s election and, at the expiration of
the 10-days notice period, deliver such items at Licensee’s expense with an
itemized inventory to the nearest Sonic drive-in restaurant owned by SONIC
or other unit designated by SONIC. SONIC agrees to pay Licensee or credit
Licensee’s account within seven days after said delivery.
15.04.
Fair Market Value Determination
.
If
the parties cannot agree on the fair
market value of any item subject to an option to purchase in this Agreement
within a reasonable time, one appraiser shall be designated by SONIC, one by
Licensee and the two appraisers shall designate an independent appraiser, and
the valuation of such third appraiser alone shall be binding. SONIC and
the Licensee each shall pay one-half of the cost of any appraisals required
pursuant to this Section 15.04.
16.
COVENANTS
.
16.01.
Restrictions
on Licensee
.
Licensee
agrees and covenants as
follows:
(a) During
the term of this License, Licensee shall not directly or indirectly through
one
or more intermediaries (i) engage in, (ii) acquire any financial or beneficial
interest (including interests in corporations, partnerships, trusts,
unincorporated associations or joint ventures) in, (iii) loan money to or (iv)
become landlord of any restaurant business which has a menu similar to that
of a
Sonic drive-in restaurant (such as hamburgers, hot dogs, onion rings, and
similar items customarily sold by Sonic drive-in restaurants) or which has
an
appearance similar to that of a Sonic drive-in restaurant (such as color
pattern, use of canopies, use of speakers and menu housings for ordering food,
or other items that are customarily used by a Sonic drive-in
restaurant).
(b) Licensee
shall not, for a period of 18 months after termination of this License for
any
reason, directly or indirectly through one or more intermediaries (i) engage
in,
(ii) acquire any financial or beneficial interest (including interests in
corporations, partnerships, trusts, unincorporated associations or joint
ventures) in, (iii) loan money to or (iv) become a landlord of any restaurant
business which has a menu similar to that of a Sonic drive-in restaurant (such
as hamburgers, hot dogs, onion rings, and similar items customarily sold by
Sonic drive-in restaurants) or which has an appearance similar to that of a
Sonic drive-in restaurants (such as color pattern, use of canopies, use of
speakers and menu housings for ordering food, or other items that are
customarily used by a Sonic drive-in restaurants), and which (i) is within
a
three- mile radius of the Sonic Restaurant formerly licensed by this Agreement,
(ii) is within a 20-mile radius of a Sonic drive-in restaurant in operation
or
under construction, or (iii) is located within the MSA of the Sonic
Restaurant.
(c) Licensee
shall not appropriate, use or duplicate the Sonic System, or any portion
thereof, for use at any other restaurant business.
(d) During
the term of this Agreement, Licensee shall (i) use Licensee’s best efforts to
promote the business of the Sonic Restaurant, (ii) devote Licensee’s full time,
energies and attention to the operation and management of the Sonic Restaurant,
and (iii) not engage in any other business or activity that might detract from,
interfere with or be detrimental to the Sonic System or Licensee’s full and
timely performance under this Agreement (except the ownership and operation
of
other Sonic drive-in restaurants under license agreements with
SONIC).
(e) During
the term of this Agreement, Licensee shall not perform or provide services
as a
director, officer, employee, agent, representative, consultant or in any other
capacity for any other restaurant business which has a menu or appearance
similar to that of a Sonic drive-in restaurant.
(f) During
the term of this Agreement, Licensee shall not directly or indirectly through
one or more intermediaries (i) engage in, (ii) acquire any financial or
beneficial interest in, (iii) loan money, or (iv) become landlord of any
operation which has granted or is granting franchises or licenses (except for
those granted by SONIC) to others to operate any other restaurant business
which
has a menu or appearance similar to that of a Sonic drive-in
restaurant.
(g) Paragraphs
(a), (b) and (f) of this Subsection 16.01 shall not apply to ownership by
Licensee of less than 2% beneficial interest in the outstanding equity
securities of any corporation which is registered under the Securities Exchange
Act of 1934; however, this Subsection 16.01(g) shall apply to all shareholders
or partners of Licensee (in the event Licensee is a corporation or partnership)
and all members of Licensees’ and their immediate families, and all Persons or
entities guaranteeing this Agreement.
(h) The
parties agree that each of the foregoing covenants shall be construed as
independent of any covenant or provision of this Agreement. If all or any
portion of a covenant in this Section 16 is held unreasonable or unenforceable
by a court or agency having valid jurisdiction in an unappealed final decision
to which SONIC is a party, Licensee expressly agrees to be bound by any lesser
covenant subsumed with the terms of such covenant that imposes the maximum
duty
permitted by law, as if the resulting covenant were separately stated in and
made a part of this Section 16.
(i) Licensee
understands and acknowledges that SONIC shall have the right, in SONIC’s sole
discretion, to reduce the scope of any covenant set forth in Paragraphs (a),
(b)
and (f) of this Subsection 16.01, or any portion thereof, without Licensee’s
consent effective immediately upon receipt by Licensee of written notice
thereof, and Licensee agrees that it shall comply forthwith with any covenant
as
so modified, which shall be fully enforceable notwithstanding the provisions
of
Paragraph (k) of this Subsection 16.01.
(j) Licensee
expressly agrees that the existence of any claims Licensee may have against
SONIC, whether or not arising from this Agreement, shall not constitute a
defense to the enforcement by SONIC of the covenants in this Section
16.
(k) Licensee
acknowledges that Licensee’s violation of the terms of this Section 16 would
result in irreparable injury to SONIC for which no adequate remedy at law is
available, and Licensee accordingly consents to the ex parte issuance of
restraining orders, temporary and permanent injunctions and cease and desist
orders prohibiting any conduct by Licensee in violation of the terms of this
Section 16.
(l) Licensee
shall utilize at the Sonic Restaurant a cash register previously approved by
SONIC, which such cash register shall at all times during the term of this
Agreement have a non-alterable grand total function so that each item entered
in
such register and each day’s totals may not be altered once
entered.
16.02.
Covenants
by Others
.
At
the time of execution of this
Agreement, Licensee shall provide SONIC with covenants similar in substance
to
those set forth in this Section 16 (including covenants applicable upon the
termination of a Person’s relationship with Licensee) from the following
persons: (1) all persons employed by Licensee; and (2) all officers,
directors, and holders of a direct or indirect beneficial ownership interest
Licensee. With respect to each Person who becomes associated with Licensee
in one of the capacities enumerated above subsequent to execution of this
Agreement, Licensee shall require and obtain such covenants and promptly provide
SONIC with executed copies of such covenants. In no event shall any Person
enumerated be granted access to any confidential aspect of the Sonic System
or
the Sonic Restaurant prior to execution of such a covenant. All covenants
required by this Section 16 shall be furnished by SONIC to Licensee and shall
include, without limitation, specific identification of SONIC as a third party
beneficiary of such covenants with the independent right to enforce them.
Failure by Licensee to obtain execution of a covenant required by this Section
16 shall constitute a breach of this Agreement.
17.
INDEPENDENT CONTRACTOR & INDEMNIFICATION
.
17.01.
Licensee
not an Agent of SONIC
.
It
is understood and agreed that this
Agreement does not create a fiduciary relationship between SONIC and Licensee,
and that nothing herein contained shall constitute Licensee as the agent, legal
representative, partner, joint venturer or employee of SONIC. Licensee is,
and
shall remain, an independent contractor responsible for all obligations and
liabilities of, and for all loss or damage to, the Sonic Restaurant and its
business, including any personal property, equipment, fixtures or real property
connected therewith and for all claims or demands based on damage or destruction
of property or based on injury, illness or death of any person or persons,
directly or indirectly, resulting from the operation of the Sonic
Restaurant.
17.02.
Cost
of Enforcement
.
If
SONIC or SONIC’s subsidiaries
becomes involved in any action at law or in equity or in any proceeding opposing
Licensee to secure, enforce, protect, or defend SONIC’s rights and remedies
under this License, in addition to any judgment entered in SONIC’s favor, SONIC
shall be entitled to demand of and (in the event SONIC prevails in such actions
or proceedings) recover from Licensee the reasonable costs, expenses and
attorneys’ fees incurred by SONIC. If, in such applicable final
judgment SONIC does not prevail, Licensee shall be entitled to recover from
SONIC in any such action or proceeding the reasonable costs, expenses and
attorneys’ fees incurred by Licensee.
17.03.
Indemnification
.
If
SONIC or SONIC’s subsidiaries shall
be subject to any claim, demand or penalty or become a party to any suit or
other judicial or administrative proceeding by reason of any claimed act or
omission by Licensee, Licensee’s employees or agents, or by reason of any act
occurring on the Sonic Restaurant premises, or by reason of any act or omission
with respect to the business or operation of the Sonic Restaurant, Licensee
shall indemnify and hold SONIC and SONIC’s subsidiaries harmless against all
judgments, settlements, penalties and expenses, including attorneys’ fees, court
costs and other expenses of litigation or administrative proceeding, incurred
by
or imposed on SONIC in connection with the investigation or defense relating
to
such claim or litigation or administrative proceeding and, at the election
of
SONIC, Licensee shall also defend SONIC and SONIC’s subsidiaries. The
Licensee shall not have any obligation to indemnify, defend or hold harmless
SONIC or any other Person pursuant to the provisions of this Section 17.03
to
extent the obligation arises predominantly as a proximate result of SONIC’s act
or failure to act when under a duty to act.
18.
EFFECT OF WAIVERS
.
No
waiver by SONIC of any breach or
series of breaches of this Agreement shall constitute a waiver of any subsequent
breach or waiver of the terms of this Agreement.
19.
NOTICES
.
19.01.
Address
.
Any
notice required hereunder, if not
specified, shall be in writing and shall be delivered by (i) personal service,
(ii) by overnight, receipted delivery service, or (iii) by United States
certified or registered mail, with postage prepaid, addressed to Licensee at
the
Sonic Restaurant or at such other address of Licensee then appearing on the
records of SONIC or to SONIC at 300 Johnny Bench Drive, Oklahoma City, Oklahoma
73104, attention General Counsel, or at the subsequent address of SONIC’s
corporate headquarters. Either party, by a similar written notice,
may change the address to which notices shall be sent.
19.02.
Failure
to Accept
.
If
SONIC is unable to give actual
notice of any breach or termination of this Agreement because Licensee has
failed to provide SONIC with a current address, because Licensee fails to accept
or pick up this mailed notice, or due to any reason which is not the fault
of
SONIC, then such notice shall be deemed as given when SONIC sends such notice
by
overnight receipted delivery service or registered or certified mail, postage
prepaid.
19.03.
Licensee’s
Principal
.
Licensee
has designated on the first
page of this Agreement a Principal to serve as the party receiving primary
notice on behalf of the parties hereto. Each Licensee hereby agrees
that SONIC may send its notices and communications under this Agreement to
the
Principal provided for herein, that each SONIC may use the Principal as its
primary contact for purposes of communications and notices permitted or required
hereunder, and that all communications and notices given by SONIC to the
Principal will be just as effective on each Licensee as though the same had
been
given to each Licensee.
20.
ENTIRE AGREEMENT
.
20.01.
No
Oral Agreements
.
This
Agreement and all addenda,
appendices and amendments hereto constitute the entire agreement between the
parties and supersede all prior and contemporaneous, oral or written agreements
or understandings of the parties.
20.02.
Scope
and Modification of License
.
No
interpretation, change, termination
or waiver of any of the provisions hereof shall be binding upon SONIC unless
in
writing signed by an officer of SONIC. No modification, waiver,
termination, rescission, discharge or cancellation of this Agreement shall
affect the right of any party hereto to enforce any claim or right hereunder,
whether or not liquidated, which occurred prior to the date of such
modification, waiver, termination, rescission, discharge or
cancellation.
21.
CONSTRUCTION AND SEVERABILITY
.
21.01.
Interpretation
.
The
recitals shall be considered a part
of this Agreement. Section and Subsection captions are used only for
convenience and are in no way to be construed as part of this Agreement or
as a
limitation of the scope of the particular Sections, Subsections, Paragraphs
and
Subparagraphs to which they refer. Words of any gender used in this
Agreement shall include any other gender, and words in the singular shall
include the plural where the context requires.
21.02.
Scope of Protected Area
.
Neither
party to this Agreement intends
to expand the scope of any covenants or commitments contained in Section 2
beyond the terms and provisions expressly stated in Section 2, and the parties
to this Agreement agree that no Person, court or arbitrator may interpret any
of
the foregoing covenants or commitments in Section 2 in that manner.
21.03.
Invalidity
.
If
any part of this Agreement for any
reason shall be declared invalid, such decision shall not affect the validity
of
any remaining portion, which shall remain in full force and effect. In the
event any material provision of this Agreement shall be stricken or declared
invalid, SONIC reserves the right to terminate this Agreement.
21.04.
Binding Effect
.
This
Agreement shall be binding upon
the parties, their heirs, executors, personal representatives, successors or
assigns.
21.05.
Survival
.
Any
provisions of this Agreement which
impose an obligation after termination or expiration of this Agreement shall
survive the termination or expiration of this Agreement and be binding on the
parties.
21.06.
Liability of Multiple Licensees
.
If
Licensee consists of more than one
Person or entity, each such Person and entity, and each proprietor, partner
or
shareholder of each such entity shall be jointly and severally liable for any
and all of Licensee’s obligations and prohibitions under this
Agreement. Consequently, if and when a Person or entity as Licensee
is in breach of this Agreement and fails or is unable to cure such breach in
a
timely manner, SONIC may terminate the rights of the so-affected Person or
entity under this Agreement whereby this Agreement is terminated as to only
such
Person or entity while remaining fully effective as to all other Persons and
entities remaining as Licensee on this Agreement. This Person or
entity removed as Licensee shall remain jointly and severally obligated with
the
Persons and entities remaining as Licensee for any and all obligations and
liabilities of Licensee which occurred or accrued through the date of removal
of
said Person or entity.
22.
BUSINESS ENTITY LICENSEES
22.01.
Corporate
Licensee
.
If
the Licensee is a corporation, the
Licensee shall comply with the following provisions:
(a)
Purpose
. The
certificate of incorporation of the Licensee, if incorporated after August
31,
1994, shall provide that the purpose of the corporation shall consist only
in
the development, ownership, operation and maintenance of Sonic drive-in
restaurants.
(b)
Transfer
Restrictions
. The certificate of incorporation of the Licensee
shall provide that the Licensee shall not issue any additional capital stock
of
the Licensee and that no stockholder may transfer, assign or pledge any issued
capital stock of the Licensee without the prior, written consent of SONIC,
and
each stock certificate issued to evidence the capital stock of the Licensee
shall contain a legend disclosing the foregoing restriction. SONIC
shall not withhold its consent to the issuance of additional capital stock
or a
transfer, assignment or pledge without a reasonable basis. In giving
its consent, SONIC shall have the right (but not the obligation) to impose
one
or more reasonable conditions, including (without limitation) the requirement
that the recipient of the capital stock execute an agreement substantially
similar to the Guaranty and Restriction Agreement attached as Attachment I
to
this Agreement.
(c)
Stockholder
Guaranty
. Each stockholder of the Licensee shall execute the
Guaranty and Restriction Agreement attached as Attachment I to this
Agreement.
(d) Documents. Prior
to SONIC’s execution of this Agreement, the Licensee shall deliver to SONIC
photocopies of its certificate of incorporation and issued stock certificates
reflecting compliance with the provisions of this Section 22.01.
22.02.
Partnership Licensee
.
If
the Licensee is a partnership, the
Licensee shall comply with the following provisions:
(a)
Purpose
. The
partnership agreement and certificate of limited partnership (if applicable)
of
the Licensee, if formed after August 31, 1994, shall provide that the purpose
of
the partnership shall consist only in the development, ownership, operation
and
maintenance of Sonic drive-in restaurants.
(b)
Transfer
Restrictions
. The partnership agreement and certificate of
limited partnership (if applicable) of the Licensee shall provide that the
Licensee shall not issue any additional partnership interests in the Licensee
and that no partner may transfer, assign or pledge a partnership interest in
the
Licensee without the prior, written consent of SONIC. SONIC shall not
withhold its consent to the issuance of additional partnership interests or
a
transfer, assignment or pledge without a reasonable basis. In giving
its consent, SONIC shall have the right (but not the obligation) to impose
one
or more reasonable conditions, including (without limitation) the requirement
that the recipient of the partnership interest execute an agreement
substantially similar to the Guaranty and Restriction Agreement attached as
Attachment I to this Agreement.
(c)
Partner
Guaranty
. Each partner of the Licensee shall execute the Guaranty
and Restriction Agreement appearing as Attachment I to this
Agreement.
(d)
Documents
. Prior
to SONIC’s execution of this Agreement, the Licensee shall deliver to SONIC
photocopies of its partnership agreement and certificate of limited partnership
(if applicable) reflecting compliance with the provisions of this Section
22.02.
22.03.
Limited
Liability Company Licensee
.
If
the Licensee is a limited liability
company, the Licensee shall comply with the following provisions:
(a)
Purpose
. The
articles of organization and operating agreement of the Licensee, if organized
after August 31, 1994, shall provide that the purpose of the limited liability
company shall consist only in the development, ownership, operation and
maintenance of Sonic drive-in restaurants.
(b)
Transfer
Restrictions
. The articles of organization and operating
agreement of the Licensee shall provide that the Licensee shall not issue any
additional membership interests in the Licensee and that no member may transfer,
assign or pledge any membership interests in the Licensee without the prior,
written consent of SONIC. SONIC shall not withhold its consent to the
issuance of additional membership interests or a transfer, assignment or pledge
without a reasonable basis. In giving its consent, SONIC shall have
the right (but not the obligation) to impose one or more reasonable conditions,
including (without limitation) the requirement that the recipient of the
membership interest execute an agreement substantially similar to the Guaranty
and Restriction Agreement attached as Attachment I to this
Agreement.
(c)
Member
Guaranty
. Each member of the Licensee shall execute the Guaranty
and Restriction Agreement appearing as Attachment I to this
Agreement.
(d)
Documents
. Prior
to SONIC’s execution of this Agreement, the Licensee shall deliver to SONIC
photocopies of its articles of organization and operating agreement reflecting
compliance with the provisions of this Section 22.03.
22.04.
Other
Entity Licensee
.
If
the Licensee is any other form of
business entity, the Licensee shall deliver to SONIC photocopies of its
organizational documents containing provisions substantially similar to those
required by Sections 22.01 through 22.03.
22.05.
Employee
Stock Purchase Plans
.
The
Licensee shall have the right to
transfer up to 49% of its outstanding capital stock or other equity interests
to
an employee stock purchase plan as long as one individual who qualifies as
a
licensee of SONIC continues to own and Control, directly or indirectly, at
least
51% of the Licensee’s outstanding capital stock or other equity
interests.
23.
APPLICABLE
LAWS
.
The
terms and provisions of this
Agreement shall be interpreted in accordance with and governed by the laws
of
the State of Oklahoma, provided that if the laws of the State of Oklahoma would
not permit full enforcement of Section 16 of this Agreement, then the laws
of
the state in which the Sonic Restaurant is located or Licensee is domiciled
shall apply to the extent that any or all of such laws more fully permit
enforcement of Section 16 of this Agreement. Notwithstanding the
foregoing, the franchise laws or regulations of the state in which the Sonic
Restaurant is located, in effect on the original date of this Agreement, shall
apply to this Agreement. Licensee agrees that jurisdiction over
Licensee and venue exist and are proper within the same federal judicial
district where the corporate headquarters of SONIC are located and within any
and all other courts, whether federal, state, or local, located within that
district. Licensee waives any and all defenses and objections, and
Licensee agrees not to assert any defense or objection to jurisdiction over
Licensee and to venue as described hereinabove regarding any action, proceeding
or litigation instituted by SONIC against Licensee. SONIC and
Licensee agree that any and all breaches of this Agreement, including breaches
occurring after termination, cancellation, or expiration of this Agreement,
shall be deemed to have occurred where the corporate headquarters of SONIC
are
located.
24.
ACKNOWLEDGEMENT
.
Licensee
acknowledges
that:
24.01.
Initial
Term
.
The
term of this Agreement is for a
single 20-year term with no promise or representation as to the renewal of
this
Agreement or the grant of a new license except as provided herein.
24.02.
Consultation
with Counsel
.
Licensee
hereby represents that
Licensee has received a copy of this Agreement and has had an opportunity to
consult with Licensee’s attorney with respect thereto at least 10 days prior to
Licensee’s execution hereof. Licensee further represents that
Licensee has had this Agreement in hand for review at least five business days
prior to Licensee’s execution hereof.
24.03.
Profitability
.
No
representation has been made by
SONIC as to the future profitability of the Sonic Restaurant.
24.04.
Licensee’s
Investigation
.
Prior
to the execution of this
Agreement, Licensee has had ample opportunity to contact existing licensees
of
SONIC and to investigate all representations made by SONIC relating to the
Sonic
System. The Licensee has conducted an independent investigation of
the business contemplated by this Agreement and recognizes that it involves
substantial business risks making the success of the venture largely dependent
on the business abilities of the Licensee. SONIC disclaims and the
Licensee has not received from SONIC or its Affiliates any express or implied
warranty or guaranty from regarding the potential volume, profits or success
of
the business venture contemplated by this Agreement. The Licensee has
not relied on any express or implied warranty or guaranty from SONIC or its
Affiliates regarding the potential volume, profits or success of the business
venture contemplated by this Agreement.
24.05.
Contrary
Representations
.
The
Licensee knows of no
representations by SONIC or its Affiliates about the business contemplated
by
this Agreement which contradict the terms of this Agreement. The
Licensee has not relied on any representations from SONIC or its Affiliates
about the business contemplated by this Agreement which contradict the terms
of
this Agreement or the disclosures set forth in the Franchise Offering Circular
delivered to the Licensee in connection with the issuance of this
Agreement.
24.06.
Variances
to Other Licensees
.
The
Licensee understands that other
developers and licensees may operate under different forms of agreements and,
consequently, that SONIC’s rights and obligations with regard to its various
licensees may differ materially in certain circumstances.
24.07.
Complete
Agreement
.
This
agreement supersedes any and all
other agreements or representations respecting the Sonic Restaurant and contains
all the terms, conditions and obligations of the parties with respect to the
grant of this Agreement.
25.
INPUT
AND ADVICE FROM LICENSEES
.
In
connection with the implementation
of or significant changes in the programs or policies referred to in Sections
6.04, 6.05(c), 6.06, 8, and 11.01(f) of this Agreement, SONIC shall solicit
input and advice from a group of licensees gathered together for such purpose
(whether established ongoing for such purpose or gathered on an ad hoc basis
from time-to-time). SONIC further shall use its best efforts to
ensure that such groups are balanced in terms of geographic base, size of
operating group, and period of tenure within the Sonic
system. Notwithstanding the foregoing, this Section 25 shall not have
any effect unless the license agreements in effect for at least one-third of
all
Sonic drive-in restaurants contain this provision or a substantially similar
provision.
26.
INJUNCTIVE
RELIEF
.
The
Licensee acknowledges that SONIC’s remedy at law for any breach of any of the
Licensee’s covenants under this Agreement (other than involving only the payment
of money) would not constitute an adequate remedy at law and, therefore, SONIC
shall have the right to obtain temporary and permanent injunctive relief in
any
proceeding brought to enforce any of those provisions, without the necessity
of
proof of actual damages. However, nothing in this Section 26 shall
prevent SONIC from pursuing separately or concurrently one or more of any other
remedies available at law, subject to the provisions of Section 14.04 of this
Agreement.
27.
GENERAL
RELEASE AND COVENANT NOT TO SUE
.
The
Licensee hereby releases Sonic Corp., its subsidiaries, and the officers,
directors, employees and agents of Sonic Corp. and its subsidiaries from any
and
all claims and causes of action, known or unknown, which may exist in favor
of
the Licensee as of the date of this Agreement. In addition, the
Licensee covenants that the Licensee shall not file or pursue any legal action
or complaint against any of the foregoing entities or Persons with regard to
any
of the foregoing claims or causes of action released pursuant to this Section
27. SONIC hereby releases the Licensee and its officers, directors,
employees and agents from any and all claims and causes of action, known or
unknown, which may exist in favor of SONIC as of the date of this Agreement,
except for any claims for (a) unpaid moneys due SONIC or its Affiliates, (b)
a
material breach of the provisions of this Agreement regarding the Proprietary
Marks, or (c) the violation of SONIC’s legal rights regarding the Proprietary
Marks. In addition, SONIC covenants that SONIC shall not file or
pursue any legal action or complaint against any of the foregoing entities
or
Persons with regard to any of the claims or causes of action released by SONIC
pursuant to this Section 27.
Executed
on the dates set forth below,
to have effect as of ______________, 200___.
Licensee
is converting the following
license agreement, which originally expired on _____________________, ________
(select one):
Number
4.0 ___ (converts to Number 4.4 License Agreement)
Number
4.1 ___ (converts to Number 4.4
License Agreement)
Number
4.2 Table I* ___ (converts to
Number 4.4 License Agreement)
Number
4.2 Table II ___ (converts to
Number 4.4 License Agreement)
Number
5.0 ___ (converts to Number 5.4
License Agreement)
Number
5.1 ___ (converts to Number 5.4
License Agreement)
*For
conversions from Number 4.2
license agreements operating under the Table I royalty rate, as elected in
the
Number 4.2 license agreement, the original expiration date of the license
agreement converted to the Number 4.2 license agreement, or the date elected
to
convert to the Table II royalty rate as allowed by Section 5.02(a)(3) of the
Number 4.2 license agreement, whichever is earlier, was
___________________, _____.
SONIC:
Sonic Industries LLC
By:
_________________________________
(Vice)
President
Date:
_______________________,
200__
Licensee:
____________________________________
Date:_______________________,
200__
____________________________________
Date:_______________________, 200__
Schedule
I
Guaranty
and Restriction Agreement
GUARANTY
AND RESTRICTION AGREEMENT
W
I
T
N
E
S
S
E
T
H
:
Whereas,
SONIC is entering into a
license agreement (the “License Agreement”) dated the same date as this
Agreement with the Licensee for the Sonic drive-in located at
,
,
(the
“Drive-in”);
and
Whereas,
as a condition to entering
into the License Agreement, SONIC has asked the Guarantor to provide a personal
guaranty of all obligations of the Licensee Agreement; and
Whereas,
SONIC has also asked the
Guarantor and the Licensee to agree to a restriction on the transfer of
interests in the Licensee; and
Whereas
SONIC, the Guarantor, and the
Licensee are willing to enter into those agreements based upon the terms and
conditions of this Agreement.
Now,
therefore, in consideration of the
mutual covenants set forth below and other good and valuable consideration,
the
receipt and sufficiency of which the parties hereby acknowledge, the parties
agree as follows:
1.
Personal
Guaranty of Payments
. The Guarantor hereby guarantees the prompt
and full payment of all obligations under the License Agreement
including:
(a) all
royalties due SONIC pursuant to the License Agreement,
(b) all
brand contribution fees to the Sonic Brand Fund pursuant to the License
Agreement,
(c) all
contributions to approved advertising cooperatives pursuant to the License
Agreement, and
(d) any
other obligations owing to SONIC or its Affiliates (as defined in the License
Agreement) relating to the Drive-in, including any sign lease
agreement.
2.
Nature
of Guaranty
. This guaranty shall constitute an absolute,
unconditional, irrevocable, and continuing guaranty. SONIC shall not
have any obligation to take any action against any other person or entity for
collection of any payments prior to making any demand for payment or bringing
any action against the Guarantor.
3.
Permitted
Actions
. From time to time, SONIC shall have the right to take,
permit, or suffer to occur any “Permitted Action,” as defined below, without
modifying, reducing, waiving, releasing, impairing or otherwise affecting the
obligations of the Guarantor under this Agreement, without giving notice to
the
Guarantor or obtaining the Guarantor’s consent, without the necessity of any
reservations of rights against the Guarantor, and without liability on the
part
of SONIC. As used in this Section 3, the phrase “Permitted Action”
shall mean (a) an agreed extension of time for payment of any sum due under
the
License Agreement, (b) an agreed change in the manner or place of payment of
any
sums due under the License Agreement, (c) any waiver by SONIC of any defaults
under the provisions of the License Agreement, (d) any delay or failure by
SONIC
to exercise any right or remedy SONIC may have under the License Agreement,
(e)
the granting by SONIC of any leniencies, waivers, extensions, and indulgences
under the License Agreement, and (f) any agreed amendments to the License
Agreement.
4.
Waiver
of Notice of Acceptance
. The Guarantor acknowledges and waives
notice of SONIC’s acceptance of the Guarantor’s guaranty pursuant to the terms
of this Agreement.
5.
Restrictions
on Transfer
. The Licensee shall not issue any additional shares
of capital stock without the prior, written consent of SONIC. The
Guarantor shall not transfer, assign, or pledge any of its shares of capital
stock in the Licensee to any person without the prior, written consent of
SONIC.
6.
Disputes
. Any
dispute between the parties concerning this Agreement will be resolved in
accordance with the mediation and arbitration provisions contained in the
License Agreement.
7.
Attorneys’
Fees, Costs and Expenses
. In any action brought by SONIC to
enforce the obligations of the Guarantor, SONIC shall also have the right to
collect its reasonable attorneys’ fees, court costs, and expenses incurred in
the action.
8.
Headings
. The
headings used in this Agreement appear strictly for the parties’ convenience in
identifying the provisions of this Agreement and shall not affect the
construction or interpretation of the provisions of this Agreement.
9.
Binding
Effect
. This Agreement binds and inures to the benefit of the
parties and their respective successors, legal representatives, heirs, and
permitted assigns.
10.
Waiver
. The
failure of a party to insist in any one or more instances on the performance
of
any term or condition of this Agreement shall not operate as a waiver of any
future performance of that term or condition.
11.
Governing
Law
. Notwithstanding the place where the parties execute this
Agreement, the internal laws of Oklahoma shall govern the construction of the
terms and the application of the provisions of this Agreement.
12.
Amendments
. No
amendments to this Agreement shall become effective or binding on the parties,
unless agreed to in writing by all of the parties to be bound by the
amendment.
13.
Time
. Time
constitutes an essential part of each and every part of this
Agreement.
14.
Notice
. Except
as otherwise provided in this Agreement, when this Agreement makes provision
for
notice or concurrence of any kind, the sending party shall deliver or address
the notice to the other party by certified mail, telecopy, or
nationally-recognized overnight delivery service to the addresses shown on
exhibit “A” to this Agreement.
All
notices pursuant to the provisions
of this Agreement shall run from the date that the other party receives the
notice or three business days after the party places the notice in the United
States mail. Each party may change the party’s address by giving
written notice to the other parties.
15.
Release
and Covenant Not To Sue
. The Guarantor and the Licensee, and each
of them, hereby release all claims and causes of action which the Guarantor
or
the Licensee, or both of them, may have against Sonic Corp., its subsidiaries,
and the stockholders, directors, officers, employees, and agents of Sonic Corp.
and its subsidiaries. The Guarantor and the Licensee, and each of
them, further covenant not to sue any of the foregoing persons or entities
on
account of any of the foregoing claims or causes of action.
Executed
and delivered as of the day and year first set forth above.
SONIC:
Sonic Industries LLC
By:
_________________________________
(Vice) President
Guarantor:
____________________________________
____________________________________
By:
________________________________
This
Guaranty and Restriction Agreement signature page is for the
following:
Sonic
Drive-In # _______
EXHIBIT
“A”
Notice
addresses are as follows:
SONIC:
300 Johnny Bench Drive
Oklahoma
City, OK 73104
Attention: General
Counsel
(405)
225-5973 Fax
(___)
___-____ Fax
(___)
___-____ Fax
Licensee:
(___)
___-____Fax
SONIC
INDUSTRIES LLC
NUMBER
5.5 LICENSE AGREEMENT
BY
AND BETWEEN SONIC INDUSTRIES LLC, Licensor and
________________________,
Licensee
Sonic
Drive-In of ____________________, ______________________
located
at _____________________________
_________________________,
______________________.
Dated: ___________,
_______.
Store
No.
_________
CIF
No.
__________
TABLE
OF
CONTENTS
1.
DEFINITIONS.
|
|
2
|
|
1.01.
|
Affiliate.
|
2
|
|
1.02.
|
Control.
|
2
|
|
1.03.
|
DMA.
|
2
|
|
1.04.
|
Gross
Sales.
|
2
|
|
1.05.
|
License.
|
3
|
|
1.06.
|
MSA.
|
3
|
|
1.07.
|
Person.
|
3
|
|
1.08.
|
Proprietary
Marks.
|
3
|
|
1.09.
|
Protected
Area.
|
4
|
|
1.10.
|
Sonic
Restaurant.
|
4
|
|
1.11.
|
Sonic
System.
|
4
|
|
1.12.
|
Non-traditional
Locations.
|
4
|
2.
LICENSE GRANT.
|
4
|
|
2.01.
|
Location.
|
5
|
|
2.02.
|
Trade
Radius.
|
5
|
|
2.03.
|
Efficient
Market Development and Sales Dilution.
|
6
|
|
2.04.
|
Licensee.
|
7
|
|
2.05.
|
Use
of Sonic’s Marks.
|
7
|
|
2.06.
|
Site
Selection.
|
7
|
|
2.07.
|
Relocation.
|
7
|
3. TERM.
|
|
8
|
|
3.01.
|
Initial
Term.
|
8
|
|
3.02.
|
Opening
of Restaurant.
|
8
|
|
3.03.
|
Option.
|
8
|
4. DUTIES
OF LICENSOR.
|
9
|
|
4.01.
|
Plans.
|
9
|
|
4.02.
|
Operations
Manual.
|
9
|
|
4.03.
|
Marketing
Assistance.
|
9
|
|
4.04.
|
Communication.
|
10
|
|
4.05.
|
Evaluation
Program.
|
10
|
5. FEES.
|
|
|
10
|
|
5.01.
|
License
Fee.
|
10
|
|
5.02.
|
Royalty
Fees.
|
10
|
|
5.03.
|
Brand
Fee.
|
12
|
|
5.04.
|
Transfer
Fee.
|
12
|
|
5.05.
|
Late
Charges.
|
12
|
6. DUTIES
OF LICENSEE.
|
15
|
|
6.01.
|
Sonic
Restaurant Site.
|
12
|
|
6.02.
|
Construction.
|
13
|
|
6.03.
|
Equipment
and Sign.
|
14
|
|
6.04.
|
Training.
|
14
|
|
6.05.
|
Compliance
with Entire System.
|
15
|
|
6.06.
|
Approved
Suppliers and Advertising Agencies.
|
17
|
|
6.07.
|
Best
Efforts.
|
18
|
|
6.08.
|
Interference
with Employment Relations of Others.
|
18
|
|
6.09.
|
SONIC’s
Standards.
|
18
|
|
6.10.
|
Majority
Interest Owner.
|
18
|
7. PROPRIETARY
MARKS.
|
19
|
|
7.01.
|
SONIC’s
Representations.
|
19
|
|
7.02.
|
Use
of Marks.
|
19
|
|
7.03.
|
Licensee’s
Understanding.
|
20
|
8. MANUAL.
|
|
|
21
|
9. CONFIDENTIAL
INFORMATION.
|
21
|
|
9.01.
|
SONIC
Proprietary and Confidential Information.
|
21
|
|
9.02.
|
Licensee’s
Use of Proprietary and Confidential Information.
|
21
|
|
9.03.
|
Licensee’s
Use of Sonic Operations Manual.
|
22
|
10. ACCOUNTING
AND RECORDS.
|
22
|
|
10.01.
|
Due
Date.
|
23
|
|
10.02.
|
Record
Retention.
|
23
|
|
10.03.
|
Charitable
Contributions and Discounts.
|
23
|
|
10.04.
|
Annual
Reports.
|
23
|
|
10.05.
|
Audit
by SONIC.
|
23
|
|
10.06.
|
Third
–Party Audit.
|
24
|
|
10.07.
|
Licensee’s
Failure to Timely Deliver Financial Records.
|
24
|
|
10.08.
|
Financial
Disclosure.
|
24
|
11. ADVERTISING
AND BRAND EXPENDITURES.
|
25
|
|
11.01.
|
Standard
Program.
|
25
|
|
11.02.
|
Publicity.
|
27
|
1
2. INSURANCE.
|
|
|
27
|
|
12.01.
|
Insurance
Amounts.
|
28
|
|
12.02.
|
SONIC
as Additional Insured.
|
28
|
|
12.03.
|
General
Conditions.
|
28
|
13. TRANSFER
OF INTEREST.
|
29
|
|
13.01.
|
Assignment.
|
29
|
|
13.02.
|
Death
or Permanent Incapacity of Licensee.
|
29
|
|
13.03.
|
Assignment
to Licensee’s Corporation.
|
29
|
|
13.04.
|
Other
Assignment.
|
31
|
|
13.05.
|
SONIC’s
Right of First Refusal.
|
32
|
|
13.06.
|
Consent
to Assignments.
|
33
|
14. DEFAULT
AND TERMINATION.
|
33
|
|
14.01.
|
Automatic
Termination.
|
33
|
|
14.02.
|
Optional
Termination.
|
33
|
|
14.03.
|
Period
to Cure.
|
33
|
|
14.04.
|
Resolution
of Disputes.
|
35
|
|
(a)
|
Negotiation.
|
36
|
|
(b)
|
Mediation.
|
36
|
|
(c)
|
Arbitration.
|
36
|
|
(d)
|
Excluded
Controversies.
|
37
|
|
(e)
|
Attorneys’
Fees and Costs.
|
37
|
15. OBLIGATIONS
UPON TERMINATION.
|
37
|
|
15.01.
|
Effect
of Termination, Cancellation or Expiration of this
Agreement.
|
37
|
|
15.02.
|
SONIC’s
Option to Purchase.
|
39
|
|
15.03.
|
SONIC’s
Obligation to Purchase.
|
39
|
|
15.04.
|
Fair
Market Value Determination.
|
40
|
16. COVENANTS.
|
|
|
40
|
|
16.01.
|
Restrictions
on Licensee.
|
40
|
|
16.02.
|
Covenants
by Others.
|
42
|
17. INDEPENDENT
CONTRACTOR & INDEMNIFICATION.
|
42
|
|
17.01.
|
Licensee
not an Agent of SONIC.
|
42
|
|
17.02.
|
Cost
of Enforcement.
|
43
|
|
17.03.
|
Indemnification.
|
43
|
1
8. EFFECT
OF WAIVERS.
|
|
43
|
19. NOTICES.
|
|
44
|
|
19.01.
|
Address.
|
44
|
|
19.02.
|
Failure
to Accept.
|
44
|
|
19.03.
|
Licensee’s
Principal.
|
44
|
20. ENTIRE
AGREEMENT.
|
|
44
|
|
20.01.
|
No
Oral Agreements.
|
44
|
|
20.02.
|
Scope
and Modification of License.
|
45
|
21. CONSTRUCTION
AND SEVERABILITY.
|
45
|
|
21.01.
|
Interpretation.
|
44
|
|
21.02.
|
Scope
of Protected Area.
|
45
|
|
21.03.
|
Invalidity.
|
45
|
|
21.04.
|
Binding
Effect.
|
45
|
|
21.05.
|
Survival.
|
45
|
|
21.06.
|
Liability
of Multiple Licensees.
|
46
|
22. BUSINESS
ENTITY LICENSEES
|
46
|
|
22.01.
|
Corporate
Licensee.
|
46
|
|
22.02.
|
Partnership
Licensee.
|
46
|
|
22.03.
|
Limited
Liability Company Licensee.
|
47
|
|
22.04.
|
Other
Entity Licensee.
|
48
|
|
22.05.
|
Employee
Stock Purchase Plans.
|
48
|
23. APPLICABLE
LAWS.
|
|
48
|
24. ACKNOWLEDGEMENT.
|
|
48
|
|
24.01.
|
Initial
Term.
|
49
|
|
24.02.
|
Consultation
with Counsel.
|
49
|
|
24.03.
|
Profitability.
|
49
|
|
24.04.
|
Licensee’s
Investigation.
|
49
|
|
24.05.
|
Contrary
Representations.
|
49
|
|
24.06.
|
Variances
to Other Licensees.
|
50
|
|
24.07.
|
Complete
Agreement.
|
50
|
25. INPUT
AND ADVICE FROM LICENSEES.
|
50
|
26. INJUNCTIVE
RELIEF.
|
|
50
|
27. GENERAL
RELEASE AND COVENANT NOT TO SUE.
|
50
|
SCHEDULE
I – GUARANTY AND RESTRICTION AGREEMENT
Store
No._________
CIF
No. _______
LICENSE
AGREEMENT
THIS
AGREEMENT made this ___day of
______, 200_, by and between SONIC INDUSTRIES LLC, a Delaware limited liability
company (“SONIC”), and
_________________________
(“Principal”)
_________________________
(all
of
whom shall be jointly referred to herein as the “Licensee”).
RECITALS
SONIC
is the developer and the sole and
exclusive owner of the right to license the distinctive and proprietary
drive-in, food service system under which food is sold to the public from
drive-in restaurants operated under the trade name and federally registered
trademark and service mark “Sonic”. The Sonic System so developed now
includes, among other things, the following elements, all or some of which
may
be deleted, changed, improved or further developed by SONIC from time to
time:
A.
Methods
and procedures for the
preparation and serving of food and beverage products.
B.
Confidential
recipes for food
products and distinctive service accessories (including, but not limited to,
uniforms, menus, packages, containers and additional paper or plastic
items).
C.
Plans
and specifications for
distinctive standardized premises featuring characteristic exterior style,
colors, and design (including angled parking stalls equipped with menu housings,
speakers and tray supports), interior furnishings, equipment layout, exterior
signage, and marketing techniques and materials.
D.
A
uniform method of operating
which is described in the
Sonic Operations Manual
.
E.
Distinctive
and characteristic
trade names, trade dress, trademarks and service marks, including, but not
limited to: “Sonic”, “Sonic Happy Eating,” “America’s Favorite Drive-In Sonic,”
signs, menu housings, designs, color schemes, standardized premises featuring
characteristic exterior style, canopies, colors, and design (including angled
parking stalls equipped with menu housings, speakers and tray supports),
interior furnishings and equipment layout, and emblems as SONIC designates
in
the
Sonic Operations Manual
or otherwise in writing or through usage as
prescribed for use with the Sonic System and as may from time to time be
developed.
F.
Such
exclusive and trade
secrets as have been and may from time to time be developed, which are owned
by
SONIC and which are disclosed to its licensees in confidence in connection
with
the construction and operation of a Sonic drive-in restaurant.
Licensee
wishes to obtain a license
from SONIC to operate a Sonic drive-in restaurant pursuant to the Sonic System
and to be afforded the assistance provided by SONIC in connection therewith,
and
understands and accepts the terms, conditions and covenants set forth herein
as
those which are reasonably necessary to maintain SONIC’s high and uniform
standards of quality and service designed to protect the goodwill and enhance
the public image of the Proprietary Marks and the Sonic System, and recognizes
the necessity of operating the licensed Sonic drive-in restaurant in faithful
compliance therewith, and with SONIC’s standards and
specifications.
1.
DEFINITIONS
.
Unless
the context of their use in this
Agreement requires otherwise, the following words and phrases shall have the
following meanings when used in initially-capitalized form in this
Agreement.
1.01.
Affiliate
.
The
word “Affiliate” shall mean (a) any
stockholder, director or officer of a specified Person (if the specified Person
is a corporation), (b) any partner of a specified Person (if the specified
Person is a partnership), (c) any member of a specified Person (if the specified
Person is a limited liability company), (d) any employee of a specified Person,
and (e) any Person which directly or indirectly through one or more
intermediaries Controls the specified Person, the specified Person Controls,
or
shares a common Control with the specified Person.
1.02.
Control
.
The
word “Control” means the
possession, direct or indirect, of the power to direct or cause the direction
of
the management and policies of a Person or entity, whether through the ownership
of voting securities, by contract, or otherwise.
1.03.
DMA
.
The
term “DMA” shall mean a Designated
Market Area as defined by A.C. Nielsen Company from time to time.
1.04.
Gross
Sales
.
The
phrase “Gross Sales” shall mean all
revenues from sales resulting from all business conducted upon or from the
Sonic
Restaurant, whether evidenced by check, cash, credit, charge account, exchange
or otherwise, and shall include (without limitation) the amounts received from
the sale of goods, wares and merchandise, including sales of food, beverages
and
tangible property of every kind and nature, promotional or otherwise (excluding
restaurant equipment) and for services performed from or at the Sonic
Restaurant, whether the Licensee fills the orders from the Sonic Restaurant
or
elsewhere. Each charge or sale upon credit shall constitute a sale
for the full price in the month during which the charge or sale occurs,
regardless of the time when the Licensee receives payment (in whole or in part)
for the charge or sale. The phrase “Gross Sales” shall not include
(a) sales of merchandise for which the Licensee makes a cash refund, if
previously included in Gross Sales; (b) the price of merchandise returned by
customers for exchange, if the Licensee previously included the sales price
of
the merchandise returned by the customer in Gross Sales and includes the sales
price of merchandise delivered to the customer in exchange in Gross Sales;
(c)
amounts received from the sale of tobacco products; (d) the amount of any sales
tax imposed by any governmental authority directly on sales and collected from
customers, if the Licensee adds the amount of the tax to the sales price or
absorbs the amount of the sales tax in the sales price and the Licensee actually
pays the tax to the governmental authority; and (e) amounts not received for
menu items because of discounts or coupons, if properly
documented. The phrase “Gross Sales” also shall not include any
proceeds received by the Licensee pursuant to an assignment made in accordance
with the provisions of Section 13.
1.05.
License
.
The
word “License” shall mean the
rights granted the Licensee pursuant to Section 2 of this
Agreement.
1.06.
MSA
.
The
term “MSA” shall mean a
Metropolitan Statistical Area as defined by the United States Census Bureau
from
time to time. An MSA shall not include any city or town otherwise
falling within the MSA which has at least 10 miles of continuous undeveloped
and
sparsely populated rural land between every portion of its boundary and the
boundary of the city which serves as the primary metropolitan area for the
MSA.
1.07.
Person
.
The
word “Person” shall mean any
individual or business entity, including (without limitation) corporation,
joint
venture, general partnership, limited partnership, limited liability company,
or
trust.
1.08.
Proprietary
Marks
.
The
phrase “Proprietary Marks” shall
mean the distinctive and characteristic trade names, trademarks, service marks,
and trade dress which SONIC designates in writing or through usage from time
to
time as prescribed for use with the Sonic System, including (without limitation)
the terms “Sonic,” “Happy Eating,” and “America’s Favorite Drive-In”; signs;
emblems; menu housings; designs; color schemes; standardized premises featuring
characteristic exterior style, canopies, colors and design (including angled
parking stalls equipped with menu housings, speakers and tray supports);
interior furnishings; and equipment layout.
1.09.
Protected
Area
.
The
phrase “Protected Area” shall mean
the area defined by Sections 2.02 and 2.03 of this Agreement.
1.10.
Sonic
Restaurant
.
The
phrase “Sonic Restaurant” shall
mean the Sonic drive-in restaurant licensed by this Agreement.
1.11.
Sonic
System
.
The
phrase “Sonic System” shall mean
the unique, proprietary and confidential information of SONIC, including
(without limitation) the
Sonic Operations Manual
and consisting of (a)
methods and procedures for the preparation of food and beverage products; (b)
confidential recipes for food products; (c) distinctive service and accessories;
(d) plans and specifications for interior and exterior signs, designs, layouts
and color schemes (whether copyrighted or not); (e) methods, techniques,
formats, systems, specifications, procedures, information, trade secrets, sales
and marketing programs; (f) methods of business operations and management;
and
(g) knowledge and experience regarding the operation and franchising of Sonic
drive-in restaurants.
1.12.
Non-traditional
Locations
.
The
phrase “Non-traditional Locations” shall mean permanent or temporary food
service facilities operating under one or more of the Proprietary Marks at
locations featuring facilities other than free-standing buildings with canopies
devoted solely to the operation of a Sonic drive-in restaurant and accessible
to
the general public by automobile from public
thoroughfares. Non-traditional Locations shall include (without
limitation) (a) military bases and other governmental facilities; (b)
universities and schools; (c) airports and other transportation facilities;
(d)
stadiums, arenas and other sports and entertainment venues; (e) amusement and
theme parks; (f) cafeterias and food courts in shopping centers, shopping malls,
office buildings, and industrial buildings; (g) hotels and convention centers;
(h) hospitals and nursing facilities; (i) museums, zoos and other public
facilities; and (j) highway travel plazas, convenience stores, and gasoline
filling stations.
2.
LICENSE
GRANT
.
SONIC
grants to Licensee for the
following stated term the right, license and privilege:
2.01.
Location
.
(a) To
adopt and use the Sonic System at the Sonic Restaurant located at
__________________________, ______________, _______________.
(b) To
have the exclusive rights to adopt and use the Sonic System for a Sonic
Restaurant to be constructed within the current boundaries of the town or city
of __________________, ________________, for a period of six months from the
date hereof, with the obligation of selecting and having such site approved
within such six month period and completing Section 2.01(a), above, within
such
six month period.
2.02.
Trade
Radius
.
Subject
to the provisions of paragraphs
(c) and (d), below, SONIC shall not own or operate a Sonic Restaurant and shall
not franchise any other Person to own or operate a Sonic Restaurant (other
than
a Sonic drive-in restaurant licensed prior to the date of this Agreement) within
the area determined by the following provisions:
|
(a)
|
(i)
|
An
area defined by a radius extending one and one-half miles from the
front
door of the Sonic Restaurant if located within a city, town or MSA
having
a population of 75,000 or more.
|
|
(ii)
|
An
area defined by a radius extending two miles from the front door
of the
Sonic Restaurant if located within a city, town or MSA having a population
of less than 75,000 but more than
25,000.
|
|
(iii)
|
An
area defined by a radius extending three miles from the front door
of the
Sonic Restaurant if located within a city, town or MSA having a population
of 25,000 or less.
|
|
(iv)
|
An
area defined by a radius extending three miles from the front door
of the
Sonic Restaurant if located outside a city, town or
MSA.
|
(b) The
foregoing radius shall not extend into the contractually-granted protected
radius of any Sonic drive-in restaurant in existence as of the date of this
Agreement and shall not extend into the franchised area of any developer under
an existing area development agreement with SONIC. SONIC shall
determine the population of an MSA from time to time after the date of this
Agreement according to the latest published federal census.
(c) SONIC
shall not own, operate or license any other Person to own or operate a
Non-traditional Location (other than a Non-traditional Location owned, operated
or licensed prior to the date of this Agreement) within the Protected Area
without the Licensee’s prior written consent. Simultaneously with the
request for that written consent, SONIC shall offer the Licensee a right of
first refusal to develop the Non-traditional Location. The Licensee
must notify SONIC in writing of its decision regarding the right of first
refusal to license and operate the Non-traditional Location within 30 days
after
SONIC notifies the Licensee of SONIC’s request for the Licensee’s written
consent to own, operate and/or license the Non-traditional
Location. If the Licensee chooses to exercise its right of first
refusal, the Licensee must sign SONIC’s then current form of license agreement
for a Non-traditional Location for the applicable jurisdiction within 30 days
after the Licensee notifies SONIC of its decision. The Licensee then
must open the Non-traditional Location within the time period specified in
the
license agreement (if specified) or within 12 months after the date of the
license agreement (if not specified). If the Licensee does not
execute that agreement within the foregoing 30-day period or does not exercise
its right of first refusal within the foregoing 30-day period, SONIC shall
have
the right to proceed with the ownership, operation and/or licensing of the
Non-traditional Location as disclosed to the Licensee only if the Licensee
has
given its written consent to SONIC. If the Licensee elects, in its
sole and absolute discretion, not to give its written consent, SONIC shall
not
own, operate or license any other Person to own or operate the Non-traditional
Location.
(d) SONIC
has and hereby further reserves the right, in its sole discretion, to acquire
the assets or controlling ownership of an existing restaurant within the
Protected Area. However, prior to converting an acquired restaurant to a Sonic
drive-in restaurant or a Non-traditional Location within the Protected Area,
SONIC shall offer the Licensee a right of first refusal to acquire the
restaurant at a price equal to SONIC’s cost of acquiring the
restaurant. If the restaurant represents a part of an acquisition of
multiple restaurants, SONIC shall make a reasonable allocation of its cost
to
acquire the restaurant. The Licensee must notify SONIC of its
decision regarding the right of first refusal within 30 days after SONIC gives
the Licensee written notice of its intention to convert the restaurant to a
Sonic drive-in restaurant or Non-traditional Location. If the
Licensee chooses to exercise its right of first refusal, the Licensee must
sign
SONIC’s then current form of license agreement for a Sonic drive-in restaurant
or Non-traditional Location, and pay the required license fee, as applicable,
within 20 days after the Licensee notifies SONIC of its decision. In
the event the Licensee fails to convert the restaurant to a Sonic drive-in
restaurant or Non-traditional Location pursuant to the terms of the applicable
license agreement, SONIC shall have the right to repurchase the restaurant
from
the Licensee at the same purchase price. If the Licensee does not
exercise its right of first refusal, SONIC shall have the right to own, operate
and/or license other Persons to operate the restaurant in any manner which
does
not violate the provisions of this Agreement or SONIC may sell or otherwise
dispose of the restaurant to any person or entity under any terms or conditions
SONIC deems appropriate. SONIC shall not own, operate or license any
Person to operate the restaurant if the ownership or operation of the restaurant
otherwise would violate the non-compete provisions of 16.01 of this Agreement
if
owned or operated by a Sonic licensee.
2.03.
Efficient
Market
Development and Sales Dilution
.
The
following additional provisions
shall apply to the Sonic Restaurant:
(a) In
utilizing its best efforts to reduce the dilution of sales and profitability,
in
the event SONIC develops or licenses another Person to develop a Sonic drive-in
restaurant on the same street as the Sonic Restaurant (according to the Sonic
Restaurant’s designated street address) and no traffic barrier or break (such as
a river or other waterway, interceding roadway, unpaved landmass, or other
similar structure blocking through traffic) exists between the Sonic Restaurant
and the proposed new site, notwithstanding the provisions of Section 2.02,
above, the Protected Area provided by Section 2.02 shall equal two and one-half
miles (each way) on that street and an additional 500 feet (each way from the
center of the intersection) on any street crossing that street within the
foregoing 2 1/2-mile distance.
(b) In
order to achieve efficient market development and in utilizing its best efforts
to reduce the dilution of sales and profitability, in the event SONIC develops
or licenses another Person to develop a Sonic drive-in restaurant within two
miles of the Sonic Restaurant (if permitted under Section 2.02, above), SONIC
shall apply at least the level of demographic analysis, market impact analysis,
and site and market review used by SONIC as of the date of this Agreement in
considering the additional site for the development of a Sonic drive-in
restaurant.
2.04.
Licensee
.
Licensee
shall advertise to the public
as a Licensee of SONIC.
2.05.
Use
of Sonic’s
Marks
.
Licensee
shall adopt and use, but only
in connection with the sale of those food and beverage products which have
been
designated in the Sonic menu as specified in the
Sonic Operations
Manual
, the trade names, trademarks and service marks which SONIC shall
designate from time to time to be part of the Sonic System.
2.06.
Site
Selection
.
In
the event the Licensee receives this
license pursuant to Section 2.01(b), above, the selection of a site by Licensee
shall be subject to the approval of SONIC in accordance with the standard site
approval procedures required by this Agreement and the standard practices of
SONIC. In the event a site for the Sonic Restaurant has not been
approved by SONIC before the expiration of the six month period provided for
by
Section 2.01(b), above, then this Agreement shall expire and be of no further
force or effect.
2.07.
Relocation
.
If
the Licensee relocates the Sonic
Restaurant during the term of this Agreement with the written consent of SONIC
(which consent SONIC shall not withhold unreasonably), this Agreement shall
continue to apply to the Sonic Restaurant in accordance with the terms contained
in this Agreement, except that SONIC and the Licensee shall enter into an
amendment to this Agreement to change the address of the Sonic Restaurant
accordingly.
3.
TERM
.
3.01.
Initial
Term
.
Unless
sooner terminated as hereafter
provided, the term of this License shall end 20 years from the effective date
of
this Agreement as set forth on the cover page to this Agreement.
3.02.
Opening
of
Restaurant
.
Licensee
expressly acknowledges and
agrees that a pre-condition to opening the Sonic Restaurant shall be SONIC’s
written authorization to open, which authorization shall be given only upon
Licensee’s completing, to SONIC’s satisfaction, (i) construction of the Sonic
Restaurant, (ii) preparation of the Sonic Restaurant for commencement of
operations, and (iii) training as required by Section 6.04 of this
Agreement.
3.03.
Option
.
At
the end of the term, if Licensee
desires, Licensee may renew the License to adopt and use the Sonic System at
the
Sonic Restaurant for an additional 10-year term, provided that prior to the
expiration of the initial term:
(a) Licensee
gives SONIC written notice of Licensee’s election to renew not less than six
months nor more than 12 months prior to the end of the initial
term.
(b) Licensee
is not, when notice is given, in material default of any provision of this
Agreement or any amendment hereof or successor agreement hereto or in material
default of any other agreement between Licensee and SONIC or SONIC’s Affiliates
involving any other License Agreement and has substantially complied with the
terms and conditions of this Agreement and all other such agreements, during
the
term thereof.
(c) All
monetary obligations owed by Licensee to SONIC or SONIC’s Affiliates from any
source whatsoever (whether under this Agreement or otherwise) have been
satisfied prior to renewal.
(d) The
Licensee executes a license agreement containing the same terms and conditions
as this Agreement, except that the license agreement shall provide for a term
of
10 years and shall contain the then current royalty rate and the then current
national and local advertising and brand expenditure requirements; provided,
however, that in lieu of an initial license fee, a renewal fee shall be paid
to
SONIC in the amount of: (i) $3,000.00, or (ii) 20% of the then
current initial license fee, whichever is greater. However, the
renewal fee shall not exceed $6,000 as adjusted for inflation on September
1 of
each year in accordance with the consumer price index and using August of 1994
as the base amount.
(e) Licensee
performs such remodeling, repairs, replacements and redecorations as SONIC
may
reasonably require to cause the restaurant equipment and fixtures to conform
to
the plans and specifications being used for new or remodeled Sonic drive-in
restaurants on the renewal date, provided SONIC notifies Licensee of such
requirements within 30 days after receipt of Licensee’s notice of
renewal.
(f) SONIC
and the Licensee execute a general release of each other, in a form satisfactory
to SONIC, of any and all claims the Licensee may have against SONIC and its
Affiliates, including (without limitation) all claims arising under any federal,
state or local law, rule or ordinance, but excluding (as to SONIC) any claims
against the Licensee for (a) unpaid moneys due SONIC or its Affiliates, (b)
a
material breach of the provisions of this Agreement regarding the Proprietary
Marks, or (c) the violation of SONIC’s legal rights regarding the Proprietary
Marks. SONIC may waive the requirements of this paragraph (f) at
SONIC’s election.
(g) Licensee
principal and/or manager at their expense attend and satisfactorily complete
such retraining program as SONIC may require at its sole
discretion.
(h) Licensee
meets the remodeling requirements set forth in Section 6.02(d)
herein.
4.
DUTIES
OF LICENSOR
.
SONIC
agrees to regularly advise and consult with Licensee in connection with the
operation of the Sonic Restaurant and to provide to Licensee:
4.01.
Plans
.
Standard
Sonic Plans and Specifications
for a free standing building, equipment layout and signs (See Subsection 6.03),
together with advice and consultation. Any modifications for
nonstandard buildings, whether required by local zoning or building laws or
otherwise, must be approved in writing by SONIC and are to be paid by
Licensee.
4.02.
Operations
Manual
.
The
Sonic
Operations Manual
containing the standards, specifications, procedures and methods for operating
a
Sonic drive-in restaurant, a copy of which will be loaned to Licensee for the
term of this Agreement.
4.03.
Marketing
Assistance
.
Certain
marketing materials and such
merchandising, marketing and advertising research data and advice as may be
developed from time to time by SONIC and deemed to be helpful in the operation
of a Sonic drive-in restaurant.
4.04.
Communication
.
Certain
management development and
motivational seminars and periodic newsletters which communicate to Licensee
available advertising materials and new developments, techniques and
improvements in areas of restaurant equipment, management, food preparation
and
service which are pertinent to the operation of a restaurant using the Sonic
System.
4.05.
Evaluation
Program
.
A
field evaluation of the Restaurant
will be conducted for the mutual benefit of both SONIC and Licensee to promote
uniform standards of operation and quality control.
5.
FEES
.
5.01.
License
Fee
.
The
Licensee shall not pay any
conversion fee or initial license fee for this Agreement.
5.02.
Royalty
Fees
.
On
or before the 20th day of each
calendar month, the Licensee shall pay a royalty fee determined by the following
provisions:
(a)
Through
Original Expiration Date
. Through the original expiration date of
the license agreement converted to this Agreement, the Licensee shall pay a
royalty fee determined by the following scale based on Gross Sales:
|
Gross
Sales
|
But
Not
|
Royalty
|
|
Greater
Than
|
More
Than
|
Rate
|
|
$
0.00
|
$5,000.00
|
1.000%
|
|
$
5,000.00
|
$10,000.00
|
1.750%
|
|
$10,000.00
|
$15,000.00
|
2.500%
|
|
$15,000.00
|
$20,000.00
|
|
|
$20,000.00
|
$30,000.00
|
|
|
$30,000.00
|
$40,000.00
|
3.875%
|
|
$40,000.00
|
$50,000.00
|
4.250%
|
|
$50,000.00
|
$60,000.00
|
4.375%
|
|
$60,000.00
|
N/A
|
4.500%
|
The
calculation of Gross Sales and the corresponding royalty fees shall take place
on a cumulative basis. For example, the following formula results in
the calculation of the royalty fee on $50,000 of gross sales: Royalty
Fee = ($5,000 x .01) + ($5,000 x .0175) + ($5,000 x .025) + ($5,000 x .0325)
+
($10,000 x .035) + ($10,000 x .03875) + ($10,000 x .0425).
(b)
Conversion
of Rate
. After the original expiration date of the license
agreement converted to this Agreement, the Licensee shall pay a monthly amount
equal to the royalty fee determined by the following scale based on Gross
Sales:
|
Gross
Sales
|
But
Not
|
Royalty
|
|
Greater
Than
|
More
Than
|
Rate
|
|
$
0.00
|
$5,000.00
|
1.00%
|
|
$
5,000.00
|
$10,000.00
|
2.00%
|
|
$10,000.00
|
$15,000.00
|
3.00%
|
|
$15,000.00
|
$30,000.00
|
|
|
$30,000.00
|
$40,000.00
|
4.25%
|
|
$40,000.00
|
$50,000.00
|
4.50%
|
|
$50,000.00
|
$60,000.00
|
4.75%
|
|
$60,000.00
|
N/A
|
5.00%
|
The
calculation of Gross Sales and the corresponding royalty fees shall take place
on a cumulative basis. For example, the following formula results in
the calculation of the royalty fee on $50,000 of gross sales: Royalty
Fee = ($5,000 x .01) + ($5,000 x .02) + ($5,000 x .03) + ($15,000 x .04) +
($10,000 x .0425) + ($10,000 x .0450).
5.03.
Brand
Fee
.
(a) On
or before the 20th day of each calendar month throughout the term of this
Agreement, Licensee shall pay to Sonic Brand Fund, which is administered by
SONIC, a brand contribution fee in an amount equal to .75% of the Gross Sales
received by Licensee from the operation of the Sonic Restaurant during the
calendar month next preceding the date of such payment. Such payment
shall be forwarded with the profit and loss statement required to be provided
pursuant to Section 10.01 herein.
(b) The
amount due to SONIC by Licensee pursuant to Section 5.03, above, shall be in
addition to and separate from that which Licensee is obligated to spend pursuant
to Section 11.01(a) of this Agreement.
5.04.
Transfer
Fee
.
(a) A
transfer fee in the amount of $500 shall be paid by Licensee in the event of
a
transfer or assignment of this Agreement (resulting in a change in Control
of
the License) to a licensee then-currently qualified as a licensee, excluding
assignments under Subsections 13.02 and 13.03.
(b) A
transfer fee in the amount of $1,500 shall be paid by Licensee in the event
of a
transfer or assignment of this Agreement (resulting in a change in Control
of
this license) to a new licensee not then-currently qualified as a licensee,
excluding assignments under Subsections 13.02 and 13.03.
5.05.
Late
Charges
.
In
the event any payments required by
Sections 5.02, 5.03 or 5.04, above, are not paid on or before the date on which
they are due, a late charge in an amount equal to 1.75% per month shall be
levied against such amounts due and shall be owing to SONIC by the Licensee
from
the date on which such obligations were due until any such obligations are
paid
in full. In the event the interest rate set out in this Section 5.05
exceeds that amount permitted by Oklahoma law, then the maximum interest rate
permitted by Oklahoma law shall be charged.
6.
DUTIES
OF LICENSEE
.
6.01.
Sonic
Restaurant
Site
.
(a) The
site at which Licensee shall operate the Sonic Restaurant is more fully
described in paragraph (a) of Section 2.01. During the term of this
Agreement, the site shall be used exclusively for the purpose of operating
a
franchised Sonic drive-in restaurant.
(b) In
the event the Sonic Restaurant premises suffers some physical casualty, the
minimum acceptable quality and appearance for the restored restaurant will
be
that which existed just prior to the casualty, unless the Sonic Restaurant
was
below minimum acceptable standards for SONIC at the time of casualty in which
event the Sonic Restaurant will be restored to a condition which meets the
minimum acceptable standard according to SONIC. However, Licensee agrees
to make all reasonable effort to have the restored Sonic Restaurant reflect
the
then current image, design and specifications of Sonic drive-in
restaurants. If the Sonic Restaurant is substantially destroyed by fire or
other casualty, Licensee may, with the written consent of SONIC elect to
terminate this Agreement in lieu of Licensee reconstructing the restaurant,
provided that for a period of 18 months after said election, Licensee shall
not
enter into, become landlord of or loan money to any restaurant business within
a
three- mile radius of the drive-in site which is similar in nature to, or
competitive with a Sonic drive-in restaurant or considered a fast food
establishment.
6.02.
Construction
.
(a) Licensee
agrees to complete the construction of the Sonic Restaurant within a minimum
of
365 days from the effective date of this Agreement. Unless Licensee is
remodeling an existing building, Licensee shall construct the Sonic Restaurant
in accordance with the site plan approved by SONIC for such site and with
SONIC’s standard construction plans and specifications (“Sonic Plans and
Specifications”) and layout subject, however, to any alterations thereto that
may be required by any applicable law, regulation or ordinance. If
alterations of any kind are required to be made to the site plan, as approved
by
SONIC, or to the Sonic Plans and Specifications or layouts for any reason,
such
alterations must be approved by SONIC in writing before any work is begun on
the
Sonic Restaurant. The Licensee shall submit the final site layout and
construction plans for the Sonic Restaurant to SONIC for its written
approval. Any costs including engineering and architectural fees incurred
in obtaining approvals by the appropriate governmental authorities of the
construction plans, specifications and layouts shall be paid by
Licensee.
(b) If
Licensee is remodeling the existing restaurant, SONIC shall have the right
to
inspect and approve all plans and specifications prior to the commencement
of
any work. The Licensee shall submit the final remodeling plans and
specifications for the Sonic Restaurant to SONIC for its written approval.
Nothing in this section shall be construed as an endorsement or guarantee of
the
conformity of such plans to applicable local, state or federal building or
safety codes, or a guarantee that construction will be done in conformity with
such approved plans. In any event, Licensee shall obtain written approval
of such plans or written notice of SONIC’s waiver of the rights reserved
hereunder prior to the commencement of construction.
(c) Licensee
shall not deviate from the approved plans and specifications in any manner
in
the construction or remodeling of the restaurant without the prior written
approval of SONIC. If at any time SONIC determines (prior to opening date)
that Licensee has not constructed or remodeled the Sonic Restaurant in
accordance with the plans and specifications approved by SONIC, SONIC shall,
in
addition to any other remedies, have the right to obtain an injunction from
a
court of competent authority against the continued construction and opening
of
the Sonic Restaurant, and Licensee hereby consents to any such
injunction.
(d) SONIC
may require the Licensee to undertake extensive remodeling and renovation and
substantial modifications to existing buildings necessary for the Licensee’s
restaurant to conform with SONIC’s then existing system image. SONIC
may exercise the foregoing right at any time during the term of this Agreement,
but may not require (1) the remodeling of the restaurant more than once every
seven years or (2) the remodeling of a restaurant built within the preceding
three years, unless the required remodeling will not exceed 15% of the original
cost of the building, equipment and land improvements (as adjusted for increases
in the consumer price index after the construction date of the
restaurant). Notwithstanding the foregoing, SONIC shall have the
right to require the Licensee to modify or replace the large Sonic sign for
the
restaurant at any time during the term of this Agreement. If SONIC
exercises its right to require the Licensee to undertake extensive remodeling
or
renovation or substantial modification within five years of the end of the
term
of this Agreement, the Licensee may exercise any right to renew the term of
this
Agreement at that point in time in accordance with the applicable provisions
of
this Agreement, which renewal then shall take effect as of the expiration the
then current term of this Agreement.
6.03.
Equipment
and
Sign
.
(a) Licensee
shall only install in and about the Sonic Restaurant such equipment, fixtures,
furnishings and other personal property as are required and which strictly
conform to the appearance, uniform standards and specifications of SONIC
existing from time to time, which shall be communicated to Licensee in the
Sonic Operations Manual
or otherwise in writing. Licensee may
purchase the equipment from SONIC if SONIC at that time is offering such
equipment for sale on a regular basis, but is not required by this or any other
agreement to do so.
(b) In
order to provide maximum exposure of the Sonic name and marks, Licensee shall
prominently display and maintain at Licensee’s own expense one (1) Sonic
drive-in sign (“Sign”) which complies with the specifications required by SONIC
from time to time and in such location as SONIC may approve. Licensee
shall not display any other sign or advertising at the Sonic Restaurant without
SONIC’s prior written approval.
(c) Licensee
may lease the required Sign from SONIC or may acquire or lease the Sign from
any
other source approved by SONIC. Licensee agrees to require in any lease
agreement with SONIC or other suppliers a clause giving SONIC the right to
remove the Sign from the Sonic Restaurant upon termination of this
Agreement.
(d) Licensee
hereby agrees that it shall, upon SONIC’s request, obtain from the landlord of
the property at which the Sonic Restaurant is located, a landlord’s lien and
waiver releasing all claims against any equipment or sign which belongs to
SONIC.
(e) If
Licensee is or becomes a lessee of the Sonic Restaurant premises, he shall
provide SONIC with a true and correct, complete copy of any such lease, and
shall have included therein provisions, in form satisfactory to SONIC, expressly
permitting both the Licensee and SONIC to take all actions and make all
alterations referred to under subsection 15.01(c). Any such lease
shall also require the lessor thereunder to give SONIC reasonable notice of
any
contemplated termination and a reasonable time in which to take and make the
above actions and alterations and provide that the Licensee has the unrestricted
right to assign such lease to SONIC.
6.04.
Training
.
(a) Licensee
acknowledges the importance of the quality of business operations among all
restaurants in the Sonic System and, agrees that it will not allow any of its
licensed establishments to be opened or operated without having at least one
individual working full time at the Sonic Restaurant who has completed the
Stage
Career Development Program. If the trained individual ceases to work
full time at the Sonic Restaurant for whatever reason, the Licensee shall have
120 days in which to replace the individual with a person who has completed
the
Stage Career Development Program.
(b) Licensee
shall pay all traveling expenses, living expenses, and any other personal
expenses for themselves and managers while enrolled in the training
program. As part of the initial franchise fee paid pursuant to
Section 5.01 herein, Licensee shall have the right to have one principal and
one
manager of the Sonic Restaurant attend the Stage Career Development Program
for
no cost other than those set out in the preceding sentence. Any
additional parties attending the Stage Career Development Program shall bear
the
cost, including any fees and tuition due for such training program.
6.05.
Compliance
with
Entire System
.
(a) Licensee
acknowledges that every component of the Sonic System is important to SONIC
and
to the operation of the Sonic Restaurant as a Sonic drive-in restaurant,
including a designated menu of food and beverage products; uniformity of food
specifications, preparation methods, quality and appearance; and uniformity
of
facilities and service.
(b) SONIC
shall have the right to inspect the Sonic Restaurant at all reasonable times
to
ensure that Licensee’s operation thereof is in compliance with the standards and
policies of the Sonic System. In the event that such inspection reveals
any deficiency or unsatisfactory condition with respect to any aspect of the
drive-in operation, Licensee shall, within 72 hours of Licensee’s receipt of
notice of such condition or such other time as SONIC in its sole discretion
may
provide, correct or repair such deficiency or unsatisfactory condition if it
is
correctable or repairable within such time period, and, if not, shall within
such time commence such correction or repair and thereafter diligently pursue
same to completion. The preceding sentence notwithstanding, the
Licensee shall take immediate action to correct or repair any deficiency or
unsatisfactory condition which poses a risk to public health or
safety. In the event Licensee fails to comply with the foregoing
obligations to correct and repair, SONIC, upon 24 hours’ notice to Licensee,
shall have the right, without being guilty of trespass or tort, to forthwith
make or cause to be made such corrections or repairs, and the expense thereof,
including board, wages, lodging and transportation of SONIC personnel, if
utilized, shall be paid by Licensee upon billing by SONIC. The foregoing
shall be in addition to any other right or remedies SONIC may have.
(c) Licensee
shall comply with the entire Sonic System as described herein and in the
Sonic Operations Manual
, including but not limited to the
following:
(i) Operate
the Sonic Restaurant in a clean, wholesome manner in compliance with prescribed
standards of quality, service and cleanliness; comply with all business
policies, practices and procedures imposed by SONIC; and maintain the building,
equipment and parking area in a good, clean, wholesome condition and repair,
well lighted and in compliance with designated standards as may be prescribed
from time to time by SONIC.
(ii) Purchase
and install kitchen fixtures, lighting, and equipment, and office equipment
and
signs in accordance with the equipment specifications and layout initially
designated by SONIC.
(iii) Licensee
shall not, without prior written consent of SONIC: (a) make any building
design conversion or (b) make any alterations, conversions or additions to
the
building or parking area.
(iv) Make
repairs or replacements required because of damage, wear and tear or in order
to
maintain the Sonic Restaurant building and parking area in good condition and
in
conformity with blueprints and plans.
(v) Maintain
the parking stalls, as required in the standard Sonic Plans and Specifications,
for the exclusive use of Sonic Restaurant customers.
(vi) Operate
the Sonic Restaurant everyday of the year (except Easter, Thanksgiving and
Christmas), and at least 10 hours per day or such other hours as may from time
to time be reasonably prescribed by SONIC (except when the Sonic Restaurant
is
untenantable as a result of fire or other casualty), maintain sufficient
supplies of food and paper products and employ adequate personnel so as to
operate the Sonic Restaurant at its maximum capacity and
efficiency.
(vii) Cause
all employees of Licensee, while working in the Sonic Restaurant, to: (a)
wear uniforms of such color, design and other specifications as SONIC may
designate from time to time, (b) present a neat and clean appearance and (c)
render competent and courteous service to Sonic Restaurant
customers.
(viii) All
menu items which SONIC may deem appropriate to take fullest advantage of the
potential market and achieve standardization in the Sonic System will be served,
and no items which are not set forth in the
Sonic Operations Manual
or
otherwise authorized and approved in writing by SONIC will be
served.
(ix) In
the dispensing and sale of food products: (a) use only containers, cartons,
bags, napkins and other paper goods and packaging bearing the approved
trademarks and which meet the Sonic System specifications and quality standards,
(b) use only those flavorings, garnishments and food and beverage ingredients
which meet the Sonic System specifications and quality standards, which SONIC
may designate from time to time and (c) employ only those methods of food
handling, preparation, and serving which SONIC may designate from time to
time.
(x) Make
prompt payment in accordance with the terms of invoices rendered to Licensee
including but not limited to, his purchase of fixtures, equipment and food
and
paper supplies.
(xi) At
his own expense, comply with all federal, state, and local laws, ordinances
and
regulations affecting the operation of the Sonic Restaurant.
(xii) Licensee
shall not install any electronic games or other games of chance at the Sonic
Restaurant without the express prior written consent of SONIC.
(xiii) Furnish
SONIC with current changes in home addresses and phone number of its owners
and
manager and, upon SONIC’s reasonable request, provide updates of personal
financial statements or other credit information.
(xiv) The
Licensee shall notify SONIC’s Director of Corporate Communications or, if not
available, the most senior executive officer of SONIC as soon as possible and,
in any event, within 12 hours after the occurrence at the Sonic Restaurant
of
any event which could have an adverse impact on the Sonic Restaurant and/or
the
Sonic System, including (without limitation) the death or serious bodily injury
of any employee or customer for any reason or the risk of infection by a
contagious disease.
6.06.
Approved
Suppliers
and Advertising Agencies
.
(a)
SONIC may require the Licensee (i)
to purchase food, beverages, signs and equipment which meet the specifications
established by SONIC, (ii) to participate in SONIC’s approved purchasing
cooperative for the area in which the Sonic Restaurant is located, and (iii)
to
retain and utilize exclusively the marketing and advertising services of SONIC
approved advertising agency of record. In addition, the Licensee
immediately shall use the Licensee’s vote or votes in all advertising
cooperatives in which the Licensee participates to support the use of the
advertising agency of record for the Sonic drive-in restaurant
chain.
(b) SONIC
may require the Licensee to support the use of and to use the products and
programs of the cola syrup supplier approved by SONIC and used by a majority
of
all Sonic drive-in restaurants, to the exclusion of any other supplier of cola
syrup.
(c) SONIC
may require the Licensee to comply with the foregoing provisions not only for
the Sonic Restaurant, but also (to the extent the Licensee exercises Control)
for all other Sonic drive-in restaurants for which the Licensee serves as a
licensee.
(d) SONIC
hereby explicitly retains the exclusive right to consider, review or approve
any
and all distributors which may hold, sell or distribute Sonic-labeled goods
or
products, except that SONIC shall not withhold unreasonably its approval of
a
supplier approved for use by a duly constituted purchasing
cooperative.
(e) The
terms of this Section 6.06 shall continue in effect for as long as the Licensee
serves as a licensee for a Sonic drive-in restaurant and shall survive the
expiration or termination of this Agreement.
(f) If
at least 95% of all Sonic drive-in restaurants are in compliance with paragraphs
(a) and (b) of Section 6.06, SONIC periodically shall submit the approved
advertising agency or cola syrup supplier to competitive bid or review, but
shall not be obligated to do so more often than once every three
years.
Licensee
shall diligently and fully
exploit his rights in this License by personally devoting his best efforts
and,
in case more than one (1) individual has executed this License as the Licensee,
at least one (1) individual Licensee shall devote his full time and best efforts
to the operation of the Sonic Restaurant. Licensee shall keep free from
any activities which would be detrimental to or interfere with the business
of
the Sonic Restaurant, the Sonic System, or SONIC.
6.08.
Interference
with Employment Relations of Others
.
During
the term of this License,
Licensee shall not employ or seek to employ any person who is at the time
employed by SONIC or any of its subsidiaries in a management level
position. In addition, during the term of this License, SONIC agrees not to
employ or seek to employ any person who is at the time employed by Licensee
in a
management level position. This Subsection 6.08 shall not be violated if such
person has left the employ of any of the foregoing parties for a period in
excess of six months.
6.09.
SONIC’s
Standards
.
Licensee
shall operate the Sonic
Restaurant specified in this License in conformity with the Sonic System and
the
obligations set forth in this Agreement and shall strictly adhere to SONIC’s
standards and policies as they exist now and as they may be from time to time
modified.
6.10.
Majority
Interest Owner
.
Licensee
represents, warrants and
agrees that Licensee actually owns the majority interest in the legal and equity
ownership and Control of the operation of the Sonic Restaurant, and that
Licensee shall maintain such interest during the term of this License except
only as otherwise permitted pursuant to the terms and conditions of this
License. Licensee shall furnish SONIC with such evidence as SONIC may
request from time to time for the purpose of assuring SONIC that Licensee’s
interest remains as represented herein.
7.
PROPRIETARY
MARKS
.
7.01.
SONIC’s
Representations
.
SONIC
represents with respect to the
Proprietary Marks that SONIC will use and permit Licensee and other licensees
to
use the Proprietary Marks only in accordance with the Sonic System and the
standards and specifications attendant thereto which underlie the goodwill
associated with and symbolized by the Proprietary Marks.
7.02.
Use
of Marks
.
With
respect to Licensee’s licensed use
of the Proprietary Marks pursuant to this Agreement, Licensee agrees
that:
(a) Licensee
shall use only the Proprietary Marks designated by SONIC and shall use them
only
in the manner authorized and permitted by SONIC.
(b) Licensee
shall use the Proprietary Marks only for the operation of the Sonic
Restaurant.
(c) During
the term of this Agreement and any renewal hereof, Licensee shall identify
itself as the owner of the Sonic Restaurant in conjunction with any use of
the
Proprietary Marks, including, but not limited to, invoices, order forms,
receipts, and contracts, as well as at such conspicuous locations on the
premises of the Sonic Restaurant as SONIC shall designate in writing. The
identification shall be in the form which specifies Licensee’s name, followed by
the term “Licensed Proprietor”, or such other identification as shall be
approved by SONIC.
(d) Licensee’s
rights to use the Proprietary Marks is limited to such uses as are authorized
under this Agreement, and any unauthorized use thereof shall constitute an
infringement of SONIC’s rights.
(e) Licensee
shall not use the Proprietary Marks to incur any obligation or indebtedness
on
behalf of SONIC.
(f) Licensee
shall not use the Proprietary Marks as part of its corporate or other legal
name
if not already in existence prior to the effective date of this
Agreement.
(g) Licensee
shall comply with SONIC’s instructions in filing and maintaining the requisite
trade name or fictitious name registrations, and shall execute any documents
deemed necessary by SONIC or its counsel to obtain protection for the
Proprietary Marks or to maintain their continued validity and
enforceability.
(h) In
the event that litigation involving the Proprietary Marks is instituted or
threatened against Licensee, Licensee shall promptly notify SONIC and shall
cooperate fully in defending or settling such litigation.
7.03.
Licensee’s
Understanding
.
Licensee
expressly understands and
acknowledges that:
(a) As
between the parties hereto, SONIC has the exclusive right and interest in and
to
the Proprietary Marks and the goodwill associated with and symbolized by them,
and any and all use thereof by Licensee inures to the benefit of
SONIC.
(b) The
Proprietary Marks are valid and serve to identify the Sonic System and those
who
are licensed under the Sonic System.
(c) Licensee
shall not directly or indirectly contest the validity or the ownership of the
Proprietary Marks.
(d) Licensee’s
use of the Proprietary Marks pursuant to this Agreement does not give Licensee
any ownership interest or other interest in or to the Proprietary Marks, except
the nonexclusive license granted herein.
(e) Any
and all goodwill arising from Licensee’s use of the Proprietary Marks in its
licensed operations under the Sonic System shall inure solely and exclusively
to
SONIC’s benefit, and upon expiration or termination of this Agreement and the
License herein granted, no monetary amount shall be assigned as attributable
to
any goodwill associated with Licensee’s use of the Sonic System or the
Proprietary Marks.
(f) The
right and license of the Proprietary Marks granted hereunder to Licensee is
nonexclusive except as provided in subsection 2.01(a) of this Agreement, and
SONIC thus has and retains the right among others:
(i) To
grant other licenses for the Proprietary Marks, in addition to those licenses
already granted to existing licensees.
(ii) To
use the Proprietary Marks in connection with selling products and
services.
(iii) To
develop and establish other systems for the same or similar Proprietary Marks,
or any other Proprietary Marks, and grant licenses or franchises thereto without
providing any rights therein to Licensee.
(g) SONIC
reserves the right to substitute different Proprietary Marks for use in
identifying the Sonic System and the businesses operating thereunder if SONIC’s
currently owned Proprietary Marks no longer can be used.
8.
MANUAL
.
SONIC
shall loan to Licensee for use at
the Sonic Restaurant the
Sonic Operations Manual
prepared by SONIC for
use by licensees of Sonic drive-in restaurants similar to the Sonic Restaurant
to be operated by Licensee. Licensee recognizes that the
Sonic
Operations Manual
contains detailed information relating to operation of
the Sonic Restaurant including: (a) food formulas and specifications for
designated food and beverage products; (b) methods of inventory control; (c)
bookkeeping and accounting procedures; (d) business practices and policies;
and
(e) other management, advertising, and personnel policies. Licensee agrees
to promptly adopt and use exclusively the formulas, methods and policies
contained in the
Sonic Operations Manual
, now and as they may be
modified by SONIC from time to time and to return said manual to SONIC at the
expiration or earlier termination of this License.
9.
CONFIDENTIAL
INFORMATION
.
9.01.
SONIC
Proprietary and Confidential Information
.
SONIC
possesses certain unique,
proprietary and confidential information, consisting of methods and procedures
for preparation of food and beverage products, confidential recipes for food
products, distinctive service and accessories, plans and specifications for
interior and exterior signs, designs, layouts and color schemes, and methods,
techniques, formats, systems, specifications, procedures, information, trade
secrets, sales and marketing programs, methods of business operations and
management, and knowledge of and experience in the operation and franchising of
Sonic drive-in restaurants and the Sonic System (collectively, the “Confidential
Information”). SONIC will disclose the Confidential Information to
Licensee in furnishing Licensee the Sonic Plans and Specifications for a Sonic
drive-in restaurant, the training program, and the
Sonic Operations
Manual
, and in providing guidance and assistance to Licensee during the
term of this Agreement. The
Sonic Operations Manual
, as
modified by SONIC from time to time, and the policies contained therein, are
incorporated in this Agreement by reference.
9.02.
Licensee’s
Use of Proprietary and Confidential Information
.
Licensee
acknowledges and agrees that
Licensee shall not acquire any interest in the Confidential Information, other
than the right to utilize it in the development and operation of the Sonic
Restaurant (and other Sonic drive-in restaurants under license agreements with
SONIC) during the term of this Agreement, and that the use or duplication of
the
Confidential Information in any other business would constitute an unfair method
of competition. Licensee acknowledges and agrees that the
Confidential Information is proprietary to SONIC, may constitute trade secrets
of SONIC and is disclosed to Licensee solely on the condition that Licensee
agrees, and Licensee does hereby agree, that Licensee:
(i) shall
not use the
Confidential Information in any other business or capacity, or for the benefit
of any other Person or entity;
(ii)
shall maintain the absolute
confidentiality of the Confidential Information, and shall not disclose or
divulge the Confidential Information to any unauthorized Person or entity,
during and after the term of the License;
(iii)
shall not make unauthorized
copies of any portion of the Confidential Information disclosed in printed,
audio, or video form (except in connection with instruction of employees in
the
operation of the Sonic Restaurant); and
(iv)
shall adopt and implement all
procedures prescribed from time to time by SONIC to prevent unauthorized use
or
disclosure of the Confidential Information, including, without limitation,
restrictions on disclosure thereof to employees of the Sonic Restaurant and
the
use of nondisclosure and non-competition clauses in employment agreements with
employees (including all owners, shareholders and partners of Licensee) who
have
access to the Confidential Information.
9.03.
Licensee’s
Use of Sonic Operations Manual
.
Licensee
may not at any time, in any
manner, directly or indirectly, and whether or not intentionally, copy any
part
of the
Sonic Operations Manual
, permit any part of it to be copied,
disclose any part of it except to employees or other having a need to know
its
contents for purposes of operating the Sonic Restaurant, or permit its removal
from the Sonic Restaurant without prior written consent from
SONIC. Notwithstanding anything to the contrary contained in this
Agreement and provided Licensee shall have obtained SONIC’s prior written
consent, the restrictions on Licensee’s disclosure and use of the Confidential
Information shall not apply to the following:
(a) information,
processes or techniques which are or become generally known in the food service
industry, other than through disclosure (whether deliberate or inadvertent)
by
Licensee; and
(b) disclosure
of the Confidential Information in judicial or administrative proceedings to
the
extent that Licensee is legally compelled to disclose such information, provided
Licensee shall have used its best efforts, and shall have afforded SONIC the
opportunity, to obtain an appropriate protective order or other assurance
satisfactory to SONIC of confidential treatment for the information required
to
be so disclosed.
10.
ACCOUNTING
AND RECORDS
.
10.01.
Due
Date
.
On
or before the 20th day of each
month, Licensee shall submit to SONIC a complete profit and loss statement
in a form prescribed by SONIC and such statistical reports in such form as
SONIC
shall reasonably require from time to time, for the previous month immediately
ended.
10.02.
Record Retention
.
Licensee
shall keep and preserve full
and complete records of the Sonic Restaurant business for at least three years
in a manner and form satisfactory to SONIC and shall also deliver such
additional financial, operating and other information and reports as SONIC
may
reasonably request on the forms and in the manner prescribed by SONIC; provided,
however, that Licensee shall maintain, at a minimum, those books and records
required to be kept by the Internal Revenue Service under the Internal Revenue
Code for purposes of its regulation of Licensee’s business and make the same
books available to SONIC.
10.03.
Charitable
Contributions and Discounts
.
In
meeting the requirements set forth
in Sections 10.01 and 10.02 above, Licensee shall keep records substantiating
and enter as a line item on its financial statements amounts representing the
valuation for goods (whether food, paper or otherwise) which constitute
charitable contributions to third parties from the same goods out of the Sonic
Restaurant. Likewise, the Licensee shall maintain records and enter
on its financial statements (particularly a line item on its profit and loss
statement) information representing the value or amount of sales represented
by
coupons traded with and discounts granted by the Licensee at the Sonic
Restaurant.
10.04.
Annual
Reports
.
Licensee
further agrees to submit,
within 90 days following the close of each fiscal year of the Sonic Restaurant’s
operation, a profit and loss statement covering operations during such fiscal
year and the balance sheet taken as of the close of such fiscal
year.
10.05.
Audit
by SONIC
.
SONIC
shall have the right to inspect
and audit Licensee’s accounts, books, records and tax returns at all times
during and after the term of this Agreement. If such inspection
discloses that Gross Sales actually exceeded the amount reported by Licensee
or
that Licensee failed to make advertising expenditures required by Sections
11.01(a) or 11.01(b), Licensee shall immediately pay SONIC: (i) the
additional royalty fee, brand fee and advertising expenditures; (ii) interest
on
all unpaid amounts (from the original due date) at a rate equal to that provided
by Section 5.05 herein; and (iii) a 10% surcharge on all unpaid amounts.
If such inspection discloses that Gross Sales actually exceeded the amount
reported by Licensee as Licensee’s Gross Sales by an amount equal to 3% or more
of the Gross Sales originally reported to SONIC or, in the case of failing
to
make required advertising expenditures, that such unpaid expenditures exceeded
3% of the amount required to be expended, Licensee shall bear the cost of such
inspection and audit at rates and fees customarily charged by SONIC for such
auditing and inspecting services and duties. Unpaid brand fees,
including interest and surcharges collected by SONIC pursuant to this section,
shall be used in accordance with the expenditures authorized by Section 5.03;
nevertheless, SONIC may, on a case by case basis, at SONIC’s sole discretion,
use such collected amounts in accordance with the expenditures authorized by
Sections 11.01(a) and 11.01(b). SONIC shall have the right to bring
an action in its own name to collect unpaid advertising and brand expenditures
required by Section 11 herein.
10.06.
Third
–party Audit
.
If
SONIC has reason to believe that the
Licensee may not have reported all of its Gross Sales, SONIC may require the
Licensee to have its profit and loss statement and balance sheet certified
by an
independent public accountant. Licensee shall at his expense cause a
Certified Public Accountant to consult with SONIC concerning such statement
and
balance sheet. The original of each such reports required by this Section
10.06 shall be mailed to SONIC’s business office at the address designated in
Section 19 below.
10.07.
Licensee’s
Failure to Timely Deliver Financial Records
.
If
Licensee fails to timely provide
SONIC with complete profit and loss statements, accounts, books, records and
tax
returns pertaining to the Sonic Restaurant business, or fails to fully cooperate
with SONIC’s audit of the Sonic Restaurant business, SONIC shall have the right
to estimate Licensee’s Gross Sales for the Sonic Restaurant using information
available on the Sonic Restaurant or other Sonic drive-in
restaurants. Licensee agrees to accept SONIC’s estimates as
conclusively correct until Licensee fully complies with SONIC’s accounting and
disclosure requirements under this Agreement. However, if the
Licensee’s subsequent accounting and disclosures reveal that Licensee
under-reported Gross Sales or underpaid fees due under this Agreement, SONIC
may
recover all deficiencies and may litigate claims of fraud even though SONIC
may
have already obtained a judgment using SONIC’s
estimates. Furthermore, nothing in this Agreement or any judgment
using estimates shall prevent or hinder SONIC’s further efforts and rights to
obtain the accounting and disclosures which Licensee is required to give to
SONIC under this Agreement.
10.08.
Financial
Disclosure
.
SONIC
shall have the right to assemble
and disseminate to third parties financial and other information regarding
the
Licensee and other licensees of SONIC to the extent required by law or to the
extent necessary or appropriate to further the interests of the Sonic System
as
a whole. SONIC shall have the right to disclose the business name,
address and telephone number of the Licensee as they appear in SONIC’s records
to any Person making inquiry as to the ownership of the Sonic
Restaurant. SONIC shall not disclose specific financial information
regarding the Licensee or the Sonic Restaurant to any Person without (a) the
Licensee’s prior, written consent or (b) being directed to disclose the
information pursuant to the order of a court or other governmental
agency.
11.
ADVERTISING
AND BRAND EXPENDITURES
.
11.01.
Standard
Program
.
Recognizing
the value of advertising
and the importance of the standardization of advertising programs to the
furtherance of the goodwill and public image of the System, the parties agree
as
follows:
(a) In
the event the Sonic Restaurant lies within a DMA for which a SONIC-approved
advertising cooperative has been formed, Licensee shall contribute to such
advertising cooperative an amount required by such advertising cooperative
on a
schedule required by such advertising cooperative, provided that such
contributions shall occur no less often than each calendar quarter and shall
be
of an amount not less than 3.25% of Licensee’s Gross Sales from the operation of
the Sonic Restaurant during each partial or full calendar month.
(b) In
the event there exists no SONIC-approved advertising cooperative in the DMA
in
which the Sonic Restaurant is located, during each calendar quarter of the
term
of this Agreement, Licensee shall spend for approved advertising and promotion
of the Sonic Restaurant (including, but not limited to, television time, radio
time, newspaper display space, distributed promotional materials, but not
including any amount spent on sign rent, paper products, candy or other foods
which evidence SONIC’s trademarks or color patterns and the like) an amount
equal to but not less than 3.25% of Licensee’s Gross Sales from the operation of
the Sonic Restaurant during each partial or full calendar month.
(c) For
purposes of determining the amount which the Licensee is required to spend
pursuant to Sections 11.01(a), 11.01(b) and 5.03, above, for each calendar
quarter which is the subject of review, the parties hereto agree that the first
two months of such calendar quarter and last month of the preceding calendar
quarter shall be used in determining the Gross Sales of the Sonic Restaurant
to
determine the expenditures required hereunder. For example, to
determine the expenditures required for January, February and March, the parties
hereto agree that they will look to December, January, and February’s sales in
order to determine the Gross Sales to determine the amount which must be
expended by the Licensee under these Sections 11.01(a), 11.01(b) and
5.03. In the event the amounts required by Section 11.01(a) or
11.01(b) are not spent in a timely fashion, Licensee shall pay SONIC in
accordance with Section 10.05.
(d) All
advertising by Licensee in any medium which utilizes the Proprietary Marks
or
refers in any way to the Sonic Restaurant shall be conducted in a dignified
manner and shall conform to such standards and requirements as SONIC may specify
from time to time in writing. Licensee shall submit to SONIC (in
accordance with the notice provisions contained herein), for SONIC’s prior
approval (except with respect to prices to be charged), samples of all
advertising and promotional plans and materials that Licensee desires to use,
that use the Proprietary Marks or refer to the Sonic Restaurant and that have
not been prepared or previously approved by SONIC. If written disapproval
thereof is not received by Licensee within 15 days from the date of receipt
by
SONIC of such materials, SONIC shall be deemed to have given the required
approval. Upon notice from SONIC, Licensee shall discontinue and/or remove
any objectionable advertising material, whether or not same was previously
approved by Franchisor. If said materials are not discontinued and/or
removed within five days after notice, Franchisor or its authorized agents,
may,
at any time, enter upon Franchisor’s premises, or elsewhere, and remove any
objectionable signs or advertising media and may keep or destroy such signs
or
other media without paying therefore, and without being guilty of trespass
or
other tort.
(e) SONIC
may offer from time to time to provide, upon terms subject to the discretion
of
SONIC, approved local advertising and promotional plans and materials,
including, without limitation, newspaper display space, distributed promotional
materials.
(f) SONIC
or its designee shall maintain and administer a fund for the System as
follows:
(i) As
provided in Subsection 5.03 hereof, Licensee shall pay a brand contribution
fee
to the Sonic Brand Fund (formerly known as Sonic Advertising Fund), which shall
be administered by SONIC, and shall be deposited in a separate bank account
denoted as the Sonic Brand Fund (the “Fund”).
(ii) SONIC
shall direct all brand programs with sole discretion over the creative concepts,
materials, and media used in such programs. The Fund is intended to
enhance the Sonic System and maximize general public recognition and acceptance
of the Proprietary Marks for the benefit of the System and the Licensee
acknowledges that SONIC and its designees undertake no obligation in
administering the Fund to make expenditures for Licensee which are equivalent
or
proportionate to Licensee’s contribution, and nothing in this Subsection shall
contravene the intent in Subparagraph (iv) of Paragraph (f) of this Subsection
11.01.
(iii) The
Fund and all earnings thereof shall be used exclusively to meet any and all
costs of maintaining, administering, directing and preparing advertising
(including, without limitation, the cost of preparing and conducting television,
radio, magazine and newspaper advertising campaigns and other public relations
activities; employing advertising agencies to assist therein; and providing
promotional brochures and other marketing materials to licensees in the Sonic
System) as well as any other purpose that promotes, enhances or protects the
Sonic System. All sums paid by licensees to the Fund shall be maintained
in a separate account from the other funds of SONIC. The Fund shall
pay SONIC monthly an amount equal to 15% of the Fund’s receipts during the
preceding month, but not to exceed SONIC’s actual administrative costs and
overhead, if any, as SONIC may incur in activities reasonably related to the
administration or direction of the Fund for the licensees and the Sonic System,
including without limitation, conducting market research, preparing marketing
and advertising materials, and collecting and accounting for assessments for
the
Fund. The Fund and its earnings shall not inure to the benefit of
SONIC.
(iv) All
materials produced by the Fund shall be made available to all licensees without
cost on a regular basis, excluding distribution costs. This Subparagraph
(iv) of Paragraph (f) of Subsection 11.01 shall not preclude SONIC from offering
other materials not produced by the Fund upon terms subject to the discretion
of
SONIC. (See Paragraph (e) of this Subsection 11.01.)
(v) The
Fund is not an asset of SONIC, and an independent certified public accountant
designated by SONIC shall review the operation of the Fund annually, and the
report shall be made available to Licensee upon
request. Notwithstanding the foregoing, the body approved and
designated by SONIC as the body to consult with regarding SONIC’s maintenance
and administration of the Fund (such as the current Franchise Advisory Council
or its successor) may designate the independent public accountant to conduct
the
required review of the operation of the Fund, if requested in writing at least
30 but not more than 60 days prior to the end of each fiscal year.
(vi) It
is anticipated that most contributions to the Fund shall be expended during
the
year within which the contributions are made. If, however, excess amounts
remain in the Fund at the end of such year, all expenditures in the following
year(s) shall be made first out of accumulated earnings, next out of current
earnings, and finally from contributions.
(vii) Although
SONIC intends the Fund to be of perpetual duration, SONIC maintains the right
to
terminate the Fund. Such Fund shall not be terminated, however, until all
monies in the Fund have been expended for ad purposes as aforesaid.
(g) On
at least a quarterly basis, SONIC shall consult with the body approved and
designated by Sonic (such as the current Franchise Advisory Council or its
successor) regarding SONIC’s maintenance and administration of the Fund and
shall report to that body on the Fund’s operation.
11.02.
Publicity
.
SONIC
shall have the right to
photograph the Sonic Restaurant’s exterior and/or interior, and the various
foods served, and to use any such photographs in any of its publicity or
advertising, and Licensee shall cooperate in securing such photographs and
consent of Persons pictured.
12.
INSURANCE
.
12.01.
Insurance
Amounts
.
Prior
to opening or taking possession
of the Sonic Restaurant, the Licensee shall acquire and thereafter maintain
insurance from insurance companies acceptable to SONIC. The Licensee
shall determine the appropriate limits of liability insurance but SONIC shall
require the following minimum amounts and policy forms of
insurance:
(a) The
Licensee shall maintain statutory worker’s compensation insurance and employer’s
liability insurance having a minimum limit of liability of the greater of
$500,000 or the minimum amount otherwise required by applicable state
law. SONIC shall accept participation in the Texas Sonic Employee
Accident Program (“TSEAP”) or in the non-subscriber program for Sonic drive-in
restaurants located in Texas as long as Texas law does not require statutory
worker’s compensation insurance.
(b) The
Licensee shall maintain commercial general liability insurance, including bodily
injury, property damage, products, personal and advertising injury coverage
on
an occurrence policy form having a minimum per occurrence and general aggregate
limits of at least $1,000,000 per location.
(c) The
Licensee shall maintain non-owned automobile liability insurance having a
minimum limit of $1,000,000. The automobile policy also shall provide
coverage for owned automobiles if owned or leased in the name of the
Licensee.
(d) SONIC
shall have the right to require the Licensee to increase the insurance specified
above by giving the Licensee 60 days’ written notice in accordance with the
notice provisions of this Agreement, and the Licensee shall comply no later
than
the first policy renewal date after that 60-day period.
12.02.
SONIC
as Additional Insured
.
The
Licensee shall name SONIC and
SONIC’s subsidiaries and Affiliates as additional insureds under the insurance
policies specified in paragraphs (a), (b) and (c) of Section 12.01,
above. The Licensee’s policies shall constitute primary policies of
insurance with regard to other insurance, shall contain a waiver of subrogation
provision in favor of SONIC as it relates to the operation of the Sonic
Restaurant, and shall provide for at least 30 days’ written notice to SONIC
prior to their cancellation or amendment.
12.03.
General
Conditions
.
Prior
to opening or taking possession
of the Sonic Restaurant, the Licensee shall furnish SONIC with certificates
of
insurance evidencing that the Licensee has obtained the required insurance
in
the form and amounts as specified above. In addition, the Licensee
shall deliver evidence of the continuation of the required insurance policies
at
least 30 days prior to the expiration dates of each existing insurance
policy. If the Licensee at any time fails to acquire and maintain the
required insurance coverage, SONIC shall have the right, at the Licensee’s
expense, to acquire and administer the required minimum insurance coverage
on
behalf of the Licensee. However, SONIC shall not have any obligation
to assume the premium expense and nothing in this Agreement shall constitute
a
guaranty by SONIC against any losses sustained by the Licensee. SONIC
may relieve itself of all duties with respect to the administration of any
required insurance policies by giving 10 days’ written notice to the
Licensee.
13.
TRANSFER OF INTEREST
.
13.01.
Assignment
.
The
rights and duties created by this
Agreement are personal to Licensee and SONIC has granted the License in reliance
on the collective character, skill, aptitude and business and financial capacity
of Licensee and Licensee’s principals. Accordingly, except as may be
otherwise permitted by this Section 13, neither Licensee nor any Person or
entity with an interest in Licensee shall directly or indirectly, through one
or
more intermediaries, without SONIC’s prior written consent, sell, assign,
transfer, convey, give away, pledge, mortgage or otherwise encumber any direct
or indirect interest in the License; any interest in Licensee, if Licensee
is a
partnership, joint venture or closely held corporation; or any interest which,
together with other related previous simultaneous or proposed transfers,
constitutes a transfer of Control of Licensee where Licensee is registered
under
the Securities Exchange Act of 1934. Any such purported assignment
occurring by operation of law or without SONIC’s prior written consent and
pursuant to the terms of this Section 13, shall constitute a default of this
Agreement by Licensee and such purported assignment shall be null and
void.
13.02.
Death
or Permanent Incapacity of Licensee
.
Upon
the death or permanent incapacity
of Licensee, the interest of Licensee in the License may be assigned either
pursuant to the terms of Subsection 13.04 herein or to one or more of the
following Persons: Licensee’s spouse, heirs or nearest relatives by blood
or marriage, subject to the following conditions: (1) If, in the sole
discretion of SONIC, such persons shall be capable of conducting the Sonic
Restaurant business in accordance with the terms and conditions of the License,
and (2) if such persons shall also execute an agreement by which they personally
assume full and unconditional liability for and agree to perform all the terms
and conditions of the License to the same extent as the original Licensee.
In the event that Licensee’s heirs do not obtain the consent of SONIC as
assignees of the License, the personal representative of Licensee shall have
the
greater of 120 days or the completion of the probate of the Licensee’s estate to
dispose of Licensee’s interest hereunder, which disposition shall be subject to
all the terms and conditions for assignments under Subsection
13.04.
13.03.
Assignment
to Licensee’s Corporation
.
SONIC
may, upon Licensee’s compliance
with the following requirements, consent to an assignment of the License to
a
corporation whose shares are owned and Controlled by Licensee. Such
written materials shall be supplied to SONIC within 15 days after the request
by
SONIC.
(a) Licensee’s
corporation shall be newly organized, and its charter shall provide that its
activities are confined exclusively to operating the Sonic
Restaurant.
(b) Licensee
and Licensee’s corporation shall maintain stop transfer instructions against the
transfer on Licensee’s corporation’s records of any securities with any voting
rights subject to the restrictions of Section 13 hereof, and shall issue no
securities upon the face of which the following printed legend does not legibly
and conspicuously appear.
The
transfer of this stock is subject to terms and conditions of one or more license
agreements with Sonic Industries LLC. Reference is made to said license
agreement(s) and the restrictive provisions of the Articles and By-Laws of
this
corporation. By agreeing to receive these securities, the transferee
hereby agrees to be bound by the terms of such agreements, articles and
by-laws.
(c) At
any time upon SONIC’s request, Licensee and Licensee’s corporation shall furnish
company with a list of all shareholders having an interest in Licensee’s
corporation, the percentage interest of such shareholder and a list of all
officers and directors in such form as SONIC may require.
(d) The
corporate name of Licensee’s corporation shall not include any of the
Proprietary Marks granted by the License. Licensee and Licensee’s
corporation shall not use any mark nor any name deceptively similar thereto
in a
public or private offering of its securities, except to reflect Licensee’s
corporation’s franchise relationship with SONIC. Any prospectus or
registration Licensee or Licensee’s corporation would propose to use in such a
public or private offering shall be submitted to SONIC within a reasonable
time
prior to the effective date thereof for the purpose of permitting SONIC to
verify compliance with this requirement by Licensee and Licensee’s
corporation.
(e) Articles
of Incorporation, By-Laws and all other documents governing Licensee’s
corporation shall be forwarded to SONIC for approval. The Articles of
Incorporation, By-Laws and other organization and governing documents shall
recite that the issuance and transfer of any interest in Licensee’s corporation
are restricted by the terms of Section 13 of this Agreement.
(f) Each
shareholder of the Licensee’s corporation shall personally guarantee performance
under this Agreement and shall be personally bound by the terms
thereof.
(g) Any
breach of this Agreement by Licensee’s corporation shall be deemed a breach of
this Agreement by each shareholder of Licensee’s corporation and each
shareholder shall be personally and fully liable and obligated by any and all
such breaches.
(h) Licensee
and Licensee’s corporation shall submit to SONIC, prior to any assignment
hereunder, a shareholders agreement executed by the Board of Directors and
ratified by all shareholders, which states that, except as may be permitted
by
Section 13 of this Agreement, no shares of stock or other interest in Licensee’s
corporation shall be issued, transferred, or assigned to any Person or entity
without SONIC’s prior written consent.
(i) Each
and every shareholder of Licensee’s corporation or any party owning a security
issued by, or owning any legal or equitable interest in Licensee’s corporation
or in any security convertible to a legal or equitable interest in Licensee’s
corporation shall meet those same standards of approval as an individual
licensee shall be required to meet prior to being included as a licensee on
a
standard license agreement with SONIC.
13.04.
Other
Assignment
.
(a) In
addition to any assignments or contingent assignments contemplated by the terms
of Subsections 13.02 and 13.03 of this Section 13, Licensee shall not sell,
transfer or assign the License to any Person or Persons without SONIC’s prior
written consent. Such consent shall not be unreasonably
withheld.
(b) In
determining whether to grant or to withhold such consent, the following
requirements must be met by Licensee:
(i) All
of Licensee’s accrued monetary obligations shall have been satisfied whether due
under this Agreement or otherwise.
(ii) SONIC
and the Licensee execute a general release of each other, in a form satisfactory
to SONIC, of any and all claims the Licensee may have against SONIC and its
Affiliates, including (without limitation) all claims arising under any federal,
state or local law, rule or ordinance, but excluding (as to SONIC) any claims
against the Licensee for (a) unpaid moneys due SONIC or its Affiliates, (b)
a
material breach of the provisions of this Agreement regarding the Proprietary
Marks, or (c) the violation of SONIC’s legal rights regarding the Proprietary
Marks. SONIC may waive the requirements of this subparagraph (ii) at
SONIC’s election.
(iii) Licensee
shall not be in material breach of this Agreement or any other agreement between
SONIC and Licensee.
(iv) Assignee
(or the assignee’s management, as the case may be) shall at SONIC’s sole
discretion, enroll in and successfully complete such training programs as SONIC
shall at that time designate according to Section 6.04 hereof.
(v) SONIC
shall consider of each prospective transferee, by way of illustration, the
following: (a) work experience and aptitude, (b) financial background, (c)
character, (d) ability to personally devote full time and best efforts to
managing the Sonic Restaurant, (e) residence in the locality of the Sonic
Restaurant, (f) equity interest in the Sonic Restaurant, (g) conflicting
interests and (h) such other criteria and conditions as SONIC shall apply in
the
case of an application for a new license to operate a Sonic drive-in
restaurant. SONIC’s consent shall also be conditioned each upon such
transferee’s execution of an agreement by which transferee personally assumes
full and unconditional liability for and agrees to perform from the date of
such
transfer all obligations, covenants and agreements contained in the License
to
the same extent as if transferee had been an original party to the
License.
13.05.
SONIC’s
Right of First Refusal
.
(a) If
Licensee or any Person or entity with an interest in Licensee has received
and
desires to accept any bona fide offer to purchase all or any part of Licensee’s
interest in this Agreement or in Licensee and the transfer of such interest
would: (1) result in a change of Control of Licensee of this Agreement or (2)
constitute a transfer of interest held by a Controlling Person of Licensee
or of
the License, Licensee or such Person shall notify SONIC in writing of each
such
offer, with such notice including the name and address of the proposed
purchaser, the amount and terms of the proposed purchase price, a copy of the
proposed purchase contract (signed by the parties, but expressly subject to
SONIC’s right of first refusal), and all other terms and conditions of such
offer. SONIC shall have the right and option, exercisable within 20
days after SONIC’s receipt of such written notification, to send written notice
to Licensee or such Person or entity that SONIC or its designee intends to
purchase the interest which is proposed to be transferred on the same terms
and
conditions offered by the third party. Any material change in the terms of
an offer prior to closing shall cause it to be deemed a new offer, subject
to
the same right of first refusal by SONIC or its designee as in the initial
offer. SONIC’s failure to exercise such option shall not constitute a
waiver of any other provision of this Agreement, including any of the
requirements of this Section with respect to the proposed transfer.
Silence on the part of SONIC shall constitute rejection. If the proposed
sale includes assets of Licensee not related to the operation of a licensed
Sonic drive-in restaurant, SONIC may purchase not only the assets related to
the
operation of a licensed Sonic drive-in restaurant, but may also purchase the
other assets. An equitable purchase price shall be allocated to each
asset included in the proposed sale.
(b) The
election by SONIC not to exercise its right of first refusal as to any offer
shall not affect its right of first refusal as to any subsequent
offer.
(c) Any
sale or attempted sale effected without first giving SONIC the right of first
refusal described above shall be void and of no force and
effect.
(d) If
SONIC does not accept the offer to purchase the Sonic Restaurant, Licensee
may
conclude the sale to the purchaser who made the offer so long as the terms
and
conditions of such sale are identical to those originally offered to SONIC;
provided, however, that SONIC’s approval of the assignee be first obtained,
which consent shall not be unreasonably withheld upon compliance with the
conditions on assignment imposed by this Agreement.
(e) The
provisions of this Section 13.05 shall not apply to any proposed transfers
to
members of the Licensee’s immediate family. For the purposes of this
Section 13.05, a member of the Licensee’s immediate family shall mean the
Licensee’s spouse and children (by birth or adoption). In addition,
the provisions of this Section 13.05 shall not apply to any proposed transfers
to Person who already own an interest (directly or indirectly) in this Agreement
or the License as long as the transfer will not result in a change in Control
of
the Licensee or the License.
13.06.
Consent
to Assignments
.
With
regard to any transfer, assignment
or pledge of any interest in this Agreement or in the Licensee pursuant to
the
foregoing provisions of this Section 13, SONIC shall not withhold its consent
unreasonably as long as the proposed transfer, assignment or pledge otherwise
complies with the other requirements set forth in this Section 13.
14.
DEFAULT AND TERMINATION
.
14.01.
Automatic
Termination
.
Licensee
shall be deemed to be in
breach of this Agreement and all rights granted herein shall automatically
terminate with notice from SONIC if any of the following events
occur:
(a) Licensee
shall become insolvent.
(b) Licensee,
either personally, through an equity owner, or through Licensee’s attorney,
shall give oral or written notice to SONIC of Licensee’s intent to file a
voluntary petition under any bankruptcy law.
(c) A
final judgment aggregating in excess of $5,000 against the Sonic Restaurant
or
property connected with the Sonic Restaurant which remains unpaid for 30
days.
(d) Suit
to foreclose any lien against any assets of the Sonic Restaurant is instituted
against Licensee and (i) is not dismissed within 30 days, (ii) such lien is
not
contested and challenged through the applicable administrative agencies or
courts, or (iii) a bond is not posted (if such remedy is available) to delay
any
such foreclosure and guarantee performance.
(e) The
assets of the Sonic Restaurant are sold after being levied thereupon by sheriff,
marshal or a constable.
(f) Transfer
of this Agreement, in whole or in part, is effected in any manner inconsistent
with Section 13 hereof.
14.02.
Optional
Termination
.
Licensee
shall be deemed to be in
breach of this Agreement and SONIC may, at its option, terminate this Agreement
and all rights granted herein at any time during the term hereof without
affording Licensee any opportunity to cure the breach, effective immediately
upon Licensee’s receipt of a notice of termination, upon the occurrence of any
of the following events:
(a) If
Licensee ceases to operate the Sonic Restaurant or otherwise abandons the Sonic
Restaurant (other than closure permitted pursuant to Section 6.05(c)(vi) herein)
or forfeits the legal right to do or transact business at the location licensed
herein.
(b) If
Licensee is convicted of a felony, a crime involving moral turpitude, or
any other crime or offense that is reasonably likely, in the sole
opinion of SONIC, to adversely affect the Sonic System, the Proprietary
Marks, the goodwill associated therewith or SONIC’s rights therein.
(c) If
Licensee misuses or makes any unauthorized use of any of the Proprietary Marks
or any other identifying characteristic of the Sonic System or otherwise
materially impairs the goodwill associated therewith or SONIC’s rights therein
and the Licensee cannot cure the default within 30 days.
(d) If
Licensee improperly discloses trade secrets or confidential information and
the
Licensee cannot cure the default within 30 days.
(e) If
continued operation of the Sonic Restaurant might endanger public health or
safety.
(f) If
Licensee knowingly or through gross negligence maintains false books or records
or knowingly or through gross negligence submits any false report to
SONIC.
14.03.
Period
to Cure
.
Except
as provided in Subsections 14.01
and 14.02, Licensee shall have 30 days after receipt from SONIC of a written
notice of breach of this Agreement or such notice period as is required by
the
law of the state where the Sonic Restaurant is located, within which to remedy
any breach hereunder. However, this period to cure will not be available
to Licensee, and SONIC will not be required to delay termination of this
Agreement, where the breach involved is one which Licensee cannot cure within
the prescribed cure period or is one which is impossible to
cure. SONIC shall have the right to terminate this Agreement and the
License upon written notice to the Licensee and without any opportunity to
cure
after three willful and material breaches of the same provision of this
Agreement within any 12-month period for which the Licensee has received written
notice and an opportunity to cure. If any such breach is not cured
within that time, SONIC may, at its option, terminate this Agreement and all
rights granted hereunder effective immediately on the date of receipt by
Licensee of written notice of termination. Licensee shall be in breach
hereunder for any failure to comply with any of the terms of this Agreement
or to carry out the terms of this Agreement in good faith. Such
breach shall include, but shall not be limited to, the occurrence of any of
the
following illustrative events:
(a) If
the Licensee fails to pay any past due amounts owed to SONIC after SONIC has
mailed the Licensee two or more statements at least 20 days apart.
(b) If
Licensee fails to promptly pay, or repeatedly delays the prompt payment of
undisputed invoices from his suppliers or in the remittance of rent and property
tax as required in Licensee’s lease.
(c) If
Licensee fails to maintain and operate the Sonic Restaurant in a good, clean,
and wholesome manner or otherwise is not in compliance with the standards
prescribed by the Sonic System.
(d) If
Licensee attempts to assign or transfer any interest in this Agreement in
violation of Section 13 herein.
(e) If
Licensee denies SONIC the right to inspect the Sonic Restaurant at reasonable
times, which includes the right to photograph the interior and exterior of
the
Sonic Restaurant in its entirety.
(f) If
Licensee fails, refuses, or neglects to obtain SONIC’s prior written approval or
consent as required by this Agreement.
(g) If
Licensee acquires any interest in another business in violation of Section
16.
(h) If
Licensee fails, refuses or neglects to provide SONIC with Licensee’s home
address and home telephone number.
(i) If
Licensee breaches any other requirement set forth in this
Agreement.
(j) If
Licensee, upon the destruction of the Sonic Restaurant, fails to rebuild the
franchise premises and resume operation within a reasonable time (cessation
of
the business from a franchise premises shall not constitute default of this
Agreement if caused by condemnation, expiration of a location lease pursuant
to
its terms at execution or when failure to rebuild following destruction of
the
franchised premises is prohibited by law or the location
lease).
14.04.
Resolution
of Disputes
.
The
following provisions shall apply to
any controversy between the Licensee and SONIC (including an Affiliate of SONIC)
and relating (a) to this Agreement (including any claim that any part of this
Agreement is invalid, illegal or otherwise void or voidable), (b) to the
parties’ business activities conducted as a result of this Agreement, or (c) the
parties’ relationship or business dealings with one another generally, including
all disputes and litigation pending or in existence as of the date of this
Agreement.
(a)
Negotiation
.
The
parties first shall use their best
efforts to discuss and negotiate a resolution of the controversy.
(b)
Mediation
.
If
the efforts to negotiate a
resolution do not succeed, the parties shall submit the controversy to mediation
by a mediation firm agreeable to the parties or by the American Arbitration
Association, if the parties cannot agree. The mediation shall take
place in Oklahoma City, Oklahoma.
(c)
Arbitration
.
If
the efforts to negotiate and mediate
a resolution do not succeed, the parties shall resolve the controversy by final
and binding arbitration in accordance with the Rules for Commercial Arbitration
(the “Rules”) of the American Arbitration Association in effect at the time of
the execution of this Agreement and pursuant to the following additional
provisions:
(i)
Applicable
Law
. The Federal Arbitration Act (the “Federal Act”), as
supplemented by the Oklahoma Arbitration Act (to the extent not inconsistent
with the Federal Act), shall apply to the arbitration.
(ii)
Selection
of Arbitrators
. The parties shall select three arbitrators within
10 days after the filing of a demand and submission in accordance with the
Rules. If the parties fail to agree on three arbitrators within that
10-day period or fail to agree to an extension of that period, the arbitration
shall take place before three arbitrators selected in accordance the
Rules. At least one of the arbitrators shall constitute an individual
selected by Sonic (or its Affiliate) who has experience with franchise law
or
franchise relations. A decision or award by a majority of the
arbitrators shall constitute the decision or award of the
arbitrators.
(iii)
Location
of Arbitration
. The arbitration shall take place in Oklahoma
City, Oklahoma, and the arbitrators shall issue any award at the place of
arbitration. The arbitrators may conduct hearings and meetings at any
other place agreeable to the parties or, upon the motion of a party, determined
by the arbitrators as necessary to obtain significant testimony or
evidence.
(iv)
Discovery
. The
arbitrators shall have the power to authorize all forms of discovery (including
depositions, interrogatories and document production) upon the showing of (a)
a
specific need for the discovery, (b) that the discovery likely will lead to
material evidence needed to resolve the controversy, and (c) that the scope,
timing and cost of the discovery is not excessive.
(v)
Authority
of Arbitrators
. The arbitrators shall not have the power (a) to
alter, modify, amend, add to, or subtract from any term or provision of this
Agreement; (b) to rule upon or grant any extension, renewal or continuance
of
this Agreement; (c) to award damages or other remedies expressly prohibited
by
this Agreement; or (d) to grant interim injunctive relief prior to the
award.
(vi)
Scope
of Proceeding
. The parties shall conduct any arbitration
proceeding and resolve any controversy on an individual basis only and not
on a
class-wide, multiple-party, or similar basis.
(vii)
Enforcement
of Award
. The prevailing party shall have the right to enter the
award of the arbitrators in any court having jurisdiction over one or more
of
the parties or their assets. The parties specifically waive any right
they may have to apply to any court for relief from the provisions of this
Agreement or from any decision of the arbitrators made prior to the
award. The award of the arbitrators shall not have any precedential
or collateral estoppel effect on any other controversy involving SONIC or its
Affiliates.
(d)
Excluded
Controversies
.
At
the election of SONIC or its
Affiliate, the provisions of this Section 14.04 shall not apply to any
controversies relating to any fee due SONIC or its Affiliate; any promissory
note payments due SONIC or its Affiliate; or any trade payables due SONIC or
its
Affiliate as a result of the purchase of equipment, goods or
supplies. The provisions of this Section 14.04 also shall not apply
to any controversies relating to the use and protection of the Proprietary
Marks
or the Sonic System, including (without limitation) SONIC’s right to apply to
any court of competent jurisdiction for appropriate injunctive relief for the
infringement of the Proprietary Marks or the Sonic System.
(e)
Attorneys’
Fees and Costs
.
The
prevailing party to the arbitration
shall have the right to an award of its reasonable attorneys’ fees and costs
incurred after the filing of the demand and submission, including a portion
of
the direct costs of any in-house legal staff reasonably allocable to the time
devoted to the arbitration.
15.
OBLIGATIONS UPON TERMINATION
.
15.01.
Effect
of Termination, Cancellation or Expiration of this Agreement
.
Except
as otherwise authorized pursuant
to the terms of any other license agreement between SONIC and the Licensee,
the
Licensee shall comply with the following provisions after the expiration or
termination of this Agreement and the License:
(a) Licensee,
upon any termination, cancellation or expiration of this Agreement, shall
promptly pay to SONIC and SONIC’s subsidiaries any and all sums owed to
them. In the event of termination for any breach by Licensee, such sums
shall include all damages, costs and expenses, including reasonable attorneys’
fees, incurred by SONIC as a result of the breach, which obligation shall give
rise to and remain, until paid in full, a lien in favor of SONIC against any
and
all of the assets of the Sonic Restaurant owned by Licensee at the time of
default.
(b) Upon
termination, cancellation or expiration hereof for any reason, all Licensee’s
rights hereunder shall terminate. Licensee shall not thereafter use or adopt
any
trade secrets disclosed to Licensee hereunder or any paper goods, emblems,
signs, displays, menu housings or other property on which SONIC’s name or
Proprietary Marks are imprinted or otherwise form a part thereof or any
confusing simulations thereof. Licensee shall not otherwise use or
duplicate the Sonic System or any portion thereof or assist others to do
so. Licensee shall remove from the premises all signs, emblems and displays
identifying it as associated with SONIC or the Sonic System. Licensee
shall cease to use and shall return to SONIC all copies of the Sonic
Operations Manual, instructions or materials delivered to Licensee
hereunder.
(c) Upon
termination, cancellation or expiration of this Agreement, unless otherwise
directed in writing by SONIC, Licensee shall change the exterior and interior
design and the decor of said premises, including, but not limited to, changing
the color scheme, and shall make or cause to be made such changes in signs,
buildings and structures (excluding major structural changes) as SONIC shall
reasonably direct so as to effectively distinguish the same from its former
appearance and from any other Sonic drive-in restaurant unit, and if Licensee
fails or refuses to comply herewith, then SONIC shall have the right to enter
upon the premises where said business is being conducted without being guilty
of
trespass or any other tort for the purpose of making or causing to be made
such
changes at the expense of Licensee which expense Licensee agrees to pay on
demand.
(d) Upon
termination, cancellation or expiration of this Agreement, in the event Licensee
is the owner of the Sign, SONIC shall have an irrevocable option to purchase
the
Sign for its fair market value. In any event, Licensee shall not
thereafter use any sign panels displaying SONIC’s name or Proprietary Marks or
which primarily display the colors used in any other such sign at any other
Sonic drive-in restaurant unit (See Subsection 15.04 for determining fair market
value). Any agent, servant or employee of SONIC may remove the Sign or any
objectionable signs or advertising from the Sonic Restaurant without being
guilty of trespass or other tort, and Licensee shall be liable for SONIC’s costs
plus attorneys’ fees for any interference therewith.
(e) Upon
termination, cancellation or expiration of this Agreement, Licensee shall cease
to hold Licensee out in any way as a licensee of SONIC or to do anything which
would indicate any relationship between Licensee and SONIC.
(f) The
covenants set forth in Paragraphs (a), (b), (c), (d) and (e) of this Subsection
15.01 shall survive the termination, cancellation or expiration of this
Agreement.
(g) All
rights, claims and indebtedness which may accrue to SONIC prior to termination,
cancellation or expiration of this Agreement shall survive termination,
cancellation or expiration and be enforceable by SONIC.
(h) Licensee
shall complete all such modifications within 30 days after this Agreement has
been terminated or canceled or has expired. Licensee and SONIC agree
that SONIC’s damages resulting from a breach of the provisions of this
Subsection are difficult to estimate or determine accurately. In the event
of a breach by Licensee of the provisions of this Subsection, Licensee, in
addition to any and all other remedies available to SONIC herein and elsewhere,
will pay SONIC double the royalty and brand fees prescribed in this Agreement
until Licensee satisfactorily de-identifies the restaurant premises in the
manner prescribed by this Section. This payment shall constitute
liquidated damages and shall not be construed as a penalty since such payment
has been agreed to by Licensee and SONIC as reasonably representative of the
actual damage sustained by SONIC in the event of such a breach. The
liquidated damages shall start on the 31st day after this Agreement has been
terminated or canceled or has expired. These liquidated damages shall
not constitute either a waiver of Licensee’s obligation to de-identify or a
license to use the Sonic System. These remedies will be in addition
to any other remedies SONIC may have hereunder or under federal or state
law.
15.02.
SONIC’s
Option to Purchase
.
(a) Upon
termination, cancellation or expiration hereof, SONIC shall have the right
and
option to purchase all or any patented, special or unique Sonic restaurant
equipment, menu housings, signs, menus and supplies of Licensee at their fair
market value (See Subsection 15.04 for determining fair market value).
Such right or option of SONIC shall be exercised as provided in Paragraph (b)
of
this Subsection 15.02. If SONIC elects to exercise any option to
purchase herein provided, it shall have the right to set off all amounts due
from Licensee to SONIC and one-half of the cost of any appraisals against any
payment therefor.
(b) In
the case of termination by expiration, SONIC shall exercise SONIC’s option
contained in this Subsection 15.02 by giving Licensee written notice at least
30
days prior to expiration. In the case of termination for any other reason,
SONIC shall exercise its option by giving Licensee written notice within 30
days
after termination.
(c) SONIC’s
option hereunder is without prejudice to SONIC’s rights under any security
agreement held by SONIC or with respect to which SONIC may have a guarantor’s or
surety’s subrogation interest. If SONIC exercises this option, SONIC may
pay any debt which Licensee owes to SONIC and shall remit any balance of the
purchase price to Licensee. There shall be no allowance for
goodwill.
15.03.
SONIC’s
Obligation to Purchase
.
(a) Upon
termination, cancellation or expiration of this Agreement, if Licensee desires
to sell Licensee’s unbroken inventory packages of approved imprinted items and
supplies with Proprietary Marks to SONIC, excluding all food items,
SONIC shall have the obligation to repurchase such items at
Licensee’s cost.
(b) If
Licensee desires to sell such items to SONIC, Licensee shall, not later than
10
days after termination, cancellation or expiration of this Agreement, give
SONIC 10 days written notice of Licensee’s election and, at the expiration of
the 10-days notice period, deliver such items at Licensee’s expense with an
itemized inventory to the nearest Sonic drive-in restaurant owned by SONIC
or other unit designated by SONIC. SONIC agrees to pay Licensee or credit
Licensee’s account within seven days after said delivery.
15.04.
Fair
Market Value Determination
.
If
the parties cannot agree on the fair
market value of any item subject to an option to purchase in this Agreement
within a reasonable time, one appraiser shall be designated by SONIC, one by
Licensee and the two appraisers shall designate an independent appraiser, and
the valuation of such third appraiser alone shall be binding. SONIC and
the Licensee each shall pay one-half of the cost of any appraisals required
pursuant to this Section 15.04.
16.
COVENANTS
.
16.01.
Restrictions on Licensee
.
Licensee
agrees and covenants as
follows:
(a) During
the term of this License, Licensee shall not directly or indirectly through
one
or more intermediaries (i) engage in, (ii) acquire any financial or beneficial
interest (including interests in corporations, partnerships, trusts,
unincorporated associations or joint ventures) in, (iii) loan money to or (iv)
become landlord of any restaurant business which has a menu similar to that
of a
Sonic drive-in restaurant (such as hamburgers, hot dogs, onion rings, and
similar items customarily sold by Sonic drive-in restaurants) or which has
an
appearance similar to that of a Sonic drive-in restaurant (such as color
pattern, use of canopies, use of speakers and menu housings for ordering food,
or other items that are customarily used by a Sonic drive-in
restaurant).
(b) Licensee
shall not, for a period of 18 months after termination of this License for
any
reason, directly or indirectly through one or more intermediaries (i) engage
in,
(ii) acquire any financial or beneficial interest (including interests in
corporations, partnerships, trusts, unincorporated associations or joint
ventures) in, (iii) loan money to or (iv) become a landlord of any restaurant
business which has a menu similar to that of a Sonic drive-in restaurant (such
as hamburgers, hot dogs, onion rings, and similar items customarily sold by
Sonic drive-in restaurants) or which has an appearance similar to that of a
Sonic drive-in restaurants (such as color pattern, use of canopies, use of
speakers and menu housings for ordering food, or other items that are
customarily used by a Sonic drive-in restaurants), and which (i) is within
a
three- mile radius of the Sonic Restaurant formerly licensed by this Agreement,
(ii) is within a 20-mile radius of a Sonic drive-in restaurant in operation
or
under construction, or (iii) is located within the MSA of the Sonic
Restaurant.
(c) Licensee
shall not appropriate, use or duplicate the Sonic System, or any portion
thereof, for use at any other restaurant business.
(d) During
the term of this Agreement, Licensee shall (i) use Licensee’s best efforts to
promote the business of the Sonic Restaurant, (ii) devote Licensee’s full time,
energies and attention to the operation and management of the Sonic Restaurant,
and (iii) not engage in any other business or activity that might detract from,
interfere with or be detrimental to the Sonic System or Licensee’s full and
timely performance under this Agreement (except the ownership and operation
of
other Sonic drive-in restaurants under license agreements with
SONIC).
(e) During
the term of this Agreement, Licensee shall not perform or provide services
as a
director, officer, employee, agent, representative, consultant or in any other
capacity for any other restaurant business which has a menu or appearance
similar to that of a Sonic drive-in restaurant.
(f) During
the term of this Agreement, Licensee shall not directly or indirectly through
one or more intermediaries (i) engage in, (ii) acquire any financial or
beneficial interest in, (iii) loan money, or (iv) become landlord of any
operation which has granted or is granting franchises or licenses (except for
those granted by SONIC) to others to operate any other restaurant business
which
has a menu or appearance similar to that of a Sonic drive-in
restaurant.
(g) Paragraphs
(a), (b) and (f) of this Subsection 16.01 shall not apply to ownership by
Licensee of less than 2% beneficial interest in the outstanding equity
securities of any corporation which is registered under the Securities Exchange
Act of 1934; however, this Subsection 16.01(g) shall apply to all shareholders
or partners of Licensee (in the event Licensee is a corporation or partnership)
and all members of Licensees’ and their immediate families, and all Persons or
entities guaranteeing this Agreement.
(h) The
parties agree that each of the foregoing covenants shall be construed as
independent of any covenant or provision of this Agreement. If all or any
portion of a covenant in this Section 16 is held unreasonable or unenforceable
by a court or agency having valid jurisdiction in an unappealed final decision
to which SONIC is a party, Licensee expressly agrees to be bound by any lesser
covenant subsumed with the terms of such covenant that imposes the maximum
duty
permitted by law, as if the resulting covenant were separately stated in and
made a part of this Section 16.
(i) Licensee
understands and acknowledges that SONIC shall have the right, in SONIC’s sole
discretion, to reduce the scope of any covenant set forth in Paragraphs (a),
(b)
and (f) of this Subsection 16.01, or any portion thereof, without Licensee’s
consent effective immediately upon receipt by Licensee of written notice
thereof, and Licensee agrees that it shall comply forthwith with any covenant
as
so modified, which shall be fully enforceable notwithstanding the provisions
of
Paragraph (k) of this Subsection 16.01.
(j) Licensee
expressly agrees that the existence of any claims Licensee may have against
SONIC, whether or not arising from this Agreement, shall not constitute a
defense to the enforcement by SONIC of the covenants in this Section
16.
(k) Licensee
acknowledges that Licensee’s violation of the terms of this Section 16 would
result in irreparable injury to SONIC for which no adequate remedy at law is
available, and Licensee accordingly consents to the ex parte issuance of
restraining orders, temporary and permanent injunctions and cease and desist
orders prohibiting any conduct by Licensee in violation of the terms of this
Section 16.
(l) Licensee
shall utilize at the Sonic Restaurant a cash register previously approved by
SONIC, which such cash register shall at all times during the term of this
Agreement have a non-alterable grand total function so that each item entered
in
such register and each day’s totals may not be altered once
entered.
16.02.
Covenants by Others
.
At
the time of execution of this
Agreement, Licensee shall provide SONIC with covenants similar in substance
to
those set forth in this Section 16 (including covenants applicable upon the
termination of a Person’s relationship with Licensee) from the following
persons: (1) all persons employed by Licensee; and (2) all officers,
directors, and holders of a direct or indirect beneficial ownership interest
Licensee. With respect to each Person who becomes associated with Licensee
in one of the capacities enumerated above subsequent to execution of this
Agreement, Licensee shall require and obtain such covenants and promptly provide
SONIC with executed copies of such covenants. In no event shall any Person
enumerated be granted access to any confidential aspect of the Sonic System
or
the Sonic Restaurant prior to execution of such a covenant. All covenants
required by this Section 16 shall be furnished by SONIC to Licensee and shall
include, without limitation, specific identification of SONIC as a third party
beneficiary of such covenants with the independent right to enforce them.
Failure by Licensee to obtain execution of a covenant required by this Section
16 shall constitute a breach of this Agreement.
17.
INDEPENDENT CONTRACTOR & INDEMNIFICATION
.
17.01.
Licensee
not an Agent of SONIC
.
It
is understood and agreed that this
Agreement does not create a fiduciary relationship between SONIC and Licensee,
and that nothing herein contained shall constitute Licensee as the agent, legal
representative, partner, joint venturer or employee of SONIC. Licensee is,
and
shall remain, an independent contractor responsible for all obligations and
liabilities of, and for all loss or damage to, the Sonic Restaurant and its
business, including any personal property, equipment, fixtures or real property
connected therewith and for all claims or demands based on damage or destruction
of property or based on injury, illness or death of any person or persons,
directly or indirectly, resulting from the operation of the Sonic
Restaurant.
17.02.
Cost
of Enforcement
.
If
SONIC or SONIC’s subsidiaries
becomes involved in any action at law or in equity or in any proceeding opposing
Licensee to secure, enforce, protect, or defend SONIC’s rights and remedies
under this License, in addition to any judgment entered in SONIC’s favor, SONIC
shall be entitled to demand of and (in the event SONIC prevails in such actions
or proceedings) recover from Licenseethe reasonable costs, expenses and
attorneys’ fees incurred by SONIC. If, in such applicable final
judgment SONIC does not prevail, Licensee shall be entitled to recover from
SONIC in any such action or proceeding the reasonable costs, expenses and
attorneys’ fees incurred by Licensee.
17.03.
Indemnification
.
If
SONIC or SONIC’s subsidiaries shall
be subject to any claim, demand or penalty or become a party to any suit or
other judicial or administrative proceeding by reason of any claimed act or
omission by Licensee, Licensee’s employees or agents, or by reason of any act
occurring on the Sonic Restaurant premises, or by reason of any act or omission
with respect to the business or operation of the Sonic Restaurant, Licensee
shall indemnify and hold SONIC and SONIC’s subsidiaries harmless against all
judgments, settlements, penalties and expenses, including attorneys’ fees, court
costs and other expenses of litigation or administrative proceeding, incurred
by
or imposed on SONIC in connection with the investigation or defense relating
to
such claim or litigation or administrative proceeding and, at the election
of
SONIC, Licensee shall also defend SONIC and SONIC’s subsidiaries. The
Licensee shall not have any obligation to indemnify, defend or hold harmless
SONIC or any other Person pursuant to the provisions of this Section 17.03
to
extent the obligation arises predominantly as a proximate result of SONIC’s act
or failure to act when under a duty to act.
18.
EFFECT OF WAIVERS
.
No
waiver by SONIC of any breach or
series of breaches of this Agreement shall constitute a waiver of any subsequent
breach or waiver of the terms of this Agreement.
19.
NOTICES
.
19.01.
Address
.
Any
notice required hereunder, if not
specified, shall be in writing and shall be delivered by (i) personal service,
(ii) by overnight, receipted delivery service, or (iii) by United States
certified or registered mail, with postage prepaid, addressed to Licensee at
the
Sonic Restaurant or at such other address of Licensee then appearing on the
records of SONIC or to SONIC at 300 Johnny Bench Drive, Oklahoma City, Oklahoma
73104, attention General Counsel, or at the subsequent address of SONIC’s
corporate headquarters. Either party, by a similar written notice,
may change the address to which notices shall be sent.
19.02.
Failure to Accept
.
If
SONIC is unable to give actual
notice of any breach or termination of this Agreement because Licensee has
failed to provide SONIC with a current address, because Licensee fails to accept
or pick up this mailed notice, or due to any reason which is not the fault
of
SONIC, then such notice shall be deemed as given when SONIC sends such notice
by
overnight receipted delivery service or registered or certified mail, postage
prepaid.
19.03.
Licensee’s
Principal
.
Licensee
has designated on the first
page of this Agreement a Principal to serve as the party receiving primary
notice on behalf of the parties hereto. Each Licensee hereby agrees
that SONIC may send its notices and communications under this Agreement to
the
Principal provided for herein, that each SONIC may use the Principal as its
primary contact for purposes of communications and notices permitted or required
hereunder, and that all communications and notices given by SONIC to the
Principal will be just as effective on each Licensee as though the same had
been
given to each Licensee.
20.
ENTIRE AGREEMENT
.
20.01.
No
Oral Agreements
.
This
Agreement and all addenda,
appendices and amendments hereto constitute the entire agreement between the
parties and supersede all prior and contemporaneous, oral or written agreements
or understandings of the parties.
20.02.
Scope and Modification of License
.
No
interpretation, change, termination
or waiver of any of the provisions hereof shall be binding upon SONIC unless
in
writing signed by an officer of SONIC. No modification, waiver,
termination, rescission, discharge or cancellation of this Agreement shall
affect the right of any party hereto to enforce any claim or right hereunder,
whether or not liquidated, which occurred prior to the date of such
modification, waiver, termination, rescission, discharge or
cancellation.
21.
CONSTRUCTION AND SEVERABILITY
.
21.01.
Interpretation
.
The
recitals shall be considered a part
of this Agreement. Section and Subsection captions are used only for
convenience and are in no way to be construed as part of this Agreement or
as a
limitation of the scope of the particular Sections, Subsections, Paragraphs
and
Subparagraphs to which they refer. Words of any gender used in this
Agreement shall include any other gender, and words in the singular shall
include the plural where the context requires.
21.02.
Scope
of Protected Area
.
Neither
party to this Agreement intends
to expand the scope of any covenants or commitments contained in Section 2
beyond the terms and provisions expressly stated in Section 2, and the parties
to this Agreement agree that no Person, court or arbitrator may interpret any
of
the foregoing covenants or commitments in Section 2 in that manner.
21.03.
Invalidity
.
If
any part of this Agreement for any
reason shall be declared invalid, such decision shall not affect the validity
of
any remaining portion, which shall remain in full force and effect. In the
event any material provision of this Agreement shall be stricken or declared
invalid, SONIC reserves the right to terminate this Agreement.
21.04.
Binding
Effect
.
This
Agreement shall be binding upon
the parties, their heirs, executors, personal representatives, successors or
assigns.
21.05.
Survival
.
Any
provisions of this Agreement which
impose an obligation after termination or expiration of this Agreement shall
survive the termination or expiration of this Agreement and be binding on the
parties.
21.06.
Liability
of Multiple Licensees
.
If
Licensee consists of more than one
Person or entity, each such Person and entity, and each proprietor, partner
or
shareholder of each such entity shall be jointly and severally liable for any
and all of Licensee’s obligations and prohibitions under this
Agreement. Consequently, if and when a Person or entity as Licensee
is in breach of this Agreement and fails or is unable to cure such breach in
a
timely manner, SONIC may terminate the rights of the so-affected Person or
entity under this Agreement whereby this Agreement is terminated as to only
such
Person or entity while remaining fully effective as to all other Persons and
entities remaining as Licensee on this Agreement. This Person or
entity removed as Licensee shall remain jointly and severally obligated with
the
Persons and entities remaining as Licensee for any and all obligations and
liabilities of Licensee which occurred or accrued through the date of removal
of
said Person or entity.
22.
BUSINESS ENTITY LICENSEES
22.01.
Corporate Licensee
.
If
the Licensee is a corporation, the
Licensee shall comply with the following provisions:
(a)
Purpose
. The
certificate of incorporation of the Licensee, if incorporated after August
31,
1994, shall provide that the purpose of the corporation shall consist only
in
the development, ownership, operation and maintenance of Sonic drive-in
restaurants.
(b)
Transfer
Restrictions
. The certificate of incorporation of the Licensee
shall provide that the Licensee shall not issue any additional capital stock
of
the Licensee and that no stockholder may transfer, assign or pledge any issued
capital stock of the Licensee without the prior, written consent of SONIC,
and
each stock certificate issued to evidence the capital stock of the Licensee
shall contain a legend disclosing the foregoing restriction. SONIC
shall not withhold its consent to the issuance of additional capital stock
or a
transfer, assignment or pledge without a reasonable basis. In giving
its consent, SONIC shall have the right (but not the obligation) to impose
one
or more reasonable conditions, including (without limitation) the requirement
that the recipient of the capital stock execute an agreement substantially
similar to the Guaranty and Restriction Agreement attached as Attachment I
to
this Agreement.
(c)
Stockholder
Guaranty
. Each stockholder of the Licensee shall execute the
Guaranty and Restriction Agreement attached as Attachment I to this
Agreement.
(d)
Documents
. Prior
to SONIC’s execution of this Agreement, the Licensee shall deliver to SONIC
photocopies of its certificate of incorporation and issued stock certificates
reflecting compliance with the provisions of this Section 22.01.
22.02.
Partnership Licensee
.
If
the Licensee is a partnership, the
Licensee shall comply with the following provisions:
(a)
Purpose
. The
partnership agreement and certificate of limited partnership (if applicable)
of
the Licensee, if formed after August 31, 1994, shall provide that the purpose
of
the partnership shall consist only in the development, ownership, operation
and
maintenance of Sonic drive-in restaurants.
(b)
Transfer
Restrictions
. The partnership agreement and certificate of
limited partnership (if applicable) of the Licensee shall provide that the
Licensee shall not issue any additional partnership interests in the Licensee
and that no partner may transfer, assign or pledge a partnership interest in
the
Licensee without the prior, written consent of SONIC. SONIC shall not
withhold its consent to the issuance of additional partnership interests or
a
transfer, assignment or pledge without a reasonable basis. In giving
its consent, SONIC shall have the right (but not the obligation) to impose
one
or more reasonable conditions, including (without limitation) the requirement
that the recipient of the partnership interest execute an agreement
substantially similar to the Guaranty and Restriction Agreement attached as
Attachment I to this Agreement.
(c)
Partner
Guaranty
. Each partner of the Licensee shall execute the Guaranty
and Restriction Agreement appearing as Attachment I to this
Agreement.
(d)
Documents
. Prior
to SONIC’s execution of this Agreement, the Licensee shall deliver to SONIC
photocopies of its partnership agreement and certificate of limited partnership
(if applicable) reflecting compliance with the provisions of this Section
22.02.
22.03.
Limited
Liability Company Licensee
.
If
the Licensee is a limited liability
company, the Licensee shall comply with the following provisions:
(a)
Purpose
. The
articles of organization and operating agreement of the Licensee, if organized
after August 31, 1994, shall provide that the purpose of the limited liability
company shall consist only in the development, ownership, operation and
maintenance of Sonic drive-in restaurants.
(b)
Transfer
Restrictions
. The articles of organization and operating
agreement of the Licensee shall provide that the Licensee shall not issue any
additional membership interests in the Licensee and that no member may transfer,
assign or pledge any membership interests in the Licensee without the prior,
written consent of SONIC. SONIC shall not withhold its consent to the
issuance of additional membership interests or a transfer, assignment or pledge
without a reasonable basis. In giving its consent, SONIC shall have
the right (but not the obligation) to impose one or more reasonable conditions,
including (without limitation) the requirement that the recipient of the
membership interest execute an agreement substantially similar to the Guaranty
and Restriction Agreement attached as Attachment I to this
Agreement.
(c)
Member
Guaranty
. Each member of the Licensee shall execute the Guaranty
and Restriction Agreement appearing as Attachment I to this
Agreement.
(d)
Documents
. Prior
to SONIC’s execution of this Agreement, the Licensee shall deliver to SONIC
photocopies of its articles of organization and operating agreement reflecting
compliance with the provisions of this Section 22.03.
22.04.
Other Entity Licensee
.
If
the Licensee is any other form of
business entity, the Licensee shall deliver to SONIC photocopies of its
organizational documents containing provisions substantially similar to those
required by Sections 22.01 through 22.03.
22.05.
Employee
Stock Purchase Plans
.
The
Licensee shall have the right to
transfer up to 49% of its outstanding capital stock or other equity interests
to
an employee stock purchase plan as long as one individual who qualifies as
a
licensee of SONIC continues to own and Control, directly or indirectly, at
least
51% of the Licensee’s outstanding capital stock or other equity
interests.
23.
APPLICABLE
LAWS
.
The
terms and provisions of this
Agreement shall be interpreted in accordance with and governed by the laws
of
the State of Oklahoma, provided that if the laws of the State of Oklahoma would
not permit full enforcement of Section 16 of this Agreement, then the laws
of
the state in which the Sonic Restaurant is located or Licensee is domiciled
shall apply to the extent that any or all of such laws more fully permit
enforcement of Section 16 of this Agreement. Notwithstanding the
foregoing, the franchise laws or regulations of the state in which the Sonic
Restaurant is located, in effect on the original date of this Agreement, shall
apply to this Agreement. Licensee agrees that jurisdiction over
Licensee and venue exist and are proper within the same federal judicial
district where the corporate headquarters of SONIC are located and within any
and all other courts, whether federal, state, or local, located within that
district. Licensee waives any and all defenses and objections, and
Licensee agrees not to assert any defense or objection to jurisdiction over
Licensee and to venue as described hereinabove regarding any action, proceeding
or litigation instituted by SONIC against Licensee. SONIC and
Licensee agree that any and all breaches of this Agreement, including breaches
occurring after termination, cancellation, or expiration of this Agreement,
shall be deemed to have occurred where the corporate headquarters of SONIC
are
located.
24.
ACKNOWLEDGEMENT
.
Licensee
acknowledges
that:
24.01.
Initial
Term
.
The
term of this Agreement is for a
single 20-year term with no promise or representation as to the renewal of
this
Agreement or the grant of a new license except as provided herein.
24.02.
Consultation
with Counsel
.
Licensee
hereby represents that
Licensee has received a copy of this Agreement and has had an opportunity to
consult with Licensee’s attorney with respect thereto at least 10 days prior to
Licensee’s execution hereof. Licensee further represents that
Licensee has had this Agreement in hand for review at least five business days
prior to Licensee’s execution hereof.
24.03.
Profitability
.
No
representation has been made by
SONIC as to the future profitability of the Sonic Restaurant.
24.04.
Licensee’s
Investigation
.
Prior
to the execution of this
Agreement, Licensee has had ample opportunity to contact existing licensees
of
SONIC and to investigate all representations made by SONIC relating to the
Sonic
System. The Licensee has conducted an independent investigation of
the business contemplated by this Agreement and recognizes that it involves
substantial business risks making the success of the venture largely dependent
on the business abilities of the Licensee. SONIC disclaims and the
Licensee has not received from SONIC or its Affiliates any express or implied
warranty or guaranty from regarding the potential volume, profits or success
of
the business venture contemplated by this Agreement. The Licensee has
not relied on any express or implied warranty or guaranty from SONIC or its
Affiliates regarding the potential volume, profits or success of the business
venture contemplated by this Agreement.
24.05.
Contrary Representations
.
The
Licensee knows of no
representations by SONIC or its Affiliates about the business contemplated
by
this Agreement which contradict the terms of this Agreement. The
Licensee has not relied on any representations from SONIC or its Affiliates
about the business contemplated by this Agreement which contradict the terms
of
this Agreement or the disclosures set forth in the Franchise Offering Circular
delivered to the Licensee in connection with the issuance of this
Agreement.
24.06.
Variances
to Other Licensees
.
The
Licensee understands that other
developers and licensees may operate under different forms of agreements and,
consequently, that SONIC’s rights and obligations with regard to its various
licensees may differ materially in certain circumstances.
24.07.
Complete
Agreement
.
This
agreement supersedes any and all
other agreements or representations respecting the Sonic Restaurant and contains
all the terms, conditions and obligations of the parties with respect to the
grant of this Agreement.
25.
INPUT
AND ADVICE FROM LICENSEES
.
In
connection with the implementation
of or significant changes in the programs or policies referred to in Sections
6.04, 6.05(c), 6.06, 8, and 11.01(f) of this Agreement, SONIC shall solicit
input and advice from a group of licensees gathered together for such purpose
(whether established ongoing for such purpose or gathered on an ad hoc basis
from time-to-time). SONIC further shall use its best efforts to
ensure that such groups are balanced in terms of geographic base, size of
operating group, and period of tenure within the Sonic
system. Notwithstanding the foregoing, this Section 25 shall not have
any effect unless the license agreements in effect for at least one-third of
all
Sonic drive-in restaurants contain this provision or a substantially similar
provision.
26.
INJUNCTIVE
RELIEF
.
The
Licensee acknowledges that SONIC’s remedy at law for any breach of any of the
Licensee’s covenants under this Agreement (other than involving only the payment
of money) would not constitute an adequate remedy at law and, therefore, SONIC
shall have the right to obtain temporary and permanent injunctive relief in
any
proceeding brought to enforce any of those provisions, without the necessity
of
proof of actual damages. However, nothing in this Section 26 shall
prevent SONIC from pursuing separately or concurrently one or more of any other
remedies available at law, subject to the provisions of Section 14.04 of this
Agreement.
27.
GENERAL
RELEASE AND COVENANT NOT TO SUE
.
The
Licensee hereby releases Sonic Corp., its subsidiaries, and the officers,
directors, employees and agents of Sonic Corp. and its subsidiaries from any
and
all claims and causes of action, known or unknown, which may exist in favor
of
the Licensee as of the date of this Agreement. In addition, the
Licensee covenants that the Licensee shall not file or pursue any legal action
or complaint against any of the foregoing entities or Persons with regard to
any
of the foregoing claims or causes of action released pursuant to this Section
27. SONIC hereby releases the Licensee and its officers, directors,
employees and agents from any and all claims and causes of action, known or
unknown, which may exist in favor of SONIC as of the date of this Agreement,
except for any claims for (a) unpaid moneys due SONIC or its Affiliates, (b)
a
material breach of the provisions of this Agreement regarding the Proprietary
Marks, or (c) the violation of SONIC’s legal rights regarding the Proprietary
Marks. In addition, SONIC covenants that SONIC shall not file or
pursue any legal action or complaint against any of the foregoing entities
or
Persons with regard to any of the claims or causes of action released by SONIC
pursuant to this Section 27.
Executed
on the dates set forth below,
to have effect as of ______________, 200___.
The
original expiration date of the
license agreement converted to this Number 5.5 License Agreement was
________________, ______.
SONIC:
Sonic Industries LLC
By:
_________________________________
(Vice)
President
Date:
_______________________,
200__
Licensee:
____________________________________
Date:_______________________,
200__
____________________________________
Date:_______________________,
200__
Schedule
I
Guaranty
and Restriction Agreement
GUARANTY
AND RESTRICTION AGREEMENT
W
I
T
N
E
S
S
E
T
H
:
Whereas,
SONIC is entering into a
license agreement (the “License Agreement”) dated the same date as this
Agreement with the Licensee for the Sonic drive-in located at
,
,
(the
“Drive-in”);
and
Whereas,
as a condition to entering
into the License Agreement, SONIC has asked the Guarantor to provide a personal
guaranty of all obligations of the Licensee Agreement; and
Whereas,
SONIC has also asked the
Guarantor and the Licensee to agree to a restriction on the transfer of
interests in the Licensee; and
Whereas
SONIC, the Guarantor, and the
Licensee are willing to enter into those agreements based upon the terms and
conditions of this Agreement.
Now,
therefore, in consideration of the
mutual covenants set forth below and other good and valuable consideration,
the
receipt and sufficiency of which the parties hereby acknowledge, the parties
agree as follows:
1.
Personal
Guaranty of Payments
. The Guarantor hereby guarantees the prompt
and full payment of all obligations under the License Agreement
including:
(a) all
royalties due SONIC pursuant to the License Agreement,
(b) all
brand contribution fees to the Sonic Brand Fund pursuant to the License
Agreement,
(c) all
contributions to approved advertising cooperatives pursuant to the License
Agreement, and
(d) any
other obligations owing to SONIC or its Affiliates (as defined in the License
Agreement) relating to the Drive-in, including any sign lease
agreement.
2.
Nature
of Guaranty
. This guaranty shall constitute an absolute,
unconditional, irrevocable, and continuing guaranty. SONIC shall not
have any obligation to take any action against any other person or entity for
collection of any payments prior to making any demand for payment or bringing
any action against the Guarantor.
3.
Permitted
Actions
. From time to time, SONIC shall have the right to take,
permit, or suffer to occur any “Permitted Action,” as defined below, without
modifying, reducing, waiving, releasing, impairing or otherwise affecting the
obligations of the Guarantor under this Agreement, without giving notice to
the
Guarantor or obtaining the Guarantor’s consent, without the necessity of any
reservations of rights against the Guarantor, and without liability on the
part
of SONIC. As used in this Section 3, the phrase “Permitted Action”
shall mean (a) an agreed extension of time for payment of any sum due under
the
License Agreement, (b) an agreed change in the manner or place of payment of
any
sums due under the License Agreement, (c) any waiver by SONIC of any defaults
under the provisions of the License Agreement, (d) any delay or failure by
SONIC
to exercise any right or remedy SONIC may have under the License Agreement,
(e)
the granting by SONIC of any leniencies, waivers, extensions, and indulgences
under the License Agreement, and (f) any agreed amendments to the License
Agreement.
4.
Waiver
of Notice of Acceptance
. The Guarantor acknowledges and waives
notice of SONIC’s acceptance of the Guarantor’s guaranty pursuant to the terms
of this Agreement.
5.
Restrictions
on Transfer
. The Licensee shall not issue any additional shares
of capital stock without the prior, written consent of SONIC. The
Guarantor shall not transfer, assign, or pledge any of its shares of capital
stock in the Licensee to any person without the prior, written consent of
SONIC.
6.
Disputes
. Any
dispute between the parties concerning this Agreement will be resolved in
accordance with the mediation and arbitration provisions contained in the
License Agreement.
7.
Attorneys’
Fees, Costs and Expenses
. In any action brought by SONIC to
enforce the obligations of the Guarantor, SONIC shall also have the right to
collect its reasonable attorneys’ fees, court costs, and expenses incurred in
the action.
8.
Headings
. The
headings used in this Agreement appear strictly for the parties’ convenience in
identifying the provisions of this Agreement and shall not affect the
construction or interpretation of the provisions of this Agreement.
9.
Binding
Effect
. This Agreement binds and inures to the benefit of the
parties and their respective successors, legal representatives, heirs, and
permitted assigns.
10.
Waiver
. The
failure of a party to insist in any one or more instances on the performance
of
any term or condition of this Agreement shall not operate as a waiver of any
future performance of that term or condition.
11.
Governing
Law
. Notwithstanding the place where the parties execute this
Agreement, the internal laws of Oklahoma shall govern the construction of the
terms and the application of the provisions of this Agreement.
12.
Amendments
. No
amendments to this Agreement shall become effective or binding on the parties,
unless agreed to in writing by all of the parties to be bound by the
amendment.
13.
Time
. Time
constitutes an essential part of each and every part of this
Agreement.
14.
Notice
. Except
as otherwise provided in this Agreement, when this Agreement makes provision
for
notice or concurrence of any kind, the sending party shall deliver or address
the notice to the other party by certified mail, telecopy, or
nationally-recognized overnight delivery service to the addresses shown on
exhibit “A” to this Agreement.
All
notices pursuant to the provisions
of this Agreement shall run from the date that the other party receives the
notice or three business days after the party places the notice in the United
States mail. Each party may change the party’s address by giving
written notice to the other parties.
15.
Release
and Covenant Not To Sue
. The Guarantor and the Licensee, and each
of them, hereby release all claims and causes of action which the Guarantor
or
the Licensee, or both of them, may have against Sonic Corp., its subsidiaries,
and the stockholders, directors, officers, employees, and agents of Sonic Corp.
and its subsidiaries. The Guarantor and the Licensee, and each of
them, further covenant not to sue any of the foregoing persons or entities
on
account of any of the foregoing claims or causes of action.
Executed
and delivered as of the day and year first set forth above.
SONIC:
Sonic Industries LLC
By:
_________________________________
(Vice) President
Guarantor:
____________________________________
____________________________________
Licensee:
By:
________________________________
This
Guaranty and Restriction Agreement signature page is for the
following:
Sonic
Drive-In # _______
EXHIBIT
“A”
Notice
addresses are as follows:
SONIC: 300
Johnny Bench Drive
Oklahoma
City, OK 73104
Attention: General
Counsel
(405)
225-5973 Fax
Guarantors:
(___)
___-____ Fax
(___)
___-____ Fax
Licensee:
(___)
___-____Fax
SONIC
INDUSTRIES LLC
NUMBER 7
LICENSE AGREEMENT
BY
AND BETWEEN SONIC INDUSTRIES LLC, Licensor and
________________________,
Licensee
Sonic
Drive-In of ____________________, ______________________
located
at _____________________________
_________________________,
______________________.
Dated: ___________,
_______.
Store
No.
_________
CIF
No.
__________
TABLE
OF
CONTENTS
1.DEFINITIONS.
|
|
2
|
|
1.01.
|
Affiliate.
|
2
|
|
1.02.
|
Control.
|
2
|
|
1.03.
|
DMA.
|
2
|
|
1.04.
|
Gross
Sales.
|
2
|
|
1.05.
|
License.
|
3
|
|
1.06.
|
MSA.
|
3
|
|
1.07.
|
Non-traditional
Locations.
|
3
|
|
1.08.
|
Person.
|
3
|
|
1.09.
|
Proprietary
Marks.
|
3
|
|
1.10.
|
Protected
Area.
|
4
|
|
1.11.
|
Sonic
Restaurant.
|
4
|
|
1.12.
|
Sonic
System.
|
4
|
2. LICENSE
GRANT.
|
4
|
|
2.01.
|
Location.
|
4
|
|
2.02.
|
Trade
Radius.
|
4
|
|
2.03.
|
Licensee.
|
6
|
|
2.04.
|
Use
of Sonic’s Marks.
|
6
|
|
2.05.
|
Site
Selection.
|
6
|
|
2.06.
|
Relocation.
|
6
|
|
2.07.
|
Rights
Reserved to Sonic
|
7
|
3. TERM.
|
|
7
|
|
3.01.
|
Initial
Term.
|
7
|
|
3.02.
|
Opening
of Restaurant.
|
7
|
|
3.03.
|
Option.
|
8
|
4. DUTIES
OF LICENSOR.
|
|
8
|
|
4.01.
|
Plans.
|
9
|
|
4.02.
|
Operations
Manual.
|
9
|
|
4.03.
|
Marketing
Assistance.
|
9
|
|
4.04.
|
Communication.
|
9
|
|
4.05.
|
Evaluation
Program.
|
9
|
5. FEES.
|
|
|
9
|
|
5.01.
|
License
Fee.
|
9
|
|
5.02.
|
Royalty
Fees.
|
10
|
|
5.03.
|
Brand
Fee.
|
10
|
|
5.04.
|
Transfer
Fee.
|
10
|
|
5.05.
|
Late
Charges.
|
11
|
|
5.06
|
Taxes
|
11
|
6. DUTIES
OF LICENSEE.
|
|
12
|
|
6.01.
|
Sonic
Restaurant Site.
|
12
|
|
6.02.
|
Construction.
|
13
|
|
6.03.
|
Equipment
and Sign.
|
14
|
|
6.04.
|
Training.
|
14
|
|
6.05.
|
Compliance
with Entire System.
|
15
|
|
6.06.
|
Approved
Suppliers and Advertising Agencies.
|
18
|
|
6.07.
|
Best
Efforts.
|
19
|
|
6.08.
|
Interference
with Employment Relations of Others.
|
19
|
|
6.09.
|
SONIC’s
Standards.
|
19
|
|
6.10.
|
Majority
Interest Owner.
|
19
|
|
6.11.
|
Electronic
Communication and Use of Internet
|
19
|
7. PROPRIETARY
MARKS.
|
|
20
|
|
7.01.
|
SONIC’s
Representations.
|
20
|
|
7.02.
|
Use
of Marks.
|
20
|
|
7.03.
|
Licensee’s
Understanding.
|
21
|
|
7.04.
|
Other
Intellectual Property
|
21
|
8. MANUAL.
|
|
|
22
|
9. CONFIDENTIAL
INFORMATION.
|
22
|
|
9.01.
|
SONIC
Proprietary and Confidential Information.
|
22
|
|
9.02.
|
Licensee’s
Use of Proprietary and Confidential Information.
|
22
|
|
9.03.
|
Licensee’s
Use of Sonic Operations Manual.
|
23
|
|
9.04.
|
No
Information to the Public
|
23
|
10. ACCOUNTING
AND RECORDS.
|
24
|
|
10.01.
|
Due
Date.
|
24
|
|
10.02.
|
Record
Retention.
|
24
|
|
10.03.
|
Charitable
Contributions and Discounts.
|
24
|
|
10.04.
|
Annual
Reports.
|
24
|
|
10.05.
|
Audit
by SONIC.
|
24
|
|
10.06.
|
Third
–Party Audit.
|
25
|
|
10.07.
|
Licensee’s
Failure to Timely Deliver Financial Records.
|
25
|
|
10.08.
|
Financial
Disclosure.
|
25
|
|
10.09.
|
Accounting
Services
|
26
|
|
10.10.
|
Application
of Payments
|
26
|
11. ADVERTISING
AND BRAND EXPENDITURES.
|
26
|
|
11.01.
|
Standard
Program.
|
26
|
|
11.02.
|
Publicity.
|
29
|
1
2. INSURANCE.
|
|
|
30
|
|
12.01.
|
Insurance
Amounts.
|
30
|
|
12.02.
|
SONIC
as Additional Insured.
|
30
|
|
12.03.
|
General
Conditions.
|
31
|
13. TRANSFER
OF INTEREST.
|
|
31
|
|
13.01.
|
Assignment.
|
31
|
|
13.02.
|
Death
or Permanent Incapacity of Licensee.
|
31
|
|
13.03.
|
Assignment
to Licensee’s Corporation.
|
32
|
|
13.04.
|
Other
Assignment.
|
33
|
|
13.05.
|
SONIC’s
Right of First Refusal.
|
34
|
|
13.06.
|
Consent
to Assignments.
|
35
|
14. DEFAULT
AND TERMINATION.
|
35
|
|
14.01.
|
|
35
|
|
14.02.
|
|
36
|
|
14.03.
|
|
37
|
|
(a)
|
Negotiation.
|
38
|
|
(b)
|
Mediation.
|
38
|
|
(c)
|
Arbitration.
|
38
|
|
(d)
|
Excluded
Controversies.
|
38
|
|
(e)
|
Attorneys’
Fees and Costs.
|
39
|
15. OBLIGATIONS
UPON TERMINATION.
|
39
|
|
15.01.
|
Effect
of Termination, Cancellation or Expiration of this
Agreement.
|
39
|
|
15.02.
|
SONIC’s
Option to Purchase.
|
40
|
|
15.03.
|
SONIC’s
Obligation to Purchase.
|
41
|
|
15.04.
|
Fair
Market Value Determination.
|
41
|
16. COVENANTS.
|
|
|
41
|
|
16.01.
|
Restrictions
on Licensee.
|
41
|
|
16.02.
|
Covenants
by Others.
|
43
|
17. INDEPENDENT
CONTRACTOR & INDEMNIFICATION.
|
43
|
|
17.01.
|
Licensee
not an Agent of SONIC; Employment Matters
|
43
|
|
17.02.
|
Cost
of Enforcement.
|
44
|
|
17.03.
|
Indemnification.
|
44
|
1
8. EFFECT
OF WAIVERS.
|
|
44
|
19. NOTICES.
|
|
|
45
|
|
19.01.
|
Delivery
|
45
|
|
19.02.
|
Failure
to Accept.
|
45
|
|
19.03.
|
Licensee’s
Principal.
|
45
|
20. ENTIRE
AGREEMENT.
|
|
45
|
|
20.01.
|
No
Oral Agreements.
|
45
|
|
20.02.
|
Scope
and Modification of License.
|
45
|
21. CONSTRUCTION
AND SEVERABILITY.
|
45
|
|
21.01.
|
Interpretation.
|
46
|
|
21.02.
|
Scope
of Protected Area.
|
46
|
|
21.03.
|
Invalidity.
|
46
|
|
21.04.
|
Binding
Effect.
|
46
|
|
21.05.
|
Survival.
|
46
|
|
21.06.
|
Liability
of Multiple Licensees.
|
46
|
22. BUSINESS
ENTITY LICENSEES
|
47
|
|
22.01.
|
Corporate,
Partnership, and Limited Liabilty Companies Licensees.
|
47
|
|
22.02.
|
|
47
|
|
22.03.
|
Employee
Stock Purchase Plans.
|
47
|
|
22.04.
|
Good
Standing
|
48
|
23. APPLICABLE
LAWS, WAIVER OF JURY TRIAL, LIMITATIONS
|
48
|
24. ACKNOWLEDGEMENT.
|
|
48
|
|
24.01.
|
Initial
Term.
|
48
|
|
24.02.
|
Consultation
with Counsel.
|
49
|
|
24.03.
|
Profitability.
|
49
|
|
24.04.
|
Licensee’s
Investigation.
|
49
|
|
24.05.
|
Contrary
Representations.
|
49
|
|
24.06.
|
Variances
to Other Licensees.
|
49
|
|
24.07.
|
Complete
Agreement.
|
49
|
25. INPUT
AND ADVICE FROM LICENSEES.
|
50
|
26. INJUNCTIVE
RELIEF.
|
|
50
|
27. GENERAL
RELEASE AND COVENANT NOT TO SUE.
|
50
|
SCHEDULE
I – GUARANTY AND RESTRICTION AGREEMENT
Store
No._________
CIF
No.
_______
LICENSE
AGREEMENT
THIS
LICENSE AGREEMENT (this
“Agreement”) made this ___day of ______, ____, by and between Licensor, SONIC
INDUSTRIES LLC, a Delaware limited liability company (“Sonic”),
and_________________________ (“Principal”)_________________________(all of whom
shall be jointly referred to herein as the “Licensee”).
RECITALS
Sonic
is the developer and owner of the
right to license the distinctive and proprietary drive-in, food service system
under which food and beverages are sold to the public from drive-in restaurants
and Non-traditional Locations (as defined in Section 1.07) operated under the
trade name and federally registered trademark and service mark
“Sonic”. The Sonic System so developed now includes, among other
things, the following elements, all or some of which may be deleted, changed,
improved, or further developed by Sonic from time to time
A.
Methods
and procedures for the
preparation and serving of food and beverage products.
B.
Confidential recipes for food products and distinctive service accessories
(including, but not limited to, uniforms, menus, packages, containers, and
additional paper or plastic items).
C.
Plans and specifications for distinctive standardized premises featuring
characteristic exterior style, colors, and design, interior furnishings,
equipment layout, exterior signage, and marketing techniques and
materials.
D.
A uniform method of operating which is described in the
Sonic Operations
Manual
.
E.
The Proprietary Marks as defined in Section 1.09.
F.
Such
trade secrets as have
been and may from time to time be developed, which are owned by Sonic, and
which
are disclosed to its licensees in confidence in connection with the construction
and operation of a Sonic drive-in restaurant.
G. Such
proprietary payment
and other business methods, including (without limitation) the pay-at-your-stall
payment system (“PAYS”), which have been and may from time to time be developed
for use in the Sonic System.
Licensee
wishes to obtain a license
from Sonic to operate a Sonic drive-in restaurant pursuant to the Sonic
System
and to be afforded the assistance provided by Sonic in connection therewith,
and
understands and accepts the terms, conditions, and covenants set forth
herein as
those which are reasonably necessary to maintain Sonic’s high and uniform
standards of quality and service designed to protect the goodwill and enhance
the public image of the Proprietary Marks and the Sonic System, and recognizes
the necessity of operating the licensed Sonic drive-in restaurant in faithful
compliance therewith, and with Sonic’s standards and
specifications.
1.
DEFINITIONS
.
Unless
the context of their use in this
Agreement requires otherwise, the following words and phrases shall have
the
following meanings when used in initially-capitalized form in this
Agreement.
1.01.
Affiliate
.
The
word “Affiliate”
shall mean (a) any stockholder, director, or officer of a specified
Person (if
the specified Person is a corporation), (b) any partner of a specified
Person
(if the specified Person is a partnership), (c) any member of a specified
Person
(if the specified Person is a limited liability company), (d) any employee
of a
specified Person, and (e) any Person which directly or indirectly through
one or
more intermediaries Controls the specified Person, the specified Person
Controls, or shares a common Control with the specified Person.
1.02.
Control
.
The word “Control” means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person
or
entity, whether through the ownership of voting securities, by contract,
or
otherwise.
1.03.
DMA
.
The
term
“DMA” shall mean a Designated Market Area as defined by A.C. Nielsen Company
from time to time.
1.04.
Gross
Sales
The phrase “Gross Sales” shall mean all revenues from all business conducted
upon or from the Sonic Restaurant, whether evidenced by check, cash,
credit,
charge account, debit card, stored-value card, exchange, or otherwise,
and shall
include (without limitation) the amounts received from the sale of
goods, wares,
and merchandise, including sales of food, beverages, and tangible property
of
every kind and nature, promotional or otherwise (excluding restaurant
equipment), and for services performed from or at the Sonic Restaurant,
whether
the Licensee fills the orders from the Sonic Restaurant or
elsewhere. Each charge or sale via credit, debit card, stored-value
card, or other payment means shall constitute a sale for the full price
in the
month during which the charge or sale occurs, regardless of the time
when the
Licensee receives payment (in whole or in part) for the charge or
sale. The phrase “Gross Sales” shall not include (a) sales of
merchandise for which the Licensee makes a cash refund, if previously
included
in Gross Sales; (b) the price of merchandise returned by customers
for exchange,
if the Licensee previously included the sales price of the merchandise
returned
by the customer in Gross Sales and includes the sales price of merchandise
delivered to the customer in exchange in Gross Sales; (c) the amount
of any
sales tax imposed by any governmental authority directly on sales and
collected
from customers, if the Licensee adds the amount of the tax to the sales
price or
absorbs the amount of the sales tax in the sales price and the Licensee
actually
pays the tax to the governmental authority; (d) amounts not received
for menu
items because of discounts or coupons, if properly documented; and
(e) amounts
received from the sale of Sonic-approved stored-value cards. The
phrase “Gross Sales” also shall not include any proceeds received by the
Licensee pursuant to an assignment made in accordance with the provisions
of
Section 13.
1.05.
License
.
The
word “License” shall mean the
rights granted the Licensee pursuant to Section 2 of this
Agreement.
1.06.
MSA
.
The
term “MSA” shall mean a
Metropolitan Statistical Area or a Micropolitan Statistical Area, as applicable,
as defined by the United States Census Bureau from time to time.
1.07.
Non-traditional
Locations
.
The
phrase “Non-traditional Locations” shall mean permanent or temporary food
service facilities operating under one or more of the Proprietary Marks
at
locations featuring facilities other than free-standing buildings with
canopies
devoted solely to the operation of a Sonic drive-in restaurant and accessible
to
the general public by automobile from public
thoroughfares. Non-traditional Locations shall include (without
limitation) (a) military bases and other governmental facilities; (b)
universities and schools; (c) airports and other transportation facilities;
(d)
stadiums, arenas and other sports and entertainment venues; (e) amusement
and
theme parks; (f) cafeterias and food courts in shopping centers, shopping
malls,
office buildings, and industrial buildings; (g) hotels and convention
centers;
(h) hospitals and nursing facilities; (i) museums, zoos and other public
facilities; and (j) highway travel plazas, convenience stores, and gasoline
filling stations.
1.08.
Person
.
The
word “Person” shall mean any
individual or business entity, including (without limitation) a corporation,
joint venture, general partnership, limited partnership, limited liability
company, or trust.
1.09.
Proprietary
Marks
.
The
phrase “Proprietary Marks” shall mean the distinctive and characteristic trade
names, trademarks, service marks, and trade dress which Sonic designates
in the
Sonic Operations Manual
or otherwise in writing or through usage from
time to time as prescribed for use with the Sonic System and as may from
time to
time be developed, including (without limitation) the terms “Sonic,” “America’s
Drive-In,” “Route 44,” “Wacky Pack,” “Fountain Favorites,” “Frozen Favorites,”
“It’s Sonic Good,” “SuperSonic,” “Your Morning Drink Stop!,” “Ultimate Drink
Stop,” and “My Sonic;” signs; emblems; menu housings; designs; color schemes;
standardized premises featuring characteristic exterior style, canopies,
colors,
and design (including angled parking stalls equipped with menu housings,
speakers, and tray supports); interior furnishings; and equipment
layout.
1.10.
Protected
Area
.
The
phrase “Protected Area” shall mean
the area defined by Section 2.02 of this Agreement.
1.11.
Sonic
Restaurant
.
The
phrase “Sonic Restaurant” shall
mean the Sonic drive-in restaurant licensed by this Agreement and may
alternatively be reffered to herein as the "Restaurant."
1.12.
Sonic
System
.
The
phrase “Sonic System” shall mean
the unique, proprietary and confidential information of SONIC, including
(without limitation) the
Sonic Operations Manual
and consisting of (a)
methods and procedures for the preparation of food and beverage products;
(b)
confidential recipes for food products; (c) distinctive service and accessories;
(d) plans and specifications for interior and exterior signs, designs,
layouts
and color schemes (whether copyrighted or not); (e) methods, techniques,
formats, systems, specifications, procedures, information, trade secrets,
sales
and marketing programs; (f) methods of business operations and
management; (g) knowledge and experience regarding the operation and
franchising of Sonic drive-in restaurants
;
(h)
payment methods, including (without limitation) PAYS; and (i) such further
elements as set forth in the Recitals.
2.
LICENSE
GRANT
.
SONIC
grants to Licensee for the
following stated term the right, license and privilege:
2.01.
Location
.
(a) To
adopt and use the Sonic System at the Sonic Restaurant located at
__________________________, ______________, _______________.
(b) To
have the exclusive rights to adopt and use the Sonic System for a Sonic
drive-in
Restaurant to be constructed within the current boundaries of the town
or city
of __________________, ________________, for a period of six months from
the
date hereof, with the obligation of selecting and having such site approved
within such six month period and completing Section 2.01(a), above, within
such
six month period.
2.02.
Trade
Radius
.
Subject
to the provisions
of Sections 2.02(c) and 2.02(d), below, SONIC shall not own or operate a
Sonic drive-in restaurant and shall not license any other Person to own or
operate a Sonic drive-in restaurant (other than a Sonic drive-in restaurant
licensed prior to the date of this Agreement) within the Protected Area,
which
is the area determined as of the date of this Agreement by the following
provisions:
|
(a)
|
(i)
|
An
area defined by a radius extending one and one-half miles from
the front
door of the Sonic Restaurant if located within a city, town or
MSA having
a population of 75,000 or more.
|
|
(ii)
|
An
area defined by a radius extending two miles from the front door
of the
Sonic Restaurant if located within a city, town or MSA having
a population
of less than 75,000 but more than
25,000.
|
|
(iii)
|
An
area defined by a radius extending three miles from the front
door of the
Sonic Restaurant if located within a city, town or MSA having
a population
of 25,000 or less.
|
|
(iv)
|
An
area defined by a radius extending three miles from the front
door of the
Sonic Restaurant if located outside a city, town or
MSA.
|
(b)
The
Protected Area shall not extend into: (i) the contractually-granted protected
radius of any Sonic drive-in restaurant in existence as of the date of
this
Agreement (“Previously Protected Radius”) and (ii) the protected area of any
developer under an area development agreement with Sonic in existence as
of the
date of this Agreement (“Previously Protected Development
Area”). Consequently, any Previously Protected Radius and any
Previously Protected Development Area shall be excepted from the Protected
Area. Sonic shall determine the population of an MSA from
time to time after the date of this Agreement according to the latest published
federal census (or other data selected by Sonic) and may reduce the Protected
Area accordingly upon notice to the Licensee. If more than one
subpart of Section 2.02(a) applies, then only the subpart with the smallest
area
shall apply.
(c)
Sonic
shall not own, operate, or license any other Person to own or operate a
Non-traditional Location (other than a Non-traditional Location owned,
operated,
or licensed prior to the date of this Agreement) within the Protected Area
without the Licensee’s prior written consent. Simultaneously with the
request for that written consent, Sonic shall offer the Licensee a right
of
first refusal to develop the Non-traditional Location. The Licensee
must notify Sonic in writing of its decision regarding the right of first
refusal to license and operate the Non-traditional Location within 30 days
after
Sonic notifies the Licensee of Sonic’s request for the Licensee’s written
consent to own, operate, and/or license the Non-traditional
Location. If the Licensee chooses to exercise its right of first
refusal, the Licensee must sign Sonic’s then-current form of license agreement
for a Non-traditional Location for the applicable jurisdiction within 30
days
after the Licensee notifies Sonic of its decision. The Licensee then
must open the Non-traditional Location within the time period specified
in the
license agreement (if specified) or within 12 months after the date of
the
license agreement (if not specified). If the Licensee does not
execute that agreement within the foregoing 30-day period or does not exercise
its right of first refusal within the foregoing 30-day period, Sonic shall
have
the right to proceed with the ownership, operation, and/or licensing of
the
Non-traditional Location as disclosed to the Licensee only if the Licensee
has
given its written consent to Sonic. If the Licensee elects, in its
sole and absolute discretion, not to give its written consent, Sonic shall
not
own, operate, or license any other Person to own or operate the Non-traditional
Location, except that Sonic may own, operate, or license any other Person
to own
or operate the Non-traditional Location without Licensee’s consent, subject to
Licensee’s right of first refusal described herein, if the Non-Traditional
Location is in (i) an airport or other transportation facility; (ii) a
stadium,
arena, or other sports and entertainment venue; or (iii) a military base
or
other governmental facility.
(d)
Sonic
has
and hereby further reserves the right, in its sole discretion, to acquire
the
assets or controlling ownership of an existing restaurant within the Protected
Area. However, prior to converting an acquired restaurant to a Sonic drive-in
restaurant or a Non-traditional Location within the Protected Area, Sonic
shall
offer the Licensee a right of first refusal to acquire the restaurant at
a price
equal to Sonic’s cost of acquiring the restaurant. If the restaurant
represents a part of an acquisition of multiple restaurants, Sonic shall
make a
reasonable allocation of its cost to acquire the restaurant. The
Licensee must notify Sonic of its decision regarding the right of first
refusal
within 30 days after Sonic gives the Licensee written notice of its intention
to
convert the restaurant to a Sonic drive-in restaurant or Non-traditional
Location. If the Licensee chooses to exercise its right of first
refusal, the Licensee must sign Sonic’s then-current form of license agreement
for a Sonic drive-in restaurant or Non-traditional Location, and pay the
required license fee, as applicable, within 20 days after the Licensee
notifies
Sonic of its decision. In the event the Licensee fails to convert the
restaurant to a Sonic drive-in restaurant or Non-traditional Location pursuant
to the terms of the applicable license agreement, Sonic shall have the
right to
repurchase the restaurant from the Licensee at the same purchase
price. If the Licensee does not exercise its right of first refusal,
Sonic shall have the right to own, operate, and/or license other Persons
to own
or operate the restaurant or Sonic may sell or otherwise dispose of the
restaurant to any person or entity under any terms or conditions Sonic
deems
appropriate, provided in no case will the restaurant be operated as a Sonic
drive-in restaurant or a Non-traditional Location without the consent of
Licensee, except as may be allowed pursuant to Section
2.02(c).
2.03.
Licensee
.
Licensee shall advertise to the public as a licensee of Sonic.
2.04.
Use of Sonic’s
Marks
.
Licensee shall adopt and use the Proprietary Marks, but only in connection
with
the sale from the Sonic Restaurant of those food and beverage products
which
have been designated in the Sonic menu as specified in the
Sonic Operations
Manual
.
2.05.
Site
Selection
.
In the event the Licensee receives this License pursuant to Section
2.01(b), above, the selection of a site by Licensee shall be subject to the
approval of Sonic in accordance with the standard site approval procedures
required by this Agreement and the standard practices of Sonic. In
the event a site for the Sonic Restaurant has not been approved by Sonic before
the expiration of the six-month period provided for by Section 2.01(b), above,
then this Agreement shall expire and be of no further force or
effect. In such case, Sonic will immediately refund to Licensee the
license fee less the sum of $15,000, which shall be fully earned by Sonic upon
execution and delivery of this Agreement.
2.06.
Relocation
.
If
the Licensee relocates the Sonic Restaurant during the term of this Agreement
(which relocation must be within the Protected Area) with the written consent
of
Sonic (which consent Sonic shall not withhold unreasonably), this Agreement
shall continue to apply to the Sonic Restaurant in accordance with the terms
contained in this Agreement, except that Sonic and the Licensee shall enter
into
an amendment to this Agreement to change the address of the Sonic Restaurant
accordingly. Upon such relocation, the Protected Area shall be
shifted based on the new location according to Section 2.02 and less and except
(i) the contractually-granted protected radius of any Sonic drive-in restaurant
in existence prior to the relocation and (ii) the protected area of any
developer under an area development agreement with Sonic in existence prior
to
the relocation.
Except
as expressly limited by this
Agreement, Sonic retains all rights with respect to the Sonic System, the
Proprietary Marks, the sale of similar or dissimilar products and services,
and
any other activities Sonic deems appropriate whenever and wherever it
desires. Specifically, but without limitation, Sonic reserves the
following rights:
(a)
The
right
to establish and operate, and to grant to others the right to establish and
operate, similar businesses or any other businesses offering similar or
dissimilar products and services through similar or dissimilar channels of
distribution, at any locations inside or outside the Protected Area under
trademarks or service marks other than the Proprietary Marks and on any terms
and conditions Sonic deems appropriate;
(b)
The
right
to provide, offer, and sell, and to grant others the right to provide, offer,
and sell, goods and services that are identical or similar to and/or competitive
with those provided at the Sonic Restaurant, whether identified by the
Proprietary Marks or other trademarks or service marks, through dissimilar
distribution channels (including, without limitation, the Internet or similar
electronic media) both inside and outside the Protected Area and on any terms
and conditions Sonic deems appropriate;
(c)
The
right
to establish and operate, and to grant to others the right to establish and
operate, businesses offering dissimilar products and services, both inside
and
outside the Protected Area, under the Proprietary Marks and on any terms and
conditions Sonic deems appropriate;
(d)
The
right
to operate, and to grant others the right to operate, Sonic drive-in restaurants
or Non-traditional Locations anywhere outside the Protected Area under any
terms
and conditions Sonic deems appropriate regardless of the proximity to the Sonic
Restaurant;
(e)
The
right
to be acquired (whether through acquisition of assets, ownership interests,
or
otherwise, regardless of the form of transaction) by a business providing
products and services similar to those provided at the Sonic Restaurant, or
by
another business, even if such business operates, franchises, and/or licenses
competitive businesses in the Protected Area.
3.
TERM
.
3.01.
Initial
Term
.
Unless sooner terminated as hereafter provided, the term of this Agreement,
including the License, shall end 20 years from the effective date of this
Agreement as set forth on the cover page to this Agreement.
3.02.
Opening of
Restaurant
.
Licensee expressly acknowledges and agrees that a pre-condition to opening
the Sonic Restaurant shall be Sonic’s written authorization to open, which
authorization shall be given only
upon
Licensee’s completing, to Sonic’s satisfaction, (i) construction of the Sonic
Restaurant, (ii) preparation of the Sonic Restaurant for commencement of
operations, and (iii) training as required by Section 6.04 of this
Agreement.
3.03.
Option
.
At the end of the initial term, if Licensee desires, Licensee may renew the
rights granted under this Agreement, including the License to adopt and use
the
Sonic System at the Sonic Restaurant, for an additional 10-year term, provided
that prior to the expiration of the initial term:
(a)
Licensee gives Sonic written notice of Licensee’s election to renew not less
than six months nor more than 12 months prior to the end of the initial
term.
(b)
Licensee is not, when notice is given, in material default of any provision
of
this Agreement or any amendment hereof or successor agreement hereto or in
material default of any other agreement between Licensee and Sonic or Sonic’s
Affiliates involving any other license agreement and has substantially complied
with the terms and conditions of this Agreement and all other such agreements,
during the term thereof.
(c)
All monetary obligations owed by Licensee to Sonic or Sonic’s Affiliates from
any source whatsoever (whether under this Agreement or otherwise) have been
satisfied prior to renewal.
(d) The
Licensee executes a license agreement containing the same terms and conditions
as this Agreement, except that the license agreement shall provide for a term
of
10 years and shall contain the then-current royalty rate and the then-current
advertising and brand expenditure requirements; provided, however, that in
lieu
of an initial license fee, a renewal fee shall be paid to Sonic in the amount
of: (i) $4,500, or (ii) 20% of the then-current initial license fee,
whichever is greater. However, the renewal fee shall not exceed
$9,000 as adjusted for inflation on January 1 of each year in accordance with
the consumer price index and using December of 2006 as the base amount.
(e) Licensee
performs such remodeling, repairs, replacements, and redecorations as Sonic
may
reasonably require to cause the restaurant equipment and fixtures to conform
to
the plans and specifications being used for new or remodeled Sonic drive-in
restaurants on the renewal date.
(f)
Licensee executes a general release, in a form satisfactory to Sonic, of any
and
all claims the Licensee may have against Sonic and its Affiliates, including
(without limitation) all claims arising under any federal, state, or local
law,
rule, or ordinance.
(g)
Licensee principal and/or manager at their expense attend and satisfactorily
complete such retraining program as Sonic may require at its sole
discretion. (h)Licensee meets the remodeling requirements set forth in
Section 6.02(d) herein.
4.
DUTIES
OF SONIC
.
Sonic agrees to regularly advise and consult with Licensee in connection with
the operation of the Sonic Restaurant and to provide the following to
Licensee:
4.01.
Plans
.
Standard Sonic Plans and Specifications for a free standing building, equipment
layout, and signs (see Section 6.03), together with advice and
consultation. Any modifications for nonstandard buildings, whether
required by local zoning or building laws or otherwise, must be approved in
writing by Sonic and are to be paid by Licensee.
4.02.
Operations
Manual
.
The
Sonic Operations Manual
containing the standards, specifications,
procedures, and methods for operating a Sonic drive-in restaurant, one copy
to
which Licensee will be given access for the term of this Agreement.
4.03.
Marketing
Assistance.
Certain marketing materials and such merchandising, marketing, and advertising
research data and advice as may be developed from time to time by Sonic and
deemed to be helpful in the operation of a Sonic drive-in
restaurant.
4.04.
Communication
.
Certain management development and motivational seminars and periodic
newsletters which communicate to Licensee available advertising materials and
new developments, techniques, and improvements in areas of restaurant equipment,
management, food preparation, and service which are pertinent to the operation
of a restaurant using the Sonic System.
4.05.
Evaluation
Program
.
A field evaluation of the Restaurant will be conducted for the mutual
benefit of both Sonic and Licensee to promote uniform standards of operation
and
quality control.
5.
FEES
.
5.01.
License
Fee.
The Licensee acknowledges that: (a) the initial grant of the License
constitutes the sole consideration for the payment of a license fee of $45,000
paid by Licensee to Sonic concurrently with the execution hereof; and (b) the
fee has been earned by Sonic (except where the construction of the Restaurant
has not been completed within one year from the date of this Agreement as
discussed in Section 6.02(a) and except as provided hereafter in this Section
5.01). Sonic reserves the right, in case construction of the
Restaurant should be abandoned, the lease assigned for a purpose other than
the
operation of the Sonic Restaurant, or other interest in the premises be
relinquished for a purpose other than the operation of the Sonic Restaurant,
to
terminate this Agreement, including the License, upon written notice, after
which Sonic will immediately refund to Licensee the license fee less the sum
of
$15,000, which shall be fully earned by Sonic upon execution and delivery of
this Agreement. Licensee shall have the right, if Licensee does not
consummate a lease or purchase a site for the Restaurant within one year from
the date of this Agreement, to terminate this Agreement, including the License,
upon written notice, after which Sonic will immediately refund to Licensee
the
license fee less the sum of $15,000, which shall be fully earned by Sonic upon
execution and delivery of this Agreement.
5.02.
Royalty
Fees
.
On or before the 10th day of each calendar month, the Licensee shall pay a
royalty fee determined by the following scale based on Gross Sales for the
calendar month preceding the date of such payment:
|
Monthly Gross Sales
|
But Not
|
Royalty
|
|
Greater Than
|
More Than
|
Rate
|
|
|
|
|
|
$ 0.00
|
$ 5,000.00
|
2.00%
|
|
$ 5,000.00
|
$10,000.00
|
3.00%
|
|
$10,000.00
|
$15,000.00
|
3.50%
|
|
$15,000.00
|
$20,000.00
|
4.00%
|
|
$20,000.00
|
$25,000.00
|
4.50%
|
|
$25,000.00
|
N/A
|
5.00%
|
The
calculation of Gross Sales and the corresponding royalty fees shall take
place
on a cumulative basis. For example, the following formula results in
the calculation of the royalty fee on $50,000 of Gross Sales: Royalty
Fee = ($5,000 x .02) + ($5,000 x .03) + ($5,000 x .035) + ($5,000 x .04)
+
($5,000 x .045) + ($25,000 x .05).
The
payment of royalty fees, as well as the payment of any other obligations
incurred under the terms of this Agreement, shall be made via automated clearing
house (ACH) or other electronic means approved by Sonic.
5.03.
Brand
Fee
.
(a)
On or before the 10th day of each calendar month throughout the term
of this
Agreement, Licensee shall pay to the Sonic Brand Fund, which is administered
by
Sonic, a brand contribution fee in an amount equal to .90% of the
Gross Sales of the Sonic Restaurant during the calendar month next preceding
the
date of such payment.
(b)
The amount due to Sonic by Licensee pursuant to Section 5.03(a), above, shall
be
in addition to and separate from that which Licensee is obligated to contribute
pursuant to Sections 11.01(a) and 11.01(c) of this Agreement.
5.04.
Transfer
Fee
.
(a)
A transfer fee in the amount of $1,000 shall be paid by Licensee in the event
of
a transfer or assignment of this Agreement (resulting in a change in Control
of
the Agreement) to a licensee then-currently qualified as a licensee, excluding
assignments under Sections 13.02 and 13.03.
(b)
A transfer fee in the amount of $3,000 shall be paid by Licensee in the event
of
a transfer or assignment of this Agreement (resulting in a change in Control
of
this License) to a new licensee not then-currently qualified as a licensee,
excluding assignments under Sections 13.02 and 13.03.
5.05.
Late
Payments
.
In the event any payments required by Sections 5.02, 5.03, or 5.04, above,
are
not paid on or before the date on which they are due, a late charge in an amount
equal to 1.75% per month shall be levied against such amounts due and shall
be
owing to Sonic by the Licensee from the date on which such obligations were
due
until any such obligations are paid in full. In the event any
payments required by Sections 5.02, 5.03, or 5.04, above, are not paid on or
before the date on which they are due three or more times during any 12-month
period, in addition to all other rights of Sonic contained in this Agreement
or
otherwise, (a) Sonic may require the Licensee to submit a statement of Gross
Sales in the form prescribed by Sonic and at a frequency prescribed by Sonic,
such as weekly; and (b) Sonic may require the Licensee to pay obligations
incurred under the terms of this Agreement more frequently than once a month,
such as weekly. In the event the interest rate set out in this
Section 5.05 exceeds that amount permitted by Oklahoma law, then the maximum
interest rate permitted by Oklahoma law shall be charged. Sonic’s
acceptance of any partial or late payment does not affect Sonic’s right to
terminate this Agreement pursuant to the terms of this
Agreement. Further, Licensee acknowledges that this Section 5.05 is
not an agreement to accept any partial payments or payments after they are
due
or Sonic’s commitment to extend credit to, or otherwise finance the operation
of, the Sonic Restaurant.
(a)
Licensee shall pay when due all taxes levied or assessed on Licensee and the
Sonic Restaurant including, without limitation, unemployment, sales, or gross
receipts taxes, and all accounts or other indebtedness of any kind incurred
by
Licensee in conducting the business of the Sonic Restaurant.
(b)
In the time and manner prescribed by Sonic, Licensee shall also pay an amount
equal to any sales tax or gross receipts tax, but not including any net income
tax upon Sonic, imposed on Sonic or its Affiliates with respect to any payments
from Licensee to Sonic required under this Agreement, unless the tax is credited
against a net income tax otherwise payable by Sonic.
(c)
(i) In the
event of a dispute with a taxing authority as to (a) Licensee’s liability for
taxes or (b) Sonic’s or its Affiliate’s liability for any taxes upon which
Licensee is required under this Section 5.06 to make payment to Sonic, Licensee
may contest the validity or the amount of the tax or indebtedness in accordance
with the law and regulations of the taxing authority. Sonic shall
provide Licensee with all information, cooperation, and assistance that Licensee
may reasonably request in connection with any dispute as to Licensee’s, Sonic’s,
or Sonic’s Affiliate’s liability for taxes. Licensee shall not permit
a tax sale, seizure, levy, or similar writ or warrant by a creditor to occur
against the Sonic Restaurant or any of its assets.
(ii) In
the event a state taxing authority makes a refund to Sonic or its Affiliate
of
taxes paid for which Sonic previously received payment from Licensee under
this
Section 5.06, Sonic shall pay to Licensee the amount of the taxes refunded
by
the state taxing authority to Sonic or its Affiliate which equals the amount
Licensee previously paid to Sonic under this Section 5.06.
(d)
All notices received by Licensee from a state taxing authority regarding the
alleged, potential, or actual tax liability of Sonic or its Affiliates shall
be
given to Sonic within 15 calendar days of receipt by Licensee. Sonic
and Licensee agree to consult in good faith to determine the nature of any
action to be taken in connection with the notice or any demands contained
therein.
6.
DUTIES
OF
LICENSEE
.
6.01.
Sonic
Restaurant Site
.
(a)
The site at which Licensee shall operate the Sonic Restaurant is more fully
described in Section 2.01(a). During the term of this Agreement, the site
shall be used exclusively for the purpose of operating a licensed Sonic drive-in
restaurant.
(b)
In the
event the Sonic Restaurant premises suffers some physical casualty, the minimum
acceptable quality and appearance for the restored restaurant will be that
which
existed just prior to the casualty, unless the Sonic Restaurant was below
minimum acceptable standards for Sonic at the time of casualty in which event
the Sonic Restaurant will be restored to a condition which meets the minimum
acceptable standard according to Sonic. However, Licensee agrees to make
all reasonable effort to have the restored Sonic Restaurant reflect the
then-current image, design, and specifications of Sonic drive-in
restaurants. If the Sonic Restaurant is substantially destroyed by fire or
other casualty, Licensee may, with the written consent of Sonic, elect to
terminate this Agreement in lieu of Licensee reconstructing the restaurant,
provided that for a period of 18 months after said election, Licensee shall
not
enter into, become landlord of, or loan money to any restaurant business within
a three-mile radius of the Sonic Restaurant premises which is similar in nature
to or competitive with a Sonic drive-in restaurant or considered a quick-service
restaurant establishment.
6.02.
Construction and
Opening
.
(a)
Licensee
agrees to complete the construction of the Sonic Restaurant and open the Sonic
Restaurant to the public within one year from the effective date of this
Agreement. If the Sonic Restaurant is not constructed and opened to the
public before the expiration of the one-year period, then Sonic may
terminate this Agreement, making it of no further force or effect. In such
case,
Sonic will immediately refund to Licensee the license fee less the sum of
$15,000, which shall be fully earned by Sonic upon execution and delivery of
this Agreement. Unless Licensee is remodeling an existing building,
Licensee shall construct the Sonic Restaurant in accordance with the site plan
approved by Sonic for such site and with Sonic’s standard construction plans and
specifications (“Sonic Plans and Specifications”) and layout subject, however,
to any alterations thereto that may be required by any applicable law,
regulation, or ordinance. If alterations of any kind are required to be
made to the site plan, as approved by Sonic, or to the Sonic Plans and
Specifications or layouts for any reason, such alterations must be approved
by
Sonic in writing before any work is begun on the Sonic
Restaurant. The Licensee shall submit the final site layout and
construction plans for the Sonic Restaurant to Sonic for its written
approval. Any costs, including engineering and architectural fees,
incurred in obtaining approvals by the appropriate governmental authorities
of the construction plans, specifications, and layouts shall be paid by
Licensee. Prior to opening, Licensee shall submit to Sonic, at no
cost to Sonic, a record set of drawings showing all approved changes to the
plans and specifications.
(b)
If Licensee is
remodeling the existing Restaurant, Sonic shall have the right to inspect and
approve all plans and specifications prior to the commencement of any
work. The Licensee shall submit the final remodeling plans and
specifications for the Sonic Restaurant to Sonic for its written approval.
Nothing in this section shall be construed as an endorsement or guarantee of
the
conformity of such plans to applicable local, state, or federal building or
safety codes, or a guarantee that construction will be done in conformity with
such approved plans. In any event, Licensee shall obtain written approval
of such plans or written notice of Sonic’s waiver of the rights reserved
hereunder prior to the commencement of construction.
(c)
Licensee
shall not deviate from the approved plans and specifications in any manner
in
the construction or remodeling of the restaurant without the prior written
approval of Sonic. If at any time Sonic determines (prior to opening date)
that Licensee has not constructed or remodeled the Sonic Restaurant in
accordance with the plans and specifications approved by Sonic, Sonic shall,
in
addition to any other remedies, have the right to obtain an injunction from
a
court of competent authority against the continued construction and opening
of
the Sonic Restaurant, and Licensee hereby consents to any such
injunction.
(d)
Sonic may require the Licensee to undertake extensive remodeling and renovation
and substantial modifications to existing buildings necessary for the Licensee’s
restaurant to conform with Sonic’s then-existing system image. Sonic
may exercise the foregoing right at any time during the term of this Agreement,
but may not require (1) the remodeling of the restaurant more than once every
seven years or (2) the remodeling of a restaurant built within the preceding
three years, unless the required remodeling will not exceed 15% of the original
cost of the building, equipment, and land improvements (as adjusted for
increases in the consumer price index after the construction date of the
restaurant). Notwithstanding the foregoing, Sonic shall have the
right to require the Licensee to modify or replace the large Sonic sign for
the
restaurant at any time during the term of this Agreement. If Sonic
exercises its right to require the Licensee to undertake extensive remodeling
or
renovation or substantial modification within five years of the end of the
term
of this Agreement, the Licensee may exercise any right to renew the term of
this
Agreement at that point in time in accordance with the applicable provisions
of
this Agreement, which renewal then shall take effect as of the expiration of
the
then-current term of this Agreement.
6.03.
Equipment and
Sign
.
(a)
Licensee
shall install in and about the Sonic Restaurant such equipment, fixtures,
furnishings, and other personal property, and shall upgrade or purchase
additional equipment, fixtures, furnishings, and other personal property, as
are
required and which strictly conform to the appearance, uniform standards, and
specifications of Sonic existing from time to time, which shall be communicated
to Licensee in the
Sonic Operations Manual
or otherwise in
writing. Equipment not required by Sonic shall not be installed without
Sonic’s prior written consent, except that Licensee may, without Sonic’s prior
written consent, install security-related equipment that does not interfere
with
the operation or trade dress of the Sonic Restaurant.
(b)
In order to
provide maximum exposure of the Sonic name and marks, Licensee shall prominently
display and maintain at Licensee’s own expense one Sonic drive-in sign (“Sign”)
which complies with the specifications required by Sonic from time to time
and
in such location as Sonic may approve. Licensee shall not display any
other sign or advertising at the Sonic Restaurant without Sonic’s prior written
approval.
(c)
Licensee may lease the required Sign from Sonic or may acquire or lease the
Sign
from any other source approved by Sonic. Licensee agrees to require in any
lease agreement with Sonic or other suppliers a clause giving Sonic the right
to
remove the Sign from the Sonic Restaurant upon termination of this
Agreement.
(d)
Licensee hereby agrees that it shall obtain from the landlord of the property
at
which the Sonic Restaurant is located a landlord’s waiver releasing all claims
against any equipment or sign which belongs to Sonic and all claims to fixtures
and furnishings that constitute Proprietary Marks of Sonic.
(e)
If Licensee is or becomes a lessee of the Sonic Restaurant premises, Licensee
shall provide Sonic with a true and correct, complete copy of any such lease
and
obtain Sonic’s written approval of the lease terms prior to executing the
lease. Licensee shall have included in the lease provisions, in form
satisfactory to Sonic, expressly permitting both the Licensee and Sonic to
take
all actions and make all alterations referred to under Section
15.01. Any such lease shall also require the lessor thereunder to
give Sonic reasonable notice of any contemplated termination and a reasonable
time in which to take and make the above actions and alterations and provide
that the Licensee has the unrestricted right to assign such lease to
Sonic.
6.04.
Training
.
(a)
Licensee acknowledges the importance of the quality of business operations
among
all restaurants in the Sonic System and agrees that it will not allow any of
its
licensed establishments to be opened or operated without having at least one
individual working full time at the Sonic Restaurant who has completed the
Stage
Career Development Program or other Sonic-designated training
program. If the trained individual ceases to work full time at the
Sonic Restaurant for whatever reason, the Licensee shall promptly replace the
individual with a person who has completed the Stage Career Development Program
or other Sonic-designated training program. Licensee agrees that each
individual who participates in the Stage Career Development Program or other
Sonic-designated training program for the Sonic Restaurant will, at the request
of Sonic, sign a confidentiality agreement in a form prescribed by Sonic
agreeing to maintain as confidential certain information learned and received
during the program.
(b)
Licensee
shall pay all traveling expenses, living expenses, and any other personal
expenses for themselves and managers while enrolled in the training
program. As part of the initial license fee paid pursuant to Section
5.01 herein, Licensee shall have the right to have one principal and one manager
of the Sonic Restaurant attend the Stage Career Development Program or other
Sonic-designated training program for no cost other than those set out in the
preceding sentence. Any additional parties attending the Stage Career
Development Program or other Sonic-designated training program shall bear the
cost, including any fees and tuition due for such training program.
(c)
Upon
opening the Sonic Restaurant, all management personnel shall be certified in
ServSafe or in another comparable, nationally recognized food safety training
and certification program approved by Sonic, the cost of which shall be borne
by
Licensee. Management personnel subsequently employed by Licensee at
the Sonic Restaurant shall have 120 days from the beginning date of such
employment to successfully complete such training. Licensee shall pay
all traveling expenses, living expenses, and any other personal expenses for
such persons while participating in the training. Management
personnel includes any person who has shift responsibility or employee oversight
at the Sonic Restaurant and also includes the operating principal of the Sonic
Restaurant.
6.05.
Compliance with
Entire System
.
(a)
Licensee
acknowledges that every component of the Sonic System is important to Sonic
and
to the operation of the Sonic Restaurant as a Sonic drive-in restaurant,
including a designated menu of food and beverage products; uniformity of food
specifications, preparation methods, quality, and appearance; and uniformity
of
facilities and service.
(b)
Sonic
shall have the right to inspect the Sonic Restaurant at all reasonable times
to
ensure that Licensee’s operation thereof is in compliance with the standards and
policies of the Sonic System. This right to inspect includes the
right of Sonic or a third party on behalf of Sonic to conduct food safety audits
and operational assessments. In the event that any inspection, including a
food safety audit or an operational assessment, reveals any deficiency or
unsatisfactory condition with respect to any aspect of the Sonic Restaurant
operation, Licensee shall, within 72 hours of Licensee’s receipt of notice of
such condition or such other time as Sonic in its sole discretion may provide,
correct or repair such deficiency or unsatisfactory condition if it is
correctable or repairable within such time period, and, if not, shall within
such time commence such correction or repair and thereafter diligently pursue
same to completion. The preceding sentence notwithstanding, the
Licensee shall take immediate action to correct or repair any deficiency or
unsatisfactory condition which poses a risk to public health or
safety. In the event Licensee fails to comply with the foregoing
obligations to correct and repair, Sonic, upon 24 hours’ notice to Licensee,
shall have the right (but no obligation), without being guilty of trespass
or
tort, to forthwith make or cause to be made such corrections or repairs, and
the
expense thereof, including board, wages, lodging, and transportation of Sonic
personnel, if utilized, shall be paid by Licensee upon billing by Sonic.
The foregoing shall be in addition to any other right or remedies Sonic may
have.
(c)
Licensee shall comply with the entire Sonic System as described herein and
in
the
Sonic Operations Manual
, including but not limited to the
following:
(i)
Operate
the Sonic
Restaurant in a clean, wholesome manner in compliance with standards of quality,
food safety, service, cleanliness, and appearance as prescribed by governmental
authorities and by Sonic; comply with all business policies, practices, and
procedures imposed by Sonic; and maintain the building, equipment, and parking
area in a good, clean, wholesome condition and repair, well lighted, and in
compliance with designated standards as may be prescribed from time to time
by
Sonic.
(ii)
Purchase and install
kitchen fixtures, lighting, payment systems, and equipment, and office equipment
and signs in accordance with the equipment specifications and layout designated
by Sonic.
(iii)
Without the
prior written consent of Sonic, make no (a) building design conversion or
(b) alterations, conversions, or additions to the building or parking area.
(iv) Make repairs or
replacements required because of damage, wear, and tear or in order to maintain
the Sonic Restaurant building, fixtures, and parking area in good condition
and
in conformity with blueprints and plans.
(v) Maintain the parking
stalls, as required in the standard Sonic Plans and Specifications, for the
exclusive use of Sonic Restaurant customers.
(vi) Operate
the Sonic Restaurant everyday of the year (except Easter, Thanksgiving, and
Christmas), and at least 15 hours per day or such other hours, including
specific opening and closing times, as may from time to time be reasonably
prescribed by Sonic (except when the Sonic Restaurant is untenantable as a
result of fire or other casualty), maintain sufficient supplies of food and
paper products, and employ adequate personnel so as to operate the Sonic
Restaurant at its maximum capacity and efficiency.
(vii) Cause all employees of
Licensee, while working in the Sonic Restaurant, to: (a) wear uniforms of
such color, design, and other specifications as Sonic may designate from time
to
time, (b) present a neat and clean appearance, and (c) render competent and
courteous service to Sonic Restaurant customers.
(viii) Serve all menu items which Sonic
may deem appropriate and which are included in the menu approved by Sonic at
the
time to take full advantage of the potential market and achieve standardization
in the Sonic System, serve no items which are not set forth in the
Sonic
Operations Manual
and which are not otherwise authorized and approved in
writing by Sonic, and display and offer only the menu approved by Sonic at
the
time.
(ix) In the dispensing and
sale of food products: (a) use only containers, cartons, bags, napkins, and
other paper goods and packaging bearing the approved trademarks and which meet
the Sonic System specifications and quality standards, (b) use only those
flavorings, garnishments, and food and beverage ingredients, manufacturers,
and
brands which meet the Sonic System specifications and quality standards, which
Sonic may designate from time to time, and (c) employ only those methods of
food
handling, preparation, and serving which Sonic may designate from time to time.
(x) Make prompt
payment in accordance with the terms of invoices rendered to Licensee including,
but not limited to, invoices for the purchase of fixtures, equipment, and food
and paper supplies.
(xi) At Licensee’s
expense, comply with all federal, state, and local laws, ordinances, and
regulations affecting the operation of the Sonic Restaurant, including all
laws,
ordinances, or regulations relating to terrorist activities.
(xii) Install no electronic
games or other games of chance at the Sonic Restaurant without the express
prior
written consent of Sonic.
(xiii) Furnish Sonic with current home
addresses and phone numbers of Licensee and Licensee’s owners and manager;
furnish Sonic with current information regarding the legal and equity ownership
and Control of the operation of the Sonic Restaurant; and, upon Sonic’s
reasonable request, provide updates of financial information, personal financial
statements, and credit information.
(xiv) Notify Sonic’s Communications
Department or, if not available, the most senior executive officer of Sonic
as
soon as possible and, in any event, within 12 hours after the occurrence at
the
Sonic Restaurant of any event which could have an adverse impact on the Sonic
Restaurant and/or the Sonic System, including (without limitation) the death
or
serious bodily injury of any employee or customer for any reason or the risk
of
infection by a contagious disease.
(xv) Only provide a
Sonic-approved toy premium that is appropriate for the age of the child; make
a
Sonic-approved all-age toy premium available upon customer request; and, except
in the case of an all-age toy premium provided as appropriate, only offer the
Sonic-approved toy premium corresponding to the Sonic-designated
promotion.
(xvi) Accept Sonic-designated debit and
credit cards, Sonic-approved stored-value cards, and any other Sonic-designated
payment means.
(xvii) Participate
in system-wide initiatives, including technology initiatives such as the
PartnerNet technology initiative and other initiatives as may be designated
by
Sonic from time to time.
(xviii) Deal with Persons supplying goods and
services to the Sonic Restaurant in a respectful and responsive manner such
that
the reputation and goodwill of Sonic, its licensees, and the Sonic System are
not tarnished in the business community or with consumers; ensure that all
Persons that provide goods or services to the Sonic Restaurant during
construction and operation are timely and fully paid for such goods and
services, except only to the extent that any of the goods and services are
non-conforming, damaged, defective, or missing; and, in the event that a dispute
arises as to quality or quantity of goods or services furnished to the Sonic
Restaurant, timely communicate with and respond to the supplier in a good faith
effort to resolve the dispute. Licensee cannot avoid the obligations
contained in this Section 6.05(c)
(xviii)
by contracting for or obtaining the goods or services indirectly, such as
through an intermediary.
(xix) Except as to bottled water and paper
products and except as allowed by any policy contained in the
Sonic
Operations Manual
, do not sell or serve food and beverage products outside
of the Sonic Restaurant premises and do not donate food and beverage products
to
a third party except upon the prior written consent of Sonic.
(xx)
Do not sell Sonic coupons, and only sell Sonic-related merchandise on the
Internet or by other means upon the prior written consent of Sonic.
(xxi)
Participate in Sonic-approved marketing, advertising, promotional, and brand
enhancement programs.
(xxii) In the event Sonic sets a maximum price for
any product, do not charge a price in excess of such maximum price for the
product; however, Licensee may charge a price lower than the maximum
price.
(xxiii) Sell the Sonic-approved stored-value card or
other Sonic-designated pre-paid payment means.
(xiv) Utilize at the Sonic Restaurant a
Sonic-approved point-of-sale system that at all times has a non-alterable grand
total function so that each item entered in such register and each day’s totals
may not be altered once entered.
(d)
Sonic shall have the right to establish new or to modify existing operating
procedures, policies, practices, requirements, and guidelines, which shall
be
effective upon notice from Sonic unless Sonic specifies
otherwise. Such new or modified operating procedures, policies,
practices, requirements, and guidelines may require Licensee to incur additional
expense.
6.06.
Approved
Suppliers and Advertising Agencies
.
(a)
Sonic may require the Licensee (i) to purchase food, beverages, signs, and
equipment which meet the specifications established by Sonic; (ii) to purchase
such items only from Sonic-designated suppliers (which designated suppliers
may
include Sonic or its Affiliates); and (iii) to retain and utilize exclusively
the marketing and advertising services of the Sonic-approved advertising agency
of record. In addition, the Licensee immediately shall use the
Licensee’s vote or votes in all advertising cooperatives in which the Licensee
participates to support the use of the advertising agency of record for the
Sonic drive-in restaurant chain.
(b) Sonic
may require the Licensee to support the use of and to use the products and
programs of the beverage syrup supplier approved by Sonic and used by a majority
of all Sonic drive-in restaurants, to the exclusion of any other supplier of
beverage syrup.
(c)
Sonic may require the Licensee to comply with the foregoing provisions not
only
for the Sonic Restaurant, but also (to the extent the Licensee exercises
Control) for all other Sonic drive-in restaurants for which the Licensee serves
as a licensee.
(d)
Sonic hereby explicitly retains the exclusive right to consider, review, and
approve any and all suppliers that may hold, sell, or distribute Sonic-labeled
goods or products.
(e)
Licensee agrees that its suppliers may provide to Sonic information regarding
Licensee’s past due amounts.
(f) The
terms of this Section 6.06 shall continue in effect for as long as the Licensee
serves as a licensee for a Sonic drive-in restaurant and shall survive the
expiration or termination of this Agreement.
(g)
If at least 95% of all Sonic drive-in restaurants are in compliance with
Sections 6.06(a) and 6.06(b), Sonic periodically shall submit the approved
advertising agency or beverage syrup supplier to competitive bid or review,
but
shall not be obligated to do so more often than once every three
years.
6.07.
Best
Efforts
.
Licensee
shall diligently and fully
exploit his rights in this Agreement by personally devoting his best efforts
and, in case more than one individual has executed this Agreement as the
Licensee, at least one individual Licensee shall devote his full time and best
efforts to the operation of the Sonic Restaurant. Licensee shall avoid any
activities which, in Sonic’s sole judgment, would be detrimental to or interfere
with the business of the Sonic Restaurant, the Sonic System, or
Sonic.
6.08.
Interference
with Employment Relations of Others
.
During
the term of this Agreement,
except upon the prior written consent of Sonic, Licensee shall not employ or
seek to employ any person who is at the time or was at any time during the
prior
six months employed by Sonic or any of its subsidiaries. In addition,
during the term of this Agreement, except upon the prior written consent of
Licensee, Sonic agrees not to employ or seek to employ any person who is at
the
time or was at any time during the prior six months employed by Licensee in
a
management level position.
6.09.
Sonic’s
Standards
.
Licensee
shall operate the Sonic
Restaurant specified in this Agreement in conformity with the Sonic System
and
the obligations set forth in this Agreement and shall strictly adhere to Sonic’s
standards and policies as they exist now and as they may be from time to time
modified.
6.10.
Majority
Interest Owner
.
Licensee
represents, warrants, and
agrees that Licensee actually owns the majority interest in the legal and equity
ownership and Control of the operation of the Sonic Restaurant, and that
Licensee shall maintain such interest during the term of this Agreement except
only as otherwise permitted pursuant to the terms and conditions of this
Agreement. Licensee shall furnish Sonic with such evidence as Sonic
may request from time to time for the purpose of assuring Sonic that Licensee’s
interest remains as represented herein.
(a)
At Sonic’s option, Sonic may post the
Sonic Operations Manual
(pursuant
to Sonic’s obligation to provide Licensee with access to the
Sonic
Operations Manual
, as set forth in Section 8) and other communications on a
restricted Intranet or other website to which Licensee will have
access. If Sonic does so, Licensee must periodically monitor the site
for any updates to the
Sonic Operations Manual
or other standards,
specifications, and procedures. Any passwords or other digital
identification necessary to access the
Sonic Operations Manual
and
other information on such a site will be deemed to be part of the Confidential
Information (defined in Section 9.01). Further, Licensee agrees that
Licensee will establish the channels of communication with Sonic and Licensee’s
customers as required by Sonic from time to time, including e-mail, Internet,
and other electronic forms of communication, and that Licensee will acquire
and
maintain any computer or other components necessary for the transmission of
such
communications.
(b) Licensee
will not establish or operate a website for the Sonic Restaurant or for
Licensee’s organization that owns and operates the Sonic Restaurant or other
Sonic restaurants under license agreements with Sonic.
7.
PROPRIETARY
MARKS
.
7.01.
Sonic’s Representations
.
Sonic
represents with respect to the
Proprietary Marks that Sonic will use and permit Licensee and other licensees
to
use the Proprietary Marks only in accordance with the Sonic System and the
standards and specifications attendant thereto which underlie the goodwill
associated with and symbolized by the Proprietary Marks.
7.02.
Use of Marks
.
With
respect to Licensee’s licensed use
of the Proprietary Marks pursuant to this Agreement, Licensee agrees
that:
(a)
Licensee shall use only the Proprietary Marks designated by Sonic and shall
use
them only in the manner authorized and permitted by Sonic.
(b) Licensee
shall use the Proprietary Marks only for the operation of the Sonic
Restaurant.
(c)
During the term of this Agreement and any renewal hereof, Licensee shall
identify itself as the owner of the Sonic Restaurant in conjunction with any
use
of the Proprietary Marks, including, but not limited to, invoices, order forms,
receipts, and contracts, as well as at conspicuous locations on the premises
of
the Sonic Restaurant. The identification shall be in the form which
specifies Licensee’s name, followed by the term “Licensed Proprietor”, or such
other identification as shall be approved by Sonic.
(d) Licensee’s
rights to use the Proprietary Marks are limited to such uses as are authorized
under this Agreement, and any unauthorized use thereof shall constitute an
infringement of Sonic’s rights.
(e) Licensee
shall not use the Proprietary Marks to incur any obligation or indebtedness
on
behalf of Sonic.
(f) Licensee
shall not use the Proprietary Marks as part of its corporate or other legal
name.
(g) Licensee
shall comply with Sonic’s instructions in filing and maintaining the requisite
trade name or fictitious name registrations, and shall execute any documents
deemed necessary by Sonic or its counsel to obtain protection for the
Proprietary Marks or to maintain their continued validity and
enforceability.
(h)
In the event that litigation involving the Proprietary Marks is instituted
or
threatened against Licensee, Licensee shall promptly notify Sonic and shall
cooperate fully in defending or settling such litigation.
7.03.
Licensee’s
Understanding
.
Licensee
expressly understands and
acknowledges that:
(a)
As between the parties hereto, Sonic owns the right and interest in and to
the
Proprietary Marks and the goodwill associated with and symbolized by them,
and
any and all use thereof by Licensee inures to the benefit of Sonic.
(b)
The Proprietary Marks are valid and serve to identify the Sonic System and
those
who are licensed under the Sonic System.
(c)
Licensee shall not directly or indirectly contest the validity or the ownership
of the Proprietary Marks.
(d) Licensee’s
use of the Proprietary Marks pursuant to this Agreement does not give Licensee
any ownership interest or other interest in or to the Proprietary Marks, except
the nonexclusive license granted herein.
(e) Any
and all goodwill arising from Licensee’s use of the Proprietary Marks in its
licensed operations under the Sonic System shall inure solely and exclusively
to
Sonic’s benefit, and upon expiration or termination of this Agreement and the
License herein granted, no monetary amount shall be assigned as attributable
to
any goodwill associated with Licensee’s use of the Sonic System or the
Proprietary Marks.
(f)
The right and license of the Proprietary Marks granted hereunder to Licensee
is
nonexclusive except as provided in Section 2.01 of this Agreement, and Sonic
thus has and retains the right among others:
(i) To grant
other licenses for the Proprietary Marks, in addition to those licenses already
granted to existing licensees.
(ii) To use the
Proprietary Marks in connection with selling products and services.
(iii) To
develop and establish other systems for the same or similar Proprietary Marks,
or any other Proprietary Marks, and grant licenses or franchises thereto without
providing any rights therein to Licensee.
(g) Sonic
reserves the right to substitute different Proprietary Marks for use in
identifying the Sonic System and the businesses operating thereunder if Sonic’s
currently owned Proprietary Marks no longer can be used.
If
Licensee develops any trademark,
service mark, trade dress, copyright, patent, or other intellectual property
for
use in promoting or operating the Sonic Restaurant or promoting the Sonic
System, such intellectual property will be deemed the property of Sonic or
its
Affiliate, at Sonic’s election, without charge or the payment of any royalty,
and Licensee shall take action as necessary to convey such rights to
Sonic.
8.
MANUAL
.
Sonic
shall provide Licensee access to,
for use at the Sonic Restaurant, the
Sonic Operations Manual
prepared
by Sonic for use by licensees of Sonic drive-in restaurants similar to the
Sonic
Restaurant to be operated by Licensee. Licensee recognizes that the
Sonic Operations Manual
contains detailed information relating to
operation of the Sonic Restaurant including: (a) food formulas and
specifications for designated food and beverage products; (b) methods of
inventory control; (c) bookkeeping and accounting procedures; (d) business
practices and policies; (e) required equipment; and (f) other management and
advertising policies. Licensee agrees to promptly adopt and use
exclusively the formulas, methods, and policies contained in the
Sonic
Operations Manual
, now and as they may be modified by Sonic from time to
time, and to return said manual to Sonic at the expiration or earlier
termination of this Agreement.
9.
CONFIDENTIAL
INFORMATION
.
9.01.
Sonic Proprietary and Confidential Information
.
Sonic
possesses certain unique,
proprietary, and confidential information, consisting of methods and procedures
for preparation of food and beverage products, confidential recipes for food
products, distinctive service and accessories, plans and specifications for
interior and exterior signs, designs, layouts, and color schemes, and methods,
techniques, formats, systems, specifications, procedures, business information,
trade secrets, sales and marketing programs and information, methods of business
operations and management, and knowledge of and experience in the operation
and
franchising of Sonic drive-in restaurants and the Sonic System (collectively,
the “Confidential Information”). Sonic will disclose the Confidential
Information to Licensee in furnishing Licensee the Sonic Plans and
Specifications for a Sonic drive-in restaurant, the training program, and the
Sonic Operations Manual
, and in providing guidance and assistance to
Licensee during the term of this Agreement. The
Sonic Operations
Manual
, as modified by Sonic from time to time, and the policies contained
therein, are incorporated in this Agreement by reference. Licensee acknowledges
that Confidential Information will be disclosed by Sonic through various means,
including orally, in writing, and electronically, such as on a restricted
Intranet or other website.
9.02.
Licensee’s
Use of Proprietary and Confidential Information
.
Licensee
acknowledges and agrees that
Licensee shall not acquire any interest in the Confidential Information, other
than the right to utilize it in the development and operation of the Sonic
Restaurant (and other Sonic drive-in restaurants under license agreements with
Sonic) during the term of this Agreement, and that the use or duplication of
the
Confidential Information in any other business would constitute an unfair method
of competition. Licensee acknowledges and agrees that the
Confidential Information is proprietary to Sonic, may constitute trade secrets
of Sonic, and is disclosed to Licensee solely on the condition that Licensee
agrees, and Licensee does hereby agree, that Licensee:
(i) shall
not
use the Confidential Information in any other business or capacity, or for
the
benefit of any other Person or entity;
(ii)
shall maintain the
absolute confidentiality of the Confidential Information, and shall not disclose
or divulge the Confidential Information to any unauthorized Person or entity,
during and after the term of the Agreement;
(iii)
shall not make
unauthorized copies of any portion of the Confidential Information disclosed
in
printed, audio, or video form (except in connection with instruction of
employees in the operation of the Sonic Restaurant); and
(iv)
shall adopt and
implement all procedures prescribed from time to time by Sonic to prevent
unauthorized use or disclosure of the Confidential Information, including,
without limitation, restrictions on disclosure thereof to employees of the
Sonic
Restaurant and the use of nondisclosure and non-competition clauses in
employment agreements with employees (including all owners, shareholders,
members, officers, and partners of Licensee) who have access to the Confidential
Information.
9.03.
Licensee’s
Use of
Sonic Operations Manual
.
Licensee
may not at any time, in any
manner, directly or indirectly, and whether or not intentionally, copy any
part
of the
Sonic Operations Manual
, permit any part of it to be copied,
disclose any part of it except to employees or others having a need to know
its
contents for purposes of operating the Sonic Restaurant, or permit its removal
from the Sonic Restaurant without prior written consent from
Sonic. Notwithstanding anything to the contrary contained in this
Agreement and provided Licensee shall have obtained Sonic’s prior written
consent, the restrictions on Licensee’s disclosure and use of the Confidential
Information shall not apply to the following:
(a)
information, processes, or techniques which are or become generally known in
the
food service industry, other than through disclosure (whether deliberate or
inadvertent) by Licensee; and
(b)
disclosure of the Confidential Information in judicial or administrative
proceedings to the extent that Licensee is legally compelled to disclose such
information, provided Licensee shall have used its best efforts, and shall
have
afforded Sonic the opportunity, to obtain an appropriate protective order or
other assurance satisfactory to Sonic of confidential treatment for the
information required to be so disclosed.
Licensee
acknowledges that Sonic’s
parent company, Sonic Corp., is a public company, and that Sonic Corp. makes
certain information regarding the performance of the Sonic System available
to
the public, including investors and financial analysts, in the normal course
of
business. Licensee further acknowledges that Licensee’s own disclosure of
certain information to the public could interfere with the business of
Sonic. Licensee agrees that it will not provide to the public, or to
any investor, financial analyst, or person that influences investments, any
information that might indicate the performance of the Sonic System, the Sonic
restaurant chain, or any aspect thereof, including sales information, except
that Licensee may provide information to attorneys, accountants, financial
planners, and other professionals as required in the course of Licensee’s
personal business or the operation of the Sonic Restaurant.
10.
ACCOUNTING
AND RECORDS
.
10.01.
Due
Date
.
On
or before the 10th day of each
month, Licensee shall submit to Sonic a complete profit and loss statement
in a form prescribed by Sonic and such statistical reports in such form as
Sonic
shall reasonably require from time to time, for the previous month immediately
ended, or for such other time period as may be designated by
Sonic. Such profit and loss statements and other statistical and
financial reports required by this Agreement shall be submitted by electronic
means as specified by Sonic.
10.02.
Record Retention
.
Licensee
shall keep and preserve full
and complete records of the Sonic Restaurant business for at least three years
in a manner and form satisfactory to Sonic and shall also deliver such
additional financial, operating, and other information and reports as Sonic
may
reasonably request on the forms and in the manner prescribed by Sonic; provided,
however, that Licensee shall maintain, at a minimum, those books and records
required to be kept by the Internal Revenue Service under the Internal Revenue
Code for purposes of its regulation of Licensee’s business and make the same
books available to Sonic.
10.03.
Charitable
Contributions and Discounts
.
In
meeting the requirements set forth
in Sections 10.01 and 10.02 above, Licensee shall keep records substantiating
and enter as a line item on its financial statements amounts representing the
valuation for goods (whether food, paper, or otherwise) which constitute
charitable contributions to third parties from the same goods out of the Sonic
Restaurant. Likewise, the Licensee shall maintain records and enter
on its financial statements (particularly a line item on its profit and loss
statement) information representing the value or amount of sales represented
by
coupons traded with and discounts granted by the Licensee at the Sonic
Restaurant.
10.04.
Annual Reports
.
Licensee
further agrees to submit,
within 90 days following the close of each fiscal year of the Sonic Restaurant’s
operation, a profit and loss statement covering operations during such fiscal
year and the balance sheet taken as of the close of such fiscal
year.
10.05.
Audit
by Sonic
.
Sonic
shall have the right to inspect
and audit Licensee’s accounts, books, records, and tax returns at all times
during and after the term of this Agreement. If such inspection
discloses that Gross Sales actually exceeded or, pursuant to generally accepted
audit methodologies, should have exceeded the amount reported by Licensee,
Licensee shall immediately pay Sonic: (i) the additional royalty fee,
brand fee, and advertising expenditures; (ii) interest on all unpaid amounts
(from the original due date) at a rate equal to that provided by Section 5.05
herein; and (iii) a 10% surcharge on all unpaid amounts. If such
inspection discloses that Gross Sales actually exceeded or, pursuant to
generally accepted audit methodologies, should have exceeded the amount reported
by Licensee as Licensee’s Gross Sales by an amount equal to 3% or more of the
Gross Sales originally reported to Sonic, Licensee shall bear the cost of such
inspection and audit at rates and fees customarily charged by Sonic for such
auditing and inspecting services and duties. Unpaid brand fees,
including interest and surcharges collected by Sonic pursuant to this section,
shall be used in accordance with the expenditures authorized by Section 5.03;
nevertheless, Sonic may, on a case by case basis, at Sonic’s sole discretion,
use such collected amounts in accordance with the expenditures authorized by
Section 11.01. Sonic shall have the right to bring an action in its
own name to collect unpaid brand and advertising expenditures required by
Section 11 herein.
10.06.
Third-Party
Audit
.
If
Sonic has reason to believe that the
Licensee may not have reported all of its Gross Sales, Sonic may require the
Licensee to have its profit and loss statement and balance sheet certified
by an
independent public accountant. Licensee shall at his expense cause a
Certified Public Accountant to consult with Sonic concerning such statement
and
balance sheet. The original of each such reports required by this Section
10.06 shall be mailed to Sonic’s business office at the address designated in
Section 19 below.
10.07.
Licensee’s
Failure to Timely Deliver Financial Records
.
If
Licensee fails to timely provide
Sonic with complete profit and loss statements, accounts, books, records, and
tax returns pertaining to the Sonic Restaurant business, or fails to fully
cooperate with Sonic’s audit of the Sonic Restaurant business, Sonic shall have
the right to estimate Licensee’s Gross Sales for the Sonic Restaurant using
information available on the Sonic Restaurant or other Sonic drive-in
restaurants. Licensee agrees to accept Sonic’s estimates as
conclusively correct until Licensee fully complies with Sonic’s accounting and
disclosure requirements under this Agreement. However, if the
Licensee’s subsequent accounting and disclosures reveal that Licensee
under-reported Gross Sales or underpaid fees due under this Agreement, Sonic
may
recover all deficiencies and may litigate claims of fraud even though Sonic
may
have already obtained a judgment using Sonic’s
estimates. Furthermore, nothing in this Agreement or any judgment
using estimates shall prevent or hinder Sonic’s further efforts and rights to
obtain the accounting and disclosures which Licensee is required to give to
Sonic under this Agreement. Without regard to whether Licensee fails
to timely provide records to Sonic or fails to fully cooperate with Sonic in
the
audit of the Sonic Restaurant, Sonic may make estimates during the audit process
or for other purposes as allowed by generally accepted accounting principles
or
audit methodologies.
10.08.
Financial
Disclosure
.
Sonic
shall have the right to assemble
and disseminate to third parties financial and other information regarding
the
Licensee and other licensees of Sonic to the extent required by law or to the
extent necessary or appropriate to further the interests of the Sonic System
as
a whole. Sonic shall have the right to disclose the business name,
address, and telephone number of the Licensee as they appear in Sonic’s records
to any Person making inquiry as to the ownership of the Sonic
Restaurant. Sonic shall not disclose specific financial information
regarding the Licensee or the Sonic Restaurant to any Person without (a) the
Licensee’s prior, written consent or (b) being directed to disclose the
information pursuant to the order of a court or other governmental
agency.
In the event that Licensee is late three or more times during any 12-month
period in paying any fee or obligation required by this Agreement, including
the
royalty fees set forth in Section 5.02 and the brand and advertising
expenditures set forth in Sections 5.03 and 11, Sonic shall have the right
to
require Licensee to use Sonic’s accounting services for the term of this
Agreement and any renewal, for which cost Licensee shall reimburse
Sonic. This requirement is in addition to all other rights Sonic may
have under the terms of this Agreement and otherwise.
Despite
any payment designation by
Licensee, Sonic may apply any payments received from Licensee pursuant to this
Agreement to the oldest debt or in accordance with any payment application
process prescribed by Sonic.
11.
ADVERTISING
AND BRAND EXPENDITURES
.
11.01.
Standard
Programs
.
Recognizing the value of advertising and the importance of the standardization
of advertising and brand programs to the furtherance of the goodwill and public
image of the System, the parties agree as follows:
(a)
In the event the Sonic Restaurant lies within a DMA for which a Sonic-approved
advertising cooperative has been formed, Licensee (i) shall join such
advertising cooperative or such other advertising cooperative as may be
designated by Sonic; (ii) shall abide by, follow, support, and promote the
financial accounting requirements established by Sonic from time to time for
advertising cooperatives, including complying with the format of financial
reporting required by Sonic, acknowledging Sonic’s right to audit the
advertising cooperative, cooperating fully with Sonic in the event of any such
audit, and using either the cooperative accounting services of Sonic or another
Sonic-approved accounting service; (iii) shall support the adoption of only
those bylaws approved by Sonic for the advertising cooperative; and (iv) shall
not purchase media outside of the advertising cooperative. Licensee
shall contribute to such advertising cooperative an amount required by such
advertising cooperative on a schedule required by such advertising cooperative,
provided that such contributions shall occur no less often than each calendar
month and shall be of an amount not less than 3.25% of Licensee’s Gross Sales
from the Sonic Restaurant during each partial or full calendar
month. If the DMA has, in Sonic’s sole discretion, been designated a
“developing market,” Licensee shall instead contribute to the advertising
cooperative not less than 5% of Licensee’s Gross Sales from the Sonic Restaurant
during each partial or full calendar month; however, at any time Sonic may
alternatively designate other uses for any portion of such developing market
contribution if Sonic determines, in its sole discretion, that there is less
need for advertising and a greater need for another use.
(b)
In the event there exists no Sonic-approved advertising cooperative in the
DMA
in which the Sonic Restaurant is located, Licensee shall promptly form an
advertising cooperative for the DMA and further comply with the requirements
set
forth in Sections 11.01(a) and 11.01(c) and other provisions of this Agreement
applicable to and related to advertising cooperatives.
(c)
Sonic or its designee shall maintain and administer a marketing fund for the
Sonic System titled the System Marketing Fund (the “SMF”) as
follows:
(i) The SMF
shall be administered by Sonic, and funds paid to the SMF shall be deposited
in
a separate bank account denoted as the System Marketing Fund.
(ii) The advertising
cooperative of which Licensee is a member shall pay to the SMF a sum equal
to 2%
of Licensee’s Gross Sales (or higher as may be prescribed by Sonic) from the
contribution paid by Licensee to the advertising cooperative.
(iii) Sonic shall
direct all marketing programs with sole discretion over the creative concepts,
materials, and media used in such programs. The Licensee acknowledges that
Sonic and its designees undertake no obligation in administering the SMF to
make
expenditures for Licensee which are equivalent or proportionate to Licensee’s
contribution.
(iv) The
SMF is intended to complement local marketing efforts by promoting the message
of the Sonic brand to an expanded audience. The SMF and all earnings
thereof shall be used primarily to purchase national broadcast, print,
interactive, and other media, sponsorships, and brand enhancement
opportunities. The SMF and its earnings shall not inure to the
benefit of Sonic.
(v) The
SMF is not an asset of Sonic, and an independent certified public accountant
designated by Sonic shall review the operation of the SMF annually, and the
report shall be made available to Licensee upon
request. Notwithstanding the foregoing, the body approved and
designated by the Sonic as the body to consult with regarding the Sonic’s
maintenance and administration of the SMF (such as the Franchise Advisory
Council Executive Committee or its successor) may designate the independent
public accountant to conduct the required review of the operation of the SMF
if
requested in writing at least 30 but not more than 60 days prior to the end
of
each fiscal year.
(vi) Although Sonic intends
the SMF to be of perpetual duration, Sonic maintains the right to terminate
the
SMF. The SMF shall not be terminated, however, until all monies in the SMF
have been expended for marketing and promotional purposes as
aforesaid.
(vii) On at least a quarterly
basis, Sonic shall consult with the body approved and designated by Sonic (such
as the Franchise Advisory Council Executive Committee or its successor)
regarding Sonic’s maintenance and administration of the SMF and shall report to
that body on the SMF’s operation.
(d) For
purposes of determining the amount which the Licensee is required to contribute
pursuant to Sections 11.01(a) and 5.03, above, for each calendar month which
is
the subject of review, the parties hereto agree that the preceding calendar
month shall be used in determining the Gross Sales of the Sonic Restaurant
to
determine the contributions or expenditures required hereunder. For
example, to determine the contributions or expenditures required for February,
the parties hereto agree that they will look to the preceding January’s sales in
order to determine the Gross Sales to determine the amount which must be
contributed or expended by the Licensee under these Sections 11.01(a) and
5.03. In the event the amounts required by Sections 11.01(a) and 5.03
are not paid in a timely fashion, Licensee shall pay Sonic in accordance with
Section 10.05.
(e)
All advertising by Licensee in any medium which utilizes the Proprietary Marks
or refers in any way to the Sonic Restaurant shall be conducted in a dignified
manner and shall conform to such standards and requirements as Sonic may specify
from time to time in writing. Licensee shall submit to Sonic (in
accordance with the notice provisions contained herein), for Sonic’s prior
approval (except with respect to prices to be charged unless the terms of
Section 6.05(c)(xxii) apply), samples of all advertising and promotional plans
and materials that Licensee desires to use that use the Proprietary Marks or
refer to the Sonic Restaurant and that have not been prepared or previously
approved by Sonic. If written disapproval thereof is not received by
Licensee within 15 days from the date of receipt by Sonic of such materials,
Sonic shall be deemed to have given the required approval. Upon notice
from Sonic, Licensee shall discontinue and/or remove any objectionable
advertising material, whether or not same was previously approved by
Sonic. If said materials are not discontinued and/or removed within five
days after notice, Sonic or its authorized agents, may, at any time, enter
upon
Licensee’s premises, or elsewhere, and remove any objectionable signs or
advertising media and may keep or destroy such signs or other media without
paying therefore, and without being guilty of trespass or other
tort.
(f)
Sonic may offer from time to time to provide, upon terms subject to the
discretion of Sonic, approved local advertising and promotional plans and
materials, including, without limitation, newspaper display space and
distributed promotional materials.
(g)
Sonic or its designee shall maintain and administer a fund for the Sonic System
titled the Sonic Brand Fund (the “SBF”) (formerly known as the Sonic Advertising
Fund) as follows:
(i) As
provided in Section 5.03 hereof, Licensee shall pay a brand contribution fee
to
the SBF, which shall be deposited in a separate bank account denoted as the
Sonic Brand Fund.
(ii) Sonic
shall direct all brand programs with sole discretion over the concepts,
materials, guidelines, and media used in such programs. The SBF is
intended to enhance the Sonic System and maximize general public recognition
and
acceptance of the Proprietary Marks for the benefit of the System, and the
Licensee acknowledges that Sonic and its designees undertake no obligation
in
administering the SBF to make expenditures for Licensee which are equivalent
or
proportionate to Licensee’s contribution, and nothing in this Section 11.01
shall contravene the intent in Section 11.01(g)(iv).
(iii) The SBF and all
earnings thereof shall be used exclusively to meet any and all costs of
maintaining, administering, directing, and preparing advertising and other
promotional programs (including, without limitation, the cost of preparing
and
conducting television, radio, magazine, and newspaper advertising campaigns
and
other public relations activities; employing advertising agencies to assist
therein; and providing promotional brochures and other marketing materials
to
licensees in the Sonic System) as well as any other purpose that promotes,
enhances, or protects the Sonic System including, but not limited to, food
safety programs, customer feedback programs, and Sonic Games. All sums
paid by licensees to the SBF shall be maintained in a separate account from
the
other funds of Sonic. The SBF shall pay Sonic monthly an amount equal
to 15% of the SBF’s receipts during the preceding month, but not to exceed
Sonic’s actual administrative costs and overhead, if any, as Sonic may incur in
activities reasonably related to the administration or direction of the SBF
for
the licensees and the Sonic System, including without limitation, conducting
market research, preparing marketing, advertising, and other materials, and
collecting and accounting for assessments for the SBF. The SBF and
its earnings shall not inure to the benefit of Sonic.
(iv) All materials produced
by the SBF shall be made available to all licensees on a regular basis at less
than full production cost but including the cost of distribution. This
Section 11.01(g)(iv) shall not preclude Sonic from offering other materials
not
produced by the SBF upon terms subject to the discretion of Sonic. (See
Section 11.01(f).)
(v) The SBF is not an
asset of Sonic, and an independent certified public accountant designated by
Sonic shall review the operation of the SBF annually, and the report shall
be
made available to Licensee upon request. Notwithstanding the
foregoing, the body approved and designated by Sonic as the body to consult
with
regarding Sonic’s maintenance and administration of the SBF (such as the
Franchise Advisory Council Executive Committee or its successor) may designate
the independent public accountant to conduct the required review of the
operation of the SBF, if requested in writing at least 30 but not more than
60
days prior to the end of each fiscal year.
(vi) Although Sonic intends
the SBF to be of perpetual duration, Sonic maintains the right to terminate
the
SBF. Such SBF shall not be terminated, however, until all monies in the
SBF have been expended for purposes as aforesaid.
(vii) On
at least a quarterly basis, Sonic shall consult with the body approved and
designated by Sonic (such as the Franchise Advisory Council Executive Committee
or its successor) regarding Sonic’s maintenance and administration of the SBF
and shall report to that body on the SBF’s operation.
(h)
Coupons created or developed by or for Licensee for use in promoting the Sonic
Restaurant are subject to the provisions of Section
11.01(e). Additionally, such coupons shall conspicuously state (i)
the location(s) where the coupons will be accepted and (ii) an expiration
date. Licensee shall use its best efforts to ensure that coupons
created or developed for the Sonic Restaurant or its market are not distributed
outside the area of the Sonic Restaurant or its market.
11.02.
Publicity
.
Sonic shall have the right to photograph the Sonic Restaurant’s exterior and/or
interior, and the various foods served, and to use any such photographs in
any
of its publicity or advertising, and Licensee shall cooperate in securing such
photographs and consent of Persons pictured.
12.
INSURANCE
.
12.01.
Insurance
Amounts
.
Prior to opening or taking possession of the Sonic Restaurant, the Licensee
shall acquire and thereafter maintain insurance from insurance companies
acceptable to Sonic. The Licensee shall determine the appropriate
limits of liability insurance and shall also have the right to specify other
forms of insurance, but Sonic shall require the following minimum amounts and
policy forms of insurance:
(a)
The Licensee shall maintain statutory worker’s compensation insurance and
employer’s liability insurance having a minimum limit of liability of the
greater of $500,000 or the minimum amount otherwise required by applicable
state
law. Sonic shall accept participation in the Texas Sonic Employers
Trade Association (“TSETA”) or in the non-subscriber program for Sonic drive-in
restaurants located in Texas as long as Texas law does not require statutory
worker’s compensation insurance.
(b) The
Licensee shall maintain commercial general liability insurance, including bodily
injury, property damage, products, personal, and advertising injury coverage,
on
an occurrence policy form having a minimum per occurrence and general aggregate
limits of at least $1,000,000 per location.
(c)
The Licensee shall maintain non-owned automobile liability insurance having
a
minimum limit of $1,000,000. The automobile policy also shall provide
coverage for owned automobiles if owned or leased in the name of the
Licensee.
(d)
The Licensee shall maintain excess (umbrella) liability insurance having a
minimum limit of $1,000,000 per occurrence / general aggregate per
location.
(e)
The Licensee shall maintain business income interruption insurance with an
endorsement providing for reimbursement for a minimum of 12 months to Sonic,
any
Sonic-administered fund, and the advertising cooperative of which the Licensee
is a member, as applicable, for payments due under Sections 5.02, 5.03, and
11.01 stemming from an event causing closure of the Sonic Restaurant for 48
hours or more.
(f)
Sonic shall have the right to require the Licensee to increase the insurance
specified above by giving the Licensee 60 days’ written notice in accordance
with the notice provisions of this Agreement, and the Licensee shall comply
no
later than the first policy renewal date after that 60-day period.
12.02.
Sonic
as Additional Insured
.
The
Licensee shall name Sonic and
Sonic’s subsidiaries and Affiliates as additional insureds and loss payees under
the insurance policies specified in Sections 12.01(b), 12.01(c), 12.01(d),
and
12.01(e), above, and under any insurance policy (including any employment
practices liability insurance policy) that provides coverage for an event that
could result in a lawsuit in which Sonic is named a defendant. The
Licensee’s policies shall constitute primary policies of insurance with regard
to other insurance, shall contain a waiver of subrogation provision in favor
of
Sonic as it relates to the operation of the Sonic Restaurant, and shall provide
for at least 30 days’ written notice to Sonic prior to their cancellation or
amendment.
12.03.
General
Conditions
.
Prior
to opening or taking possession
of the Sonic Restaurant and within 10 days of any request by Sonic, the Licensee
shall furnish Sonic with certificates of insurance evidencing that the Licensee
has obtained the required insurance in the form and amounts as specified
above. In addition, the Licensee shall deliver evidence of the
continuation of the required insurance policies at least 30 days prior to the
expiration dates of each existing insurance policy. If the Licensee
at any time fails to acquire and maintain the required insurance coverage,
Sonic
shall have the right, at the Licensee’s expense, to acquire and administer the
required minimum insurance coverage on behalf of the
Licensee. However, Sonic shall not have any obligation to assume the
premium expense, and nothing in this Agreement shall constitute a guaranty
by
Sonic against any losses sustained by the Licensee. Sonic may relieve
itself of all duties with respect to the administration of any required
insurance policies by giving 10 days’ written notice to the
Licensee.
13.
TRANSFER OF INTEREST
.
13.01.
Assignment
.
The
rights and duties created by this
Agreement are personal to Licensee, and Sonic has granted the License in
reliance on the collective character, skill, aptitude, and business and
financial capacity of Licensee and Licensee’s principals. Accordingly,
except as may be otherwise permitted by this Section 13, neither Licensee nor
any Person or entity with an interest in Licensee shall directly or indirectly,
through one or more intermediaries, without Sonic’s prior written consent, sell,
assign, transfer, convey, give away, pledge, mortgage, or otherwise encumber
any
direct or indirect interest in the Agreement; any interest in Licensee, if
Licensee is a partnership, joint venture, closely held corporation, limited
liability company, or other business entity; or any interest which, together
with other related previous simultaneous or proposed transfers, constitutes
a
transfer of Control of Licensee where Licensee is registered under the
Securities Exchange Act of 1934 or which is a trust. Any such purported
assignment occurring by operation of law or without Sonic’s prior written
consent and pursuant to the terms of this Section 13, shall constitute a default
of this Agreement by Licensee, and such purported assignment shall be null
and
void.
13.02.
Death
or Permanent Incapacity of Licensee
.
Upon
the death or permanent incapacity
of Licensee, the interest of Licensee in the Agreement may be assigned either
pursuant to the terms of Section 13.04 herein or to one or more of the following
Persons: Licensee’s spouse, heirs, or nearest relatives by blood or
marriage, subject to the following conditions: (1) If, in the sole
discretion of Sonic, such persons shall be capable of conducting the Sonic
Restaurant business in accordance with the terms and conditions of the
Agreement, and (2) if such persons shall also execute an agreement by which
they
personally assume full and unconditional liability for and agree to perform
all
the terms and conditions of the Agreement to the same extent as the original
Licensee. In the event that Licensee’s heirs do not obtain the consent of
Sonic as assignees of the Agreement, the personal representative of Licensee
shall have the greater of 120 days or the completion of the probate of the
Licensee’s estate to dispose of Licensee’s interest hereunder, which disposition
shall be subject to all the terms and conditions for assignments under Section
13.04. Licensee’s personal representative shall cooperate with Sonic
to provide, in a timely manner, such documents as may be requested by Sonic,
including without limitation Licensee’s death certificate and estate documents,
to assist Sonic to determine or confirm Licensee’s assignees.
13.03.
Assignment
to Licensee’s Corporation or Other Business Entity
.
Sonic
may, upon Licensee’s compliance
with the following requirements, consent to an assignment of the Agreement
to a
corporation whose shares are owned and Controlled by Licensee or to another
business entity, such as a limited liability company, whose interests are owned
and Controlled by Licensee. Such written materials shall be supplied
to Sonic within 15 days after the request by Sonic.
(a)
Licensee’s corporation or other business entity shall be newly organized, and
its charter or equivalent organizational document shall provide that its
activities are confined exclusively to operating the Sonic
Restaurant.
(b) Licensee
and Licensee’s corporation or other business entity shall maintain stop transfer
instructions against the transfer on Licensee’s corporation’s or other business
entity’s records of any securities or interests with any voting rights subject
to the restrictions of Section 13 hereof, and shall issue no securities upon
the
face of which the following printed legend does not legibly and conspicuously
appear.
The
transfer of this stock is subject to terms and conditions of one or more license
agreements with Sonic Industries LLC. Reference is made to said license
agreement(s) and the restrictive provisions of the Articles and By-Laws of
this
corporation. By agreeing to receive these securities, the transferee
hereby agrees to be bound by the terms of such agreements, articles, and
by-laws.
(c)
At any time upon Sonic’s request, Licensee and Licensee’s corporation or other
business entity shall furnish Sonic with a list of all shareholders, partners,
or members, as applicable, having an interest in Licensee’s corporation or other
business entity, the percentage interest of such shareholder, partner, or
member, and a list of all officers and directors or managers in such
form as Sonic may require.
(d)
The name of Licensee’s corporation or other business entity shall not include
any of the Proprietary Marks granted by the Agreement. Licensee and
Licensee’s corporation or other business entity shall not use any mark nor any
name deceptively similar thereto in a public or private offering of its
securities or other interest, except to reflect Licensee’s corporation’s or
other business entity’s license relationship with Sonic. Any prospectus or
registration Licensee or Licensee’s corporation would propose to use in such a
public or private offering shall be submitted to Sonic within a reasonable
time
prior to the effective date thereof for the purpose of permitting Sonic to
verify compliance with this requirement by Licensee and Licensee’s
corporation.
(e)
Articles of Incorporation, By-Laws, and all other documents governing Licensee’s
corporation or other business entity shall be forwarded to Sonic for
approval. Such documents shall recite that the issuance and transfer of
any interest in Licensee’s corporation or other business entity are restricted
by the terms of Section 13 of this Agreement.
(f)
Each shareholder, partner, or member, as applicable, of the Licensee’s
corporation or other business entity shall personally guarantee performance
under this Agreement and shall be personally bound by the terms
thereof.
(g)
Any breach of this Agreement by Licensee’s corporation or other business entity
shall be deemed a breach of this Agreement by each shareholder, partner, or
member, as applicable, of Licensee’s corporation or other business entity and
each shareholder, partner, or member, as applicable, shall be personally and
fully liable and obligated by any and all such breaches.
(h)
Licensee and Licensee’s corporation or other business entity shall submit to
Sonic, prior to any assignment hereunder, a shareholders, partners, or members
agreement, as applicable, executed by the Board of Directors or managers, as
applicable, and ratified by all shareholders, partners, or members, which states
that, except as may be permitted by Section 13 of this Agreement, no shares
of
stock or other interest in Licensee’s corporation or other business entity shall
be issued, transferred, or assigned to any Person or entity without Sonic’s
prior written consent.
(i) Each
and every shareholder, partner, or member of Licensee’s corporation or other
business entity or any party owning a security issued by, or owning any legal
or
equitable interest in Licensee’s corporation or other business entity or in any
security convertible to a legal or equitable interest in Licensee’s corporation
or other business entity shall meet those same standards of approval as an
individual licensee shall be required to meet prior to being included as a
licensee on a standard license agreement with Sonic.
13.04.
Other
Assignment
.
(a)
In addition to any assignments or contingent assignments contemplated by the
terms of Sections 13.02 and 13.03, Licensee shall not sell, transfer, or assign
the Agreement to any Person or Persons (including to another Licensee under
this
Agreement where more than one Person has executed this Agreement) without
Sonic’s prior written consent. Such consent shall not be unreasonably
withheld.
(b) In
determining whether to grant or to withhold such consent, the following
requirements must be met by Licensee:
(i) All of
Licensee’s accrued monetary obligations shall have been satisfied whether due
under this Agreement or otherwise.
(ii)
Sonic and the Licensee execute a general release of each other, in a form
satisfactory to Sonic, of any and all claims the Licensee may have against
Sonic
and its Affiliates, including (without limitation) all claims arising under
any
federal, state, or local law, rule, or ordinance, but excluding (as to Sonic)
any claims against the Licensee for (a) unpaid moneys due Sonic, its Affiliates,
or Sonic-approved advertising cooperatives, (b) the violation of the legal
rights of Sonic or its Affiliates regarding the Proprietary Marks, (c) the
violation of any of the covenants contained in Section 16.01 of this Agreement,
(d) the violation of any duty under this Agreement to insure, defend, or
indemnify Sonic or its Affiliates or to hold Sonic or its Affiliates harmless,
and (e) the violation of any other agreement with Sonic or its
Affiliates. Sonic may waive the requirements of this Section
13.04(b)(ii) at Sonic’s election.
(iii) Licensee shall not be in
material breach of this Agreement or any other agreement between Sonic and
Licensee.
(iv) Assignee (or the assignee’s
management, as the case may be) shall at Sonic’s sole discretion enroll in and
successfully complete such training programs as Sonic shall at that time
designate according to Section 6.04 hereof.
(v) Sonic shall consider of each
prospective transferee, by way of illustration, the following: (a) work
experience and aptitude, (b) financial background, (c) character, (d) ability
to
personally devote full time and best efforts to managing the Sonic Restaurant,
(e) residence in the locality of the Sonic Restaurant, (f) equity interest
in
the Sonic Restaurant, (g) conflicting interests, and (h) such other criteria
and
conditions as Sonic shall apply in the case of an application for a new license
to operate a Sonic drive-in restaurant. Sonic’s consent shall also be
conditioned upon such transferee’s execution of an agreement by which transferee
personally assumes full and unconditional liability for and agrees to perform
from the date of such transfer all obligations, covenants, and agreements
contained in this Agreement to the same extent as if transferee had been an
original party to the Agreement. At Sonic’s election, Sonic may
alternatively allow such transferee to sign the then-current form of license
agreement for Sonic drive-in restaurants subject to all terms, conditions,
obligations, and covenants contained in that form of license agreement,
including the full term of that license agreement.
(c)
Following License’s sale, assignment, or transfer of this Agreement, Licensee
shall remain subject to Section 16.01 of this Agreement.
13.05.
Sonic’s
Right of First Refusal
.
(a)
If Licensee or any Person or entity with an interest in Licensee has received
and desires to accept any bona fide offer to purchase all or any part of
Licensee’s interest in this Agreement or in Licensee and the transfer of such
interest would: (1) result in a change of Control of Licensee of this Agreement
or (2) constitute a transfer of interest held by a Controlling Person of
Licensee or of the Agreement, Licensee or such Person shall notify Sonic in
writing of each such offer, with such notice including the name and address
of
the proposed purchaser, the amount and terms of the proposed purchase price,
a
copy of the proposed purchase contract (signed by the parties, but expressly
subject to Sonic’s right of first refusal), and all other terms and conditions
of such offer. Sonic shall have the right and option, exercisable
within 20 days after Sonic’s receipt of such written notification, to send
written notice to Licensee or such Person or entity that Sonic or its designee
intends to purchase the interest which is proposed to be transferred on the
same
terms and conditions offered by the third party, provided that Sonic has the
right to substitute cash for any consideration offered by the third party.
Any material change in the terms of an offer prior to closing shall cause it
to
be deemed a new offer, subject to the same right of first refusal by Sonic
or
its designee as in the initial offer; provided, however, that such new offer
shall not affect Sonic’s right and option, within 20 days of notice to Sonic of
the initial offer, to provide notice of its intent to purchase the interest
on
the terms and conditions in the initial offer. Sonic’s failure to
exercise its option shall not constitute a waiver of any other provision of
this
Agreement, including any of the requirements of this Section 13 with respect
to
the proposed transfer. Silence on the part of Sonic shall constitute
rejection. If the proposed sale includes assets of Licensee not related to
the operation of a licensed Sonic drive-in restaurant, Sonic may purchase not
only the assets related to the operation of a licensed Sonic drive-in
restaurant, but may also purchase the other assets. An equitable
purchase price shall be allocated to each asset included in the proposed
sale. In any purchase by Sonic pursuant to this Section 13(a), Sonic shall
have the right to require the seller to make customary representations and
warranties.
(b)
The election by Sonic not to exercise its right of first refusal as to any
offer
shall not affect its right of first refusal as to any subsequent
offer.
(c)
Any sale or attempted sale effected without first giving Sonic the right of
first refusal described above shall be void and of no force and
effect.
(d)
If Sonic does not accept the offer to purchase the Sonic Restaurant, Licensee
may conclude the sale to the purchaser who made the offer so long as the terms
and conditions of such sale are identical to those originally offered to Sonic;
provided, however, that Sonic’s approval of the assignee be first obtained,
which consent shall not be unreasonably withheld upon compliance with the
conditions on assignment imposed by this Agreement.
(e)
The provisions of this Section 13.05 shall not apply to any proposed transfers
to members of the Licensee’s immediate family. For the purposes of
this Section 13.05, a member of the Licensee’s immediate family shall mean the
Licensee’s spouse, children (by birth or adoption), and
stepchildren. In addition, the provisions of this Section 13.05 shall
not apply to any proposed transfers to a Person who already owns an interest
(directly or indirectly) in this Agreement as long as the transfer will not
result in a change in Control of the Licensee or the Agreement.
13.06.
Consent
to Assignments
.
With
regard to any transfer,
assignment, or pledge of any interest in this Agreement or in the Licensee
pursuant to the foregoing provisions of this Section 13, Sonic shall not
withhold its consent unreasonably as long as the proposed transfer, assignment,
or pledge otherwise complies with the other requirements set forth in this
Section 13.
14.
DEFAULT AND TERMINATION
.
14.01.
Optional
Termination
.
Licensee
shall be deemed to be in
breach of this Agreement and Sonic may, at its option, terminate this Agreement
and all rights granted herein at any time during the term hereof without
affording Licensee any opportunity to cure the breach, effective immediately
upon Licensee’s receipt of a notice of termination, upon the occurrence of any
of the following events:
(a)
Licensee shall become insolvent.
(b)
Licensee, either personally, through an equity owner, or through Licensee’s
attorney, shall give oral or written notice to Sonic of Licensee’s intent to
file a voluntary petition under any bankruptcy law.
(c)
A final judgment aggregating in excess of $5,000 against the Sonic Restaurant
or
property connected with the Sonic Restaurant which remains unpaid for thirty
days.
(d)
Suit to foreclose any lien against any assets of the Sonic Restaurant is
instituted against Licensee and (i) is not dismissed within 30 days, (ii) such
lien is not contested and challenged through the applicable administrative
agencies or courts, or (iii) a bond is not posted (if such remedy is available)
to delay any such foreclosure and guarantee performance.
(e)
The assets of the Sonic Restaurant are sold after being levied thereupon by
sheriff, marshal, or a constable.
(f)
Transfer of this Agreement, in whole or in part, is effected in any manner
inconsistent with Section 13 hereof.
(g)
The assets, property, or interests of Licensee are blocked under any law,
ordinance, or regulation relating to terrorist activities or Licensee is
otherwise in violation of any such law, ordinance, or regulation.
(h)
If Licensee ceases to operate the Sonic Restaurant or otherwise abandons the
Sonic Restaurant (other than closure permitted pursuant to Section 6.05(c)(vi)
herein) or forfeits the legal right to do or transact business at the location
licensed herein.
(i)
If Licensee is convicted of a felony, a crime involving moral turpitude, or
any other crime or offense that is reasonably likely, in the sole
opinion of Sonic, to adversely affect the Sonic System, the Proprietary
Marks, the goodwill associated therewith, or Sonic’s rights
therein.
(j)
If Licensee misuses or makes any unauthorized use of any of the Proprietary
Marks or any other identifying characteristic of the Sonic System or otherwise
materially impairs the goodwill associated therewith or Sonic’s rights therein,
and the Licensee will not or cannot cure the default within 30
days.
(k)
If Licensee improperly discloses trade secrets or confidential information,
and
the Licensee will not or cannot cure the default within 30 days.
(l)
If continued operation of the Sonic Restaurant might endanger public health
or
safety. In such case, whether or not Sonic elects to terminate this
Agreement, Sonic may immediately close the Sonic Restaurant unless and until
the
situation is, in Sonic’s judgment, satisfactorily resolved.
(m)
If Licensee knowingly or through gross negligence maintains false books or
records or knowingly or through gross negligence submits any false report to
Sonic.
(n)
If Licensee is in default of this Agreement three or more times in any given
12-month period, whether or not such default is cured.
14.02.
Period to Cure
.
Except
as provided in Section 14.01,
Licensee shall have 30 days after receipt from Sonic of a written notice of
breach of this Agreement or such notice period as is required by the law of
the
state where the Sonic Restaurant is located, within which to remedy any breach
hereunder. However, this period to cure will not be available to Licensee,
and Sonic will not be required to delay termination of this Agreement, where
the
breach involved is one which Licensee cannot cure within the prescribed cure
period or is one which is impossible to cure. Licensee shall be in
breach hereunder for any failure to comply with any of the terms of this
Agreement or to carry out the terms of this Agreement. Such breach
shall include, but shall not be limited to, the occurrence of any of the
following illustrative events:
(a)
If the Licensee or Persons Controlling, Controlled by, or under common Control
with Licensee fail to pay any past due amounts owed to Sonic, whether for the
Sonic Restaurant or otherwise.
(b) If
Licensee fails to promptly pay, or repeatedly delays the prompt payment of,
undisputed invoices from Licensee’s suppliers or in the remittance of rent and
property tax as required in Licensee’s lease.
(c)
If Licensee fails to maintain and operate the Sonic Restaurant in a good, clean,
and wholesome manner or otherwise is not in compliance with the standards
prescribed by the Sonic System. In such case, whether or not Sonic
elects to terminate this Agreement, Sonic may immediately close the Sonic
Restaurant unless and until the failure or noncompliance is cured.
(d)
If Licensee attempts to assign or transfer any interest in this Agreement in
violation of Section 13 herein.
(e)
If Licensee denies Sonic the right to inspect the Sonic Restaurant at reasonable
times, which includes the right to photograph the interior and exterior of
the
Sonic Restaurant in its entirety.
(f) If
Licensee breaches any other requirement set forth in this
Agreement.
(g) If
Licensee, upon the destruction of the Sonic Restaurant, fails to rebuild the
licensed premises and resume operation within a reasonable time (cessation
of
the business from a licensed premises shall not constitute default of this
Agreement if caused by condemnation, expiration of a location lease pursuant
to
its terms at execution, or when failure to rebuild following destruction of
the
licensed premises is prohibited by law or the location
lease).
(h)
If Licensee’s conduct or the operation of the Sonic Restaurant by Licensee, in
Sonic’s judgment, damages or threatens to damage the goodwill of the Sonic
System or the Sonic brand. In such case, whether or not Sonic elects
to terminate this Agreement, Sonic may immediately close the Sonic Restaurant
unless and until the situation, in Sonic’s judgment, is satisfactorily
resolved.
(i)
If Licensee fails to correct any deficiency or unsatisfactory condition within
the time period required by Section 6.05(b).
14.03.
Resolution
of Disputes
.
The
following provisions shall apply to
any controversy between the Licensee and Sonic (including an Affiliate of Sonic)
and relating (a) to this Agreement (including any claim that any part of this
Agreement is invalid, illegal, or otherwise void or voidable and any claim
that
a controversy is not subject to arbitration), (b) to the parties’ business
activities conducted as a result of this Agreement, or (c) the parties’
relationship or business dealings with one another generally, including all
disputes and litigation pending or in existence as of the date of this
Agreement.
(a)
Negotiation
. The parties first shall use their best efforts to
discuss and negotiate a resolution of the controversy.
(b)
Mediation
. If the efforts to negotiate a resolution do
not succeed, the parties shall submit the controversy to mediation in Oklahoma
City, Oklahoma, by a mediation firm agreeable to the parties or by the American
Arbitration Association, if the parties cannot agree.
(c)
Arbitration.
If the efforts to negotiate and mediate a
resolution do not succeed, the parties shall resolve the controversy by final
and binding arbitration in accordance with the Rules for Commercial Arbitration
(the “Rules”) of the American Arbitration Association in effect at the time of
the execution of this Agreement and pursuant to the following additional
provisions:
(i)
Applicable
Law
. The Federal Arbitration Act (the “Federal Act”), as
supplemented by the Oklahoma Arbitration Act (to the extent not inconsistent
with the Federal Act), shall apply to the arbitration.
(ii)
Selection
of Arbitrator
. The parties shall select one arbitrator within 10
days after the filing of a demand and submission in accordance with the
Rules.
(iii)
Location of
Arbitration
. The arbitration shall take place in Oklahoma City,
Oklahoma, and the arbitrator shall issue any award at the place of
arbitration. The arbitrator may conduct hearings and meetings at any
other place agreeable to the parties or, upon the motion of a party, determined
by the arbitrator as necessary to obtain significant testimony or
evidence.
(iv)
Scope of
Proceeding
. The parties shall conduct any arbitration proceeding
and resolve any controversy on an individual basis only and not on a class-wide,
multiple-party, or similar basis.
(v)
Enforcement of
Award
. The prevailing party shall have the right to enter the
award of the arbitrator in any court having jurisdiction over one or more of
the
parties or their assets. The parties specifically waive any right
they may have to apply to any court for relief from the provisions of this
Agreement or from any decision of the arbitrator made prior to the
award. The award of the arbitrator shall not have any precedential or
collateral estoppel effect on any other controversy involving Sonic or its
Affiliates.
(d)
Excluded Controversies.
At the election of Sonic or its
Affiliate, the provisions of this Section 14.03 shall not apply to any
controversies relating to any fee due Sonic or its Affiliate; any promissory
note payments due Sonic or its Affiliate; or any trade payables due Sonic or
its
Affiliate as a result of the purchase of equipment, goods, or
supplies. At the election of Sonic or its Affiliate, the provisions
of this Section 14.03 also shall not apply to any controversies relating to
the
use and protection of the Proprietary Marks or the Sonic System, including
(without limitation) Sonic’s right to apply to any court of competent
jurisdiction for appropriate injunctive relief for the infringement of the
Proprietary Marks or the Sonic System.
(e)
Attorneys’ Fees and Costs
. the prevailing party to the
arbitration shall have the right to an award of its reasonable attorneys’ fees
and costs incurred after the filing of the demand and submission, including
a
portion of the direct costs of any in-house legal staff reasonably allocable
to
the time devoted to the arbitration.
15.
OBLIGATIONS UPON TERMINATION
.
15.01.
Effect
of Termination, Cancellation, or Expiration of this Agreement
.
Except
as otherwise authorized pursuant
to the terms of any other license agreement between Sonic and the Licensee,
the
Licensee shall comply with the following provisions after the expiration or
termination of this Agreement and the License:
(a)
Licensee, upon any termination, cancellation, or expiration of this Agreement,
shall promptly pay to Sonic and Sonic’s subsidiaries any and all sums owed to
them. In the event of termination for any breach by Licensee, such sums
shall include all damages, costs, and expenses, including reasonable attorneys’
fees, incurred by Sonic as a result of the breach, which obligation shall give
rise to and remain, until paid in full, a lien in favor of Sonic against any
and
all of the assets of the Sonic Restaurant owned by Licensee at the time of
default.
(b)
Upon termination, cancellation, or expiration hereof for any reason, the License
and all Licensee’s rights hereunder shall terminate. Licensee shall not
thereafter use or adopt any trade secrets disclosed to Licensee hereunder or
any
paper goods, emblems, signs, displays, menu housings, or other property on
which
Sonic’s name or Proprietary Marks are imprinted or otherwise form a part thereof
or any confusing simulations thereof. Licensee shall not otherwise
use or duplicate the Sonic System or any portion thereof or assist others
to do so. Licensee shall remove from the premises all signs, emblems, and
displays identifying it as associated with Sonic or the Sonic System or which
constitute or display any Proprietary Mark and shall also remove from the
premises all menu housings and PAYS or other Sonic proprietary equipment.
Licensee shall cease to use and shall return to Sonic all copies of the
Sonic Operations Manual
, instructions, or materials delivered to
Licensee hereunder.
(c)
Upon termination, cancellation, or expiration of this Agreement, unless
otherwise directed in writing by Sonic, Licensee shall change the exterior
and
interior design and the decor of said premises, including, but not limited
to,
changing the color scheme, and shall make or cause to be made such changes
in
signs, buildings, and structures (excluding major structural changes) as Sonic
shall reasonably direct so as to effectively distinguish the same from its
former appearance and from any other Sonic drive-in restaurant unit, and if
Licensee fails or refuses to comply herewith, then Sonic shall have the right
to
enter upon the premises where said business is being conducted without being
guilty of trespass or any other tort for the purpose of making or causing to
be
made such changes required by Sections 15.01(b) or 15.01(c) at the expense
of
Licensee, which expense Licensee agrees to pay on demand.
(d)
Upon termination, cancellation, or expiration of this Agreement, in the event
Licensee is the owner of the Sign, Sonic shall have an irrevocable option to
purchase the Sign for its fair market value. In any event, Licensee
shall not thereafter use any sign or panels displaying Sonic’s name or
Proprietary Marks or which primarily display the colors used in any other such
sign at any other Sonic drive-in restaurant unit (see Section 15.04 for
determining fair market value). Any agent, servant, or employee of Sonic
may remove the Sign or any objectionable signs or advertising from the Sonic
Restaurant without being guilty of trespass or other tort, and Licensee shall
be
liable for Sonic’s costs plus attorneys’ fees for any interference
therewith.
(e)
Upon termination, cancellation, or expiration of this Agreement, Licensee shall
cease to hold Licensee out in any way as a licensee of Sonic or to do anything
which would indicate any relationship between Licensee and Sonic.
(f)
Notwithstanding the provisions contained in this Section 15.01, Licensee shall
be solely responsible for the cost of any removals or changes required by this
Section 15.01. Licensee hereby releases Sonic and its agents,
servants, and employees from and agrees to indemnify, defend, and hold harmless
Sonic and its agents, servants, and employees against any cost, damage,
liability, or expense (including attorneys’ fees) arising out of or resulting
from Licensee granting Sonic and its agents, servants, and employees access
to
the premises, including without limitation any cost, damage, liability, or
expense arising out of the removal of any sign, equipment, fixture, personal
property, or other property from the premises or modification of the premises
pursuant to this Agreement.
(g)
The covenants set forth in this Section 15.01 shall survive the termination,
cancellation, or expiration of this Agreement.
(h)
All rights, claims, and indebtedness which may accrue to Sonic prior to
termination, cancellation, or expiration of this Agreement shall survive
termination, cancellation, or expiration and be enforceable by
Sonic.
(i)
Licensee shall complete all modifications required by this Section 15.01 within
30 days after this Agreement has been terminated or canceled or has
expired. Licensee and Sonic agree that Sonic’s damages resulting from
a breach of this Section 15.01 are difficult to estimate or determine
accurately. In the event of such breach by Licensee of the provisions of
this Section 15.01, Licensee, in addition to any and all other remedies
available to Sonic herein and elsewhere, will pay Sonic double the royalty,
brand, and advertising fees prescribed in this Agreement until Licensee
satisfactorily de-identifies the restaurant premises in the manner prescribed
by
this Section. This payment shall constitute liquidated damages and
shall not be construed as a penalty since such payment has been agreed to by
Licensee and Sonic as reasonably representative of the actual damage sustained
by Sonic in the event of such a breach. The liquidated damages shall start
on the 31st day after this Agreement has been terminated or canceled or has
expired. These liquidated damages shall not constitute either a
waiver of Licensee’s obligation to de-identify or a license to use the
Proprietary Marks or the Sonic System. These remedies will be in
addition to any other remedies Sonic may have hereunder or under federal or
state law.
15.02.
Sonic’s
Option to Purchase
.
(a)
Upon termination, cancellation, or expiration hereof, Sonic shall have the
right
and option to purchase all or any patented, special, or unique Sonic restaurant
equipment, menu housings, signs, menus, and supplies of Licensee at their fair
market value (see Section 15.04 for determining fair market value). Such
right or option of Sonic shall be exercised as provided in Section
15.02(b). If Sonic elects to exercise any option to purchase herein
provided, it shall have the right to set off all amounts due from Licensee
to
Sonic and one-half of the cost of any appraisals against any payment
therefore.
(b)
In the case of termination by expiration, Sonic shall exercise Sonic’s option
contained in this Section 15.02 by giving Licensee written notice at least
30
days prior to expiration. In the case of termination for any other reason,
Sonic shall exercise its option by giving Licensee written notice within 30
days
after termination.
(c)
Sonic’s option hereunder is without prejudice to Sonic’s rights under any
security agreement held by Sonic or with respect to which Sonic may have a
guarantor’s or surety’s subrogation interest. If Sonic exercises this
option, Sonic may pay any debt which Licensee owes to Sonic and shall remit
any
balance of the purchase price to Licensee. There shall be
no allowance for goodwill.
15.03.
Sonic’s
Obligation to Purchase
.
(a)
Upon termination, cancellation, or expiration of this Agreement, if Licensee
desires to sell Licensee’s unbroken inventory packages of approved imprinted
items and supplies with Proprietary Marks to Sonic, excluding all food items,
Sonic shall have the obligation to repurchase such items at
Licensee’s cost.
(b)
If Licensee desires to sell such items to Sonic, Licensee shall, not later
than
10 days after termination, cancellation, or expiration of this Agreement,
give Sonic 10 days written notice of Licensee’s election and, at the expiration
of the 10 days notice period, deliver such items at Licensee’s expense with an
itemized inventory to the nearest Sonic drive-in restaurant designated by
Sonic. Sonic agrees to pay Licensee or credit Licensee’s account within seven
days after said delivery.
15.04.
Fair
Market Value Determination
.
If
the parties cannot agree on the fair
market value of any item subject to an option to purchase in this Agreement
within a reasonable time, one appraiser shall be designated by Sonic, one
appraiser shall be designated by Licensee, and the two appraisers shall
designate an independent appraiser, and the valuation of such third appraiser
alone shall be binding. Sonic and the Licensee each shall pay one-half of
the cost of any appraisals required pursuant to this Section 15.04.
16.
COVENANTS
.
16.01.
Restrictions on Licensee
.
Licensee
agrees and covenants as
follows:
(a)
During the term of this Agreement, Licensee shall not directly or indirectly
through one or more intermediaries (i) engage in, (ii) acquire any financial
or
beneficial interest (including interests in corporations, limited liability
companies, partnerships, trusts, unincorporated associations, joint ventures,
or
other business entities) in, (iii) loan money to, or (iv) become landlord of
any
restaurant business which has a menu similar to that of a Sonic drive-in
restaurant (such as hamburgers, hot dogs, onion rings, and similar items
customarily sold by Sonic drive-in restaurants) or which has an appearance
similar to that of a Sonic drive-in restaurant (such as color pattern, use
of
canopies, use of speakers and menu housings for ordering food, or other items
that are customarily used by a Sonic drive-in restaurant).
(b)
Licensee shall not, for a period of 18 months after termination of this
Agreement for any reason, directly or indirectly through one or more
intermediaries (i) engage in, (ii) acquire any financial or beneficial interest
(including interests in corporations, limited liability companies, partnerships,
trusts, unincorporated associations, joint ventures, or other business entities)
in, (iii) loan money to, or (iv) become a landlord of any restaurant business
which has a menu similar to that of a Sonic drive-in restaurant (such as
hamburgers, hot dogs, onion rings, and similar items customarily sold by Sonic
drive-in restaurants) or which has an appearance similar to that of a Sonic
drive-in restaurant (such as color pattern, use of canopies, use of speakers
and
menu housings for ordering food, or other items that are customarily used by
a
Sonic drive-in restaurant), and which (i) is within a three-mile radius of
the
Sonic Restaurant formerly licensed by this Agreement, (ii) is within a 20-mile
radius of any Sonic drive-in restaurant in operation or under construction,
or
(iii) is located within the MSA of the Sonic Restaurant.
(c)
Licensee shall not appropriate, use, or duplicate the Sonic System, or any
portion thereof, for use at any other restaurant business.
(d) During
the term of this Agreement, Licensee shall (i) use Licensee’s best efforts to
promote the business of the Sonic Restaurant, (ii) devote Licensee’s full time,
energies, and attention to the operation and management of the Sonic Restaurant,
and (iii) not engage in any other business or activity that might detract from,
interfere with, or be detrimental to the Sonic System or Licensee’s full and
timely performance under this Agreement (except the ownership and operation
of
other Sonic drive-in restaurants under license agreements with
Sonic).
(e)
During the term of this Agreement, Licensee shall not perform or provide
services as a director, officer, employee, agent, representative, or consultant
or in any other capacity for any other restaurant business which has a menu
or
appearance similar to that of a Sonic drive-in restaurant.
(f)
During the term of this Agreement, Licensee shall not directly or indirectly
through one or more intermediaries (i) engage in, (ii) acquire any financial
or
beneficial interest in, (iii) loan money to, or (iv) become landlord of any
operation which has granted or is granting franchises or licenses (except for
those granted by Sonic) to others to operate any other restaurant business
which
has a menu or appearance similar to that of a Sonic drive-in
restaurant.
(g)
Sections 16.01(a), 16.01(b), and 16.01(f) shall not apply to
ownership by Licensee of less than 2% beneficial interest in the outstanding
equity securities of any corporation which is registered under the Securities
Exchange Act of 1934; however, this Section 16.01(g) shall apply to all
shareholders, partners, or members of Licensee (in the event Licensee is a
corporation, partnership, limited liability company, or other business entity)
and all members of Licensee’s and their immediate families, and all Persons or
entities guaranteeing this Agreement.
(h)
The parties agree that each of the foregoing covenants shall be construed as
independent of any covenant or provision of this Agreement. If all or any
portion of a covenant in this Section 16 is held unreasonable or unenforceable
by an arbitrator, court, or agency having valid jurisdiction in an unappealed
final decision to which Sonic is a party, Licensee expressly agrees to be bound
by any lesser covenant subsumed with the terms of such covenant that imposes
the
maximum duty permitted by law, as if the resulting covenant were separately
stated in and made a part of this Section 16.
(i)
Licensee understands and acknowledges that Sonic shall have the right, in
Sonic’s sole discretion, to reduce the scope of any covenant set forth in
Sections 16.01(a), 16.01(b), and 16.01(f), or any portion thereof, without
Licensee’s consent effective immediately upon receipt by Licensee of written
notice thereof, and Licensee agrees that it shall comply forthwith with any
covenant as so modified, which shall be fully enforceable notwithstanding the
provisions of Section 16.01(k).
(j)
Licensee expressly agrees that the existence of any claims Licensee may have
against Sonic, whether or not arising from this Agreement, shall not constitute
a defense to the enforcement by Sonic of the covenants in this Section
16.
(k)
Licensee acknowledges that Licensee’s violation of the terms of this Section 16
would result in irreparable injury to Sonic for which no adequate remedy at
law
is available, and Licensee accordingly consents to the ex parte issuance of
restraining orders, temporary and permanent injunctions, and cease and desist
orders prohibiting any conduct by Licensee in violation of the terms of this
Section 16.
16.02.
Covenants
by Others
.
At
the time of execution of this
Agreement, Licensee shall obtain covenants similar in substance to those set
forth in this Section 16 (including covenants applicable upon the termination
of
a Person’s relationship with Licensee) from all officers, directors, and holders
of a direct or indirect beneficial ownership interest in Licensee. With
respect to each Person who becomes associated with Licensee in one of the
capacities enumerated above subsequent to execution of this Agreement, Licensee
shall require and obtain such covenants. In no event shall any Person
enumerated be granted access to any confidential aspect of the Sonic System
or
the Sonic Restaurant prior to execution of such a covenant. All covenants
required by this Section 16.02 shall include, without limitation, specific
identification of Sonic as a third-party beneficiary of such covenants with
the
independent right to enforce them. Failure by Licensee to obtain execution
of a covenant required by this Section 16.02 shall constitute a breach of this
Agreement. Licensee shall furnish to Sonic executed copies of
such covenants within 10 days of such request by Sonic.
17.
INDEPENDENT CONTRACTOR & INDEMNIFICATION
.
17.01.
Licensee not an Agent of Sonic; Employment Matters
.
It
is understood and agreed that this
Agreement does not create a fiduciary relationship between Sonic and Licensee,
and that nothing herein contained shall constitute Licensee as the agent, legal
representative, partner, joint venturer, or employee of Sonic. Licensee is,
and
shall remain, an independent contractor responsible for all obligations and
liabilities of, and for all loss or damage to, the Sonic Restaurant and its
business, including any personal property, equipment, fixtures, or real property
connected therewith and for all claims or demands based on damage or destruction
of property or based on injury, illness, or death of any person or persons,
directly or indirectly, resulting from the operation of the Sonic
Restaurant. Licensee’s responsibility for the Sonic Restaurant and
its business shall include responsibility for all of the employment matters
(including employment decisions) of the Sonic Restaurant and for compliance
with
federal, state, and local laws and regulations relating to such employment
matters. Sonic will refer all complaints related to employment
matters of the Sonic Restaurant to Licensee for resolution, and the
indemnification and hold harmless provisions of Section 17.03 shall apply to
all
employment matters of the Sonic Restaurant.
17.02.
Cost
of Enforcement
.
If
Sonic or Sonic’s Affiliates become
involved in any action at law or in equity or in any proceeding opposing
Licensee to secure, enforce, protect, or defend Sonic’s or Sonic’s Affiliates’
rights and remedies under this Agreement, in addition to any judgment entered
in
their favor, Sonic or Sonic’s Affiliates, as applicable, shall be entitled to
demand of and (in the event Sonic or Sonic’s Affiliates, as applicable, prevail
in such actions or proceedings) recover from Licensee the reasonable costs,
expenses, and attorneys’ fees incurred by Sonic or Sonic's
Affiliates. If, in such applicable final judgment Sonic does not
prevail, Licensee shall be entitled to recover from Sonic in any such action
or
proceeding the reasonable costs, expenses, and attorneys’ fees incurred by
Licensee. Licensee’s responsibility for the Sonic Restaurant and its business
shall include responsibility for all of the employment matters (including
employment decisions) of the Sonic Restaurant and for compliance with federal,
state, and local laws and regulations relating to such employment
matters. Sonic will refer all complaints related to employment
matters of the Sonic Restaurant to Licensee for resolution, and the
indemnification and hold harmless provisions of Section 17.03 shall apply to
employment matters of the Sonic Restaurant.
17.03.
Indemnification
.
If
Sonic or Sonic’s Affiliates shall be
subject to any claim, demand, or penalty or become a party to any suit or other
judicial or administrative proceeding by reason of any claimed act or omission
by Licensee or Licensee’s employees or agents, or by reason of any act occurring
on the Sonic Restaurant premises, or by reason of any act or omission with
respect to the business or operation of the Sonic Restaurant, Licensee shall
indemnify and hold Sonic and Sonic’s Affiliates harmless against all judgments,
settlements, penalties, and expenses, including attorneys’ fees, court costs,
and other expenses of litigation or administrative proceeding, incurred by
or
imposed on Sonic or Sonic’s Affiliates in connection with the investigation or
defense relating to such claim or litigation or administrative proceeding and,
at the election of Sonic, Licensee shall also defend Sonic and Sonic’s
Affiliates. The Licensee shall not have any obligation to indemnify,
defend, or hold harmless Sonic or any other Person pursuant to the provisions
of
this Section 17.03 to extent the obligation arises predominantly as a proximate
result of Sonic’s act or failure to act when under a duty to act.
18.
EFFECT OF WAIVERS
.
No
waiver by Sonic of any breach or
series of breaches of this Agreement shall constitute a waiver of any subsequent
breach or waiver of the terms of this Agreement.
19.
NOTICES
.
19.01.
Delivery
.
Any
notice required hereunder, if not
specified, shall be in writing and shall be delivered by (i) personal service,
(ii) by overnight, receipted delivery service, (iii) by United States certified
or registered mail, with postage prepaid, addressed to Licensee at the Sonic
Restaurant or at such other address of Licensee then appearing on the records
of
Sonic or to Sonic addressed to the attention of Sonic’s General Counsel at 300
Johnny Bench Drive, Oklahoma City, Oklahoma 73104, or at the subsequent address
of Sonic’s corporate headquarters. Either party, by a similar written
notice, may change the address to which notices shall be sent. Notice shall
be
deemed effective on the date of delivery, if delivery is by personal service
or
overnight delivery, or three business days after the party places the notice
in
the United States mail, if delivery is by certified or registered
mail.
19.02.
Failure
to Accept
.
If
Sonic is unable to give actual
notice of any breach or termination of this Agreement because Licensee has
failed to provide Sonic with a current address, because Licensee fails to accept
or pick up this mailed notice, or due to any reason which is not the fault
of
Sonic, then such notice shall be deemed as given when Sonic sends such notice
by
overnight receipted delivery service or registered or certified mail, postage
prepaid.
19.03.
Licensee’s
Principal
.
Licensee
has designated on the first
page of this Agreement a Principal to serve as the party receiving primary
notice on behalf of the Licensee. Each Licensee hereby agrees that
Sonic may send its notices and communications under this Agreement to the
Principal provided for herein, that Sonic may use the Principal as its primary
contact for purposes of communications and notices permitted or required
hereunder, and that all communications and notices given by Sonic to the
Principal will be just as effective on each Licensee as though the same had
been
given to each Licensee.
20.
ENTIRE AGREEMENT
.
20.01.
No
Oral Agreements
.
This
Agreement and all addenda,
appendices, and amendments hereto constitute the entire agreement between the
parties and supersede all prior and contemporaneous, oral or written agreements
or understandings of the parties.
20.02.
Scope
and Modification of Agreement
.
No
interpretation, change, termination,
or waiver of any of the provisions hereof shall be binding upon Sonic unless
in
writing signed by an officer of Sonic. No modification, waiver,
termination, rescission, discharge, or cancellation of this Agreement shall
affect the right of any party hereto to enforce any claim or right hereunder,
whether or not liquidated, which occurred prior to the date of such
modification, waiver, termination, rescission, discharge, or
cancellation.
21.
CONSTRUCTION AND SEVERABILITY
.
21.01.
Interpretation
.
The
recitals shall be considered a part
of this Agreement. Section and Subsection captions are used only for
convenience and are in no way to be construed as part of this Agreement or
as a
limitation of the scope of the particular Sections, Subsections, Paragraphs,
and
Subparagraphs to which they refer. Words of any gender used in this
Agreement shall include any other gender, and words in the singular shall
include the plural where the context requires.
21.02.
Scope
of Protected Area
.
Neither
party to this Agreement intends
to expand the scope of any covenants or commitments contained in Section 2
beyond the terms and provisions expressly stated in Section 2, and the parties
to this Agreement agree that no Person, court, or arbitrator may interpret
any
of the foregoing covenants or commitments in Section 2 in that
manner.
21.03.
Invalidity
.
If
any part of this Agreement for any
reason shall be declared invalid, such decision shall not affect the validity
of
any remaining portion, which shall remain in full force and effect. In the
event any material provision of this Agreement shall be stricken or declared
invalid, Sonic reserves the right to terminate this Agreement.
21.04.
Binding
Effect
.
This
Agreement shall be binding upon
the parties, and their heirs, executors, personal representatives, successors,
and assigns.
21.05.
Survival
.
Any
provisions of this Agreement which
impose an obligation after termination or expiration of this Agreement shall
survive the termination or expiration of this Agreement and be binding on the
parties.
21.06.
Liability
of Multiple Licensees
.
If
Licensee consists of more than one
Person or entity, each such Person and entity, and each proprietor, partner,
member, and shareholder of each such entity, shall be jointly and severally
liable for any and all of Licensee’s obligations and prohibitions under this
Agreement. Consequently, if and when a Person or entity as Licensee
is in breach of this Agreement and fails or is unable to cure such breach in
a
timely manner, Sonic may terminate the rights of the so-affected Person or
entity under this Agreement whereby this Agreement is terminated as to only
such
Person or entity while remaining fully effective as to all other Persons and
entities remaining as Licensee on this Agreement. This Person or
entity removed as Licensee shall remain jointly and severally obligated with
the
Persons and entities remaining as Licensee for any and all obligations and
liabilities of Licensee which occurred or accrued through the date of removal
of
said Person or entity.
22.
BUSINESS ENTITY LICENSEES
22.01.
Corporate, Partnership, and Limited Liability Company
Licensees
.
If
the Licensee is a corporation,
partnership, or limited liability company, the Licensee shall comply with the
following provisions:
(a)
Purpose
. The certificate of incorporation and bylaws,
partnership agreement and certificate of limited partnership (if applicable),
or
articles of organization and operating agreement of the Licensee (collectively,
“Organizational Documents”), as applicable, shall provide that the purpose of
the business entity shall consist only in the development, ownership, operation,
and maintenance of Sonic drive-in restaurants.
(b)
Transfer Restrictions
. The Organizational Documents of the
Licensee shall provide that the Licensee shall not issue any additional capital
stock or interest of the Licensee and that no stockholder, partner, or member,
as applicable, may transfer, assign, or pledge any issued capital stock or
interest of the Licensee without the prior, written consent of Sonic, and each
stock certificate, if applicable, issued to evidence the capital stock of the
Licensee shall contain a legend disclosing the foregoing
restriction. Sonic shall not withhold its consent to the issuance of
additional capital stock or interest or a transfer, assignment, or pledge
without a reasonable basis. In giving its consent, Sonic shall have
the right (but not the obligation) to impose one or more reasonable conditions,
including (without limitation) the requirement that the recipient of the capital
stock or interest execute an agreement substantially similar to the Guaranty
and
Restriction Agreement attached as Schedule I to this Agreement.
(c)
Stockholder/Partner/Member Guaranty
. Each stockholder,
partner, or member of the Licensee, as applicable, shall execute the Guaranty
and Restriction Agreement attached as Schedule I to this Agreement.
(d)
Documents
. Prior to Sonic’s execution of this Agreement, the
Licensee shall deliver to Sonic copies of its Organizational Documents and
issued stock certificates, as applicable, reflecting compliance with the
provisions of this Section 22.01.
22.02.
Other
Entity Licensee
.
If
the Licensee is any other form of
business entity, the Licensee shall deliver to Sonic copies of its
organizational documents containing provisions substantially similar to those
required by Section 22.01.
22.03.
Employee
Stock Purchase Plans
.
The
Licensee shall have the right to
transfer up to 49% of its outstanding capital stock or other equity interests
to
an employee stock purchase plan as long as one individual who qualifies as
a
licensee of Sonic for the Sonic Restaurant continues to own and Control,
directly or indirectly, at least 51% of the Licensee’s outstanding capital stock
or other equity interests.
If
the Licensee is a business entity,
Licensee shall remain an active entity in good standing in its state of
formation.
23.
APPLICABLE
LAWS; WAIVER OF JURY TRIAL; LIMITATIONS
.
The
terms and provisions of this
Agreement shall be interpreted in accordance with and governed by the laws
of
the State of Oklahoma, provided that if the laws of the State of Oklahoma would
not permit full enforcement of Section 16 of this Agreement, then the laws
of
the state in which the Sonic Restaurant is located or Licensee is domiciled
shall apply to the extent that any or all of such laws more fully permit
enforcement of Section 16 of this Agreement. Except as provided in
Section 14.03, Licensee agrees that jurisdiction over Licensee exists and is
proper within the county where the corporate headquarters of Sonic are located
and within any and all other courts, whether federal, state, or local, located
within that county, and venue for any matter, claim, or cause of action relating
to (a) this Agreement or any other agreement between Licensee and Sonic or
Sonic’s Affiliates, (b) the parties’ business activities conducted as a result
of this Agreement, or (c) the parties’ relationship or business dealings with
one another generally, including all disputes and litigation pending or in
existence as of the date of this Agreement, shall only exist and is only proper
within the same county where the corporate headquarters of Sonic are located
and
within any and all other courts, whether federal, state, or local, located
within that county. Licensee waives any and all defenses and
objections, and Licensee agrees not to assert any defense or objection, to
jurisdiction over Licensee and to venue as described hereinabove regarding
any
action, proceeding, or litigation instituted by Sonic against
Licensee. Sonic and Licensee agree that any and all breaches of this
Agreement, including breaches occurring after termination, cancellation, or
expiration of this Agreement, shall be deemed to have occurred where the
corporate headquarters of Sonic are located.
SONIC AND
LICENSEE
WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY
JURY.
SONIC
AND LICENSEE
ALSO WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO OR CLAIM OF
PUNITIVE OR EXEMPLARY DAMAGES AGAINST THE OTHER AND AGREE THAT, IN THE EVENT
OF
A DISPUTE BETWEEN THEM, EACH SHALL BE LIMITED TO THE RECOVERY OF ANY ACTUAL
DAMAGES SUSTAINED BY IT
. EXCEPT FOR CLAIMS ARISING FROM
LICENSEE’S NON-PAYMENT OR UNDERPAYMENT OF AMOUNTS LICENSEE OWES SONIC, ANY AND
ALL CLAIMS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR SONIC’S RELATIONSHIP
WITH LICENSEE WILL BE BARRED UNLESS A JUDICIAL OR ARBITRATION PROCEEDING IS
COMMENCED WITHIN ONE YEAR FROM THE DATE ON WHICH THE PARTY ASSERTING THE CLAIM
KNEW OR SHOULD HAVE KNOWN OF THE FACTS GIVING RISE TO THE CLAIMS.
24.
ACKNOWLEDGEMENT
.
Licensee
acknowledges
that:
24.01.
Initial
Term
.
The
term of this Agreement is for a
single 20-year term with no promise or representation as to the renewal of
this
Agreement or the grant of a new license except as provided herein.
24.02.
Consultation with Counsel
.
Licensee
hereby represents that
Licensee has received a copy of this Agreement and has had an opportunity to
consult with Licensee’s attorney with respect thereto at least 10 days prior to
Licensee’s execution hereof. Licensee further represents that
Licensee has had this Agreement in hand for review at least five business days
prior to Licensee’s execution hereof.
24.03.
Profitability
.
No
representation has been made by
Sonic as to the future profitability of the Sonic Restaurant.
24.04.
Licensee’s
Investigation
.
Prior
to the execution of this
Agreement, Licensee has had ample opportunity to contact existing licensees
of
Sonic and to investigate all representations made by Sonic relating to the
Sonic
System. The Licensee has conducted an independent investigation of
the business contemplated by this Agreement and recognizes that it involves
substantial business risks making the success of the venture largely dependent
on the business abilities of the Licensee. Sonic disclaims and the
Licensee has not received from Sonic or its Affiliates any express or implied
warranty or guaranty regarding the potential volume, profits, or success of
the
business venture contemplated by this Agreement. The Licensee has not
relied on any express or implied warranty or guaranty from Sonic or its
Affiliates regarding the potential volume, profits, or success of the business
venture contemplated by this Agreement.
24.05.
Contrary Representations
.
The
Licensee knows of no
representations by Sonic or its Affiliates about the business contemplated
by
this Agreement which contradict the terms of this Agreement. The
Licensee has not relied on any representations from Sonic or its Affiliates
about the business contemplated by this Agreement which contradict the terms
of
this Agreement or the disclosures set forth in the Franchise Offering Circular
delivered to the Licensee in connection with the issuance of this
Agreement.
24.06.
Variances
to Other Licensees
.
The
Licensee understands that other
developers and licensees may operate under different forms of agreements and,
consequently, that Sonic’s rights and obligations with regard to its various
licensees may differ materially in certain circumstances.
24.07.
Complete
Agreement
.
This
Agreement supersedes any and all
other agreements or representations respecting the Sonic Restaurant and contains
all the terms, conditions, and obligations of the parties with respect to the
grant of this Agreement.
25.
INPUT
AND ADVICE FROM LICENSEES
.
In
connection with the implementation
of or significant changes in the programs or policies referred to in Sections
6.04, 6.05(c), 6.06, 8, 11.01(c), and 11.01(g) of this Agreement, Sonic shall
solicit input and advice from a group of licensees gathered together for such
purpose (whether established ongoing for such purpose or gathered on an ad
hoc
basis from time to time). Sonic further shall use its best efforts to
ensure that such groups are balanced in terms of geographic base, size of
operating group, and period of tenure within the Sonic
System. Notwithstanding the foregoing, this Section 25 shall not have
any effect unless the license agreements in effect for at least one-third of
all
Sonic drive-in restaurants contain this provision or a substantially similar
provision.
26.
INJUNCTIVE
RELIEF
.
The
Licensee acknowledges that Sonic’s
remedy at law for any breach of (a) any of the Licensee’s covenants under this
Agreement (other than those involving only the payment of money), including
the
covenants contained in Section 16 of this Agreement; and (b) Sections 14.01(l),
14.02(c), 14.03(h), 15.01(b), 15.01(c), 15.01(d), and 15.01(e) of this
Agreement, would not constitute an adequate remedy at law and, therefore, Sonic
shall have the right to obtain temporary and permanent injunctive relief in
any
proceeding brought to enforce any of those provisions, without the necessity
of
proof of actual damages. Licensee acknowledges and expressly agrees
that Sonic shall not be required to post any bond or other form of security
in
connection with any request for the issuance of injunctive relief, and Licensee
expressly and unconditionally waives any requirement for the provision of
security. Licensee also agrees that injunctive relief sought by Sonic
and ordered by any court of competent jurisdiction shall be given full force
and
effect in any other jurisdiction, including the jurisdiction in which the Sonic
Restaurant is located, and that Licensee will not oppose the enforcement of
such
relief. Nothing in this Section 26 shall prevent Sonic from pursuing
separately or concurrently one or more of any other remedies available at law,
subject to the provisions of Section 14.03 of this Agreement.
27.
GENERAL
RELEASE AND COVENANT NOT TO SUE
.
THE
LICENSEE HEREBY RELEASES SONIC,
SONIC CORP., AND THEIR SUBSIDIARIES AND AFFILIATES, AND THE OFFICERS, DIRECTORS,
EMPLOYEES, AND AGENTS OF SONIC, SONIC CORP., AND THEIR SUBSIDIARIES AND
AFFILIATES, FROM ANY AND ALL CLAIMS AND CAUSES OF ACTION, KNOWN OR UNKNOWN,
WHICH MAY EXIST IN FAVOR OF THE LICENSEE AS OF THE DATE OF THIS
AGREEMENT. IN ADDITION, THE LICENSEE COVENANTS THAT THE LICENSEE
SHALL NOT FILE OR PURSUE ANY LEGAL ACTION OR COMPLAINT AGAINST ANY OF THE
FOREGOING ENTITIES OR PERSONS WITH REGARD TO ANY OF THE FOREGOING CLAIMS OR
CAUSES OF ACTION RELEASED PURSUANT TO THIS SECTION 27.
Executed
on the dates set forth below,
to have effect as of ______________, _____.
Licensor:
Sonic
Industries LLC
By:
_________________________________
(Vice)
President
Date:
___________________,
_____
Licensee:
____________________________________
Date:______________________,__________
_____________________________________
Date:_______________________, _____
Schedule
I
Guaranty
and Restriction Agreement
GUARANTY
AND RESTRICTION AGREEMENT
W
I
T
N
E
S
S
E
T
H
:
Whereas,
Sonic is entering into a
license agreement (the “License Agreement”) dated the same date as this Guaranty
with the Licensee for the Sonic drive-in located at
,
,
(the
“Drive-in”); and
Whereas,
as a condition to entering
into the License Agreement, Sonic has asked the
Guarantor
to provide a personal guaranty of all obligations of the Licensee Agreement;
and
Whereas,
Sonic has also asked the
Guarantor and the Licensee to agree to a restriction on the transfer of
interests in the Licensee; and
Whereas
Sonic, the Guarantor, and the
Licensee are willing to enter into those agreements based upon the terms and
conditions of this Guaranty.
Now,
therefore, in consideration of the
mutual covenants set forth below and other good and valuable consideration,
the
receipt and sufficiency of which the parties hereby acknowledge, the parties
agree as follows:
1.
Personal
Guaranty of Payments
. The Guarantor hereby guarantees the prompt
and full payment and performance of all obligations under the License Agreement
including:
(a) all
royalties due Sonic pursuant to the License Agreement,
(b) all
brand contribution fees to the Sonic Brand Fund pursuant to the License
Agreement,
(c) all
contributions to approved advertising cooperatives pursuant to the License
Agreement, and
(d) any
other obligations owing to Sonic or its Affiliates (as defined in the License
Agreement) relating to the Drive-in, including any sign lease
agreement.
2.
Nature
of Guaranty
. This guaranty shall constitute an absolute,
unconditional, irrevocable, and continuing guaranty. Sonic shall not
have any obligation to take any action against any other person or entity for
collection of any payments prior to making any demand for payment or bringing
any action against the Guarantor.
3.
Permitted
Actions
. From time to time, Sonic shall have the right to take,
permit, or suffer to occur any “Permitted Action,” as defined below, without
modifying, reducing, waiving, releasing, impairing, or otherwise affecting
the
obligations of the Guarantor under this Guaranty, without giving notice to
the
Guarantor or obtaining the Guarantor’s consent, without the necessity of any
reservations of rights against the Guarantor, and without liability on the
part
of Sonic. As used in this Section 3, the phrase “Permitted Action”
shall mean (a) an agreed extension of time for payment of any sum due under
the
License Agreement, (b) an agreed change in the manner or place of payment of
any
sums due under the License Agreement, (c) any waiver by Sonic of any defaults
under the provisions of the License Agreement, (d) any delay or failure by
Sonic
to exercise any right or remedy Sonic may have under the License Agreement,
(e)
the granting by Sonic of any leniencies, waivers, extensions, and indulgences
under the License Agreement, and (f) any agreed amendments to the License
Agreement.
4.
Waiver
of Notices
. The Guarantor acknowledges and waives notice of
Sonic’s acceptance of the Guarantor’s guaranty pursuant to the terms of this
Agreement. The Guarantor also waives any requirement that Sonic
notify the Guarantor of any demands or enforcement actions by Sonic against
the
Licensee.
5.
Restrictions
on Transfer
. The Licensee shall not issue any additional shares
of capital stock or other interest without the prior, written consent of
Sonic. The Guarantor shall not transfer, assign, or pledge any of its
shares of capital stock or other interest in the Licensee to any person without
the prior, written consent of Sonic.
6.
Disputes
. Any
dispute between the parties concerning this Guaranty will be resolved in
accordance with the arbitration provisions contained in the License
Agreement.
7.
Attorneys’
Fees, Costs, and Expenses
. In any action brought by Sonic to
enforce the obligations of the Guarantor, Sonic shall also have the right to
collect its reasonable attorneys’ fees, court costs, and expenses incurred in
the action.
8.
Headings
. The
headings used in this Guaranty appear strictly for the parties’ convenience in
identifying the provisions of this Guaranty and shall not affect the
construction or interpretation of the provisions of this Guaranty.
9.
Binding
Effect
. This Guaranty binds and inures to the benefit of the
parties and their respective successors, legal representatives, heirs, and
permitted assigns.
10.
Waiver
. The
failure of a party to insist in any one or more instances on the performance
of
any term or condition of this Guaranty shall not operate as a waiver of any
future performance of that term or condition.
11.
Governing
Law
. Notwithstanding the place where the parties execute this
Guaranty, the internal laws of Oklahoma shall govern the construction of the
terms and the application of the provisions of this Guaranty.
12.
Amendments
. No
amendments to this Guaranty shall become effective or binding on the parties
unless agreed to in writing by all of the parties to be bound by the
amendment.
13.
Time
. Time
constitutes an essential part of each and every part of this
Guaranty.
14.
Notice
. Except
as otherwise provided in this Guaranty, when this Guaranty makes provision
for
notice or concurrence of any kind, the sending party shall deliver or address
the notice to the other party by certified mail, telecopy, or
nationally-recognized overnight delivery service to the addresses shown on
Exhibit “A” to this Guaranty.
All
notices pursuant to the provisions
of this Guaranty shall run from the date that the other party receives the
notice or three business days after the party places the notice in the United
States mail. Each party may change the party’s address by giving
written notice to the other parties.
15.
Release
and
Covenant Not To Sue
.
THE
GUARANTOR AND THE LICENSEE, AND EACH OF THEM, HEREBY RELEASE ALL CLAIMS AND
CAUSES OF ACTION WHICH THE GUARANTOR OR THE LICENSEE, OR BOTH OF THEM, MAY
HAVE
AGAINST SONIC, SONIC CORP., AND THEIR SUBSIDIARIES AND AFFILIATES, AND THE
STOCKHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS OF SONIC, SONIC CORP.,
AND THEIR SUBSIDIARIES AND AFFILIATES. THE GUARANTOR AND THE
LICENSEE, AND EACH OF THEM, FURTHER COVENANT NOT TO SUE ANY OF THE FOREGOING
PERSONS OR ENTITIES ON ACCOUNT OF ANY OF THE FOREGOING CLAIMS OR CAUSES OF
ACTION.
Executed
and delivered as of the day and year first set forth above.
Sonic: Sonic
Industries LLC.
By: _________________________________
(Vice) President
Guarantor:
____________________________________
____________________________________
____________________________________
Licensee:
By: ________________________________
This
Guaranty and Restriction Agreement signature page is for the
following:
EXHIBIT
“A”
Notice
addresses are as follows:
Sonic:
300 Johnny Bench Drive
Oklahoma
City, OK 73104
Attention: General
Counsel
(405)
225-5973 Fax
Guarantors:
(___)
___-____ Fax
(___)
___-____ Fax
Licensee:
(___)
___-____Fax
SONIC
INDUSTRIES LLC
NUMBER
7 NON-TRADITIONAL LICENSE AGREEMENT
BY
AND BETWEEN
SONIC
INDUSTRIES LLC, Licensor, and
,
Licensee
Non-Traditional
Sonic Location
,
Effective
as of , .
CIF
No.
NUMBER
7 NON-TRADITIONAL LICENSE AGREEMENT
(CIF
____)
SONIC
INDUSTRIES LLC (“Sonic”) and the
individuals listed below (jointly and severally, the “Licensee”) enter into this
Number 7 Non-Traditional License Agreement (the “Agreement”) as of the _____ day
of _________, 200__.
(“Principal”)
RECITALS
Sonic
is the developer and owner of the
right to license the distinctive and proprietary food service system under
which
food and beverages are sold to the public from drive-in restaurants and other
facilities operated under the trade name and federally registered trademark
and
service mark “Sonic.” The Sonic System so developed now includes,
among other things, the following elements, all or some of which may be deleted,
changed, improved, or further developed by Sonic from time to time:
A.
Methods
and procedures for the
preparation and serving of food and beverage products.
B.
Confidential
recipes for food
products and distinctive service accessories (including, but not limited to,
uniforms, menus, packages, containers, and additional paper or plastic
items).
C.
Plans
and specifications for
distinctive standardized premises featuring characteristic exterior style,
colors, and design, interior furnishings, equipment layout, exterior signage,
and marketing techniques and materials.
D.
A
uniform method of operating
which is described in the
Sonic Operations Manual
.
E.
The
Proprietary Marks as
defined in Section 1.09.
F.
Such
trade secrets as have
been and may from time to time be developed, which are owned by Sonic, and
which
are disclosed to its licensees in confidence in connection with the construction
and operation of a Sonic drive-in restaurant or non-traditional Sonic
restaurant.
G. Such
proprietary payment
and other business methods, including (without limitation) the pay-at-your-stall
payment system (“PAYS”), which have been and may from time to time be developed
for use in the Sonic System.
Licensee
wishes to obtain a license
from Sonic to operate a non-traditional Sonic restaurant pursuant to the Sonic
System and to be afforded the assistance provided by Sonic in connection
therewith, and understands and accepts the terms, conditions, and covenants
set
forth herein as those which are reasonably necessary to maintain Sonic’s high
and uniform standards of quality and service designed to protect the goodwill
and enhance the public image of the Proprietary Marks and the Sonic System,
and
recognizes the necessity of operating the licensed Non-Traditional Sonic in
faithful compliance therewith, and with Sonic’s standards and
specifications.
1.
DEFINITIONS
.
Unless
the context of their use in this
Agreement requires otherwise, the following words and phrases shall have the
following meanings when used in initially-capitalized form in this
Agreement.
1.01.
Affiliate
.
The
word “Affiliate” shall mean (a) any
stockholder, director, or officer of a specified Person (if the specified Person
is a corporation), (b) any partner of a specified Person (if the specified
Person is a partnership), (c) any member of a specified Person (if the specified
Person is a limited liability company), (d) any employee of a specified Person,
and (e) any Person which directly or indirectly through one or more
intermediaries Controls the specified Person, the specified Person Controls,
or
shares a common Control with the specified Person.
1.02.
Control
.
The
word “Control” means the
possession, direct or indirect, of the power to direct or cause the direction
of
the management and policies of a Person or entity, whether through the ownership
of voting securities, by contract, or otherwise.
1.03.
DMA
.
The
term “DMA” shall mean a Designated
Market Area as defined by A.C. Nielsen Company from time to time.
1.04
Facility
.
The
word “Facility” shall mean the
building or structure in which a non-traditional Sonic restaurant may operate,
including (without limitation) military bases and other governmental facilities;
universities and schools; airports and other transportation facilities;
stadiums, arenas and other sports and entertainment venues; amusement and theme
parks; cafeterias and food courts in shopping centers, shopping malls, office
buildings, hospitals and industrial facilities; museums, zoos and other public
facilities, and highway travel plazas, convenience stores, and gasoline filling
stations.
1.05.
Gross
Sales
.
The
phrase “Gross Sales” shall mean all
revenues from all business conducted upon or from the Non-Traditional Sonic,
whether evidenced by check, cash, credit, charge account, debit card,
stored-value card, exchange, or otherwise, and shall include (without
limitation) the amounts received from the sale of goods, wares, and merchandise,
including sales of food, beverages, and tangible property of every kind and
nature, promotional or otherwise
(excluding
restaurant equipment), and for services performed from or at the Non-Traditional
Sonic, whether the Licensee fills the orders from the Non-Traditional Sonic
or
elsewhere. Each charge or sale via credit, debit card, stored-value
card, or other payment means shall constitute a sale for the full price in
the
month during which the charge or sale occurs, regardless of the time when the
Licensee receives payment (in whole or in part) for the charge or
sale. The phrase “Gross Sales” shall not include (a) sales of
merchandise for which the Licensee makes a cash refund, if previously included
in Gross Sales; (b) the price of merchandise returned by customers for exchange,
if the Licensee previously included the sales price of the merchandise returned
by the customer in Gross Sales and includes the sales price of merchandise
delivered to the customer in exchange in Gross Sales; (c) the amount of any
sales tax imposed by any governmental authority directly on sales and collected
from customers, if the Licensee adds the amount of the tax to the sales price
or
absorbs the amount of the sales tax in the sales price and the Licensee actually
pays the tax to the governmental authority; (d) amounts not received for menu
items because of discounts or coupons, if properly documented; and (e) amounts
received from the sale of Sonic-approved stored-value cards. The
phrase “Gross Sales” also shall not include any proceeds received by the
Licensee pursuant to an assignment made in accordance with the provisions of
Section 13.
1.06.
License
.
The
word “License” shall mean the
rights granted the Licensee pursuant to Section 2 of this
Agreement.
1.07.
Non-Traditional
Sonic
.
The
phrase “non-traditional Sonic
restaurant” shall mean any location licensed to use the Sonic System other than
a free-standing building with canopies devoted, in whole or in part, to the
operation of a Sonic drive-in restaurant and accessible to the general public
by
automobile from public thoroughfares. The phrase “Non-Traditional
Sonic” shall mean the non-traditional Sonic restaurant licensed by this
Agreement.
1.08.
Person
.
The
word “Person” shall mean any
individual or business entity, including (without limitation) a corporation,
joint venture, general partnership, limited partnership, limited liability
company, or trust.
1.09.
Proprietary
Marks
.
The
phrase “Proprietary Marks” shall
mean the distinctive and characteristic trade names, trademarks, service marks,
logotypes and trade dress which Sonic designates in the
Sonic Operations
Manual
or otherwise in writing or through usage from time to time as
prescribed for use with the Sonic System and as may from time to time be
developed, including (without limitation) the terms “Sonic,” “America’s
Drive-In,” “Route 44,” “Wacky Pack,” “Fountain Favorites,” “Frozen Favorites,”
“It’s Sonic Good,” “SuperSonic,” “Your Morning Drink Stop!,” “Ultimate Drink
Stop,” and “My Sonic;” signs; emblems; menu housings and/or table ordering
stations; designs; color schemes; standardized premises featuring characteristic
exterior style, canopies, colors, and design (including angled parking stalls
equipped with menu housings, speakers, and tray supports); interior furnishings;
and equipment layout.
1.10.
Sonic
System
.
The
phrase “Sonic System” shall mean
the Proprietary Marks, proprietary and confidential information, methods,
specifications, and trade secrets of Sonic, including (without limitation)
the
Sonic Operations Manual
and consisting of (a) methods and procedures
for the preparation of food and beverage products; (b) confidential recipes
for
food products; (c) distinctive service and accessories; (d) plans and
specifications for interior and exterior signs, designs, layouts, and color
schemes (whether copyrighted or not); (e) methods, techniques, formats, systems,
specifications, procedures, information, trade secrets, and sales and marketing
programs; (f) methods of business operations and management; (g) knowledge
and
experience regarding the operation and franchising of Sonic drive-in restaurants
and non-traditional Sonic restaurants; (h) payment methods, including (without
limitation) PAYS; and (i) such further elements as set forth in the
Recitals.
2.
LICENSE
GRANT
.
Sonic
grants to Licensee for the
following stated term the right, license, and privilege:
2.01. (a) To
adopt and use the Sonic System at the Non-Traditional Sonic located within
the
located at (the “Facility”).
(b) To
have the exclusive rights to adopt and use the Sonic System for a
non-traditional Sonic restaurant to be constructed within a Facility within
the
current boundaries of the town or city of , , for a period of six months from
the date hereof, with the obligation of selecting and having such site approved
within such six-month period and completing Section 2.01(a), above, within
such
six-month period.
2.02.
Sonic
shall not own or operate a non-traditional Sonic restaurant and shall not
franchise any other Person to own or operate a non-traditional Sonic restaurant
within the Facility identified in Section 2.01.
2.03. To
advertise to the public as a licensee of Sonic.
2.04. To
adopt and use, but only in connection with the sale from the Non-Traditional
Sonic of those food and beverage products which have been designated in the
Sonic menu as specified in an attachment to this Agreement or in any future
operations manual designed for non-traditional Sonic restaurants, the
Proprietary Marks which Sonic shall designate from time to time to be part
of
the Sonic System.
2.05.
Site
Selection
.
In
the event the Licensee receives this
License pursuant to Section 2.01(b), above, the selection of a site by Licensee
shall be subject to the approval of Sonic in accordance with the standard site
approval procedures required by this Agreement and the standard practices of
Sonic. In the event a site for the Non-Traditional Sonic has not been
approved by Sonic before the expiration of the six-month period provided for
by
Section 2.01(b), above, then this Agreement shall expire and be of no further
force or effect. In such case, Sonic will immediately refund to
Licensee the license fee less one-third of the license fee, which shall be
fully
earned by Sonic upon execution and delivery of this Agreement.
2.06.
Relocation
.
If
the Licensee relocates the
Non-Traditional Sonic during the term of this Agreement with the written consent
of Sonic (which consent Sonic shall not withhold unreasonably), this Agreement
shall continue to apply to the Non-Traditional Sonic in accordance with the
terms contained in this Agreement, except that Sonic and the Licensee shall
enter into an amendment to this Agreement to change the address of the
Non-Traditional Sonic accordingly.
2.07.
Rights
Reserved to Sonic
.
Except
as expressly limited by this
Agreement, Sonic retains all rights with respect to the Sonic System, the
Proprietary Marks, the sale of similar or dissimilar products and services,
and
any other activities Sonic deems appropriate whenever and wherever it
desires. Specifically, but without limitation, Sonic reserves the
following rights:
(a)
The
right
to establish and operate, and to grant to others the right to establish and
operate, similar businesses or any other businesses offering similar or
dissimilar products and services through similar or dissimilar channels of
distribution, at any locations inside or outside the Facility identified in
Section 2.01 under trademarks or service marks other than the Proprietary Marks
and on any terms and conditions Sonic deems appropriate;
(b)
The
right
to provide, offer, and sell, and to grant others the right to provide, offer,
and sell, goods and services that are identical or similar to and/or competitive
with those provided at the Non-Traditional Sonic, whether identified by the
Proprietary Marks or other trademarks or service marks, through dissimilar
distribution channels (including, without limitation, the Internet or similar
electronic media) both inside and outside the Facility identified in Section
2.01 and on any terms and conditions Sonic deems appropriate;
(c)
The
right
to establish and operate, and to grant to others the right to establish and
operate, businesses offering dissimilar products and services, both inside
and
outside the Facility identified in Section 2.01, under the Proprietary Marks
and
on any terms and conditions Sonic deems appropriate;
(d)
The
right
to operate, and to grant others the right to operate, Sonic drive-in restaurants
or non-traditional Sonic restaurants anywhere outside the Facility identified
in
Section 2.01 under any terms and conditions Sonic deems appropriate regardless
of the proximity to the Non-Traditional Sonic;
(e)
The
right
to be acquired (whether through acquisition of assets, ownership interests,
or
otherwise, regardless of the form of transaction) by a business providing
products and services similar to those provided at the Non-Traditional Sonic,
or
by another business, even if such business operates, franchises, and/or licenses
competitive businesses in the Facility identified in Section 2.01.
3.
TERM
.
3.01.
Initial
Term
.
Unless
sooner terminated as hereafter
provided, the term of this Agreement, including the License, shall end ___
years
from the effective date of this Agreement as set forth on the cover page to
this
Agreement.
3.02.
Opening
of Restaurant
.
Licensee
expressly acknowledges and
agrees that a pre-condition to opening the Non-Traditional Sonic shall be
Sonic’s written authorization to open, which authorization shall be given only
upon Licensee’s completing, to Sonic’s satisfaction, (i) construction of the
Non-Traditional Sonic, (ii) preparation of the Non-Traditional Sonic for
commencement of operations, and (iii) training as required by Section 6.04
of
this Agreement.
3.03.
Option
.
At
the end of the initial term, if
Licensee desires, Licensee may renew the rights granted under this Agreement,
including the License to adopt and use the Sonic System at the Non-Traditional
Sonic, for one additional ______-year term, provided that prior to the
expiration of the initial term:
(a) Licensee
gives Sonic written notice of Licensee’s election to renew not less than six
months nor more than 12 months prior to the end of the initial
term.
(b) Licensee
is not, when notice is given, in material default of any provision of this
Agreement or any amendment hereof or successor agreement hereto or in material
default of any other agreement between Licensee and Sonic or Sonic’s Affiliates
involving any other license agreement and has substantially complied with the
terms and conditions of this Agreement and all other such agreements, during
the
term thereof.
(c) All
monetary obligations owed by Licensee to Sonic or Sonic’s Affiliates from any
source whatsoever (whether under this Agreement or otherwise) have been
satisfied prior to renewal.
(d) The
Licensee executes a license agreement containing the same terms and conditions
as this Agreement, except that the license agreement shall provide for a term
of
up to _____ years and shall contain the then-current royalty rate and the
then-current advertising and brand expenditure requirements for non-traditional
Sonic restaurants; provided, however, that in lieu of an initial license fee,
a
renewal fee shall be paid to Sonic in the amount of 20% of the then-current
initial license fee for a non-traditional license agreement.
(e) Licensee
performs such remodeling, repairs, replacements, and redecorations as Sonic
may
reasonably require to cause the restaurant equipment and fixtures to conform
to
the plans and specifications being used for new or remodeled non-traditional
Sonic restaurants on the renewal date.
(f) Licensee
executes a general release, in a form satisfactory to Sonic, of any and all
claims the Licensee may have against Sonic and its Affiliates, including
(without limitation) all claims arising under any federal, state, or local
law,
rule, or ordinance.
(g) The
Principal and/or manager at Licensee’s expense attend and satisfactorily
complete such retraining program as Sonic may require at its sole
discretion.
(h) Licensee
meets the remodeling requirements set forth in Section 6.02(d)
herein.
4.
DUTIES
OF SONIC
.
Sonic
agrees to regularly advise and
consult with Licensee in connection with the operation of the Non-Traditional
Sonic and to provide the following to Licensee:
4.01.
Site
Selection Services
.
Sonic
shall provide the Licensee with
Sonic’s experience in the selection of Sonic restaurant sites through the use of
the forms, criteria, and materials that Sonic makes available to new licensees
from time to time, as well as the benefit of its review and evaluation of any
proposed sites selected by the Licensee.
4.02.
Plans
and Specifications
.
If
and when developed, Sonic shall
provide the Licensee with its standard construction plans, specifications,
and
layouts for the structure, equipment, décor, and signs for a non-traditional
Sonic restaurant which Sonic makes available to new licensees from time to
time.
Sonic shall review the Licensee’s site plan and final construction plans and
specifications for conformity to Sonic’s then-current construction standards and
specifications, if any.
4.03.
Operations
Manual
.
The
Sonic
Operations Manual
containing the standards, specifications, procedures, and methods for operating
a traditional Sonic drive-in restaurant, one copy to which Licensee will be
given access for the term of this Agreement. If and when Sonic
develops a separate operations manual for non-traditional Sonic restaurants,
Sonic will give Licensee access to the manual for the term of this
Agreement.
4.04.
Training
.
Sonic
shall provide the Licensee with
initial training in the standards, methods, procedures, and techniques of
operating a non-traditional Sonic restaurant. Sonic shall provide
that training to the Licensee (if the Licensee is an individual) or to one
principal of the Licensee selected by Sonic (if the Licensee is a corporation,
partnership, limited liability company, other entity, or group of
individuals). Sonic shall provide that training at the times and
places designated by Sonic from time to time for its training
program.
4.05.
Marketing
Assistance
.
Sonic
shall provide the Licensee with
marketing materials and merchandising, marketing and advertising research data,
and advice as may be developed from time to time by Sonic and deemed to be
helpful in the operation of a non-traditional Sonic restaurant.
4.06.
Communication
.
Sonic
shall provide the Licensee with
management development and motivational seminars and periodic newsletters which
communicate to Licensee available advertising materials and new developments,
techniques, and improvements in areas of restaurant equipment, management,
food
preparation, and service which are pertinent to the operation of a restaurant
using the Sonic System.
4.07.
Evaluation
Program
.
Sonic
will conduct periodic field
evaluations of the Non-Traditional Sonic for the mutual benefit of both Sonic
and Licensee to promote uniform standards of operation and quality
control.
4.08.
Advice
.
Sonic
shall provide the Licensee with
periodic individual or group advice, consultation, and assistance by personal
visit, by telephone, or by newsletters or bulletins that Sonic makes available
to new licensees from time to time.
4.09.
Written
Materials
.
Sonic
shall provide the Licensee with
bulletins, brochures, and reports that Sonic publishes from time to time
regarding its plans, policies, research, developments, and
activities.
4.10.
Other
.
Sonic
shall provide the Licensee with
other resources and assistance that Sonic may develop and make available to
its
new licensees from time to time.
5.
FEES
.
5.01.
License
Fee
.
The
Licensee acknowledges
that: (a) the initial grant of the License constitutes the sole
consideration for the payment of a license fee of $________ paid by the Licensee
to Sonic concurrently with the execution hereof; and (b) the fee has been earned
by Sonic (except where the construction of the Non-Traditional Sonic has not
been completed within one year from the date of this Agreement as discussed
in
Section 6.02(a) and except as provided hereafter in this Section
5.01). Sonic reserves the right, in case construction of the
Non-Traditional Sonic should be abandoned, the lease assigned for a purpose
other than the operation of the Non-Traditional Sonic, or other interest in
the
premises be relinquished for a purpose other than the operation of the
Non-Traditional Sonic, to terminate this Agreement, including the License,
upon
written notice, after which Sonic will immediately refund to Licensee the
license fee less one-third of the license fee, which shall be fully earned
by
Sonic upon execution and delivery of this Agreement. Licensee shall
have the right, if Licensee does not consummate a lease or purchase a site
for
the Non-Traditional Sonic within one year from the date of this Agreement,
to
terminate this Agreement, including the License, upon written notice, after
which Sonic will immediately refund to Licensee the license fee less one-third
of the license fee, which shall be fully earned by Sonic upon execution and
delivery of this Agreement.
5.02.
Royalty
Fees
.
On
or before the 10th day of each
calendar month, the Licensee shall pay a royalty fee determined by the following
scale based on Gross Sales for the calendar month preceding the date of such
payment:
Monthly
Gross Sales
|
But
Not
|
Royalty
|
Greater
Than
|
More
Than
|
Rate
|
|
|
|
$ 0.00
|
$ 5,000.00
|
2.00%
|
$ 5,000.00
|
$10,000.00
|
3.00%
|
$10,000.00
|
$15,000.00
|
3.50%
|
$15,000.00
|
$20,000.00
|
4.00%
|
$20,000.00
|
$25,000.00
|
4.50%
|
$25,000.00
|
N/A
|
5.00%
|
The
calculation of Gross Sales and the corresponding royalty fees shall take place
on a cumulative basis. For example, the following formula results in
the calculation of the royalty fee on $50,000 of Gross Sales: Royalty
Fee = ($5,000 x .02) + ($5,000 x .03) + ($5,000 x .035) + ($5,000 x .04) +
($5,000 x .045) + ($25,000 x .05).
The
payment of royalty fees, as well as the payment of any other obligations
incurred under the terms of this Agreement, shall be made via automated clearing
house (ACH) or other electronic means approved by Sonic.
5.03.
Brand
Fee
.
(a) On
or before the 10th day of each calendar month throughout the term of this
Agreement, Licensee shall pay to the Sonic Brand Fund, which is administered
by
Sonic, a brand contribution fee in an amount equal to .90% of the
Gross Sales of the Non-Traditional Sonic during the calendar month next
preceding the date of such payment.
(b) The
amount due to Sonic by Licensee pursuant to Section 5.03(a), above, shall be
in
addition to and separate from that which Licensee is obligated to contribute
pursuant to Sections 11.01(a) and 11.01(c) of this Agreement.
5.04.
Transfer
Fee
.
(a) A
transfer fee in the amount of $1,000 shall be paid by Licensee in the event
of a
transfer or assignment of this Agreement (resulting in a change in Control
of
the Agreement) to a licensee then-currently qualified as a licensee, excluding
assignments under Sections 13.02 and 13.03.
(b) A
transfer fee in the amount of $3,000 shall be paid by Licensee in the event
of a
transfer or assignment of this Agreement (resulting in a change in Control
of
this License) to a new licensee not then-currently qualified as a licensee,
excluding assignments under Sections 13.02 and 13.03.
5.05.
Late
Payments
.
In
the event any payments required by
Sections 5.02, 5.03, or 5.04, above, are not paid on or before the date on
which
they are due, a late charge in an amount equal to 1.75% per month shall be
levied against such amounts due and shall be owing to Sonic by the Licensee
from
the date on which such obligations were due until any such obligations are
paid
in full. In the event any payments required by Sections 5.02, 5.03,
or 5.04, above, are not paid on or before the date on which they are due three
or more times during any 12-month period, in addition to all other rights of
Sonic contained in this Agreement or otherwise, (a) Sonic may require the
Licensee to submit a statement of Gross Sales in the form prescribed by Sonic
and at a frequency prescribed by Sonic, such as weekly; and (b) Sonic may
require the Licensee to pay obligations incurred under the terms of this
Agreement more frequently than once a month, such as weekly. In the
event the interest rate set out in this Section 5.05 exceeds that amount
permitted by Oklahoma law, then the maximum interest rate permitted by Oklahoma
law shall be charged. Sonic’s acceptance of any partial or late
payment does not affect Sonic’s right to terminate this Agreement pursuant to
the terms of this Agreement. Further, Licensee acknowledges that this
Section 5.05 is not an agreement to accept any partial payments or payments
after they are due or Sonic’s commitment to extend credit to, or otherwise
finance the operation of, the Non-Traditional Sonic.
5.06.
Taxes
.
(a) Licensee
shall pay when due all taxes levied or assessed on Licensee and the
Non-Traditional Sonic including, without limitation, unemployment, sales, or
gross receipts taxes, and all accounts or other indebtedness of any kind
incurred by Licensee in conducting the business of the Non-Traditional
Sonic.
(b) In
the time and manner prescribed by Sonic, Licensee shall also pay an amount
equal
to any sales tax or gross receipts tax, but not including any net income tax
upon Sonic, imposed on Sonic or its Affiliates with respect to any payments
from
Licensee to Sonic required under this Agreement, unless the tax is credited
against a net income tax otherwise payable by Sonic.
(c)
(i) In
the event of a dispute with a taxing authority as to (a) Licensee’s liability
for taxes or (b) Sonic’s or its Affiliate’s liability for any taxes upon which
Licensee is required under this Section 5.06 to make payment to Sonic, Licensee
may contest the validity or the amount of the tax or indebtedness in accordance
with the law and regulations of the taxing authority. Sonic shall
provide Licensee with all information, cooperation, and assistance that Licensee
may reasonably request in connection with any dispute as to Licensee’s, Sonic’s,
or Sonic’s Affiliate’s liability for taxes. Licensee shall not permit
a tax sale, seizure, levy, or similar writ or warrant by a creditor to occur
against the Non-Traditional Sonic or any of its assets.
(ii) In
the event a state taxing authority makes a refund to Sonic or its Affiliate
of
taxes paid for which Sonic previously received payment from Licensee under
this
Section 5.06, Sonic shall pay to Licensee the amount of the taxes refunded
by
the state taxing authority to Sonic or its Affiliate which equals the amount
Licensee previously paid to Sonic under this Section 5.06.
(d) All
notices received by Licensee from a state taxing authority regarding the
alleged, potential, or actual tax liability of Sonic or its Affiliates shall
be
given to Sonic within 15 calendar days of receipt by Licensee. Sonic
and Licensee agree to consult in good faith to determine the nature of any
action to be taken in connection with the notice or any demands contained
therein.
6.
DUTIES
OF LICENSEE
.
6.01.
Non-Traditional
Sonic Site
.
(a) The
Licensee shall submit for evaluation by Sonic the information Sonic reasonably
may require from time to time to evaluate a proposed site for the
Non-Traditional Sonic. Sonic shall review the submitted information,
shall conduct any investigation of the proposed site Sonic deems necessary
or
appropriate to evaluate the site, and shall accept or reject the
site. Sonic shall have the right to request any supplemental
information it reasonably deems necessary or appropriate to evaluate the
proposed site.
(b) Within
30 days after the Licensee’s submission of all initial and supplemental
information requested by Sonic regarding the proposed site, Sonic shall give
the
Licensee written notice of its acceptance or rejection of the
site. If Sonic accepts the site, the written notice shall set forth
any remaining conditions to that acceptance. If Sonic rejects the
site, the written notice shall set forth the primary reasons for the
rejection. If Sonic does not give the
Licensee
written notice of its rejection of the site within 30 days after the Licensee’s
submission of all initial and supplemental information requested by Sonic
regarding the site, the Licensee may deem Sonic as having approved the
site. The Licensee acknowledges that no officer, employee, or agent
of Sonic has any authority to approve any proposed site except in writing
and in
accordance with the provisions of this Section 6. Any other
representations, written or oral, shall have no effect.
(c) The
Licensee shall have sole responsibility for determining the location of the
Non-Traditional Sonic and all aspects of the site selection, negotiation, and
development process, including (without limitation) the investigation and
compliance with all applicable zoning, licensing, leasing, and other
requirements. Neither Sonic nor any of its Affiliates shall have any
responsibility, obligation, or liability in connection with Sonic’s efforts,
assistance, and/or advice in the selection and securing of a location for the
Licensee’s use, nor shall Sonic have any liability for any consequences of the
Licensee’s choice of a site or any aspect of the site selection, negotiation,
and development process.
THE LICENSEE
ACKNOWLEDGES
THAT SONIC’S APPROVAL OF A SITE DOES NOT CONSTITUTE ANY REPRESENTATION,
WARRANTY, OR GUARANTY BY SONIC THAT THE SITE WILL CONSTITUTE A SUCCESSFUL
LOCATION FOR THE NON-TRADITIONAL SONIC, AND THE LICENSEE WAIVES AND RELEASES
SONIC AND ITS AFFILIATES FROM ANY CLAIMS IN THAT REGARD.
The
Licensee confirms that, in the absence of its agreement as set forth above,
Sonic would not become involved in any way in the site selection, negotiation,
or development process.
(d) In
the event the Non-Traditional Sonic premises suffers some physical casualty,
the
minimum acceptable quality and appearance for the restored location will be
that
which existed just prior to the casualty, unless the Non-Traditional Sonic
was
below minimum acceptable standards for Sonic at the time of casualty, in which
event the Non-Traditional Sonic will be restored to a condition which meets
the
minimum acceptable standard according to Sonic. However, Licensee agrees
to make all reasonable effort to have the restored Non-Traditional Sonic reflect
the then-current image, design, and specifications of non-traditional Sonic
restaurants. If the Non-Traditional Sonic is substantially destroyed by
fire or other casualty, Licensee may, with the written consent of Sonic, elect
to terminate this Agreement in lieu of Licensee reconstructing the restaurant,
provided that for a period of 18 months after said election, Licensee shall
not
enter into, become landlord of, or loan money to any restaurant business within
a three-mile radius of the Non-Traditional Sonic premises which is similar
in
nature to or competitive with a Sonic drive-in restaurant or non-traditional
Sonic restaurant or which is considered a quick-service restaurant
establishment.
6.02.
Construction
and Opening
.
(a) Licensee
agrees to complete the construction of the Non-Traditional Sonic and open the
Non-Traditional Sonic to the public within one year from the effective date
of
this Agreement. If the Non-Traditional Sonic is not constructed and opened
to the public before the expiration of the one-year period, then
Sonic may terminate this Agreement, making it of no further force or effect.
In
such case, Sonic will immediately refund to Licensee the license fee less
one-third of the license fee, which shall be fully earned by Sonic upon
execution and delivery of this Agreement. Unless Licensee is
remodeling an existing location, Licensee shall construct the Non-Traditional
Sonic
in
accordance with the site plan approved by Sonic for such site and with Sonic’s
standard construction plans and specifications (“Sonic Plans and
Specifications”), if any, subject, however, to any alterations thereto that may
be required by any applicable law, regulation, or ordinance. If
alterations of any kind are required to be made to the site plan, as approved
by
Sonic, or to the Sonic Plans and Specifications, if any, for any reason, such
alterations must be approved by Sonic in writing before any work is begun on
the
Non-Traditional Sonic. The Licensee shall submit the final site
layout and construction plans for the Non-Traditional Sonic to Sonic for its
written approval. Any costs, including engineering and architectural fees,
incurred in obtaining approvals by the appropriate governmental authorities
of the construction plans, specifications, and layouts shall be paid by
Licensee. Prior to opening, Licensee shall submit to Sonic, at no
cost to Sonic, a record set of drawings showing all approved changes to the
plans and specifications.
(b) If
Licensee is remodeling an existing location, Sonic shall have the right to
inspect and approve all plans and specifications prior to the commencement
of
any work. The Licensee shall submit the final remodeling plans and
specifications for the Non-Traditional Sonic to Sonic for its written
approval. Nothing in this section shall be construed as an endorsement or
guarantee of the conformity of such plans to applicable local, state, or federal
building or safety codes, or a guarantee that construction will be done in
conformity with such approved plans. In any event, Licensee shall obtain
written approval of such plans or written notice of Sonic’s waiver of the rights
reserved hereunder prior to the commencement of construction.
(c) Licensee
shall not deviate from the approved plans and specifications in any manner
in
the construction or remodeling of the restaurant without the prior written
approval of Sonic. If at any time Sonic determines (prior to opening date)
that Licensee has not constructed or remodeled the Non-Traditional Sonic in
accordance with the plans and specifications approved by Sonic, Sonic shall,
in
addition to any other remedies, have the right to obtain an injunction from
a
court of competent authority against the continued construction and opening
of
the Non-Traditional Sonic, and Licensee hereby consents to any such
injunction.
(d) Sonic
may require the Licensee to undertake extensive remodeling and renovation and
substantial modifications to its existing improvements necessary for the
Licensee’s restaurant to conform with Sonic’s then-existing system
image. Sonic may exercise the foregoing right at any time during the
term of this Agreement, but may not require (1) the remodeling of the
Non-Traditional Sonic more than once every five years or (2) the remodeling
of
the Non-Traditional Sonic built within the preceding three years, unless the
required remodeling will not exceed 15% of the original cost of the improvements
and equipment (as adjusted for increases in the consumer price index after
the
construction date of the Non-Traditional Sonic). If Sonic exercises
its right to require the Licensee to undertake extensive remodeling or
renovation or substantial modification within two years of the end of the term
of this Agreement, the Licensee may exercise any right to renew the term of
this
Agreement at that point in time in accordance with the applicable provisions
of
this Agreement, which renewal then shall take effect as of the expiration of
the
then-current term of this Agreement.
6.03.
Equipment
and Signage
.
(a) Licensee
shall install in and about the Non-Traditional Sonic such equipment, fixtures,
furnishings, and other personal property, and shall upgrade or purchase
additional equipment, fixtures, furnishings, and other personal property, as
are
required and which strictly conform to the appearance, uniform standards, and
specifications of Sonic existing from time to time, which shall be communicated
to Licensee in writing. Equipment not required by Sonic shall not be
installed without Sonic’s prior written consent, except that Licensee may,
without Sonic’s prior written consent, install security-related equipment that
does not interfere with the operation or trade dress of the Non-Traditional
Sonic.
(b) In
order to provide maximum exposure of the Sonic name and marks, Licensee shall
prominently display and maintain at Licensee’s own expense signage which
complies with the specifications required by Sonic from time to time and in
such
location as Sonic may approve. Licensee shall not display any other sign
or advertising at the Non-Traditional Sonic without Sonic’s prior written
approval.
(c) Licensee
may lease the required signage from Sonic or may acquire or lease the signage
from any other source approved by Sonic. Licensee agrees to require in any
lease agreement with Sonic or other suppliers a clause giving Sonic the right
to
remove the signage from the Non-Traditional Sonic upon termination of this
Agreement.
(d) Licensee
hereby agrees that it shall obtain from the landlord of the property at which
the Non-Traditional Sonic is located a landlord’s waiver releasing all claims
against any equipment or sign which belongs to Sonic and all claims to fixtures
and furnishings that constitute Proprietary Marks of Sonic.
(e) If
Licensee is or becomes a lessee of the Non-Traditional Sonic premises, Licensee
shall provide Sonic with a true and correct, complete copy of any such lease
and
obtain Sonic’s written approval of the lease terms prior to executing the
lease. Licensee shall have included in the lease provisions, in form
satisfactory to Sonic, expressly permitting both the Licensee and Sonic to
take
all actions and make all alterations referred to under Section
15.01. Any such lease shall also require the lessor thereunder to
give Sonic reasonable notice of any contemplated termination and a reasonable
time in which to take and make the above actions and alterations and provide
that the Licensee has the unrestricted right to assign such lease to
Sonic.
6.04.
Training
.
(a) Licensee
acknowledges the importance of the quality of business operations among all
restaurants in the Sonic System and agrees that it will not allow any of its
licensed establishments to be opened or operated without having at least one
individual working full time at the Non-Traditional Sonic who has completed
the
Stage Career Development Program or other Sonic-designated training
program. If the trained individual ceases to work full time at the
Non-Traditional Sonic for whatever reason, the Licensee shall promptly replace
the individual with a person who has completed the Stage Career Development
Program or other Sonic-designated training program. Licensee agrees
that each individual who participates in the Stage Career Development Program
or
other Sonic-designated training program for the Non-Traditional Sonic will,
at
the request of Sonic, sign a confidentiality agreement in a form prescribed
by
Sonic agreeing to maintain as confidential certain information learned and
received during the program.
(b) Licensee
shall pay all traveling expenses, living expenses, and any other personal
expenses for themselves and managers while enrolled in the training
program. As part of the initial license fee paid pursuant to Section
5.01 herein, Licensee shall have the right to have one principal and one manager
of the Non-Traditional Sonic attend the Stage Career Development Program or
other Sonic-designated training program for no cost other than those set out
in
the preceding sentence. Any additional parties attending the Stage
Career Development Program or other Sonic-designated training program shall
bear
the cost, including any fees and tuition due for such training
program.
(c) Upon
opening the Non-Traditional Sonic, all management personnel shall be certified
in ServSafe or in another comparable, nationally recognized food safety training
and certification program approved by Sonic, the cost of which shall be borne
by
Licensee. Management personnel subsequently employed by Licensee at
the Non-Traditional Sonic shall have 120 days from the beginning date of such
employment to successfully complete such training. Licensee shall pay
all traveling expenses, living expenses, and any other personal expenses for
such persons while participating in the training. Management
personnel includes any person who has shift responsibility or employee oversight
at the Non-Traditional Sonic and also includes the operating principal of the
Non-Traditional Sonic.
6.05.
Compliance
with Entire System
.
(a) Licensee
acknowledges that every component of the Sonic System is important to Sonic
and
to the operation of the Non-Traditional Sonic as a non-traditional Sonic
restaurant, including a designated menu of food and beverage products;
uniformity of food specifications, preparation methods, quality, and appearance;
and uniformity of facilities and service.
(b) Sonic
shall have the right to inspect the Non-Traditional Sonic at all reasonable
times to ensure that Licensee’s operation thereof is in compliance with the
standards and policies of the Sonic System. This right to inspect
includes the right of Sonic or a third party on behalf of Sonic to conduct
food
safety audits and operational assessments. In the event that any
inspection, including a food safety audit or an operational assessment, reveals
any deficiency or unsatisfactory condition with respect to any aspect of the
Non-Traditional Sonic operation, Licensee shall, within 72 hours of Licensee’s
receipt of notice of such condition or such other time as Sonic in its sole
discretion may provide, correct or repair such deficiency or unsatisfactory
condition if it is correctable or repairable within such time period, and,
if
not, shall within such time commence such correction or repair and thereafter
diligently pursue same to completion. The preceding sentence
notwithstanding, the Licensee shall take immediate action to correct or repair
any deficiency or unsatisfactory condition which poses a risk to public health
or safety. In the event Licensee fails to comply with the foregoing
obligations to correct and repair, Sonic, upon 24 hours’ notice to Licensee,
shall have the right (but no obligation), without being guilty of trespass
or
tort, to forthwith make or cause to be made such corrections or repairs, and
the
expense thereof, including board, wages, lodging, and transportation of Sonic
personnel, if utilized, shall be paid by Licensee upon billing by Sonic.
The foregoing shall be in addition to any other right or remedies Sonic may
have.
(c) Licensee
shall comply with the entire Sonic System as described herein and in the
Sonic Operations Manual
for a traditional Sonic drive-in restaurant,
except to the extent that Licensee cannot comply as a practical matter because
of the physical layout or structure of the Non-Traditional
Sonic. That compliance shall include (without limitation) the
following:
(i) Operate
the Non-Traditional Sonic in a clean, wholesome manner in compliance with
standards of quality, food safety, service, cleanliness, and appearance as
prescribed by governmental authorities and by Sonic; comply with all business
policies, practices, and procedures imposed by Sonic; and maintain the building,
equipment, and parking area in a good, clean, wholesome condition and repair,
well lighted, and in compliance with designated standards as may be prescribed
from time to time by Sonic.
(ii) Purchase
and install kitchen fixtures, lighting, payment systems, and equipment, and
office equipment and signs in accordance with the equipment specifications
and
layout designated by Sonic.
(iii) Without
the prior written consent of Sonic, make no (a) building design conversion
or (b) alterations, conversions, or additions to the location.
(iv) Make
repairs or replacements required because of damage, wear, and tear or in order
to maintain the Non-Traditional Sonic in good condition and in conformity with
blueprints and plans.
(v) Operate
the Non-Traditional Sonic everyday of the year (except Easter, Thanksgiving,
and
Christmas), and at least 15 hours per day or such other hours, including
specific opening and closing times, as may from time to time be reasonably
prescribed by Sonic (except when the Non-Traditional Sonic is untenantable
as a
result of fire or other casualty), maintain sufficient supplies of food and
paper products, and employ adequate personnel so as to operate the
Non-Traditional Sonic at its maximum capacity and efficiency.
(vi) Cause
all employees of Licensee, while working in the Non-Traditional Sonic, to:
(a) wear uniforms of such color, design, and other specifications as Sonic
may
designate from time to time, (b) present a neat and clean appearance, and (c)
render competent and courteous service to Non-Traditional Sonic
customers.
(vii) Serve
all menu items which Sonic may deem appropriate and which are included in the
menu approved by Sonic at the time to take full advantage of the potential
market and achieve standardization in the Sonic System; serve no items which
are
not set forth in the
Sonic Operations Manual
and which are not
otherwise authorized and approved in writing by Sonic; and display and offer
only the menu approved by Sonic at the time.
(viii) In
the dispensing and sale of food products: (a) use only containers, cartons,
bags, napkins, and other paper goods and packaging bearing the approved
trademarks and which meet the Sonic System specifications and quality standards,
(b) use only those flavorings, garnishments, and food and beverage ingredients,
manufacturers, and brands which meet the Sonic System specifications and quality
standards, which Sonic may designate from time to time, and (c) employ only
those methods of food handling, preparation, and serving which Sonic may
designate from time to time.
(ix) Make
prompt payment in accordance with the terms of invoices rendered to Licensee
including, but not limited to, invoices for the purchase of fixtures, equipment,
and food and paper supplies.
(x) At
Licensee’s expense, comply with all federal, state, and local laws, ordinances,
and regulations affecting the operation of the Non-Traditional Sonic, including
all laws, ordinances, or regulations relating to terrorist
activities.
(xi) Install
no electronic games or other games of chance at the Non-Traditional Sonic
without the express prior written consent of Sonic.
(xii) Furnish
Sonic with current home addresses and phone numbers of Licensee and Licensee’s
owners and manager; furnish Sonic with current information regarding the legal
and equity ownership and Control of the operation of the Non-Traditional Sonic;
and, upon Sonic’s reasonable request, provide updates of financial information,
personal financial statements, and credit information.
(xiii) Notify
Sonic’s Communications Department or, if not available, the most senior
executive officer of Sonic as soon as possible and, in any event, within 12
hours after the occurrence at the Non-Traditional Sonic of any event which
could
have an adverse impact on the Non-Traditional Sonic and/or the Sonic System,
including (without limitation) the death or serious bodily injury of any
employee or customer for any reason or the risk of infection by a contagious
disease.
(xiv) Only
provide a Sonic-approved toy premium that is appropriate for the age of the
child; make a Sonic-approved all-age toy premium available upon customer
request; and, except in the case of an all-age toy premium provided as
appropriate, only offer the Sonic-approved toy premium corresponding to the
Sonic-designated promotion.
(xv) Accept
Sonic-designated debit and credit cards, Sonic-approved stored-value cards,
and
any other Sonic-designated payment means.
(xvi) Participate
in system-wide initiatives, including technology initiatives such as the
PartnerNet technology initiative and other initiatives as may be designated
by
Sonic from time to time.
(xvii) Deal
with Persons supplying goods and services to the Non-Traditional Sonic in a
respectful and responsive manner such that the reputation and goodwill of Sonic,
its licensees, and the Sonic System are not tarnished in the business community
or with consumers; ensure that all Persons that provide goods or services to
the
Non-Traditional Sonic during construction and operation are timely and fully
paid for such goods and services, except only to the extent that any of the
goods and services are non-conforming, damaged, defective, or missing; and,
in
the event that a dispute arises as to quality or quantity of goods or services
furnished to the Non-Traditional Sonic, timely communicate with and respond
to
the supplier in a good faith effort to resolve the dispute. Licensee
cannot avoid the obligations contained in this Section 6.05(c)(xvii) by
contracting for or obtaining the goods or services indirectly, such as through
an intermediary.
(xviii)
Except as to
bottled water and paper products and except as allowed by any policy contained
in the
Sonic Operations Manual
, do not sell or serve food and beverage
products outside of the Non-Traditional Sonic premises and do not donate food
and beverage products to a third party except upon the prior written consent
of
Sonic.
(xix)
Do
not sell Sonic
coupons, and only sell Sonic-related merchandise on the Internet or by other
means upon the prior written consent of Sonic.
(xx)
Participate
in Sonic-approved marketing, advertising, promotional, and brand enhancement
programs.
(xxi)
In
the event Sonic
sets a maximum price for any product, do not charge a price in excess of such
maximum price for the product; however, Licensee may charge a price lower than
the maximum price.
(xxii)
Sell
the
Sonic-approved stored-value card or other Sonic-designated pre-paid payment
means.
(xxiii) Utilize
at the Non-Traditional Sonic a Sonic-approved point-of-sale system that at
all
times has a non-alterable grand total function so that each item entered in
such
register and each day’s totals may not be altered once entered.
(d) Sonic
shall have the right to establish new or to modify existing operating
procedures, policies, practices, requirements, and guidelines, which shall
be
effective upon notice from Sonic unless Sonic specifies
otherwise. Such new or modified operating procedures, policies,
practices, requirements, and guidelines may require Licensee to incur additional
expense.
6.06.
Approved
Suppliers and Advertising Agencies
.
(a) Sonic
may require the Licensee (i) to purchase food, beverages, signs, and equipment
which meet the specifications established by Sonic; (ii) to purchase such items
only from Sonic-designated suppliers (which designated suppliers may include
Sonic or its Affiliates); and (iii) to retain and utilize exclusively the
marketing and advertising services of the Sonic-approved advertising agency
of
record. In addition, the Licensee immediately shall use the
Licensee’s vote or votes in all advertising cooperatives in which the Licensee
participates to support the use of the advertising agency of record for the
Sonic restaurant chain.
(b) Sonic may
require the Licensee to support the use of and to use the products and programs
of the beverage syrup supplier approved by Sonic and used by a majority of
all
Sonic drive-in restaurants and non-traditional Sonic restaurants, to the
exclusion of any other supplier of beverage syrup.
(c) Sonic may
require the Licensee to comply with the foregoing provisions not only for the
Non-Traditional Sonic, but also (to the extent the Licensee exercises Control)
for all other Sonic drive-in restaurants and non-traditional Sonic restaurants
for which the Licensee serves as a licensee.
(d) Sonic
hereby explicitly retains the exclusive right to consider, review, and approve
any and all suppliers that may hold, sell, or distribute Sonic-labeled goods
or
products.
(e) Licensee
agrees that its suppliers may provide to Sonic information regarding Licensee’s
past due amounts.
(f) The
terms of this Section 6.06 shall continue in effect for as long as the Licensee
serves as a licensee for a Sonic drive-in restaurant or non-traditional Sonic
restaurant and shall survive the expiration or termination of this
Agreement.
(g) If
at least 95% of all Sonic drive-in restaurants and non-traditional Sonic
restaurants are in compliance with Sections 6.06(a) and 6.06(b), Sonic
periodically shall submit the approved advertising agency or beverage syrup
supplier to competitive bid or review, but shall not be obligated to do so
more
often than once every three years.
6.07.
Best
Efforts
.
Licensee
shall diligently and fully
exploit his rights in this Agreement by personally devoting his best efforts
and, in case more than one individual has executed this Agreement as the
Licensee, at least one individual Licensee shall devote his full time and best
efforts to the operation of the Non-Traditional Sonic. Licensee shall
avoid any activities which, in Sonic’s sole judgment, would be detrimental to or
interfere with the business of the Non-Traditional Sonic, the Sonic System,
or
Sonic.
6.08.
Interference
with Employment Relations of Others
.
During
the term of this Agreement,
except upon the prior written consent of Sonic, Licensee shall not employ or
seek to employ any person who is at the time or was at any time during the
prior
six months employed by Sonic or any of its subsidiaries. In addition,
during the term of this Agreement, except upon the prior written consent of
Licensee, Sonic agrees not to employ or seek to employ any person who is at
the
time or was at any time during the prior six months employed by Licensee in
a
management level position.
6.09.
Sonic’s
Standards
.
Licensee
shall operate the
Non-Traditional Sonic specified in this Agreement in conformity with the Sonic
System and the obligations set forth in this Agreement and shall strictly adhere
to Sonic’s standards and policies as they exist now and as they may be from time
to time modified.
6.10.
Majority
Interest Owner
.
Licensee
represents, warrants, and
agrees that Licensee actually owns the majority interest in the legal and equity
ownership and Control of the operation of the Non-Traditional Sonic, and that
Licensee shall maintain such interest during the term of this Agreement except
only as otherwise permitted pursuant to the terms and conditions of this
Agreement. Licensee shall furnish Sonic with such evidence as Sonic
may request from time to time for the purpose of assuring Sonic that Licensee’s
interest remains as represented herein.
6.11.
Electronic
Communication and Use of Internet
.
(a) At
Sonic’s option, Sonic may post the
Sonic Operations Manual
(pursuant to
Sonic’s obligation to provide Licensee with access to the
Sonic Operations
Manual
, as set forth in Section 8) and other communications on a restricted
Intranet or other website to which Licensee will have access. If
Sonic does so, Licensee must periodically monitor the site for any updates
to
the
Sonic Operations Manual
or other standards, specifications, and
procedures. Any passwords or other digital identification necessary
to access the
Sonic Operations Manual
and other information on such a
site will be deemed to be part of the Confidential Information (defined in
Section 9.01). Further, Licensee agrees that Licensee will establish
the channels of communication with Sonic and Licensee’s customers as required by
Sonic from time to time, including e-mail, Internet, and other electronic forms
of communication, and that Licensee will acquire and maintain any computer
or
other components necessary for the transmission of such
communications.
(b) Licensee
will not establish or operate a website for the Non-Traditional Sonic or for
Licensee’s organization that owns and operates the Non-Traditional Sonic or
other Sonic restaurants under license agreements with Sonic.
7.
PROPRIETARY
MARKS
.
7.01.
Sonic’s
Representations
.
Sonic
represents with respect to the
Proprietary Marks that Sonic will use and permit Licensee and other licensees
to
use the Proprietary Marks only in accordance with the Sonic System and the
standards and specifications attendant thereto which underlie the goodwill
associated with and symbolized by the Proprietary Marks.
7.02.
Use
of Marks
.
With
respect to Licensee’s licensed use
of the Proprietary Marks pursuant to this Agreement, Licensee agrees
that:
(a) Licensee
shall use only the Proprietary Marks designated by Sonic and shall use them
only
in the manner authorized and permitted by Sonic.
(b) Licensee
shall use the Proprietary Marks only for the operation of the Non-Traditional
Sonic.
(c) During
the term of this Agreement and any renewal hereof, Licensee shall identify
itself as the owner of the Non-Traditional Sonic in conjunction with any use
of
the Proprietary Marks, including, but not limited to, invoices, order forms,
receipts, and contracts, as well as at conspicuous locations on the premises
of
the Non-Traditional Sonic. The identification shall be in the form which
specifies Licensee’s name, followed by the term “Licensed Proprietor”, or such
other identification as shall be approved by Sonic.
(d) Licensee’s
rights to use the Proprietary Marks are limited to such uses as are authorized
under this Agreement, and any unauthorized use thereof shall constitute an
infringement of Sonic’s rights.
(e) Licensee
shall not use the Proprietary Marks to incur any obligation or indebtedness
on
behalf of Sonic.
(f) Licensee
shall not use the Proprietary Marks as part of its corporate or other legal
name.
(g) Licensee
shall comply with Sonic’s instructions in filing and maintaining the requisite
trade name or fictitious name registrations, and shall execute any documents
deemed necessary by Sonic or its counsel to obtain protection for the
Proprietary Marks or to maintain their continued validity and
enforceability.
(h) In
the event that litigation involving the Proprietary Marks is instituted or
threatened against Licensee, Licensee shall promptly notify Sonic and shall
cooperate fully in defending or settling such litigation.
7.03.
Licensee’s
Understanding
.
Licensee
expressly understands and
acknowledges that:
(a) As
between the parties hereto, Sonic owns the right and interest in and to the
Proprietary Marks and the goodwill associated with and symbolized by them,
and
any and all use thereof by Licensee inures to the benefit of Sonic.
(b) The
Proprietary Marks are valid and serve to identify the Sonic System and those
who
are licensed under the Sonic System.
(c) Licensee
shall not directly or indirectly contest the validity or the ownership of the
Proprietary Marks.
(d) Licensee’s
use of the Proprietary Marks pursuant to this Agreement does not give Licensee
any ownership interest or other interest in or to the Proprietary Marks, except
the nonexclusive license granted herein.
(e) Any
and all goodwill arising from Licensee’s use of the Proprietary Marks in its
licensed operations under the Sonic System shall inure solely and exclusively
to
Sonic’s benefit, and upon expiration or termination of this Agreement and the
License herein granted, no monetary amount shall be assigned as attributable
to
any goodwill associated with Licensee’s use of the Sonic System or the
Proprietary Marks.
(f) The
right and license of the Proprietary Marks granted hereunder to Licensee is
nonexclusive except as provided in Section 2.01 of this Agreement, and Sonic
thus has and retains the right among others:
(i) To
grant other licenses for the Proprietary Marks, in addition to those licenses
already granted to existing licensees.
(ii) To
use the Proprietary Marks in connection with selling products and
services.
(iii) To
develop and establish other systems for the same or similar Proprietary Marks,
or any other Proprietary Marks, and grant licenses or franchises thereto without
providing any rights therein to Licensee.
(g) Sonic
reserves the right to substitute different Proprietary Marks for use in
identifying the Sonic System and the businesses operating thereunder if Sonic’s
currently owned Proprietary Marks no longer can be used.
7.04.
Other
Intellectual Property
.
If
Licensee develops any trademark,
service mark, trade dress, copyright, patent, or other intellectual property
for
use in promoting or operating the Non-Traditional Sonic or promoting the Sonic
System, such intellectual
property
will be deemed the property of Sonic or its Affiliate, at Sonic’s election,
without charge or the payment of any royalty, and Licensee shall take action
as
necessary to convey such rights to Sonic.
8.
MANUAL
.
Sonic
shall provide Licensee access to,
for use at the Non-Traditional Sonic, the
Sonic Operations Manual
prepared by Sonic for use by licensees of traditional Sonic drive-in
restaurants. Licensee recognizes that the
Sonic Operations Manual
contains detailed information relating to operation of Sonic restaurants
including: (a) food formulas and specifications for designated food and beverage
products; (b) methods of inventory control; (c) bookkeeping and accounting
procedures; (d) business practices and policies; (e) required equipment; and
(f)
other management and advertising policies. Licensee agrees to promptly
adopt and use exclusively the formulas, methods, and policies contained in
the
Sonic Operations Manual
, now and as they may be modified by Sonic from
time to time, except to the extent Licensee cannot comply as a practical matter
because of the physical layout or structure of the Non-Traditional
Sonic. Licensee shall return the manual to Sonic at the expiration or
earlier termination of this Agreement.
9.
CONFIDENTIAL
INFORMATION
.
9.01.
Sonic
Proprietary and Confidential Information
.
Sonic
possesses certain unique,
proprietary, and confidential information, consisting of methods and procedures
for preparation of food and beverage products, confidential recipes for food
products, distinctive service and accessories, plans and specifications for
interior and exterior signs, designs, layouts, and color schemes, and methods,
techniques, formats, systems, specifications, procedures, business information,
trade secrets, sales and marketing programs and information, methods of business
operations and management, and knowledge of and experience in the operation
and
franchising of Sonic restaurants and the Sonic System (collectively, the
“Confidential Information”). Sonic will disclose the Confidential
Information to Licensee in furnishing Licensee the Sonic Plans and
Specifications for a non-traditional Sonic restaurant, the training program,
and
the
Sonic Operations Manual
, and in providing guidance and assistance
to Licensee during the term of this Agreement. The
Sonic
Operations Manual
, as modified by Sonic from time to time, and the policies
contained therein, are incorporated in this Agreement by reference. Licensee
acknowledges that Confidential Information will be disclosed by Sonic through
various means, including orally, in writing, and electronically, such as on
a
restricted Intranet or other website.
9.02.
Licensee’s
Use of Proprietary and Confidential Information
.
Licensee
acknowledges and agrees that
Licensee shall not acquire any interest in the Confidential Information, other
than the right to utilize it in the development and operation of the
Non-Traditional Sonic (and other Sonic drive-in restaurants and non-traditional
Sonic restaurants under license agreements with Sonic) during the term of this
Agreement, and that the use or duplication of the Confidential Information
in
any other business would constitute an unfair method of
competition. Licensee acknowledges and agrees that the Confidential
Information is proprietary to Sonic, may constitute trade secrets of Sonic,
and
is disclosed to Licensee solely on the condition that Licensee agrees, and
Licensee does hereby agree, that Licensee:
(i) shall
not use the
Confidential Information in any other business or capacity, or for the benefit
of any other Person or entity;
(ii)
shall maintain the absolute
confidentiality of the Confidential Information, and shall not disclose or
divulge the Confidential Information to any unauthorized Person or entity,
during and after the term of the Agreement;
(iii)
shall not make unauthorized
copies of any portion of the Confidential Information disclosed in printed,
audio, or video form (except in connection with instruction of employees in
the
operation of the Non-Traditional Sonic); and
(iv)
shall adopt and implement all
procedures prescribed from time to time by Sonic to prevent unauthorized use
or
disclosure of the Confidential Information, including, without limitation,
restrictions on disclosure thereof to employees of the Non-Traditional Sonic
and
the use of nondisclosure and non-competition clauses in employment agreements
with employees (including all owners, shareholders, members, officers, and
partners of Licensee) who have access to the Confidential
Information.
9.03.
Licensee’s
Use of
Sonic Operations Manual
.
Licensee
may not at any time, in any
manner, directly or indirectly, and whether or not intentionally, copy any
part
of the
Sonic Operations Manual
, permit any part of it to be copied,
disclose any part of it except to employees or others having a need to know
its
contents for purposes of operating the Non-Traditional Sonic, or permit its
removal from the Non-Traditional Sonic without prior written consent from
Sonic. Notwithstanding anything to the contrary contained in this
Agreement and provided Licensee shall have obtained Sonic’s prior written
consent, the restrictions on Licensee’s disclosure and use of the Confidential
Information shall not apply to the following:
(a) information,
processes, or techniques which are or become generally known in the food service
industry, other than through disclosure (whether deliberate or inadvertent)
by
Licensee; and
(b) disclosure
of the Confidential Information in judicial or administrative proceedings to
the
extent that Licensee is legally compelled to disclose such information, provided
Licensee shall have used its best efforts, and shall have afforded Sonic the
opportunity, to obtain an appropriate protective order or other assurance
satisfactory to Sonic of confidential treatment for the information required
to
be so disclosed.
9.04.
No
Information to the Public
.
Licensee
acknowledges that Sonic’s
parent company, Sonic Corp., is a public company, and that Sonic Corp. makes
certain information regarding the performance of the Sonic System available
to
the public, including investors and financial analysts, in the normal course
of
business. Licensee further acknowledges that Licensee’s own disclosure of
certain information to the public could interfere with the business of
Sonic. Licensee agrees that it will not provide to the public, or to
any investor, financial analyst, or person that influences investments, any
information that might indicate the performance of the Sonic System, the Sonic
restaurant chain, or any aspect thereof, including sales information, except
that Licensee may provide information to attorneys, accountants, financial
planners, and other professionals as required in the course of Licensee’s
personal business or the operation of the Non-Traditional Sonic.
10.
ACCOUNTING
AND RECORDS
.
10.01.
Due
Date
.
On
or before the 10th day of each
month, Licensee shall submit to Sonic a complete profit and loss statement
in a form prescribed by Sonic and such statistical reports in such form as
Sonic
shall reasonably require from time to time, for the previous month immediately
ended, or for such other time period as may be designated by
Sonic. Such profit and loss statements and other statistical and
financial reports required by this Agreement shall be submitted by electronic
means as specified by Sonic.
10.02.
Record
Retention
.
Licensee
shall keep and preserve full
and complete records of the Non-Traditional Sonic business for at least three
years in a manner and form satisfactory to Sonic and shall also deliver such
additional financial, operating, and other information and reports as Sonic
may
reasonably request on the forms and in the manner prescribed by Sonic; provided,
however, that Licensee shall maintain, at a minimum, those books and records
required to be kept by the Internal Revenue Service under the Internal Revenue
Code for purposes of its regulation of Licensee’s business and make the same
books available to Sonic.
10.03.
Charitable
Contributions and Discounts
.
In
meeting the requirements set forth
in Sections 10.01 and 10.02 above, Licensee shall keep records substantiating
and enter as a line item on its financial statements amounts representing the
valuation for goods (whether food, paper, or otherwise) which constitute
charitable contributions to third parties from the same goods out of the
Non-Traditional Sonic. Likewise, the Licensee shall maintain records
and enter on its financial statements (particularly a line item on its profit
and loss statement) information representing the value or amount of sales
represented by coupons traded with and discounts granted by the Licensee at
the
Non-Traditional Sonic.
10.04.
Annual
Reports
.
Licensee
further agrees to submit,
within 90 days following the close of each fiscal year of the Non-Traditional
Sonic’s operation, a profit and loss statement covering operations during such
fiscal year and the balance sheet taken as of the close of such fiscal
year.
10.05.
Audit
by Sonic
.
Sonic
shall have the right to inspect
and audit Licensee’s accounts, books, records, and tax returns at all times
during and after the term of this Agreement. If such inspection
discloses that Gross Sales actually exceeded or, pursuant to generally accepted
audit methodologies, should have exceeded the amount reported by Licensee,
Licensee shall immediately pay Sonic: (i) the additional royalty fee,
brand fee, and advertising expenditures; (ii) interest on all unpaid amounts
(from the original due date) at a rate equal to that provided by Section 5.05
herein; and (iii) a 10% surcharge on all unpaid amounts. If such
inspection discloses that Gross Sales actually exceeded or, pursuant to
generally accepted audit methodologies, should have exceeded the amount reported
by Licensee as Licensee’s Gross Sales by an amount equal to 3% or more of the
Gross Sales originally reported to Sonic, Licensee shall bear the cost of such
inspection and audit at rates and fees customarily charged by Sonic for such
auditing and inspecting services and duties. Unpaid brand fees,
including interest and surcharges collected by Sonic pursuant to this section,
shall be used in accordance with the expenditures authorized by Section 5.03;
nevertheless, Sonic may, on a case by case basis, at Sonic’s sole discretion,
use such collected amounts in accordance with the expenditures authorized by
Section 11.01. Sonic shall have the right to bring an action in its
own name to collect unpaid brand and advertising expenditures required by
Section 11 herein.
10.06.
Third
–Party Audit
.
If
Sonic has reason to believe that the
Licensee may not have reported all of its Gross Sales, Sonic may require the
Licensee to have its profit and loss statement and balance sheet certified
by an
independent public accountant. Licensee shall at his expense cause a
Certified Public Accountant to consult with Sonic concerning such statement
and
balance sheet. The original of each such reports required by this Section
10.06 shall be mailed to Sonic’s business office at the address designated in
Section 19 below.
10.07.
Licensee’s
Failure to Timely Deliver Financial Records
.
If
Licensee fails to timely provide
Sonic with complete profit and loss statements, accounts, books, records, and
tax returns pertaining to the Non-Traditional Sonic business, or fails to fully
cooperate with Sonic’s audit of the Non-Traditional Sonic business, Sonic shall
have the right to estimate Licensee’s Gross Sales for the Non-Traditional Sonic
using information available on the Non-Traditional Sonic or other Sonic drive-in
restaurants and non-traditional Sonic restaurants. Licensee agrees to
accept Sonic’s estimates as conclusively correct until Licensee fully complies
with Sonic’s accounting and disclosure requirements under this
Agreement. However, if the Licensee’s subsequent accounting and
disclosures reveal that Licensee under-reported Gross Sales or underpaid fees
due under this Agreement, Sonic may recover all deficiencies and may litigate
claims of fraud even though Sonic may have already obtained a judgment using
Sonic’s estimates. Furthermore, nothing in this Agreement or any
judgment using estimates shall prevent or hinder Sonic’s further efforts and
rights to obtain the accounting and disclosures which
Licensee
is required to give to Sonic under this Agreement. Without regard to
whether Licensee fails to timely provide records to Sonic or fails to fully
cooperate with Sonic in the audit of the Non-Traditional Sonic, Sonic may make
estimates during the audit process or for other purposes as allowed by generally
accepted accounting principles or audit methodologies.
10.08.
Financial
Disclosure
.
Sonic
shall have the right to assemble
and disseminate to third parties financial and other information regarding
the
Licensee and other licensees of Sonic to the extent required by law or to the
extent necessary or appropriate to further the interests of the Sonic System
as
a whole. Sonic shall have the right to disclose the business name,
address, and telephone number of the Licensee as they appear in Sonic’s records
to any Person making inquiry as to the ownership of the Non-Traditional
Sonic. Sonic shall not disclose specific financial information
regarding the Licensee or the Non-Traditional Sonic to any Person without (a)
the Licensee’s prior, written consent or (b) being directed to disclose the
information pursuant to the order of a court or other governmental
agency.
10.09.
Accounting
Services
.
In
the event that Licensee is
late three or more times during any 12-month period in paying any fee or
obligation required by this Agreement, including the royalty fees set forth
in
Section 5.02 and the brand and advertising expenditures set forth in Sections
5.03 and 11, Sonic shall have the right to require Licensee to use Sonic’s
accounting services for the term of this Agreement and any renewal, for which
cost Licensee shall reimburse Sonic. This requirement is in addition
to all other rights Sonic may have under the terms of this Agreement and
otherwise.
10.10.
Application
of
Payments
.
Despite
any payment designation by
Licensee, Sonic may apply any payments received from Licensee pursuant to this
Agreement to the oldest debt or in accordance with any payment application
process prescribed by Sonic.
11.
ADVERTISING
AND BRAND EXPENDITURES
.
11.01.
Standard
Programs
.
Recognizing
the value of advertising
and the importance of the standardization of advertising and brand programs
to
the furtherance of the goodwill and public image of the System, the parties
agree as follows:
(a) In
the event the Non-Traditional Sonic lies within a DMA for which a Sonic-approved
advertising cooperative has been formed, Licensee (i) shall join such
advertising cooperative or such other advertising cooperative as may be
designated by Sonic; (ii) shall abide by, follow, support, and promote the
financial accounting requirements established by Sonic from time to time for
advertising cooperatives, including complying with the format of financial
reporting required by Sonic, acknowledging Sonic’s right to audit the
advertising cooperative, cooperating fully with Sonic in the event of any such
audit, and using either the cooperative accounting services of
Sonic
or another Sonic-approved accounting service; (iii) shall support the adoption
of only those bylaws approved by Sonic for the advertising cooperative; and
(iv)
shall not purchase media outside of the advertising
cooperative. Licensee shall contribute to such advertising
cooperative an amount required by such advertising cooperative on a schedule
required by such advertising cooperative, provided that such contributions
shall
occur no less often than each calendar month and shall be of an amount not
less
than 3.25% of Licensee’s Gross Sales from the Non-Traditional Sonic during each
partial or full calendar month. If the DMA has, in Sonic’s sole
discretion, been designated a “developing market,” Licensee shall instead
contribute to the advertising cooperative not less than 5% of Licensee’s Gross
Sales from the Non-Traditional Sonic during each partial or full calendar month;
however, at any time Sonic may alternatively designate other uses for any
portion of such developing market contribution if Sonic determines, in its
sole
discretion, that there is less need for advertising and a greater need for
another use.
(b) In
the event there exists no Sonic-approved advertising cooperative in the DMA
in
which the Non-Traditional Sonic is located, Licensee shall promptly form an
advertising cooperative for the DMA and further comply with the requirements
set
forth in Sections 11.01(a) and 11.01(c) and other provisions of this Agreement
applicable to and related to advertising cooperatives.
(c) Sonic
or its designee shall maintain and administer a marketing fund for the Sonic
System titled the System Marketing Fund (the “SMF”) as follows:
(i) The
SMF shall be administered by Sonic, and funds paid to the SMF shall be deposited
in a separate bank account denoted as the System Marketing
Fund.
(ii) The
advertising cooperative of which Licensee is a member shall pay to the SMF
a sum
equal to 2% of Licensee’s Gross Sales (or higher as may be prescribed by Sonic)
from the contribution paid by Licensee to the advertising
cooperative.
(iii) Sonic
shall direct all marketing programs with sole discretion over the creative
concepts, materials, and media used in such programs. The Licensee
acknowledges that Sonic and its designees undertake no obligation in
administering the SMF to make expenditures for Licensee which are equivalent
or
proportionate to Licensee’s contribution.
(iv) The
SMF is intended to complement local marketing efforts by promoting the message
of the Sonic brand to an expanded audience. The SMF and all earnings
thereof shall be used primarily to purchase national broadcast, print,
interactive, and other media, sponsorships, and brand enhancement
opportunities. The SMF and its earnings shall not inure to the
benefit of Sonic.
(v) The
SMF is not an asset of Sonic, and an independent certified public accountant
designated by Sonic shall review the operation of the SMF annually, and the
report shall be made available to Licensee
upon
request. Notwithstanding the foregoing, the body approved and
designated by the Sonic as the body to consult with regarding the Sonic’s
maintenance and administration of the SMF (such as the Franchise Advisory
Council Executive Committee or its successor) may designate the independent
public accountant to conduct the required review of the operation of the SMF
if
requested in writing at least 30 but not more than 60 days prior to the end
of
each fiscal year.
(vi) Although
Sonic intends the SMF to be of perpetual duration, Sonic maintains the right
to
terminate the SMF. The SMF shall not be terminated, however, until all
monies in the SMF have been expended for marketing and promotional purposes
as
aforesaid.
(vii) On
at least a quarterly basis, Sonic shall consult with the body approved and
designated by Sonic (such as the Franchise Advisory Council Executive Committee
or its successor) regarding Sonic’s maintenance and administration of the SMF
and shall report to that body on the SMF’s operation.
(d) For
purposes of determining the amount which the Licensee is required to contribute
pursuant to Sections 11.01(a) and 5.03, above, for each calendar month which
is
the subject of review, the parties hereto agree that the preceding calendar
month shall be used in determining the Gross Sales of the Non-Traditional Sonic
to determine the contributions or expenditures required
hereunder. For example, to determine the contributions or
expenditures required for February, the parties hereto agree that they will
look
to the preceding January’s sales in order to determine the Gross Sales to
determine the amount which must be contributed or expended by the Licensee
under
these Sections 11.01(a) and 5.03. In the event the amounts required
by Sections 11.01(a) and 5.03 are not paid in a timely fashion, Licensee shall
pay Sonic in accordance with Section 10.05.
(e) All
advertising by Licensee in any medium which utilizes the Proprietary Marks
or
refers in any way to the Non-Traditional Sonic shall be conducted in a dignified
manner and shall conform to such standards and requirements as Sonic may specify
from time to time in writing. Licensee shall submit to Sonic (in
accordance with the notice provisions contained herein), for Sonic’s prior
approval (except with respect to prices to be charged unless the terms of
Section 6.05(c)(xxi) apply), samples of all advertising and promotional plans
and materials that Licensee desires to use that use the Proprietary Marks or
refer to the Non-Traditional Sonic and that have not been prepared or previously
approved by Sonic. If written disapproval thereof is not received by
Licensee within 15 days from the date of receipt by Sonic of such materials,
Sonic shall be deemed to have given the required approval. Upon notice
from Sonic, Licensee shall discontinue and/or remove any objectionable
advertising material, whether or not same was previously approved by
Sonic. If said materials are not discontinued and/or removed within five
days after notice, Sonic or its authorized agents, may, at any time, enter
upon
Licensee’s premises, or elsewhere, and remove any objectionable signs or
advertising media and may keep or destroy such signs or other media without
paying therefore, and without being guilty of trespass or other
tort.
(f) Sonic
may offer from time to time to provide, upon terms subject to the discretion
of
Sonic, approved local advertising and promotional plans and materials,
including, without limitation, newspaper display space and distributed
promotional materials.
(g) Sonic
or its designee shall maintain and administer a fund for the Sonic System titled
the Sonic Brand Fund (the “SBF”) (formerly known as the Sonic Advertising Fund)
as follows:
(i) As
provided in Section 5.03 hereof, Licensee shall pay a brand contribution fee
to
the SBF, which shall be deposited in a separate bank account denoted as the
Sonic Brand Fund.
(ii) Sonic
shall direct all brand programs with sole discretion over the concepts,
materials, guidelines, and media used in such programs. The SBF is
intended to enhance the Sonic System and maximize general public recognition
and
acceptance of the Proprietary Marks for the benefit of the Sonic System, and
the
Licensee acknowledges that Sonic and its designees undertake no obligation
in
administering the SBF to make expenditures for Licensee which are equivalent
or
proportionate to Licensee’s contribution, and nothing in this Section 11.01
shall contravene the intent in Section 11.01(g)(iv).
(iii) The
SBF and all earnings thereof shall be used exclusively to meet any and all
costs
of maintaining, administering, directing, and preparing advertising and other
promotional programs (including, without limitation, the cost of preparing
and
conducting television, radio, magazine, and newspaper advertising campaigns
and
other public relations activities; employing advertising agencies to assist
therein; and providing promotional brochures and other marketing materials
to
licensees in the Sonic System) as well as any other purpose that promotes,
enhances, or protects the Sonic System including, but not limited to, food
safety programs, customer feedback programs, and Sonic Games. All sums
paid by licensees to the SBF shall be maintained in a separate account from
the
other funds of Sonic. The SBF shall pay Sonic monthly an amount equal
to 15% of the SBF’s receipts during the preceding month, but not to exceed
Sonic’s actual administrative costs and overhead, if any, as Sonic may incur in
activities reasonably related to the administration or direction of the SBF
for
the licensees and the Sonic System, including without limitation, conducting
market research, preparing marketing, advertising, and other materials, and
collecting and accounting for assessments for the SBF. The SBF and
its earnings shall not inure to the benefit of Sonic.
(iv) All
materials produced by the SBF shall be made available to all licensees on a
regular basis at less than full production cost but including the cost of
distribution. This Section 11.01(g)(iv) shall not preclude Sonic from
offering other materials not produced by the SBF upon terms subject to the
discretion of Sonic. (See Section 11.01(f).)
(v) The
SBF is not an asset of Sonic, and an independent certified public accountant
designated by Sonic shall review the operation of the SBF annually, and the
report shall be made available to Licensee upon
request. Notwithstanding the foregoing, the body approved and
designated by Sonic as the body to consult with regarding Sonic’s maintenance
and administration of the SBF (such as the Franchise Advisory Council Executive
Committee or its successor) may designate the independent public accountant
to
conduct the required review of the operation of the SBF, if requested in writing
at least 30 but not more than 60 days prior to the end of each fiscal
year.
(vi) Although
Sonic intends the SBF to be of perpetual duration, Sonic maintains the right
to
terminate the SBF. Such SBF shall not be terminated, however, until all
monies in the SBF have been expended for purposes as aforesaid.
(vii) On
at least a quarterly basis, Sonic shall consult with the body approved and
designated by Sonic (such as the Franchise Advisory Council Executive Committee
or its successor) regarding Sonic’s maintenance and administration of the SBF
and shall report to that body on the SBF’s operation.
(h) Coupons
created or developed by or for Licensee for use in promoting the Non-Traditional
Sonic are subject to the provisions of Section
11.01(e). Additionally, such coupons shall conspicuously state (i)
the location(s) where the coupons will be accepted and (ii) an expiration
date. Licensee shall use its best efforts to ensure that coupons
created or developed for the Non-Traditional Sonic or its market are not
distributed outside the area of the Non-Traditional Sonic or its
market.
11.02.
Publicity
.
Sonic
shall have the right to
photograph the Non-Traditional Sonic’s exterior and/or interior, and the various
foods served, and to use any such photographs in any of its publicity or
advertising, and Licensee shall cooperate in securing such photographs and
consent of Persons pictured.
12.
INSURANCE
.
12.01.
Insurance
Amounts
.
Prior
to opening or taking possession
of the Non-Traditional Sonic, the Licensee shall acquire and thereafter maintain
insurance from insurance companies acceptable to Sonic. The Licensee
shall determine the appropriate limits of liability insurance and shall also
have the right to specify other forms of insurance, but Sonic shall require
the
following minimum amounts and policy forms of insurance:
(a) The
Licensee shall maintain statutory worker’s compensation insurance and employer’s
liability insurance having a minimum limit of liability of the greater of
$500,000 or the minimum amount otherwise required by applicable state
law. Sonic shall accept participation in the Texas Sonic Employers
Trade Association (“TSETA”) or in the non-subscriber program for Sonic drive-in
restaurants and non-traditional Sonic restaurants located in Texas
as
long as Texas law does not require statutory worker’s compensation
insurance.
(b) The
Licensee shall maintain commercial general liability insurance, including bodily
injury, property damage, products, personal, and advertising injury coverage,
on
an occurrence policy form having a minimum per occurrence and general aggregate
limits of at least $1,000,000 per location.
(c) The
Licensee shall maintain non-owned automobile liability insurance having a
minimum limit of $1,000,000. The automobile policy also shall provide
coverage for owned automobiles if owned or leased in the name of the
Licensee.
(d) The
Licensee shall maintain excess (umbrella) liability insurance having a minimum
limit of $1,000,000 per occurrence / general aggregate per
location.
(e) The
Licensee shall maintain business income interruption insurance with an
endorsement providing for reimbursement for a minimum of 12 months to Sonic,
any
Sonic-administered fund, and the advertising cooperative of which the Licensee
is a member, as applicable, for payments due under Sections 5.02, 5.03, and
11.01 stemming from an event causing closure of the Non-Traditional Sonic for
48
hours or more.
(f) Sonic
shall have the right to require the Licensee to increase the insurance specified
above by giving the Licensee 60 days’ written notice in accordance with the
notice provisions of this Agreement, and the Licensee shall comply no later
than
the first policy renewal date after that 60-day period.
12.02.
Sonic
as Additional Insured
.
The
Licensee shall name Sonic and
Sonic’s subsidiaries and Affiliates as additional insureds and loss payees under
the insurance policies specified in Sections 12.01(b), 12.01(c), 12.01(d),
and
12.01(e), above, and under any insurance policy (including any employment
practices liability insurance policy) that provides coverage for an event that
could result in a lawsuit in which Sonic is named a defendant. The
Licensee’s policies shall constitute primary policies of insurance with regard
to other insurance, shall contain a waiver of subrogation provision in favor
of
Sonic as it relates to the operation of the Non-Traditional Sonic, and shall
provide for at least 30 days’ written notice to Sonic prior to their
cancellation or amendment.
12.03.
General
Conditions
.
Prior
to opening or taking possession
of the Non-Traditional Sonic and within 10 days of any request by Sonic, the
Licensee shall furnish Sonic with certificates of insurance evidencing that
the
Licensee has obtained the required insurance in the form and amounts as
specified above. In addition, the Licensee shall deliver evidence of
the continuation of the required insurance policies at least 30 days prior
to
the expiration dates of each existing insurance policy. If the
Licensee at any time fails to acquire and maintain the required insurance
coverage, Sonic shall have the right, at the Licensee’s expense, to acquire and
administer the required minimum insurance coverage on
behalf
of
the Licensee. However, Sonic shall not have any obligation to assume
the premium expense, and nothing in this Agreement shall constitute a guaranty
by Sonic against any losses sustained by the Licensee. Sonic may
relieve itself of all duties with respect to the administration of any required
insurance policies by giving 10 days’ written notice to the
Licensee.
13.
TRANSFER OF INTEREST
.
13.01.
Assignment
.
The
rights and duties created by this
Agreement are personal to Licensee, and Sonic has granted the License in
reliance on the collective character, skill, aptitude, and business and
financial capacity of Licensee and Licensee’s principals. Accordingly,
except as may be otherwise permitted by this Section 13, neither Licensee nor
any Person or entity with an interest in Licensee shall directly or indirectly,
through one or more intermediaries, without Sonic’s prior written consent, sell,
assign, transfer, convey, give away, pledge, mortgage, or otherwise encumber
any
direct or indirect interest in the Agreement; any interest in Licensee, if
Licensee is a partnership, joint venture, closely held corporation, limited
liability company, or other business entity; or any interest which, together
with other related previous simultaneous or proposed transfers, constitutes
a
transfer of Control of Licensee where Licensee is registered under the
Securities Exchange Act of 1934 or which is a trust. Any such purported
assignment occurring by operation of law or without Sonic’s prior written
consent and pursuant to the terms of this Section 13, shall constitute a default
of this Agreement by Licensee, and such purported assignment shall be null
and
void.
13.02.
Death
or Permanent Incapacity of Licensee
.
Upon
the death or permanent incapacity
of Licensee, the interest of Licensee in the Agreement may be assigned either
pursuant to the terms of Section 13.04 herein or to one or more of the following
Persons: Licensee’s spouse, heirs, or nearest relatives by blood or
marriage, subject to the following conditions: (1) If, in the sole
discretion of Sonic, such persons shall be capable of conducting the
Non-Traditional Sonic business in accordance with the terms and conditions
of
the Agreement, and (2) if such persons shall also execute an agreement by which
they personally assume full and unconditional liability for and agree to perform
all the terms and conditions of the Agreement to the same extent as the original
Licensee. In the event that Licensee’s heirs do not obtain the consent of
Sonic as assignees of the Agreement, the personal representative of Licensee
shall have the greater of 120 days or the completion of the probate of the
Licensee’s estate to dispose of Licensee’s interest hereunder, which disposition
shall be subject to all the terms and conditions for assignments under Section
13.04. Licensee’s personal representative shall cooperate with Sonic
to provide, in a timely manner, such documents as may be requested by Sonic,
including without limitation Licensee’s death certificate and estate documents,
to assist Sonic to determine or confirm Licensee’s assignees.
13.03.
Assignment
to Licensee’s Corporation or Other Business Entity
.
Sonic
may, upon Licensee’s compliance
with the following requirements, consent to an assignment of the Agreement
to a
corporation whose shares are owned and Controlled by Licensee or to another
business entity, such as a limited liability company, whose interests are owned
and Controlled by Licensee. Such written materials shall be supplied
to Sonic within 15 days after the request by Sonic.
(a) Licensee’s
corporation or other business entity shall be newly organized, and its charter
or equivalent organizational document shall provide that its activities are
confined exclusively to operating Sonic drive-in restaurants and/or
non-traditional Sonic restaurants.
(b) Licensee
and Licensee’s corporation or other business entity shall maintain stop transfer
instructions against the transfer on Licensee’s corporation’s or other business
entity’s records of any securities or interests with any voting rights subject
to the restrictions of Section 13 hereof, and shall issue no securities upon
the
face of which the following printed legend does not legibly and conspicuously
appear.
The
transfer of this stock is subject to terms and conditions of one or more license
agreements with Sonic Industries LLC. Reference is made to said license
agreement(s) and the restrictive provisions of the Articles and By-Laws of
this
corporation. By agreeing to receive these securities, the transferee
hereby agrees to be bound by the terms of such agreements, articles, and
by-laws.
(c) At
any time upon Sonic’s request, Licensee and Licensee’s corporation or other
business entity shall furnish Sonic with a list of all shareholders, partners,
or members, as applicable, having an interest in Licensee’s corporation or other
business entity, the percentage interest of such shareholder, partner, or
member, and a list of all officers and directors or managers in such
form as Sonic may require.
(d) The
name of Licensee’s corporation or other business entity shall not include any of
the Proprietary Marks granted by the Agreement. Licensee and Licensee’s
corporation or other business entity shall not use any mark nor any name
deceptively similar thereto in a public or private offering of its securities
or
other interest, except to reflect Licensee’s corporation’s or other business
entity’s license relationship with Sonic. Any prospectus or registration
Licensee or Licensee’s corporation would propose to use in such a public or
private offering shall be submitted to Sonic within a reasonable time prior
to
the effective date thereof for the purpose of permitting Sonic to verify
compliance with this requirement by Licensee and Licensee’s
corporation.
(e) Articles
of Incorporation, By-Laws, and all other documents governing Licensee’s
corporation or other business entity shall be forwarded to Sonic for
approval. Such documents shall recite that the issuance and transfer of
any interest in Licensee’s corporation or other business entity are restricted
by the terms of Section 13 of this Agreement.
(f) Each
shareholder, partner, or member, as applicable, of the Licensee’s corporation or
other business entity shall personally guarantee performance under this
Agreement and shall be personally bound by the terms thereof.
(g) Any
breach of this Agreement by Licensee’s corporation or other business entity
shall be deemed a breach of this Agreement by each shareholder, partner, or
member, as applicable, of Licensee’s corporation or other business entity and
each shareholder, partner, or member, as applicable, shall be personally and
fully liable and obligated by any and all such breaches.
(h) Licensee
and Licensee’s corporation or other business entity shall submit to Sonic, prior
to any assignment hereunder, a shareholders, partners, or members agreement,
as
applicable, executed by the Board of Directors or managers, as applicable,
and
ratified by all shareholders, partners, or members, which states that, except
as
may be permitted by Section 13 of this Agreement, no shares of stock or other
interest in Licensee’s corporation or other business entity shall be issued,
transferred, or assigned to any Person or entity without Sonic’s prior written
consent.
(i) Each
and every shareholder, partner, or member of Licensee’s corporation or other
business entity or any party owning a security issued by, or owning any legal
or
equitable interest in Licensee’s corporation or other business entity or in any
security convertible to a legal or equitable interest in Licensee’s corporation
or other business entity shall meet those same standards of approval as an
individual licensee shall be required to meet prior to being included as a
licensee on a standard license agreement with Sonic.
13.04.
Other
Assignment
.
(a) In
addition to any assignments or contingent assignments contemplated by the terms
of Sections 13.02 and 13.03, Licensee shall not sell, transfer, or assign the
Agreement to any Person or Persons (including to another Licensee under this
Agreement where more than one Person has executed this Agreement) without
Sonic’s prior written consent. Such consent shall not be unreasonably
withheld.
(b) In
determining whether to grant or to withhold such consent, the following
requirements must be met by Licensee:
(i) All
of Licensee’s accrued monetary obligations shall have been satisfied whether due
under this Agreement or otherwise.
(ii) Sonic
and the Licensee execute a general release of each other, in a form satisfactory
to Sonic, of any and all claims the Licensee may have against Sonic and its
Affiliates, including (without limitation) all claims arising under any federal,
state, or local law, rule, or ordinance, but excluding (as to Sonic) any claims
against the Licensee for (a) unpaid moneys due Sonic, its Affiliates, or
Sonic-approved advertising cooperatives, (b) the violation of the legal rights
of Sonic or its Affiliates regarding the Proprietary Marks, (c) the violation
of
any of the covenants contained in Section 16.01 of this Agreement, (d) the
violation of any duty under this Agreement to insure, defend, or indemnify
Sonic
or its Affiliates or to hold Sonic or its Affiliates harmless, and (e) the
violation of any other agreement with Sonic or its Affiliates. Sonic
may waive the requirements of this Section 13.04(b)(ii) at Sonic’s
election.
(iii) Licensee
shall not be in material breach of this Agreement or any other agreement between
Sonic and Licensee.
(iv) Assignee
(or the assignee’s management, as the case may be) shall at Sonic’s sole
discretion enroll in and successfully complete such training programs as Sonic
shall at that time designate according to Section 6.04 hereof.
(v) Sonic
shall consider of each prospective transferee, by way of illustration, the
following: (a) work experience and aptitude, (b) financial background, (c)
character, (d) ability to personally devote full time and best efforts to
managing the Non-Traditional Sonic, (e) residence in the locality of the
Non-Traditional Sonic, (f) equity interest in the Non-Traditional Sonic, (g)
conflicting interests, and (h) such other criteria and conditions as Sonic
shall
apply in the case of an application for a new license to operate a
non-traditional Sonic restaurant. Sonic’s consent shall also be
conditioned upon such transferee’s execution of an agreement by which transferee
personally assumes full and unconditional liability for and agrees to perform
from the date of such transfer all obligations, covenants, and agreements
contained in this Agreement to the same extent as if transferee had been an
original party to the Agreement. At Sonic’s election, Sonic may
alternatively allow such transferee to sign the then-current form of license
agreement for non-traditional Sonic restaurants subject to all terms,
conditions, obligations, and covenants contained in that form of license
agreement, including the full term of that license agreement.
(c) Following
License’s sale, assignment, or transfer of this Agreement, Licensee shall remain
subject to Section 16.01 of this Agreement.
13.05.
Sonic’s
Right of First Refusal
.
(a) If
Licensee or any Person or entity with an interest in Licensee has received
and
desires to accept any bona fide offer to purchase all or any part of Licensee’s
interest in this Agreement or in Licensee and the transfer of such interest
would: (1) result in a change of Control of Licensee of this Agreement or (2)
constitute a transfer of interest held by a Controlling Person of Licensee
or of
the Agreement, Licensee or such Person shall notify Sonic in writing of each
such offer, with such notice including the name and address of the proposed
purchaser, the amount and terms of the proposed purchase price, a copy of the
proposed purchase contract (signed by the parties, but expressly subject to
Sonic’s right of first refusal), and all other terms and conditions of such
offer. Sonic shall have the right and option, exercisable within 20
days after Sonic’s receipt of such written notification, to send written notice
to Licensee or such Person or entity that Sonic or its designee intends to
purchase the interest which is proposed to be transferred on the same terms
and
conditions offered by the third party, provided that Sonic has the right to
substitute cash for any consideration offered by the third party. Any
material change in the terms of an offer prior to closing shall cause it to
be
deemed a new offer, subject to the same right of first refusal by Sonic or
its
designee as in the initial offer; provided, however, that such new offer shall
not affect Sonic’s right and option, within 20 days of notice to Sonic of the
initial offer, to provide notice of its intent to purchase the interest on
the
terms and conditions in the initial offer. Sonic’s failure to
exercise its option shall not constitute a waiver of any other provision of
this
Agreement, including any of the requirements of this Section 13 with respect
to
the proposed transfer.
Silence
on the part of Sonic shall constitute rejection. If the proposed sale
includes assets of Licensee not related to the operation of the Non-Traditional
Sonic, Sonic may purchase not only the assets related to the operation of the
Non-Traditional Sonic, but may also purchase the other assets. An
equitable purchase price shall be allocated to each asset included in the
proposed sale. In any purchase by Sonic pursuant to this Section 13(a),
Sonic shall have the right to require the seller to make customary
representations and warranties.
(b) The
election by Sonic not to exercise its right of first refusal as to any offer
shall not affect its right of first refusal as to any subsequent
offer.
(c) Any
sale or attempted sale effected without first giving Sonic the right of first
refusal described above shall be void and of no force and
effect.
(d) If
Sonic does not accept the offer to purchase the Non-Traditional Sonic, Licensee
may conclude the sale to the purchaser who made the offer so long as the terms
and conditions of such sale are identical to those originally offered to Sonic;
provided, however, that Sonic’s approval of the assignee be first obtained,
which consent shall not be unreasonably withheld upon compliance with the
conditions on assignment imposed by this Agreement.
(e) The
provisions of this Section 13.05 shall not apply to any proposed transfers
to
members of the Licensee’s immediate family. For the purposes of this
Section 13.05, a member of the Licensee’s immediate family shall mean the
Licensee’s spouse, children (by birth or adoption), and
stepchildren. In addition, the provisions of this Section 13.05 shall
not apply to any proposed transfers to a Person who already owns an interest
(directly or indirectly) in this Agreement as long as the transfer will not
result in a change in Control of the Licensee or the Agreement.
13.06.
Consent
to Assignments
.
With
regard to any transfer,
assignment, or pledge of any interest in this Agreement or in the Licensee
pursuant to the foregoing provisions of this Section 13, Sonic shall not
withhold its consent unreasonably as long as the proposed transfer, assignment,
or pledge otherwise complies with the other requirements set forth in this
Section 13.
14.
DEFAULT AND TERMINATION
.
14.01.
Optional
Termination
.
Licensee
shall be deemed to be in
breach of this Agreement and Sonic may, at its option, terminate this Agreement
and all rights granted herein at any time during the term hereof without
affording Licensee any opportunity to cure the breach, effective immediately
upon Licensee’s receipt of a notice of termination, upon the occurrence of any
of the following events:
(a) Licensee
shall become insolvent.
(b) Licensee,
either personally, through an equity owner, or through Licensee’s attorney,
shall give oral or written notice to Sonic of Licensee’s intent to file a
voluntary petition under any bankruptcy law.
(c) A
final judgment aggregating in excess of $5,000 against the Non-Traditional
Sonic
or property connected with the Non-Traditional Sonic which remains unpaid for
thirty days.
(d) Suit
to foreclose any lien against any assets of the Non-Traditional Sonic is
instituted against Licensee and (i) is not dismissed within 30 days, (ii) such
lien is not contested and challenged through the applicable administrative
agencies or courts, or (iii) a bond is not posted (if such remedy is available)
to delay any such foreclosure and guarantee performance.
(e) The
assets of the Non-Traditional Sonic are sold after being levied thereupon by
sheriff, marshal, or a constable.
(f) Transfer
of this Agreement, in whole or in part, is effected in any manner inconsistent
with Section 13 hereof.
(g) The
assets, property, or interests of Licensee are blocked under any law, ordinance,
or regulation relating to terrorist activities or Licensee is otherwise in
violation of any such law, ordinance, or regulation.
(h) If
Licensee ceases to operate the Non-Traditional Sonic or otherwise abandons
the
Non-Traditional Sonic (other than closure permitted pursuant to Section
6.05(c)(v) herein) or forfeits the legal right to do or transact business at
the
location licensed herein. However, a default under this Agreement
shall not occur and the Licensee shall have the right to terminate this
Agreement upon written notice to Sonic after the Licensee loses its lease or
other legal right to conduct business at the location of the Non-Traditional
Sonic if and only if the loss of the Licensee’s lease or legal right to conduct
business did not result from the Licensee’s breach of its obligations or failure
to exercise any contractual or legal rights available to it.
(i) If
Licensee is convicted of a felony, a crime involving moral turpitude, or
any other crime or offense that is reasonably likely, in the sole
opinion of Sonic, to adversely affect the Sonic System, the Proprietary
Marks, the goodwill associated therewith, or Sonic’s rights
therein.
(j) If
Licensee misuses or makes any unauthorized use of any of the Proprietary Marks
or any other identifying characteristic of the Sonic System or otherwise
materially impairs the goodwill associated therewith or Sonic’s rights therein,
and the Licensee will not or cannot cure the default within 30
days.
(k) If
Licensee improperly discloses trade secrets or confidential information, and
the
Licensee will not or cannot cure the default within 30 days.
(l) If
continued operation of the Non-Traditional Sonic might endanger public health
or
safety. In such case, whether or not Sonic elects to terminate this
Agreement, Sonic may immediately close the Non-Traditional Sonic unless and
until the situation is, in Sonic’s judgment, satisfactorily
resolved.
(m) If
Licensee knowingly or through gross negligence maintains false books or records
or knowingly or through gross negligence submits any false report to
Sonic.
(n) If
Licensee is in default of this Agreement three or more times in any given
12-month period, whether or not such default is cured.
14.02.
Period
to Cure
.
Except
as provided in Section 14.01,
Licensee shall have 30 days after receipt from Sonic of a written notice of
breach of this Agreement or such notice period as is required by the law of
the
state where the Non-Traditional Sonic is located, within which to remedy any
breach hereunder. However, this period to cure will not be available to
Licensee, and Sonic will not be required to delay termination of this Agreement,
where the breach involved is one which Licensee cannot cure within the
prescribed cure period or is one which is impossible to
cure. Licensee shall be in breach hereunder for any failure to comply
with any of the terms of this Agreement or to carry out the terms of this
Agreement. Such breach shall include, but shall not be limited to, the
occurrence of any of the following illustrative events:
(a) If
the Licensee or Persons Controlling, Controlled by, or under common Control
with
Licensee fail to pay any past due amounts owed to Sonic, whether for the
Non-Traditional Sonic or otherwise.
(b) If
Licensee fails to promptly pay, or repeatedly delays the prompt payment of,
undisputed invoices from Licensee’s suppliers or in the remittance of rent and
property tax as required in Licensee’s lease.
(c) If
Licensee fails to maintain and operate the Non-Traditional Sonic in a good,
clean, and wholesome manner or otherwise is not in compliance with the standards
prescribed by the Sonic System. In such case, whether or not Sonic
elects to terminate this Agreement, Sonic may immediately close the
Non-Traditional Sonic unless and until the failure or noncompliance is
cured.
(d) If
Licensee attempts to assign or transfer any interest in this Agreement in
violation of Section 13 herein.
(e) If
Licensee denies Sonic the right to inspect the Non-Traditional Sonic at
reasonable times, which includes the right to photograph the interior and
exterior of the Non-Traditional Sonic in its entirety.
(f) If
Licensee breaches any other requirement set forth in this
Agreement.
(g) If
Licensee, upon the destruction of the Non-Traditional Sonic, fails to rebuild
the licensed premises and resume operation within a reasonable time (cessation
of the business from a licensed premises shall not constitute default of this
Agreement if caused by condemnation, expiration of a location lease pursuant
to
its terms at execution, or when failure to rebuild following destruction of
the
licensed premises is prohibited by law or the location
lease).
(h) If
Licensee’s conduct or the operation of the Non-Traditional Sonic by Licensee, in
Sonic’s judgment, damages or threatens to damage the goodwill of the Sonic
System or the Sonic brand. In such case, whether or not Sonic elects
to terminate this Agreement, Sonic may immediately close the Non-Traditional
Sonic unless and until the situation, in Sonic’s judgment, is satisfactorily
resolved.
(i) If
Licensee fails to correct any deficiency or unsatisfactory condition within
the
time period required by Section 6.05(b).
14.03.
Resolution
of Disputes
.
The
following provisions shall apply to
any controversy between the Licensee and Sonic (including an Affiliate of Sonic)
and relating (a) to this Agreement (including any claim that any part of this
Agreement is invalid, illegal, or otherwise void or voidable and any claim
that
a controversy is not subject to arbitration), (b) to the parties’ business
activities conducted as a result of this Agreement, or (c) the parties’
relationship or business dealings with one another generally, including all
disputes and litigation pending or in existence as of the date of this
Agreement.
(a)
Negotiation
.
The
parties first shall use their best
efforts to discuss and negotiate a resolution of the controversy.
(b)
Mediation
.
If
the efforts to negotiate a
resolution do not succeed, the parties shall submit the controversy to mediation
in Oklahoma City, Oklahoma, by a mediation firm agreeable to the parties or
by
the American Arbitration Association, if the parties cannot agree.
(c)
Arbitration
.
If
the efforts to negotiate and mediate
a resolution do not succeed, the parties shall resolve the controversy by final
and binding arbitration in accordance with the Rules for Commercial Arbitration
(the “Rules”) of the American Arbitration Association in effect at the time of
the execution of this Agreement and pursuant to the following additional
provisions:
(i)
Applicable
Law
. The Federal Arbitration Act (the “Federal Act”), as
supplemented by the Oklahoma Arbitration Act (to the extent not inconsistent
with the Federal Act), shall apply to the arbitration.
(ii)
Selection
of Arbitrator
. The parties shall select one arbitrator within 10
days after the filing of a demand and submission in accordance with the
Rules.
(iii)
Location
of Arbitration
. The arbitration shall take place in Oklahoma
City, Oklahoma, and the arbitrator shall issue any award at the place of
arbitration. The arbitrator may conduct hearings and meetings at any
other place agreeable to the parties or, upon the motion of a party, determined
by the arbitrator as necessary to obtain significant testimony or
evidence.
(iv)
Scope
of Proceeding
. The parties shall conduct any arbitration
proceeding and resolve any controversy on an individual basis only and not
on a
class-wide, multiple-party, or similar basis.
(v)
Enforcement
of Award
. The prevailing party shall have the right to enter the
award of the arbitrator in any court having jurisdiction over one or more of
the
parties or their assets. The parties specifically waive any right
they may have to apply to any court for relief from the provisions of this
Agreement or from any decision of the arbitrator made prior to the
award. The award of the arbitrator shall not have any precedential or
collateral estoppel effect on any other controversy involving Sonic or its
Affiliates.
(d)
Excluded
Controversies
.
At
the election of Sonic or its
Affiliate, the provisions of this Section 14.03 shall not apply to any
controversies relating to any fee due Sonic or its Affiliate; any promissory
note payments due Sonic or its Affiliate; or any trade payables due Sonic or
its
Affiliate as a result of the purchase of equipment, goods, or
supplies. At the election of Sonic or its Affiliate, the provisions
of this Section 14.03 also shall not apply to any controversies relating to
the
use and protection of the Proprietary Marks or the Sonic System, including
(without limitation) Sonic’s right to apply to any court of competent
jurisdiction for appropriate injunctive relief for the infringement of the
Proprietary Marks or the Sonic System.
(e)
Attorneys’
Fees and Costs
.
The
prevailing party to the arbitration
shall have the right to an award of its reasonable attorneys’ fees and costs
incurred after the filing of the demand and submission, including a portion
of
the direct costs of any in-house legal staff reasonably allocable to the time
devoted to the arbitration.
15.
OBLIGATIONS UPON TERMINATION
.
15.01.
Effect
of Termination, Cancellation, or Expiration of this Agreement
.
Except
as otherwise authorized pursuant
to the terms of any other license agreement between Sonic and the Licensee,
the
Licensee shall comply with the following provisions after the expiration or
termination of this Agreement and the License:
(a) Licensee,
upon any termination, cancellation, or expiration of this Agreement, shall
promptly pay to Sonic and Sonic’s subsidiaries any and all sums owed to
them. In the event of termination for any breach by Licensee, such sums
shall include all damages, costs, and expenses, including reasonable attorneys’
fees, incurred by Sonic as a result of the breach, which obligation shall give
rise to and remain, until paid in full, a lien in favor of
Sonic
against any and all of the assets of the Non-Traditional Sonic owned by Licensee
at the time of default.
(b) Upon
termination, cancellation, or expiration hereof for any reason, the License
and
all Licensee’s rights hereunder shall terminate. Licensee shall not thereafter
use or adopt any trade secrets disclosed to Licensee hereunder or any paper
goods, emblems, signs, displays, menu housings, table ordering stations, or
other property on which Sonic’s name or Proprietary Marks are imprinted or
otherwise form a part thereof or any confusing simulations thereof.
Licensee shall not otherwise use or duplicate the Sonic System or any
portion thereof or assist others to do so. Licensee shall remove
from the premises all signs, emblems, and displays identifying it as
associated with Sonic or the Sonic System or which constitute or display any
Proprietary Mark and shall also remove from the premises all menu housings
and
PAYS or other Sonic proprietary equipment. Licensee shall cease to
use and shall return to Sonic all copies of the
Sonic Operations
Manual
, instructions, or materials delivered to Licensee
hereunder.
(c) Upon
termination, cancellation, or expiration of this Agreement, unless otherwise
directed in writing by Sonic, Licensee shall change the exterior and interior
design and the decor of said premises, including, but not limited to, changing
the color scheme, and shall make or cause to be made such changes in signs
and
structures (excluding major structural changes) as Sonic shall reasonably direct
so as to effectively distinguish the same from its former appearance and from
any other non-traditional Sonic restaurant or Sonic drive-in restaurant, and
if
Licensee fails or refuses to comply herewith, then Sonic shall have the right
to
enter upon the premises where said business is being conducted without being
guilty of trespass or any other tort for the purpose of making or causing to
be
made such changes required by Sections 15.01(b) or 15.01(c) at the expense
of
Licensee, which expense Licensee agrees to pay on demand.
(d) Upon
termination, cancellation, or expiration of this Agreement, in the event
Licensee is the owner of any signage containing or incorporating any of the
Proprietary Marks, Sonic shall have an irrevocable option to purchase the
signage for its fair market value. In any event, Licensee shall not
thereafter use any signage displaying Sonic’s name or Proprietary Marks or which
primarily display the colors used in any other such sign at any other
non-traditional Sonic restaurant or Sonic drive-in restaurant (see Section
15.04
for determining fair market value). Any agent, servant, or employee of
Sonic may remove the signage or any objectionable signs or advertising from
the
Non-Traditional Sonic without being guilty of trespass or other tort, and
Licensee shall be liable for Sonic’s costs plus attorneys’ fees for any
interference therewith.
(e) Upon
termination, cancellation, or expiration of this Agreement, Licensee shall
cease
to hold Licensee out in any way as a licensee of Sonic or to do anything which
would indicate any relationship between Licensee and Sonic.
(f) Notwithstanding
the provisions contained in this Section 15.01, Licensee shall be solely
responsible for the cost of any removals or changes required by this Section
15.01. Licensee hereby releases Sonic and its agents, servants, and
employees from and agrees to indemnify, defend, and hold harmless Sonic and
its
agents, servants, and employees against any cost, damage, liability, or expense
(including attorneys’ fees) arising out of or
resulting
from Licensee granting Sonic and its agents, servants, and employees access
to
the premises, including without limitation any cost, damage, liability, or
expense arising out of the removal of any sign, equipment, fixture, personal
property, or other property from the premises or modification of the premises
pursuant to this Agreement.
(g) The
covenants set forth in this Section 15.01 shall survive the termination,
cancellation, or expiration of this Agreement.
(h) All
rights, claims, and indebtedness which may accrue to Sonic prior to termination,
cancellation, or expiration of this Agreement shall survive termination,
cancellation, or expiration and be enforceable by Sonic.
(i) Licensee
shall complete all modifications required by this Section 15.01 within 30 days
after this Agreement has been terminated or canceled or has
expired. Licensee and Sonic agree that Sonic’s damages resulting from
a breach of this Section 15.01 are difficult to estimate or determine
accurately. In the event of such breach by Licensee of the provisions of
this Section 15.01, Licensee, in addition to any and all other remedies
available to Sonic herein and elsewhere, will pay Sonic double the royalty,
brand, and advertising fees prescribed in this Agreement until Licensee
satisfactorily de-identifies the restaurant premises in the manner prescribed
by
this Section. This payment shall constitute liquidated damages and
shall not be construed as a penalty since such payment has been agreed to by
Licensee and Sonic as reasonably representative of the actual damage sustained
by Sonic in the event of such a breach. The liquidated damages shall start
on the 31st day after this Agreement has been terminated or canceled or has
expired. These liquidated damages shall not constitute either a
waiver of Licensee’s obligation to de-identify or a license to use the
Proprietary Marks or the Sonic System. These remedies will be in
addition to any other remedies Sonic may have hereunder or under federal or
state law.
15.02.
Sonic’s
Option to Purchase
.
(a) Upon
termination, cancellation, or expiration hereof, Sonic shall have the right
and
option to purchase all or any patented, special, or unique non-traditional
Sonic
restaurant equipment, menu housings, table order stations, signs, menus, and
supplies of Licensee at their fair market value (see Section 15.04 for
determining fair market value). Such right or option of Sonic shall be
exercised as provided in Section 15.02(b). If Sonic elects to
exercise any option to purchase herein provided, it shall have the right to
set
off all amounts due from Licensee to Sonic and one-half of the cost of any
appraisals against any payment therefor.
(b) In
the case of termination by expiration, Sonic shall exercise Sonic’s option
contained in this Section 15.02 by giving Licensee written notice at least
30
days prior to expiration. In the case of termination for any other reason,
Sonic shall exercise its option by giving Licensee written notice within 30
days
after termination.
(c) Sonic’s
option hereunder is without prejudice to Sonic’s rights under any security
agreement held by Sonic or with respect to which Sonic may have a guarantor’s or
surety’s subrogation interest. If Sonic exercises this option, Sonic may
pay any debt which Licensee owes to Sonic and shall remit any balance of the
purchase price to Licensee. There shall be no allowance for
goodwill.
15.03.
Sonic’s
Obligation to Purchase
.
(a) Upon
termination, cancellation, or expiration of this Agreement, if Licensee desires
to sell Licensee’s unbroken inventory packages of approved imprinted items and
supplies with Proprietary Marks to Sonic, excluding all food items,
Sonic shall have the obligation to repurchase such items at
Licensee’s cost.
(b) If
Licensee desires to sell such items to Sonic, Licensee shall, not later than
10
days after termination, cancellation, or expiration of this Agreement, give
Sonic 10 days written notice of Licensee’s election and, at the expiration of
the 10 days notice period, deliver such items at Licensee’s expense with an
itemized inventory to the nearest Sonic drive-in restaurant or
non-traditional Sonic restaurant designated by Sonic. Sonic agrees to pay
Licensee or credit Licensee’s account within seven days after said
delivery.
15.04.
Fair
Market Value Determination
.
If
the parties cannot agree on the fair
market value of any item subject to an option to purchase in this Agreement
within a reasonable time, one appraiser shall be designated by Sonic, one
appraiser shall be designated by Licensee, and the two appraisers shall
designate an independent appraiser, and the valuation of such third appraiser
alone shall be binding. Sonic and the Licensee each shall pay one-half of
the cost of any appraisals required pursuant to this Section 15.04.
16.
COVENANTS
.
16.01.
Restrictions
on Licensee
.
Licensee
agrees and covenants as
follows:
(a) During
the term of this Agreement, Licensee shall not directly or indirectly through
one or more intermediaries (i) engage in, (ii) acquire any financial or
beneficial interest (including interests in corporations, limited liability
companies, partnerships, trusts, unincorporated associations, joint ventures,
or
other business entities) in, (iii) loan money to, or (iv) become landlord of
any
restaurant business which has a menu similar to that of a non-traditional Sonic
restaurant or Sonic drive-in restaurant (such as hamburgers, hot dogs, onion
rings, and similar items customarily sold by non-traditional Sonic restaurants
or Sonic drive-in restaurants) or which has an appearance similar to that of
a
non-traditional Sonic restaurant or Sonic drive-in restaurant (such as the
color
pattern or other items that are customarily used by a non-traditional Sonic
restaurant or Sonic drive-in restaurant).
(b) Licensee
shall not, for a period of 18 months after termination of this Agreement for
any
reason, directly or indirectly through one or more intermediaries (i) engage
in,
(ii) acquire any financial or beneficial interest (including interests in
corporations, limited liability companies, partnerships, trusts, unincorporated
associations, joint ventures, or other business entities) in, (iii) loan money
to, or (iv) become a landlord of any restaurant business
which
has
a menu similar to that of a non-traditional Sonic restaurant or Sonic drive-in
restaurant (such as hamburgers, hot dogs, onion rings, and similar items
customarily sold by non-traditional Sonic restaurants or Sonic drive-in
restaurants) or which has an appearance similar to that of a non-traditional
Sonic restaurant or Sonic drive-in restaurant (such as the color pattern or
other items that are customarily used by a non-traditional Sonic restaurant
or
Sonic drive-in restaurant), and which (i) is within a three-mile radius of
the
Non-Traditional Sonic formerly licensed by this Agreement, (ii) is within a
20-mile radius of any non-traditional Sonic restaurant or Sonic drive-in
restaurant in operation or under construction, or (iii) is located within the
MSA of the Non-Traditional Sonic.
(c) Licensee
shall not appropriate, use, or duplicate the Sonic System, or any portion
thereof, for use at any other restaurant business.
(d) During
the term of this Agreement, Licensee shall (i) use Licensee’s best efforts to
promote the business of the Non-Traditional Sonic and (ii) not engage in any
other business or activity that might detract from, interfere with, or be
detrimental to the Sonic System or Licensee’s full and timely performance under
this Agreement.
(h) The
parties agree that each of the foregoing covenants shall be construed as
independent of any covenant or provision of this Agreement. If all or any
portion of a covenant in this Section 16 is held unreasonable or unenforceable
by an arbitrator, court, or agency having valid jurisdiction in an unappealed
final decision to which Sonic is a party, Licensee expressly agrees to be bound
by any lesser covenant subsumed with the terms of such covenant that imposes
the
maximum duty permitted by law, as if the resulting covenant were separately
stated in and made a part of this Section 16.
(j) Licensee
expressly agrees that the existence of any claims Licensee may have against
Sonic, whether or not arising from this Agreement, shall not constitute a
defense to the enforcement by Sonic of the covenants in this Section
16.
(k) Licensee
acknowledges that Licensee’s violation of the terms of this Section 16 would
result in irreparable injury to Sonic for which no adequate remedy at law is
available, and Licensee accordingly consents to the ex parte issuance of
restraining orders, temporary and permanent injunctions, and cease and desist
orders prohibiting any conduct by Licensee in violation of the terms of this
Section 16.
16.02.
Covenants
by Others
.
At
the time of execution of this
Agreement, Licensee shall obtain covenants similar in substance to those set
forth in this Section 16 (including covenants applicable upon the termination
of
a Person’s relationship with
Licensee)
from all officers, directors, and holders of a direct or indirect beneficial
ownership interest in Licensee. With respect to each Person who becomes
associated with Licensee in one of the capacities enumerated above subsequent
to
execution of this Agreement, Licensee shall require and obtain such
covenants. In no event shall any Person enumerated be granted access to
any confidential aspect of the Sonic System or the Non-Traditional Sonic prior
to execution of such a covenant. All covenants required by this Section
16.02 shall include, without limitation, specific identification of Sonic as
a
third-party beneficiary of such covenants with the independent right to enforce
them. Failure by Licensee to obtain execution of a covenant required by
this Section 16.02 shall constitute a breach of this
Agreement. Licensee shall furnish to Sonic executed copies of
such covenants within 10 days of such request by Sonic.
17.
INDEPENDENT CONTRACTOR & INDEMNIFICATION
.
17.01.
Licensee
not an Agent of Sonic; Employment Matters
.
It
is understood and agreed that this
Agreement does not create a fiduciary relationship between Sonic and Licensee,
and that nothing herein contained shall constitute Licensee as the agent, legal
representative, partner, joint venturer, or employee of Sonic. Licensee is,
and
shall remain, an independent contractor responsible for all obligations and
liabilities of, and for all loss or damage to, the Non-Traditional Sonic and
its
business, including any personal property, equipment, fixtures, or real property
connected therewith and for all claims or demands based on damage or destruction
of property or based on injury, illness, or death of any person or persons,
directly or indirectly, resulting from the operation of the Non-Traditional
Sonic. Licensee’s responsibility for the Non-Traditional Sonic and its business
shall include responsibility for all of the employment matters (including
employment decisions) of the Non-Traditional Sonic and for compliance with
federal, state, and local laws and regulations relating to such employment
matters. Sonic will refer all complaints related to employment
matters of the Non-Traditional Sonic to Licensee for resolution, and the
indemnification and hold harmless provisions of Section 17.03 shall apply to
all
employment matters of the Non-Traditional Sonic.
17.02.
Cost
of Enforcement
.
If
Sonic or Sonic’s Affiliates become
involved in any action at law or in equity or in any proceeding opposing
Licensee to secure, enforce, protect, or defend Sonic’s or Sonic’s Affiliates’
rights and remedies under this Agreement, in addition to any judgment entered
in
their favor, Sonic or Sonic’s Affiliates, as applicable, shall be entitled to
demand of and (in the event Sonic or Sonic’s Affiliates, as applicable, prevail
in such actions or proceedings) recover from Licensee the reasonable costs,
expenses, and attorneys’ fees incurred by Sonic or Sonic's
Affiliates. If, in such applicable final judgment Sonic does not
prevail, Licensee shall be entitled to recover from Sonic in any such action
or
proceeding the reasonable costs, expenses, and attorneys’ fees incurred by
Licensee.
17.03.
Indemnification
.
If
Sonic or Sonic’s Affiliates shall be
subject to any claim, demand, or penalty or become a party to any suit or other
judicial or administrative proceeding by reason of any claimed act or omission
by Licensee or Licensee’s employees or agents, or by reason of any act occurring
at the Non-Traditional Sonic, or by reason of any act or omission with respect
to the business or operation of the Non-Traditional Sonic, Licensee shall
indemnify and hold Sonic and Sonic’s Affiliates harmless against all judgments,
settlements, penalties, and expenses, including attorneys’ fees, court costs,
and other expenses of litigation or administrative proceeding, incurred by
or
imposed on Sonic or Sonic’s Affiliates in connection with the investigation or
defense relating to such claim or litigation or administrative proceeding and,
at the election of Sonic, Licensee shall also defend Sonic and Sonic’s
Affiliates. The Licensee shall
not
have any obligation to indemnify, defend, or hold harmless Sonic or any other
Person pursuant to the provisions of this Section 17.03 to extent the obligation
arises predominantly as a proximate result of Sonic’s act or failure to act when
under a duty to act.
18.
EFFECT OF WAIVERS
.
No
waiver by Sonic of any breach or
series of breaches of this Agreement shall constitute a waiver of any subsequent
breach or waiver of the terms of this Agreement.
19.
NOTICES
.
19.01.
Delivery
.
Any
notice required hereunder, if not
specified, shall be in writing and shall be delivered by (i) personal service,
(ii) by overnight, receipted delivery service, (iii) by United States certified
or registered mail, with postage prepaid, addressed to Licensee at the
Non-Traditional Sonic or at such other address of Licensee then appearing on
the
records of Sonic or to Sonic addressed to the attention of Sonic’s General
Counsel at 300 Johnny Bench Drive, Oklahoma City, Oklahoma 73104, or at the
subsequent address of Sonic’s corporate headquarters. Either party,
by a similar written notice, may change the address to which notices shall
be
sent. Notice shall be deemed effective on the date of delivery, if delivery
is
by personal service or overnight delivery, or three business days after the
party places the notice in the United States mail, if delivery is by certified
or registered mail.
19.02.
Failure
to Accept
.
If
Sonic is unable to give actual
notice of any breach or termination of this Agreement because Licensee has
failed to provide Sonic with a current address, because Licensee fails to accept
or pick up this mailed notice, or due to any reason which is not the fault
of
Sonic, then such notice shall be deemed as given when Sonic sends such notice
by
overnight receipted delivery service or registered or certified mail, postage
prepaid.
19.03.
Licensee’s
Principal
.
Licensee
has designated on the first
page of this Agreement a Principal to serve as the party receiving primary
notice on behalf of the Licensee. Each Licensee hereby agrees that
Sonic may send its notices and communications under this Agreement to the
Principal provided for herein, that Sonic may use the Principal as its primary
contact for purposes of communications and notices permitted or required
hereunder, and that all communications and notices given by Sonic to the
Principal will be just as effective on each Licensee as though the same had
been
given to each Licensee.
20.
ENTIRE AGREEMENT
.
20.01.
No
Oral Agreements
.
This
Agreement and all addenda,
appendices, and amendments hereto constitute the entire agreement between the
parties and supersede all prior and contemporaneous, oral or written agreements
or understandings of the parties.
20.02.
Scope
and Modification of Agreement
.
No
interpretation, change, termination,
or waiver of any of the provisions hereof shall be binding upon Sonic unless
in
writing signed by an officer of Sonic. No modification, waiver,
termination, rescission, discharge, or cancellation of this Agreement shall
affect the right of any party hereto to enforce any claim or right hereunder,
whether or not liquidated, which occurred prior to the date of such
modification, waiver, termination, rescission, discharge, or
cancellation.
21.
CONSTRUCTION AND SEVERABILITY
.
21.01.
Interpretation
.
The
recitals shall be considered a part
of this Agreement. Section and subsection captions are used only for
convenience and are in no way to be construed as part of this Agreement or
as a
limitation of the scope of the particular sections, subsections, paragraphs,
and
subparagraphs to which they refer. Words of any gender used in this
Agreement shall include any other gender, and words in the singular shall
include the plural where the context requires.
21.02.
Invalidity
.
If
any part of this Agreement for any
reason shall be declared invalid, such decision shall not affect the validity
of
any remaining portion, which shall remain in full force and effect. In the
event any material provision of this Agreement shall be stricken or declared
invalid, Sonic reserves the right to terminate this Agreement.
21.03.
Binding
Effect
.
This
Agreement shall be binding upon
the parties, and their heirs, executors, personal representatives, successors,
and assigns.
21.04.
Survival
.
Any
provisions of this Agreement which
impose an obligation after termination or expiration of this Agreement shall
survive the termination or expiration of this Agreement and be binding on the
parties.
21.05.
Liability
of Multiple Licensees
.
If
Licensee consists of more than one
Person or entity, each such Person and entity, and each proprietor, partner,
member, and shareholder of each such entity, shall be jointly and severally
liable for any and all of Licensee’s obligations and prohibitions under this
Agreement. Consequently, if and when a Person or entity as Licensee
is in breach of this Agreement and fails or is unable to cure such breach in
a
timely manner, Sonic may terminate the rights of the so-affected Person or
entity under this Agreement whereby this Agreement is terminated as to only
such
Person or entity while remaining fully effective as to all other Persons and
entities remaining as Licensee on this Agreement. This Person or
entity removed as Licensee shall remain jointly and severally obligated with
the
Persons and entities remaining as Licensee for any and all obligations and
liabilities of Licensee which occurred or accrued through the date of removal
of
said Person or entity.
22.
BUSINESS ENTITY LICENSEES
22.01.
Corporate,
Partnership, and Limited Liability Company Licensees
.
If
the Licensee is a corporation,
partnership, or limited liability company, the Licensee shall comply with the
following provisions:
(a)
Purpose
. The
certificate of incorporation and bylaws, partnership agreement and certificate
of limited partnership (if applicable), or articles of organization and
operating agreement of the Licensee (collectively, “Organizational Documents”),
as applicable, shall provide that the purpose of the business entity shall
consist only in the development, ownership, operation, and maintenance of Sonic
drive-in restaurants and/or non-traditional Sonic restaurants.
(b)
Transfer
Restrictions
. The Organizational Documents of the Licensee shall
provide that the Licensee shall not issue any additional capital stock or
interest of the Licensee and that no stockholder, partner, or member, as
applicable, may transfer, assign, or pledge any issued capital stock or interest
of the Licensee without the prior, written consent of Sonic, and each stock
certificate, if applicable, issued to evidence the capital stock of the Licensee
shall contain a legend disclosing the foregoing restriction. Sonic
shall not withhold its consent to the issuance of additional capital stock
or
interest or a transfer, assignment, or pledge without a reasonable
basis. In giving its consent, Sonic shall have the right (but not the
obligation) to impose one or more reasonable conditions, including (without
limitation) the requirement that the recipient of the capital stock or interest
execute an agreement substantially similar to the Guaranty and Restriction
Agreement attached as Schedule I to this Agreement.
(c)
Stockholder/Partner/Member
Guaranty
. Each stockholder, partner, or member of the Licensee,
as applicable, shall execute the Guaranty and Restriction Agreement attached
as
Schedule I to this Agreement.
(d)
Documents
. Prior
to Sonic’s execution of this Agreement, the Licensee shall deliver to Sonic
copies of its Organizational Documents and issued stock certificates, as
applicable, reflecting compliance with the provisions of this Section
22.01.
22.02.
Other
Entity Licensee
.
If
the Licensee is any other form of
business entity, the Licensee shall deliver to Sonic copies of its
organizational documents containing provisions substantially similar to those
required by Section 22.01.
22.03.
Employee
Stock Purchase Plans
.
The
Licensee shall have the right to
transfer up to 49% of its outstanding capital stock or other equity interests
to
an employee stock purchase plan as long as one individual who qualifies as
a
licensee of Sonic for the Non-Traditional Sonic continues to own and Control,
directly or indirectly, at least 51% of the Licensee’s outstanding capital stock
or other equity interests.
22.04.
Good
Standing
.
If
the Licensee is a business entity,
Licensee shall remain an active entity in good standing in its state of
formation.
23.
APPLICABLE
LAWS; WAIVER OF JURY TRIAL; LIMITATIONS
.
The
terms and provisions of this
Agreement shall be interpreted in accordance with and governed by the laws
of
the State of Oklahoma, provided that if the laws of the State of Oklahoma would
not permit full enforcement of Section 16 of this Agreement, then the laws
of
the state in which the Non-Traditional Sonic is located or Licensee is domiciled
shall apply to the extent that any or all of such laws more fully permit
enforcement of Section 16 of this Agreement. Except as provided in
Section 14.03, Licensee agrees that jurisdiction over Licensee exists and is
proper within the county where the corporate headquarters of Sonic are located
and within any and all other courts, whether federal, state, or local, located
within that county, and venue for any matter, claim, or cause of action relating
to (a) this Agreement or any other agreement between Licensee and Sonic or
Sonic’s Affiliates, (b) the parties’ business activities conducted as a result
of this Agreement, or (c) the parties’ relationship or business dealings with
one another generally, including all disputes and litigation pending or in
existence as of the date of this Agreement, shall only exist and is only proper
within the same county where the corporate headquarters of Sonic are located
and
within any and all other courts, whether federal, state, or local, located
within that county. Licensee waives any and all defenses and
objections, and Licensee agrees not to assert any defense or objection, to
jurisdiction over Licensee and to venue as described hereinabove regarding
any
action, proceeding, or litigation instituted by Sonic against
Licensee. Sonic and Licensee agree that any and all breaches of this
Agreement, including breaches occurring after termination, cancellation, or
expiration of this Agreement, shall be deemed to have occurred where the
corporate headquarters of Sonic are located.
SONIC AND LICENSEE
WAIVE,
TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY
JURY. SONIC AND LICENSEE ALSO WAIVE, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY RIGHT TO OR CLAIM OF PUNITIVE OR EXEMPLARY DAMAGES AGAINST THE
OTHER
AND AGREE THAT, IN THE EVENT OF A DISPUTE BETWEEN THEM, EACH SHALL BE LIMITED
TO
THE
RECOVERY
OF ANY
ACTUAL DAMAGES SUSTAINED BY IT
. EXCEPT FOR CLAIMS ARISING FROM
LICENSEE’S NON-PAYMENT OR UNDERPAYMENT OF AMOUNTS LICENSEE OWES SONIC, ANY AND
ALL CLAIMS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR SONIC’S RELATIONSHIP
WITH LICENSEE WILL BE BARRED UNLESS A JUDICIAL OR ARBITRATION PROCEEDING IS
COMMENCED WITHIN ONE YEAR FROM THE DATE ON WHICH THE PARTY ASSERTING THE CLAIM
KNEW OR SHOULD HAVE KNOWN OF THE FACTS GIVING RISE TO THE CLAIMS.
24.
ACKNOWLEDGEMENT
.
Licensee
acknowledges
that:
24.01.
Consultation
with Counsel
.
Licensee
hereby represents that
Licensee has received a copy of this Agreement and has had an opportunity to
consult with Licensee’s attorney with respect thereto at least 10 days prior to
Licensee’s execution hereof. Licensee further represents that
Licensee has had this Agreement in hand for review at least five business days
prior to Licensee’s execution hereof.
24.02.
Profitability
.
No
representation has been made by
Sonic as to the future profitability of the Non-Traditional Sonic.
24.03.
Licensee’s
Investigation
.
Prior
to the execution of this
Agreement, Licensee has had ample opportunity to contact existing licensees
of
Sonic and to investigate all representations made by Sonic relating to the
Sonic
System. The Licensee has conducted an independent investigation of
the business contemplated by this Agreement and recognizes that it involves
substantial business risks making the success of the venture largely dependent
on the business abilities of the Licensee. Sonic disclaims and the
Licensee has not received from Sonic or its Affiliates any express or implied
warranty or guaranty regarding the potential volume, profits, or success of
the
business venture contemplated by this Agreement. The Licensee has not
relied on any express or implied warranty or guaranty from Sonic or its
Affiliates regarding the potential volume, profits, or success of the business
venture contemplated by this Agreement.
24.04.
Contrary
Representations
.
The
Licensee knows of no
representations by Sonic or its Affiliates about the business contemplated
by
this Agreement which contradict the terms of this Agreement. The
Licensee has not relied on any representations from Sonic or its Affiliates
about the business contemplated by this Agreement which contradict the terms
of
this Agreement or the disclosures set forth in the Franchise Offering Circular
delivered to the Licensee in connection with the issuance of this
Agreement.
24.05.
Variances
to Other Licensees
.
The
Licensee understands that other
developers and licensees may operate under different forms of agreements and,
consequently, that Sonic’s rights and obligations with regard to its various
licensees may differ materially in certain circumstances.
24.06.
Complete
Agreement
.
This
Agreement supersedes any and all
other agreements or representations respecting the Non-Traditional Sonic and
contains all the terms, conditions, and obligations of the parties with respect
to the subject matter of this Agreement.
25.
INPUT
AND ADVICE FROM LICENSEES
.
In
connection with the implementation
of or significant changes in the programs or policies referred to in Sections
6.04, 6.05(c), 6.06, 8, 11.01(c), and 11.01(g) of this Agreement, Sonic shall
solicit input and advice from a group of licensees gathered together for such
purpose (whether established ongoing for such purpose or gathered on an ad
hoc
basis from time to time). Sonic further shall use its best efforts to
ensure that such groups are balanced in terms of geographic base, size of
operating group, and period of tenure within the Sonic
System. Notwithstanding the foregoing, this Section 25 shall not have
any effect unless the license agreements in effect for at least one-third of
all
Sonic drive-in restaurants and non-traditional Sonic restaurants contain this
provision or a substantially similar provision.
26.
INJUNCTIVE
RELIEF
.
The
Licensee acknowledges that Sonic’s
remedy at law for any breach of (a) any of the Licensee’s covenants under this
Agreement (other than those involving only the payment of money), including
the
covenants contained in Section 16 of this Agreement; and (b) Sections 14.01(l),
14.02(c), 14.03(h), 15.01(b), 15.01(c), 15.01(d), and 15.01(e) of this
Agreement, would not constitute an adequate remedy at law and, therefore, Sonic
shall have the right to obtain temporary and permanent injunctive relief in
any
proceeding brought to enforce any of those provisions, without the necessity
of
proof of actual damages. Licensee acknowledges and expressly agrees
that Sonic shall not be required to post any bond or other form of security
in
connection with any request for the issuance of injunctive relief, and Licensee
expressly and unconditionally waives any requirement for the provision of
security. Licensee also agrees that injunctive relief sought by Sonic
and ordered by any court of competent jurisdiction shall be given full force
and
effect in any other jurisdiction, including the jurisdiction in which the
Non-Traditional Sonic is located, and that Licensee will not oppose the
enforcement of such relief. Nothing in this Section 26 shall prevent
Sonic from pursuing separately or concurrently one or more of any other remedies
available at law, subject to the provisions of Section 14.03 of this
Agreement.
27.
GENERAL
RELEASE AND COVENANT NOT TO SUE
.
THE
LICENSEE HEREBY RELEASES SONIC,
SONIC CORP., AND THEIR SUBSIDIARIES AND AFFILIATES, AND THE OFFICERS, DIRECTORS,
EMPLOYEES, AND AGENTS OF SONIC, SONIC CORP., AND THEIR
SUBSIDIARIES
AND AFFILIATES, FROM ANY AND ALL CLAIMS AND CAUSES OF ACTION, KNOWN OR UNKNOWN,
WHICH MAY EXIST IN FAVOR OF THE LICENSEE AS OF THE DATE OF THIS
AGREEMENT. IN ADDITION, THE LICENSEE COVENANTS THAT THE LICENSEE
SHALL NOT FILE OR PURSUE ANY LEGAL ACTION OR COMPLAINT AGAINST ANY OF THE
FOREGOING ENTITIES OR PERSONS WITH REGARD TO ANY OF THE FOREGOING CLAIMS OR
CAUSES OF ACTION RELEASED PURSUANT TO THIS SECTION 27.
Executed
on the dates set forth below,
to have effect as of , 200.
Sonic: Sonic
Industries LLC
By:
_________________________________
(Vice)
President
Date: _______________________, 2007
Licensee:
____________________________________
Date:
__________________________,
2007
____________________________________
Date:___________________________,
2007
Guaranty
and Restriction Agreement
GUARANTY
AND RESTRICTION AGREEMENT
The
undersigned (jointly and severally
or individually, the “Guarantor”), Sonic Industries LLC (“Sonic”),
and (the “Licensee”) enter into this Guaranty and Restriction
Agreement (this “Guaranty”) as of , 200.
W
I
T
N
E
S
S
E
T
H
:
Whereas,
Sonic is entering into a
license agreement (the “License Agreement”) dated the same date as this Guaranty
with the Licensee for the non-traditional Sonic restaurant located at ,
, (the “Non-Traditional Sonic”); and
Whereas,
as a condition to entering
into the License Agreement, Sonic has asked the
Guarantor
to provide a personal guaranty of all obligations of the Licensee Agreement;
and
Whereas,
Sonic has also asked the
Guarantor and the Licensee to agree to a restriction on the transfer of
interests in the Licensee; and
Whereas
Sonic, the Guarantor, and the
Licensee are willing to enter into those agreements based upon the terms and
conditions of this Guaranty.
Now,
therefore, in consideration of the
mutual covenants set forth below and other good and valuable consideration,
the
receipt and sufficiency of which the parties hereby acknowledge, the parties
agree as follows:
1.
Personal
Guaranty of Payments
. The Guarantor hereby guarantees the prompt
and full payment and performance of all obligations under the License Agreement
including:
(a) all
royalties due Sonic pursuant to the License Agreement,
(b) all
brand contribution fees to the Sonic Brand Fund pursuant to the License
Agreement,
(c) all
contributions to approved advertising cooperatives pursuant to the License
Agreement, and
(d) any
other obligations owing to Sonic or its Affiliates (as defined in the License
Agreement) relating to the Non-Traditional Sonic, including any sign lease
agreement.
2.
Nature
of Guaranty
. This guaranty shall constitute an absolute,
unconditional, irrevocable, and continuing guaranty. Sonic shall not
have any obligation to take any action against any other person or entity for
collection of any payments prior to making any demand for payment or bringing
any action against the Guarantor.
3.
Permitted
Actions
. From time to time, Sonic shall have the right to take,
permit, or suffer to occur any “Permitted Action,” as defined below, without
modifying, reducing, waiving, releasing, impairing, or otherwise affecting
the
obligations of the Guarantor under this Guaranty, without giving notice to
the
Guarantor or obtaining the Guarantor’s consent, without the necessity of any
reservations of rights against the Guarantor, and without liability on the
part
of Sonic. As used in this Section 3, the phrase “Permitted Action”
shall mean (a) an agreed extension of time for payment of any sum due under
the
License Agreement, (b) an agreed change in the manner or place of payment of
any
sums due under the License Agreement, (c) any waiver by Sonic of any defaults
under the provisions of the License Agreement, (d) any delay or failure by
Sonic
to exercise any right or remedy Sonic may have under the License Agreement,
(e)
the granting by Sonic of any leniencies, waivers, extensions, and indulgences
under the License Agreement, and (f) any agreed amendments to the License
Agreement.
4.
Waiver
of Notices
. The Guarantor acknowledges and waives notice of
Sonic’s acceptance of the Guarantor’s guaranty pursuant to the terms of this
Agreement. The Guarantor also waives any requirement that Sonic
notify the Guarantor of any demands or enforcement actions by Sonic against
the
Licensee.
5.
Restrictions
on Transfer
. The Licensee shall not issue any additional shares
of capital stock or other interest without the prior, written consent of
Sonic. The Guarantor shall not transfer, assign, or pledge any of its
shares of capital stock or other interest in the Licensee to any person without
the prior, written consent of Sonic.
6.
Disputes
. Any
dispute between the parties concerning this Guaranty will be resolved in
accordance with the arbitration provisions contained in the License
Agreement.
7.
Attorneys’
Fees, Costs, and Expenses
. In any action brought by Sonic to
enforce the obligations of the Guarantor, Sonic shall also have the right to
collect its reasonable attorneys’ fees, court costs, and expenses incurred in
the action.
8.
Headings
. The
headings used in this Guaranty appear strictly for the parties’ convenience in
identifying the provisions of this Guaranty and shall not affect the
construction or interpretation of the provisions of this Guaranty.
9.
Binding
Effect
. This Guaranty binds and inures to the benefit of the
parties and their respective successors, legal representatives, heirs, and
permitted assigns.
10.
Waiver
. The
failure of a party to insist in any one or more instances on the performance
of
any term or condition of this Guaranty shall not operate as a waiver of any
future performance of that term or condition.
11.
Governing
Law
. Notwithstanding the place where the parties execute this
Guaranty, the internal laws of Oklahoma shall govern the construction of the
terms and the application of the provisions of this Guaranty.
12.
Amendments
. No
amendments to this Guaranty shall become effective or binding on the parties
unless agreed to in writing by all of the parties to be bound by the
amendment.
13.
Time
. Time
constitutes an essential part of each and every part of this
Guaranty.
14.
Notice
. Except
as otherwise provided in this Guaranty, when this Guaranty makes provision
for
notice or concurrence of any kind, the sending party shall deliver or address
the notice to the other party by certified mail, telecopy, or
nationally-recognized overnight delivery service to the addresses shown on
Exhibit “A” to this Guaranty.
All
notices pursuant to the provisions
of this Guaranty shall run from the date that the other party receives the
notice or three business days after the party places the notice in the United
States mail. Each party may change the party’s address by giving
written notice to the other parties.
15.
Release
and
Covenant Not To Sue
.
THE
GUARANTOR AND THE LICENSEE, AND EACH OF THEM, HEREBY RELEASE ALL CLAIMS AND
CAUSES OF ACTION WHICH THE GUARANTOR OR THE LICENSEE, OR BOTH OF THEM, MAY
HAVE
AGAINST SONIC, SONIC CORP., AND THEIR SUBSIDIARIES AND AFFILIATES, AND THE
STOCKHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS OF SONIC, SONIC CORP.,
AND THEIR SUBSIDIARIES AND AFFILIATES. THE GUARANTOR AND THE
LICENSEE, AND EACH OF THEM, FURTHER COVENANT NOT TO SUE ANY OF THE FOREGOING
PERSONS OR ENTITIES ON ACCOUNT OF ANY OF THE FOREGOING CLAIMS OR CAUSES OF
ACTION.
Executed
and delivered as of the day and year first set forth above.
{Signatures
on the following page}
Sonic: Sonic
Industries LLC.
By:
_________________________________
(Vice) President
Guarantor: ____________________________________
____________________________________
____________________________________
Licensee:
By: ________________________________
Its:
This
Guaranty and Restriction Agreement signature page is for the
following:
Non-Traditional
Sonic #
,
EXHIBIT
“A”
Notice
addresses are as follows:
Sonic:
300 Johnny Bench Drive
Oklahoma
City, OK 73104
(405)
225-5973 Fax
Guarantors:
(___)
___-____ Fax
(___)
___-____ Fax
Licensee:
DEVELOPMENT
AGREEMENT
Sonic
Industries LLC (“Sonic”), a
Delaware limited liability company, and __________________ (the “Developer”), a
____________ ___________________, enter into this Development Agreement (this
“Agreement”) as of the ____ day of __________, 2007.
W
I T
N E S S E T H :
Whereas,
Sonic is developing a food
service system (“Sonic System”) under which food is sold to the public from
drive-in restaurants operated under the name “Sonic Drive-In”; and
Whereas,
Developer desires to obtain
the right to select proposed sites on which to construct Sonic drive-ins,
to
submit the same to Sonic for its acceptance and, upon the acceptance of each
proposed site by Sonic, to enter into a License Agreement with Sonic to
construct, own and operate a Sonic drive-in upon such site (hereinafter
“Developmental Rights”) upon the terms and conditions set forth
herein.
Now,
therefore, in consideration of the
foregoing and of the covenants herein contained, the parties, intending to
be
legally bound, hereby agree as follows:
1.
AREA
EXCLUSIVITY AND CONSTRUCTION SCHEDULE
(a) Subject
to the terms and conditions of this Agreement, Sonic hereby grants to the
Developer through ___________________, 20__, the exclusive Developmental
Rights
for the cities of ___________, __________ (in accordance with their boundaries
as of the date of this Agreement), all as generally shown on Exhibit A to
this
Agreement, less and except any protected radius previously granted by Sonic
or
its Affiliates and currently in effect within that area as it now exists
or
later increases or decreases through the operation or renewal of the terms
of
the applicable license agreement (the “Franchised Area”). Sonic has
and shall have the absolute right to approve the location of a Sonic drive-in
restaurant in an area contiguous to the Franchised Area even though the
protected radius of that drive-in restaurant would extend into the Franchised
Area.
(b) Developer
agrees to develop and to put In Operation at least ________ Sonic drive-in
restaurants within the Franchised Area in accordance with the following
development and performance schedule (the “Performance Schedule”):
Number
of
|
In
Operation
|
Restaurants
|
On
or Before
|
|
|
__
|
____________,
200_
|
__
|
____________,
200_
|
__
|
____________,
200_
|
|
|
(c) For
purposes of this Agreement, a restaurant shall be deemed to be “In Operation”
once a License Agreement (as hereinafter set forth) has been executed by
Developer and Sonic, and the restaurant has opened to the public. At
the Developer’s written election, a Sonic drive-in restaurant or Non-traditional
Location (as defined in Section 8(d)(iii) below) placed In Operation by someone
other than the Developer pursuant to the provisions of Section 8(d) may count
or
not count as a restaurant placed In Operation for the purpose of the Performance
Schedule. If the Developer elects to have an acquired restaurant or
Non-traditional Location count towards the Performance
Schedule,
it may result in the earlier expiration of the Developer’s exclusive
Developmental Rights under this Agreement.
2.
TERM.
The
term of this Agreement and all Developmental Rights granted hereunder shall
expire on the date the last of the Sonic drive-in restaurants to be constructed
pursuant to the Performance Schedule set forth in Section 1 hereof is opened
for
business, unless sooner terminated in accordance with the terms of this
Agreement.
3.
RENEWAL.
This
Agreement shall not be subject to renewal.
4.
TIMELY
PERFORMANCE
. Developer hereby acknowledges that its
timely development of the Sonic drive-in restaurants in the Franchised Area
in
accordance with the Performance Schedule is of material importance to Sonic
and
Developer, and agrees, as a condition of the continuance of the rights granted
hereunder, to develop and construct Sonic drive-in restaurants within the
Franchised Area in accordance with the Performance Schedule, to operate such
restaurants pursuant to the terms of the License Agreements and to maintain
all
such restaurants in operation continuously.
5.
CONSIDERATION
FOR EXCLUSIVE RIGHTS
. As consideration for this
Agreement, Developer has paid, and Sonic has accepted the sum of $__________
concurrently with the execution of this Development Agreement. This
consideration for exclusive rights shall be credited to the required fee
for
each License Agreement signed per restaurant to be placed In Operation in
accordance with the Performance Schedule. Such credit shall
be:
(i) in
the amount of $10,000 for each License Agreement signed;
(ii) credited
against the total franchise fee to be paid to Sonic; and
(iii) credited
at the time the License Agreement for each restaurant is signed by Developer
and
Sonic.
If
the Developer elects to have a Sonic
drive-in restaurant or Non-traditional Location opened by someone other than
the
Developer pursuant to Section 8(d) count towards the Performance Schedule,
Sonic
shall refund $10,000 to the Developer for each restaurant or Non-traditional
Location placed In Operation.
Except
as set forth above, the fee
required by this Section 5 is nonrefundable.
6.
SITE
SELECTION
(a) Developer
agrees to submit for evaluation by Sonic pursuant to Sonic’s site selection
criteria, the information ordinarily required for each proposed site for
a Sonic
drive-in restaurant. Sonic may review the site, conduct such other
investigation of the proposed site it determines is necessary to properly
evaluate the site, and, in Sonic’s sole discretion, either accept or reject the
site by written notice to Developer. Site acceptance shall be
contingent upon, among other things, execution by Developer and Sonic of
the
License Agreement for said site as provided in Section 7
hereof. In the event Sonic does not accept or reject a site submitted
in writing by Developer within 30 days of receipt of such written notice,
such
site shall be deemed to be approved by Sonic.
(b) Developer
acknowledges that no officer, employee or agent of Sonic has any authority
to
approve or accept any proposed site except in writing and in accordance with
Section 6(a) above, and any other representations, whether oral or written,
shall be of no effect; Developer further acknowledges that Sonic’s acceptance of
said site does not constitute any representation, warranty or guarantee by
Sonic
that said site will be a successful location for a Sonic drive-in
restaurant.
(c) Sonic
reserves the right to revoke any site approval after the Completion Date
(as
defined in Section 7(b) below) if a restaurant is not under construction
at the
site in accordance with a fully executed License Agreement for said
site.
7.
CONSTRUCTION
AND ISSUANCE OF LICENSE AGREEMENT
(a) Upon
receipt of Sonic’s written acceptance of a proposed site as set forth in Section
6 hereof, Developer shall promptly take the necessary steps to acquire the
site
(by purchase, option to purchase, lease or sublease) and to otherwise obtain
the
rights to construct, maintain and operate a Sonic drive-in restaurant on
the
site.
(b) Within
10 days of Sonic’s receipt of notice by Developer that Developer is ready to
begin construction at the accepted site, Sonic shall execute and forward
to
Developer the License Agreement for said site if one has not been previously
executed. It is specifically agreed by Developer and Sonic that no License
Agreement shall be effective until the same is executed by Sonic and Developer
and a license fee is paid by Developer, and that Developer shall not begin
construction work at the accepted site until Sonic has received the License
Agreement executed by Developer and the license fee paid by
Developer. Developer shall, however, execute a License Agreement for
an approved site on the earlier of (i) six months following approval of the
site
by Sonic, or (ii) the date construction is to begin (with the earlier of
such
dates referred to above as the “Completion Date”).
(c) Within
30 days after the receipt of a License Agreement from Sonic for the accepted
site, Developer shall execute said License Agreement in accordance with Sonic’s
instructions and return the same along with the applicable license fee to
Sonic. The License Agreements for all drive-ins under the Performance
Schedule shall be in the form attached hereto as Exhibit B. In the
event that Sonic does not receive the properly executed License
Agreement,
with the appropriate number of copies, within said 30-day period, Sonic’s
acceptance of the site as provided in Section 6 hereof shall be void and
Developer shall have no rights with respect to said site.
(d) Upon
receipt by Sonic of the executed License Agreement for said site, Developer
shall commence construction of the Sonic drive-in restaurant at the site
in
accordance with the plans and specifications provided by Sonic and the terms
of
the License Agreement and this Agreement.
8.
LIMITATION
OF AGREEMENT
. Developer acknowledges and agrees
that:
(a) This
Agreement includes only the right to select sites for the construction of
Sonic
drive-in restaurants and to submit the same to Sonic for its approval in
accordance with the terms of this Agreement. This Agreement does not
include the grant of a license by Sonic to Developer of any rights to use
the
Proprietary Marks, the Sonic System, or to open or operate any Sonic drive-in
restaurants within the Franchised Area. Developer shall obtain the
license to use such additional rights at each Sonic drive-in restaurant upon
the
execution of each License Agreement by both Developer and Sonic and only
in
accordance with the terms of each License Agreement.
(b) The
Developmental Rights granted hereunder are personal to Developer and cannot
be
sold, assigned, transferred or encumbered, in whole or in part, except as
set
forth in Section 14 hereof.
(c) The
Developer shall have no right to use in its name the name “Sonic” or any other
names or Proprietary Marks used by Sonic.
(d) Except
as provided in Section 1 hereof, the Developmental Rights granted hereunder
are
nonexclusive, and Sonic retains the right, in its sole discretion:
(i) To
acquire the assets or controlling ownership of an existing restaurant within
the
Franchised Area. However, prior to converting an acquired restaurant
to a Sonic drive-in restaurant or a Non-traditional Location, as defined
below,
within the Franchised Area, Sonic shall offer the Developer a right of first
refusal to acquire the restaurant at a price equal to Sonic’s cost of acquiring
the restaurant. If the restaurant represents a part of an acquisition
of multiple restaurants, Sonic shall make a reasonable allocation of its
cost to
acquire the restaurant. The Developer must inform Sonic of its
decision regarding the right of first refusal within 30 days after Sonic
gives
the Developer written notice of its intention to convert the restaurant to
a
Sonic drive-in restaurant or Non-traditional Location. If the
Developer chooses to exercise its right of first refusal, the Developer must
execute Sonic’s then current form of license agreement for a Sonic drive-in
restaurant or Non-traditional Location and pay the required license fee,
as
applicable, within 20 days after the Developer notifies Sonic of its
decision. The Developer thereafter shall convert the restaurant to a
Sonic drive-in restaurant or Non-traditional Location pursuant to the terms
of
the applicable license agreement or Sonic shall have the right to repurchase
the
restaurant from the Developer at the same purchase price. If the
Developer does not exercise its right of first refusal, Sonic shall have
the
right, in its sole discretion, to own, operate and/or license other persons
to
operate the restaurant in any manner which it deems appropriate, including
(without limitation) as a Sonic drive-in restaurant or Non-traditional
Location.
(ii) To
develop, use and franchise the rights to any trade names, trademarks, service
marks, trade symbols, emblems, signs, slogans, insignia or copyrights not
designated by Sonic as Proprietary Marks, for use with similar or different
franchise systems for the sale of the same, similar or different products
or
services other than in connection with the Sonic System at any location,
on such
terms and conditions as Sonic may deem advisable and without granting Developer
any rights therein.
(iii) To
own and/or operate and to license any other person to own and/or operate
Non-traditional Locations within the Franchised Area. The phrase
“Non-traditional Locations” shall mean food service facilities operating under
one or more of the Proprietary Marks at locations featuring facilities other
than free-standing buildings with canopies devoted solely to the operation
of a
Sonic drive-in restaurant and accessible to the general public by automobile
from public thoroughfares. Non-traditional Locations include (without
limitation) (a) military bases and other governmental facilities; (b)
universities and schools; (c) airports and other transportation facilities;
(d)
stadiums, arenas and other sports and entertainment venues; (e) amusement
and
theme parks; (f) cafeterias and food courts in shopping centers, shopping
malls,
office buildings, and industrial buildings; (g) hotels and convention centers;
(h) hospitals and nursing facilities; and (i) museums, zoos and other public
facilities. The phrase “Proprietary Marks” shall mean the distinctive
and characteristic trade names, trademarks, service marks, and trade dress
which
Sonic designates in writing or through usage from time to time as prescribed
for
use with the Sonic system, including (without limitation) the terms “Sonic,”
“Happy Eating,” and “America’s Favorite Drive-In”; signs; emblems; menu
housings; designs; color schemes; standardized premises featuring characteristic
exterior style, canopies, colors and design (including angled parking stalls
equipped with menu housings, speakers and tray supports); interior furnishings;
and equipment layout. If the Developer is in compliance with this
Agreement and Sonic elects to own, operate or license a Non-traditional Location
within the Franchised Area, the Developer shall have a right of first refusal
to
license and operate the Non-traditional Location. The Developer must
notify Sonic in writing of its decision to license and operate the
Non-traditional Location within 30 days after Sonic notifies the Developer
of
Sonic’s intention to own, operate and/or license the Non-traditional
Location. If the Developer chooses to exercise its right of first
refusal, the Developer must enter into Sonic’s then current form of license
agreement for a Non-traditional Location for the applicable jurisdiction
and pay
the required license fee within 30 days after the Developer notifies Sonic
of
its decision. The Developer then must open the Non-traditional
Location within the time period specified in the license agreement (if
specified) or within 12 months after the date of the license agreement (if
not
specified). If the Developer does not execute that agreement within
the foregoing 30-day period or does not exercise its right of first refusal
within the foregoing 30-day period, Sonic shall have the right to proceed
with
the ownership, operation and/or licensing of the Non-traditional Location
as
disclosed to the Developer. If the owner or operator of a location
proposed for a Non-traditional Location requires that it serve as the operator
of the Non-traditional Location (such as a university, sports arenas, hotels,
or
other type of location listed above), Sonic shall have the right to proceed
with
the licensing of the Non-traditional Location to that owner or operator without
first offering the Developer the right of first refusal provided for in this
section.
(e) Developer
acknowledges that in the event that the Franchised Area is located in a
Designated Market Area (“DMA”) that Sonic has identified as a “Developing
Market” that Developer will be required to execute a Developing Market
Advertising Addendum in the form attached hereto as Exhibit C to each of
the
License Agreements entered into for the Sonic drive-ins developed pursuant
to
this Agreement. The Developing Market Advertising Addendum
acknowledges that the Franchised Area is located in a Developing Market and
that
the provisions of Section 11.01(a) of the License Agreement relating to
Developing Markets shall apply. Such provisions require that the
Developer contribute the amount required by the local advertising cooperative
or
5%, which ever is higher, of the “gross sales” of its drive-in (as defined in
the License Agreement) to the local advertising cooperative; however, at
any
time Sonic may alternatively designate other uses for any portion of such
Developing Market contribution if Sonic determines, in its sole discretion,
that
there is less need for advertising and a greater need for another
use.
(f) Developer
acknowledges that in the event that the Sonic drive-in restaurants to be
placed
In Operation pursuant to the terms of this Agreement represent the first
three
drive-ins to be developed by the Developer, that Developer will be required
to
execute a Special Training Addendum in the form attached hereto as Exhibit
D to
the License Agreements entered into for the first three drive-ins placed
In
Operation pursuant to this Agreement. The Special Training Addendum
requires that the Developer accept and pay the expenses of the Sonic A-Team,
a
special training team, in connection with the opening of Developer’s first three
Sonic drive-in restaurants.
(g) Because
complete and detailed uniformity under many varying conditions may not be
possible or practical, Sonic specifically reserves the right and privilege,
at
its sole discretion and as it may deem in the best interests of all concerned
in
any specific instance, to vary any standards for any Developer based upon
the
peculiarities of a particular site or circumstance, density of population,
business potential, population of trade area, existing business practices
or any
other condition which Sonic deems to be of importance to the successful
operation of such Developer’s business. Developer shall not be heard to
complain on account of any variation from standard specifications and practices
granted to any franchise owner and shall not be entitled to require Sonic
to
grant Developer a like or similar variation hereunder.
(h) Developer
has sole responsibility for the performance of all obligations arising out
of
the operation of its business pursuant to this Agreement, including, but
not
limited to, the payment when due of any and all taxes levied or assessed
by
reason of such operation.
(i) In
all public records, in its relationship with other persons, and in any offering
circular, prospectus or similar document, Developer shall indicate clearly
the
independent ownership of Developer’s business and that the operations of said
business are separate and distinct from the operation of Sonic’s
business.
(j) Developer
agrees to indemnify and hold harmless Sonic from any liability or damage
Sonic
may incur, including reasonable attorney fees, as a result of claims, demands,
costs or judgments of any kind or nature by anyone whomsoever arising out
of or
otherwise connected with this Agreement, the Developmental Rights, the
acquisition of any restaurant site or ownership, maintenance or operation
of any
Sonic drive-in restaurant by Developer.
(k) Developer
agrees to reside within the DMA of each restaurant placed In Operation pursuant
to this Agreement for as long as the Developer remains the licensee on the
license agreement for a restaurant placed In Operation. If Developer
consists of more than one person or is an entity, the restaurant’s operational
manager shall be a substantial equity owner in Developer and shall reside
within
the DMA of each restaurant placed In Operation as long as the Developer remains
the licensee on the license agreement for the restaurants placed In
Operation.
9.
SERVICES
BY SONIC
. Sonic shall, at its expense, make available to
Developer the following:
(a) The
benefit of Sonic’s experience in the selection of Sonic drive-in restaurant
sites through the use of Sonic’s Site Acceptance Form, site selection criteria
and any related materials which Sonic may make available to new licensees
from
time to time, and such review thereof as Sonic may undertake as part of its
evaluation of Developer’s request for site approvals.
(b) Such
standard construction plans, specifications and layouts for the structure,
equipment, decor and signs identified with Sonic drive-in restaurants as
Sonic
makes available to all new licensees from time to time.
(c) Review
of Developer’s site plan and final construction plans and specifications for
conformity to the construction standards and specifications of the Sonic
System,
upon Sonic’s receipt of Developer’s written request for approval
thereof.
(d) Initial
training in the Sonic System, including standards, methods, procedures and
techniques will be provided for two persons per license agreement, who may
be
the Developer (if he is an individual); a person who has an interest in
Developer (if Developer is a group of individuals, a corporation, a partnership
or an unincorporated association or a similar entity), if requested to do
so by
Sonic; or a person who is actively involved in the management or operation
of
the business of Developer or the operation of any Sonic drive-in restaurant
placed or to be placed In Operation under this Agreement. Such
training shall be at such time and places as Sonic may designate for its
training program, in its discretion, and shall be subject to the terms of
each
License Agreement.
(e) Such
periodic continuing individual or group advice, consultation and assistance,
rendered by personal visit or telephone, or by newsletters or bulletins made
available from time to time to all Developer’s of Sonic, as Sonic may deem
necessary or appropriate.
(f) Such
bulletins, brochures and reports as may from time to time be published by
Sonic
regarding its plans, policies, research, developments and
activities.
(g) Such
other resources and assistance as may hereafter be developed and offered
by
Sonic to its licensees.
10.
USE
OF APPROVED SUPPLIERS, TRADE DRESS AND METHODS OF
OPERATION
.
The Developer immediately
shall support the use and shall use the products and programs of the beverage
syrup supplier approved by Sonic and used by a majority of all Sonic drive-in
restaurants, to the exclusion of any other supplier of beverage
syrup. In addition, the Developer immediately shall use the
Developer’s vote or votes in all advertising cooperatives in which the Developer
participates to support the use of the advertising agency of record for the
Sonic drive-in restaurant chain. The Developer shall comply with the
foregoing provisions not only for all Sonic drive-in restaurants licensed
pursuant to the terms of the License Agreements issued under this Agreement
but
also (to the extent the Developer has the ability) for all other Sonic drive-in
restaurants for which the Developer serves as a licensee. With regard
to any existing Sonic drive-in restaurants, the Developer shall use the
Developer’s best efforts to accomplish the foregoing, including (in the event of
any contracts in place prior to August 1, 1995) negotiating in good faith
and
assisting and supporting the agency of record or new supplier with the
assumption, purchase or mutual termination of the contract.
The
Developer shall use all reasonable
and appropriate efforts to abide by, follow, support and promote the approved
trade dress, menu, point-of-sale system, procedures for the preparation and
service of food and beverage products, marketing and purchasing programs,
and
methods of operation for Sonic drive-in restaurants as specified by Sonic
from
time to time in the
Sonic Operations Manual
or
otherwise. The approved trade dress shall include (without
limitation) the existing signs, logotypes and trade dress of Sonic drive-in
restaurants, as well as any modifications to the signs, logotypes and trade
dress of the Developer’s restaurants by way of the required modification,
renovation or retrofit of those restaurants.
The
terms of this Section 10 shall
continue in effect during the term of this Agreement and any license agreement
between the Developer and Sonic, and shall survive the expiration or termination
of this Agreement.
11.
DEFAULT; TERMINATION
(a) The
occurrence of any of the following events shall constitute a default under
this
Agreement:
(i) If
Developer shall, in any respect, fail to meet the Performance Schedule, unless
such failure is due to extraordinary events beyond the control of the Developer
(such as acts of God, war and the like, but exclusive of matters involving
the
financial wherewithal of the Developer).
(ii) If
Developer shall use the Sonic System or Proprietary Marks, or any other names,
marks, systems, insignia, symbols or rights which are the property of Sonic
except pursuant to, and in accordance with, a valid and effective License
Agreement.
(iii) If
Developer, or persons controlling, controlled by or under common control
with
Developer, shall have any interest, direct or indirect, in the ownership
or
operation of any quick or fast-service restaurant engaged in the sale of
hamburgers or chili and related products within the Franchised Area or in
any
restaurant which looks like, copies or imitates Sonic drive-in restaurants
or
operates in a manner tending to have such effect other than in accordance
with
Section 16 of any License Agreement.
(iv) If
Developer shall fail to remit to Sonic any payments pursuant to this Agreement
when the same are due.
(v) If
Developer shall begin work upon any Sonic drive-in restaurant at any site
unless
all the conditions set forth in Section 7 hereof have been met.
(vi) If
Developer shall purport to effect any assignment other than in accordance
with
Section 14 hereof.
(vii) Except
as provided in Section 14(a) hereof, if Developer attempts to sell, assign,
transfer or encumber this Agreement.
(viii) If
Developer makes, or has made, any misrepresentation to Sonic in connection
with
obtaining this Development Agreement, any site approval hereunder, or any
License Agreement.
(ix) If
Developer fails to obtain Sonic’s prior written approval or consent as expressly
required by this Agreement.
(x) If
Developer defaults in the performance of any other obligation under this
Agreement.
(xi) If
Developer defaults in the performance of any obligation under any License
Agreement with Sonic or its Affiliates, regardless of whether or not said
License Agreement is terminated as a result of such default.
(xii) If
Developer, or any person controlling, controlled by or under common control
with
Developer, shall become insolvent by reason of inability to pay its debts
as
they mature; or if a receiver, permanent or temporary, of the business, assets
or property of Developer or any such person, or any part thereof, is appointed
by a court of competent authority; or if Developer or any such person requests
the appointment of a receiver or makes a general assignment for the benefit
of
creditors or if a final judgment against Developer or any such person in
the
amount of $15,000 or more remains unsatisfied of record for 30 days or longer
following the exhaustion of all appeals; or if the bank accounts, property
or
receivables of Developer or any such person are attached and such attachment
proceedings are not dismissed within a 30-day period; or if execution is
levied
against the business or property of Developer or any such person or suit
to
foreclose any lien (excluding mechanic’s and materialman’s liens) or mortgage
against any of the Sonic drive-in restaurants, the premises thereof or equipment
thereon is instituted and not dismissed within 30 days.
(xiii) If
Developer, or any person controlling, controlled by, or under common control
with Developer, shall be convicted under any law providing for criminal
penalties (excluding misdemeanors).
(b) Upon
occurrence of any of the events set forth in Section 11(a), Sonic may, without
prejudice to any other rights or remedies contained in this Agreement or
provided by law or equity, terminate this Agreement. Such termination
shall be effective 30 days after written notice (or such other notice as
may be
required by applicable state law) is given by Sonic to Developer of any of
the
events set forth in Subparagraphs (i) through (xi) of Section 11(a) if such
defaults are not cured within such period. Termination shall be
effective immediately and without notice, however, upon occurrence of any
of the
events specified in Subparagraphs (xii) and (xiii) of Section 11(a), except
where prohibited by state law.
(c) Upon
termination of this Agreement for any reason, or upon expiration of the term
hereof, Developer agrees as follows:
(i) To
cease immediately any attempts to select or develop sites on which to construct
Sonic drive-in restaurants, and
(ii) To
cease immediately to hold itself out in any way as a Developer of Sonic or
to do
anything which would indicate any relationship between it and Sonic except
to
the extent permitted pursuant to Section 11(d).
(d) Termination
of this Agreement shall not affect the rights of Developer to operate Sonic
drive-in restaurants in accordance with the terms of any License Agreement
with
Sonic until and unless such License Agreements, or any of them, are terminated
in accordance with their terms.
If
any of the provisions of this
contract governing termination or nonrenewal are inconsistent with Oklahoma
law,
then the laws of the State of ______________ shall apply.
12.
RESOLUTION
OF DISPUTES
. The following provisions shall apply to any
controversy between the Developer and Sonic (including an Affiliate of Sonic)
and relating (a) to this Agreement (including any claim that any part of
this
Agreement is invalid, illegal or otherwise void or voidable), (b) to the
parties’ business activities conducted as a result of this Agreement, or (c) the
parties’ relationship or business dealings with one another generally, including
all disputes and litigation pending or in existence as of the date of this
Agreement.
(a)
Negotiation
. The
parties first shall use their best efforts to discuss and negotiate a resolution
of the controversy.
(b)
Mediation
. If
the efforts to negotiate a resolution do not succeed, the parties shall submit
the controversy to mediation in Oklahoma City, Oklahoma, by a mediation firm
agreeable to the parties or by the American Arbitration Association, if the
parties cannot agree.
(c)
Arbitration
. If
the efforts to negotiate and mediate a resolution do not succeed, the parties
shall resolve the controversy by final and binding arbitration in accordance
with the Rules for Commercial Arbitration (the “Rules”) of the American
Arbitration Association in effect at the time of the execution of this Agreement
and pursuant to the following additional provisions:
(i)
Applicable
Law
. The Federal Arbitration Act (the “Federal Act”), as
supplemented by the Oklahoma Arbitration Act (to the extent not inconsistent
with the Federal Act), shall apply to the arbitration.
(ii)
Selection
of Arbitrator
. The parties shall select arbitrator within 10 days
after the filing of a demand and submission in accordance with the
Rules. If the parties fail to agree on the arbitrator within that
10-day period or fail to agree to an extension of that period, the arbitration
shall take place before an arbitrator selected in accordance the
Rules.
(iii)
Location
of Arbitration
. The arbitration shall take place in Oklahoma
City, Oklahoma, and the arbitrator shall issue any award at the place of
arbitration. The arbitrator may conduct hearings and meetings at any
other place agreeable to the parties or, upon the motion of a party, determined
by the arbitrator as necessary to obtain significant testimony or
evidence.
(iv)
Scope
of Proceeding
. The parties shall conduct any arbitration
proceeding and resolve any controversy on an individual basis only and not
on a
class-wide, multiple-party, or similar basis.
(v)
Enforcement
of Award
. The prevailing party shall have the right to enter the
award of the arbitrator in any court having jurisdiction over one or more
of the
parties or their assets. The parties specifically waive any right
they may have to apply to any court for relief from the provisions of this
Agreement or from any decision of the arbitrator made prior to the
award. The award of the arbitrator shall not have any precedential or
collateral estoppel effect on any other controversy involving Sonic or its
Affiliates.
(d)
Excluded
Controversies
. At the election of Sonic or its Affiliate, the
provisions of this Section 12 shall not apply to any controversies relating
to
any fee due Sonic or its Affiliate; any promissory note payments due Sonic
or
its Affiliate; or any trade payables due Sonic or its Affiliate as a result
of
the purchase of equipment, goods or supplies. At the election of
Sonic or its Affiliate, the provisions of this Section 12 also shall not
apply
to any controversies relating to the use and protection of the Proprietary
Marks
or the Sonic System, including (without limitation) Sonic’s right to apply to
any court of competent jurisdiction for appropriate injunctive relief for
the
infringement of the Proprietary Marks or the Sonic System.
(e)
Attorneys’
Fees and Costs
. The prevailing party to the arbitration shall
have the right to an award of its reasonable attorneys’ fees and costs incurred
after the filing of the demand and submission, including a portion of the
direct
costs of any in-house legal staff reasonably allocable to the time devoted
to
the arbitration.
13.
DEVELOPER’S
REPRESENTATIONS.
Developer hereby represents
and warrants to Sonic that the changes to this Agreement and the License
Agreement (if any) from those terms originally offered to Developer occurred
at
the request of Developer and upon negotiation by Developer and
Sonic.
Developer
hereby represents to Sonic
that Developer is entering into this Agreement with the intention of complying
with the terms and conditions and not for the purpose of resale of the
Development Rights hereunder. Therefore, Developer agrees that any
attempt to assign this Agreement in whole or in part other than in accordance
with Section 14 shall be deemed an event of default hereunder.
14.
ASSIGNMENT,
CONDITIONS AND LIMITATIONS.
(a) Developer
shall neither sell, assign, transfer nor encumber this Agreement, the
Developmental Rights, or any other interest hereunder, nor suffer or permit
any
such assignment, transfer or encumbrance to occur by operation of law or
otherwise, without the prior written consent of Franchisor.
(b) In
the event of the death, disability or permanent incapacity of Developer,
Sonic
shall not unreasonably withhold its consent to the transfer of all of the
interest of Developer to his spouse, heirs or relatives, by blood or marriage,
whether such transfer is made by will or by operation of law, provided that
the
requirements of subsection (d) hereof have been met. In the event
that Developer’s heirs do not obtain the consent of Sonic as prescribed herein,
the personal representative of Developer shall have a reasonable time to
dispose
of Developer’s interest hereunder, which disposition shall be subject to all the
terms and conditions for transfers under this Agreement.
(c) Sonic
shall not unreasonably withhold its consent to a transfer of this Agreement
to a
business entity that Developer owns and controls provided that the requirements
of subsection (d) hereof have been met.
(d) Sonic
may, in its sole discretion, require any or all of the following requirements
to
be met as a condition of its approval of any transfer:
(i) At
least 30 days prior to any such proposed assignment, conveyance or transfer,
Developer or Developer’s representative shall give written notice to Sonic of
such proposed assignment, conveyance or transfer, setting forth the name
of the
person to whom the rights or obligations are to be granted, information related
to the business background and creditworthiness of the assignee or transferee,
and any other information which Sonic may ordinarily require to approve a
franchisee.
(ii) Developer
hereby represents and agrees that to the extent his assignee or transferee
does
not perform in accordance with this Agreement, Developer shall perform and
insure that the obligations hereunder are accomplished.
(iii) Developer
agrees that Sonic may determine to its satisfaction that any franchise or
securities laws in the state of the transferee/assignee will be complied
with in
the event Developer transfers, conveys or assigns any interest
herein. In the event the regulatory authorities of such state require
that any interest under this Agreement be registered with such authorities,
Developer agrees to bear the expense of any such registration and provide
the
necessary information to Sonic to insure that any such applications or
registrations with such regulatory authorities are filed in an accurate and
complete manner.
(e) In
the event Developer or its successor is a corporation or partnership or similar
entity, it is agreed as follows:
(i) The
Partnership Agreement, voting stock of or other ownership interest therein
(“Securities”) shall reflect that the Securities are restricted by the terms of
this Agreement. Developer shall furnish Sonic at the time of
execution of this Agreement or assignment to the corporation or partnership,
an
agreement executed by all stockholders or partners of the Developer, stating
that no stockholder or partner will sell, assign or transfer voluntarily
or by
operation of law any Securities of the Developer to any person or entity
without
the written consent of Sonic. All Securities issued by Developer will
bear the following legend which shall be printed legibly and conspicuously
on
each stock certificate or other evidence of ownership interest:
“The
transfer of these securities is subject to the terms and conditions of a
Development Agreement with Sonic Industries LLC dated ______________, and
certain License Agreements executed thereunder. Reference is made to said
Development Agreement and to the restrictive provisions of the articles and
bylaws of this corporation.”
A
stop transfer order shall be in
effect against the transfer of any securities on the Developer’s records during
the term of this agreement, unless the transferee is approved in accordance
with
subsection (c) above.
(f) Sonic’s
consent to a transfer of Developer’s interest under subsection (b) is expressly
conditioned upon the continuing personal guarantee of the obligations of
Developer under this Agreement by all transferees and the execution by said
transferees of personal guarantees of each License Agreement entered into
pursuant to this Agreement.
(g) Developer
acknowledges and agrees that the restrictions on transfer imposed herein
are
reasonable and are necessary to protect the Developmental Rights, the Sonic
System and the Proprietary Marks, as well as Sonic’s excellent reputation and
image, and are for the protection of Sonic, Developer and other licensees.
Any assignment or transfer permitted by this section shall not be effective
until Sonic receives a completely executed copy of all transfer documents,
and
consents in writing.
(h) This
Agreement shall inure to the benefit of Sonic, its successors and assigns,
and
Sonic shall have the right to transfer or assign all or any part of its interest
herein to any person or legal entity.
15.
MULTIPLE
PARTY DEVELOPER.
If the Developer consists of
more than one person or entity, each of those persons and/or entities shall
have
joint and several liability under this Agreement. If the Developer
consists of more than one person or entity, each of those persons and/or
entities hereby irrevocably appoint __________________________________________
as their lawful attorney-in-fact to execute all amendments to this Agreement,
all License Agreements issued pursuant to this Agreement, all addenda and
amendments to those License Agreements, and all other documents and instruments
Sonic may request in connection with this Agreement. The foregoing
appointment shall constitute a power coupled with an interest and shall survive
the death or incapacity of any of the foregoing persons.
16.
NOTICES
For
purposes of this section, “notice
address” shall be:
(a) If
to Sonic
at: 300
Johnny Bench Drive
Oklahoma
City, Oklahoma
73104
Attention: General
Counsel
(b) If
to Developer
at: ______________________________
______________________________
or
at
such other address as Sonic or Developer shall have specified by notice to
the
other party hereunder. All notices hereunder shall be in writing and
shall be duly given and deemed effective as follows:
(i) if
by hand delivery to a notice address, notice shall be effective upon
delivery,
(ii) if
sent by receipted, overnight delivery service to a notice address, notice
shall
be effective the earlier of receipt by addressee or 24 hours from deposit
with
the delivery service, or
(iii) if
by registered or certified, postage prepaid mail to a notice address, notice
shall be effective upon receipt by addressee.
17.
NO
JOINT VENTURE.
Nothing herein contained or
done pursuant to this Agreement shall be deemed to constitute Developer as
an
agent, partner, or joint venturer of Sonic and neither party shall have the
authority to act for the other in any manner to create obligations or debts
which would be binding on the other; neither party shall be responsible for
any
obligations or expenses whatsoever of the other.
18.
GOVERNING
LAW
.
This Agreement shall be deemed to
have been made and entered into in the State of Oklahoma and all rights and
obligations of the parties hereto shall be governed by and construed in
accordance with the laws of the State of Oklahoma. Developer agrees that
jurisdiction over Developer and venue exist and are proper and that venue
shall
exclusively be within the same federal judicial district where the corporate
headquarters of Sonic are located and within any and all other courts, whether
federal, state, or local, located within that district. Developer
waives any and all defenses and objections, and Developer agrees not to assert
any defense or objection to jurisdiction over Developer and to venue as
described hereinabove regarding any action, proceeding or litigation instituted
by Sonic against Developer. Sonic and Developer that any and all
breaches of this agreement, including breaches occurring after termination,
cancellation, or expiration of this agreement, shall be deemed to have occurred
where the corporate headquarters of Sonic are located.
19.
REMEDIES
CUMULATIVE; WAIVER; CONSENTS.
All rights and
remedies of Sonic and of Developer enumerated in this Agreement shall be
cumulative and, except as specifically contemplated otherwise by this Agreement,
none shall exclude any other right or remedy allowed at law or in equity
and
said rights or remedies may be exercised and enforced
concurrently. No waiver by Sonic or by Developer of any covenant or
condition or the breach of any covenant or condition of this Agreement to
be
kept or performed by the other party shall constitute a waiver by the waiving
party of any subsequent breach or nonobservance on any other occasion of
the
same or any other covenant or condition of this Agreement. Subsequent
acceptance by Sonic of any payments due to it hereunder shall not be deemed
to
be a waiver by Sonic of any preceding breach by Developer of any terms,
covenants or conditions of this Agreement.
Whenever
this Agreement requires
Sonic’s prior approval or consent, Developer shall make a timely written request
to Sonic therefor, and such approval shall be obtained in
writing. Sonic will also consider granting, in its sole discretion,
other reasonable requests individually submitted by Developer in writing
for
Sonic’s prior waiver of any obligation imposed by this
Agreement. Sonic makes no warranties or guarantees upon which
Developer may rely, and assumes no liability or obligation to Developer,
by
providing any waiver, approval, consent, or suggestion to Developer in
connection with this Agreement, or by reason of any neglect, delay or denial
of
any request therefor. Unless otherwise consented to in writing, any
waiver granted by Sonic shall be subject to Sonic’s continuing review, may
subsequently be revoked for any reason if the violation remains outstanding
effective upon Developer’s receipt of 20 days prior written notice, and shall be
without prejudice to any other rights Sonic may have.
20.
SEVERABILITY.
If
any provision of this Agreement or the application of any provision to any
person or to any circumstances shall be determined to be invalid or
unenforceable, then such determination shall not affect any other provision
of
this Agreement or the application of such provision to any other person or
circumstance, all of which other provisions shall remain in full force and
effect, and it is the intention of Sonic and Developer that if any provision
of
this Agreement is susceptible of two or more constructions, one of which
would
render the provision enforceable and the other or others of which would render
the provision unenforceable, then the provision shall have the meaning which
renders it enforceable.
21.
ENTIRE
AGREEMENT.
This Agreement together with all
License Agreements executed hereunder constitutes the entire agreement between
Sonic and Developer in respect of the subject matter hereof, and this Agreement
supersedes all prior and contemporaneous agreements between Sonic and Developer
in connection with the subject matter of this Agreement. No officer,
employee or other servant or agent of Sonic or Developer is authorized to
make
any representation, warranty or other promise not contained in this
Agreement. No change, termination or attempted waiver of any of the
provisions of this Agreement shall be binding upon Sonic or Developer unless
in
writing and signed by Sonic and Developer.
22.
JOINT
AND SEVERAL OBLIGATION.
If the Developer
consists of more than one person, their liability under this Agreement shall
be
deemed to be joint and several.
23.
COUNTERPART;
PARAGRAPH HEADINGS; PRONOUNS.
This Agreement
may be executed in any number of counterparts, each of which shall be deemed
an
original but all of which together shall constitute one and the same
instrument. The section headings in this Agreement are for
convenience of reference only and shall not be deemed to alter or affect
any
provision thereof. Each pronoun used herein shall be deemed to
include the other number and genders.
24.
ACKNOWLEDGMENTS.
Developer
acknowledges that:
(a) It
has conducted an independent investigation of the business contemplated by
this
Agreement and recognizes that it involves business risks making the success
of
the venture largely dependent upon the business abilities of
Developer. Sonic expressly disclaims the making of, and Developer
acknowledges that it has not received or relied upon, any warranty or guarantee,
express or implied, as to the potential volume, profits or success of the
business venture contemplated by this Agreement, including without limitation
any representation regarding the likelihood of further or timely development
by
Sonic Restaurants, Inc. or other developers in the Franchised Area.
(b) It
has no knowledge of any representations by Sonic or its officers, directors,
shareholders, employees, agents or servants about the business contemplated
by
this Agreement, that are contrary to the terms of this Agreement or the
documents incorporated herein, and further represents to Sonic, as an inducement
to its entry into this Agreement, that it has made no misrepresentations
in
obtaining this Agreement.
(c) It
has received, read and understood this Agreement, the attachments hereto,
including the License Agreement attached hereto as Exhibit B; Sonic has fully
and adequately explained the provisions of each to its satisfaction; and
Sonic
has accorded it ample time and opportunity to consult with advisors of its
own
choosing about the potential benefits and risks of entering into this
Agreement.
(d) It
is aware of the fact that some present licensees of Sonic may operate under
different forms of agreement and, consequently, that Sonic’s obligations and
rights in respect to its various franchise owners may differ materially in
certain circumstances.
In
witness of their agreement, the
parties hereto have duly executed this Agreement as of the day and year first
written above.
Sonic: Sonic
Industries LLC
By:
_________________________________
(Vice)
President
Dated:
_______________________,
2007
Developer:
____________________________________
Dated:
______________________, 2007
EXHIBIT
A
TO
DEVELOPMENT
AGREEMENT
[Description
of Reserved Area]
EXHIBIT
B
TO
DEVELOPMENT
AGREEMENT
[#7
Form
of License Agreement]
EXHIBIT
C
TO
DEVELOPMENT
AGREEMENT
[Developing
Market Advertising Addendum to License Agreement]
DEVELOPING
MARKET ADVERTISING ADDENDUM TO LICENSE
AGREEMENT(PRIVATE)
(CIF
______)
Sonic
Industries LLC (“Sonic”), a
Delaware limited liability company, and ____________________ (the “Licensee”)
hereby enter into this Addendum to License Agreement (this “Agreement”) as of
this
_
day of
, 2007.
Whereas,
Sonic and the Licensee entered
into that certain Development Agreement dated the __ day of ___________,
2007
(the “Development Agreement”) which provides that in the event the geographical
area to be developed by Licensee (the “Franchised Area”) is in a Designated
Market Area (“DMA”) that Sonic has identified as a “Developing Market” that
Licensee will enter into this Agreement;
Whereas,
the Franchised Area is in a
DMA identified by Sonic as a Developing Market;
Now,
therefore, in consideration of
Sonic’s and the Licensee’s mutual covenants and agreements contained in this
Agreement and as required by the Development Agreement, and for other good
and
valuable consideration which the parties hereby acknowledge, the parties
agree
as follows:
1.
Developing
Market Advertising
. The parties hereby add the following new
Section 11.01(i) to the License Agreement:
(i) Licensee
acknowledges that the Franchised Area is located in a Designated Market Area
(“DMA”) that Sonic has identified as a “Developing Market” and that the
provisions of Section 11.01(a) for Developing Markets shall apply.
2.
Governing
Law
. The internal laws of Oklahoma shall govern the terms and
provisions of this Agreement.
3.
Other
Provisions
. Except to the extent modified by this Agreement, the terms
and provisions of the License Agreement shall remain in full force and
effect.
Sonic: Sonic
Industries LLC
By:
_________________________________
(Vice) President
Licensee:
___________________________________
EXHIBIT
D
TO
DEVELOPMENT
AGREEMENT
[Special
Training Addendum to License Agreement]
SPECIAL
TRAINING ADDENDUM TO LICENSE AGREEMENT(PRIVATE)
(CIF
______)
Sonic
Industries LLC (“Sonic”), a
Delaware limited liability company, and ____________________ (the “Licensee”)
hereby enter into this Addendum to License Agreement (this “Agreement”) as of
this
_
day of
, 2007.
Whereas,
Sonic and the Licensee entered
into that certain Development Agreement dated the __ day of _______, 2007
(the
“Development Agreement”) which provides that in the event the Licensee is
developing its first three Sonic drive-ins, Developer will be required to
accept
and pay for the services of the Sonic A-Team, a special training team, and
will
enter into this Agreement;
Whereas,
the Licensee is developing its
first three Sonic drive-ins;
Now,
therefore, in consideration of
Sonic’s and the Licensee’s mutual covenants and agreements contained in this
Agreement and as required by the Development Agreement, and for other good
and
valuable consideration which the parties hereby acknowledge, the parties
agree
as follows:
1.
Special
Training Program
. The parties hereby add the following new
Section 6.04(c) to the License Agreement:
“(c) Licensee
further acknowledges the importance of obtaining proper training of its
employees during the development of its first drive-ins and agrees to accept
and
pay the expenses of the Sonic A-Team, a special training team, in connection
with the opening of the Sonic Restaurant.”
2.
Governing
Law
. The internal laws of Oklahoma shall govern the terms and
provisions of this Agreement.
3.
Other
Provisions
. Except to the extent modified by this Agreement, the terms
and provisions of the License Agreement shall remain in full force and
effect.
Sonic: Sonic
Industries LLC
By:
_________________________________
(Vice)
President
Licensee: ___________________________________
SCHEDULE
I
Guaranty
and Restriction Agreement
GUARANTY
AND RESTRICTION AGREEMENT
The
undersigned (the “Guarantor”),
Sonic Industries LLC (“Sonic”), and ___________ (the “Developer”), enter into
this Guaranty and Restriction Agreement (this “Agreement”) as of the ____ day of
__________, 2007.
W I T N E S S E T H:
Whereas,
Sonic is entering into a
Development Agreement (the “Development Agreement”) dated the same date as this
Agreement with the Developer; and
Whereas, as a condition to entering into the Development Agreement,
Sonic
has asked that the Guarantor provide a personal guaranty of certain
obligations of the Developer set forth in the Development Agreement;
and
|
Whereas, Sonic also has asked that the Guarantor and the Developer
agree
to a restriction on the transfer of the equity interests in the
Developer;
and
|
Whereas,
the Guarantor is willing to
give a personal guaranty as recited above in accordance with the terms and
conditions of this Agreement.
Now,
therefore, in consideration of the
mutual covenants set forth below and other good and valuable consideration,
the
receipt and sufficiency of which the parties hereby acknowledge, the parties
agree as follows:
1.
Personal
Guaranty of all Obligations
. The Guarantor hereby guarantees the
prompt and full payment and performance of the following obligations under
the
Development Agreement:
(a) All
royalties due Sonic pursuant to the License Agreements entered into by and
between the Developer and Sonic pursuant to the Development
Agreement.
(b) All
brand contribution fees to the Sonic Brand Fund pursuant to the License
Agreements entered into by and between the Developer and Sonic pursuant to
the
Development Agreement.
(c) All
contributions to approved advertising cooperatives pursuant to the License
Agreements entered into by and between the Developer and Sonic pursuant to
the
Development Agreement.
(d) All
other duties and financial obligations owing to Sonic or its affiliates by
the
Developer relating to the Development Agreement and the Sonic drive-in
restaurants covered by the License Agreements, including any sign lease
agreements, entered into by and between the Developer and Sonic pursuant
to the
License Agreements.
(e) The
Guarantor hereby approves and agrees to be bound by all duties and financial
obligations owing to Sonic or its affiliates by the Developer under
all existing and future amendments to the Development Agreement
entered into by Developer and Sonic.
2.
Nature
of Guaranty
. This guaranty shall constitute an absolute,
unconditional, irrevocable and continuing guaranty. Sonic shall not
have any obligation to take any action against any other person or entity
for
collection of any payments prior to making any demand for payment or bringing
any action against the Guarantor.
3.
Permitted
Actions
. From time to time, Sonic shall have the right to take,
permit or suffer to occur any “Permitted Action,” as defined below, without
modifying, reducing, waiving, releasing, impairing or otherwise affecting
the
obligations of the Guarantor under this Agreement, without giving notice
to the
Guarantor or obtaining the Guarantor’s consent, without the necessity of any
reservations of rights against the Guarantor, and without liability on the
part
of Sonic. As used in this Section 3, the phrase “Permitted Action”
shall mean (a) an agreed amendment, extension of time or change in the manner
or
place of payment or performance of any financial obligation or duty under
the
Development Agreement or the License Agreements, (b) any waiver, leniency
or
indulgence by Sonic of any default under the provisions of the Development
Agreement or the License Agreements and (c) any delay or failure by Sonic
to
exercise any right or remedy Sonic may have under the Development Agreement
or
the License Agreements.
4.
Waiver
of Notice of Acceptance
. The Guarantor acknowledges and waives
notice of Sonic’s acceptance of the Guarantor’s guaranty pursuant to the terms
of this Agreement.
5.
Restrictions
on Transfer
. The Developer shall not issue any additional shares
of capital stock without the prior, written consent of Sonic. The
Guarantor shall not transfer, assign or pledge any of its shares of capital
stock in the Developer to any person without the prior, written consent of
Sonic.
6.
Disputes
. Any
dispute between the parties concerning this Agreement will be resolved in
accordance with the arbitration provisions contained in the Development
Agreement.
7.
Attorneys’
Fees, Costs and Expenses
. In any action brought by Sonic to
enforce the obligations of the Guarantor, Sonic also shall have the right
to
collect its reasonable attorneys’ fees, court costs, and expenses incurred in
the action.
8.
Headings
. The
headings used in this Agreement appear strictly for the parties’ convenience in
identifying the provisions of this Agreement and shall not affect the
construction or interpretation of the provisions of this Agreement.
9.
Binding
Effect
. This Agreement binds and inures to the benefit of the
parties and their respective successors, legal representatives, heirs and
permitted assigns.
10.
Waiver
. The
failure of a party to insist in any one or more instances on the performance
of
any term or condition of this Agreement shall not operate as a waiver of
any
future performance of that term or condition.
11.
Governing
Law
. Notwithstanding the place where the parties execute this
Agreement, the internal laws of Oklahoma shall govern the construction of
the
terms and the application of the provisions of this Agreement.
12.
Amendments
. No
amendments to this Agreement shall become effective or binding on the parties,
unless agreed to in writing by all of the parties.
13.
Time
. Time
constitutes an essential part of each and every part of this
Agreement.
14.
Notice
. Except
as otherwise provided in this Agreement, when this Agreement makes provision
for
notice or concurrence of any kind, the sending party shall deliver or address
the notice to the other party by certified mail, telecopy, or
nationally-recognized overnight delivery service to the following address
or
telecopy number:
Sonic:
300 Johnny Bench Drive
Oklahoma
City, Oklahoma
73104
Attention:
General
Counsel
Facsimile
(405) 225-5973
Guarantor: _____________________________
_____________________________
(___)
___-____
Developer: _____________________________
_____________________________
(___)
___-____
All
notices pursuant to the provisions
of this Agreement shall run from the date that the other party receives the
notice or three business days after the party places the notice in the United
States mail. Each party may change the party’s address by giving
written notice to the other parties.
Executed
and delivered as of the day
and year first set forth above.
Sonic: Sonic
Industries LLC
By:
________________________________
(Vice)
President
Guarantor:
____________________________________
Developer:
____________________________________
By:
_________________________________
(Vice)
President
Exhibit
21.01
Subsidiaries
of the Company
America’s
Drive-In Brand Properties LLC, a Kansas limited liability company
America’s
Drive-In Holding Inc., a Kansas corporation
America’s
Drive-In Restaurants LLC, a Kansas limited liability company
Sonic
Capital LLC, a Delaware limited liability company
Sonic
Community Development, Inc., an Oklahoma corporation
Sonic
Industries LLC, a Delaware limited liability company
Sonic
Industries Franchising LLC, a Delaware limited liability company
Sonic
Industries Services Inc., an Oklahoma corporation
Sonic
Restaurants, Inc., an Oklahoma corporation
Sonic
Property Development, L.L.C., an Oklahoma limited liability company
Sonic
Technology Fund, L.L.C., an Oklahoma limited liability company
Sonic
Value Card, L.L.C., a Virginia limited liability company
SPOTlight,
LLC, an Oklahoma limited liability company
SRI
Real
Estate Holding LLC, a Delaware limited liability company
SRI
Real
Estate Properties LLC, a Delaware limited liability company
As
of
August 31, 2007, Sonic Restaurants, Inc. or America’s Drive-In Holding Inc. owns
the majority interest in 654 partnerships and limited liability companies,
each
of which operates a Sonic Drive-In restaurant. The names of those 654
majority-owned entities have been omitted.
Exhibit
23.01
Consent
of Independent Registered Public Accounting Firm
We
consent to the incorporation by
reference in the Registration Statement (Form S-8 No. 333-26359) pertaining
to
the Sonic Corp. Savings and Profit Sharing Plan, Registration Statement (Form
S-8 No. 333-
131450
)
pertaining to the Sonic Corp. 2006
Long-Term Incentive Plan, the Registration Statement (Form S-8 No. 333-64890)
pertaining to the 1991 Sonic Corp. Stock Option Plan, 2001 Sonic Corp. Stock
Option Plan and 2001 Sonic Corp. Directors’ Stock Option Plan, the Registration
Statements (Forms S-8 No. 333-09373, No. 33-40989 and No. 33-78576)
pertaining to the 1991 Sonic Corp. Stock Option Plan, the Registration Statement
(Form S-8 No. 33-40988) pertaining to the 1991 Sonic Corp. Stock Purchase
Plan, the Registration Statement (Form S-8 No. 33-40987) pertaining to the
1991
Sonic Corp. Directors’ Stock Option Plan and the Registration Statement (Form
S-3 No. 33-95716) for the registration of 1,420,000 shares of its common stock,
and the related Prospectuses of our reports dated October 17, 2007, with respect
to the consolidated financial statements and schedule of Sonic Corp. and the
effectiveness of internal control over financial reporting of Sonic Corp.,
included in the Annual Report (Form 10-K) for the year ended August 31,
2007.
|
ERNST
&
YOUNG
LLP
|
Oklahoma
City, Oklahoma
|
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October
24, 2007
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Exhibit
31.01
CERTIFICATION
I,
J.
Clifford Hudson, certify that:
1.
I have
reviewed this annual report on Form 10-K of Sonic Corp.;
2.
Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made,
in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4.
The
registrant's other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange
Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) and internal control
over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)
for the registrant and have:
a.
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b.
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c.
evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d.
disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in this case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting.
5.
The
registrant's other certifying officer(s) and I have disclosed, based on our
most
recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a.
all
significant deficiencies and material weaknesses in the design or operation
of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and
report financial information; and
b.
any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the registrant's internal control over financial
reporting.
Date:
October 26, 2007
/s/
J. Clifford Hudson
|
J.
Clifford Hudson,
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Chief
Executive Officer
|
Exhibit
31.02
CERTIFICATION
I,
Stephen C. Vaughan, certify that:
1.
I have
reviewed this annual report on Form 10-K of Sonic Corp.;
2.
Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made,
in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4.
The
registrant's other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange
Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a.
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b.
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c.
evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d.
disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in this case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting.
5.
The
registrant's other certifying officer(s) and I have disclosed, based on our
most
recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a.
all
significant deficiencies and material weaknesses in the design or operation
of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and
report financial information; and
b.
any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the registrant's internal control over financial
reporting.
Date:
October 26, 2007
/s/
Stephen C. Vaughan
|
Stephen
C. Vaughan,
|
Chief
Financial Officer
|
Exhibit
32.01
CERTIFICATION
PURSUANT TO
18
U.S.C.
SECTION 1350
The
undersigned hereby certifies that to his knowledge the annual report of Sonic
Corp. (the “Company”) filed with the Securities and Exchange Commission on the
date hereof fully complies with the requirements of Section 13(a) or 15(d)
of
the Securities Exchange Act of 1934 and that the information contained in such
report fairly represents, in all material respects, the financial condition
and
results of operations of the Company.
Date:
October 26, 2007
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|
|
|
|
|
|
|
/s/
J. Clifford Hudson
|
|
|
J.
Clifford Hudson,
|
|
|
Chief
Executive Officer
|
Exhibit
32.02
CERTIFICATION
PURSUANT TO
18
U.S.C.
SECTION 1350
The
undersigned hereby certifies that to his knowledge the annual report of Sonic
Corp. (the “Company”) filed with the Securities and Exchange Commission on the
date hereof fully complies with the requirements of Section 13(a) or 15(d)
of
the Securities Exchange Act of 1934 and that the information contained in such
report fairly represents, in all material respects, the financial condition
and
results of operations of the Company.
Date:
October 26, 2007
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|
|
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|
|
|
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/s/
Stephen C. Vaughan
|
|
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Stephen
C. Vaughan,
|
|
|
Chief
Financial Officer
|