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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
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RULE 14a-6(e)(2))
[x] Definitive Proxy Statement
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| x Definitive Proxy Statement | |
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SYSCO CORPORATION
- --------------------------------------------------------------------------------
(Name
(Name of Registrant as Specified In Its Charter)
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N/A
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CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
[SYSCO LOGO]
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SYSCO CORPORATION
1390 ENCLAVE PARKWAY
HOUSTON, TEXAS 77077-2099
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 12, 2004
11, 2005
To the Stockholders of Sysco Corporation:
The Annual Meeting of Stockholders of Sysco Corporation, a Delaware corporation, will be held on Friday, November 12, 200411, 2005 at 10:00 a.m. at The Omni
HoustonHoustonian Hotel located at Four Riverway,111 North Post Oak Lane, Houston, Texas 77056,77024, for the following purposes:
1. To elect four directors;
2. To ratify the appointment of Ernst & Young LLP as SYSCO's
independent accountants for fiscal 2005;
3. To approve the 2004 Stock Option Plan;
4. To approve the payment of compensation to certain executive
officers pursuant to the 2004 Long-Term Incentive Cash Plan so that
the deductibility of such compensation will not be limited by
Section 162(m) of the Internal Revenue Code;
5. To consider a shareholder proposal requesting that the Board review
the Company's policies for food products containing genetically
engineered ingredients and report to shareholders within six
months; and
| 1. To elect four directors; |
| 2. | To ratify the appointment of Ernst & Young LLP as SYSCO’s independent accountants for fiscal 2006; | |
| 3. | To approve the 2005 Management Incentive Plan; | |
| 4. | To approve the payment of compensation to certain executive officers pursuant to the 2000 Management Incentive Plan so that the deductibility of such compensation will not be limited by Section 162(m) of the Internal Revenue Code; | |
| 5. | To approve the 2005 Non-Employee Directors Stock Plan; and | |
| 6. | To transact any other business as may properly be brought before the meeting or any adjournment thereof. |
Only stockholders of record at the close of business on September 14, 200413, 2005 will be entitled to receive notice of and to vote at the Annual Meeting. You may inspect a list of stockholders of record at the Company'sCompany’s offices during regular business hours during the 10-day period before the Annual Meeting. You may also inspect this list at the Annual Meeting.
We hope you will be able to attend the Annual Meeting in person. Whether or not you plan to attend in person, we urge you to promptly vote your shares by telephone, by the Internet or by returning the enclosed proxy card in order that your vote may be cast at the Annual Meeting.
By Order of the Board of Directors
/s/ RICHARD J. SCHNIEDERS
Richard J. Schnieders
Chairman of the Board and
Chief Executive Officer
September 27, 2004
| By Order of the Board of Directors | |
 | |
| Richard J. Schnieders | |
| Chairman of the Board, Chief | |
| Executive Officer and President |
October 3, 2005
TABLE OF CONTENTS
SYSCO CORPORATION
1390 ENCLAVE PARKWAY
HOUSTON, TEXAS 77077-2099
PROXY STATEMENT
2004
2005 ANNUAL MEETING OF STOCKHOLDERS
September 27, 2004
INFORMATION ABOUT ATTENDING THE ANNUAL MEETING
October 3, 2005
Information About Attending the Annual Meeting
Our Annual Meeting will be held on Friday, November 12, 2004,11, 2005, at 10:00 a.m. at The Omni HoustonHoustonian Hotel located at Four Riverway,111 North Post Oak Lane, Houston, Texas 77056.
INFORMATION ABOUT THIS PROXY STATEMENT77024.
Information About This Proxy Statement
We sent you these proxy materials because our Board of Directors is soliciting your proxy to vote your shares at the Annual Meeting. We began mailing these proxy materials to stockholders on or about September 27, 2004.
WHO CAN VOTEOctober 3, 2005.
Who Can Vote
You can vote at the Annual Meeting if you owned shares at the close of business on September 14, 2004.13, 2005. You are entitled to one vote for each share you owned on that date on each matter presented at the Annual Meeting.
On September 14, 2004,13, 2005, there were 639,006,420626,300,461 shares of Common Stock outstanding. All of our current directors director nominees and executive officers (27(26 persons) owned an aggregate of 2,817,9342,381,123 shares, which was less than 1% of our outstanding stock as of September 14, 2004.13, 2005. We expect that these individuals will vote their shares in favor of electing the four nominees named below, for ratification of the appointment of the independent accountants, for approving the 2004 Stock Option2005 Management Incentive Plan, for approving compensation payments to certain executive officers under the 2004 Long-Term2000 Management Incentive Cash Plan, and againstfor approving the shareholder proposal.
HOW TO VOTE2005 Non-Employee Directors Stock Plan.
How to Vote
You may vote your shares as follows:
- in person at the Annual Meeting;
- by telephone (see the enclosed proxy card for instructions);
- by Internet (see the enclosed proxy card for instructions); or
-
| • | in person at the Annual Meeting; | |
| • | by telephone (see the enclosed proxy card for instructions); | |
| • | by Internet (see the enclosed proxy card for instructions); or | |
| • | by mail by signing, dating and mailing the enclosed proxy card. |
If you vote by proxy, the individuals named on the proxy card (your proxies) will vote your shares in the manner you indicate. You may specify whether your shares should be voted for all, some or none of the nominees for director, and you may abstain with respect to any other matter or specify whether your shares should be voted for or against the ratification of the appointment of the independent accountants, for or against approval of the 2004 Stock Option2005 Management Incentive Plan, for or against payment of compensation to certain executive officers under the 2004 Long-Term2000 Management Incentive
Cash Plan, and for or against approval of the shareholder proposal.2005 Non-Employee Directors Stock Plan.
If you sign and return your proxy card without indicating your voting instructions, your shares will be voted FOR the election of the four nominees for director, FOR the ratification of the appointment of Ernst & Young as independent accountants for fiscal 2005,2006, FOR the 2004 Stock Option2005 Management Incentive Plan, FOR the
payment of compensation to certain executive officers under the 2004 Long-Term2000 Management Incentive Cash Plan, and AGAINSTFOR the shareholder proposal.
2005 Non-Employee Directors Stock Plan.
If your shares are not registered in your own name and you plan to attend the Annual Meeting and vote your shares in person, you should contact your broker or agent in whose name your shares are registered to obtain a proxy executed in your favor and bring it to the Annual Meeting in order to vote.
HOW TO REVOKE OR CHANGE YOUR VOTE
How to Revoke or Change Your Vote
You may revoke or change your proxy at any time before it is exercised by:
- delivering written notice of revocation to SYSCO's Corporate Secretary in
time for him to receive it before the Annual Meeting;
- voting again by telephone, Internet or mail; or
-
| • | delivering written notice of revocation to SYSCO’s Corporate Secretary in time for him to receive it before the Annual Meeting; | |
| • | voting again by telephone, Internet or mail; or | |
| • | voting in person at the Annual Meeting. |
The last vote that we receive from you will be the vote that is counted.
BROKER NON-VOTES
Broker Non-Votes
A broker non-vote occurs when a broker holding shares for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting authority and has not received voting instructions from the beneficial owner. New York Stock Exchange rules permit brokers to vote on
proposals 1, 2 and 4; however, brokers may not vote on proposals 3 or 5 without
your instruction.
QUORUM REQUIREMENT
Quorum Requirement
A quorum is necessary to hold a valid meeting. A quorum will exist if the holders of at least 35% of all the shares entitled to vote at the meeting are present in person or by proxy. Abstentions and broker non-votes are counted as present for establishing a quorum.
VOTES NECESSARY FOR ACTION TO BE TAKEN
Votes Necessary for Action to be Taken
Four directors will be elected at the meeting by a plurality of all the votes cast at the meeting, meaning that the four nominees in Class IIII with the most votes will be elected. The affirmative vote of a majority of all of the votes cast is required to approve the ratification of the appointment of the independent accountants, the 2004 Stock Option2005 Management Incentive Plan, the payment of compensation to certain executive officers under the 2004 Long-Term2000 Management Incentive Cash Plan, and the shareholder proposal.2005 Non-Employee Directors Stock Plan. In addition, NYSE rules require that at least 50% of the shares outstanding on September 14, 200413, 2005 actually cast a vote (either for, against or abstain) with respect to the proposalproposals to approve the 20042005 Management Incentive Plan and 2005 Non-Employee Directors Stock
Option Plan. Broker non-votes are not votes "cast"“cast” for this purpose. Abstentions are not counted for purposes of the election of directors, but will have the effect of a vote "against"“against” the other proposals. Broker non-votes will have no effect on the election of directors and will be disregarded with respect to all other proposals.
WHO WILL COUNT VOTES
Who Will Count Votes
We will appoint one or more Inspectors of Election who will determine the number of shares outstanding, the voting power of each, the number of shares represented at the Annual Meeting, the existence of a quorum and whether or not the proxies and ballots are valid and effective.
The Inspectors of Election will determine, and retain for a reasonable period a record of the disposition of, any challenges and questions arising in connection with the right to vote and will count all votes and ballots cast for and against and any abstentions with respect to all proposals and will determine the results of each vote.
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COST OF PROXY SOLICITATION
Cost of Proxy Solicitation
We will pay the cost of solicitation of proxies including preparing, printing and mailing this proxy statement. We will authorize banks, brokerage houses and other custodians, nominees and fiduciaries to forward copies of proxy materials and will reimburse them for their costs in sending the materials.
We have retained Georgeson Shareholder to help us solicit proxies from these entities and certain individual stockholders, in writing or by telephone, at an estimated fee of $11,000 plus reimbursement for their out-of-pocket expenses.
RECEIVING PROXY MATERIALS ON THE INTERNET
Receiving Proxy Materials on the Internet
Registered stockholders may sign up on the Internet to receive future proxy materials and other stockholder communications on the Internet instead of by mail. This will reduce our printing and postage costs. In order to receive the communications electronically, you must have an e-mail account, access to the Internet through an Internet service provider and a web browser that supports secure connections. You can access the Internet site atwww.econsent.com/syy for additional information and to sign up. You will be asked to enter the number of your stock account with our transfer agent, EquiServe Trust Company, N.A. That number is shown on dividend checks, on stock certificates and on your proxy card. After you have provided identification and transmitted your e-mail address, the transfer agent will send you an e-mail message confirming your acceptance of electronic stockholder communications.
When proxy materials for next year'syear’s Annual Meeting are ready for distribution, those who have accepted electronic receipt will receive e-mail notice of their Control Numberscontrol numbers and the Internet site for viewing proxy materials and for voting. Acceptance of electronic receipt will remain in effect until it is withdrawn. You can withdraw your consent or change your e-mail address by following the procedures at the above-referenced Internet site.
Many brokerage firms and banks are also offering electronic proxy materials to their clients. If you are a beneficial owner of SYSCO stock that is held for you by a broker or bank, you should contact that broker or bank to find out whether this service is available to you.
OTHER MATTERS
Other Matters
We do not know of any matter that will be presented at the Annual Meeting other than the election of directors and the proposals discussed in this proxy statement. However, if any other matter is properly presented at the Annual Meeting, your proxies will act on such matter in their best judgment.
ANNUAL REPORT
Annual Report
A copy of our 20042005 Annual Report to Shareholders, including our Annual Report on Form 10-K for fiscal 2005, without exhibits and as filed with the SEC, is being mailed with this proxy statement. We will furnish a copyadditional copies of our Annual Report on Form 10-K for
fiscal 2004, without exhibits and as filed with the SEC, without charge upon your written request if you are a record or beneficial owner of Common Stock whose proxy we are soliciting in connection with the Annual Meeting. Please address requests for a copy of the Annual Report on Form 10-K to the Investor Relations Department, SYSCO Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099. The Annual Report on Form 10-K is also available on our website under "SEC Filings"“SEC Filings” atwww.sysco.com/investor/investor.html.
ELECTION OF DIRECTORS
ITEM NO. 1 ON THE PROXY CARD
The Board of Directors is currently consists of 12 members divided into three classes of four, three and four directors each. The directors in each class serve for a three-year term. A different class is elected each year to succeed the directors whose terms are expiring. Frank H. Richardson, whose term expires at this year's
annual meeting, has declinedThomas E. Lankford retired from the board in July 2005 and the size of the board was reduced from 12 to stand for re-election. John M. Cassaday has been
nominated in his place.
its current size of 11.
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The Board of Directors has nominated the following four persons for election as directors in Class IIII to serve for three-year terms or until their successors are elected and qualified:
- Colin G. Campbell
- John M. Cassaday
- John K. Stubblefield, Jr.
- Jackie M. Ward
| • | Judith B. Craven | |
| • | Richard G. Merrill | |
| • | Phyllis S. Sewell | |
| • | Richard G. Tilghman |
All of the nominees other than Mr. Cassaday, are currently serving as directors of SYSCO. All of the nominees have consented to serve if elected. Although management does not contemplate the possibility, in the event any nominee is not a candidate or is unable to serve as a director at the time of the election, the proxies will vote for any nominee who is designated by the present Board of Directors to fill the vacancy.
Set forth below is biographical information for each nominee for election as a director at the 20042005 Annual Meeting:
Judith B. Craven, M.D., 59, has served as a director of SYSCO since 1996. Dr. Craven served as President of the United Way of the Texas Gulf Coast from 1992 until her retirement in September 1998. Dr. Craven is also a director of Belo Corporation, Luby’s Cafeterias, Inc., Sun America Funds and VALIC. She is also a Regent for the University of Texas. Dr. Craven is a member of the Corporate Governance and Nominating Committee and the Finance Committee.
Richard G. Merrill, 74, has served as a director of SYSCO since 1983. Currently retired, he formerly served as Executive Vice President of The Prudential Insurance Company of America. Mr. Merrill is Chairman of the Compensation and Stock Option Committee and is also a member of the Audit Committee and Executive Committee.
Phyllis S. Sewell, 74, has served as a director of SYSCO since 1991. Currently retired, she formerly served as Senior Vice President of Federated Department Stores, Inc. Mrs. Sewell is a member of the Compensation and Stock Option Committee and Corporate Governance and Nominating Committee.
Richard G. Tilghman, 65, has served as a director of SYSCO since November 2002. Mr. Tilghman served as Vice Chairman and Director of SunTrust Banks from 1999 until his retirement in 2000. He served as Chairman and Chief Executive Officer of Crestar Financial Corporation, a bank holding company, from 1986 until 1999. Mr. Tilghman is Chairman of the Audit Committee and is also a member of the Compensation and Stock Option Committee and the Executive Committee.
The Board of Directors recommends a vote FOR the nominees listed above.
The following Class II directors are serving terms that expire in 2006:
Jonathan Golden, 68, has served as a director of SYSCO since 1984. Mr. Golden is a partner of Arnall Golden Gregory LLP, counsel to SYSCO. Mr. Golden is a member of the Executive Committee and the Finance Committee.
Joseph A. Hafner, Jr., 60, has served as a director of SYSCO since November 2003. He is chairman of Riviana Foods, Inc., a position he has held since March 2005. He served as president and chief executive officer of Riviana from 1984 until March 2005. Mr. Hafner is Chairman of the Finance Committee and is also a member of the Audit Committee and the Executive Committee.
Richard J. Schnieders, 57, has served as a director of SYSCO since 1997. Mr. Schnieders has served as Chairman and Chief Executive Officer of SYSCO since January 2003. He assumed the additional role of President in July 2005. Mr. Schnieders previously served as President from July 2000 through December 2002 and as Chief Operating Officer from January 2000 through December 2002. Mr. Schnieders served as Executive Vice President, Foodservice Operations from January 1999 to July 2000 and as Senior Vice President, Merchandising Services and Multi-Unit Sales from 1997 until January 1999. From 1992 until 1997, he served as Senior Vice President, Merchandising Services. From 1988 until 1992, Mr. Schnieders served as
4
President and Chief Executive Officer of Hardin’s-Sysco Food Services, LLC. He has been employed by SYSCO since 1982. Mr. Schnieders also serves as a director of Aviall, Inc. Mr. Schnieders is Chairman of the Executive Committee and is also a member of the Finance Committee and the Employee Benefits Committee.
The following Class III directors are serving terms that expire in 2007:
Colin G. Campbell, 68, 69, has served as a director of SYSCO since 1989. Mr. Campbell is Chairman, President and Chief Executive Officer of the Colonial Williamsburg Foundation, a private operating foundation. He also serves as a director of Pitney Bowes Inc. and Rockefeller Financial Services, Inc. From 1988 to 2000, Mr. Campbell served as the President of Rockefeller Brothers Fund. Mr. Campbell is Chairman of the Corporate Governance and Nominating Committee and is also a member of the AuditCompensation and Stock Option Committee and the Executive Committee.
John M. Cassaday, 51, 52, has served as a director of SYSCO since November 2004. He is president and chief executive officer of Corus Entertainment, Inc., a media and entertainment company based in Canada, a position he has held since September 1999. He is also a
director of Corus. Mr. Cassaday also serves as a director of Loblaw Companies
Limited, Masonite International CorporationCorus and Manulife Financial Corporation. Mr. Cassaday is a member of the Audit Committee and the Finance Committee.
John K. Stubblefield, Jr., 58,59, has served as a director of SYSCO since January 2003. Mr. Stubblefield is Executive Vice President, Finance and Administration of SYSCO,Chief Financial Officer, a position he has held since January 2000.2005. He served as Executive Vice President, Finance and Administration from January 2000 until January 2005. He served as Senior Vice President, Finance and Administration from 1998 to January 2000 and as Senior Vice President, Controller and Chief Financial Officer from 1994 to 1998. He served as Vice President and Controller from 1992 to 1993 and as Senior Vice President and Controller from 1993 to 1994. He served as Vice President of Finance of Nobel/SYSCO Food Services Company from 1986 to 1992 and as Controller of SYSCO'sSYSCO’s Houston subsidiary from 1984 until 1986. Mr. Stubblefield is a member of the Employee Benefits Committee.
Jackie M. Ward, 66, 67, has served as a director of SYSCO since September 2001. Ms. Ward is an Outside Managing Director of Intec Telecom Systems PLC. In 1968,Currently retired, Ms. Ward founded in 1968, and later served as Chairman, President and Chief Executive Officer of, Computer Generation Incorporated, which was acquired in December 2000 by Intec Telecom Systems PLC, a software company based in December 2000.the United Kingdom. Ms. Ward is also a director of Bank of America, Equifax Inc., Flowers Foods, Inc., Sanmina-SCI Corporation and Anthem,WellPoint, Inc. Ms. Ward is a member of the Audit Committee and Compensation and Stock Option
Committee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED ABOVE.
The following Class I directors are serving terms that expire in 2005:
Judith B. Craven, M.D., 58, has served as a director of SYSCO since 1996.
Dr. Craven served as President of the United Way of the Texas Gulf Coast from
1992 until her retirement in September 1998. Dr. Craven is also a director of
Belo Corporation, Luby's Cafeterias, Inc., Sun America Funds and VALIC. She is
also a Regent for the University of Texas. Dr. Craven is a member of the
Corporate Governance and Nominating Committee and Finance Committee.
Richard G. Merrill, 73, has served as a director of SYSCO since 1983.
Currently retired, he formerly served as Executive Vice President of The
Prudential Insurance Company of America. Mr. Merrill is also a director of W.R.
Berkley Corporation. Mr. Merrill is Chairman of the Compensation and Stock
Option
4
Committee and is also a member of the Audit Committee and Executive Committee.
Mr. Merrill has been selected to preside at executive sessions of the
non-management directors during fiscal 2005.
Phyllis S. Sewell, 73, has served as a director of SYSCO since 1991.
Currently retired, she formerly served as Senior Vice President of Federated
Department Stores, Inc. Mrs. Sewell is a member of the Compensation and Stock Option Committee and the Corporate Governance and Nominating Committee.
Richard G. Tilghman, 64, has served as a director of SYSCO since November
2002. Mr. Tilghman served as Vice Chairman and Director of SunTrust Banks from
1999 until his retirement in 2000. He served as Chairman and Chief Executive
Officer of Crestar Financial Corporation, a bank holding company, from 1986
until 1999. Mr. Tilghman serves as a director of Chesapeake Corporation. Mr.
Tilghman is Chairman of the Audit Committee and is also a member of the
Compensation and Stock Option Committee.
The following Class II directors are serving terms that expire in 2006:
Jonathan Golden, 67, has served as a director of SYSCO since 1984. Mr.
Golden is a partner of Arnall Golden Gregory LLP, counsel to SYSCO. Mr. Golden
also serves as a director of PRG-Schultz International, Inc. Mr. Golden is a
member of the Executive Committee and Finance Committee.
Joseph A. Hafner, Jr., 59, has served as a director of SYSCO since November
2003. He is president and chief executive officer of Riviana Foods, Inc., a
position he has held since 1984. He is also a director of Riviana. Mr. Hafner is
a member of the Audit Committee and Finance Committee.
Thomas E. Lankford, 57, has served as a director of SYSCO since July 2000.
Mr. Lankford is President and Chief Operating Officer of SYSCO, a position he
has held since January 2003. Mr. Lankford served as Executive Vice President
from July 2000 through December 2002 and as President, Foodservice Operations,
North America, from January 2002 through December 2002. He served as Executive
Vice President of Merchandising and Multi-Unit Sales from 1999 until July 2000
and as Senior Vice President of Operations -- Northeast Region from 1995 until
1999. Mr. Lankford served as President of Lankford-Sysco Food Services, LLC from
1981 until 1995. Mr. Lankford is a member of the Executive Committee, Finance
Committee and Employee Benefits Committee.
Richard J. Schnieders, 56, has served as a director of SYSCO since 1997.
Mr. Schnieders is Chairman and Chief Executive Officer of SYSCO, a position he
has held since January 2003. Mr. Schnieders served as President from July 2000
through December 2002 and as Chief Operating Officer from January 2000 through
December 2002. Mr. Schnieders served as Executive Vice President, Foodservice
Operations from January 1999 to July 2000 and as Senior Vice President,
Merchandising Services and Multi-Unit Sales from 1997 until January 1999. From
1992 until 1997, he served as Senior Vice President, Merchandising Services.
From 1988 until 1992, Mr. Schnieders served as President and Chief Executive
Officer of Hardin's-Sysco Food Services, LLC. He has been employed by SYSCO
since 1982. Mr. Schnieders also serves as a director of Aviall, Inc. Mr.
Schnieders is a member of the Executive Committee, Finance Committee and
Employee Benefits Committee.
Unless otherwise noted, the persons named above have been engaged in the principal occupations shown for the past five years or longer.
DIRECTOR COMPENSATION
Director Compensation
| 2005 Compensation |
During fiscal 2005, our non-employee directors received the following compensation, in addition to the expense reimbursements discussed below:
| Annual Retainer | Meeting Attendance Fees | Options | Retainer Shares | |||||||||||||
| Name | ($) | ($) | (#) | (#) | ||||||||||||
| Campbell | $ | 67,500 | (3) | $ | 22,000 | 8,000 | — | |||||||||
| Cassaday | 30,000 | (3) | 9,000 | 8,000 | 4,000 | |||||||||||
| Craven | 60,000 | (1)(3) | 13,000 | 8,000 | — | |||||||||||
| Golden | 60,000 | (1)(3) | 8,000 | (2) | 8,000 | — | ||||||||||
| Hafner | 65,000 | (1)(3) | 21,000 | (2) | 8,000 | — | ||||||||||
| Merrill | 67,500 | (1)(3) | 26,500 | (2) | 8,000 | — | ||||||||||
| Sewell | 60,000 | (1)(3) | 15,000 | (2) | 8,000 | — | ||||||||||
| Tilghman | 67,500 | (3) | 28,000 | 8,000 | — | |||||||||||
| Ward | 60,000 | (1)(3) | 16,000 | (2) | 8,000 | — | ||||||||||
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| (1) | One-half of these retainer fees were deferred under the Directors Deferred Compensation Plan. |
| (2) | All of these meeting attendance fees were deferred under the Directors Deferred Compensation Plan. |
| (3) | All of the non-employee directors elected to receive 50% of their retainer fees in the form of common stock. The Company issued one additional share for every two elected shares. Amounts shown do not reflect the value of the additional shares. |
| Fees |
We pay non-employee directors who serve as committee chairpersons $65,000$70,000 per year and all other non-employee directors $60,000 per year plus reimbursement of expenses for all services as a director, including committee participation or special assignments. Directors are encouraged to have their spouses accompany them to dinners and other functions held in connection with board meetings, and the company pays, either directly or through reimbursement, all expenses associated with their travel to and attendance at these business-related functions.
In addition to the annual retainer, non-employee directors receive the following fees for attendance at meetings:
- For committee meetings held in conjunction with regular Board meetings,
committee chairmen who attend in person (or who participate by telephone
because of illness or the inability to travel) will
5
receive $1,500 and committee members who attend in person (or who
participate by telephone because of illness or the inability to travel)
will receive $1,000;
- For special committee meetings (not held in conjunction with regular
Board meetings), committee chairmen who attend in person or who
participate by telephone will receive $1,500 and committee members who
attend in person or who participate by telephone will receive $1,000; and
- For special Board meetings, all non-employee directors who attend in
person or who participate by telephone will receive $1,000.
| • | For committee meetings held in conjunction with regular Board meetings, committee chairmen who attend in person (or who participate by telephone because of illness or the inability to travel) will receive $1,500 and committee members who attend in person (or who participate by telephone because of illness or the inability to travel) will receive $1,000; | |
| • | For special committee meetings (not held in conjunction with regular Board meetings), committee chairmen who attend in person or who participate by telephone will receive $1,500 and committee members who attend in person or who participate by telephone will receive $1,000; and | |
| • | For special Board meetings, all non-employee directors who attend in person or who participate by telephone will receive $1,000. |
| Directors Deferred Compensation Plan |
Non-employee directors may defer all or a portion of their annual retainer and meeting attendance fees under the Directors Deferred Compensation Plan. Non-employee directors may choose from a variety of investment options, including Moody'sMoody’s Average Corporate Bond Yield plus 1%, with respect to amounts deferred. Such deferred amounts will be credited with investment gains or losses until the non-employee director'sdirector’s retirement from the Board or until the occurrence of certain other events. Dr. Craven, Mr. Golden, Mr. Hafner, Mr.
Merrill, Mrs. Sewell and Ms. Ward elected to defer some or all of their annual
compensation for 2004.
| Non-Employee Directors Stock Plan |
In May 1998, the Board of Directors adopted, and our stockholders subsequently approved, the SYSCO Non-Employee Directors Stock Plan. Certain
amendments to theThe Plan were adopted by the Boardwas amended in September 2001, and approved
by our stockholdersshareholders are being asked to approve a new plan at the 20012005 Annual Meeting. If the new proposed plan is approved, no further grants will be made under the current plan. The new proposed plan is described in more detail beginning on page 43. All historical data with respect to grants of stock options under our benefit plans contained in this Proxy Statement has been adjusted to reflect stock splits.
Options. Under this Plan,the current plan, non-employee directors are eligible to receive stock options if, for the immediately preceding fiscal year, we have achieved after-tax basic earnings per share of 10% over the previous year. Non-employee directors will continue to be eligible to receive stock options under the new proposed plan if it is approved; however, there will be no performance requirement. The size of individual grants and vesting terms will be set by the Board at the time of grant. In fiscal 2004, we grantedIf the new proposed plan is approved, each non-employee member of the Board will receive a grant of 3,500 options to purchase an aggregate of 72,000
shares under this Plan to nine non-employee directors.in November 2005. These options are expected to vest over a three-year period and will have a weighted averageseven-year term. The exercise price of $32.48, vest ratably over a five-year period
and expire ten years afterwill be determined on the date of grant based on the fair market value of the shares subject to the option on the date of grant.
6
In fiscal 2005, to date, we have granted options to purchase an aggregate of 72,000 shares to nine non-employee directors. These options have ana weighted average exercise price of $32.88,$33.10, vest ratably over a five-year period and expire seven years after the date of grant. Non-employee
directors are eligible to participate in the Company's Equity Deferral Plan
described on page 20.
Elected Shares. This Plan The current plan also permits each non-employee director to elect to receive up to one-half of his or her annual retainer in Common Stock, in which case we will provide a matching grant of 50% of the number of shares received as a portion of the retainer. Mr. Campbell, Dr. Craven, Mr. Golden, Mr.
Hafner, Mr. Merrill, Mr. Richardson, Mrs. Sewell, Mr. Tilghman and Ms. Ward made
this election during fiscal 2004.
Retainer Shares. In addition, as of Under the date of each year's annual
meeting,current plan, each newly elected director who has not previously received a retainer award is granted a one-time retainer award of 4,000 shares. These shares vest in thirds every other year during a six-year period based on increases in earnings per share. Any retainer shares that have not vested as of the sixth anniversary of the date of grant are forfeited. Mr. HafnerCassaday received a retainer stock award of 4,000 shares onupon his election to the Board on November 7, 2003.12, 2004.
Under the new proposed plan, retainer awards for newly elected directors will consist of 6,000 shares and will vest ratably over a three-year period without regard to performance.
Restricted Stock. Under the new proposed plan, the Board will be authorized to issue restricted stock to non-employee directors on terms set forth in the plan. If the new proposed plan is approved, each non-employee member of the Board will receive a grant of 3,000 restricted shares in November 2005. These restricted shares will vest ratably over a three-year period.
No other compensation was paid for director services during the fiscal year ended July 3, 2004.2, 2005. See "Certain“Certain Relationships."
6
BOARD MEETINGS AND ATTENDANCE”
Board Meetings and Attendance
The Board of Directors held eightsix meetings during fiscal 20042005 and all directors attended 75% or more of the aggregate of:
- the total number of meetings of the Board of Directors, and
- the total number of meetings held by all committees of the Board on which
he or she served during fiscal 2004.
| • | the total number of meetings of the Board of Directors, and | |
| • | the total number of meetings held by all committees of the Board on which he or she served during fiscal 2005. |
It is the policy of the Board that all directors attend the Annual Meeting of Stockholders. In fiscal 2004,2005, all directors except one attended the Annual Meeting.
COMMITTEES OF THE BOARD
Committees of the Board
The following directors serve on the committees indicated:
| Compensation and | Corporate Governance | |||||||||||
| Audit | Stock Option | and Nominating | ||||||||||
| Name | Committee | Committee | Committee | |||||||||
| Colin G. | x | x | * | |||||||||
| John M. Cassaday | x | |||||||||||
| Judith B. | x | |||||||||||
| Joseph A. Hafner, Jr. | x | |||||||||||
| Richard G. | x | x | * | |||||||||
| Phyllis S. | x | x | ||||||||||
| Richard G. | x | * | x | |||||||||
| Jackie M. | x | x | ||||||||||
| * | Chairman of the Committee |
7
The Audit Committee held 12 meetings during fiscal 2004.2005. The function of the Audit Committee is to oversee and report to the Board with respect toincludes oversight of various auditing and accounting matters, including the selection of our independent public accountants, the scope of the audit procedures, the nature of all audit and non-audit services to be performed, the fees to be paid to the independent public accountants, the performance of our independent public accountants and our accounting practices and policies.
The Compensation and Stock Option Committee held fiveseven meetings during fiscal 2004.2005. The function of the Compensation and Stock Option Committee is to evaluate and determine the annual compensation of the Chief Executive Officer, to consider the annual compensation of executive officers, and non-employee directors, and to oversee the administration of SYSCO'sSYSCO’s Management Incentive Plan, stock incentive and option plans, the 2004 Long-Term Incentive Cash Plan, the Supplemental Performance Based Bonus Plan and other executive benefit plans.
The Corporate Governance and Nominating Committee held five meetings during fiscal 2004.2005. The function of the Corporate Governance and Nominating Committee is to propose directors, committee members and officers for election or reelection, to evaluate (in conjunction with the Compensation and Stock Option Committee) the performance of the Chief Executive Officer, and Chief Operating
Officer, to review the performance of the members of the Board and its committees, to consider the annual compensation of non-employee directors, and to review and make recommendations regarding the organization and effectiveness of the Board and its committees, the establishment of corporate governance principles, the conduct of meetings, succession planning and SYSCO'sSYSCO’s governing documents.
The Board of Directors also has a Finance Committee which held five meetings during fiscal 2004.2005. The function of the Finance Committee is to assist the Board in satisfying its fiduciary responsibilities relating to
7
financial performance and financial planning of the Company in pursuing its financial objectives. The Committee reviews policies regarding capital structure, dividends and liquidity; reviews risk assessment and risk management policies; reviews and recommends the sale or issuance of equity and certain debt securities; reviews acquisitions and financing alternatives; reviews and approves certain capital expenditures; and establishes and monitors high-level investment and funding objectives and investment performance and funding of the Company'sCompany’s tax-qualified retirement and non-qualified benefit plans. The Finance Committee is chaired by Frank H. RichardsonJoseph A. Hafner, Jr., and its members include Mr. Cassaday, Dr. Craven, Mr. Golden Mr. Hafner, Mr. Lankford and Mr. Schnieders.
The Board of Directors also has an Employee Benefits Committee that
oversees the maintenance and administration of the Corporation's employee stock
purchase, welfare benefit, and tax-qualified retirement plans. Messrs. Lankford,
Schnieders and Stubblefield serve as members of this Committee.
The Board of Directors also has an Executive Committee which held one meeting during fiscal 2004.2005. The Executive Committee is authorized to exercise all of the powers of the Board when necessary, to the extent permitted by applicable law. The Executive Committee is chaired by Mr. Schnieders and its members include Mr. Campbell, Mr. Golden, Mr. Lankford,Hafner, Mr. Merrill and Mr. Richardson.
ChartersTilghman.
The Board of Directors also has an Employee Benefits Committee that oversees the maintenance and administration of the Corporation’s employee stock purchase, welfare benefit, and tax-qualified retirement plans. Messrs. Schnieders and Stubblefield serve as members of this Committee.
Current copies of the charters for the Audit Committee, the Compensation and Stock Option Committee, the Corporate Governance and Nominating Committee and the Finance Committee are availablepublished on the Company'sCompany’s website atwww.sysco.com/investor/governance.html and are available in print by writing to the Investor Relations Department, SYSCO Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099. The Audit Committee Charter is also attached to this Proxy Statement as AppendixAnnex A.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation Committee Interlocks and Insider Participation
Mr. Campbell, Mr. Merrill, Mrs. Sewell, Mr. Tilghman and Ms. Ward each served on the Compensation and Stock Option Committee during fiscal 2004.2005. During fiscal 2004,2005, none of the members of the Committee was an officer or employee of SYSCO or any of its subsidiaries or served as an officer of any company with respect to which any executive officer of SYSCO served on such company'scompany’s board of directors, and none had any relationship with the Company requiring disclosure under Item 404 of SEC Regulation S-K. In addition, none of the members of the Committee are former employees of SYSCO or any of its subsidiaries.
8
CERTAIN RELATIONSHIPS
Mr. Golden is the sole stockholder of Jonathan Golden, P.C., a partner in the law firm of Arnall Golden Gregory LLP, Atlanta, Georgia, counsel to SYSCO. We believe that the fees paid to this firm in fiscal 2005 were fair and reasonable in view of the level and extent of services rendered.
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE GUIDELINES
In fiscal 2003, the
Corporate Governance Guidelines
The Board of Directors has adopted the Sysco Corporation Corporate Governance Guidelines. These guidelines outline the functions of the Board, director qualifications and responsibilities, and various processes and procedures designed to ensure effective and responsive governance. These guidelines also outline considerations for determining qualification for membership to the Board such as diversity, age, skills, experience, time available and the number of other boards the member sits on in the context of the needs of the Board and the Company. The guidelines are reviewed from time to time in response to changing regulatory requirements and best practices and are revised accordingly. The guidelines were last revised in fiscal 2004.September 2005. The full
text of the guidelines can be foundCorporate Governance Guidelines are published on our website atwww.sysco.com/investor/governance.html, and isare available in print by writing to the Investor Relations Department, SYSCO Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099.
8
CODE OF BUSINESS CONDUCT
Code of Business Conduct
All of our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller, are required to comply with our long-standing Code of Business Conduct to help ensure that our business is conducted in accordance with the highest standards of moral and ethical behavior. Our Code of Business Conduct covers all areas of professional conduct, including customer relationships, equal opportunity, payment of gratuities and receipt of payments or gifts, competition and fair dealing, political contributions, antitrust, conflicts of interest, insider trading, financial disclosure, intellectual property and confidential information, as well as requiring strict adherence to all laws and regulations applicable to our business. Employees are required to report any violations or suspected violations of the Code and may do so by using SYSCO'sSYSCO’s ethics hotline. The Code includes an anti-retaliation statement. The full text
of the Code of Business Conduct is published on our website atwww.sysco.com/investor/governance.html and is available in print by writing to the Investor Relations Department, SYSCO Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099.
PRESIDING DIRECTOR; COMMUNICATING WITH THE BOARD
Presiding Director; Communicating with the Board
The non-management directors meet in executive session without members of management present at every regular Board meeting. During fiscal 2004,2005, the non-management directors held five executive sessions without the CEO or any other member of management present. Richard G. Merrill,Tilghman, chairman of the Compensation and Stock OptionAudit Committee, has been selected to preside at these executive sessions during fiscal 2005.2006. In addition, beginning in fiscal 2005, the non-employee directors, other than Mr. Golden and any other director who may be deemed not independent, will meet in executive session at least once a year.
Interested parties may communicate with Mr. Merrill,Tilghman, the non-management directors as a group and the other members of the Board by confidential email. All emails will be delivered to the presiding director who will forward them as appropriate. The Board requests that certain items unrelated to the duties and responsibilities of the Board not be submitted, such as product inquiries and complaints, job inquiries, business solicitations and junk mail. The form to communicate by email is accessible in the corporate governance section of SYSCO'sSYSCO’s website atwww.sysco.com/investor/contact__board.html.
DIRECTOR INDEPENDENCEcontact_board.html.
9
Director Independence
Our Corporate Governance Guidelines require that at least a majority of our directors meet the criteria for independence established by the New York Stock Exchange for continued listing, and all other applicable legal requirements. Additionally, all members of the Audit Committee, Compensation and Stock Option Committee and Corporate Governance and Nominating Committee are required to be independent.
Under New York Stock Exchange listing standards, to be considered independent, a director must be determined to have no material relationship with SYSCO other than as a director. The standards specify the criteria by which the independence of directors will be determined, including guidelines for directors and their immediate family members with respect to employment or affiliation with SYSCO or its independent public accountants.
In addition to the NYSE'sNYSE’s standards for independence, the Company'sCompany’s Corporate Governance Guidelines provide that the following relationships will not impair a director'sdirector’s independence: (i) if a SYSCO director is an executive officer of another company that does business with SYSCO and the annual sales to, or purchases from, SYSCO are less than two percent of the annual revenues of the company he or she serves as an executive officer; (ii) if a SYSCO director is an executive officer of another company which is indebted to SYSCO, or to which SYSCO is indebted, and the total amount of either company'scompany’s indebtedness to the other is less than two percent of the total consolidated assets of the company he or she serves as an executive officer; and (iii) if a SYSCO director serves as an officer, director or trustee of a charitable organization, and SYSCO'sSYSCO’s discretionary charitable contributions to the organization are less than two percent of that organization'sorganization’s total annual charitable receipts (SYSCO's(SYSCO’s automatic matching of employee charitable contributions to higher education will not be included in the amount of SYSCO'sSYSCO’s contributions for this purpose).
9
After reviewing all relevant relationships of the directors, and director
nominee, the Board of Directors has determined that ColinMr. Campbell, JohnMr. Cassaday, JudithDr. Craven, JosephMr. Hafner, RichardMr. Merrill, Frank Richardson
PhyllisMrs. Sewell, RichardMr. Tilghman and JackieMs. Ward are independent under the NYSE standards and the categorical standards set forth in the Corporate Governance Guidelines and described above. The Board has also determined that each member of the Audit Committee, Compensation and Stock Option Committee and Corporate Governance and Nominating Committee is independent.
NOMINATING COMMITTEE PROCEDURES
Nominating Committee Procedures
In accordance with its Charter, the Corporate Governance and Nominating Committee will observe the following procedures in identifying and evaluating candidates for election to the Company'sCompany’s Board of Directors:
1. In considering candidates for election to the Board, the Committee
will determine the incumbent directors whose terms expire at the upcoming
annual meeting and who wish to continue their service on the Board. The
Committee will also identify and evaluate new candidates for election to
the Board for the purpose of filling vacancies.
- The Committee will solicit recommendations for nominees from persons
that the Committee believes are likely to be familiar with qualified
candidates. These persons may include members of the Board and
management of the Company. The Committee may also determine to engage
a professional search firm to assist in identifying qualified
candidates. Where such a search firm is engaged, the Committee shall
set its fees and scope of engagement.
- In making its selection, the Committee will also consider nominations
made by stockholders in conformity with Section 8 of the Company's
Bylaws. The Committee will evaluate candidates proposed by
stockholders in conformity with Section 8 of the Company's Bylaws
under the same criteria used to evaluate other candidates.
2. As to all incumbent and new candidates that the Committee believes
merit consideration, the Committee will --
- cause to be assembled information concerning the background and
qualifications of the candidate, including information required to be
disclosed in the Company's proxy statement under the rules of the SEC
or any other regulatory agency or exchange or trading system on which
the Company's securities are listed, and any relationship between the
candidate and the person or persons recommending the candidate;
- determine if the candidate satisfies the qualifications required by
the Company's Corporate Governance Guidelines of candidates for
election as director as set forth under "Corporate Governance
Guidelines" above;
- determine if the candidate possesses qualities, experience or skills
that the Committee has determined to be desirable;
- consider the contribution that the candidate can be expected to make
to the overall functioning of the Board;
- consider the candidate's capacity to be an effective director in
light of the time required by the candidate's primary occupation and
service on other boards;
- consider the extent to which the membership of the candidate on the
Board will promote diversity among the directors; and
- consider, with respect to an incumbent director, whether the director
satisfactorily performed his or her duties as director during the
preceding term, including attendance and participation at Board and
Committee meetings, and other contributions as a director.
| 1. In considering candidates for election to the Board, the Committee will determine the incumbent directors whose terms expire at the upcoming annual meeting and who wish to continue their service on the Board. The Committee will also identify and evaluate new candidates for election to the Board for the purpose of filling vacancies. |
| • | The Committee will solicit recommendations for nominees from persons that the Committee believes are likely to be familiar with qualified candidates. These persons may include members of the Board and management of the Company. The Committee may also determine to engage a professional search firm to assist in identifying qualified candidates. Where such a search firm is engaged, the Committee shall set its fees and scope of engagement. | |
| • | In making its selection, the Committee will also consider nominations made by stockholders in conformity with Section 8 of the Company’s Bylaws. The Committee will evaluate candidates proposed by stockholders in conformity with Section 8 of the Company’s Bylaws under the same criteria used to evaluate other candidates. |
10
3. In its discretion, the Committee may designate one or more of its
members (or the entire Committee) to interview any proposed candidate.
4. Based on all available information and relevant considerations, the
Committee will recommend to the full Board for nomination those candidates
who, in the view of the Committee, are most suited for membership on the
Board.
5. The Committee shall maintain appropriate records regarding its
process of identifying and evaluating candidates for election to the Board.
Mr. Cassaday was initially recommended to the Corporate Governance and
Nominating Committee by Heidrick & Struggles, a professional search firm engaged
by the Committee to help recruit new directors. In the course of its engagement,
Heidrick & Struggles identified and provided background information on Mr.
Cassaday and other potential candidates.
| 2. As to all incumbent and new candidates that the Committee believes merit consideration, the Committee will– |
| • | cause to be assembled information concerning the background and qualifications of the candidate, including information required to be disclosed in the Company’s proxy statement under the rules of the SEC or any other regulatory agency or exchange or trading system on which the Company’s securities are listed, and any relationship between the candidate and the person or persons recommending the candidate; | |
| • | determine if the candidate satisfies the qualifications required by the Company’s Corporate Governance Guidelines of candidates for election as director as set forth under “Corporate Governance Guidelines” above; | |
| • | determine if the candidate possesses qualities, experience or skills that the Committee has determined to be desirable; | |
| • | consider the contribution that the candidate can be expected to make to the overall functioning of the Board; | |
| • | consider the candidate’s capacity to be an effective director in light of the time required by the candidate’s primary occupation and service on other boards; | |
| • | consider the extent to which the membership of the candidate on the Board will promote diversity among the directors; and | |
| • | consider, with respect to an incumbent director, whether the director satisfactorily performed his or her duties as director during the preceding term, including attendance and participation at Board and Committee meetings, and other contributions as a director. |
| 3. In its discretion, the Committee may designate one or more of its members (or the entire Committee) to interview any proposed candidate. | |
| 4. Based on all available information and relevant considerations, the Committee will recommend to the full Board for nomination those candidates who, in the view of the Committee, are most suited for membership on the Board. | |
| 5. The Committee shall maintain appropriate records regarding its process of identifying and evaluating candidates for election to the Board. |
As indicated above, the Corporate Governance and Nominating Committee will consider candidates for director recommended by stockholders of the Company. The procedures for submitting stockholder recommendations are explained below under "Stockholder Proposals" beginning“Stockholder Proposals” on page 46.
STOCK OWNERSHIP GUIDELINES49.
Stock Ownership Guidelines
The Corporate Governance Guidelines provide that after five years of service as a non-employee director, such individuals are expected to continuously own a minimum of 10,000 shares.shares of SYSCO common stock. All of the current directors other than Mr.Messrs. Cassaday and Hafner beneficially held the requisite number of shares as of September 14, 2004.13, 2005. Mr. Cassaday has served on the Board for less than one year and Mr. Hafner has served on the Board for less than one year. Mr.
Cassaday does not currently own any shares of SYSCO Common Stock.two years. Stock ownership guidelines applicable to executive officers are described on page 20.
11
EXECUTIVE OFFICERS
The following persons currently serve as executive officers of SYSCO. Each person listed below has served as an officer of SYSCO and/or its subsidiaries for at least the past five years.
| Name | Title | Served in Position Since | Age | |||||||
| Larry J. Accardi* | Executive Vice President, Contract Sales and | 2002 | 56 | |||||||
| President, Specialty Distribution Companies | 2005 | |||||||||
| Kenneth J. Carrig | Executive Vice President and Chief Administrative Officer | 2005 | 48 | |||||||
| Robert J. Davis | Senior Vice President, Contract Sales | 2005 | 47 | |||||||
| Kirk G. Drummond | Senior Vice President and Chief Information Officer | 2005 | 50 | |||||||
| G. Mitchell Elmer | Vice President, Controller and Chief Accounting Officer | 2000 2005 | 46 | |||||||
| James C. Graham | Senior Vice President, Foodservice Operations | 2000 | 55 | |||||||
| Michael W. Green | Senior Vice President, Foodservice Operations | 2004 | 46 | |||||||
| William Holden | Senior Vice President, Foodservice Operations | 2003 | 60 | |||||||
| James E. Lankford | Senior Vice President, Foodservice Operations | 2000 | 52 | |||||||
| Michael C. Nichols | Vice President, General Counsel and Corporate Secretary | 1999 2002 | 53 | |||||||
| Larry G. Pulliam | Executive Vice President, Merchandising Services | 2005 | 49 | |||||||
| Diane D. Sanders | Senior Vice President of Finance and Treasurer | 2004 1994 | 56 | |||||||
| Richard J. Schnieders* | Chairman, Chief Executive Officer and President | 2003 2005 | 57 | |||||||
| Stephen F. Smith | Senior Vice President, Foodservice Operations | 2002 | 55 | |||||||
| Bruce L. Soltis | Senior Vice President, Canadian Foodservice Operations | 2002 | 60 | |||||||
| Kenneth F. Spitler* | Executive Vice President; President of North American Foodservice Operations | 2003 2005 | 56 | |||||||
| John K. Stubblefield, Jr.* | Executive Vice President, Finance and Chief Financial Officer | 2000 2005 | 59 | |||||||
| * | Named Executive |
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STOCK OWNERSHIP
The following table sets forth certain information with respect to the beneficial ownership of Company Common Stock, as of September 14, 2004,13, 2005, by (i) each director, and director nominee, (ii) each Named Executive Officer (as hereinafter defined), and (iii) all directors director nominees and executive officers as a group. To our knowledge, no person or group beneficially owns 5% or more of our Common Stock. Unless otherwise indicated, each stockholder identified in the table has sole voting and investment power with respect to his or her shares.
| Shares of | ||||||||||||||||||||
| Common | Shares of | Shares of | Total Shares of | Percent of | ||||||||||||||||
| Stock | Common Stock | Common Stock | Common Stock | Outstanding | ||||||||||||||||
| Owned Directly | Owned Indirectly | Underlying Options(1) | Beneficially Owned | Shares(2) | ||||||||||||||||
| Larry J. Accardi | 172,142 | — | 268,000 | 440,142 | * | |||||||||||||||
| Colin G. Campbell | 14,561 | 2,000 | (7) | 56,000 | 72,561 | * | ||||||||||||||
| John M. Cassaday | 4,000 | 3,500 | (8) | 1,600 | 9,100 | * | ||||||||||||||
| Judith B. Craven | 32,327 | — | 24,000 | 56,327 | * | |||||||||||||||
| Jonathan Golden | 29,857 | 18,500 | (8) | 56,000 | 104,357 | * | ||||||||||||||
| Joseph A. Hafner, Jr. | 5,268 | — | 4,800 | 10,068 | * | |||||||||||||||
| Thomas E. Lankford(9) | 282,705 | 115,190 | (9) | 304,800 | (9) | 702,695 | * | |||||||||||||
| Richard G. Merrill | 26,388 | — | 64,000 | 90,388 | * | |||||||||||||||
| Richard J. Schnieders | 328,321 | 61,604 | (7) | 292,000 | 681,925 | * | ||||||||||||||
| Phyllis S. Sewell | 22,332 | — | 56,000 | 78,332 | * | |||||||||||||||
| Kenneth F. Spitler | 88,911 | 63,062 | (10) | 229,000 | 380,973 | * | ||||||||||||||
| John K. Stubblefield, Jr. | 101,984 | — | 284,000 | 385,984 | * | |||||||||||||||
| Richard G. Tilghman | 10,801 | 1,957 | (7) | 9,600 | 22,358 | * | ||||||||||||||
| Jackie M. Ward | 11,785 | — | 16,000 | 27,785 | * | |||||||||||||||
| All Directors and Executive Officers as a Group (26 Persons) | 2,381,123 | (3)(6) | 179,857 | (4) | 2,795,059 | (5) | 5,356,039 | (3)(4)(5)(6) | * | |||||||||||
| (*) | Less than 1% of outstanding shares. | |
| (1) | Includes shares of Common Stock underlying options that are presently exercisable or will become exercisable within 60 days after the date of this proxy statement. | |
| (2) | Applicable percentage ownership at September 13, 2005 is based on 626,300,461 shares of Common Stock outstanding, adjusted in the case of certain options. Shares of Common Stock subject to options that are presently exercisable or will become exercisable within 60 days after the date of this proxy statement are deemed outstanding for computing the percentage ownership of the person holding such options, but are not deemed outstanding for computing the percentage ownership of any other persons. | |
| (3) | Includes an aggregate of 1,532,446 shares directly owned by the current executive officers other than the Named Executive Officers. | |
| (4) | Includes an aggregate of 29,234 shares owned by the spouses and/or dependent children of current executive officers other than the Named Executive Officers. | |
| (5) | Includes an aggregate of 1,434,059 shares of Common Stock underlying options that are presently exercisable or will become exercisable within 60 days after the date of this proxy statement held by current executive officers other than the Named Executive Officers. | |
| (6) | Does not include an aggregate of 4,011 shares that have been elected to be received by the non-employee directors in lieu of retainer fees during the first half of calendar 2005, and 2,003 matching shares. Pursuant to the Non-Employee Directors | |
| (7) | These shares are held by the spouse of the director or executive officer. | |
| (8) | These shares are held by a family trust or corporation affiliated with the director. |
13
| (9) | Mr. Lankford resigned as Chief Operating Officer and |
| (10) | The total number of shares owned indirectly by Mr. Spitler includes 190 shares held by his children and 62,872 shares held by a family limited partnership. |
SECTION 16(A)16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 and the rules issued thereunder, our executive officers and directors and any persons holding more than ten percent (10%) of our Common Stock are required to file with the Securities and Exchange Commission and the New York Stock Exchange reports of initial ownership of our Common Stock and changes in ownership of such Common Stock. To our knowledge, no person beneficially owns more than 10% of our Common Stock. Copies of the Section 16 reports filed by our directors and executive officers are required to be furnished to us. Based solely on our review of the copies of the reports furnished to us, or written representations that no reports were required, we believe that, during fiscal 2004,2005, all of our executive officers and directors complied with the Section 16(a) requirements, with the following exceptions:
- Frank H. Richardson inadvertently filed a late Form 4 with respect to the
purchase of 1,000 shares in March 2000. The Form 4 was filed on April 1,
2004.
- James C. Graham inadvertently filed a late Form 4 with respect to the
exercise of options on March 11, 2004. The Form 4 was filed on March 23,exception:
| • | Bruce L Soltis inadvertently filed a late Form 4 in connection with the exercise of options on December 15, 2004. The Form 4 was filed on May 2, 2005. |
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information regarding equity compensation plans as of July 3, 2004.
2, 2005.
| Number of Securities Remaining | |||||||||||||
| Number of Securities to be | Available for Future Issuance | ||||||||||||
| Issued Upon Exercise of | Weighted-Average Exercise | Under Equity Compensation | |||||||||||
| Outstanding Options, | Price of Outstanding Options, | Plans (Excluding Securities | |||||||||||
| Warrants and Rights | Warrants and Rights | Reflected in Column (a)) | |||||||||||
| Plan Category | (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | 65,743,065 | (1)(2) | $ | 27.87 | 34,608,660 | (3)(4) | |||||||
| Equity compensation plans not approved by security holders | -0- | -0- | -0- | ||||||||||
| Total | 65,743,065 | (1)(2) | $ | 27.87 | 34,608,660 | (3)(4) | |||||||
| (1) | Does not include 220,315 shares of Common Stock subject to options that were assumed in connection with our acquisition of Guest Supply, Inc. in March 2001. These options have a weighted average exercise price per share of $13.26. |
| (2) | Does not give effect to options to purchase approximately 4,827,500 shares of Common Stock granted in September 2005 under our 2004 Stock Option Plan at an exercise price per share of $33.01. |
| (3) | Includes 23,392,000 shares of Common Stock issuable pursuant to our 2004 Stock Option Plan, 135,898 shares issuable pursuant to our Non-Employee Directors Stock Plan, 4,345,650 shares issuable under our 2000 Management Incentive Plan, and 6,735,112 shares issuable pursuant to our Employees’ Stock Purchase Plan as of July 2, 2005. Does not reflect the issuance of options to purchase approximately 4,827,500 shares of Common Stock in September 2005 pursuant to our 2004 Stock Option Plan, the issuance of 617,697 shares in August 2005 pursuant to the 2000 Management Incentive Plan, or the issuance of 410,375 shares in July 2005 pursuant to the 1974 Employees’ Stock Purchase Plan. |
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| (4) | As of September 13, 2005, a total of 68,821,227 options remained outstanding under all of the Company’s option plans. These options have a weighted average exercise price of $28,31 and an average remaining term of 5.22 years. If the 2005 Management Incentive Plan and 2005 Non-Employee Directors Stock Plan are approved by |
Report of the Company's option plans. These options have a weighted
average exercise price of $27.43Compensation and an average remaining term of four
years. If the 2004 Stock Option Plan is approved by stockholders, no
additional shares will be issued under the 2000 Stock Incentive Plan. The
remaining pool of available shares under the Company's option plans will
include the shares authorized under the 2004 Stock Option Plan and 159,734
shares under the Non-Employee Directors Stock Plan. Additionally, there are
4,345,650 shares that remain available for grant under the 2000 Management
Incentive Plan. Assuming that all remaining shares are paid out over the
life of the 2000 Management Incentive Plan, approximately 2,897,100 will be
issued in lieu of cash bonus payments at the election of the participants,
and 1,448,550 will be issued as matching shares. There are also 8,030,297
shares remaining available for issuance under the 1974 Employees Stock
Purchase Plan.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEECommittee
This report documents the components of SYSCO'sSYSCO’s compensation programs for its executive officers and describes the basis on which fiscal 20042005 compensation determinations were made with respect to the executive officers of SYSCO, including Mr. Schnieders, who has served as Chief Executive Officer since January 1, 2003. All fiscal 20042005 compensation decisions with respect to base salaries, annual incentive compensation and option grants under stock option plans for our executive officers, including the CEO, were made by the Compensation and Stock Option Committee.
| Overall Executive Compensation Philosophy |
Since SYSCO became a publicly held corporation in 1970, we have directly linked the compensation of executive officers to SYSCO'sSYSCO’s performance. Specifically, the Committee has tied the level of SYSCO'sSYSCO’s executive compensation to increases in SYSCO'sSYSCO’s earnings per share, and return on shareholders' equity.shareholders’ equity and operating company performance. We have historically accomplished this through the following means:
- A "pay-for-performance" orientation, with respect to compensation other
than base salary, based upon a combination of SYSCO performance and
operating company performance for corporate officers, and operating
company performance for operating company senior management;
- A significant portion of total cash compensation is at risk, i.e., linked
to Company performance;
- Base salaries generally at or below the 25th percentile of the range of
base salaries payable to corporate officers of certain surveyed
industrial corporations who have job content and/or responsibilities
comparable to those of SYSCO's corporate officers;
- Potentially significant annual incentive bonuses under SYSCO's management
incentive plan; and
- Long-term incentives primarily in the form of stock options and
restricted shares in lieu of annual bonus.
| • | A “pay-for-performance” orientation, with respect to compensation other than base salary, based upon a combination of SYSCO performance and operating company performance for corporate officers, and operating company performance for operating company senior management; | |
| • | A significant portion of total cash compensation is at risk, i.e., linked to Company performance; | |
| • | Base salaries generally at or below the 25th percentile of the range of base salaries payable to corporate officers of certain surveyed industrial corporations who have job content and/or responsibilities comparable to those of SYSCO’s corporate officers; | |
| • | Potentially significant annual incentive bonuses under SYSCO’s management incentive plan; | |
| • | Long-term incentives primarily in the form of stock options; and | |
| • | The addition, in fiscal 2005, of a long-term incentive cash plan for MIP participants and a supplemental bonus plan for the CEO. |
The factors and criteria upon which the determination of the fiscal 20042005 compensation of the Chief Executive Officer were based were the same as those discussed below with respect to all executive officers, except as otherwise described below with respect to SYSCO'sSYSCO’s senior vice presidents of foodservice operations.
15
operations, and as described below with respect to the CEO’s supplemental bonus plan.
In fiscal 2004,2005, Mr. Schnieders earned a total compensation package equal to $5,358,865.$4,786,090, exclusive of perquisites, which were valued at less than $50,000. This compensation amount included (a) salary of $912,500;$981,250; (b) base bonus of $2,788,500$2,059,050 (40% of which was paid in restricted stock, 20% of which was deferred, and 40% of which was paid in cash); (c) additional restricted matching shares valued at $557,700;$411,810; (d) additional cash of $214,715$152,246 to coverminimize the tax effect of the additional matching shares received; (e) a deferred match of $278,850;$205,905; (f) a supplemental cash bonus of $370,629; and (f) 90,000(g) 85,000 options with a Black-ScholesBlack-
15
Scholes grant date present value of $606,600. In 2004, the Company entered into a Severance Agreement with Mr.
Schnieders as discussed below.$605,200. Further information regarding these components is included below as well as in the tables that follow this report.
| Base Salaries |
We have established base salaries of our executive officers in the range of compensation payable to executive officers of U.S. industrial corporations without reference to specific SYSCO performance criteria. We reexamine this range of compensation from time to time through a survey of compensation practices by an independent compensation consultant across a broad cross-section of U.S. industrial corporations. The survey sample does not necessarily include those companies in the peer group included in the performance graph on page 2728 due to the differing size, management responsibilities and organizational structures of those corporations relative to SYSCO. We last reviewed base salaries for the executive officers on November 7, 2003,May 12, 2005, and increases were made effective JanuaryJune 1, 2004.2005. At that time, Mr. Schnieders'Schnieders’ annual base salary was increased approximately 15%7.7% from $850,000$975,000 to $975,000.$1,050,000. It has been our consistent practice to maintain the Chief Executive Officer'sOfficer’s base salary at or below the 25th percentile of the range of base salaries payable to chief executive officers of the surveyed industrial corporations who have chief executive officers with job content and/or responsibilities comparable to those of SYSCO'sSYSCO’s Chief Executive Officer.
Incentive Compensation
| Incentive Compensation |
| Management Incentive Bonus |
SYSCO provides annual incentive compensation to all executive officers through the SYSCO Corporation Management Incentive Plan (the "MIP"“MIP”). The current MIP was approved by stockholders in November 2000. A new Management Incentive Plan is being presented to stockholders for their approval at the 2005 Annual Meeting. If approved, the new proposed plan would be effective for fiscal year 2007 bonuses. A description of the new proposed plan begins on page 31. Participants in the MIP include all of SYSCO'sSYSCO’s corporate officers, including the executive officers, and senior management, generally the presidents and executive vice presidents, of SYSCO'sSYSCO’s operating companies. The MIP is designed to offer opportunities for compensation that is tied directly to our performance. In addition, the MIP is designed to foster significant equity ownership in SYSCO by the executive officers and all other participants in the MIP. MIP bonuses earned during the fiscal year are paid during the first quarter of the following fiscal year.
For executive officers other than senior vice presidents of foodservice operations, incentive bonuses earned in fiscal 20042005 and paid in fiscal 20052006 were calculated under the MIP in two parts. The first part was based on the overall performance of SYSCO and was based upon the percentage increase in earnings per share and the return on shareholders'shareholders’ equity. The MIP utilized a matrix based on these two factors to determine award levels, resulting in an award of 185.5%100.1% of base salary to each executive officer participating in this portion of the MIP. The second portion of the fiscal 20042005 incentive bonus under the MIP for executive officers was based upon the number of SYSCO operating companies that achieved a target return on capital. This portion of the incentive bonus is paid only when the operating companies achieving the goals, in the aggregate, represent at least 50% of the total capital of all of SYSCO'sSYSCO’s operating companies, which was the case during fiscal 2004,2005, resulting in an award of 100.5%96.0% of base salary to each executive officer participating in this portion of the MIP.
For senior vice presidents of foodservice operations, a portion of their bonus was based upon the two-part calculation set forth above and a portion was based upon the aggregate financial results of those operating subsidiaries or divisions for which they were responsible, considered as one company. This portion is based upon the interplay between the aggregate percentage increase in pretax earnings and operating pretax earnings of their supervised operations and the aggregate return on capital of their supervised operations, adjusted in certain instances for operating companies that are involved in SYSCO'sSYSCO’s facility expansion ("fold-out"(“fold-out”) program.
16
For fiscal 2004,2005, Mr. Schnieders earned a total base bonus of $2,788,500.$2,059,050 under the MIP. Of this amount, $1,808,625$1,051,050 was based on earnings per share and return on shareholders'shareholders’ equity, and $979,875$1,008,000 was based on the number of operating companies achieving a target return on capital.
Stock Election
16
| Supplemental Performance Based Bonus Plan and Agreement |
In February 2005, the Company and Matching GrantMr. Schnieders entered into a Supplemental Performance Based Bonus Agreement under the Supplemental Performance Based Bonus Plan approved by the Committee in November 2004. Pursuant to this agreement, Mr. Schnieders’ bonus for fiscal 2005 was subject to increase or decrease by up to 25% depending upon whether he exceeded or failed to meet certain pre-established performance criteria in the areas of long-term strategy, financial performance, corporate governance, human capital and risk management/ mitigation. Supplemental bonus amounts paid under this plan do not qualify as “performance based compensation” under Section 162(m) of the Code. In orderapproving the plan, the Committee concluded that the importance of aligning a portion of Mr. Schnieders’ compensation with additional performance goals not taken into account under the MIP, combined with the desirability of preserving a certain level of Committee discretion over the total amount of Mr. Schnieders’ bonus payments, outweighed the potential cost to encourage significant equity ownershipthe Company that could result from the non-deductibility of any compensation paid under such plan.
In August 2005, the Committee determined that Mr. Schnieders’ overall performance in SYSCOthese areas for fiscal 2005 exceeded expectations and they set the level of his supplemental bonus at 18% of his base bonus as calculated under the MIP. The amount of the supplemental bonus earned by its
executive officers, theMr. Schnieders in fiscal 2005 and paid in fiscal 2006 was $370,629.
| Stock Election and Matching Grant |
The current MIP provides that participants may voluntarily elect to receive up to 40% of their annual incentive bonus in the form of SYSCO Common Stock, based on a per-share price equal to the closing price on the New York Stock Exchange of SYSCO Common Stock on the last trading day of the fiscal year for which the MIP bonus is calculated. If such election is made, the participant is awarded additional matching shares on the basis of one additional share for each two shares received in accordance with the foregoing calculation.election.
Under the current MIP, participants who elect to receive a portion of their bonus in Common Stock in lieu of cash and receive additional matching shares are entitled to receive additional cash equal to the product of:
| • | the value of such matching shares received by the participant (based on the closing price of such shares on the last trading day of the fiscal year), and | |
| • | the effective tax rate applicable to SYSCO. |
Restricted shares issued under the current MIP are not transferable by the recipient for two years following receipt and are subject to certain repurchase rights on the part of SYSCO in the event of termination of employment other than by normal retirement or disability.
Participants who elect to receive a portion of their bonus in Common Stock
in lieu of cash and receive additional matching shares are entitled to receive
additional cash equal to the product of:
- the value of such matching shares received by the participant (based on
the closing price of such shares on the last trading day of the fiscal
year), and
- the effective tax rate applicable to SYSCO.
Mr. Schnieders elected to receive 40% of his fiscal 20042005 base bonus in SYSCO Common Stock. In connection with this election, Mr. Schnieders received 32,05122,720 shares valued at $1,115,380$823,600 in lieu of cash and a matching grant of 16,02611,360 shares valued at $557,700.$411,800. He also received a cash payment of $214,715$152,246 to offsetminimize the tax effect of the matching grant.
Under the new proposed plan, participants will receive an automatic 28% stock match and will no longer be able to elect to receive a portion of their bonus in SYSCO Common Stock. No tax minimization payments will be made under the new proposed plan.
| Deferred Compensation Election |
MIP participants may defer up to 40% of their annual incentive bonus (without considering any election to receive a portion of the bonus in stock) under the current Executive Deferred Compensation Plan ("EDCP"(“EDCP”). MIP participants may also elect to defer all or a portion of their salary under the EDCP. MIP participants who defer may choose from a variety of investment options, including Moody'sMoody’s Average Corporate Bond Yield plus 1%, with respect to amounts deferred. Amounts deferred under the EDCP are
17
generally payable upon death, disability, retirement or termination of employment pursuant to distribution elections made under the EDCP. Subject to certain limitations contained in the
EDCP, participants may elect to withdraw their vested deferred account balances,
less a 10% penalty, prior to a regular distribution event.
For deferrals of up to 20% of the annual incentive bonus, the EDCP currently provides for SYSCO to credit the participant'sparticipant’s deferred compensation account in an amount equal to 50% of the amount deferred. This matching credit and cumulative earnings, which accrue interest at a rate equal to Moody'sMoody’s Average Corporate Bond Yield plus 1%, vest upon the earliest to occur of:
- the 10th anniversary of the date the matching payment is credited to the
participant's account;
- the participant's reaching age 60;
- the death or permanent disability of the participant; or
-
| • | the 10th anniversary of the date the matching payment is credited to the participant’s account; | |
| • | the participant’s reaching age 60; | |
| • | the death or permanent disability of the participant; or | |
| • | a change in control of SYSCO. |
Mr. Schnieders deferred 20% of his fiscal 20042005 base bonus ($557,700)411,810) and received a matching deferred compensation account credit of $278,850.
17
$205,905.
| Stock Options |
It has been the general practice of the Committee to consider issuing options on a performance basis; that is, only in years when participants in the MIP have earned a bonus under the MIP. It is the current intention of the Committee to continue this practice, although it is not required by the terms of the current or proposedstock option plan. The Committee has not historically considered the current number of outstanding options held by an individual when making its grant decisions.
2000 Stock Incentive Plan. The Committee administers the 2000 Stock Incentive Plan.Plan was replaced by the 2004 Stock Option Plan in November 2004. Although the 2000 plan authorizesauthorized the grant of a variety of awards such as restricted shares and stock appreciation rights, no awards other than stock options have beenwere granted under the plan. All outstanding options under the 2000 plan to date. The plan provides thatwill vest and become fully exercisable in the event of a change in control, all outstanding options would vest and
become fully exercisable.
During fiscalof control.
In September 2004, SYSCO granted options to purchase an aggregate of
13,344,746 shares of its Common Stock to approximately 4,350 employees,
including the 17 executive officers named on page 12, under the 2000 Stock
Incentive Plan. Of the total options granted in fiscal 2004, an aggregate of
796,000 options (approximately 6% of all options granted) were granted to the
executive officers. Options granted to the Named Executive Officers represented
approximately 3% of all options granted. Also included in the total number of
options granted in fiscal 2004 are options to purchase an aggregate of 2,482,000
shares granted to 2,358 non-executive employees based on years of service
("CARES Shares"). Options granted in fiscal 2004 have a weighted average
exercise price of $31.77, vest ratably over a five-year period and have a
ten-year term.
During fiscal 2005 to date, a total of 8,632,7508,515,000 options have beenwere granted to approximately 4,500 employees, including the executive officers, under the 2000 Stock Incentive Plan. Of the total options granted, in fiscal 2005, an aggregate of 547,000481,000 options (approximately 6% of all options granted) were granted to the executive officers and 2,787,000 were granted as CARES Shares to
2,744 non-executive employees basedlisted on years of service.page 12. Options granted to the five Named Executive Officers represented approximately 3% of all options granted. ExceptAll of the options granted in September 2004 have an exercise price of $32.19, a seven-year term and, except for options granted to first-time MIP participants, all of the options
granted in fiscal 2005 have an exercise price of $32.19, vest ratably over a five-year period and have a seven-year term.period. Options granted to first-time MIP participants have an exercise price of $32.19, vest ratably over a three-year period and have a seven-year term.period. As of September 14,November 2004, there were 1,101,889 shares remainingno additional options or other securities available for grant under the 2000 Stock Incentive Plan. If the
2004 Stock Option Plan isPlan. The 2004 plan was approved by stockholders no additional
shares willand became effective in November 2004. The Committee administers the 2004 plan which provides for the grant of stock options only; restricted stock is not authorized to be issued under the 2000 Plan.
During fiscal 2004 Mr. Schnieders received option grants to purchase
90,000 shares at an exercise price of $31.75 per share. These options have a
Black-Scholes grant date present value of $606,600. During fiscal 2005 to date,
Mr. Schnieders has also received an option grant to purchase 85,000 shares at an
exercise price of $32.19 per share. These options have a Black-Scholes grant
date present value of $603,500.plan. The 2004 Stock Option Plan. At the 2004 Annual Meeting, stockholders will be
asked to consider the proposed 2004 Stock Option Plan. Key features of the
proposed Plan are as follows:
- All employees are eligible to participate in the proposed Plan. It is a
three-year plan with a 23.5 million share authorization. The Company's
past stock plans have been for longer duration and authorized more
shares.
- The Plan limits the number of shares that may be issued in any given year to 1.5% of common shares outstanding on the first day of the fiscal year in which the grant isgrants are made. This represents a reduction in the Company's
prior share utilization rate.
- The Plan2004 plan also limits the number of options that may be granted to any named executive officer in any given year to 200,000. - Only stock options and dividend equivalents will be offered under the
proposed Plan; restricted stock is not authorized to be issued under the
proposed Plan. Although the 2000 Plan authorizes the issuance of
restricted stock, none has ever been issued under that plan. Restricted
stock grants can only be issued
18
under the Management Incentive Plan if the participant elects to receive
a portion of his or her annual bonus in stock (see page 17).
- The Plan2004 plan prohibits repricing, discounted stock options, reload stock options and material changes without stockholder approval. The Company
has never repriced outstanding options under any plan, nor has it ever
issued discounted stock options or allowed reload stock options. The
Company has also never made material changes to its plans without
stockholder approval.
- The Plan will be administered by the Compensation and Stock Option
Committee, which is comprised solely of independent, non-employee
directors.
- Options will have a maximum term of seven years and will be subject to a minimum ratable vesting period of three years. Options granted under
prior plans had a 10-year term.
- Shares which are cancelled or forfeited from prior plans will not be again available for grant under the proposed Plan. Additional information regardingIn the proposedevent of a change of control, the 2004 plan provides that all outstanding options would vest and become fully exercisable.
In May 2005, the Committee granted a total of 108,000 options under the 2004 plan to 20 key operating company employees. These options have a weighted average exercise price of $37.06, vest ratably over a five-year period on the anniversary of the date of grant and have a seven-year term. In September 2005, approximately 4,827,500 options were granted to approximately 1,200 employees, including the executive officers, under the 2004 plan. Of the total options granted in September 2005, an aggregate of 876,000 options
18
were granted to the executive officers listed on page 12. Options granted to the Named Executive Officers (other than Mr. Lankford who did not receive any options in September 2005) represented approximately 7% of all options granted. All of the options granted in September 2005 have an exercise price of $33.01, a seven-year term and, except for options granted to first-time MIP participants, vest ratably over a five-year period. Options granted to first-time MIP participants vest ratably over a three-year period. As of September 13, 2005, there were approximately 18,564,500 shares remaining available for grant under the 2004 Stock Option Plan can be
found on pages 30 through 39.
Plan.
In September 2004 (fiscal 2005), Mr. Schnieders received an option grant under the 2000 plan to purchase 85,000 shares at an exercise price of $32.19 per share. These options have a Black-Scholes grant date present value of $605,200. In September 2005 (fiscal 2006), he received a grant under the 2004 plan to purchase 140,000 shares at an exercise price of $33.01 per share. These options have a Black-Scholes grant date present value of $1,079,400.
| Long-Term Incentive Cash Plan |
In September 2004, the Committee recommended and the Board approved the SYSCO Corporation 2004 Long-Term Incentive Cash Plan (the "LTICP"“LTICP”) pursuant to which the executive officers and other key employees have the opportunity to receive cash incentive payments based on a performance measurement period of at least three years. At the beginning of each performance period, participants may be granted a number of performance units, the value of which is established at that time by the Committee. A participant'sparticipant’s cash incentive payments under the LTICP are based on the number of performance units granted to the participant, the value of the participant'sparticipant’s performance units, and a percentage (established by the Committee) that correlates to the level of performance that is achieved under performance criteria set by the Committee. The Committee believes that the design of the LTICP focuses the Company’s executive officers and other key employees on SYSCO’s long-term financial success. The LTICP also reduces the use of option grants and their dilutive effect.
The performance criteria set by the Committee for the three-year period ending June 30, 2007 are based on the participant'sparticipant’s supervised operations with respect to the following: (i) for operating company participants, the average increase in the supervised operations'operations’ operating pre-tax earnings over the performance period, and (ii) for corporate participants, the average increase in SYSCO'sSYSCO’s net after-tax earnings per share over the performance period. The Committee believes that the design of
the LTICP focuses the Company's executive officers and other key employees on
SYSCO's long-term financial success. The LTICP also reduces the use of option
grants and thus their dilutive effect.
In connection with approving the Plan,performance criteria set by the Committee alsofor the three-year period ending June 28, 2008 are based on the participant’s supervised operations with respect to the following: (i) for operating company participants, the average increase in the supervised operations’ operating pre-tax earnings and sales growth (sales are adjusted for inflation and deflation) over the performance period, and (ii) for corporate participants, the average increase in SYSCO’s net after-tax earnings per share and sales growth (sales are adjusted for inflation and deflation) over the performance period.
In September 2004 (fiscal 2005), the Committee approved grants of performance units under the Plan that willcould result in a maximum aggregate payout after the end of the three-year performance period that includes fiscal years 2005 through 2007 of $23,454,375. Mr. Schnieders'Schnieders’ grant with respect to the 2005 through 2007 performance period has a maximum potential value of $4,147,500.
The
In September 2005 (fiscal 2006), the Committee believes that the compensation payable under the LTICP to the
Chief Executive Officer and the other four most highly compensated executive
officers of SYSCO and its subsidiaries as of the end of the last fiscal year of
the performance period with respect to which such compensation would be paid
(collectively, the "162(m) Officers") will qualify for the "performance-based
compensation" exception to the deductibility limitations of Section 162(m) of
the Code (as defined below) if stockholder approval of such payments is
obtained. The payment of compensation to 162(m) Officers pursuant to the LTICP
is being submitted to stockholders for approval at the 2004 Annual Meeting. If
stockholder approval is obtained with respect to such payments, the Company
intends to make payments under the LTICP to 162(m) Officers. If stockholder
approval is not obtained, however, no compensation will be paid under the LTICP
to 162(m) Officers. Additional compensation plans for such officers may or may
not be approved. Each granteeapproved grants of performance units under the LTICP who at this
timePlan that could reasonably be expected to beresult in a 162(m) Officer atmaximum aggregate payout after the end of the 2005three-year performance period that includes fiscal years 2006 through 20072008 of $24,808,875. Mr. Schnieders’ grant with respect to the 2006 through 2008 performance period has agreed to waive any right to a payment under
the LTICP if (i) stockholder approval is not obtained and (ii) such grantee is a
162(m) Officer.
19
Additional information regarding the 2004 Long-Term Incentive Cash Plan can
be found on pages 40 through 43.
maximum potential value of $5,880,000.
| Other Benefits |
Executive officers also participate in SYSCO'sSYSCO’s regular employee benefit programs, which include a pension plan, a 401(k) plan, group medical and dental coverage, group life insurance and other group benefit plans. Executive officers are also provided with additional life insurance benefits, as well as long-term disability coverage. Further details with respect to SYSCO'sSYSCO’s tax-qualified pension plan are provided on pages 2526 and 26.27.
19
In addition, MIP participants are provided with a Supplemental Executive Retirement Plan (the "SERP"“SERP”) which is currently designed, generally, to provide post-retirement annual payments equal to 50%, subject to certain years of service and age requirements, of a qualified participant'sparticipant’s final average annual compensation, in combination with all SYSCO and other employer-provided qualified retirement plan benefits and Social Security paymentspayments.
MIP participants, including the executive officers, are encouraged to have their spouses accompany them at dinners and other functions in connection with certain business meetings and other corporate sponsored events, and SYSCO pays, either directly or by reimbursement, all expenses associated with their travel to and attendance at these business-related functions. The company owns fractional interests in private aircraft which are made available to the participant upon retirement. In the event of a changeexecutive officers and other employees for business use. Spouses may from time to time receive flights on these aircraft in control priorconnection with travel to a regular distribution event, accrued SERP benefits will
become fully vestedbusiness-related function.
Executive officers, as well as many other employees who travel for business purposes, are reimbursed for their membership in travel clubs and participants may elect to receive the current value of
such benefits in a lump sum less a 10% penalty.
Lastly, MIP participants and non-employee directors are eligible to
participate in the Equity Deferral Plan ("EDP") pursuant to which the gain on
the exercise of certain non-qualified stock optionstravel credits that may be deferred. The value
of amounts deferred under the EDP is subject to market fluctuations in the price
of SYSCO stock. Amounts deferred under the EDPused for personal travel. Officers, as well as many other employees, are vested at all timesprovided with cell phones and PDA devices which are paid out in shares of SYSCO stock (except that dividend equivalents may be paid
in cash) upon such participant's death, disability, retirement or termination of
employment pursuant to distribution elections made underfor by the EDP. In the event
of a change in control prior to a regular distribution event, a participant may
elect to receive his or her equity deferral account balance in a lump sum less a
10% penalty.
Stock Ownership GuidelinesCompany and which are intended primarily for business use.
| Stock Ownership Guidelines for Executive Officers |
The Company'sCompany’s Corporate Governance Guidelines provide that after three years of service as an executive officer, such individuals are expected to continuously own a minimum number of shares equal in value to 200% of their base salary. All of the executive officers listed on page 12 who have served as executive officers for at least three years met this requirement as of September 14, 2004.
13, 2005.
| Severance Agreements |
In May 2004, the Committee approved Severance Agreements for Messrs. Schnieders, Lankford, Stubblefield, Accardi and Spitler. The Severance Agreements are described on page 24. The Committee concluded that these
Severance Agreements were in the best interests of the Company and its
stockholders in that they secure the continued services of these executive
officers and ensure their undivided dedication to their duties without being
influenced by the uncertainty of continued employment.
25.
| Income Deduction Limitations |
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"“Code”), generally sets a limit of $1 million on the amount of compensation (other than certain "performance-based"“performance-based” compensation that complies with the requirements of Section 162(m)) that SYSCO may deduct for federal income tax purposes in any given year with respect to the compensation of each of the 162(m) Officers (as defined above).Named Executive Officers. The Committee has determined, after reviewing the effect of Section 162(m), that our general policy will be to structure the performance-based compensation arrangements (other than the Supplemental Performance-Based Bonus Plan) for such 162(m)Named Executive Officers to satisfy Section 162(m)'s’s conditions for deductibility, to the extent feasible and taking into account all relevant considerations. However, the Committee also believes that the Company needs flexibility to meet its incentive 20
and retention objectives, even if the Company may not deduct all of the compensation paid to the 162(m)Named Executive Officers.
COMPENSATION AND STOCK OPTION
COMMITTEE
Richard G. Merrill, Chairman
Phyllis S. Sewell
Richard G. Tilghman
Jackie M. Ward
| COMPENSATION AND STOCK OPTION COMMITTEE | |
| Colin G. Campbell | |
| Richard G. Merrill, Chairman | |
| Phyllis S. Sewell | |
| Richard G. Tilghman | |
| Jackie M. Ward |
20
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Summary Compensation Table
The following table sets forth information with respect to the Chief Executive Officer and the other four most highly compensated executive officers of SYSCO and its subsidiaries employed at the end of fiscal 20042005 whose total annual salary and bonus exceeded $100,000 for the fiscal year ended July 3, 20042, 2005 (the "Named“Named Executive Officers"Officers”):
| Long-Term Compensation | |||||||||||||||||||||||||||||
| Annual Compensation | |||||||||||||||||||||||||||||
| Restricted | Securities | ||||||||||||||||||||||||||||
| Other Annual | Stock | Underlying | All Other | ||||||||||||||||||||||||||
| Name And Principal | Fiscal | Bonus($) | Compensation($) | Awards($) | Options(#) | Compensation($) | |||||||||||||||||||||||
| Position | Year | Salary($) | (1) | (2) | (1)(3) | (4) | (6) | ||||||||||||||||||||||
| Richard J. Schnieders | 2005 | $ | 981,250 | $ | 1,758,335 | — | $ | 1,235,400 | 85,000 | $ | 270,784 | ||||||||||||||||||
| Chairman, Chief Executive | 2004 | 912,500 | 1,887,835 | — | 1,673,080 | 90,000 | 370,544 | ||||||||||||||||||||||
| Officer and President | 2003 | 800,000 | 1,477,824 | — | 1,310,690 | 100,000 | 289,977 | ||||||||||||||||||||||
| Thomas E. Lankford(5) | 2005 | $ | 2,227,083 | $ | 4,775,519 | — | $ | 882,434 | 74,000 | $ | 1,127,094 | ||||||||||||||||||
| 2004 | 662,500 | 1,403,760 | — | 1,244,100 | 90,000 | 297,391 | |||||||||||||||||||||||
| 2003 | 562,500 | 1,043,182 | — | 925,181 | 75,000 | 221,699 | |||||||||||||||||||||||
| John K. Stubblefield, Jr. | 2005 | $ | 547,083 | $ | 753,311 | — | $ | 670,661 | 40,000 | $ | 175,388 | ||||||||||||||||||
| Executive Vice President, | 2004 | 532,500 | 1,055,245 | — | 935,215 | 70,000 | 246,735 | ||||||||||||||||||||||
| Finance and Chief | 2003 | 497,500 | 904,076 | — | 801,839 | 75,000 | 205,796 | ||||||||||||||||||||||
| Financial Officer | |||||||||||||||||||||||||||||
| Larry J. Accardi | 2005 | $ | 526,250 | $ | 713,672 | — | $ | 635,354 | 40,000 | $ | 133,710 | ||||||||||||||||||
| Executive Vice President, | 2004 | 512,500 | 1,016,548 | — | 900,868 | 70,000 | 186,881 | ||||||||||||||||||||||
| Contract Sales and | 2003 | 487,500 | 869,314 | — | 770,989 | 75,000 | 154,562 | ||||||||||||||||||||||
| President, Specialty | |||||||||||||||||||||||||||||
| Distribution Companies | |||||||||||||||||||||||||||||
| Kenneth F. Spitler | 2005 | $ | 526,250 | $ | 713,672 | — | $ | 635,354 | 40,000 | $ | 148,938 | ||||||||||||||||||
| Executive Vice President; | 2004 | 512,500 | 1,016,548 | — | 900,868 | 70,000 | 204,776 | ||||||||||||||||||||||
| President of North | 2003 | 475,000 | 869,314 | — | 770,989 | 75,000 | 172,094 | ||||||||||||||||||||||
| American Foodservice Operations | |||||||||||||||||||||||||||||
| (1) | Pursuant to the current Management Incentive Plan and |
| The amounts reported in the “Bonus” column include amounts paid in cash and amounts deferred by each of the Named Executive Officers, as well as supplemental bonus amounts earned by Mr. Schnieders and certain severance payments paid to Mr. Lankford (see footnote 5). The “Bonus” column also includes cash received to minimize the tax effect of any additional shares received pursuant to the match |
21
| feature of the current Management Incentive Plan. The components of the amounts reported in the “Bonus” column for each Named Executive Officer |
| Cash Portion of | Cash Tax | Deferred | Supplemental | Severance | Bonus Column | |||||||||||||||||||
| Name | Base Bonus | Effect | Amount | Bonus | Payment(5) | Amount | ||||||||||||||||||
| Schnieders | $ | 823,650 | $ | 152,246 | $ | 411,810 | $ | 370,629 | — | $ | 1,758,335 | |||||||||||||
| Lankford | 294,166 | 108,747 | 588,300 | — | $ | 3,784,306 | 4,775,519 | |||||||||||||||||
| Stubblefield | 223,555 | 82,648 | 447,108 | — | — | 753,311 | ||||||||||||||||||
| Accardi | 423,586 | 78,298 | 211,788 | — | — | 713,672 | ||||||||||||||||||
| Spitler | 211,798 | 78,298 | 423,576 | — | — | 713,672 | ||||||||||||||||||
| The value of any shares elected to be received in lieu of cash and any matching shares is included in the “Restricted Stock Awards” column and additional information about such shares is included in footnote 3 below. Any amounts credited pursuant to the deferred match feature of the current EDCP are included in the “All Other Compensation” column and described in footnote 6 below. | |
| (2) | Does not include perquisites and other personal benefits because they did not exceed for any individual $50,000 in the aggregate. See “Other Benefits” in the Report of the Compensation and Stock Option Committee. |
| (3) | Each of the Named Executive Officers elected to receive a portion of his bonus in shares of restricted Common Stock pursuant to the current Management Incentive Plan. Pursuant to the Management Incentive Plan, the Company made a matching grant of one additional share for each two shares received pursuant to such election. The amount presented in the “Restricted Stock Awards” column is determined by multiplying the number of shares earned during the fiscal year by the closing price ($36.25) of our Common Stock on the New York Stock Exchange on the last trading day of such fiscal year. |
| The number of restricted shares earned by the Named Executive Officers in fiscal 2005 and issued in fiscal 2006 was as follows: |
| • | Mr. Schnieders — 34,080 shares (22,720 elected shares and 11,360 match shares); | |
| • | Mr. Lankford — 24,343 shares (16,229 elected shares and 8,114 match shares); | |
| • | Mr. Stubblefield — 18,501 shares (12,334 elected shares and 6,167 match shares); | |
| • | Mr. Accardi — 17,527 shares (11,685 elected shares and 5,842 match shares); and | |
| • | Mr. Spitler — 17,527 shares (11,685 elected shares and 5,842 match shares). |
| The aggregate number and dollar value (computed using the closing price of our Common Stock on July 1, 2005 ($36.25)) of all restricted shares held as of the last day of fiscal 2005 by the Named Executive Officers were as follows: |
| • | Mr. Schnieders — 92,432 shares at $3,350,660; | |
| • | Mr. Lankford — 67,059 shares at $2,430,889; | |
| • | Mr. Stubblefield — 54,009 shares at $1,957,826; | |
| • | Mr. Accardi — 51,978 shares at $1,884,203; and | |
| • | Mr. Spitler — 51,978 shares at $1,884,203. |
| The restricted shares are not transferable by the recipient for two years following receipt and are subject to certain repurchase rights on the part of SYSCO in the event of termination of employment other than by normal retirement or disability. The recipient receives dividends on the shares during the two-year restricted period. |
| (4) | Information regarding stock options granted to the Named Executive Officers in fiscal 2005, including the Black-Scholes grant date present value, is included below under “Stock Option Grants.” |
| (5) | Mr. Lankford resigned as President and |
22
| respectively. These severance amounts were paid on October 1, 2005 pursuant to the separation agreement entered into between the Company and Mr. Lankford in connection with his retirement. |
| (6) | The amounts reported in the “All Other Compensation” column include the following: |
| • | a SYSCO match equal to 50% of the first 20% of the annual incentive bonus which each individual elected to defer under our Executive |
| • | the amount we paid for term life insurance coverage for each individual; |
| • | the amount we paid for 401(k) Plan matching contributions during the fiscal year; |
| • | above-market interest credited to deferred compensation account balances as of June 30 of each fiscal year (above-market interest is the amount by which the interest actually earned on deferred account balances during the year exceeded the interest that would have been earned based on an interest rate equal to 120% of the applicable federal long-term rate as provided in Section 1274(d) of the Code on a compounded basis); and |
| • | the amount paid, payable or accrued with respect to the separation agreement entered into between the Company and |
| All Other | ||||||||||||||||||||||||||||
| Fiscal | Deferred | Term Life | 401(k) | Above-Market | Severance | Compensation | ||||||||||||||||||||||
| Name | Year | Match | Insurance | Contributions | Interest | Payments | Total | |||||||||||||||||||||
| Schnieders | 2005 | $ | 205,905 | $ | 907 | $ | 6,625 | $ | 57,347 | n/a | $ | 270,784 | ||||||||||||||||
| 2004 | 278,850 | 871 | 6,000 | 84,823 | n/a | 370,544 | ||||||||||||||||||||||
| 2003 | 218,450 | 835 | 3,750 | 66,942 | n/a | 289,977 | ||||||||||||||||||||||
| Lankford | 2005 | 147,075 | 907 | 6,938 | 58,784 | $ | 913,390 | 1,127,094 | ||||||||||||||||||||
| 2004 | 207,350 | 871 | 6,063 | 83,107 | n/a | 297,391 | ||||||||||||||||||||||
| 2003 | 154,200 | 835 | 3,938 | 62,726 | n/a | 221,699 | ||||||||||||||||||||||
| Stubblefield | 2005 | 111,777 | 907 | 6,500 | 56,204 | n/a | 175,388 | |||||||||||||||||||||
| 2004 | 155,870 | 868 | 6,000 | 83,997 | n/a | 246,735 | ||||||||||||||||||||||
| 2003 | 133,640 | 797 | 5,500 | 65,859 | n/a | 205,796 | ||||||||||||||||||||||
| Accardi | 2005 | 105,894 | 907 | n/a | 26,909 | n/a | 133,710 | |||||||||||||||||||||
| 2004 | 150,150 | 854 | n/a | 35,877 | n/a | 186,881 | ||||||||||||||||||||||
| 2003 | 128,500 | 800 | n/a | 25,262 | n/a | 154,562 | ||||||||||||||||||||||
| Spitler | 2005 | 105,894 | 907 | 6,500 | 35,637 | n/a | 148,938 | |||||||||||||||||||||
| 2004 | 150,150 | 854 | 6,000 | 47,772 | n/a | 204,776 | ||||||||||||||||||||||
| 2003 | 128,500 | 766 | 5,500 | 37,328 | n/a | 172,094 | ||||||||||||||||||||||
Stock Option Committee beginning on
page 15.
The amounts reported in the "Bonus" column include amounts paid in cash and
amounts deferred by each of the Named Executive Officers. The "Bonus" column
also includes cash received for the tax effect
21
of any additional shares received pursuant to the match feature of the
Management Incentive Plan. The cash and deferred portions of the bonus earned by
each Named Executive Officer in fiscal 2004 are set forth below:
The value of any shares elected to be received in lieu of cash and any
matching shares is included in the Restricted Stock Award column and
additional information about such shares is included in footnote 3 below.
Any amounts credited pursuant to the deferred match feature of the EDCP are
included in the "All Other Compensation" column and described in footnote 5
below.
(2) Does not include perquisites and other personal benefits because they did
not exceed for any individual $50,000 in the aggregate.
(3) Each of the Named Executive Officers elected to receive a portion of his
bonus in shares of restricted Common Stock pursuant to the Management
Incentive Plan. Pursuant to the Management Incentive Plan, the Company made
a matching grant of one additional share for each two shares received
pursuant to such election. The number of elected shares and matched shares
is set forth below. The amount presented is determined by multiplying the
number of shares earned during the fiscal year by the closing price of our
Common Stock on the New York Stock Exchange on the last trading day of such
fiscal year.
The number of restricted shares earned by the Named Executive Officers in
fiscal 2004 and issued in fiscal 2005 was as follows:
- Mr. Schnieders -- 48,077 shares (32,051 elected shares and 16,026 match
shares);
- Mr. Lankford -- 35,750 shares (23,833 elected shares and 11,917 match
shares);
- Mr. Stubblefield -- 26,874 shares (17,916 elected shares and 8,958 match
shares);
- Mr. Accardi -- 25,887 shares (17,258 elected shares and 8,629 match
shares); and
- Mr. Spitler -- 25,887 shares (17,258 elected shares and 8,629 match
shares).
The aggregate number and dollar value (computed using the closing price of
our Common Stock on July 2, 2004 ($34.80)) of all restricted shares held as
of the last day of fiscal 2004 by the Named Executive Officers were as
follows:
- Mr. Schnieders -- 81,221 shares at $2,826,491;
- Mr. Lankford -- 57,115 shares at $1,987,602;
- Mr. Stubblefield -- 50,483 shares at $1,756,808;
- Mr. Accardi -- 49,439 shares at $1,720,477; and
- Mr. Spitler -- 43,730 shares at $1,521,804.
The restricted shares are not transferable by the recipient for two years
following receipt and are subject to certain repurchase rights on the part
of SYSCO in the event of termination of employment other than by normal
retirement or disability. The recipient receives dividends on the shares
during the two-year restricted period.
(4) Information regarding stock options granted to the Named Executive Officers
in fiscal 2004, including the Black-Scholes grant date present value, is
included below under "Stock Option Grants."
(5) The amounts reported in the "All Other Compensation" column include the
following:
- a SYSCO match equal to 50% of the first 20% of the annual incentive bonus
which each individual elected to defer under our Executive Deferred
Compensation Plan;
22
- the amount we paid for term life insurance coverage for each individual;
- the amount we paid for 401(k) Plan matching contributions during the
fiscal year; and
- above-market interest credited to deferred compensation account balances
as of June 30 of each fiscal year (above-market interest is the amount by
which the interest actually earned on deferred account balances during
the year exceeded the interest that would have been earned based on an
interest rate equal to 120% of the applicable federal long-term rate as
provided in Section 1274(d) of the Code on a compounded basis).
STOCK OPTION GRANTSGrants
The following table provides information regarding stock option grants during fiscal 20042005 to the Named Executive Officers. We have never granted any stock appreciation rights to executive officers under any of our stock plans.
OPTION GRANTS IN FISCAL 2004
----------------------------
officers.
Option Grants in Fiscal 2005
| Percentage of | ||||||||||||||||||||
| Total Options | ||||||||||||||||||||
| Number of Securities | Granted to | Exercise or | Grant Date | |||||||||||||||||
| Underlying Options | Employees in | Base Price | Expiration | Present | ||||||||||||||||
| Name | Granted(#)(1) | Fiscal 2005 | ($/Share) | Date | Value($)(2) | |||||||||||||||
| Schnieders | 85,000 | 0.99% | $ | 32.19 | 9/1/2011 | $ | 605,200 | |||||||||||||
| Lankford | 74,000 | 0.86% | 32.19 | 9/1/2011 | 526,880 | |||||||||||||||
| Stubblefield | 40,000 | 0.46% | 32.19 | 9/1/2011 | 284,800 | |||||||||||||||
| Accardi | 40,000 | 0.46% | 32.19 | 9/1/2011 | 284,800 | |||||||||||||||
| Spitler | 40,000 | 0.46% | 32.19 | 9/1/2011 | 284,800 | |||||||||||||||
23
| (1) | The options granted to the Named Executive Officers during fiscal 2005 vest 20% per year for five years on the anniversary date of grant. |
| (2) | We determined the hypothetical grant date present value for the options of $7.12 per share using a modified Black-Scholes pricing model. In applying the model, we assumed a volatility of 22%, a 3.4% risk-free rate of return, a dividend yield at the date of grant of 1.45%, and a 5-year option term. We did not assume any option exercises or risk of forfeiture during the 5-year term. Had we done so, such assumptions could have reduced the reported grant date value. The actual value, if any, an executive may realize upon exercise of options will depend on the excess of the stock price over the exercise price on the date the option is exercised. Consequently, there is no assurance that the value realized, if any, will be at or near the value estimated by the modified Black-Scholes model. |
Stock Option Exercises and a 5-year option term. We
did not assume any option exercises or risk of forfeiture during the 5-year
term. If used, such assumptions could have reduced the reported grant date
value. The actual value, if any, an executive may realize upon
23
exercise of options will depend on the excess of the stock price over the
exercise price on the date the option is exercised. Consequently, there is
no assurance that the value realized, if any, will be at or near the value
estimated by the modified Black-Scholes model.
STOCK OPTION EXERCISES AND FISCAL YEAR-END VALUESFiscal Year-End Values
The following table provides information with respect to aggregate option exercises in the last fiscal year and fiscal year-end option values for the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN FISCAL
Aggregated Option Exercises in Fiscal 2005 and
Fiscal Year-End Option Values
| Number of Securities | Value Of Unexercised | |||||||||||||||||||||||
| Underlying Unexercised | In-The-Money Options at | |||||||||||||||||||||||
| Shares | Options at July 2, 2005(#) | July 2, 2005($)(2) | ||||||||||||||||||||||
| Acquired on | Value | |||||||||||||||||||||||
| Name | Exercise(#) | Realized($)(1) | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||||||||
| Schnieders | n/a | n/a | 275,000 | 211,000 | $ | 3,133,602 | $ | 1,086,020 | ||||||||||||||||
| Lankford | 13,912 | $ | 393,744 | 290,000 | 185,000 | 4,365,638 | 942,260 | |||||||||||||||||
| Stubblefield | n/a | n/a | 276,000 | 139,000 | 4,209,826 | 750,220 | ||||||||||||||||||
| Accardi | 13,524 | $ | 366,593 | 260,000 | 139,000 | 3,763,576 | 750,220 | |||||||||||||||||
| Spitler | n/a | n/a | 230,648 | 134,000 | 3,477,897 | 704,920 | ||||||||||||||||||
| (1) | Computed based on the difference between the closing price of the Common Stock on the day of exercise and the exercise price. |
| (2) | Computed based on the difference between the closing price on July 1, 2005 and the exercise price. |
Long Term Incentive Plan
The following table provides information regarding long-term incentive awards granted during fiscal 2005 to the Named Executive Officers under the 2004 AND
FISCAL YEAR-END OPTION VALUES
------------------------------
- ---------------
(1) ComputedLong-Term Incentive Cash Plan (“LTICP”).
Long-Term Incentive Plans — Awards in Last Fiscal Year
| Performance or | Estimated Future Payouts Under Non-Stock | |||||||||||||||||||
| Number of Shares, | Other Period Until | Price-Based Plans | ||||||||||||||||||
| Units or Other | Maturation or | |||||||||||||||||||
| Name | Rights(#) | Payout | Threshold($) | Target($) | Maximum($) | |||||||||||||||
| Schnieders | 79,000 | 7/4/04-6/30/07 | $ | 1,382,500 | $ | 2,765,000 | $ | 4,147,500 | ||||||||||||
| Lankford | 14,500 | 7/4/04-6/30/07 | 253,750 | 507,500 | 761,250 | |||||||||||||||
| Stubblefield | 8,500 | 7/4/04-6/30/07 | 148,750 | 297,500 | 446,250 | |||||||||||||||
| Accardi | 8,500 | 7/4/04-6/30/07 | 148,750 | 297,500 | 446,250 | |||||||||||||||
| Spitler | 8,500 | 7/4/04-6/30/07 | 148,750 | 297,500 | 446,250 | |||||||||||||||
A participant’s cash incentive payments under the LTICP are based on the difference betweennumber of performance units granted to the closing priceparticipant, the value of the Commonparticipant’s performance units, and a percentage (established by the Compensation and Stock onOption Committee) that correlates to the daylevel of exercise andperformance that is achieved
24
under performance criteria set by the exercise price.
(2) ComputedCommittee. The performance criteria set by the Committee for the Named Executive Officers for the three-year period ending June 30, 2007 are based on the difference betweenaverage increase in SYSCO’s net after-tax earnings per share over the closing price on July 2, 2004
and the exercise price.
SEVERANCE AGREEMENTSperformance period.
Severance Agreements
In May 2004, the Compensation and Stock Option Committee approved, and the Board of Directors ratified, Severance Agreements for the benefit of Messrs. Schnieders, Lankford, Stubblefield, Accardi and Spitler.
Termination For Cause. Under the terms of these agreements, if the executive officer'sofficer’s employment is terminated by reason of death or permanent disability, by the Company for cause, or by the executive officer without good reason, he is entitled to receive (i) a payment equal to his base salary through the date of death or termination to the extent not already paid, (ii) his actual earned bonus for any period not already paid, (iii) accrued but unused vacation, and (iv) reimbursable business expenses.
Termination Without Cause or For Good Reason. If the executive officer'sofficer’s employment is terminated by the Company without cause, or by the executive officer for good reason (as those terms are defined in the Severance Agreements), the executive officer will be entitled to receive (i) accrued base salary through the date of termination, (ii) his actual earned bonus for any period not already paid, (iii) accrued but unused vacation, (iv) reimbursable business expenses, and (v) an amount, payable in 24 equal monthly installments, equal to the sum of two years'years’ base salary plus two years'years’ MIP bonus before any elective deferrals (based on his average MIP bonus for the last five years). In addition, if the termination occurs prior to the end of a year as to which the Company determines that the executive officer would have earned a bonus but for the termination, the executive officer shall receive a pro rata share of the cash portion of the bonus he would have earned (excluding deferred or matching amounts). If the termination occurs before age 60, the executive officer will be deemed to be age 60 under the SERP, which will result in the executive becoming 50% vested in his accrued SERP benefit. The executive officer will also receive a lump sum payment equal to 100% of his unvested and vested benefits under the EDCP.
EDCP, including deferrals and company matches thereon.
Excise Taxes. The Severance Agreements also provide that if the executive officer incurs excise tax due to the application of Section 280G of the Internal Revenue Code of 1986 regarding golden parachute 24
payments, the executive officer is entitled to an additional cash payment so that he will be in the same after-tax position as if the excise tax were not applicable.
General. The Severance Agreements prohibit the executive officers from competing with the Company or directly or indirectly soliciting customers or employees for a period of two years after termination. The Severance Agreements also require each executive officer to release any claims against SYSCO and its affiliates.
RETIREMENT PLAN
On June 14, 2005, the Company and Mr. Lankford entered into a Separation Agreement and Mutual Release pursuant to which Mr. Lankford resigned from his positions as President, Chief Operating Officer and Director as of July 2, 2005 and retired on October 1 (“Separation Date”). The agreement amended his executive severance agreement and entitled him to receive the following benefits and payments:
| • | Cash lump sum payment on October 1, 2005 equal to $6,197,696.25 representing the total of (i) 24 months of his base salary, (ii) two times his average annual bonus for fiscal years 2001 through 2005, (iii) 24 months of COBRA, (iv) earned but unused vacation time, and (v) $810,606; | |
| • | Fully vested (100%) SERP benefits to be paid monthly (approximately $94,946 per month) beginning six months after the Separation Date under a joint and2/3 survivor benefit with a 10-year certain guarantee; |
25
| • | Fully vested (100%) EDCP benefits, including all Company matching contributions, to be paid annually for 15 years (approximately $651,611 per year including interest), beginning six months after the Separation Date; and | |
| • | Vested benefits under SYSCO’s 401(k) plan and retirement plan and reimbursement of certain legal fees. |
Retirement Plan
We have a defined benefit retirement plan (the "Retirement Plan"“Retirement Plan”) that was most recently amended and restated on November 19, 2001, generally effective as of January 1, 1997 with various provisions having laterdifferent effective dates, to
comply with changesas required by various laws. The amended and restated Retirement Plan also incorporated certain discretionary changes in plan provisions effective May 15, 1998 and April 1, 2000. The restated Retirement Plan was further amended on November 22, 2002.effective January 1, 2002, January 1, 2003, October 1, 2004, March 28, 2005, and July 1, 2005, in order to comply with various laws and regulations or other guidance published by the Internal Revenue Service and the U.S. Department of Labor, to clarify and simplify the Retirement Plan’s administration, and to add to the Retirement Plan’s coverage (i) new participating employers, and (ii) groups of employees newly eligible pursuant to the terms of certain collective bargaining agreements. In addition to benefits accrued to date which are set forth below, each Named Executive Officer will accrue benefits in the future in accordance with the table below:
PENSION PLAN TABLE(1)(2)(3)
- ---------------
(1) Assumes the annual benefit is payable for five years certain and life
thereafter and that retirement age is 65. Retirement Plan benefits are not
subject to reduction by Social Security or any other offsets.
(2) Current law and regulations limit retirement benefits to $162,951 for
calendar 2004 if they are payable for five years certain and life thereafter
(assuming retirement age of 65). This limitation applies to total retirement
benefits under the Retirement Plan as determined by adding benefits accrued
with respect to periods of employment with SYSCO both before and after July
3, 2004. The
Pension Plan Table does not reflect this limitation.
(1)(2)(3) In addition, all MIP participants, including the Named Executive Officers,
are provided with a Supplemental Executive Retirement Plan which is
designed, generally, to provide annual payments equal to 50%, subject to
certain years of service and age requirements, of a qualified participant's
final average annual compensation, in combination with all SYSCO and other
qualified retirement plan benefits and Social Security payments available to
the participant upon retirement.
(4) Compensation for benefit calculation purposes is limited by law to $205,000
for calendar 2004
| Years of Credited Service | |||||||||||||||||||||||||
| Career Average Compensation Earned | |||||||||||||||||||||||||
| On And After July 3, 2005(4) | 10 | 15 | 20 | 25 | 30 | 35 | |||||||||||||||||||
| $100,000 | $ | 15,000 | $ | 22,500 | $ | 30,000 | $ | 37,500 | $ | 45,000 | $ | 52,500 | |||||||||||||
| 150,000 | 22,500 | 33,750 | 45,000 | 56,250 | 67,500 | 78,750 | |||||||||||||||||||
| 200,000 | 30,000 | 45,000 | 60,000 | 75,000 | 90,000 | 105,000 | |||||||||||||||||||
| 250,000 | 37,500 | 56,250 | 75,000 | 93,750 | 112,500 | 131,250 | |||||||||||||||||||
| (1) | Assumes the annual benefit is payable for five years certain and life thereafter and that retirement age is 65. Retirement Plan benefits are not subject to reduction by Social Security or any other offsets. |
| (2) | Current law and regulations limit retirement benefits to $167,889 for calendar 2005 if they are payable for five years certain and life thereafter (assuming retirement age of 65). This limitation applies to total retirement benefits under the Retirement Plan as determined by adding benefits accrued with respect to periods of employment with SYSCO both before and after July 2, 2005. The Pension Plan Table does not reflect this limitation. |
| (3) | In addition, all MIP participants, including the Named Executive Officers, are provided with a Supplemental Executive Retirement Plan which is designed, generally, to provide annual payments to participants who satisfy certain years of service, years of MIP participation, and age requirements that, in combination with all SYSCO and other qualified retirement plan benefits (to the extent not derived from participant contributions to such plans) and Social Security payments available to the participant upon retirement, are equal to 50% of a participant’s final average annual compensation (as determined over the period specified in the Supplemental Executive Retirement Plan). |
| (4) | Compensation for benefit calculation purposes is limited by law to $210,000 for calendar 2005 and later years subject to |
To the extent included in W-2 income, all amounts shown in the Summary Compensation Table (plus certain pre-tax contributions), other than deferred bonus and those amounts reported in the "All“All Other Compensation"Compensation” column, are utilized to compute career average compensation, subject to the compensation limitations noted in footnote (4).
26
The Retirement Plan provides for an annual benefit payable monthly for five years certain and life thereafter, equal to:
- the normal retirement benefit which accrued under the prior plan before
July 2, 1989, plus
- an amount equal to 1 1/2% of the participant's average monthly eligible
compensation (W-2 earned income, plus certain pre-tax contributions) paid
on and after July 2, 1989 times years and partial years of credited
service performed on and after July 2, 1989.
25
| • | the normal retirement benefit that accrued under the prior plan before July 2, 1989, plus | |
| • | an amount equal to 11/2% of the participant’s average monthly eligible compensation (based on the participant’s W-2 earned income, plus certain pre-tax contributions) paid on and after July 2, 1989 times years and partial years of credited service performed on and after July 2, 1989. |
In the event of a participant'sparticipant’s death while actively in our employ or on leave of absence or layoff status before his or her normal retirement age (age 65) or, the commencement ofif earlier, after becoming eligible for a benefit if earlier,that has not commenced, and if the participant has five or more years of credited service, a death benefit is payable monthly for ten yearsto the participant’s beneficiary during a 10-year period certain and, if applicable, for the beneficiary’s life thereafter. The single-sum value of the death benefit is actuarially equivalent to the single-sum value of the monthly pension accrued by the deceased participant prior to his or her death or earlier termination of employment, with interest credited from the participant'sparticipant’s date of termination through his date of death, if applicable. The same death benefit, calculated on the single sum value of the participant’s monthly pension amount earned at the date of the participant’s death, is available to the beneficiary of a participant who dies while actively in our employ or on leave of absence or layoff status after his or her 65th birthday.
The Named Executive Officers havehad accrued the following annual benefits and credited benefit service under the Retirement Plan as of July 3, 2004:
- Mr. Schnieders -- $49,239 and 22 years;
- Mr. Lankford -- $51,826 and 23 years;
- Mr. Stubblefield -- $37,484 and 15 years;
- Mr. Accardi -- $52,875 and 28 years; and
- Mr. Spitler -- $43,395 and 17 years.
The2, 2005:
| • | Mr. Schnieders — $53,926 and 23 years; | |
| • | Mr. Lankford — $56,514 and 24 years(*); | |
| • | Mr. Stubblefield — $42,172 and 16 years; | |
| • | Mr. Accardi — $57,563 and 29 years; and | |
| • | Mr. Spitler — $48,082 and 18 years. |
As of July 2, 2005, the Named Executive Officers also havehad anticipated future service to age 65 as follows:
- Mr. Schnieders -- 9 years;
- Mr. Lankford -- 8 years;
- Mr. Stubblefield -- 7 years;
- Mr. Accardi -- 9 years; and
- Mr. Spitler -- 10 years.
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STOCK PERFORMANCE GRAPH
| • | Mr. Schnieders — 8 years; | |
| • | Mr. Lankford — 7 years (*); | |
| • | Mr. Stubblefield — 6 years; | |
| • | Mr. Accardi — 8 years; and | |
| • | Mr. Spitler — 9 years. |
| (*) | Mr. Lankford resigned as an executive officer on July 2, 2005. See “Severance Agreements” above for a description of the severance payments and retirement benefits paid and to be paid to Mr. Lankford subsequent to the end of fiscal 2005. |
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Stock Performance Graph
The following stock performance graph compares the performance of SYSCO'sSYSCO’s Common Stock to the S&P 500 Index and to a peer group for SYSCO'sSYSCO’s last five fiscal years. The members of the peer group are Fleming Companies, Inc., Nash Finch Company, Supervalu, Inc. and Performance Food Group Company. Fleming, which had been included in the peer group in the past, sold its foodservice operations in August 2003.
The companies in the peer group were selected because they comprise a broad group of publicly held corporations with food distribution operations similar in some respects to our operations. Performance Food Group is a foodservice distributor and the other members of the peer group are in the business of distributing grocery products to retail supermarkets. We consider the peer group to be a more representative peer group than the "S“S&P Consumer Staples (Food Distributors)"” index maintained by Standard & Poor'sPoor’s Corporation that consists of SYSCO and Supervalu, Inc. because itthe peer group includes an additional foodservice distributor and represents a broader index.
The returns of each member of the peer group are weighted according to each member'smember’s stock market capitalization as of the beginning of each period measured. The graph assumes that the value of the investment in our Common Stock, the S&P 500 Index, and the peer group was $100 on the last trading day of fiscal 1999,2000, and that all dividends were reinvested. Performance data for SYSCO, the S&P 500 Index and for each member of the peer group is provided as of the last trading day of each of our last five fiscal years.
(PERFORMANCE GRAPH)
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Cumulative Total Return
| 6/30/00 | 6/29/01 | 6/28/02 | 6/27/03 | 7/2/04 | 7/1/05 | |||||||||||||||||||
| SYSCO CORPORATION | 100.00 | 130.29 | 132.15 | 145.54 | 174.41 | 184.74 | ||||||||||||||||||
| S&P 500 | 100.00 | 85.17 | 69.85 | 70.03 | 83.41 | 88.68 | ||||||||||||||||||
| PEER GROUP | 100.00 | 115.01 | 153.38 | 153.14 | 169.50 | 192.62 | ||||||||||||||||||
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REPORT OF THE AUDIT COMMITTEE
The Audit Committee operates under a written charter adopted by the Board of Directors, a copy of which is attached hereto as AppendixAnnex A. Mr. Campbell,
Mr.Messrs. Hafner, Merrill Mr. Richardson, Mr.and Tilghman (Chairman) and Ms. Ward served on the Audit Committee during the full fiscal 20042005 year, and Mr. HafnerCassaday has served on the Audit Committee since his election to the Board in November 2003.2004. Each member of the Audit Committee is financially literate and each member is independent as defined in the New York Stock Exchange'sExchange’s listing standards and Section 10A(m)(3) of the Securities Exchange Act of 1934. None of the Audit Committee members serve on the audit committees of more than two other companies. The Audit Committee held 12 meetings during fiscal 2004.2005. The Board has determined that Mr. Hafner meets the definition of an audit committee financial expert as promulgated by the Securities and Exchange Commission.
The function of the Audit Committee is to oversee and report to the Board with respect to various auditing and accounting matters, including the selection of the independent public accountants, the scope of audit procedures, the nature of all audit and non-audit services to be performed by the independent public accountants, the fees to be paid to the independent public accountants, the performance of the independent public accountants and the Company'sCompany’s accounting practices and policies.
The Audit Committee has met and held discussions with management and the independent public accountants. Management represented to the Audit Committee that SYSCO'sSYSCO’s consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Audit Committee has reviewed and discussed the audited consolidated financial statements with management and the independent public accountants. The Audit Committee also discussed with the independent public accountants the matters required to be discussed by Statement on Auditing Standards No. 61. SYSCO'sSYSCO’s independent public accountants provided to the Audit Committee the written disclosures and the letter required by the Independence Standards Board'sBoard’s Standard No. 1, and the Audit Committee discussed with the independent public accountants that firm'sfirm’s independence.
Based on the Audit Committee'sCommittee’s discussion with management and the independent public accountants and the Audit Committee'sCommittee’s review of the representations of management and the report of the independent public accountants, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in SYSCO'sSYSCO’s Annual Report on Form 10-K for the year ended July 3, 20042, 2005 filed with the Securities and Exchange Commission.
AUDIT COMMITTEE
Richard G. Tilghman, Chairman
Colin G. Campbell
Joseph A. Hafner, Jr.
Richard G. Merrill
Frank H. Richardson
Jackie M. Ward
FEES PAID TO INDEPENDENT PUBLIC ACCOUNTANTS
| AUDIT COMMITTEE | |
| John M. Cassaday | |
| Joseph A. Hafner, Jr. | |
| Richard G. Merrill | |
| Richard G. Tilghman, Chairman |
Fees Paid to Independent Public Accountants
During fiscal 20032005 and 2004, SYSCO incurred the following fees for services performed by Ernst & Young LLP:
| Fiscal 2005 | Fiscal 2004 | |||||||
| Audit Fees | $ | 3,343,900 | $ | 2,312,800 | ||||
| Audit Related Fees(1) | 164,441 | 421,541 | ||||||
| Tax Fees(2) | 2,522,612 | 2,689,970 | ||||||
| All Other Fees | — | — | ||||||
| (1) | Audit related fees in fiscal 2005 included $64,350 related to acquisition due diligence, $81,310 for the audit of certain benefit plans and $18,781 for other audit-related services. Audit related fees in fiscal 2004 |
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| related to acquisition due diligence, assistance with preparation for the implementation of Section 404 of the Sarbanes-Oxley Act of 2002 and the audit of certain benefit plans. | |
| (2) | Tax fees in fiscal 2005 included $2,493,874 related to the income tax compliance outsourcing arrangement with the Company’s independent auditor and $28,738 in other tax compliance and audit defense assistance. Tax fees in fiscal 2004 |
| Pre-Approval Policy |
In February 2003, the Audit Committee adopted a formal policy concerning approval of audit and non-audit services to be provided by the independent auditor to the Company. The policy requires that all services, including audit services and permissible audit related, tax and non-audit services, to be provided by Ernst & Young LLP to the Company, be pre-approved by the Audit Committee. All of the services performed by Ernst & Young in fiscal 20042005 were approved in advance by the Audit Committee pursuant to the foregoing pre-approval policy and procedures. During fiscal 2004,2005, Ernst & Young did not provide any services prohibited under the Sarbanes-Oxley Act.
PROPOSAL TO RATIFY THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS
ITEM NO. 2 ON THE PROXY CARD
The Audit Committee of the Board has appointed Ernst & Young LLP as SYSCO'sSYSCO’s independent accountants for fiscal 2005.2006. Ernst & Young LLP has served as the Company'sCompany’s independent public accountants providing auditing, financial and tax services since their engagement in fiscal 2002. In determining to appoint Ernst & Young, the Audit Committee carefully considered Ernst & Young'sYoung’s past performance for the Company, its independence with respect to the services to be performed and its general reputation for adherence to professional auditing standards.
Although the Company is not required to seek ratification, the Audit Committee and the Board believe it is sound corporate governance to do so. If stockholders do not ratify the appointment of Ernst & Young, the current appointment will stand, but the Audit Committee will consider the stockholders'stockholders’ action in determining whether to appoint Ernst & Young as the Company'sCompany’s independent accountants for fiscal 2006.2007.
Representatives of Ernst & Young LLP will be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so. They will also be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
The Board of Directors recommends a vote FOR THE RATIFICATION OF THE
APPOINTMENT OF INDEPENDENT ACCOUNTANTS FOR FISCAL 2005.
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the ratification of the
appointment of independent accountants for fiscal 2006.
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PROPOSAL TO APPROVE THE 2004 STOCK OPTION2005 MANAGEMENT INCENTIVE PLAN
ITEM NO. 3 ON THE PROXY CARD
On September 3, 2004, upon recommendation of
The 2005 Management Incentive Plan (the “2005 MIP”) was recommended by the Compensation and Stock Option Committee (the “Committee”) on September 8, 2005, and adopted by the Board of Directors adopted the 2004 Stock Option Plan,on September 9, 2005, subject to stockholder approval. If approved, by the stockholders at the Annual
Meeting, the 2004 Stock Option Plan2005 MIP will become effective on November 12, 200411, 2005 and terminate on November 11, 2010 (unless earlier terminated by action of the Board of Directors). Awards made prior to termination of the plan with respect to the 2010 fiscal year will remain in effect following termination of the plan. The Committee will not make any awards under the 2005 MIP without stockholder approval.
The 2005 MIP will replace the 2000 MIP. However, awards made with respect to fiscal year 2006 will be governed by the terms of the 2000 MIP. No more than 1,200,000 additional shares of Common Stock Incentive Plan. When the 2004 Stock Option Plan
becomes effective, all outstanding optionsmay be issued under the 2000 StockMIP. See “Proposal to Approve Compensation to be Paid to Certain Executive Officers Under the 2000 Management Incentive Plan, will remain outstanding but no further grants will be made underItem No. 4 on the 2000 Stock
Incentive Plan. If this proposalProxy Card.”
The Board of Directors is not approved, no grants will be made under
the 2004 Stock Option Plan and the 2000 Stock Incentive Plan will remain in
effect. This proposal will not affect options already granted under the 2000
Stock Incentive Plan. As of September 14, 2004, there were options outstanding
under the 2000 Stock Incentive Plan to purchase 60,047,961 shares of Common
Stock.
Under applicable New York Stock Exchange rules, the Company is required to
obtainseeking stockholder approval of the 2004 Stock Option Plan. In addition,
stockholder approval of the 2004 Stock Option Plan is necessary to allow the
Company to grant incentive stock options ("ISOs") to employees under Section 422
of the Code and to ensure that compensation paid under the Plan can be eligible
for an exemption from the limits on tax deductibility imposed by Section 162(m)
of the Code, which limits the deductibility of certain compensation paid to
individuals who are, at the end of the tax year for which the Company would
otherwise claim its tax deduction, the Company's chief executive officer and its
other four highest-paid executive officers ("162(m) Officers"). On September 14,
2004, the closing price of SYSCO's common stock as reported by the NYSE was
$32.06.two reasons:
| • | Stockholder approval of stock awards granted under the 2005 MIP is required by Section 303A.08 of the New York Stock Exchange Listed Company Manual. It is intended that such approval apply to all shares delivered under the 2005 MIP prior to the termination date. | |
| • | Payment of compensation under the 2005 MIP to the Senior Executive Participants (i.e., the Company’s chief executive officer and its other four most highly compensated executive officers) is being submitted to stockholders for approval so that such compensation will qualify as performance-based for purposes of Section 162(m) of the Code. Compensation that qualifies as performance-based for purposes of Section 162(m) of the Code is not subject to the annual Section 162(m) limit on the deductibility of compensation in excess of $1 million with respect to each of the Senior Executive Participants. It is intended that such approval apply to all awards payable with respect to fiscal years 2007, 2008, 2009 and 2010, so long as they are paid prior to the date of the Company’s Annual Meeting of Stockholders held in 2010. |
The following summary of the material terms of the 2004 Stock Option Plan
does not purport to be complete and2005 MIP is qualified in its entirety by the terms of the 2004 Stock Option Plan,2005 MIP, a copy of which is attached as AppendixAnnex B hereto.
KEY TERMS OF THE 2004 STOCK OPTION PLAN
BACKGROUND ON STOCK COMPENSATION AT SYSCO
Since its inception in 1970, SYSCO has recognized the importance of
aligning the interests of its employees with those of its stockholders. SYSCO's
management has long believed that the Company would
30
have a more performance-based culture and would create greater shareholder value
if employees owned more stock. A number of practices confirm this belief:
- The Company has had a stock option plan in place since 1970.
- The Company has had an Employee Stock Purchase Plan in place since 1974.
- The Company encourages stock ownership by allowing officers and senior
management of most operating subsidiaries to elect to receive stock in
lieu of a portion of their cash bonus under the Management Incentive
Plan. To further encourage this group to acquire shares, the Company
provides a 50% stock match on elected shares and pays a tax gross up to
those who make the election. Shares issued under the Management Incentive
Plan are subject to a right of repurchase by the Company and are
restricted for two years against sale or transfer.
- In addition to making options available at the management level, all
employees (other than MIP participants) are eligible to receive stock
options upon completing 10, 15, 20, 25 and 30 years of service under
SYSCO's CARES Shares program. Since the CARES Shares program was
instituted in 2001, a total of 23,845,000 shares have been granted to
approximately 12,100 employees.
- Stock Ownership Guidelines have been implemented for non-employee
directors and executive officers.
- Option grants to the Named Executive Officer group are typically less
than 5%, in the aggregate, of annual option grants.
The Company's financial performance has consistently exceeded that of its
peers, and employee retention rates have historically been high. In addition,
the Company's total shareholder return over the last five years has far outpaced
that of our peer group and the S&P 500 (see page 27 for comparative shareholder
returns). While important to the Company's performance and progress, the
Company's stock compensation practices have led to an equity plan overhang that
may be higher than average. Overhang as we calculate it is the sum of all
granted and outstanding options and options available for grant divided by total
shares outstanding. Without including the new shares requested, the Company's
stock overhang as of September 14, 2004 was approximately 11.47% for all stock
based plans excluding the Management Incentive Plan and the Employee Stock
Purchase Plan, and 13.40% for all plans. If the new Plan is approved, total
option plan overhang would be 14.95%. The dilutive effect of this above-average
share usage has been offset by the Company's long-standing goal of buying back
Company shares in excess of shares issued upon exercise of stock options. During
the last three fiscal years, the Company has repurchased 51,384,300 shares,
while issuing 12,052,507 shares in connection with the exercise of options under
its stock option plans.
Under the proposed 2004 Stock Option Plan, the Committee and the Company
intend to further reduce share usage by limiting the number of shares that may
be granted each year to 1.5% or less of shares outstanding. Long-term cash
awards will be granted under the Long-Term Incentive Cash Plan to supplement
options as part of an overall program to provide meaningful long-term incentives
to key employees. These changes will reduce stock overhang while keeping
compensation levels competitive with our industry peers.
The Company believes strongly that its equity compensation programs and
emphasis on employee stock ownership have been integral to its past success and
will be important to its ability to achieve consistently superior performance in
the years ahead. Therefore, the approval
Purpose of the proposed 2004 Stock Option Plan
is vital to the Company's ability to achieve its future growth goals and create
even greater stockholder value.
PURPOSE OF THE 2004 STOCK OPTION PLAN2005 MIP
The purpose of the 2004 Stock Option Plan2005 MIP is to promote the interests of the Company and its stockholders by providing officers and other employeesincentives to (i) certain key management personnel for outstanding performance in the management of the divisions or subsidiaries of the Company and its subsidiaries with appropriate incentives and rewards to
encourage them to enter into and remain in their positions with(ii) certain corporate personnel for managing the Company and
to acquire a proprietary interest in the long-term successoperations of the Company thereby aligning their interests more closely toas a whole and/or managing the interestsoperations of certain subsidiaries. To achieve that purpose, the 2005 MIP permits the grant of performance-based bonus awards, payable in cash and shares of Common Stock, as further explained below.
Administration of the Company's
stockholders.
31
ADMINISTRATION OF THE 2004 STOCK OPTION PLAN
Unless otherwise determined by the Board, the Compensation and Stock Option2005 MIP
The Committee will administer the 2004 Stock Option Plan.2005 MIP, except that it may delegate administrative powers with respect to awards to non-executive officers. The Committee is composed entirely of "non-employee directors"“non-employee directors” within the meaning of SEC Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”), "outside
directors"and “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code of 1986 (the “Code”). As noted elsewhere, the members of the Committee are also “independent” as that term is defined by New York Stock Exchange listing requirements and "independent
directors" within the meaning of NYSE listing standards.Company’s Corporate Governance Guidelines.
The Committee will have the power in its discretion to grant Optionsawards under the 2004 Stock Option Plan,2005 MIP, to select the individuals to whom Optionsawards are granted, to determine the terms thereof,of all awards under the 2005 MIP, to interpret the provisions of the 2004
Stock Option Plan2005 MIP and to otherwise administer the Plan.plan.
31
Eligibility and Participation
The Committee designates participants for a particular fiscal year from among the following eligible individuals:
| Senior Executive Participants — Persons who are “covered employees” under Code Section 162(m) during the relevant fiscal year (currently, this includes the Company’s Chief Executive Officer and the four highest compensated officers other than the Chief Executive Officer). | |
| Corporate Participants — Persons who serve as officers of the Company who are also employees of the Company or a subsidiary. | |
| Subsidiary Participants — Persons who serve as officers of a subsidiary. | |
| Designated Participants — Persons other than Corporate Participants or Subsidiary Participants who are employed by a subsidiary or by the corporate office of the Company who are designated by the Committee from time to time. |
A Senior Executive Participant is treated as such, even if he or she would otherwise fall into another category.
To the extent possible, the Committee will designate participants for a particular fiscal year before the start of that year, or as soon as practicable during the fiscal year in which a person first becomes eligible. Except as prohibited by
applicable law or stock exchange rules,described below in connection with a Change of Control, the Committee may remove the employee from participation in the plan, with or without cause, at any time, even if he or she has already been designated to time,
delegate all orparticipate, and such an employee will not be entitled to any of its responsibilities and powersbonus under the Plan,
including, without limitation,plan for the poweryear in which he or she is removed, regardless of when during such year he or she is removed.
Currently, approximately 190 employees of the Company and its subsidiaries are within the class eligible to designate participantsparticipate in the 2005 MIP.
Payment of Bonuses
| Corporate Participants and Certain Senior Executive Participants |
Bonus opportunities awarded to Corporate Participants, and Senior Executive Participants who would otherwise be Corporate Participants, under the 2005 MIP may consist of any or all of the following three components, based on the following criteria:
| • | The Company’s return on stockholders’ equity and increases in earnings per share; | |
| • | Return on capital and/or increases in pretax earnings in respect of selected divisions and/or subsidiaries of the Company; and/or | |
| • | One or more of the following performance factors: |
| (i) | sales of the Company and/or one or more selected divisions and/or subsidiaries; | |
| (ii) | pretax earnings of the Company; |
| (iii) | net earnings of the Company and/or one or more selected divisions and/or subsidiaries; |
| (iv) | control of operating and/or non-operating expenses of the Company and/or one or more selected divisions and/or subsidiaries; | |
| (v) | margins of the Company and/or one or more selected divisions and/or subsidiaries; | |
| (vi) | market price of the Company’s securities; | |
| (vii) | market share; | |
| (viii) | “economic value added” defined as a formula equal to (a) net operating profit after tax less (b)(i) average total assets net of intercompany balances and non-interest liabilities times (ii) weighted average cost of capital; and |
32
| (ix) | with respect to participants other than Senior Executive Participants, other factors determined by the Committee that are directly tied to the performance of the Company and/or one or more selected divisions and/or subsidiaries. |
| Subsidiary Participants and Certain Senior Executive Participants |
Bonus opportunities awarded to Subsidiary Participants, and Senior Executive Participants who would otherwise be Subsidiary Participants, under the 2005 MIP may consist of any or all of the following three components, based on the following criteria:
| • | Return on capital and increases in pretax earnings of the subsidiary or division employing such participant; | |
| • | Stockholders’ equity and increases in earnings per share of the Company as a whole; and/or | |
| • | One or more of the following performance factors: |
| (i) | sales of the Company and/or one or more selected divisions and/or subsidiaries; | |
| (ii) | pretax earnings of the Company; | |
| (iii) | net earnings of the Company and/or one or more selected divisions and/or subsidiaries; |
| (iv) | control of operating and/or non-operating expenses of the Company and/or one or more selected divisions and/or subsidiaries; | |
| (v) | margins of the Company and/or one or more selected divisions and/or subsidiaries; | |
| (vi) | market price of the Company’s securities; | |
| (vii) | market share; | |
| (viii) | economic value added (defined above); and | |
| (ix) | with respect to participants other than Senior Executive Participants, other factors determined by the Committee that are directly tied to the performance of the Company and/or one or more selected divisions and/or subsidiaries. |
Subsidiary Participants, but not Senior Executive Participants, may also receive an additional bonus (the “Additional Bonus”) to be awarded in the sole discretion of the Committee. The Additional Bonus is based upon such criteria as the Committee may develop, in its sole discretion.
The Committee has discretion to determine the amount, timing and term of Options under the Plan. Such delegation may be
made to any person or persons, including, without limitation, any executive
officerrelative weights of the Company.
Whenever used hereinfactors and in the Plan, "Committee" shall meanpercentage of the Compensation and Stock Option Committee and its designee or designees, tototal bonus comprised by the extent there shall be any. The Committee does not currently intend to delegate
any of its authorityportion determined with respect to individuals who are subjectperformance of divisions and/or subsidiaries versus the portion determined by Company performance. The Committee may alter the bonus formula with respect to Section 16any participant by changing the performance targets; provided, however, that the Company may not change the performance targets for any Senior Executive Participants after the first 90 days of the Exchange Act or Section 162(m) of the Code. All Options will be evidenced
byfiscal year.
| Designated Participants |
The Committee may formulate a written document in such form asbonus structure for each Designated Participant who is not a Senior Executive Participant which is based on performance factors determined by the Committee in its sole discretion, and which may or may not be similar to the Committeebonus structure formulated for other participants.
| Senior Executive Participants |
Bonus opportunities awarded to Senior Executive Participants depend upon the criteria described above, based upon whether such a participant would otherwise have been a Corporate or Subsidiary Participant. However, no Senior Executive Participant may receive an aggregate bonus for any given fiscal year under the 2005 MIP (including the value of all cash and securities received with respect to such fiscal year) in excess of $10,000,000.
33
| Adjustments to Performance Measures |
In calculating whether a bonus has been earned, or the amount of any bonus earned, performance measures for fiscal years containing 53 weeks are subject to adjustment in order to provide comparability with 52-week years, at the discretion of the Committee.
Stock Awards
Participants who earn a cash bonus under the MIP will also be entitled to an award of Common Stock with a value equal to 28% of any cash bonus earned. In the event of a recapitalization of the Company or its merger into or consolidation with another corporation after the end of a fiscal year which is the measurement period for a specific award, but need not, require thatprior to the grantee sign.
SHARES SUBJECT TO THE 2004 STOCK OPTION PLANissuance of the award, a participant shall be entitled to receive such securities which he or she would have been entitled to receive had he or she been a stockholder of the Company holding shares pursuant to the 2005 MIP at the time of such recapitalization, merger or consolidation. The number of shares to which a Participant is entitled will be based on the closing price at the end of the relevant fiscal year. If there is a stock split, stock dividend or combination of shares with respect to the Company’s Common Stock after the end of the year, but prior to the payment of the award, the award will be subject to appropriate adjustment.
Cap on Total Stock Awards
The maximum number of shares of Common Stock that may be delivered pursuantduring the term of the 2005 MIP under all MIP awards is 2,800,000 shares, subject to the 2004 Stock Option Plan during its term shall be 23.5 million.
The following additional maximums are imposedadjustment for recapitalizations, stock splits and similar events. Shares issued under the 20042005 MIP may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares purchased on the open market.
Transfer Restrictions on Stock Option
Plan: (i)Awards and Forfeiture
Whether or not the maximum number of shares of Common Stock that mayto be issued pursuant to options intended to be ISOs is 23.5 million; (ii) the maximum number
of shares that may be covered by all Options granted to any 162(m) Officer
during any fiscal year is 200,000; and (iii) the maximum number of shares that
may be issued in settlement of dividend equivalent rights shall be 250,000.
If the Company undergoes a recapitalization, stock split, stock dividend,
or another such transaction affecting the Common Stock, or if the Company makes
an extraordinary dividend or distribution (including without limitation to
implement a spinoff), then, subject to any required action by stockholders, the
number and kind of shares availableparticipant are registered under the 2004 Stock Option Plan, and the
various share limitations contained in the 2004 Stock Option Plan,Securities Act of 1933, as amended, participants will be automatically adjusted accordingly. In addition, the Committee may, in its
discretion, subject to any required stockholder action, adjust the number and
kind of shares covered by outstanding Options and the price per share of
outstanding Options, to reflect such an event.
If the Company mergesprohibited from selling or consolidates with another corporation, or is
liquidated or disposes of all or substantially all of its assets, then the
Committee may deal with outstanding Options under the Plan in any of the
following ways. First, it may provide for each Option to become an Option with
respect to the same securities or other property that the Company's stockholders
receive in the transaction. Second, it may provide for each Option to become an
Option with respect to the stock of the surviving corporation in the
transaction. Third, it may cause Options to vest (if they have not otherwise vested under the change-in-control provisions of the 2004 Stock Option Plan).
Fourth, it may cancel Options in exchange for a payment having a value equal to
(1) in the case of in-the-money Options, the difference between the value of the
underlying shares (based on the transaction consideration) and the exercise or
base price, and (2) in the case of out-of-the-money Options, the value of the
Options, as determined by the Committee or the Board of Directors.
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ELIGIBILITY AND PARTICIPATION
Eligibility to participate in the 2004 Stock Option Plan is limited to
employees of the Company and its subsidiaries. Currently, approximately 47,180
employees of the Company and its subsidiaries are within the class eligible for
selection to participate in the 2004 Stock Option Plan.
OPTIONS
The Committee may grant Options to eligible employees. The Committee will
have complete discretion, subject to the terms of the 2004 Stock Option Plan, to
determine the persons to whom Options will be awarded, the time or times of
grant, and the other terms and conditions of the grant.
OPTION EXERCISE PRICE AND VESTING
The Committee will determine the exercise price with respect to each Option
at the time of grant. The Option exercise price per share of Common Stock shall
not be less than 100% of the fair market value per share of the Common Stock
underlying the Option on the date of grant, and no Option may be repriced in
violation of the repricing limitations discussed in "Amendment and Termination"
below. For purposes of determining the Option exercise price, fair market value
is defined as the closing price on the NYSE the day prior to the date of grant.
The Committee may determine at the time of grant and any time thereafter the
terms under which Options shall vest and become exercisable. However, no Option
can have a term in excess of seven years, and all grants will be subject to a
minimum three-year ratable vesting schedule.
SPECIAL LIMITATIONS ON ISOS
No ISO may be granted to an employee who owns at the time of the grant
stock representing more than 10% of the total combined voting power of all
classes of stock of the Company or its subsidiaries (a "10% Stockholder") unless
the exercise price for each share of Common Stock subject to such ISO is at
least 110% of the fair market value per share of the Common Stock on the date of
grant and such ISO award is not exercisable more than five years after its date
of grant. In addition, if the total fair market value of shares of Common Stock
subject to ISOs which are exercisable for the first time by an employee in a
given calendar year exceeds $100,000, valued as of the grant date of the ISO,
the Options for shares of Common Stock in excess of $100,000 for that year will
be treated as NQOs.
EXERCISE OF OPTIONS
Options shall be exercisable in accordance with such terms and conditions
and during such periods as may be established by the Committee. Notice of
exercise must be accompanied by payment equal to the applicable Option exercise
price plus all withholding taxes due, such amount to be paid in cash or by
tendering, either by actual delivery of shares or by attestation, shares of
Common Stock that are acceptable to the Committee and have been held by the
participanttransferring them for at least six months, such shares to be valued at fair market
value as of the day the shares are tendered, or in any combination thereof, as
determined by the Committee. To the extent permitted by applicable law, a
participant may elect to pay the exercise price through the contemporaneous sale
by a third party broker of shares of Common Stock acquired upon exercise
yielding net sales proceeds equal to the exercise price and any withholding tax
due and the remission of those sale proceeds to the Company.
TRANSFERABILITY OF OPTIONS
Options may not be transferred2 years after issuance, except by will or applicable laws of descent
and distribution. However, the Committee has the discretion to allow the
transfer of non-qualified Options upon request by the Option holder.
TERMINATION OF OPTIONS
Options shall be exercisable during such periods as may be established by
the Committee. Under normal circumstances, options will expire on the earlier to
occur of the expiration date of the Option or 90 days after
33
the severance of an Option holder's employment with the Company or any of its
subsidiaries. If before the expiration of an Option, an Option holder's
employment terminates as a result of retirement in good standing or disability
under the established rules of the Company then in effect, the Option will
remain in effect, vest and be exercisable in accordance with its terms. Upon the
death of an employee while employed by the Company or its subsidiaries, Options,
to the extent then exercisable, shall remain exercisable by the executors or
administrators of his or her estate for up to three years following the date of
death. In no event, however, may any Option be exercised more than seven years
from the date of grant, and an ISO that is held by a 10% Stockholder may not be
exercised more than five years from the date of grant. To the extent not
exercised by the applicable deadline, the Option will terminate.
DIVIDEND EQUIVALENT RIGHTS
In conjunction with any Option to purchase shares of Common Stock granted
under the Plan, the Committee may provide in the applicable Option agreementevent of death or
otherwise for "dividend equivalent rights." Dividend equivalent rights may
entitle the grantee to receive in cash or shares, as determined by the
Committee, upon exercise of the Option or at such other time as the Committee
specifies, an additional amount based on the dividends that would have been
received on the underlying shares had they been issued at the time of grant or
such later date as designated by the Committee. This provision of the Plan will,
among other things, allow dividend equivalent shares to be paid with respect to
elective deferrals of stock option gains under the EDP.
FORFEITURE
Notwithstanding any other provision of the 2004 Stock Option Plan and
except as discussed under "Change in Control" below, if the Committee finds by a
majority vote that with respect to a Plan participant at any time that an Option
is outstanding: (i) the participant, before or after termination of hisemployment due to disability or her
employment relationship with the Company or any of its subsidiaries ("Employer")
for any reason, (a) committed fraud, embezzlement, theft, a felony, or proven
dishonesty in the course of his employment and that such act damaged the
Employer, or (b) disclosed trade secrets of the Employer, or (ii) the
participant, before or after termination of his or her employment relationship
with the Employer for any reason, participated, engaged or had a financial or
other interest (whether as an employee, officer, director, consultant,
contractor, stockholder, owner, or otherwise) in any commercial endeavor in the
United States which is competitive with the business of the Employer in
violation of the SYSCO Code of Business Conduct as in effect on the date of such
participation or other engagement or in such a manner that would have violated
the Code of Business Conduct had the participant been employed by the Employer
at the time of the activity in question, then any outstanding Options which have
not been exercised will be forfeited. The decision of the Committee as to the
nature of a participant's conduct, the damage done to the Employer and the
extent of the participant's competitive activity will be final. No decision of
the Committee, however, will affect the finality of the discharge of the
participant by the Employer in any manner.
CHANGE IN CONTROLretirement. In the event of a Change inof Control, (as defined below), all Options
outstanding on the date immediately preceding such Change in Control will become
fully vested, free of restriction and exercisable unless otherwise expressly
provided in the applicable Option agreement. In the event that the employment of
a participant who is an employee of the Company or any of its Subsidiaries is
terminated by the Company other than for cause, as defined below, during the
24-month period following a Change in Control, as defined below, all of such
participant's outstanding Options may thereafter be exercised by the
participant, to the extent that such Options were exercisable as of the date of
such termination of employment, for (x) a period of 24 months from such date of
termination or (y) until expiration of the stated term of such Option, whichever
period is shorter. The forfeiture provisions relating to competition as
described in the immediately preceding paragraph shall not apply to any
participant who incurs a termination of employment pursuant to the Change in
Control provisions in the Plan. For purposes of these provisions, the term
"cause" shall mean "cause" as defined in the participant's Option Agreement or
written employment or other agreement with the Company or a subsidiary,
34
or if not defined in any such agreement, "cause" shall mean conviction of the
participant for a felony, dishonesty while performing his employment duties, or
participant's willful or deliberate failure to perform his or her duties in any
material respect.
The term "Change in Control" means any of the following:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (A) the then-outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or
(B) the combined voting power of the then-outstanding voting securities of
the Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that, for
purposes of this definition, the following acquisitions shall not
constitute a Change in Control: (1) any acquisition directly from the
Company, (2) any acquisition by the Company, (3) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any affiliated company or (4) any acquisition by any corporation
pursuant to a transaction that complies with the criteria set forth in
(iii)(A), (B) and (C) below;
(ii) The occurrence of the following: Individuals who, as of November
12, 2004, constitute the Board (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to November 12, 2004 whose
election, or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board;
(iii) Consummation of a reorganization, merger, statutory share
exchange or consolidation or similar corporate transaction involving the
Company or any of its subsidiaries, a sale or other disposition of all or
substantially all of the assets of the Company, or the acquisition of
assets or stock of another entity by the Company or any of its subsidiaries
(each, a "Business Combination"), in each case unless, following such
Business Combination, (A) all or substantially all of the individuals and
entities that were the beneficial owners of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more
than 60% of the then-outstanding shares of common stock and the combined
voting power of the then-outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation that, as a result of such transaction, owns the
Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same proportions
as their ownership immediately prior to such Business Combination of the
Outstanding Company Common Stock and the Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then-outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then-outstanding voting securities of such corporation, except
to the extent that such ownership existed prior to the Business
Combination, and (C) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement or of the action of the Board providing for such Business
Combination; or
(iv) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
35
TAX WITHHOLDING
Shares issued under the 2004 Stock Option Plan are subject to withholding
of all applicable taxes, and the Committee may condition the delivery of any
shares under the Plan on satisfaction of the applicable withholding obligations.
The Committee, in its discretion, and subject to such requirements as the
Committee may impose prior to the occurrence of such withholding, may permit
such withholding obligations to be satisfied through cash payment by the
participant, through the surrender of shares of Common Stock which the
participant already owns, or through the surrender of shares of Common Stock to
which the participant is otherwise entitled under the Plan, but only to the
extent of the minimum amount required to be withheld under applicable law.
TERM OF THE 2004 STOCK OPTION PLAN
Unless earlier terminated by the Board of Directors, the 2004 Stock Option
Plan will terminate on November 12, 2007. No Options or dividend equivalents may
be granted under the Plan subsequent to that date.
AMENDMENT AND TERMINATION
The Board may, at any time, amend or terminate the 2004 Stock Option Plan,
except that the following actions may not be taken without stockholder approval:
(i) any increase in the number of shares that may be issued under the Plan
(except by certain adjustments provided for under the Plan); (ii) any change in
the class of persons eligible to receive ISOs under the Plan; (iii) any change
in the requirements of the Plan regarding the exercise price of Options; (iv)
any repricing of any Option issued under the Plan by (A) lowering the exercise
price of that Option or (B) canceling that Option and subsequently granting a
new Option with a lower exercise price, or any other Option, to the extent that
such cancellation, replacement or grant would fall within the definition of
"repriced" contained in Item 402(i) of Regulation S-K promulgated by the
Securities and Exchange Commission, such definition to be applied to grants to
all persons, not only "named executive officers" as that term is defined in Item
402(a)(3)the 2005 MIP, all transfer restrictions will lapse with respect to shares issued with respect to a performance period ending prior to or within one year after the Change of Regulation S-K; (v)Control. If a participant’s employment terminates for any material amendmentreason other than death, disability or retirement, and he or she is the holder of shares under the 2005 MIP the transfer of which remains restricted pursuing to the Plan;foregoing provisions at the time of termination, then transfer will remain restricted for an additional 6 months following termination of employment, or (vi)until expiration of the 2-year period, whichever is longer.
If a participant’s employment is terminated for any reason other than death, disability or retirement, within 2 years from issuance, he or she will forfeit all shares issued under the 2005 MIP within the 2-year period prior to termination, upon demand by the Committee made within 6 months following termination. However, if a Change of Control has occurred, the Company will have no rights with respect to any shares issued under the MIP with respect to a performance period ending prior to or within one year following the Change of Control.
Change of Control
If a Change of Control occurs, in lieu of any award he or she might otherwise be entitled to under the 2005 MIP, each participant will generally be entitled (subject to adjustments described below) to 128% of a bonus amount that is prorated based on:
| • | the portion of the year that has elapsed; and | |
| • | an amount equal to the cash portion (but not the stock award) of the award to which the participant would have been entitled based on annualized performance results for the interim period ending with the most recently completed fiscal quarter. |
34
For example, if a Change of Control occurred exactly half-way through the fiscal year, and the Company’s most recently completed interim results on an annualized basis would have entitled a participant to a $50,000 bonus for that year, then he or she would instead be entitled to $32,000 (or $50,000 × 1/2 × 1.28).
Participants Remaining at End of Year. However, if a participant remains employed by the Company through the last day of the fiscal year in which the Change of Control occurs, and if the bonus that would have been paid to him or her for such fiscal year under the Plan based on the Company’s actual performance for the entire year would have been greater than the amount he or she received under the foregoing paragraph, then a cash sum equal to the difference in value will be paid.
Participants with Severance Arrangements. Notwithstanding the foregoing, with respect to the Company’s current Chairman, Chief Executive Officer and President, Richard J. Schnieders, and any other amendmentparticipant who has a severance agreement with the Company, any bonus paid pursuant to the Plan that would require approvalforegoing paragraphs shall be reduced by any portion of the Company's
stockholdersparticipant’s severance which is determined by reference to payments received or to be received under applicable law, regulationthe 2005 MIP or rule.
FEDERAL INCOME TAX CONSEQUENCESany of its predecessor or successor plans.
Amendment and Early Termination
The 2005 MIP allows amendment at any time by the Board of Directors. Any such amendment shall be effective as of commencement of the fiscal year during which the 2005 MIP is amended, regardless of the date of the amendment, unless otherwise stated by the Board of Directors. Certain material amendments, such as materially increasing the number of shares, expanding the types of awards that may be granted, material expansion of the class of participants or material extension of the term, may also be subject to stockholder approval under the NYSE listing requirements. The 2005 MIP may be terminated at any time by the Board of Directors and termination will be effective as of the commencement of the fiscal year in which such action to terminate the 2005 MIP is taken.
Federal Income Tax Consequences
The following discussion addresses certain anticipatedis a general description of the federal income tax consequences to recipients of awards madecompensation paid under the 2004 Stock Option Plan2005 MIP. This summary does not address any state, local or other non-federal tax consequences associated with the payment of compensation under the 2005 MIP. This discussion is intended for the information of stockholders considering how to vote at the annual meeting and not as tax guidance to individuals who participate in the 2005 MIP. Participants in the 2005 MIP should consult their own tax advisors to determine the tax consequences to them based on their own particular circumstances.
| Cash Bonuses; Stock Awards |
A participant will recognize ordinary compensation income at the time the cash portion of a participant’s bonus is paid.
With respect to the Company. It is based onCommon Stock awards, the transfer restrictions described above would likely constitute a substantial risk of forfeiture for purposes of Section 83(b) of the Code. Thus, in general, unless a participant who receives Common Stock makes an election under Section 83(b) of the Code and interpretations thereof as in effect
on the date of this proxy statement. It is not intended as tax advice to any
individual.
Summary of Current Federal Income Tax Rates for Individuals
Ordinary income of individuals, such as compensation income, is currently
taxed at a top marginal rate of 35%. In addition, the maximum long-term capital
gains rate for individuals is currently 15%. The maximum federal income tax rate
for qualifying dividends received by individuals is currently 15%.
Options
Grant of Options. Theredescribed below, there will be no federal income tax consequences to the granteeparticipant upon receipt of an Option or the Company uponCommon Stock until the grantexpiration of either an ISO or an NQO
under the 2004 Stock Option Plan.
Exercise of NQOs. Upontransfer restrictions. At that time, the exercise of an NQO, the granteeparticipant generally will recognize ordinary compensation income subjectequal to withholding and employment
taxes, inthe then fair market value of the Common Stock. In general, any dividends paid to the participant while the transfer restrictions apply will be taxable compensation income to the participant.
If the participant makes an amountelection under Section 83(b) of the Code with respect to the Common Stock (a “Section 83(b) Election”), the participant will recognize ordinary compensation income equal to: (a)to the fair market value of the Common Stock on the date of exercise,receipt. In addition, cash dividends paid to the participant making a Section 83(b) Election would generally be taxable at a current maximum rate of 15% applicable to dividend income.
35
A participant will be subject to withholding for federal, and generally for state and local, income taxes at the time the participant recognizes ordinary income under the rules described above with respect to the Common Stock and cash received. The tax basis in the Common Stock received by a participant will equal the amount recognized by the participant as ordinary income under the rules described above. Upon a subsequent sale of the acquired shares of Common Stock, less (b)any gain or loss realized by the exercise price
paid for those shares. In general, as long asparticipant will be capital gain or loss.
| Deductibility — In General |
Subject to the Company satisfies the
applicable reporting requirements,discussion below, the Company will be entitled to a deduction for federal income tax deduction equalpurposes that corresponds as to the timing and amount of compensation income recognized by a participant under the grantee. Gains or
losses recognized by the grantee upon a subsequent disposition of the shares
will be treated as long-
36
term capital gain or loss if the shares are held for more than a year from the
date of exercise. Such gains or losses will be short-term gains or losses if the
shares are held for one year or less. For purposes of computing gain or loss,
the grantee's basis in the shares received will be the exercise price paidforegoing rules.
| Tax Code Limitations on Deductibility |
In order for the shares plus the amount of income, if any, recognized upon exercise of the
Option.
Exercise of ISOs. Upon the exercise of an ISO, the grantee will recognize
no immediate taxable income for regular income tax purposes, provided the
grantee was continuously employedamounts described above to be deductible by the Company, such amounts must constitute reasonable compensation for services rendered or a subsidiary from the date
of grant through the date which is three months prior to the date of exercise
(or through the date which is one year prior to the exercise date in the case of
total disability).be rendered and must be ordinary and necessary business expenses.
The exercise of an ISO will, however, result in an adjustment for
alternative minimum tax purposes in an amount equal to the excess of the fair
market value of the shares at exercise over the exercise price. That adjustment
may result in alternative minimum tax liability to the grantee upon the exercise
of the ISO. Subject to certain limitations, alternative minimum tax paid in one
year may be carried forward and credited against regular federal income tax
liability for subsequent years. If the grantee retains the shares acquired upon
the exercise of the ISO for more than two years from the date of grant and one
year from the date of exercise, any gain on a later sale of the shares will be
treated as long-term capital gain, and the Company will not be entitled to any
tax deduction with respect to the ISO.
If the grantee disposes of the shares of Common Stock received upon the
exercise of an ISO before the expiration of the two-year and one-year holding
periods discussed above, a "Disqualifying Disposition" occurs, the grantee will
have ordinary compensation income, and the Company will be entitled to a
corresponding deduction at the time of such disposition. The amount of ordinary
income and deduction generally will be equal to the lesser of: (a) the fair
market value of the shares of Common Stock on the date of exercise minus the
exercise price; or (b) the amount realized upon disposition of the Common Stock
minus the exercise price. If the amount realized on disposition exceeds the
value of the shares on the date of exercise, that additional amount will be
taxable as capital gain. To be entitled to a deduction as a result of a
Disqualifying Disposition, the Company must satisfy applicable reporting
requirements.
Section 162(m) Limitation
In general, Section 162(m) of the Code limits to $1 million the federal
income tax deductions that may be claimed in any tax yearability of the Company with
respect to certain compensation payable to any employee who is the chief
executive officer or one of the other four highest paid executive officers of
the Company on the last day of that tax year. This limit does not apply to
"performance-based compensation" paid underobtain a plan that meets the requirements
of Section 162(m) the Code and the regulations promulgated thereunder. The
Company believes that the Options to be granteddeduction for future payments under the 2004 Stock Option Plan
will qualify for2005 MIP could be limited by the performance-based compensation exception to the Section
162(m) limitations under current law because Options will be issued only if
stockholder approval is obtained, and any taxable compensation will be based
solely on an increase in valuegolden parachute rules of the stock after the date of the Option since
Option exercise prices will be no less than fair market value on the date of
grant.
Golden Parachute Tax and Section 280G of the Code
If an Option is accelerated asCode. These rules could apply to bonuses paid to certain participants if, following a resultchange of a Change in Control, all or a
portioncontrol of the Company, the bonuses paid to such participants, and any other compensation paid or deemed paid to such participants that is contingent on a change of control of the Company, has a present value of at least three times the Option atparticipant’s average annual compensation from the Company over the prior five years (the “average compensation”). In that time mayevent, all compensation contingent on a change of control (including the bonus paid pursuant to the 2005 MIP) that exceeds the participant’s average annual compensation, adjusted to take into account any portion thereof shown to be reasonable compensation, is not deductible by the Company. Such compensation is also subject to a "parachute payment"
under Section 280Gnondeductible 20% excise tax, in addition to regular income tax, in the hands of the Code for certain employees and other individuals who
perform services for the Company. Section 280G generally provides that ifparticipant. The golden parachute payments equal or exceed three times an Option holder's average W-2
compensation for the five tax years preceding the yearrules of the Change in Control,
the Company will not be permitted to claim its deduction with respect to any
"excess parachute payments" made to the individual. An "excess parachute
payment" generally is the portion of a parachute payment that exceeds such
individual's average compensation for such period. Section 280G of the Code generally appliesapply to employees or other individuals who perform services for the Company if, within the 12-month period preceding the Changechange in Control,control, the individual is an officer of the Company, a shareholderstockholder owning more than 1% of the stock of the Company, or a member of the group consisting of the lesser of the highest paid 1% of the employees of the Company or the highest paid 37
250 employees of the Company. A recipient
As noted above, Section 162(m) of anthe Code generally disallows a public company’s deduction for compensation in excess parachute paymentof $1 million paid in any taxable year to the Company’s chief executive officer and any of its other four highest compensated officers (a “Senior Executive Participant”). The determination of whether a person is subjecta Senior Executive Participant is made as of the last day of the Company’s fiscal year. Compensation that qualifies as “performance-based compensation,” however is excluded from the $1 million deductibility cap. The 2005 MIP has been drafted and is intended to be administered in a 20% excise tax on such excess parachute payment undermanner that would enable the compensation paid to Senior Executive Participants to qualify as performance-based for purposes of Section 4999162(m) of the Code. See page 24 for a descriptionStockholder approval of the Company's payment obligations2005 MIP is necessary in order for compensation paid under the Severance Agreements with respect2005 MIP to this excise tax.qualify as performance-based for purposes of Section 162(m) of the Code.
The discussion set forth above is intended only as a summary and does not purport to be a complete enumeration or analysis of all potential tax effects relevant to recipients of Optionsawards under the 20042005 MIP.
36
New Plan Benefits
Because the Committee has complete discretion to determine the number and selection of award recipients as well as the number, types, vesting requirements and other terms of all awards, and because the future value of Common Stock Option Plan. We haveis uncertain, it is not undertakenpossible to discussdetermine the tax treatment of Optionsbenefits or amounts, if any, that will be received by or allocated to any person under the 2005 MIP. However, for informational purposes only, set forth below are the values of bonuses with respect to the 2005 fiscal year under the 2000 MIP for the persons and groups specified:
| Total Restricted Shares Awarded(2) | ||||||||||||
| Aggregate Value | ||||||||||||
| Based on Closing | ||||||||||||
| Name and Position | Total Cash Awarded(1)(2) | Number of Shares | Price at 07/01/05 | |||||||||
| Richard J. Schnieders, Chairman, Chief Executive Officer and President | $ | 1,387,706 | (3) | 34,080 | $ | 1,235,400 | ||||||
| Thomas E. Lankford(4) | 991,213 | 24,343 | 882,434 | |||||||||
| John K. Stubblefield, Jr., Executive Vice President, Finance and Chief Financial Officer | 753,311 | 18,501 | 670,661 | |||||||||
| Larry J. Accardi, Executive Vice President, Contract Sales and President, Specialty Distribution Companies | 713,672 | 17,527 | 635,354 | |||||||||
| Kenneth F. Spitler, Executive Vice President; President of North American Foodservice Operations | 713,672 | 17,527 | 635,354 | |||||||||
| Executive officers as a group, including the Named Executive Officers | 9,985,728 | 245,228 | 8,889,517 | |||||||||
| All non-executive officers and other employees as a group | 18,128,010 | 372,469 | 13,502,014 | |||||||||
| All non-employee directors as a group | n/a | n/a | n/a | |||||||||
| Total | $ | 28,113,738 | 617,697 | $ | 22,391,531 | |||||||
| (1) | Excludes matching amounts credited to participant accounts under the Company’s Executive Deferred Compensation Plan (“EDCP”) with respect to any amounts of a MIP bonus that were deferred. EDCP matches for the named individuals were as follows: Mr. Schnieders, $205,905; Mr. Lankford, $147,075; Mr. Stubblefield, $111,777; Mr. Accardi, $105,894; and Mr. Spitler, $105,894. |
| (2) | The Total Cash Awarded and Total Restricted Shares Awarded columns above include all cash and shares distributed, respectively, under the 2000 MIP pursuant to awards made with respect to the 2005 fiscal year, including all company matches and accompanying payments. |
| (3) | Does not include $370,629 paid under the Supplemental Plan. |
| (4) | Thomas E. Lankford resigned as President and Chief Operating Officer effective July 2, 2005. |
Bonus amounts paid under the 2005 MIP may vary materially from the amounts paid under the 2000 MIP with respect to the 2005 fiscal year.
37
Supplemental Performance Based Bonus Plan
Mr. Schnieders also participates in the Supplemental Performance Based Bonus Plan, in connection
with a merger, consolidation or similar transaction. Such treatment will depend
onunder the terms of which he may (a) receive a bonus payable outside the transaction2005 MIP, or (b) forfeit a portion of any bonus payable under the 2005 MIP. See “Report of the Compensation and Stock Option Committee — Incentive Compensation — Supplemental Performance Based Bonus Plan.”
Executive Deferred Compensation Plan
Participants in the method2005 MIP will be entitled to defer portions of dealing withany bonus payable under the Options2005 MIP and receive matching contributions to their accounts under the Company’s Executive Deferred Compensation Plan. See “Report of the Compensation and Stock Option Committee — Incentive Compensation — Deferred Compensation Election.”
Supplemental Executive Retirement Plan
Bonuses payable under the 2005 MIP will be included in connection therewith.
CERTAIN INTERESTS OF DIRECTORScalculating a participant’s final average compensation for purposes of determining benefits payable under the current Supplemental Executive Retirement Plan.
Certain Interests of Directors
In considering the recommendation of the Board of Directors with respect to the 2004 Stock Option Plan,2005 MIP, stockholders should be aware that members of the Board of Directors have certain interests that may present them with conflicts of interest in connection with the proposal to approve the 2004 Stock Option
Plan. As discussed above,2005 MIP. In particular, directors who are also employees of the Company will be eligible for the grant of Optionsawards under the 2004 Stock Option Plan; however,
none of these directors serve on2005 MIP. Nevertheless, the Compensation and Stock Option Committee.
The Board of Directors believes that approval of the 2004 Stock Option Plan2005 MIP will advance the interests of the Company and its stockholders by encouraging officers and key employees to make significant contributions to the long-termlong term success of the Company.
38
NEW PLAN BENEFITS
The following table indicates the number of options granted in fiscal 2005
to date. Since future grant amounts are not presently determinable, this table
indicates the number of shares of Common Stock that would be received in fiscal
2006 under the 2004 Stock Option Plan and the estimated dollar value thereof
assuming that awards are made commensurate with those made in fiscal 2005 to
date:
- ---------------
(1) Assumes an estimated Black-Scholes valuation of $7.10 per option share for
options granted to date in fiscal 2005. In applying the Black-Scholes
pricing model, we assumed a volatility of 22.4%, a 3.41% risk-free rate of
return, a dividend yield at the date of grant of 1.45%, and a 5-year option
term. We did not assume any option exercises or risk of forfeiture during
the 5-year term. If used, such assumptions could have reduced the reported
grant date value. The actual value, if any, an executive may realize upon
exercise of options will depend on the excess of the stock price over the
exercise price on the date the option is exercised. Consequently, there is
no assurance that the value realized, if any, will be at or near the value
estimated by the modified Black-Scholes model. Fiscal 2005 option grants
were made on September 2, 2004 at an exercise price of $32.19 per share.
REQUIRED VOTE
Required Vote
The affirmative vote of a majority of votes cast is required to approve this proposal. For purposes of qualifying the shares authorized under the proposed plan for listing on the NYSE, the total votes cast on the proposal must represent over 50% of shares outstanding.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
The Board of Directors recommends a vote FOR APPROVAL OF THE 2004 STOCK OPTION
PLAN.
39
approval of the 2005 Management Incentive Plan.
38
PROPOSAL TO APPROVE COMPENSATION TO BE PAID TO
CERTAIN EXECUTIVE OFFICERS UNDER THE 2004 LONG-TERM2000 MANAGEMENT INCENTIVE CASH PLAN
ITEM NO. 4 ON THE PROXY CARD
Upon
On May 12, 2005, the recommendation ofCommittee approved the Compensation and Stock Option Committee, the
Board of Directors has adopted the 2004 Long-Term Incentive Cash Plan. The Plan
permits us to pay cash bonuses to certain employees based on the achievement of
preestablished performance goals over a performance period of at least three
fiscal years.
Payment of compensation2006 bonus program (the “2006 Program”) under the 2000 Management Incentive Plan (the “2000 MIP”), including awards for executive officers who may be Senior Executive Participants under the 2000 MIP with respect to that fiscal year. The Senior Executive Participants include the 162(m) Officers (i.e.,Chief Executive Officer and the
Company's chief executive officer and its other four most highly compensated executive officers)officers other than the Chief Executive Officer. Agreements implementing the 2006 Program (the “2006 Agreements”) have been entered into with Messrs. Schnieders, Stubblefield, Accardi, Spitler, Pulliam, Carrig, Graham, Green, Holden, James Lankford, Smith and Soltis (the “2006 Award Recipients”).
Payment of awards (the “2006 Awards”) under the 2006 Agreements is being submitted to stockholders for approval at the 2004
Annual Meeting so that such compensation willcan qualify as performance-based for purposes of Section 162(m) of the Code. Compensation that qualifies as performance-based for purposes of Section 162(m) of the Code is not subject to the annual Section 162(m) limit on the deductibility of compensation in excess of $1 million, in the event that any party to a 2006 Agreement is a Senior Executive Participant with respect to each offiscal 2006.
If the 162(m) Officers.
If2006 Awards are not approved by the stockholders, do not approve this proposal, no bonuses will be paidpayable under the Plan2006 Program to any 2006 Award Participants.
The following is a summary of the material terms of the 2006 Awards and the relevant provisions of the 2000 MIP. The 2000 MIP is filed as Appendix A to the 162(m) Officers, regardlessCompany’s proxy statement filed with the SEC on September 25, 2000. The form of whether bonuses2006 Agreements were filed as Exhibits 10(vv) and 10(yy) to the Company’s Annual Report on Form 10-K on September 15, 2005.
Payment of Bonuses
The Company is submitting for approval two kinds of awards for potential Senior Executive Participants: one type for those who would otherwise be earned; however,“Corporate Participants” and who are Senior Vice Presidents of Operations; and one type for the Boardrest of those who would otherwise be Corporate Participants, as those terms are defined in the 2000 MIP. Solely for purposes of this description, the former are referred to as “SVPO Participants” and the latter are referred to as “Corporate Participants.”
| Corporate Participants |
Awards to Corporate Participants provide for a potential bonus with two components. The first component is based on the performance of the Company as a whole, and the second is based on the performance of the Company’s operating divisions or subsidiaries.
Company Performance Component. The first component of the bonus is earned only if the Company achieves specified earnings per share increases over fiscal 2005 and also achieves certain return on equity targets. This portion of the bonus is calculated by multiplying 100% of the Corporate Participant’s base salary by 70% of a percentage determined based upon the levels of earnings per share increases and return on equity achieved by the Company as a whole. Return on equity is computed as net after-tax earnings for fiscal 2006 divided by the Company’s average stockholders’ equity for fiscal 2006, computed by dividing 5 into the sum of the Company’s stockholders’ equity at the beginning of the year and at the end of each quarter during the year.
Division/ Subsidiary Performance Component. The second component of the bonus is earned only if at least 15 operating divisions and/or subsidiaries obtain certain return on capital targets and the divisions and subsidiaries that obtain the target return on capital together employ at least half of the aggregate total capital of all Company operating divisions or subsidiaries. This portion of the bonus is calculated by multiplying the Corporate Participant’s base salary by 9% with respect to the first 15 operating divisions or subsidiaries that obtain a target return on capital and by an additional 1.5% for each additional operating division or subsidiary that obtains the target return on capital.
For purposes of computing the operating division or subsidiary portion of the bonus, return on capital is computed by dividing the operating division’s or subsidiary’s pretax earnings (excluding any gain on the sale of fixed assets and intercompany interest income) by the operating division’s or subsidiary’s total capital. Total
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capital is computed as the sum of (a) average stockholder’s equity, (b) average long-term debt, (c) average net intercompany accounts, and (d) certain specified adjustments (amounts allocated to capital with respect to (i) fixed rate intercompany loans, (ii) capitalized leases, (iii) below market plant and equipment costs, and (iv) other adjustments affecting capital approved by the Committee).
| SVPO Participants |
Awards to SVPO Participants provide for a potential bonus with two components:
Company Performance Component. Under the first component, an SVPO Participant is entitled to 50% of the bonus he or she would have earned as a “Corporate Participant.”
Division/ Subsidiary Performance Components. The second component depends on the aggregate performance of all of the subsidiaries supervised by the participant (together, the “Supervised Operations”). The amount of bonus payable (if any) under this component is calculated by multiplying:
| (1) the sum of: |
| • | 70% times a percentage which varies, based upon the levels of operating pretax earnings increases and return on capital over fiscal 2005; plus | |
| • | 30% times a percentage which varies, based upon the levels of pretax earnings increases and return on capital over fiscal 2005; |
| -times- | |
| (2) 70% of base salary. |
Other Terms
No Senior Executive Participant is entitled to receive a 2006 Award in excess of 1% of the Company’s earnings before income taxes for fiscal 2006, as publicly disclosed in the “Consolidated Results of Operations” section of the Company’s Form 10-K for fiscal 2006 filed with the Securities and Exchange Commission.
The Committee must approve the payment of any bonus under the program to Senior Executive Participants within 90 days following the end of fiscal 2006. All bonuses under the program are subject to the provisions of the 2000 MIP.
Election to Receive Common Stock
A Participant may give notice to the Committee within the first ninety (90) days of fiscal year 2006 that such participant irrevocably elects to receive a certain percentage (up to 40% in 5% increments) of his or her annual bonus in the form of Company Common Stock (valued at the closing price on the New York Stock Exchange (“NYSE”) on the last trading day of such fiscal year) in lieu of cash. In the event of such election, such Participant will receive an additional number of shares equal to 50% of the number of shares determined as described above (“Additional Shares”) and an additional cash amount equal to the value of such Additional Shares multiplied by the effective tax rate applicable to the Company for such fiscal year.
Restrictions on Awards
Participants may also be required to enter into an agreement at the time of issuance of such shares that the Participant will not adopt another cash plansell, transfer, give or otherwise convey any of such shares for a period of two years from the date on which such shares were issued to the Participant, except in the event of death or termination of employment due to disability or retirement under the normal Company benefit plans, and such shares shall bear a legend reflecting the terms of such restriction.
If a Participant’s employment is terminated at any time within the first twelve month period following the issuance of shares for any reason, with or without cause, other than the Participant’s death or termination of employment due to disability or retirement under normal Company benefit plans, then upon demand of the Company made in writing within thirty (30) days from the date of termination, such Participant will sell to the Company all of the stock issued to the Participant within the twelve months preceding the date of termination at a purchase price equal to the lower of the then market price of the stock or the price at which the 162(m) Officers may participate.
A copystock was valued for purposes of issuing it pursuant to the plan. If a Participant’s employment is terminated after one year but before two years from the date on which any such shares of Common Stock were issued to the Participant, on the demand of the Plan is attached as Appendix C to this Proxy Statement. The
description that follows is qualifiedCompany made in its entirety by referencewriting within thirty (30) days from the
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date of termination, such Participant will sell to the full
textCompany, in addition to the shares he or she may be required to sell under the preceding sentence, 50% of the stock issued to the Participant within twenty-four months but more than twelve months preceding the date of termination at a purchase price equal to the lower of the then market price of the stock, or the price at which the stock was valued for purposes of issuing it pursuant to the 2006 Awards. The market price of the Common Stock shall be deemed to be the closing price of such stock on the primary securities exchange on which such stock is traded on the date of termination; and if such stock did not trade on such date, then on the next day on which it does trade. The shares of any Common Stock issued under the 2006 Awards shall bear a legend reflecting these restrictions.
New Plan Benefits
Because the Committee has complete discretion to determine the number and selection of award recipients as well as the number, types, vesting requirements and other terms of all awards, and because the future value of Common Stock is uncertain, it is not possible to determine the benefits or amounts, if any, that will be received by or allocated to any person under the 2006 Awards. However, for informational purposes only, set forth below are the values of bonuses that would have been received with respect to the 2005 fiscal year had the 2006 Program been in effect for fiscal 2005 for each of the Named Executive Officers and the 2006 Award Recipients as a group. Because the 2006 Program is unchanged from the 2005 Program, these are also the amounts that were actually received with respect to the 2005 fiscal year under the 2005 Program.
| Total Restricted Shares Awarded(2) | ||||||||||||
| Aggregate Value | ||||||||||||
| Based on Closing | ||||||||||||
| Name and Position | Total Cash Awarded(1)(2) | Number of Shares | Price at 07/01/05 | |||||||||
| Richard J. Schnieders, Chairman, Chief Executive Officer and President | $ | 1,387,706 | (3) | 34,080 | $ | 1,235,400 | ||||||
| Thomas E. Lankford(4) | 991,213 | 24,343 | 882,434 | |||||||||
| John K. Stubblefield, Jr., Executive Vice President, Finance and Chief Financial Officer | 753,311 | 18,501 | 670,661 | |||||||||
| Larry J. Accardi, Executive Vice President, Contract Sales and President, Specialty Distribution Companies | 713,672 | 17,527 | 635,354 | |||||||||
| Kenneth F. Spitler, Executive Vice President; President of North American Foodservice Operations | 713,672 | 17,527 | 635,354 | |||||||||
| All 2006 Award Recipients as a group | 7,410,832 | 181,996 | 6,597,357 | |||||||||
| (1) | Excludes matching amounts credited to participant accounts under the Company’s Executive Deferred Compensation Plan (“EDCP”) with respect to any amounts of a MIP bonus that were deferred. EDCP matches for the named individuals were as follows: Mr. Schnieders, $205,905; Mr. Lankford, $147,075; Mr. Stubblefield, $111,777; Mr. Accardi, $105,894; and Mr. Spitler, $105,894. |
| (2) | The Total Cash Awarded and Total Restricted Shares Awarded columns above include all cash and shares distributed, respectively, under the 2000 MIP pursuant to awards made with respect to the 2005 fiscal year, including all company matches and accompanying payments. |
| (3) | Does not include $370,629 paid under the Supplemental Plan. |
| (4) | Thomas E. Lankford resigned as President and Chief Operating Officer effective July 2, 2005. |
Bonus amounts paid pursuant to the 2006 Awards may vary materially from the amounts paid with respect to the 2005 fiscal year.
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Supplemental Performance Based Bonus Plan
Mr. Schnieders also participates in the Appendix.
PURPOSE OF THE 2004 LONG-TERM INCENTIVE CASH PLAN
The purposeSupplemental Performance Based Bonus Plan, under the terms of which he may (a) receive a bonus payable outside the Plan is to provide participants with2000 MIP, or (b) forfeit a meaningful
long-term incentive opportunity geared towardportion of any bonus payable under the achievement2000 MIP. See “Report of specific
financial performance goals.
ADMINISTRATION
Thethe Compensation and Stock Option Committee — Incentive Compensation — Supplemental Performance Based Bonus Plan.”
Executive Deferred Compensation Plan
Participants in the 2000 MIP are entitled to defer portions of any bonus payable under the 2000 MIP and receive matching contributions to their accounts under the Company’s Executive Deferred Compensation Plan. See “Report of the Board will administer
the Plan. TheCompensation and Stock Option Committee is composed of "non-employee directors" within the
meaning of Rule 16b-3— Incentive Compensation — Deferred Compensation Election.”
Supplemental Executive Retirement Plan
Bonuses payable under the Exchange Act, "outside directors" within2000 MIP will be included in calculating a participant’s final average compensation for purposes of determining benefits payable under the meaning of Section 162(m) ofSupplemental Executive Retirement Plan.
Federal Income Tax Consequences
The following discussion addresses certain anticipated federal income tax consequences to Senior Executive Participants who receive the 2006 Awards and to the Company. It is based on the Code and "independent directors" withininterpretations thereof as in effect on the meaningdate of NYSE listing standards.
ELIGIBILITY AND PARTICIPATION
Eligibilitythis proxy statement. Recipients of the 2006 Awards should consult their own tax advisors to participatedetermine the tax consequences to them based on their own particular circumstances.
The amount of the cash portion of a Participant’s award bonus will constitute ordinary income to the recipient when received and will be deductible to the Company in the Planfiscal year in which the bonus is limitedearned. If a Participant elects to employeesreceive a portion of his or her bonus in stock of the Company, and its subsidiaries. Each year, within 90 days after the beginningmarket value of such stock (as of the applicable performance period,last trading day of the Committee will determine those eligible
employees who will participate in the Plan. Currently, approximately 47,180
employeesfiscal year of the Company and its subsidiaries are within the class eligible for selection to participate in the Plan. For the performance period that includes
fiscal years 2005 through 2007, the Committee has designated 172 employees, all
of whom are participants in the Management Incentive Plan,which such bonus was earned) will be treated as participants in
the Plan.
AWARD DETERMINATION
Before the beginning of each performance period, or no later than 90 days
thereafter, the Committee will establish performance goals for that performance
period. The Committee may base performance goals on any combination of
corporate, operating company and individual performance. However, with respect
to 162(m) Officers, the Committee will establish the performance goals from one
or more of the following criteria:
- Return on Capital Employed,
- Sales Growth,
- Market Share,
- Margin Growth,
- Return on Equity,
- Total Shareholder Return,
40
- Increases in Net After-Tax Earnings Per Share,
- Increases in Operating Pre-Tax Earnings,
- Operating Profit or Improvements in Operating Profit,
- Improvements in Working Capitalordinary income when received, and the Ratio of Sales to Net Working
Capital,
- Reductions in Inventories, Accounts Receivable or Operating Expenses,
- Net Earnings, and
- Pre-Tax Earnings.
Within 90 days after the beginning of each performance period, the
Committee, in its sole discretion, will also determine (i) the length of the
performance period, which shall be no less than three years in duration, (ii)
the payment date for the performance period, (iii) the method for determining
performance unit value and payment amount for each participant, and (iv) the
number of performance units to be granted to each participant. It is anticipated
that awards will be made annually under the Plan which will result in
overlapping performance periods.
The Committee has established increases in net after-tax earnings per share
(for corporate participants) and operating pretax earnings (for operating
company participants) as the performance goals for the three-year performance
period commencing on July 4, 2004 and ending June 30, 2007.
The maximum payment in respect of any performance period to be paid to any
162(m) Officer shall not exceed 1% of the Company's earnings before income taxes
as reported in the Company's Form 10-K for the fiscal year ended immediately
prior to the payment date with respect to such performance period.
PAYMENTS
Payments earned under the Plan will be made in cash on or before the
payment date for a given performance period. Payment dates will be determined by
the Committee and may not be later than the last day of the fourth month
following completion of the applicable performance period. Although none of
SYSCO's executive benefit plans currently permit deferral of amounts earned
under the Plan, such plans could allow participants to defer amounts earned
under the Plan in the future.
TERMINATION OF EMPLOYMENT
Generally, a participant must be employed on the last day of a performance
period to receive payments under the Plan. Therefore, if a participant's
employment terminates prior to a Change in Control for any reason other than
retirement, death or disability, such participant's performance units will be
cancelled and the participant will receive no payment under the Plan. If a
participant's employment terminates after the end of a performance period but
before the payment date, the participant will be paid any amounts earned during
the performance period on the payment date. If a participant's employment is
terminated by reason of retirement or disability, such participantCompany will be entitled to receive payment foran equivalent deduction in the full performance period. Performance units
can be cancelled if a participant engagesfiscal year in activities competitive withwhich the Company prior to the end of a performance period. If a participant dies prior to
the end of a performance period, his or her beneficiaries or personal
representatives will be entitled to receive a pro rata portion of any amountsbonus was earned. CHANGE IN CONTROL
If a Change in Control occurs during a performance period, a participant's
performance units with respect to such performance period will be considered
vested, and payment will be made to the participant within 90 days after the
date of the Change in Control. Payments will be based on the maximum amount that
could be paid assuming the highest level of performance is achieved.
Payments made under the Plan as a result of a Change in Control generally
will be treated as a "parachute payment" for purposes of Section 280G of the
Code. As a result, with respect to any such payments made to officers, a member
of the group consisting of the lesser of the highest paid 1% of the employees of
the Company or the highest paid 250 employees of the Company, and any
shareholder owning
41
more than 1%Any subsequent sale of the stock by him or her shall give rise to a capital gain or loss.
The discussion set forth above is intended only as a summary and does not purport to be a complete enumeration or analysis of all potential tax effects relevant to recipients of 2006 Awards. We have not undertaken to discuss the tax treatment of the Company ("disqualified individuals"),2006 Awards in connection with a merger, consolidation or similar transaction. Such treatment will depend on the Company may be unable to claim a tax deduction if the total amount of payments
and benefits to be received by the disqualified individual that are contingent
on a Change in Control for purposes of Section 280Gterms of the Code ("parachute
payments") equal or exceed three timestransaction and the disqualified individual's average W-2
compensation for the five tax years preceding the yearmethod of the Change in Control
("5-year average compensation"). In addition, the disqualified individual may be
subject to a 20% excise tax to the extent that parachute payments made to the
disqualified individual exceed the disqualified individual's 5-year average
compensation if the total parachute payments to the disqualified individual
equal or exceed three times the disqualified individual's 5-year average
compensation. See page 24 for a description of the Company's payment obligations
under the Severance Agreements with respect to this excise tax.
DURATION OF PLAN
The Plan will expire on September 3, 2009, unless sooner terminated by the
Board.
AMENDMENTS
The Plan may be withdrawn or amended by the Board or the Committee at any
time, unless such withdrawal or amendment would have an adverse effect on awards
previously granted. In addition, the following amendments, to the extent that
they would affect 162(m) Officers, will not be made without stockholder
approval:
- Modifying eligibility requirements,
- Materially increasing participants' benefits, or
- Modifying the performance measures for 162(m) Officers.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general description of the federal income tax
consequences of compensation paid under the Plan to the 162(m) Officers. This
summary does not address any state, local or other non-federal tax consequences
associateddealing with the paymentawards in connection therewith.
Certain Interests of compensation to 162(m) Officers under the Plan.
This discussion is intended for the information of stockholders considering how
to vote at the annual meeting and not as tax guidance to individuals who
participate in the Plan.
Deductibility of Compensation Paid to 162(m) Officers
In general, subject to certain limitations, compensation that is paid to
the 162(m) Officers under the Plan will be deductible by SYSCO for federal
income tax purposes.
Section 162(m) of the Code generally imposes a $1 million limit on the
deductibility compensation paid to a 162(m) Officer for any taxable year.
However, compensation that qualifies as performance-based for purposes of
Section 162(m) of the Code is not subject to the Section 162(m) limitation. The
Plan has been drafted and is intended to be administered in a manner that would
enable the compensation paid to 162(m) Officers to qualify as performance-based
for purposes of Section 162(m) of the Code. Shareholder approval of payment of
compensation under the Plan to the 162(m) Officers is necessary in order for
such compensation to qualify as performance-based for purposes of Section 162(m)
of the Code.
In general, to the extent that compensation paid under the Plan qualifies
as performance-based for purposes of Section 162(m) of the Code, the tax
deduction that is generally available with respect to such compensation will not
be subject to the deductibility limitation of Section 162(m) of the Code.
Treatment to 162(m) Officers
The Section 162(m) Officers will recognize ordinary compensation income
with respect to any compensation paid under the Plan at the time of payment.
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Tax Withholding
We will deduct from all Plan payments, any federal, state or local taxes
required by law to be withheld with respect thereto.
CERTAIN INTERESTS OF DIRECTORSDirectors
In considering the recommendation of the Board of Directors with respect to the payment of compensation to certain executive officers under the Plan,2006 Awards, stockholders should be aware that members of the Board of Directors have certain interests that may present them with conflicts of interest in connection with the proposal to approve the payment2006 Awards.
Certain of such compensation. As discussed above,the directors who are also employees of the Company willare 2006 Award Recipients and are likely to be eligible to receive
payments underSenior Executive Participants. Nevertheless, the Plan and have receive grants of performance units for the
fiscal 2005 through 2007 performance period. The Board of Directors believes that approval of this proposalthe 2006 Awards will advance the interests of the Company and its stockholders by encouraging employeeskey officers to make significant contributions to the long-termlong term success of the Company.
NEW PLAN BENEFITS
The following table indicates the number of performance units that were
granted in fiscal 2005. No other performance units are expected to be granted in
fiscal 2005 under the Plan. Because the number of performance units that may be
granted in the future is not determinable at this time, this table indicates the
number of performance units that would be granted in fiscal 2006 under the 2004
Long-Term Incentive Cash Plan and the estimated dollar value thereof assuming
that grants are made commensurate with those made in fiscal 2005 and the maximum
performance level is achieved:
- ---------------
(1) Based on a maximum payment per unit of $52.50. Actual payout amounts will
not be determinable until the end of the three-year performance period and
may be less than the amounts shown. If minimum performance levels are not
met, no payments will be made.
REQUIRED VOTE
Required Vote
The affirmative vote of a majority of votes cast is required to approve the payment of compensation to certain executive officers pursuant to the 2000 Management Incentive Plan.
The Board of Directors recommends a vote FOR approval of the payment of compensation to certain
executive officers pursuant to the 2000 Management Incentive Plan.
42
PROPOSAL TO APPROVE THE BOARD OF2005 NON-EMPLOYEE DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PAYMENT OF
COMPENSATION TO CERTAIN
EXECUTIVE OFFICERS PURSUANT TO THE 2004 LONG-TERM INCENTIVE CASH PLAN.
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SHAREHOLDER PROPOSAL
STOCK PLAN
ITEM NO. 5 ON THE PROXY CARD
Background
On September 9, 2005, the Board of Directors adopted the Sysco Corporation 2005 Non-Employee Directors Stock Plan (the “Proposed Directors Plan”), and unanimously recommended that the Proposed Directors Plan be submitted to stockholders for their approval at the 2005 annual meeting. If approved, the Proposed Directors Plan will replace the Company’s Amended and Restated Non-Employee Directors Stock Plan (the “Existing Directors Plan”) that is currently in place. If the Proposed Directors Plan is approved by stockholders, no new grants will be made under the Existing Directors Plan, although outstanding awards thereunder will remain outstanding, and may be exercised and will continue to vest in accordance with their terms. On September 26, 2005, the closing price of SYSCO’s common stock as reported by the NYSE was $32.01.
The following proposal was submittedis a summary of the principal provisions of the Proposed Directors Plan. The full text of the Proposed Directors Plan is attached hereto as Annex C.
Purpose
The purpose of the Proposed Directors Plan is to make available shares of common stock for award to or purchase by non-employee directors of SYSCO in order to attract, retain and provide compensation for the services of experienced and knowledgeable non-employee directors for the benefit of SYSCO and its stockholders, and enable them to increase their ownership of SYSCO common stock and their personal financial stake in the Company, in addition to underscoring their common interest with stockholders in increasing the value of SYSCO over the long term.
Eligibility
All members of SYSCO’s Board of Directors who have given notice
that they intendare not current employees of SYSCO or any of its subsidiaries are eligible to present for actionparticipate in the Proposed Directors Plan. There currently are nine non-employee directors on the Board. Assuming the Board’s nominees are elected at the Annual Meeting, there will be nine non-employee directors as of the resolution
described below. Pursuantdate of the Annual Meeting.
Shares Reserved for the Proposed Directors Plan
The Proposed Directors Plan provides for the grant of options (“Options”), retainer stock awards (“Retainer Stock Awards”), restricted stock (“Restricted Stock”), restricted stock units (“Restricted Stock Units”), elected shares in lieu of a portion of annual cash retainer fees (“Elected Shares”) and additional matching shares issued with respect to Rule 14a-8(l)(1) promulgatedElected Shares (“Additional Shares”). Options granted may also provide for dividend equivalent rights. An aggregate maximum of 550,000 shares of the Company’s common stock may be issued under the Securities
Exchange Act of 1934, the Company will provide the name, addressProposed Directors Plan. Of this total, 220,000 shares may be issued pursuant to Options, 320,000 shares may be issued pursuant to Retainer Stock Awards, Restricted Stock Awards, Restricted Stock Unit Awards, Elected Shares and Additional Shares, and 10,000 shares may be issued as dividend equivalents.
The number of Company securities heldshares covered by the proponentsProposed Directors Plan is subject to adjustment in the event of this proposal promptly upon receiptstock dividends, stock splits, combinations of a writtenshares, mergers, consolidations, rights offerings, reorganizations or oral request.
RESOLVED: Shareholders request that our Board reviewrecapitalizations, or in the Company's
policiesevent of other changes in SYSCO’s corporate structure or shares. Any such adjustment will be made only if adjustments are made to awards under the Company’s incentive plans for food products containing genetically engineered (GE)
ingredientsmanagement then in effect. Shares issued under the Proposed Directors Plan may consist, in whole or in part, of authorized and report (at reasonable cost and omitting proprietary
information)unissued shares, treasury shares or shares purchased on the open market.
To the extent any Option granted under the Proposed Directors Plan expires or terminates for any reason prior to shareholders within six monthsexercise, the number of shares subject to the portion of the annual meetingOption not so exercised will be available for future grants under the Proposed Directors Plan. Shares subject to Retainer Stock Awards, Restricted
43
Stock Awards or Restricted Stock Unit Awards that are forfeited or cancelled will again be available for new grants.
Administration of the Proposed Directors Plan
The Proposed Directors Plan is administered by the Board. The Board has the authority to terminate or amend the Proposed Directors Plan, to determine the terms and provisions of the respective Option and award agreements, to construe Option and award agreements and the Proposed Directors Plan, and to make all other determinations in the judgment of the Board necessary or desirable for the administration of the Proposed Directors Plan, including amending the vesting and exercisability terms of any Options. However, the Proposed Directors Plan may not be amended by the Board to revoke or alter any provision in a manner which is unfavorable to the grantee of Options, Retainer Stock Awards, Restricted Stock, Restricted Stock Units, Elected Shares or Additional Shares then outstanding. In addition, certain material amendments of the Proposed Directors Plan will be subject to stockholder approval, including increasing the number of shares authorized for issuance, in total or pursuant to any award type, modifying the method by which the Option exercise price is determined, providing for the repricing of any Option, expanding the types of awards that may be granted, materially expanding the class of participants or materially extending the term of the Plan. The Board may delegate any or all of its authority under the Proposed Directors Plan to the non-employee directors, or to any two or more thereof.
Grant of Stock Options and Exercise Price
Under the Proposed Directors Plan, the Board will be entitled to grant Options in its discretion to eligible non-employee directors. Except as disclosed below, the Board may impose whatever terms or restrictions it deems appropriate in connection with any Option grant. The option exercise price per share to be established by the Board of Directors shall be not less than the last closing price of the Company’s common stock on the resultsNew York Stock Exchange on the first business day prior to the date of grant of the review, including
(i) the extent that the Company's proprietary food products are derived
from or contain GE ingredients;
(ii) the environmental impacts of continued use of GE ingredients in
food products sold or manufactured by the company;
(iii) any contingency plan for sourcing non-GE food ingredients should
circumstances so require;
(iv) any issues of competitive advantage and/or brand name loyalty from
use or non-use of GE ingredients.
SUPPORTING STATEMENT
Concerns about the impact of genetically engineered food on humans or the
environment include:
The National Academy of Sciences report Biological Confinement of
Genetically Engineered Organisms (1/2004) states that "It is possible that some
engineered genes that confer pest resistance or otherwise improve a crop plant
might contribute to the evolution of increased weediness in wild
relatives -- especially if the genes escape to an organism that already is
considered a weed."..."Other concerns about transgenic organisms include their
effects on nontarget populations -- including humans -- and the potential for
transgenes to disperse and spread before becoming deregulated in particular
regions or nations." (p. 3-4)
Gone to Seed, a study by the Union of Concerned Scientists (3/2004) found
that genetically engineered DNA is contaminating U.S. traditional seeds of corn,
soybeans and canola and that if left unchecked could disrupt agricultural trade,
unfairly burden the organic foods industry, and allow hazardous materials into
the food supply.
The FDA does not require producers of GE food products to seek prior FDA
approval of finished GE food products; producers of GE-products are merely
encouraged to have voluntary safety consultations with the FDA. It is the
developer's responsibility to assure that the food is safe. (The exception is
that GE food qualifying as an additive must conform to FDA regulations and be
appropriately labeled. However, to date, very few GE food products have been
subjected to FDA's regulations on additives.Option (the “Fair Market Value”)
Weed resistance to the herbicide used widely by farmers who plant
genetically engineered herbicide resistant crops, is increasing. (Penn State
College of Agriculture Sciences News 5/30/03). The testing protocol on foods derived from biotechnology adopted in 2003 byBoard may impose such restrictions or conditions upon the Joint UN FAO/WHO Codex Alimentarius Commission is not required byshares to be received upon the FDAexercise of an Option as it deems appropriate.
Dividends and Dividend Equivalent Rights
Under the Proposed Directors Plan, an Option may include the right to assess GE foods on the U.S. market.
In December 2002, StarLink corn, not approved for human consumption, was
detected in a U.S. corn shipment to Japan. StarLink first contaminated U.S. corn
supplies in September 2000, triggering a recall of 300 products.
44
Indicators of market resistance to GE-foods:
A USDA survey indicates that most Foreign Agricultural Service offices
expected their host nations to react toward GE-wheat with oppositionreceive dividend payments or uncertainty. Of the offices surveyed, 17 responded negatively, 32 responded with
uncertainty, and only 4 responded positively. (Reuters, 03/15/04)
A Pew Global Attitudes survey (6/2003) indicates that Western Europeans in
surveyed countries and Japanese overwhelmingly oppose GE-foods for health and
environmental reasons. In the United States 55% are opposed according to this
survey.
Many of Europe's larger food retailers [J. Sainsbury (UK), Carrefour
(France's largest retailer), Migros (Switzerland's largest food chain), Delhaize
(Belgium), Marks and Spencer (UK), Superquinn (Ireland) and Esselunga (Italy)]
have committed to removing GE ingredients from their proprietary products.
- ------------------------------
THE BOARD OF DIRECTOR'S STATEMENT IN OPPOSITION
As the leader in the foodservice distribution industry, we recognize the
importance of food safety, not onlydividend equivalent payments with respect to the well being of consumers,
but also as it relatescommon stock subject to the success and reputation of our Company. The
proponents request that we undertakeOption. Such payments may be credited to review and report onan account for the Company's
policies with respectgrantee or settled in cash or common stock as determined by the Board. Any such crediting or settlements may be subject to genetically engineered foods. While our management andsuch conditions as the Board of Directors shareestablishes.
Means of Exercise of Options
Upon exercise of the proponents' convictionOption, the option price for purchased shares is payable immediately in cash or by tendering, through actual delivery or attestation, shares of SYSCO common stock held for at least six months that food safety should
be, as it is, a top priority for SYSCO, we nonetheless believe that the proposal
set forth above should be rejected for the reasons set forth below:
- The GMO opponents should address their demandshave an aggregate Fair Market Value equal to the governmental
entities overseeing food safety rather thanOption exercise price or any combination of the foregoing. Subject to food distributors that do
not own food manufacturing facilities.
- The report they have requested is impracticable and would not assist
decision making regarding these issues.
- The Board believes that no meaningful report on this subject matter could
be produced without including and discussing confidential and proprietary
business information. As it has stated incompliance with applicable law, under the past,Proposed Directors Plan, the Board believesof Directors may also permit a recipient to pay the exercise price by irrevocably authorizing a third party to sell shares of SYSCO common stock to be acquired upon exercise of the Option, or a portion thereof, and instructing that publication of this information would be harmfulparty to pay the exercise price and any required withholding to the Company. However,With the omissionexception of this information from such a report could
produce a document that would at best be of little benefit and may even
be misleading.
- The Company is involved in ongoing efforts to developany dividends or dividend equivalent rights specifically granted under the capability to
meet demands for alternative-source food products.
SYSCO takes every step that is mandated, as well as many more that exceed
government requirements, to verify the safetyProposed Directors Plan, an Option holder will have none of the foods we distributerights of a stockholder with respect to any shares covered by the Option until such individual has exercised the Option, paid the Option price and been issued a stock certificate for the purchased shares.
44
Vesting and Exercisability of Options
Under the Proposed Directors Plan, the Board of Directors shall establish, in its discretion, the terms under which Options shall vest and become exercisable; provided, however, that these productsno Option shall have a term in excess of seven years, and all grants will be subject to a minimum three-year ratable vesting schedule.
Transferability of Options
Options are developednot assignable or transferable other than by will or the laws of descent and processeddistribution, and during the grantee’s lifetime the option may be exercised only by the grantee or the grantee’s guardian or legal representative.
Retainer Stock Awards
The Proposed Directors Plan also provides for the automatic grant of Retainer Stock Awards. As of the date of each Annual Meeting of SYSCO’s stockholders, each newly elected director who has not previously received a retainer stock award is granted a one-time Retainer Stock Award of 6,000 shares. Retainer Stock Awards will vest one-third on each of the first, second and third anniversaries of the date of grant.
Common stock granted as a Retainer Stock Award may not be sold, assigned, transferred or pledged prior to the date it is vested. Each director, as the owner of shares of common stock granted to him or her as a Retainer Stock Award, has all the rights of a SYSCO stockholder, including, but not limited to, the right to vote such shares and the right to receive all dividends paid on such shares.
Restricted Stock and Restricted Stock Units
The Board of Directors may grant shares of Restricted Stock and/or Restricted Stock Units to participants in such amounts and upon such terms and conditions as the Board shall determine; provided, however, that no grant of Restricted Stock or of any Restricted Stock Unit shall in any event vest more than 1/3 per year for each of the first three years following the date of grant. Grants of Restricted Stock are grants of common stock that may be subject to forfeiture based on the passage of time, the achievement of performance goals, and/or upon the occurrence of other events as determined by the Board in its discretion. Restricted Stock Units are awards denominated in units whose value is derived from common stock and which are subject to forfeiture based on the passage of time, the achievement of performance goals, and/or upon the occurrence of other events as determined by the Board in its discretion.
The Board may impose, at the time of grant or anytime thereafter, such other conditions and/or restrictions on any shares of Restricted Stock or Restricted Stock Units granted pursuant to the Plan as it may deem advisable including, without limitation, a requirement that participants pay a stipulated purchase price for each share of Restricted Stock or each Restricted Stock Unit, that specific performance goals be obtained, the imposition of time-based restrictions on vesting following the attainment of the performance goals, time-based restrictions, restrictions under applicable laws or under the requirements of any stock exchange or market upon which such shares are listed or traded, or holding requirements or sale restrictions placed on the shares following vesting.
Common stock subject to a Restricted Stock Award may not be sold, assigned, transferred, pledged or otherwise encumbered prior to the date it is vested, and except as otherwise specified by the Board. Restricted Stock Units may not be transferred.
To the extent required by law, non-employee directors in whose names shares of Restricted Stock are issued shall be granted the right to exercise full voting rights with respect to those shares during the period of restriction. A participant shall have no voting rights with respect to any Restricted Stock Units. During the period of restriction, non-employee directors holding shares of Restricted Stock or Restricted Stock Units may, if the Board so determines, be credited with dividends paid with respect to the underlying shares or dividend equivalents. The Board, in its sole discretion, may determine the form of payment of dividends or dividend equivalents, including cash, unrestricted common stock, Restricted Stock, or Restricted Stock Units. When and if Restricted Stock Units become payable, a non-employee director having received the grant of
45
such units shall be entitled to receive payment from the Corporation in cash, in shares of common stock of equivalent value (based on the Fair Market Value thereof on the first business day prior to the date on which the Restricted Stock Units became payable), in some combination thereof, or in any other form determined by the Board in its sole discretion.
Elected and Additional Shares
A non-employee director who is otherwise eligible to receive an annual cash retainer fee for services provided as a director may elect to forego up to 50% of his or her annual retainer fee, in 10% increments (exclusive of any fees or other amounts payable for attendance at meetings of the Board or for service on any committee thereof), and receive in its stead SYSCO common stock, in an amount determined as set forth below. Upon making such an election, the elected amount is deducted ratably from the quarterly payment of the director’s annual retainer fee, and the electing director’s account is credited on the date of each quarterly payment of the annual retainer fee (“Quarterly Payment Date”) with that number of shares of SYSCO common stock determined by dividing his or her elected amount by the Fair Market Value of one share of SYSCO common stock as of the first business day prior to such Quarterly Payment Date (“Elected Shares”). In addition, he or she also receives that number of shares of common stock determined by dividing 50% of the elected amount by the Fair Market Value of one share of SYSCO common stock as of the first business day prior to such Quarterly Payment Date (“Additional Shares”). The issuance date of common stock credited pursuant to a non-employee director’s election to forego up to 50% of his or her annual retainer fee is December 31 of the calendar year as to which the director has elected to receive stock in lieu of cash retainer payments or the last business day prior to December 31, if December 31 is not a business day of the Company’s transfer agent. If a director who has elected to receive common stock in lieu of cash retainer payments ceases to be a director for any reason, certificates for such shares shall be issued within 60 days following the date such director ceases to serve on the Board.
All Elected Shares and Additional Shares are 100% vested as of the date they are credited to the electing director. Additional Shares, however, may not be sold or transferred for a period of two years after the date on which they are issued (the “Restriction”). The Restriction remains in effect after the date an electing director ceases to be a director; provided, however, that the Restriction lapses (i) if an electing director ceases to be a director under circumstances which would not cause forfeiture of Options or unvested Retainer Stock Awards, or by reason of disability; or (ii) on the date of certain defined changes of control of SYSCO.
Termination of Service
Under the Proposed Directors Plan, unless otherwise determined by the Board of Directors, upon cessation of service as a non-employee director (for reasons other than death), all unvested Options and unvested Retainer Stock Awards, Restricted Stock Awards and Restricted Stock Units are forfeited, unless:
| • | The non-employee director serves out his term but does not stand for reelection at the end of the term; or | |
| • | The non-employee director retires from service prior to the expiration of his or her term and after attaining age 71. |
Upon a non-employee director’s death, all Options will vest and his or her legal representatives or heirs have three years within which to exercise them, but in no event may the Options be exercised after their expiration date. In addition, all unvested Retainer Stock Awards, Restricted Stock Awards and Restricted Stock Units will vest upon a non-employee director’s death, and all restrictions with respect to Additional Shares will lapse.
No Impairment of the Company’s Rights
Nothing in the Proposed Directors Plan will be construed or interpreted so as to affect adversely or otherwise impair the Company’s right to remove any non-employee director from service on the Board at any time in accordance with all
government regulations. This also includes our SYSCO Brand products, which are
developedthe provisions of applicable law, and monitored by our staff of approximately 180 quality assurance
professionals. These individuals areno non-employee director has any claim or right
46
to be granted or issued an Option, Retainer Stock Award, Restricted Stock Award, Restricted Stock Unit, Elected Shares or Additional Shares, except as provided in the fields,Proposed Directors Plan.
Effective Date and Term of the Amended and Restated Directors Plan
The Proposed Directors Plan shall be effective as of the date of approval thereof by the Company’s stockholders. The Proposed Directors Plan will terminate upon the earliest to occur of (i) November 11, 2010, (ii) the date on which all shares available for issuance under the production linesProposed Directors Plan have been issued, or (iii) the date on which all outstanding grants or awards are terminated or have been forfeited. If the date of termination is determined under clause (i) or (ii) above, then any Options and in contact with our suppliers, and they represent a commitment to food safety
that is unsurpassed inRetainer Stock Awards, Restricted Stock or Restricted Stock Units outstanding on such date will not be affected by the foodservice industry. SYSCO complies,termination of the Proposed Directors Plan and will continue to comply,have force and effect in accordance with all applicable government regulations.
In November 2003, the FDA's Consumer Magazine quoted Commissioner Mark
McClellan, M.D., Ph.D., as saying, "The FDA willprovisions of the instruments evidencing such grants or awards and the Plan, and Additional Shares shall continue to reach outbe subject to the publicapplicable provisions of the Proposed Directors Plan.
Federal Tax Consequences
The following is a general description of the federal income tax consequences under the Proposed Directors Plan. This summary does not address any state, local or other non-federal tax consequences associated with the Proposed Directors Plan. This discussion is intended for the information of stockholders considering how to help consumers understandvote at the scientific issuesannual meeting and not as tax guidance to individuals who participate in the Proposed Directors Plan. Participants in the Proposed Directors Plan should consult their own tax advisors to determine the tax consequences to them based on their own particular circumstances.
Options. The Company is generally entitled to deduct for federal income tax purposes, and the agency's
policies regarding genetically engineered food. The FDA,participant will recognize taxable ordinary income in cooperation with
USDA and EPA, will continue its oversight of new and emerging food biotechnology
products and will be vigilant in ensuringan amount equal to, the safety and integritydifference between the (i) fair market value of the food
supply." SYSCO will continue to urge regulatory authorities to take all steps
necessary based on sound scientific principles to assure that all new food
technologies are safe for consumers and the environment. SYSCO, directly and
through the trade associations to which we belong, will support and actively
lobby Congress and federal regulatory agencies to
45
increase the funding for development of scientific analysis and regulations that
will ensure the safety of America's foods.
Preparing the report requested by the proponents would be difficult as a
practical matter because it is difficult to determine with any level of
precision the accurate amount of GE ingredients in many food products,
particularly prepared products. Further, we understand that the use of genetic
engineering with respect to certain raw materials such as corn and soybeans is
widespread. We also understand that current agricultural storage and
transportation methods make it extremely difficult to completely segregate
modified crops from unmodified crops. This means that any information available
from growers or manufacturers could be inconsistent. As a result, we believe
that the report requested by the proponents cannot be prepared at a reasonable
cost or with any significant degree of accuracy.
The Company will continue to develop and revise plans as required to
address business and food safety issues as they arise. These issues are criticalshares acquired pursuant to the Company's business. We believe that the publicationexercise of the Company's
business plans as requested would compromise its efforts and business. The
proposed report would require the Company (i) to make public confidential and
proprietary business information regarding its products and business plans;Option, and (ii) to make highly speculative scientificexercise price of the Option.
Retainer Stock Award/ Restricted Stock. Upon the grant of Retainer Stock Awards and environmental judgments about
issues whichRestricted Stock, no income is realized by a non-employee director (unless the director timely makes an election under Section 83(b) of the Code), and the Company is not allowed a deduction at that time. When the award vests and is no longer subject to a substantial risk of forfeiture for income tax purposes, the non-employee director realizes taxable ordinary income in an amount equal to the fair market value at the time of vesting of the shares of stock which have vested (less the purchase price therefor, if any), and the Company is entitled to a positioncorresponding deduction at that time. If a non-employee director makes a timely election under Section 83(b) of the Code, then the non-employee director recognizes taxable ordinary income in an amount equal to evaluate independently. Suchthe fair market value at the time of grant of the Retainer Stock Award or Restricted Stock (less the purchase price therefor, if any), and the Company is entitled to a reportcorresponding deduction at that time.
Restricted Stock Units. Upon the grant of Restricted Stock Units, no income is realized by the non-employee director, and the Company is not allowed a deduction at that time. When the award vests and is no longer subject to a substantial risk of forfeiture for income tax purposes, the non-employee director realizes taxable ordinary income in an amount equal to the cash or the fair market value at the time of vesting of the shares received by the non-employee director (less the purchase price therefor, if any), and the Company is entitled to a corresponding deduction at that time.
Elected Shares and Additional Shares. A non-employee director who elects to receive Elected Shares and Additional Shares will recognize ordinary compensation income in the amount of the fair market value of such shares as of the date they are credited to his or her account. The Company will generally be entitled to a deduction for the amount included in the income of the non-employee director for the Company’s taxable year within which the non-employee director’s taxable year ends.
Section 409A of the Code. Section 409A was added to the Internal Revenue Code by the American Jobs Creation Act of 2004. It is generally effective January 1, 2005 and applies broadly to most forms of deferred compensation, including certain types of equity-based compensation. Section 409A provides strict
47
rules for elections to defer (if any) and timing of payouts. If the requirements of Section 409A are not met, recipients of deferred compensation may suffer adverse tax consequences, including taxation at the time of vesting of an award and interest and penalties on any deferred income. However, the failure to comply with Section 409A would not advance consumer safety, butimpact the Company’s ability to deduct deferred compensation. Although the IRS has issued limited guidance on the interpretation of this new law, and it is not clear how Section 409A applies to many types of equity-based compensation, the Company does not intend to grant any awards under the Plan that would harmnot comply with the business
interestsrequirements of Section 409A of the CompanyCode.
New Plan Benefits
The following table indicates the number of shares of common stock that are currently expected to be received in connection with grants to be made in fiscal 2006 (November 2005) under the Proposed Directors Plan if it is approved by stockholders, and its stockholders.
SYSCO distributes products that comply with federal and state laws and
labeling regulations. We are further committed to the distribution of only those
products that meet our specific and exacting quality and safety standards. SYSCO
will continue to work actively with our suppliers to develop even greater
product choices for our customers, including certain GMO-free products, organic
products, products farmed with Integrated Pest Management systems and food
products with specifications such as those proposed by eco-label organizations
that support sustainable agriculture. We are also taking a leading role in
supporting a new vision of agricultural practices to protect the land and
environment for future generations through Integrated Pest Management and
Sustainable Agricultural standards that will be implemented nationwide by
suppliers who provide us SYSCO Brand canned and frozen fruits and vegetables.
SYSCO's mission is to help our customers succeed. Therefore, we are
committed to ongoing, successful and effective food safety programs.
The Company opposesestimated dollar value thereof:
| Number of Shares | |||||||||
| Name and Position | Underlying Grants | Dollar Value | |||||||
| Non-Employee Directors as a group (9 persons) | |||||||||
| Stock Options | 31,500 | (1) | $ | 224,280 | (2) | ||||
| Retainer Stock Awards | n/a | n/a | |||||||
| Restricted Stock | 27,000 | (3) | 875,340 | (4) | |||||
| Restricted Stock Units | n/a | n/a | |||||||
| Elected Shares in Lieu of Annual Retainer Fees | 8,945 | (5) | 290,000 | (4) | |||||
| Additional Shares | 4,472 | (5) | 145,000 | (4) | |||||
| Total | 71,917 | $ | 1,534,620 | ||||||
| (1) | Assumes grants of options to purchase 3,500 shares are made to each non-employee director. |
| (2) | Assumes a value of $7.12 per share which is the same as the hypothetical grant value determined for options granted in fiscal 2005 to the Named Executive Officers. See note (2) to the chart “Option Grants in Fiscal 2005.” |
| (3) | Assumes grants of 3,000 restricted shares are made to each non-employee director. |
| (4) | Assumes a fair market value of $32.42 per share based on the closing price of the Company’s common stock on the New York Stock Exchange on September 13, 2005. |
| (5) | Under the Proposed Directors Plan, up to 50% of the annual retainer fee may be exchanged for common stock of the Company as described herein. The number of shares to be granted depends upon the amount of fees waived by each non-employee director. The information reported assumes each non-employee director elects to waive the maximum amount permitted in calendar 2005. |
If this proposal onis not approved, the basis that it would require
significant cost and business risks withoutExisting Directors Plan will remain in effect. This proposal will not affect options or other awards already granted under the prospect of advancing food
safety. The Company does emphasize that it is committed to the use of only those
ingredients that meet its high quality and safety standards. We will continue to
support the efforts of regulatory authorities to take whatever steps are
necessary to assure that any new food technology is safe for consumers and the
environment. The Company's stockholders and consumers can count on its
compliance with all such regulations. Particularly in light of the scientific
and regulatory attention being given to the use of genetically modified
ingredients, the Company believes that preparation and publication of the report
requested in this proposal would not constitute an effective use of the
Company's assets.Existing Directors Plan.
Required Vote
The affirmative vote of a majority of votes cast is required to approve this proposal. Similar proposals were presented to SYSCO stockholders in 2002
and 2003. Those proposals were soundly defeated, receivingFor purposes of qualifying the affirmative vote
of 7.5% or less ofshares authorized under the proposed plan for listing on the NYSE, the total votes cast on the proposal each year.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE PROPOSAL ON GENETICALLY
ENGINEERED FOOD.
must represent over 50% of shares outstanding.
The Board of Directors recommends a vote FOR approval of the
2005 Non-Employee Directors Stock Plan
48
STOCKHOLDER PROPOSALS
PRESENTING BUSINESS
Presenting Business
If you want to present a proposal under Rule 14a-8 of the Exchange Act at our 20052006 Annual Meeting of Stockholders, send the proposal in time for us to receive it no later than May 27, 2005.June 5, 2006. If the date of our 20052006 Annual Meeting is subsequently changed by more than 30 days from the date of this year'syear’s Annual Meeting, we will inform you of the change and the date by which we must receive proposals. If you want to present 46
business at our 20052006 Annual Meeting outside of the shareholder proposal rules of Rule 14a-8 of the Exchange Act and pursuant to Article I, Section 9 of the Company'sCompany’s Bylaws, the Corporate Secretary must receive notice of your proposal by August 14, 2005,13, 2006, but not before July 5, 20054, 2006 and you must be a stockholder of record on the date you provide notice of your proposal to the Company and on the record date for determining stockholders entitled to notice of the meeting and to vote.
NOMINATING DIRECTORS FOR ELECTION
Nominating Directors for Election
The Corporate Governance and Nominating Committee will consider any director nominees you recommend in writing for the 20052006 Annual Meeting if the Corporate Secretary receives notice by August 14, 2005,13, 2006, but not before July 5,
20054, 2006 and you are a stockholder of record on the date you provide notice of your recommendation or nomination to the Company and on the record date for determining stockholders entitled to notice of the meeting and to vote. You may also nominate an individual for election as a directorsomeone yourself at the 20052006 Annual Meeting.
In either event, yourMeeting, as long as the Corporate Secretary receives notice of such nomination between July 4, 2006 and August 13, 2006.
Your notice must include the following information for each person you are recommending or nominating for election as a director:
- the name, age, business address and residence address of the person;
- the principal occupation or employment of the person;
- the class or series and number of shares of SYSCO capital stock which the
person owns beneficially or of record; and
-
| • | the name, age, business address and residence address of the person; | |
| • | the principal occupation or employment of the person; | |
| • | the class or series and number of shares of SYSCO capital stock which the person owns beneficially or of record; and | |
| • | any other information relating to the person that must be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors under Section 14 of the Exchange Act and its rules and regulations. |
In addition, your notice must include the following information about yourself:
- your name and record address;
- the class or series and number of shares of capital stock of SYSCO that
you own beneficially or of record;
- a description of all arrangements or understandings between you and each
proposed nominee and any other person or persons, including their names,
pursuant to which the nomination(s) are to be made;
- a representation that you intend to appear in person or by proxy at the
meeting to nominate the person or persons named in your notice; and
-
| • | your name and record address; | |
| • | the class or series and number of shares of capital stock of SYSCO that you own beneficially or of record; | |
| • | a description of all arrangements or understandings between you and each proposed nominee and any other person or persons, including their names, pursuant to which the nomination(s) are to be made; | |
| • | a representation that you intend to appear in person or by proxy at the meeting to nominate the person or persons named in your notice; and | |
| • | any other information about yourself that must be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors under Section 14 of the Exchange Act and its rules and regulations. |
The notice must include a written consent by each proposed nominee to being named as a nominee and to serve as a director if elected. No person will be eligible for election as a director of SYSCO unless recommended by the Corporate Governance and Nominating Committee and nominated by the Board or nominated by a stockholder in accordance with the procedures set forth above.
MEETING DATE CHANGES
Meeting Date Changes
If the date of next year'syear’s Annual Meeting is advanced by more than 30 days prior to or delayed by more than 60 days after the date of this year'syear’s Annual Meeting, we will inform you of the change and we must receive your director nominee notices or your shareholder proposals outside of Rule 14a-8 of the Exchange Act by the latest of 90 days before the Annual Meeting, 10 days after we mail the notice of the changed date of the Annual Meeting or 10 days after we publicly disclose the changed date of the Annual Meeting.
47
APPENDIX
49
ANNEX A
SYSCO CORPORATION
AUDIT COMMITTEE CHARTER
ORGANIZATION
Organization
The Board of Directors of SYSCO Corporation shall establish an Audit Committee whose members shall be appointed by the Board on the recommendation of the Corporate Governance and Nominating Committee. The Audit Committee shall have a minimum of three members and be composed entirely of directors who are independent of the management of SYSCO, are free of any relationship that, in the affirmative opinion of the Board, would interfere with their exercise of independent judgment as a Committee member, who are financially literate, and who otherwise meet the NYSE'sNYSE’s definition of "independent"“independent” and the definition of "independence"“independence” contained in Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended. At least one member of the Committee shall be an "audit“audit committee financial expert"expert” as such term is defined in rules to be promulgated by the Securities and Exchange Commission. Committee members cannot serve on the audit committees of more than two other companies.
STATEMENT OF POLICY
Statement of Policy
The Audit Committee shall provide assistance to the directors in fulfilling their responsibilities to shareholders, potential shareholders, and the investment community with respect to compliance with legal and regulatory requirements, corporate accounting, reporting practices, and the quality and integrity of the financial reports of SYSCO, oversight of the independent auditors'auditors’ qualifications and independence, and evaluation of the performance of SYSCO'sSYSCO’s internal audit department and independent auditors. It is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company'sCompany’s financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of management and the independent auditors.
In the performance of its responsibilities, the Audit Committee must maintain free and open means of communication among the directors, the independent auditors, SYSCO'sSYSCO’s internal audit department ("(“Operations Review"Review”), and executive and financial management. The Audit Committee shall have full access, without restriction, to all information which it believes, in the members'members’ judgment, is required to fulfill its responsibilities. The independent auditors report directly to the Audit Committee and are accountable to the Board of Directors and the Audit Committee as shareholder representatives.
In executing its responsibilities, the Audit Committee'sCommittee’s policies and procedures should be flexible in order to best react to changing conditions, and to insure that the accounting and reporting practices of SYSCO meet or exceed all applicable legal and regulatory requirements. In carrying out its responsibilities, the Audit Committee shall meet as often as it determines, but not less frequently than quarterly. Sysco shall provide appropriate funding, as determined by the Audit Committee, for payment of compensation to any registered public accounting firm and for other professional advisors such as independent counsel engaged by the Audit Committee and for the ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties.
In order to assist it in fulfilling its obligations set forth herein, the Committee shall review:
- Major issues regarding accounting principlesreview and financial statement
presentations, including any significant changes in SYSCO's selection or
application of accounting principles, and major issues as to the adequacy
of SYSCO's internal controls and any special audit steps adopted in light
of material control deficiencies, if any.
- Analyses prepared by management and/ordiscuss with the independent auditors setting
forth significant financial reporting issues and judgments made in
connection with the preparation of the financial statements, including
analyses of the effect of alternative GAAP methods on the financial
statements.
- The effect of regulatory and accounting initiatives, as well as
off-balance sheet structures, on the financial statements.
auditors:
| • | Major issues regarding accounting principles and financial statement presentations, including any significant changes in SYSCO’s selection or application of accounting principles, and major issues as to the adequacy of SYSCO’s internal controls and any special audit steps adopted in light of material control deficiencies, if any. |
A-1
RESPONSIBILITY WITH RESPECT TO INDEPENDENT AUDITORS
| • | Analyses prepared by management and/or the independent auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effect of alternative GAAP methods on the financial statements. | |
| • | The effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements and on the performance of the inside and outside auditors. |
Responsibility With Respect to Independent Auditors
With respect to the Company'sCompany’s independent auditors, the Audit Committee shall:
- Select and oversee the independent auditors who shall audit the
consolidated financial statements of SYSCO Corporation and its divisions
and subsidiaries; with sole power of dismissal.
-
| • | Select and oversee the independent auditors who shall audit the consolidated financial statements of SYSCO Corporation and its divisions and subsidiaries; with sole power of dismissal. | |
| • | Approve fee arrangements with the independent auditors for audit and permitted non-audit services and annually review fees paid to the firm. | |
| • | Review the experience and qualifications of the senior members of the independent auditor’s team. | |
| • | Pre-approve the retention of the independent auditors for any audit services (including comfort letters and statutory audits), internal control-related services and permitted non-audit services. | |
| • | Review and discuss with the independent auditors and with management, the annual audited financial statements and management’s discussion and analysis contained in the annual report to shareholders and Form 10-K prior to release to the public or filing with the appropriate agencies, and recommend to the Board whether the audited financial statements should be included in the Company’s Form 10-K. | |
| • | Review and discuss with the independent auditors and with management, the earnings press releases, and the type and presentation of information therein, prior to release to the public. | |
| • | Require that the independent auditors conduct an SAS 71 Interim Financial Review before the Company files its Form 10-Q. | |
| • | Meet with the independent auditors at the conclusion of the audit to review the results and discuss any difficulties the auditors encountered in the course of the audit work, including any restrictions on the scope of their activities or access to requested information. In connection with this review, discuss the independent auditors’ evaluation of SYSCO’s financial, accounting, and auditing personnel, the level of cooperation that the independent auditors received during the course of the audit, accounting adjustments, including any proposed adjustments that were not made due to immateriality or otherwise, any material issues on which the national office of the independent auditor was consulted by the Company’s audit team, significant auditing or accounting issues or disagreements with management and any management response thereto, and any management or internal control letters issued or proposed to be issued. This review shall also include a discussion of the responsibilities, budget and staffing of Operations Review. | |
| • | Review and discuss with management and the independent auditors the Company’s quarterly financial statements and management’s discussion and analysis prior to filing Form 10-Q, including the results of the auditor’s review of the quarterly financial statements. | |
| • | Obtain and review at least annually, and discuss with the auditors, a written report from the independent auditors describing their internal quality control procedures; any material issues raised by the most recent internal quality control review, or peer review, of them, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by them and any steps taken to deal with any such issues; and all relationships between the independent auditor and the Company. After reviewing this report, the Committee should evaluate the independent auditor’s qualifications, performance and independence, including considering whether the auditor’s internal controls are adequate and the provision of any permitted non-audit services is compatible with maintaining independence, and present its conclusions to the full Board. This evaluation shall include a review and evaluation of the lead partner |
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| of the independent auditor and shall take into account the opinions of management and Operations Review. | ||
| • | Assure the regular rotation of the lead audit partner as required by law, and consider, in order to assure continuing auditor independence, whether there should be regular rotation of the audit firm itself. | |
| • | Obtain and review at least annually a written report from the independent auditors describing all critical accounting policies and practices to be used by SYSCO; all alternative treatments of financial information within generally accepted accounting principles that have been discussed with SYSCO management; ramifications of the use of such alternative disclosures and treatments, and the treatments preferred by the independent auditors; and other material written communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences. | |
| • | Require the independent auditors to provide a formal written statement that delineates all relationships between the independent auditor and SYSCO. The Committee will ensure, through communicating with the independent auditor, that no relationship or services will impact the auditor’s independence or objectivity. |
Responsibility With Respect to the firm.
- Review the experience and qualifications of the senior members of the
independent auditor's team.
- Pre-approve the retention of the independent auditors for any audit
services (including comfort letters and statutory audits), internal
control-related services and permitted non-audit services.
- Review and discuss with the independent auditors and with management, the
annual audited financial statements and management's discussion and
analysis contained in the annual report to shareholders and Form 10-K
prior to release to the public or filing with the appropriate agencies,
and recommend to the Board whether the audited financial statements
should be included in the Company's Form 10-K.
- Review and discuss with the independent auditors and with management, the
earnings press releases, and the type and presentation of information
therein, prior to release to the public.
- Require that the independent auditors conduct an SAS 71 Interim Financial
Review before the Company files its Form 10-Q.
- Meet with the independent auditors at the conclusion of the audit to
review the results and discuss any difficulties the auditors encountered
in the course of the audit work, including any restrictions on the scope
of their activities or access to requested information. In connection
with this review, discuss the independent auditors' evaluation of SYSCO's
financial, accounting, and auditing personnel, the level of cooperation
that the independent auditors received during the course of the audit,
accounting adjustments, any material issues on which the national office
of the independent auditor was consulted by the Company's audit team,
significant auditing or accounting issues or disagreements with
management and any management response thereto, and any management or
internal control letters issued or proposed to be issued. This review
shall also include a discussion of the responsibilities, budget and
staffing of Operations Review.
- Review and discuss with management and the independent auditors the
Company's quarterly financial statements and management's discussion and
analysis prior to filing Form 10-Q, including the results of the
auditor's review of the quarterly financial statements.
- Obtain and review at least annually a written report from the independent
auditors describing their internal quality control procedures; any
material issues raised by the most recent internal quality control
review, or peer review, of them, or by any inquiry or investigation by
governmental or professional authorities, within the preceding five
years, respecting one or more independent audits carried out by them and
any steps taken to deal with any such issues; and all relationships
between the independent auditor and the Company. After reviewing this
report, the Committee should evaluate the independent auditor's
qualifications, performance and independence, including considering
whether the auditor's internal controls are adequate and the provision of
any permitted non-audit services is compatible with maintaining
independence, and present its conclusions to the full Board. This
evaluation shall include a review and evaluation of the lead partner of
the independent auditor and shall take into account the opinions of
management and Operations Review.
- Assure the regular rotation of the lead audit partner as required by law,
and consider, in order to assure continuing auditor independence, whether
there should be regular rotation of the audit firm itself.
- Obtain and review at least annually a written report from the independent
auditors describing all critical accounting policies and practices to be
used by SYSCO; all alternative treatments of financial information within
generally accepted accounting principles that have been discussed with
SYSCO
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management; ramifications of the use of such alternative disclosures and
treatments, and the treatments preferred by the independent auditors; and
other material written communications between the independent auditors
and management, such as any management letter or schedule of unadjusted
differences.
- Require the independent auditors to provide a formal written statement
that delineates all relationships between the independent auditor and
SYSCO. The Committee will ensure, through communicating with the
independent auditor, that no relationship or services will impact the
auditor's independence or objectivity.
RESPONSIBILITY WITH RESPECT TO OTHER MATTERSOther Matters
With respect to other matters, the Committee shall:
- Meet separately, at least quarterly with Operations Review, with the
independent auditors, and with management.
- Review at least annually, with the independent auditors, Operations
Review, and executive and financial management the adequacy and
effectiveness of SYSCO's accounting and financial controls and practices.
Discuss significant major financial risks and exposures and steps
management has taken to monitor and control such exposures, including the
Company's risk assessment and risk management policies. Request
recommendations for improvement of such controls, including identified
areas where new or more detailed controls or procedures are desirable.
Particular emphasis should be given to the adequacy of such controls to
expose any payments, transactions, or procedures that might be deemed
illegal or otherwise improper.
- Meet with the independent auditors and executive and financial management
to review the scope and staffing of the proposed audit for the ensuing
fiscal year including the audit procedures to be employed.
- Review disclosures made to the Audit Committee by the Company's CEO and
CFO during their certification process for the Form 10-K and Form 10-Q
about any significant deficiencies in the design or operation of internal
controls or material weaknesses therein and any fraud involving
management or other employees who have a significant role in the
Company's internal controls.
- When applicable, review and discuss with management, Operations Review
and the independent auditors the Company's internal controls report and
the independent auditor's attestation of the report prior to the filing
of the Company's Form 10-K.
- Review the adoption, application and disclosure of the Company's critical
accounting policies and any changes thereto.
- Review periodically SYSCO's Code of Business Conduct, including the
results of the review by Operations Review of compliance with the Code,
particularly with regard to the functioning of the ethics committees at
SYSCO and its subsidiaries.
- Review at least annually Operations Review including its performance,
independence and authority, its proposed audit plans and scope for the
ensuing year, and the coordination of such plans with the independent
auditors.
- Receive prior to each meeting as appropriate, from Operations Review and
the independent auditors, reports summarizing the findings of completed
internal reviews, and a progress report of accomplished versus planned
activities. Any deviations from planned activities should be adequately
explained.
- Review and approve the Committee's report required by the SEC to be
included in the Company's annual Proxy Statement.
- Review and approve significant related party transactions.
| • | Meet separately in executive session, at least quarterly with Operations Review, with the independent auditors and with management. | |
| • | Review at least annually, with the independent auditors, Operations Review, and executive and financial management the adequacy and effectiveness of SYSCO’s accounting and financial controls and practices. Discuss significant major financial risks and exposures and steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies. Request recommendations for improvement of such controls, including identified areas where new or more detailed controls or procedures are desirable. Particular emphasis should be given to the adequacy of such controls to expose any payments, transactions, or procedures that might be deemed illegal or otherwise improper. | |
| • | Meet with the independent auditors and executive and financial management to review the scope and staffing of the proposed audit for the ensuing fiscal year including the audit procedures to be employed. | |
| • | Review disclosures made to the Audit Committee by the Company’s CEO and CFO during their certification process for the Form 10-K and Form 10-Q about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Company’s internal controls. | |
| • | When applicable, review and discuss with management, Operations Review and the independent auditors the Company’s internal controls report and the independent auditor’s attestation of the report prior to the filing of the Company’s Form 10-K. | |
| • | Review the adoption, application and disclosure of the Company’s critical accounting policies and any changes thereto. | |
| • | Review periodically SYSCO’s Code of Business Conduct, including the results of the review by Operations Review of compliance with the Code, particularly with regard to the functioning of the ethics committees at SYSCO and its subsidiaries. | |
| • | Review at least annually Operations Review including its performance, independence and authority, its proposed audit plans and scope for the ensuing year, and the coordination of such plans with the independent auditors. |
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- Determine that the disclosures and content of the financial statements
are satisfactory for submission to the shareholders and for filing with
the Securities and Exchange Commission. Such determination will be made
through discussions with independent auditors and executive and financial
management.
- Establish procedures for the receipt, retention and treatment of
complaints received by SYSCO regarding accounting, internal accounting
controls or auditing matters, and the confidential, anonymous submission
by employees of concerns regarding questionable accounting or auditing
matters.
- Review and discuss with management and the independent auditors any
correspondence with regulators or governmental agencies and any public
reports or articles which raise material issues regarding the Company's
financial statements or accounting policies or practices.
- Review the quality and sufficiency of the accounting and financial
resources required to meet the financial and reporting objectives as
determined by the Committee. Review the succession planning process for
the accounting, internal audit and financial reporting areas.
- Review and determine appropriateness of the Company hiring any employee
or former employee of the Company's independent auditors and set clear
hiring policies with respect thereto.
- Review all allegations brought to the Committee's attention, regardless
of source, of inappropriate or improper accounting practices, fraud or
other illegal acts.
- Investigate any matter brought to its attention within the scope of its
duties. The Committee shall have the power to retain outside counsel
and/or advisors, including a public accounting firm other than the
current independent auditor, if, in its judgment, that is appropriate and
shall have appropriate funding to compensate such advisors.
- Review and discuss financial information and earnings guidance provided
to analysts and rating agencies.
- Discuss with the Company's General Counsel legal matters that may have a
material impact on the Company's financial statements or internal
controls.
-
| • | Receive prior to each meeting as appropriate, from Operations Review and the independent auditors, reports summarizing the findings of completed internal reviews, and a progress report of accomplished versus planned activities. Any deviations from planned activities should be adequately explained. | |
| • | Review and approve the Committee’s report required by the SEC to be included in the Company’s annual Proxy Statement. | |
| • | Review and approve significant related party transactions. | |
| • | Determine that the disclosures and content of the financial statements are satisfactory for submission to the shareholders and for filing with the Securities and Exchange Commission. Such determination will be made through discussions with independent auditors and executive and financial management. | |
| • | Establish procedures for the receipt, retention and treatment of complaints received by SYSCO regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. | |
| • | Review and discuss with management and the independent auditors any correspondence with regulators or governmental agencies and any public reports or articles which raise material issues regarding the Company’s financial statements or accounting policies or practices. | |
| • | Review the quality and sufficiency of the accounting and financial resources required to meet the financial and reporting objectives as determined by the Committee. Review the succession planning process for the accounting, internal audit and financial reporting areas. | |
| • | Review and determine appropriateness of the Company hiring any employee or former employee of the Company’s independent auditors and set clear hiring policies with respect thereto. | |
| • | Review all allegations brought to the Committee’s attention, regardless of source, of inappropriate or improper accounting practices, fraud or other illegal acts. | |
| • | Investigate any matter brought to its attention within the scope of its duties. The Committee shall have the power to retain outside counsel and/or advisors, including a public accounting firm other than the current independent auditor, if, in its judgment, that is appropriate and shall have appropriate funding to compensate such advisors. | |
| • | Review and discuss financial information and earnings guidance provided to analysts and rating agencies. | |
| • | Discuss with the Company’s General Counsel legal matters that may have a material impact on the Company’s financial statements or internal controls. | |
| • | Submit the minutes of all meetings of the Committee to, or orally report the matters discussed at each committee meeting with, the Board of Directors. | |
| • | Establish a standard of conduct concerning relationships of management, the Committee, and individual Board members, with the independent auditors and review those relationships on an annual basis. | |
| • | Evaluate annually the performance of the Audit Committee. | |
| • | Review and assess the adequacy of this Charter annually and recommend any changes to the Board for approval. |
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ANNEX B
SYSCO CORPORATION
2005 MANAGEMENT INCENTIVE PLAN
This Sysco Corporation 2005 Management Incentive Plan (the “Plan”) was recommended by the Committee (as hereinafter defined) of Sysco Corporation (the “Company”) on September 8, 2005, and adopted by the Board of Directors of the Company (the “Board of Directors”) on September 9, 2005. This Plan shall be effective on November 11, 2005.
| 1. | Statement of Principle |
The purpose of the Plan is to reward (i) certain key management personnel for outstanding performance in the management of the divisions or subsidiaries (as hereinafter defined) of the Company and (ii) certain corporate personnel for managing the operations of the Company as a whole and/or managing the operations of certain Subsidiaries (as hereinafter defined). For purposes of the Plan, the term “Subsidiary” means (a) any corporation which is a member of a “controlled group of corporations” which includes the Company, as defined in Internal Revenue Code of 1986, as amended (the “Code”) Section 414(b), (b) any trade or business under “common control” with the Company, as defined in Code Section 414(c), (c) any organization which is a member of an “affiliated service group” which includes the Company, as defined in Code Section 414(m), (d) any other entity required to be aggregated with the Company pursuant to Code Section 414(o), and (e) any other organization or employment location designated as a “Subsidiary” by resolution of the Board of Directors. - Establish a standardExcept as otherwise provided in Section 8 hereof, the total number of conduct concerning relationshipsshares of management,Company Common Stock, $1.00 par value (“Common Stock”), which may be awarded pursuant to the Plan shall not exceed 2,800,000 shares, subject to adjustment pursuant to Section 8 below. All references to periods in the Plan are to fiscal periods unless otherwise specifically noted.
| 2. | Plan Compensation Committee |
The Compensation and Stock Option Committee and individual Board members, with the independent
auditors and review those relationships on an annual basis.
- Evaluate annually the performance(the “Committee”) of the Audit Committee.
- ReviewBoard of Directors is charged with structuring, proposing the implementation of, and assess the adequacy of this Charter annually and recommend any
changes to the Board for approval.
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APPENDIX B
SYSCO CORPORATION
2004 STOCK OPTION PLAN
SECTION 1
GENERAL
1.1 Purpose. The SYSCO Corporation 2004 Stock Option Plan (the "Plan") has
been established by SYSCO Corporation (the "Company") to (i) attract and retain
persons eligible to participate in the Plan; (ii) motivate Participants (as
defined in Section 1.2 below), by means of appropriate incentives, to achieve
long-range goals; (iii) provide incentive compensation opportunities that are
competitive with those of other similar companies; and (iv) further identify
Participants' interests with those of the Company's stockholders through
compensation that is based on the Company's common stock; and thereby promote
the long-term financial interest of the Company and its Subsidiaries, as defined
in Section 7(i), including the growth in value of the Company's equity and
enhancement of long-term stockholder return.
1.2 Participation. Subject toimplementing the terms and conditions of, the Plan. The Committee shall have the authority to adopt, alter and repeal such rules, guidelines and practices governing the Plan the
Committee (as defined in Section 5)as it shall, determine and designate, from time to time, deem advisable; to interpret the terms and provisions of the Plan and any award issued under the Plan (and any agreements relating thereto) including without limitation the manner of determining financial and accounting concepts discussed in the Plan; to otherwise supervise the administration of the Plan; and, except as to the application of the Plan to executive officers, to delegate such authority provided to it hereunder as it may deem necessary or appropriate to the Chairman of the Board, Chief Executive Officer, President and any Executive Vice President, and any of them individually. All decisions made by the Committee pursuant to the provisions of the Plan shall be made in the Committee’s sole discretion and shall be final and binding on all persons, including the Company and Participants (hereinafter defined).
| 3. | Participants |
The participants in the Plan for a fiscal year shall be designated by the Committee from among the Eligible Grantees,persons who are employed by any Subsidiary or the Company, in the following capacities (Subsidiary Participants, Corporate Participants, Designated Participants and Senior Executive Participants are referred to collectively as defined“Participants” or individually as a “Participant”):
| Subsidiary Participants — Persons who serve as an officer of a Subsidiary. | |
| Corporate Participants — Persons who serve as an officer of the Company who are also employees of the Company or a Subsidiary. |
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| Designated Participants — Persons other than Corporate Participants or Subsidiary Participants who are employed by a Subsidiary or by the corporate office of the Company who are designated by the Committee from time to time. | |
| Senior Executive Participants — Persons who are “covered employees” of the Company within the meaning of Code Section 162(m) and Treasury Regulation 1.162-27(c)(2) (or any successor statute or regulation section, or any administrative interpretation thereof) (the “Executive Compensation Provisions”) during a fiscal year of the Company and who have been designated by the Committee as Corporate, Subsidiary or Designated Participants in the Plan for such fiscal year. If a Participant isboth a Senior Executive Participant and a Corporate, Subsidiary or Designated Participant during a fiscal year as a result of the application of the Executive Compensation Provisions, he or she shall be considered a Senior Executive Participant, andnot a Corporate, Subsidiary or Designated Participant, during such fiscal year, and shall be subject to any and all restrictions applicable to Senior Executive Participants hereunder during such fiscal year. |
To the extent possible, the Committee shall designate Participants in the Plan prior to the commencement of the fiscal year for which such designated Participants will be entitled to a bonus under the Plan, or as soon as practicable during the fiscal year in which a person first becomes eligible to be a Participant. Subject to Section 10 below with respect to a Change of Control, once designated as a Participant, the Committee can remove an employee as a Participant with or without cause at any time and the Participant shall not be entitled to any bonus under the Plan for the year in which he or she is removed regardless of when during such year he or she is removed.
| 4. | Method of Operation |
The bonus which a Participant can earn is based (i) on the performance of the Company as a whole and (ii) (A) (as to Subsidiary Participants and possibly Designated Participants and certain Senior Executive Participants) either the performance of the Subsidiary which employs such Participant or the performance of the Subsidiary designated by the Committee as the Subsidiary by reference to which the bonus is to be determined and (B) (as to Corporate and possibly Designated Participants and certain Senior Executive Participants) the performance of a select group of Subsidiaries ((i) and (ii), collectively or singly, “Performance”), subject to the discretion of the Committee to formulate a different bonus structure as to any Participant, other than Senior Executive Participants. Subject to the provisions of Paragraph (ii) of Section 4(D), the bonus is calculated with respect to an entire fiscal year and, if earned, shall be paid in accordance with Section 6 hereof.
(A) Subsidiary Participants and Certain Senior Executive Participants.
With respect to each Subsidiary Participant and each Senior Executive Participant who would be a Subsidiary Participant but for the application of the Executive Compensation Provisions, a portion of the bonus may depend upon the return on capital and/or increase in pretax earnings of the Subsidiary employing such Participant; a portion of the bonus may depend upon the return on stockholder’s equity and increase in earnings per share of the Company as a whole; and a portion of the bonus may depend upon any one or more of the following performance factors: (i) sales of the Company and/or one or more Subsidiaries, (ii) pretax earnings of the Company, (iii) net earnings of the Company and/or one or more Subsidiaries, (iv) control of operating and/or nonoperating expenses of the Company and/or one or more Subsidiaries, (v) margins of the Company and/or one or more Subsidiaries, (vi) market price of the Company’s securities, (vii) market share, (viii) “economic value added,” as determined pursuant to an objective formula approved by the Committee (“EVA”), and (ix) with respect to Participants other than Senior Executive Participants, other factors directly tied to the performance of the Company and/or one or more Subsidiaries. The relative weights of the factors considered and the percentages of the total bonus comprised by the portion of the bonus determined with respect to the Subsidiary employing the Participant or the Subsidiary designated by the Committee as the Subsidiary by reference to which the Bonus is to be determined and the portion of the bonus determined with respect to the Company shall be determined by the Committee in its sole discretion. Notwithstanding the foregoing, the Committee may alter the bonus formula with respect to any such Participant by changing the
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performance targets as determined in the sole discretion of the Committee; provided, however, the Committee cannot change the performance targets after the first ninety (90) days of the fiscal year with respect to Senior Executive Participants.
In addition to the bonus calculated in accordance with the first paragraph of Section 4(A) above, a Subsidiary Participant may also be entitled to an additional bonus (“Additional Bonus”) if awarded by the Committee in its sole discretion. The Additional Bonus may be established by the Committee at one or more times during such fiscal year or within ninety (90) days following the end of such fiscal year based on such criteria as the Committee may develop in its sole discretion.
(B) Corporate Participants and Certain Senior Executive Participants.
With respect to a Corporate Participant or Senior Executive Participant who would be a Corporate Participant but for the application of the Executive Compensation Provisions and subject to the further adjustments and additions provided for in the Plan, a portion of the bonus may depend upon the return on stockholder’s equity and increase in earnings per share of the Company; a portion of the bonus may depend upon the return on capital of one or more of the Subsidiaries and/or the increase in pretax earnings of one or more of the Subsidiaries; and a portion of the bonus may depend upon any one or more of the following performance factors: (i) sales of the Company and/or one or more Subsidiaries, (ii) pretax earnings of the Company, (iii) net earnings of the Company and/or one or more Subsidiaries, (iv) control of operating and/or nonoperating expenses of the Company and/or one or more Subsidiaries, (v) margins of the Company and/or one or more Subsidiaries, (vi) market price of the Company’s securities, (vii) market share, (viii) EVA, and (ix) with respect to Participants other than Senior Executive Participants, other factors directly tied to the performance of the Company and/or one or more Subsidiaries. The relative weights of the factors considered and the percentage of the total bonus comprised by the portion of the bonus determined with respect to the Subsidiaries of the Company and the portion determined with respect to the Company shall be determined by the Committee in its sole discretion. Notwithstanding the foregoing, the Committee may alter the bonus formula with respect to any such Participant by changing the performance targets as determined in the sole discretion of the Committee; provided, however, the Committee cannot change the performance targets after the first ninety (90) days of the fiscal year with respect to Senior Executive Participants.
(C) Designated Participants.
The Committee may formulate a bonus structure for each Designated Participant which is based on performance factors determined by the Committee in its sole discretion. The bonus structure for any Designated Participant may be similar to or may vary materially from the bonus structure for Corporate Participants or Subsidiary Participants.
(D) General Rules Regarding Bonus Calculation.
| (i) Subject to the provisions of Paragraph (ii) of this Section 4(D), in determining whether or not the results of operations of a Subsidiary or Subsidiaries or the Company for a given fiscal year result in a bonus, generally accepted accounting principles shall be applied on a basis consistent with prior periods, and such determination shall be based on the calculations made by the Company and binding on each Participant. Except as provided in Section 12 as to Senior Executive Participants, there is no limit to the bonus that can be obtained. Prior to payment of the bonus to a Senior Executive Participant, other than a bonus pursuant to Section 10, the Committee must certify that the performance goals and other material terms of the Plan have been achieved with respect to such Senior Executive Participant. | |
| (ii) This paragraph (ii) of Section 4(D) shall apply whenever a fiscal year containing 53 weeks (a “Long Fiscal Year”) is either the fiscal year as to which a bonus may be paid, or is the prior fiscal year as to which Performance is calculated and compared to Performance in the current fiscal year. In making any determination as to whether Performance criteria have been satisfied or as to the amount of any bonus with respect to a fiscal year, every numerical measure of Performance for a Long Fiscal Year shall be deemed to be a number equal to the numerical measure of such Performance as calculated in accordance with generally accepted accounting principles (the “GAAP Measure”) minus (1/14 multi- |
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| plied by the GAAP Measure calculated with respect to the last quarter of such fiscal year);provided that, where any Performance measure for a Long Fiscal Year represents, or is derived from, the product or quotient of two such GAAP Measures, or is a ratio of two such GAAP Measures (each of which a “Relative Measure”), and where both components of the Relative Measure are GAAP Measures with respect to the Long Fiscal Year, the Relative Measure shall not be so adjusted. |
Notwithstanding the foregoing, the Committee may exercise discretion in determining the extent of adjustment, if any, to the calculation of any measure of Performance for a Long Fiscal Year appropriate to more accurately compare Performance during a Long Fiscal Year to that during a 52-week fiscal year;provided that, the Committee may not exercise such discretion after the first ninety (90) days of the fiscal year with respect to Senior Executive Participants.
| 5. | No Employment Arrangements Implied |
Nothing herein shall imply any right of employment for a Participant, and except as set forth in Section 7(f) (including
transferees10 with respect to a Change of Eligible GranteesControl or as otherwise determined by the Committee, in its discretion, if a Participant is terminated, voluntarily or involuntarily, with or without cause, prior to the end of a given fiscal year, such Participant shall not be entitled to any bonus for such fiscal year regardless of whether or not such bonus had been or would have been earned in whole or in part, but any unpaid bonus earned with respect to a prior fiscal year shall not be affected.
| 6. | Payment |
Within ninety (90) days following the end of each fiscal year, the Company shall determine the amount of any bonus earned by each Participant pursuant to the provisions of Section 4 above. Such bonus shall be payable in cash. The amount of any bonus that a Participant is entitled to receive for a fiscal year shall be determined as of the last day of such fiscal year. The Company shall pay any bonus earned under the Plan no later than 90 days after the end of the fiscal year to which it relates.
| 7. | Additional Bonus |
Each Participant shall also receive as additional compensation a number of shares of Common Stock (the “Additional Shares”) with a value equal to 28% of such participant’s cash bonus earned pursuant to the provisions of Section 4 above, valued at the closing price of the Common Stock on the primary securities exchange on which such stock is traded on the last trading day of the fiscal year as to which a bonus is determined. For example, if a Participant earns a $100,000 bonus and the Common Stock closes at $50 per share on the last day of the fiscal year, the Participant would receive $100,000plus 560 shares of Common Stock.
| 8. | Recapitalization of Company |
In the event of a recapitalization of the Company or its merger into or consolidation with another corporation after the determination of the number of shares to which a Participant is entitled but before delivery of such shares to the Participant, in lieu of the Participant’s right to receive Company Common Stock pursuant to the Plan, a Participant shall be entitled to receive such securities or other consideration which he or she would have been entitled to receive had he or she been a shareholder of the Company holding shares of Common Stock at the time of such recapitalization, merger or consolidation. In the event (a) a stock split, stock dividend or combination of shares is declared, the record date for which is prior to delivery of shares to a Participant hereunder, and (b) the closing price of the Common Stock on the last trading day of the fiscal year used to determine the number of shares to which a Participant is entitled hereunder is not calculated on a “when issued” basis with respect to such split, dividend or combination, then the number of shares that such Participant shall be entitled to receive shall be proportionately adjusted to reflect such split, dividend or combination. In the event a stock split, stock dividend or combination of shares is declared, the maximum number of shares issuable hereunder shall be proportionately adjusted to reflect such split, dividend or combination.
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| 9. | Investment Representation, Restrictions on the Stock and Forfeiture |
(A) The shares to be issued to a Participant may be unregistered, at the option of the Company, and in such event the Participant shall execute an investment letter in form satisfactory to the Company, which letter shall contain an agreement that the Participant will not sell, transfer, give or otherwise convey any of such shares for a period of two years from the date on which such shares were issued to the Participant, except in the event of the Participant’s death or termination of employment due to disability or retirement under normal Company benefit plans, but then only in accordance with the requirements of the Securities Act of 1933, as amended, and the rules and regulations thereunder, and the shares shall bear a legend reflecting the investment representation and the unregistered status of the shares.
(B) Shares to be issued pursuant to the Plan will be issued in certificated form and may be issued in the name of a nominee for the benefit of a Participant; provided, however, that any Participant may request that any shares issued in the name of a nominee be reissued in the name of the Participant. Whether or not the shares to be issued to or for the benefit of a Participant are registered pursuant to the registration provisions of the Securities Act of 1933, as amended, the Participant may not (and, if requested by the Company, shall enter into an agreement at the time of issuance of such shares or at any time thereafter to the effect that the Participant will not) sell, transfer, give or otherwise convey any of such shares for a period (the “Restricted Period”) ending two years from the date on which such shares were issued to or for the benefit of the Participant, and will not sell, transfer, give or otherwise convey them for up to an additional six month period, to the extent such six month period extends beyond the Restricted Period, following any termination of employment during the Restricted Period that is not due to death, disability or retirement under the normal Company benefit plans. Such shares issued in certificated form in the name of the Participant shall bear a legend reflecting the terms of such restriction. Notwithstanding the foregoing, the transfer restrictions set forth above shall expire following the death or termination of employment of a Participant due to disability or retirement under the normal Company benefit plans, and following a Change of Control, the transfer restrictions set forth above shall lapse with respect to any shares issued hereunder with respect to a performance period ending prior to or within one year following a Change of Control. The certificates representing any such shares shall contain a legend to such effect, and at the election of the Company, may be held by the Company or its nominee, and will not be delivered to the Participant, until the Restricted Period and any additional applicable six month period has lapsed.
(C) If a Participant’s employment is permittedterminated for any reason, with or without cause, other than the Participant’s death or termination of employment due to disability or retirement under the normal Company benefit plans, within two years from the date on which any Additional Shares were issued to Participant pursuant to the Plan, such Participant shall, upon demand of the Committee (which may be made at its discretion at any time during the six month period following the date of termination) forfeit all Additional Shares issued to the Participant within the period beginning two years prior to the date of termination, and will immediately surrender to the Company any certificates representing such Additional Shares that may be in Participant’s possession. Any shares of Common Stock issued in certificated form in the name of a Participant pursuant to the Plan shall bear a legend reflecting these restrictions. Notwithstanding the foregoing, if a Change of Control has occurred, the Company shall have no rights under this Section 9(C) with respect to any shares issued hereunder with respect to a performance period ending prior to or within one year following a Change of Control.
| 10. | Change of Control |
“Change of Control” means the occurrence of one or more of the following events:
| (A) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then-outstanding shares of Common Stock of the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting |
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| Securities”); provided, however, that, for purposes of this Section 10(A), the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated company or (4) any acquisition by any corporation pursuant to a transaction that complies with Sections 10(C)(i), 10(C)(ii) and 10(C)(iii); | |
| (B) The occurrence of the following: Individuals who, as of September 9, 2005, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to September 9, 2005 whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; | |
| (C) Consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its subsidiaries (each, a “Business Combination”), in each case unless, following such Business Combination, (i) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-outstanding shares of Common Stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or | |
| (D) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. | |
| Notwithstanding anything to the contrary contained herein, and in lieu of any other payments due hereunder other than pursuant to this Section 10, within ninety (90) days following the date on which a Change of Control shall have occurred, each person who was a Participant at the time of the Change of Control shall be paid a cash bonus hereunder, equal to the following (subject to reduction in the case of certain severance payments, as set forth below): the product of (i) a fraction equal to the number of days in the fiscal year in which the Change of Control occurs up to and including the date of the Change of Control divided by 365, and (ii) the bonus that would have been paid under this Plan, calculated using a Performance measure equal to the product of (a) the Company’s Performance through and including the end of the most recently completed fiscal quarter occurring prior to and in the same fiscal year as the Change of Control (the “Measurement Date”), calculated in accordance with generally accepted accounting principles (the “Change of Control GAAP Measure”), and (b) a fraction, the numerator of which is 365 and the denominator of which is the number of days in such fiscal year up to and including |
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| the Measurement Date;provided that, where any Performance measure represents, or is derived from, the product or quotient of two such Change of Control GAAP Measures, or is a ratio of two such Change of Control GAAP Measures (each of which a “Relative Change of Control Measure”), and where both components of the Relative Change of Control Measure are Change of Control GAAP Measures with respect to such year, the Relative Change of Control Measure shall not be multiplied by the fraction described in (b) above, but shall be calculated as of the Measurement Date and used without adjustment. In addition to the foregoing, each such Participant shall be paid in cash an amount equal to 28% of the total bonus computed pursuant to the provisions of this paragraph. No Additional Shares will be issued. | |
| In addition to any bonus paid or payable pursuant to the foregoing paragraph, any Participant who remains in the employ of the Company on the last day of the fiscal year in which a Change of Control occurs shall be entitled to receive, in cash, to be paid within ninety (90) days after the end of the fiscal year, an amount equal to the difference between (a) the bonus that would have been paid to him or her for such fiscal year under the Plan as in effect on the date of the Change of Control, using the Company’s actual Performance, and (b) the amount paid pursuant to the foregoing paragraph, but only to the extent that the bonus that would have been paid hereunder is greater than the amount paid pursuant to the foregoing paragraph, valuing any Additional Shares as of the end of such fiscal year. | |
| Notwithstanding the foregoing, with respect to the Company’s current Chairman, Chief Executive Officer, and President, Richard J. Schnieders, and any Participant who is a party to the Company’s form of severance agreement on file with the Securities and Exchange Commission, or any future severance agreement with the Company, any bonus paid pursuant to this Section 10 shall be reduced, but to not less than zero, by the amount of any payment pursuant to such Participant’s severance agreement that is determined or calculated with respect to payments received or to be received under this Plan or any predecessor or successor thereof. |
| 11. | Amendments and Termination |
The Plan may be amended at any time by the Board of Directors and any such amendment shall be effective as of commencement of the fiscal year during which the Plan is amended, regardless of the date of the amendment, unless otherwise stated by the Board of Directors. The Plan may be terminated at any time by the Board of Directors and termination will be effective as of the commencement of the fiscal year in which such action to terminate the Plan is taken. The Plan will terminate, and no further awards may be made hereunder, on November 11, 2010. Any awards granted prior to November 11, 2010 that have not yet been paid as of that date will continue to remain outstanding and will be payable in accordance with and to the extent provided in the Plan and the applicable Option Agreement), those persons whogrant agreements or programs. Notwithstanding the foregoing, no amendment or termination following a Change of Control may in any way decrease or eliminate a payment due pursuant to Section 10.
| 12. | Overall Limitation upon Payments under Plan to Senior Executive Participants |
Notwithstanding any other provision in the Plan to the contrary, in no event shall any Senior Executive Participant be entitled to a bonus amount for any fiscal year (which bonus amount shall include the value of the Additional Shares, as defined in Section 7 above) in excess of $10 million.
| 13. | Prior Plan |
As of its effective date, November 11, 2005, this Plan shall supersede the Company’s 2000 Management Incentive Plan (the “Prior Plan”). No further awards will be granted one
or more Options under the Prior Plan and thereby become "Participants" in the Plan.
1.3 Operation, Administration, and Definitions. The operation and
administration of the Plan, including the Optionsfollowing such date, but any awards granted under the Prior Plan shallprior to November 11, 2005 that have not yet been paid as of that date will continue to remain outstanding and will be payable in accordance with and to the extent provided in the Prior Plan and the applicable grant agreements or programs.
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ANNEX C
SYSCO CORPORATION
2005 NON-EMPLOYEE DIRECTORS STOCK PLAN
ARTICLE 1
General
This Non-Employee Directors Stock Plan (the “Plan”) is established to attract, retain and compensate for service as members of the Board of Directors highly qualified individuals who are not current employees of Sysco Corporation (the “Corporation”) and to enable them to increase their ownership in the Corporation’s common stock. This Plan will be beneficial to the Corporation and its stockholders since it will allow these Directors to have a greater personal financial stake in the Corporation through the ownership of the Corporation’s common stock, in addition to underscoring their common interest with stockholders in increasing the value of the Corporation over the longer term. The Plan provides for the grant of Stock Options, Restricted Stock, Restricted Stock Units, Retainer Stock Awards, Elected Shares and Additional Shares (all as defined herein, and collectively, “Awards”)
Section 1.1 Eligibility. All members of the Corporation’s Board of Directors who are not current employees of the Corporation or any of its subsidiaries (“Non-Employee Directors”) are eligible to participate in this Plan.
Section 1.2 Shares Available.
(a) Number of Shares Available. There are reserved for issuance under this Plan 550,000 shares of the Corporation’s Common Stock, $1.00 par value (“Common Stock”), which may be authorized but unissued shares, treasury shares, or shares purchased on the open market. For purposes of applying the limitation in the preceding sentence and subject to the adjustment and replenishment provisions included in Sections 1.2(b) and (c) below:
| (i) the maximum number of shares of Common Stock that may be issued pursuant to Stock Options shall be 220,000; | |
| (ii) the maximum number of shares of Common Stock that may be issued pursuant to Restricted Stock Awards, Restricted Stock Unit Awards, Retainer Stock Awards, Elected Shares and Additional Shares shall be 320,000; and | |
| (iii) the maximum number of shares of Common Stock that may be issued pursuant to dividends or dividend equivalents with respect to shares subject to unexercised Options, Restricted Stock or Restricted Stock Units shall be 10,000. |
(b) Recapitalization Adjustment. In the event of Section 3 (relating to operation and
administration). Capitalized termsa reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, or any other change in the corporate structure or shares of the Corporation, adjustments in the number and kind of shares authorized by this Plan, shallin the number and kind of shares that may or are required to be defined asissued hereunder pursuant to any type of award hereunder (including without limitation the maximum numbers set forth in Section 1.2(c) below), in the number and kind of shares covered by outstanding stock options (“Options”) under this Plan (includingand in the definition provisionsoption price thereof, and in the number and kind of Section 7shares subject to outstanding Retainer Stock Awards, Restricted Stock and/or Restricted Stock Units, as hereinafter defined, shall automatically be made if, and in the same manner as, similar adjustments are made to awards issued under the Corporation’s incentive plans for management of the Plan).
SECTIONCorporation then in effect.
(c) Replenishment. To the extent any shares of Common Stock covered by an Option, Restricted Stock Award, Restricted Stock Unit Award or Retainer Stock Award are forfeited by or are not delivered to a Non-Employee Director or his or her beneficiary because the Option or Restricted Stock, Restricted Stock Unit or Retainer Stock Award is forfeited or canceled, or the shares of Common Stock are not delivered
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because they are used to satisfy any applicable tax withholding obligation, such shares shall not be deemed to have been delivered for purposes of determining the maximum number of shares of Common Stock available for delivery with respect to the respective type of award and with respect to all grants under the Plan.
ARTICLE 2
OPTIONS
Option Awards
Section 2.1 Definitions. The grantOptions. Awards may be made under this Plan of an "Option" entitles the ParticipantOptions to purchase shares of Stock at an Exercise Price established by the Committee.Common Stock. No Options granted pursuant to this Plan may be “Incentive Stock Options” under this Section 2 may either be Incentive Stock Options
("ISOs") or Non-Qualified Options ("NQOs"), as determined in the discretion of
the Committee. An "ISO" is an Option that is intended to satisfy the
requirements applicable to an "incentive stock option" described in section
422(b)422 of the Internal Revenue Code of 1986, as amended (the "Code"). An "NQO"
isamended. The grant of an Option that is not intendedentitles the recipient to bepurchase shares of Stock at an "incentive stock option" as that term
is described in section 422(b)exercise price established by the Board of the Code.Directors.
Section 2.2 Exercise Price. The Exercise Priceexercise price of each Option granted under this SectionArticle 2 shall be established by the CommitteeBoard of Directors or shall be determined by a method established by the CommitteeBoard of Directors at the time the Option is granted; provided,
however, that the Exercise Pricegranted. The exercise price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of the Option and noOption. For purposes of determining the “Fair Market Value” of a share of Common Stock as of any date, then the “Fair Market Value” as of that date shall be the last closing price of the Common Stock on the first business day prior to that date on the New York Stock Exchange or, if the Common Stock is not listed on the New York Stock Exchange, on any other exchange or quotation system on which the Common Stock is listed or quoted. No Option may be repriced“repriced,” as such term is used in violation of rules established by the New York Stock Exchange.
Section 6 below. 2.3 Exercise.
(a) Subject to the provisions of thethis Plan, an Option shall be exercisable in accordance with such terms and conditions and during such periods as may be established by the Committee;Board of Directors; provided, however, that no Option may be exercised more than seven years after its grant date.
(b) Except as set forth in paragraphs 2.7date and 3.13, no Option granted
hereunder may be exercised after the earlier of (i) the expiration of the
Option or (ii) ninety days after the severance of an Option holder's
employment with the Company or any Subsidiary.
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(c) Whether an authorized leave of absence, or an absence for military
or government service, constitutes severance of an Option holder's
employment relationship with the Company or a Subsidiary will be determined
by the Committee at the time of the event, in its sole discretion.
2.4 Payment of Option Exercise Price. The payment of the Exercise Price of
an Option granted under this Section 2 shall be subject to the following:
(a) Subject to the following provisions of this subsection 2.4, the
full Exercise Price for shares of Stock purchased upon the exercise of any
Option shall be paid at the time of such exercise (except that, in the case
of an exercise arrangement approved by the Committee and described in
paragraph 2.4(c), payment may be made as soon as practicable after the
exercise).
(b) The Exercise Price shall be payable in cash or by tendering
(either by actual delivery of shares or by attestation) shares of Stock
that are acceptable to the Committee, have been held by the participant for
at least six months, and were valued at Fair Market Value as of the day the
shares are tendered, or in any combination of cash, shares, or attested
shares, as determined by the Committee.
(c) To the extent permitted by applicable law, a Participant may elect
to pay the Exercise Price upon the exercise of an Option by irrevocably
authorizing a third party to sell shares of Stock (or a sufficient portion
of the shares) acquired upon exercise of the Option and remit to the
Company a sufficient portion of the sale proceeds to pay the entire
Exercise Price and any tax withholding resulting from such exercise.
2.5 Settlement of Option. Shares of Stock delivered pursuant to the
exercise of an Option shall be subject to such conditions, restrictions and
contingencies as the Committee may establish in the applicable Option Agreement.
The Committee, in its discretion, may impose such conditions, restrictions and
contingencies with respect to shares of Stock acquired pursuant to the exercise
of an Option as the Committee determines to be desirable.
2.6 Dividends and Dividend Equivalents. With respect to any Option granted
under the Plan, the Committee may provide the Participant with the right to
receive dividend payments or dividend equivalent payments with respect to Stock
subject to the Option (both before and after the Stock subject to the Option is
earned, vested, or acquired), which payments may be either made currently or
credited to an account for the Participant, and may be settled in cash or Stock
as determined by the Committee. Any such settlements, and any such crediting of
dividends or dividend equivalents or reinvestment in shares of Stock, may be
subject to such conditions, restrictions and contingencies as the Committee
shall establish, including the reinvestment of such credited amounts in Stock
equivalents.
2.7 Termination of Employment Due to Death, Disability or
Retirement. Notwithstanding anything else contained herein to the contrary, if
before the expiration of an Option, an Option holder's employment relationship
with the Company or a Subsidiary terminates as a result of retirement in good
standing or disability under the established rules of the Company then in
effect, the Option will remain in effect, vest and be exercisable in accordance
with its terms as if the Option holder remained an employee of the Company or
Subsidiary. In the event of an Option holder's death during the term of his or
her Option, all unvested Options will vest immediately and may be exercised by
the Option holder's estate, or by the person to whom such right devolves from
the Option holder by reason of his or her death, at any time within three years
after the date of the Option holder's death but in no event later than the
original termination date of the Option. In no event may an Option be exercised
after three years following the Option holder's death.
2.8 Vesting. Except as set forth in paragraph 2.7 above, no Option granted hereunder may vest in excess of 1/3 of the number of shares subject to the Option per year for the first three years after the grant date.
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SECTION 3
OPERATION AND ADMINISTRATION
3.1 Effective Date; Duration.
Section 2.4 Payment of Option Exercise Price. The Plan shall be effective aspayment of the dateexercise price of its approval by the stockholders of the Company (the "Effective Date"). The
Plan shall have a duration of three years from the Effective Date; provided that
in the event of Plan termination, the Plan shall remain in effect as long as any
Options under it are outstanding; provided further, however, that noan Option may
be granted under the Plan on a date that is more than three years from the
Effective Date.
3.2 Options Subject to Plan. Options granted under the Planthis Article 2 shall be subject to the following:
| (a) Subject to the following provisions of this subsection 2.4, the full exercise price for shares of Common Stock purchased upon the exercise of any Option shall be paid at the time of such exercise (except that, in the case of an exercise arrangement approved by the Board of Directors and described in paragraph 2.4(c), payment may be made as soon as practicable after the exercise). | |
| (b) The exercise price shall be payable in cash or by tendering, by either actual delivery of shares or by attestation, shares of Common Stock acceptable to the Board of Directors that have been held by the optionee for at least six months and valued at Fair Market Value as of the day of exercise, or in any combination thereof, as determined by the Board of Directors. | |
| (c) Subject to compliance with applicable law, the Board of Directors may permit an Option recipient to elect to pay the exercise price upon the exercise of an Option by irrevocably authorizing a third party to sell shares of Common Stock (or a sufficient portion of the shares) acquired upon exercise of the Option and remit to the Corporation a sufficient portion of the sale proceeds to pay the entire exercise price and any tax withholding resulting from such exercise. |
Section 2.5 Settlement of Award. Shares of Common Stock delivered pursuant to the following provisionsexercise of this subsection 3.2, the
maximum number of shares of Stock that may be delivered to Participants and
their beneficiaries under the Plan shall be 23,500,000 shares of Stock.
(b) To the extent any shares of Stock covered by an Option are not
delivered to a Participant or beneficiary because the Option is forfeited
or canceled, or the shares of Stock are not delivered because they are used
to satisfy the applicable tax withholding obligation, such shares shall not
be deemed to have been delivered for purposes of determining the maximum
number of shares of Stock available for delivery under the Plan. The
maximum number of shares of Stock available for delivery under the Plan
shall not be reduced for shares subject to plans assumed by the Company in
an acquisition of an interest in another company.
(c) Subject to adjustment in accordance with paragraphs 3.2(d) and
3.2(e), the following additional maximums are imposed under the Plan:
(i) Subject to the overall maximum number of shares of Stock that
may be issued in accordance with Section 3.2(a) of the Plan, the maximum
number of shares of Stock that may be issued pursuant to Options
intended to be ISOs shall be 23,500,000;
(ii) During any fiscal year, the Company may not grant Options to
purchase a number of shares of Stock in excess of 1 1/2% of the
Company's outstanding Stock on the first day of the fiscal year in which
grants are being made;
(iii) The maximum number of shares of Stock that may be covered by
Options granted during a given fiscal year to any individual who is
listed as a "named executive officer" in the summary compensation table
contained in the Company's proxy statement for its annual meeting of
stockholders filed with the Securities and Exchange Commission ("SEC")
during such fiscal year shall be 200,000; and
(iv) The maximum number of shares of Stock that may be issued in
settlement of dividend equivalent rights shall be 250,000.
(d) If the outstanding shares of Stock are changed into or exchanged
for a different number or kind of shares or other securities of the Company
by reason of any recapitalization, reclassification, stock split, stock
dividend, combination, subdivision or similar transaction, or if the
Company makes an extraordinary dividend or distribution to its stockholders
(including without limitation to implement a spinoff) (each, a "Corporate
Transaction") then, subject to any required action by the stockholders of
the Company, the number and kind of shares of Company stock available under
the Plan or subject to any limit or maximum hereunder shall automatically
be proportionately adjusted, with no action required on the part of the
Committee or otherwise. Subject to any required action by the stockholders,
the number and kind of shares covered by each outstanding Option, and the
price per share in each such Option, may, at the discretion of the
Committee, be proportionately adjusted for any increase or decrease in the
number of issued shares of the Company resulting from a Corporate
Transaction or any other increase or decrease in the number of such shares,
or any decrease in the value of such shares, effected without receipt of
consideration by the Company; provided that only adjustments designed to
maintain, rather than increase, the economic value of outstanding Options
may be made without stockholder
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approval. Notwithstanding the foregoing, no fractional shares shall be
issued pursuant to or made subject to an Option in making the foregoing
adjustments. All adjustments made by the Committee under this Section shall
be final, conclusive and binding upon the holders of Options.
(e) If the Company merges or consolidates with another corporation,
whether or not the Company is a surviving corporation, or if the Company is
liquidated or sells or otherwise disposes of substantially all of its
assets while unexercised Options remain outstanding under this Plan, (A)
subject to the provisions of clause (C) below, after the effective date of
the merger, consolidation, liquidation, sale or other disposition, as the
case may be, each holder of an outstanding Option shall be entitled, upon
exercise of that Option or in place of it, as the case may be, to receive,
at the option of the Committee and in lieu of shares of Stock, (i) the
number and class or classes of shares of Stock or other securities or
property to which the holder would have been entitled if, immediately prior
to the merger, consolidation, liquidation, sale or other disposition, the
holder had been the holder of record of a number of shares of Stock equal
to the number of shares of Stock as to which that Option may be exercised
or are subject to the Option or (ii) shares of stock of the company that is
the surviving corporation in such merger, consolidation, liquidation, sale
or other disposition having a value,conditions, restrictions and contingencies as of the date of payment under
subjection 3.2(e)(i) as determined by the Committee in its sole discretion,
equal to the value of the shares of Stock or other securities or property
otherwise payable under subsection 3.2(e)(i); (B) if Options have not
already become exercisable under Section 4 hereof, the Board of Directors may waive any limitations set forthestablish in or imposedthe applicable Option grant agreement. The Board of Directors, in its discretion, may impose such conditions, restrictions and contingencies with respect to shares of Common Stock acquired pursuant to this Plan so
that all Options, from and after a date prior to the effective dateexercise of that
merger, consolidation, liquidation, sale or other disposition,an Option as the case
may be, specified by the Board of Directors shalldetermines to be exercisable in full;
and (C) all outstanding Options may be cancelled by the Boarddesirable.
Section 2.6 Nontransferability of Directors
as of the effective date of any merger, consolidation, liquidation, sale or
other disposition provided that any optionee shall have the right
immediately prior to such event to exercise his or herOptions. No Option to the extent
such optionee is otherwise able to do so in accordance withgranted under this Plan (including Section 4 hereof) or his individual Option agreement; provided,
further, that any such cancellation pursuant to this Section 3.2(e) shall
be contingent upon the payment to the affected Participants of an amount
equal to (i) in the case of any out-of-the-money Option, cash, property or
a combination thereof having an aggregate value equal to the value of such
Option, as determined by the Committee or the Board of Directors, as
applicable, in its sole discretion, and (ii) in the case of an in-the-
money Option, cash, property or a combination thereof having an aggregate
value equal to the excess of the value of the per-share amount of
consideration paid pursuant to the merger, consolidation, liquidation, sale
oris transferable other disposition, as the case may be, giving rise to such cancellation,
over the exercise price of such Option multiplied by the number of shares
of Stock subject to the Option.
(f) In the event of a change in the shares of the Company as presently
constituted, which is limited to a change of all of its authorized shares
with par value into the same number of shares with a different par value or
without par value, the shares resulting from any such change shall be
deemed to be the shares within the meaning of this Plan.
(g) Any adjustments pursuant to Section 3.2(e) shall be made by the
Board or Committee, as the case may be, whose determination in that respect
shall be final, binding and conclusive, regardless of whether or not any
such adjustment shall have the result of causing an ISO to cease to qualify
as an ISO.
(h) Except as hereinbefore expressly provided in this Section 3, a
Participant shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class or the payment of any stock
dividend or any other increase or decrease in the number of shares of stock
of any class or by reason of any dissolution, liquidation, merger, or
consolidation or spin-off of assets or stock of another corporation, and
any issue by the Company of shares of stock of any class, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Stock subject to an Option, unless the
Committee shall otherwise determine.
(i) The grant of any Option pursuant to this Plan shall not affect in
any way the right or power of the Company (A) to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, (B) to merge or consolidate, (C) to dissolve, liquidate or sell,
or transfer all or any
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part of its business or assets or (D) to issue any bonds, debentures,
preferred or other preference stock ahead of or affecting the Stock. If any
action described in the preceding sentence results in a fractional share
for any Participant under any Option hereunder, such fraction shall be
completely disregarded and the Participant shall only be entitled to the
whole number of shares resulting from such adjustment.
3.3 General Restrictions. Delivery of shares of Stock or other amounts
under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company shall
have no liability to deliver any shares of Stock under the Plan or make any
other distribution of benefits under the Plan unless such delivery or
distribution would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act of 1933), and the
applicable requirements of any securities exchange or similar entity.
(b) To the extent that the Plan provides for issuance of stock
certificates to reflect the issuance of shares of Stock, the issuance may
be effected on a non-certificated basis, to the extent not prohibited by
applicable law or the applicable rules of any stock exchange.
3.4 Tax Withholding. All distributions under the Plan are subject to
withholding of all applicable taxes, and the Committee may condition the
delivery of any shares or other benefits under the Plan on satisfaction of the
applicable withholding obligations. The Committee, in its discretion, and
subject to such requirements as the Committee may impose prior to the occurrence
of such withholding, may permit such withholding obligations to be satisfied
through cash payment by the Participant, through the surrender of shares of
Stock which the Participant already owns, or through the surrender of shares of
Stock to which the Participant is otherwise entitled under the Plan, but only to
the extent of the minimum amount required to be withheld under applicable law.
3.5 Transferability. Except as otherwise provided by the Committee,
Options under the Plan are not transferable except as designated by the
Participantthan by will or by the laws of descent and distribution. 3.6 FormDuring the grantee’s lifetime, an Option may be exercised only by the grantee or the grantee’s guardian or legal representative.
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Section 2.7 Dividends and TimeDividend Equivalents. An Option, at the time of Elections. Unless otherwise specified herein, each
election requiredgrant or permittedsubsequent thereto, may provide the grantee with the right to receive dividend payments or dividend equivalent payments with respect to Common Stock subject to the Option. Such payments may either be made currently or credited to an account for the grantee, and may be settled in cash or Common Stock as determined by any Participant or other person
entitled to benefits under the Plan,Board. Any such settlements, and any permitted modification,such crediting of dividends or revocation thereof, shalldividend equivalents or reinvestment in shares of Stock, may be in writing filed with the Committee at such times,
in such form, and subject to such conditions, restrictions and limitations, not inconsistent
with the terms of the Plan,contingencies as the CommitteeBoard shall require.
3.7 Agreement With Company. Anestablish.
ARTICLE 3
Retainer Stock Awards
Section 3.1 Terms and Conditions.
| (a) As of the date of each Annual Meeting of Stockholders of the Corporation, each Non-Employee Director who was not a member of the Board of Directors at the previous Annual Meeting of Stockholders and who has never received a retainer stock award under any non-employee director compensation plan or arrangement of the Corporation, shall be granted a Retainer Stock Award. | |
| (b) The Retainer Stock Award shall consist of the grant of 6,000 shares of Common Stock and shall vest one-third on the first, second and third anniversary of the date of grant. | |
| (c) Any unvested portion of the Retainer Stock Award shall vest upon the occurrence of a Change in Control. For purposes of this Plan, “Change in Control” shall have the same meaning as that term is given in the Corporation’s 2004 Stock Option Plan, as amended therein from time to time. | |
| (d) The Retainer Stock Awards granted under this Section 3.1 shall be subject to the limitations set forth in Section 3.3. |
Section 3.2 Fractional Shares. If the number of shares that may be vested under a Retainer Stock Award for a Non-Employee Director would result in a fractional share, then the Plannumber of shares to vest shall be increased to the next highest number that would result in the vesting of no fractional shares.
Section 3.3 Limitations on Stock. Common Stock granted as a Retainer Stock Award shall be subject to such terms and conditions, not inconsistent with the following limitations:
| (a) Such Common Stock may not be sold, assigned, transferred, pledged or otherwise encumbered prior to the date it is vested. | |
| (b) Each certificate issued in respect of such Common Stock shall be registered in the name of the Non-Employee Director and deposited, together with a stock power endorsed in blank, with the Corporation until such time as all restrictions have lapsed. | |
| (c) Each Retainer Stock Award shall be evidenced by a written agreement duly executed on behalf of the Corporation and the Non-Employee Director for whom such award is granted, dated as of the date of issuance of the Common Stock to which it relates. Such agreement shall comply with and be subject to the terms of the Plan. | |
| (d) Except as otherwise provided by this Plan, each Non-Employee Director, as owner of shares of Common Stock granted to him or her as a Retainer Stock Award, shall have all the rights of a stockholder, including but not limited to the right to vote such shares and the right to receive all dividends paid on such shares; provided, however, that no dividends shall be payable to or for the benefit of a Non-Employee Director with respect to record dates for such dividends occurring on or after the date, if any, on which the Non-Employee Director has forfeited the Common Stock. |
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ARTICLE 4
Election to Receive Common Stock
Section 4.1 Eligibility. A Non-Employee Director who is otherwise eligible to receive cash payment for services provided as a Director may elect to receive up to 50% of his or her annual retainer fee, in 10% increments, exclusive of any fees or other amounts payable for attendance at the Committee
shall,meetings of the Board or for service on any committee thereof, in its sole discretion, prescribe; provided, however, that no Option
granted under the Plan shall contain any provision entitling the optioneeform of Common Stock (a “Stock Election”), subject to the automatic grantfollowing terms of additional Options in connection with any exercisethis Article 4. The amount of the original Option. The terms and conditions of any Option grantedfee which a Non-Employee Director elects to any
Participant shall be reflectedreceive in such form of written document as is determined
by the Committee. A copy of such document shall be provided to the Participant,
and the Committee may, but need not, require that the Participant shall sign a
copy of such document. Such documentCommon Stock is referred to herein as the “Elected Amount.” The Elected Amount shall be deducted ratably from the quarterly payments of the annual retainer fee payable to such Non-Employer Director in that fiscal year in which the PlanElected Amount would have been paid but for the Stock Election.
Section 4.2 Common Stock. Any Non-Employee Director who makes a stock election pursuant to Section 4.1 (an “Electing Director”) shall have an account created on the books of the Corporation to which shares of Common Stock shall be credited and debited as an "Option
Agreement" regardlessprovided in this Article 4 (the “Stock Account”). Each Electing Director shall have credited to his or her Stock Account on the date of whether any Participant signature is required.
3.8 Actioneach quarterly payment of the annual retainer fee (the “Quarterly Payment Date”) the sum of (i) that number of shares of Common Stock determined by Companydividing his or Subsidiary. Any action required or permitted to
be takenher Elected Amount by the Company or any SubsidiaryFair Market Value on such Quarterly Payment Date (such shares are referred to as “Elected Shares”) and (ii) that number of shares of Common Stock determined by dividing 50% of the Elected Amount by the Fair Market Value on such Quarterly Payment Date (such shares are referred to as “Additional Shares”).
Section 4.3 Vesting. All Elected Shares and Additional Shares shall be by resolution of its board of
directors, or by action of one or more members100% vested as of the board (including a
committee of the board) whodate they are duly authorized to act for the board, or (exceptcredited to the extent prohibited by applicable lawElecting Director’s Stock Account, but may not be sold or applicable rules of any stock
exchange) by a duly authorized officer of such company.
3.9 Gender and Number. Where the context admits, words in any gender shall
include any other gender, words in the singular shall include the plural and the
plural shall include the singular.
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3.10 Limitation of Implied Rights.
(a) Neither a Participant nor any other person shall, by reason of
participation in the Plan, acquire any right in or title to any assets, funds or
property of the Company or any Subsidiary whatsoever, including, without
limitation, any specific funds, assets, or other property which the Company or
any Subsidiary, in its sole discretion, may set aside in anticipation of a
liability under the Plan. A Participant shall have only a contractual right to
the Stock or amounts, if any, payable under the Plan, unsecured by any assets of
the Company or any Subsidiary, and nothing contained in the Plan shall
constitute a guarantee that the assets of the Company or any Subsidiary shall be
sufficient to pay any benefits to any person.
(b) The Plan does not constitute a contract of employment, and selection as
a Participant will not give any participating employee the right to be retained
in the employ of the Company or any Subsidiary, nor any right or claim to any
benefit under the Plan, unless such right or claim has specifically accrued
under the terms of the Plan. Except as otherwise provided in the Plan, no Option
under the Plan shall confer upon the holder thereof any rights as a stockholder
of the Companytransferred prior to the date onthey are issued. Additional Shares, however, may not be sold or transferred for a period of two years after the date as of which they are issued and such shares shall bear a legend setting forth this restriction (the “Restriction”). The Restriction shall remain in effect after the Option is exercised and Stock is
issueddate an Electing Director ceases to the individual.
3.11 Evidence. Evidence requiredbe a Director; provided, however, that (i) if an Electing Director ceases to be a Director by reason of anyonedeath, disability or departure under the Plan may be by
certificate, affidavit, documentcircumstances described in Section 6.1 (a) or other information which the person acting on
it considers pertinent and reliable, and shall be signed, made(b), or presentedas otherwise determined by the proper partyBoard of Directors, the Restriction shall lapse and be of no further force or parties.
3.12 Forfeiture. Notwithstanding any other provision of this Plan, except
as provided in Section 3.13 below, if the Committee finds by a majority vote
that (i) a Participant, beforeeffect on or after terminationthe date of hissuch death, disability, departure or her employment
with the Company or a Subsidiary (as used in this Section 3, an "Employer") for
any reason, (a) committed fraud, embezzlement, theft, a felony, or proven
dishonesty in the course of his or her employment by Employer,determination; and by such act
damaged Employer, or (b) disclosed trade secrets of Employer; or (ii) the Participant, beforeRestriction shall lapse and be of no further force or after termination of his or her employment with Employer
for any reason, participated, engaged or had a financial or other interest
(whether as an employee, officer, director, consultant, contractor, stockholder,
owner, or otherwise) in any commercial endeavor in the United States competitive
with the business of Employer (a) in violation of the SYSCO Corporation Code of
Business Conduct, as in effect on the date of such participation or other
engagement, or (b) in such a manner that would have violated the Code of
Business Conduct had Participant been employed by Employer at the time of the
activity in question, then any outstanding Options which have not been exercised
will be forfeited. The decision of the Committee as to the nature of a
Participant's conduct, the damage done to Employer and the extent of the
Participant's competitive activity will be final. No decision of the Committee,
however, will affect the finality of the discharge of the Participant by
Employer in any manner.
3.13 Termination of Employment Following Change in Control. In the event
that the employment of a Participant who is an employee of the Company or a
Subsidiary is terminated by the Company other than for Cause, as defined in
Section 7(c), during the 24-month period following a Change in Control, as
defined in Section 7(d), all of such Participant's outstanding Options may
thereafter be exercised by the Participant, to the extent that such Options were
exercisable as of the date of such termination of employment, for (x) a period
of 24 months from such date of termination or (y) until expiration of the stated
term of such Option, whichever period is the shorter. The provisions of clause
(ii) of Section 3.12 of the Plan shall not apply to any Participant who incurs a
termination of employment pursuant to this Section 3.13, with respect to
activity after such termination of employment.
SECTION 4
CHANGE IN CONTROL
Subject to the provisions of paragraph 3.2(d) (relating to the adjustment
of shares), and except as otherwise provided in the Plan or the Option Agreement
reflecting the applicable Option, upon the occurrence of a Change in Control, as such term is defined in the Corporation’s 2004 Stock Option Plan.
Section 4.4 Date of Issuance. The date of issuance of Common Stock issued pursuant to this Article 4 (the “Issue Date”) shall be December 31 for any year as to which a Non-Employee Director has made a stock election as described in Section 7(d), all outstanding Options4.1 hereof, or if December 31 is not a business day for the Corporation’s transfer agent, on the last business day of the Corporation’s transfer agent prior to December 31. As of the Issue Date, a certificate for the total number of vested shares in his or her account on the Issue Date shall become fully exercisable.
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SECTIONbe issued to such Electing Director subject to the other terms and conditions of this Plan and at that time, the balance in each Electing Director’s Stock Account shall be debited by the number of shares issued. Notwithstanding the foregoing, if a Non-Employee Director ceases to be a director for any reason when there are shares accrued to such director’s Stock Account, certificates for such shares shall be issued within 60 days of the date such Non-Employee Director ceases to be a director and the date such shares are issued shall be the Issue Date of such shares.
Section 4.5 Method of Election. A Non-Employee Director who wishes to make a Stock Election must deliver to the Secretary of the Corporation a written irrevocable election specifying the Elected Amount by January 31 of the calendar year to which the Stock Election relates (or at such other time required under rules established by the Board).
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ARTICLE 5
COMMITTEE
Restricted Stock and Restricted Stock Units
Section 5.1 Administration. The authorityGrant of Restricted Stock or Restricted Stock Units. Subject to controlthe terms and manage the operation and
administrationprovisions of the Plan, shall be vested in a committee (the "Committee") in
accordance with this Section 5. The Committee shall be selected by the Board of Directors, at any time and from time to time, may grant shares of Restricted Stock and/or Restricted Stock Units, as such terms are defined below, to participants in such amounts and upon such terms and conditions as the Board shall consist solelydetermine; provided, however, that no grant of twoRestricted Stock or of any Restricted Stock Unit shall in any event vest more membersthan 1/3 per year for each of the Board who are nonemployee
directors withinfirst three years following the meaningdate of Rule 16b-3 undergrant. “Restricted Stock” means an award of Common Stock subject to forfeiture based on the Securities Exchange Actpassage of 1934,time, the achievement of performance goals, and/or upon the occurrence of other events as amended, and are outside directors within the meaning of Code Section
162(m). Subject to any restrictions imposed by any exchange or trading system on
which the Stock may be listed, if the Committee does not exist, or for any other
reason determined by the Board in its discretion, granted subject to the terms of this Plan. “Restricted Stock Unit” means an award denominated in units whose value is derived from Common Stock and which is subject to forfeiture based on the passage of time, the achievement of performance goals, and/or upon the occurrence of other events as determined by the Board may takein its discretion, granted subject to the terms of this Plan.
Section 5.2 Restricted Stock or Restricted Stock Unit Agreement. Each Restricted Stock and/or Restricted Stock Unit grant shall be evidenced by an Award Agreement duly executed by the Corporation and the Non-Employer Director to whom the award is granted that shall specify the period(s) and types of restrictions, the number of shares of Restricted Stock or the number of Restricted Stock Units granted, and any actionsuch other provisions as the Board shall determine.
Section 5.3 Other Restrictions.
| (a) The Board shall impose, in the Award Agreement at the time of grant or anytime thereafter, such other conditions and/or restrictions on any shares of Restricted Stock or Restricted Stock Units granted pursuant to this Plan as it may deem advisable including, without limitation, a requirement that participants pay a stipulated purchase price for each share of Restricted Stock or each Restricted Stock Unit, that specific performance goals be obtained, the imposition of time-based restrictions on vesting following the attainment of the performance goals, time-based restrictions, restrictions under applicable laws or under the requirements of any stock exchange or market upon which such shares are listed or traded, or holding requirements or sale restrictions placed on the shares by the Corporation upon vesting of such Restricted Stock or Restricted Stock Units. Except as otherwise provided in this Article 5 or the applicable award agreement, shares of Restricted Stock covered by each Restricted Stock award shall become freely transferable by the participant, subject to compliance with applicable laws, after all conditions and restrictions applicable to such shares have been satisfied or lapse. | |
| (b) Common Stock subject to a Restricted Stock award may not be sold, assigned, transferred, pledged or otherwise encumbered prior to the date it is vested, and except as otherwise specified by the Board, Restricted Stock Units may not be transferred. | |
| (c) Each certificate issued in respect of Common Stock pursuant to a Restricted Stock award shall be registered in the name of the Non-Employee Director and deposited with the Corporation until such time as all restrictions have lapsed. |
Section 5.4 Certificate Legend. In addition to any other legends placed on certificates, each certificate representing shares of Restricted Stock granted pursuant to the Plan may bear a legend such as the following:
| The sale or other transfer of the shares of stock represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer as set forth in the SYSCO Corporation 2005 Non-Employee Directors Stock Plan, and in the associated Award Agreement. A copy of the Plan and such Award Agreement may be obtained from SYSCO Corporation. |
Section 5.5 Voting Rights. To the extent required by law, participants in whose names shares of Restricted Stock granted hereunder shall be issued, shall be granted the right to exercise full voting rights with respect to those shares during the period of restriction. A participant shall have no voting rights with respect to any Restricted Stock Units granted hereunder.
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Section 5.6 Dividends and Other Distributions. During the period of restriction, participants holding shares of Restricted Stock or Restricted Stock Units granted hereunder may, if the Board so determines, be credited with dividends paid with respect to the underlying shares or dividend equivalents while they are so held in a manner determined by the Board in its sole discretion. The Board may apply any restrictions to the dividends or dividend equivalents that would otherwisethe Board deems appropriate. The Board, in its sole discretion, may determine the form of payment of dividends or dividend equivalents, including cash, unrestricted Common Stock, Restricted Stock, or Restricted Stock Units.
Section 5.7 Payment in Consideration of Restricted Stock Units. When and if Restricted Stock Units become payable, a participant having received the grant of such units shall be entitled to receive payment from the responsibilityCorporation in cash, shares of Common Stock of equivalent value (based on the Fair Market Value thereof), in some combination thereof, or in any other form determined by the Board in its sole discretion. The Board’s determination regarding the form of payout shall be set forth or reserved for later determination in the Award Agreement pertaining to the grant of the Committee. UnlessRestricted Stock Unit.
ARTICLE 6
Miscellaneous
Section 6.1 Cessation of Service. Except as set forth below and unless otherwise determined by the Board, SYSCO's Compensationupon cessation of service as a Non-Employee Director (for reasons other than death), all Options, whether or not exercisable at the date of cessation of service, and all unvested Restricted Stock, Option CommitteeRestricted Stock Units and Retainer Stock Awards shall be designatedforfeited by the grantee; provided, however, that, unless otherwise determined by the Board, if (a) any Non-Employee Director serves out his/her term but does not stand for re-election at the end thereof or (b) any Non-Employee Director shall retire from service on the Board (for reasons other than death) prior to the expiration of his or her term and on or after the date he or she attains age 71, such grantee’s Options, Restricted Stock, Restricted Stock Units and Retainer Stock Awards shall remain in effect, vest, become exercisable and expire as if the "Committee" hereunder.
5.2 Powers of Committee. The Committee's administrationgrantee had remained a Non-Employee Director of the Corporation. The status of Elected Shares and Additional Shares shall be governed by Section 4.3.
Section 6.2 Death. Upon the death of a Non-Employee Director, all unvested Options held by him or her will vest immediately and may be exercised by his or her estate, or by the person to whom such right devolves from the Non-Employee Director by reason of his or her death, at any time within three years after the date of the Non-Employee Director’s death, but in no event later than the original termination date of the Option. In no event may an Option be exercised after three years following the holder’s death. In addition, all unvested Restricted Stock, Restricted Stock Units and Retainer Stock Awards shall vest and all restrictions with respect to Additional Shares shall lapse.
Section 6.3 Administration. This Plan shall be subject toadministered by the following:
(a) Subject to the provisionsBoard of Directors of the Plan, the Committee will have the
authority and discretion to select from among the Eligible Grantees those
persons who shall receive Options, to determine the time or times of
receipt, to determine the types of Options and the number of shares covered
by the Options, to establish the terms, conditions, performance criteria,
restrictions, and other provisions of such Options, and (subject to the
restrictions imposed by Section 6) to cancel or suspend Options.
(b) The Committee will have the authority and discretion to interpret
the Plan, to establish, amend, and rescind any rules and regulations
relating to the Plan, to determine the terms and provisions of any Option
Agreement made pursuant to the Plan, and to make all other determinations
that may be necessary or advisable for the administration of the Plan.
(d) Any interpretation of the Plan by the Committee and any decision
made by it under the Plan are final and binding on all persons.
(e) In controlling and managing the operation and administration of
the Plan, the Committee shall take action in a manner that conforms to the
certificate of incorporation and by-laws of the Company, and applicable
state corporate law.
5.3 Delegation by Committee. Except to the extent prohibited by applicable
law or the applicable rules of a stock exchange, the Committee may allocate all
or any portion of its responsibilities and powers to any one or more of its
members and may delegate all or any part of its responsibilities and powers
hereunder, including without limitation, the power to designate Participants
hereunder and determine the amount, timing and terms of Options hereunder, to
any person or persons selected by it, including without limitation, any
executive officer of the Company. Any such allocation or delegation may be
revoked by the Committee at any time.
5.4 Information to be Furnished to Committee. The Company and Subsidiaries
shall furnish the Committee with such data and information as it determines may
be required for it to discharge its duties. The records of the Company and
Subsidiaries as to an employee's or Participant's employment, termination of
employment, leave of absence, reemployment and compensation shall be conclusive
unless the Committee determines such records to be incorrect. Participants and
other persons entitled to benefits under the Plan must furnish the Committee
such evidence, data or information as the Committee considers desirable to carry
out the terms of the Plan.
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SECTION 6
AMENDMENT AND TERMINATION
(a) TheCorporation. This Plan may be terminated or amended by the Board of Directors atas they deem advisable. The Board may delegate its authority hereunder to the Non-Employee Directors, or to any time, except thattwo or more thereof.
Section 6.4 Amendments. No amendment may revoke or alter in a manner unfavorable to the following actions may not be taken without stockholder
approval:
(i)grantees any Options, Restricted Stock, Restricted Stock Units, Retainer Stock Awards or Elected Shares then outstanding, and no amendment, unless approved by Corporation stockholders, can increase in the number of shares thatauthorized for issuance hereunder, in total or pursuant to any award type, modify the method by which the Option exercise price is determined or allow for the “repricing” of any Option issued hereunder, as such term is used in rules established by the New York Stock Exchange.
Section 6.5 Term. No Option, Restricted Stock, Restricted Stock Unit, Retainer Stock Award, Elected Shares or Additional Shares may be issued under thethis Plan (except by certain adjustments provided for under the Plan);
(ii) any change in the class of persons eligible to receive ISOs under
the Plan;
(iii) any change in the requirements of Section 2.2 hereof regarding
the Exercise Price;
(iv) any repricing of any Option issued under the Plan by (A) lowering
the exercise price ofafter that Option or (B) canceling that Option and
subsequently granting a new Option with a lower exercise price, or any
other award, to the extent that such cancellation, replacement or grant
would fall within the definition of "repriced" contained in Item 402(i) of
Regulation S-K promulgated under the Securities Act of 1933, such
definition to be applied to grants to all persons, not only "named
executive officers" as that termdate which is defined in Item 402(a)(3) of Regulation
S-K;
(v) any material amendment to the Plan; or
(vi) any other amendment to the Plan that would require approval of
the Company's stockholders under applicable law, regulation or SEC or stock
exchange rule.
Notwithstanding any of the foregoing, adjustments pursuant to paragraph 3.2(d)
shall not be subject to the foregoing limitations of this Section 6.
(b) Options may not be granted under the Plan afterfive years from the date of terminationstockholder approval of thethis Plan, but Options granted prior to that date shall continue to become exercisable and may be exercisableexercised according to their terms.
SECTION 7
DEFINED TERMS
In additionterms, Restricted Stock, Restricted Stock Units, and Retainer Stock Awards granted prior to that date shall continue to vest in accordance with their terms, and dividend equivalents may be paid in accordance with the terms thereof, and Additional Shares shall continue
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to be subject to the other definitions contained herein, the following
definitions shall apply:
(a) Affiliated Company. The term "Affiliated Company" means any
company controlled by, controlling or under common control with the
Company.
(b) Board. The term "Board" shall mean the Board of Directors of the
Company.
(c) Cause. The term "Cause" means, unless otherwise provided by the
Committee, (1) "Cause" as defined in any Individual Agreement, as defined
below, to which the Participant is a party, or (2) if there is no such
Individual Agreement or if it does not define Cause: (A) conviction of the
Participant for committing a felony under federal law or the law of the
state in which such action occurred, (B) dishonesty in the course of
fulfilling the Participant's employment duties or (C) willful and
deliberate failure on the part of the Participant to perform the
Participant's employment duties in any material respect. The Committee
shall, unless otherwise provided in an Individual Agreement with a
Participant, have the sole discretion to determine whether "Cause" exists,
and its determinationprovisions hereof. This Plan shall be final.
(d) Change in Control. The term "Change in Control" shall mean:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (A) the then-outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock")
or (B) the combined voting power of the then-outstanding voting
securities of the Company entitled to vote generally in the election of
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directors (the "Outstanding Company Voting Securities"); provided,
however,effective on that for purposes of this Section 7(d), the following
acquisitions shall not constitute a Change of Control: (1) any
acquisition directly from the Company, (2) any acquisition by the
Company, (3) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any Affiliated Company
or (4) any acquisition by any corporation pursuant to a transactiondate that complies with Sections 7(d)(iii)(A), 7(d)(iii)(B) and 7(d)(iii)(C);
(ii) The occurrence of the following: Individuals who, as of
November 12, 2004, constitute the Board (the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to November
12, 2004 whose election, or nomination for election by the Company's
stockholders, wasit is approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board;
(iii) Consummation of a reorganization, merger, statutory share
exchange or consolidation or similar corporate transaction involving the
Company or any of its subsidiaries, a sale or other disposition of all
or substantially all of the assets of the Company, or the acquisition of
assets or stock of another entity by the Company or any of its
subsidiaries (each, a "Business Combination"), in each case unless,
following such Business Combination, (A) all or substantially all of the
individuals and entities that were the beneficial owners of the
Outstanding Company Common Stock and the Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 60% of the then-outstanding
shares of common stock and the combined voting power of the
then-outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation that, as a result of such transaction, owns the Company or
all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions
as their ownership immediately prior to such Business Combination of the
Outstanding Company Common Stock and the Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan
(or related trust) of the Company or such corporation resulting from
such Business Combination) beneficially owns, directly or indirectly,
20% or more of, respectively, the then-outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then-outstanding voting securities of such
corporation, except to the extent that such ownership existed prior to
the Business Combination, and (C) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement or of the action of the Board
providing for such Business Combination; or
(iv) Approval by the stockholders of the Company of a complete
liquidationCorporation.
Section 6.6 No Other Rights. Except as provided in this Plan, no Non-Employee Director shall have any claim or dissolutionright to be granted or issued an Option, Restricted Stock Award, Restricted Stock Unit, Retainer Stock Award, Elected Shares or Additional Shares under this Plan. Neither this Plan nor any actions hereunder shall be construed as giving any Director any right to be retained in the service of the Company.
(e) Code. The term "Code" meansCorporation.
Section 6.7 Prior Plan. This Plan supersedes the Internal Revenue Code of 1986, as
amended. A reference to any provision of the Code shall include reference
to any successor provision of the Code.
(f) Eligible Grantee. The term "Eligible Grantee" shall mean any
employee of the CompanyCorporation’s existing Non-Employee Directors Stock Plan (the “Prior Directors Plan”). No further Options, Retainer Stock Awards, Elected Shares or a Subsidiary. An Option mayAdditional Shares will be granted to an
employee, in connection with hiring, retention or otherwise, prior tounder the datePrior Directors Plan following approval of this Plan by the employee first performs services for the Company or the
Subsidiaries, provided that such Option shall not become vested prior to
the date the employee first performs such services.
(g) Fair Market Value. For purposes of determining the "Fair Market
Value" of a share of Stock as of any date, then the "Fair Market Value" as
of that date shall be the closing sale price of the Stock on the first
business dayCorporation’s Stockholders, but Options granted prior to that date on the New Yorkshall continue to become exercisable and may be exercised according to their terms, Retainer Stock Exchange.
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(h) Individual Agreement. "Individual Agreement" means a written
employment or similar agreement between a Participant and the Company or
one of its Subsidiaries or a written Option grant agreement under the Plan.
(i) Subsidiary. The term "Subsidiary" means any present or future
subsidiary corporation of the Company within the meaning of Section 424(f)
of the Code, and any present or future business venture designated by the
Committee in which the Company has a significant interest, as determined in
the discretion of the Committee.
(j) Stock. The term "Stock"Awards granted prior to that date shall mean shares of common stock of the
Company.
SECTION 8
GOVERNING LAW
This Plan shall be governed by, and construedcontinue to vest in accordance with the laws
of the State of Texas, excepttheir terms and Additional Shares shall continue to the extent that the General Corporation Law of
the State of Delaware shall be applicable.
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APPENDIX C
SYSCO CORPORATION
2004 LONG-TERM INCENTIVE CASH PLAN
ARTICLE I
PURPOSE OF THE PLAN
The purpose of the Plan is to increase stockholder value and to advance the
interests of the Company and its Subsidiaries by providing financial incentives
designed to attract, retain and motivate key employees of the Company.
ARTICLE II
DEFINITIONS
When used in the Plan, the following terms shall have the following
meanings:
"AWARD" shall mean the determination by the Committee that a Participant
should receive a given number of Performance Units, as evidenced by a document
of notification given a Participant at the time of such determination.
"BOARD OF DIRECTORS" means the Board of Directors of the Company.
"CHANGE OF CONTROL" means the occurrence of one or more of the following
events:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "PERSON"))
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (i) the then-outstanding shares
of Company common stock (the "OUTSTANDING COMPANY COMMON STOCK") or (ii)
the combined voting power of the then-outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"OUTSTANDING COMPANY VOTING SECURITIES"); provided, however, that, for
purposes of this definition, the following acquisitions shall not
constitute a Change of Control: (1) any acquisition directly from the
Company, (2) any acquisition by the Company, (3) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any Subsidiary, or (4) any acquisition by any corporation
pursuant to a transaction that complies with subparagraphs (c)(i), (c)(ii)
and (c)(iii);
(b) Individuals who, as of November 7, 2003, constitute the Board of
Directors (the "INCUMBENT BOARD") cease for any reason to constitute at
least a majority of the Board of Directors; provided, however, that any
individual becoming a director subsequent to November 7, 2003 whose
election, or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board of Directors;
(c) Consummation of a reorganization, merger, statutory share exchange
or consolidation or similar corporate transaction involving the Company or
any of its Subsidiaries, a sale or other disposition of all or
substantially all of the assets of the Company, or the acquisition of
assets or stock of another entity by the Company or any of its Subsidiaries
(each, a "BUSINESS COMBINATION"), in each case unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities that were the beneficial owners of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more
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than 60% of the then-outstanding shares of common stock and the combined
voting power of the then-outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation that, as a result of such transaction, owns the
Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same proportions
as their ownership immediately prior to such Business Combination of the
Outstanding Company Common Stock and the Outstanding Company Voting
Securities, as the case may be, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then-outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then-outstanding voting securities of such corporation, except
to the extent that such ownership existed prior to the Business
Combination, and (iii) at least a majority of the members of the Board of
Directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement or of the action of the Board of Directors providing for such
Business Combination; or
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation and Stock Option Committee of the Board
of Directors, or such other committee as the Board of Directors may designate to
have primary responsibility for the administration of the Plan.
"COMPANY" means Sysco Corporation, a Delaware corporation.
"COMPLETED FISCAL YEARS" is defined in Section 6.3.
"COVERED EMPLOYEE" means a "covered employee" within the meaning of Section
162(m)(3) of the Code.
"DISABILITY" means a physical or mental condition that meets the
eligibility requirements for the receipt of disability income under the terms of
the disability income plan sponsored by the Company pursuant to which the
Participant is eligible for benefits.
"EFFECTIVE DATE" is defined in Section 9.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FISCAL YEAR" means, as determined in the sole discretion of the Committee,
a period used for purposes of measuring performance for purposes of this Plan
which is based as closely as possible on the fiscal year of the Company.
"PARTICIPANT" means an employee of the Company or any of its Subsidiaries
who is designated as a Participant by the Committee.
"PAYMENT AMOUNT" means the total amount to be paid to a Participant with
respect to the Performance Units awarded to such Participant for a particular
Performance Period.
"PAYMENT DATE" means a date determined by the Committee for purposes of (i)
making payment of amounts earned under this Plan and, (ii) in the event a
Participant elects to defer receipt of amounts earned under this Plan pursuant
to the terms of a deferred compensation plan sponsored by the Company, the date
such amounts are credited under the applicable deferred compensation plan. This
date shall be no later than the last day of the fourth month following
completion of the respective Performance Period.
"PERFORMANCE GOALS" means the performance goals established by the
Committee for each Performance Period pursuant to the Plan against which
performance will be measured.
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"PERFORMANCE PERIOD" means a period of no less than three Fiscal Years, as
determined by the Committee, during which the Performance Goals shall be
measured for purposes of determining the Payment Amount.
"PERFORMANCE UNIT" means a unit of participation which shall constitute the
basis from which a Participant's Payment Amount shall be determined with regard
to the Performance Goals established by the Committee.
"PLAN" means the Sysco Corporation 2004 Long-Term Incentive Cash Plan.
"RETIREMENT" means any termination of employment with the Company or a
Subsidiary as a result of retirement in good standing under established rules of
the Company then in effect.
"SUBSIDIARY" means (i) any entity in which the Company, directly or
indirectly, owns more than 50% of the vote or value of the equity interests
issued by such entity, and (ii) any other entity designated by the Committee as
a "Subsidiary" for purposes of this Plan.
"UNIT VALUE" means the per unit amount that is used for purposes of
determining the Payment Amount to be made to Participants in respect of
Performance Units awarded under the Plan.
ARTICLE III
PARTICIPATION
3.1 Designation of Participants. The Committee shall determine and
designate from time to time those employees of the Company and its Subsidiaries
who are to be granted Performance Units (and who thereby become Participants)
and the number of Performance Units to be granted to each Participant.
3.2 Awards. Performance Units shall be granted by the Committee by a
written notification to Participants evidencing the Award in such form as the
Committee shall approve, which notification shall comply with and be subject to the terms and conditions of this Plan. Further Performance Units may be granted
by the Committee from time to time to Participants, so long as this Plan shall
continue in full force and effect.
ARTICLE IV
DETERMINATION OF PERFORMANCE GOALS
4.1 Performance Period Determinations.
(a) In General. Within the first 90 days of each Performance Period,
the Committee, in its sole discretion, shall (a) establish for that
Performance Period (i) the beginning and ending dates, and the Fiscal
Years, for the Performance Period, (ii) the Payment Date for the
Performance Period, (iii) the Performance Goals for each Participant, (iv)
the method for evaluating performance for the Performance Period, and (v)
the method for determining Unit Value and the Payment Amount for each
Participant, and (b) designate the number of Performance Units to be
granted to each Participant.
(b) Adjustments for Long Fiscal Years. If established in writing by
the Committee within the first 90 days of the Performance Period, the
Committee may make any adjustments it determines appropriate for purposes
of measuring performance where the fiscal year of the Company and/or its
Subsidiaries is greater than 52 weeks, including, without limitation,
proration of results between fiscal years.
4.2 Performance Goals. The Performance Goals established by the Committee
for a Performance Period may include any one or more of several criteria, such
as, but not limited to, return on capital employed, sales growth, market share,
margin growth, return on equity, total shareholder return, increase in net
after-tax earnings per share, increase in operating pre-tax earnings, operating
profit or improvements in operating profit, improvements in certain asset or
financial measures (including working capital and the ratio of sales to net
working capital), reductions in certain costs (including reductions in
inventories or accounts receivable or
C-3
reductions in operating expenses), net earnings, pre-tax earnings or variations
of income criteria in varying time periods, economic value added, or general
comparisons with other peer companies or industry groups or classifications with
regard to one or more of these criteria. The Performance Goals may be based on
the performance of the Company generally, the performance of a particular
Subsidiary, division or business unit, or the performance of a group of
Subsidiaries, divisions or business units. The relative weights of the criteria
that comprise the Performance Goals shall be determined by the Committee in its
sole discretion. In establishing the Performance Goals for a Performance Period,
the Committee may establish different Performance Goals for individual
Participants or groups of Participants.
ARTICLE V
PAYMENT
5.1 Determination of Performance. After the end of each Performance
Period, the performance of the Company and its Subsidiaries will be determined
by the Company and approved by the Committee for each Performance Goal. The
Committee shall certify in writing to each Participant the degree of achievement
of each Performance Goal based upon the actual performance results for the
Performance Period.
5.2 Determination of Payment Amount. After the end of each Performance
Period, the Payment Amount for each Participant for such Performance Period
shall be calculated by the Company and certified by the Committee based upon the
level of performance achieved by the Company and its Subsidiaries for each
Performance Goal applicable to such Participant for the Performance Period, as
determined in accordance with Section 5.1.
5.3 Payment of Payment Amount. The Payment Amount payable to Participants
under this Plan shall be paid solely in cash and shall be paid on or before the
Payment Date; provided, however, that subject to the requirements of the
applicable deferred compensation plan and such other rules and requirements as
the Committee may from time to time prescribe, the Committee may allow a
Participant to defer receipt of all or a portion of the Payment Amount if
permitted under the terms of the deferred compensation plan sponsored by the
Company in which the Participant is eligible to participate.
5.4 Overall Limitation Applicable to Covered Employees. Notwithstanding
any other provision in this Plan to the contrary, in no event shall any Covered
Employee be entitled to a payment in respect of any Performance Period in excess
of one percent (1%) of the Company's earnings before income taxes as publicly
disclosed in the "Consolidated Results of Operations" section of the Company's
annual report to the Securities and Exchange Commission on Form 10-K for the
Fiscal Year ended immediately before the Payment Date applicable to such
Performance Period.
ARTICLE VI
TERMINATION OF EMPLOYMENT
If a Participant's employment is terminated before the end of the
Performance Period, the treatment of the Performance Units awarded with respect
to such Performance Period will be as follows:
6.1 In General. If, before the end of the Performance Period, the
Participant's employment terminates for any reason other than for the reasons
described in Sections 6.2 through 6.4, the Participant's Performance Units shall
be canceled, and the Participant shall receive no payment under this Plan in
respect of such Performance Units. If a Participant's employment terminates
after the end of the Performance Period but before the Payment Date, the
Participant (or the Participant's designated beneficiary in the case of death)
shall be paid the Payment Amount with respect to such Performance Period as
determined under Article V hereof on the Payment Date.
6.2 Retirement. Subject to compliance with the conditions outlined below,
if, during the Performance Period, a Participant's employment terminates by
reason of Retirement, the Payment Amount for such Performance Period shall be
paid on the Payment Date for such Performance Period and the Participant's
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Payment Amount with respect to such Performance Period shall be determined by
taking into account the actual performance of the Company and/or its
Subsidiaries for the entire Performance Period; provided, however, that the
Company reserves the right to cancel such Performance Units if the Participant,
prior to the end of the applicable Performance Period, (i) performs any
services, whether as an employee, officer, director, agent, independent
contractor, partner or otherwise, for a competitor of the Company or any of its
affiliates without the consent of the Company, or (ii) takes any other action,
including, but not limited to, interfering with the relationship between the
Company or any of its affiliates and any of its employees, clients or agents,
which is intended to damage or does damage to the business or reputation of the
Company.
6.3 Death. If a Participant dies during the Performance Period, the number
of Performance Units awarded to the Participant will be reduced by multiplying
the number of Performance Units initially awarded to the Participant by a
fraction, the numerator of which is the number of full months in the Performance
Period during which the Participant was an active employee of the Company or a
Subsidiary and the denominator of which is the number of months in the
Performance Period. A partial month worked shall be counted as a full month if
the Participant is an active employee for 15 days or more in that month. The
Payment Amount to be paid to the Participant's beneficiaries based on the
resulting reduced number of Performance Units shall be determined as follows:
(a) If the Participant's death occurs after the end of one or more
Fiscal Years during the Performance Period but within six months or less of
the beginning of a Fiscal Year, the Payment Amount shall be determined
using the actual performance of the Company and/or its Subsidiaries for
each completed Fiscal Year prior to the Participant's death (the "COMPLETED
FISCAL YEARS");
(b) If the Participant's death occurs more than six months after the
start of a Fiscal Year included in the Performance Period but prior to the
end of a Fiscal Year during such Performance Period, the Payment Amount
shall be determined (i) using the actual performance of the Company for
each Completed Fiscal Year, if any, and (ii) using the actual performance
of the Company and/or its Subsidiaries for the Fiscal Year in which the
Participant dies; or
(c) If the Participant's death occurs six months or less after the
start of the Performance Period, the Payment Amount for the Performance
Units granted with respect to such Performance Period shall be zero.
The Payment Amount determined pursuant to this Section 6.3 shall be paid to the
Participant's designated beneficiary as soon as practicable following the
determination of the Payment Amount.
6.4 Disability. If, before the end of the Performance Period, a
Participant's employment is terminated as a result of Disability, the Payment
Amount for such Performance Period shall be paid on the Payment Date for such
Performance Period, and the Participant's Payment Amount with respect to such
Performance Period shall be determined by taking into account the actual
performance of the Company and/or its Subsidiaries for the entire Performance
Period.
ARTICLE VII
CHANGE OF CONTROL
If a Change of Control has occurred during a Performance Period, the
Participant's Performance Units awarded with respect to such Performance Period
shall be considered vested, and the Payment Amount shall be paid to the
Participant within 90 days after the date of the Change of Control. For purposes
of this Article VII, the Payment Amount to be made to each Participant shall be
the maximum amount that could be paid to such Participant with respect to the
Participant's Performance Units for such Performance Period assuming the highest
level of performance is achieved.
C-5
ARTICLE VIII
ADMINISTRATION
8.1 In General. The Plan shall be administered under the supervision and
direction of the Committee or its designees, as applicable. In administering the
Plan, the Committee will determine the Participants and the number of
Performance Units to be granted to individual Participants, establish
appropriate Fiscal Years, Performance Periods and Performance Goals as bases for
payments under the Plan, establish the methods and procedures for measuring
performance, and determine the Payment Date and methods and procedures for
payment of Awards under the Plan. Further, the Committee may, from time to time,
change or waive requirements of the Plan, or outstanding Performance Units, to
conform with the law, to meet special circumstances not anticipated or covered
in the Plan, or to carry on successful operation of the Plan, and in connection
therewith, the Committee or its designee shall have the full power and authority
to:
(a) Prescribe, amend and rescind rules and regulations relating to the
Plan, or outstanding Performance Units, establish procedures deemed
appropriate for the Plan's administration, and make any and all other
determinations not herein specifically authorized which may be necessary or
advisable for its effective administration;
(b) Make any amendments to or modifications of the Plan which may be
required or necessary to make the Plan set forth herein comply with the
provisions of any laws, federal or state, or any regulations issued
thereunder, and to cause the Company at its expense to take any action
related to the Plan which may be required under such laws or regulations;
and
(c) Contest on behalf of Participants or the Company, at the expense
of the Company, any ruling or decision on any issue related to the Plan,
and conduct any such contest and any resulting litigation to a final
determination, ruling or decision.
Notwithstanding anything herein to the contrary, the Committee may, unless
otherwise prohibited from doing so by the Board of Directors or such committee's
charter, delegate any Plan related function it may deem necessary or appropriate
to employees of the Company or its Subsidiaries or to third parties.
Nothing herein shall be deemed to authorize, and the Committee will have no
discretion, to alter or amend the Performance Goals or the specific Performance
Goals of Awards under the Plan after they have been approved by the Committee or
communicated to Participants, whichever shall occur later in time.
8.2 Limitation of Liability. No member of the Committee shall be liable
for any act, omission, or determination taken or made in good faith with respect
to the Plan or any Awards made hereunder, and the members of the Committee shall
be entitled to indemnification, defense and reimbursement by the Company in
respect of any claim, loss, damage, or expenses (including attorneys' fees and
expenses) arising therefrom to the full extent permitted by law and as provided
for in the bylaws of the Company or under any directors' and officers' liability
or similar insurance coverage or any indemnification agreement that may be in
effect from time to time. The Company reserves the right to select counsel to
defend any litigation covered by this Section 8.2.
ARTICLE IX
TERM; WITHDRAWAL OR AMENDMENT
9.1 Effective Date and Term. The Plan has been adopted by the Board of
Directors effective as of September 3, 2004 (the "EFFECTIVE DATE"). The term of
the Plan shall continue until the fifth anniversary of the Effective Date,
unless sooner terminated by the Board. No new Awards may be made after the
termination of the Plan, but termination of the Plan shall not affect
outstanding Awards.
9.2 Withdrawal or Amendment. The Company's Board of Directors or the
Committee may at any time withdraw or amend the Plan, except that there shall be
no withdrawal or amendment which shall adversely affect Awards theretofore
granted.
C-6
ARTICLE X
MISCELLANEOUS
10.1 Beneficiaries. Each Participant may designate a beneficiary or
beneficiaries to receive, in the event of such Participant's death, any payments
remaining to be made to the Participant under the Plan. Each Participant shall
have the right to revoke any such designation and to redesignate a beneficiary
or beneficiaries by written notice to the Company to such effect. If any
Participant dies without naming a beneficiary or if all of the beneficiaries
named by a Participant predecease the Participant, then any amounts remaining to
be paid under the Plan shall be paid to the Participant's estate.
10.2 Awards Non-Transferable. Any rights of a Participant under this Plan,
and in or to an Award, shall be personal in nature and may not be assigned or
transferred (other than a transfer by will or the laws of descent and
distribution). Any attempted assignment or transfer of the Award shall be null
and void and without effect.
10.3 Withholding for Taxes. The Company or its Subsidiaries shall have the
right to deduct from all payments under the Plan any federal, state, or local
taxes required by law to be withheld with respect to such payments.
10.4 Plan Funding. The Plan shall at all times be unfunded and no
provision shall at any time be made with respect to segregating any assets of
the Company or its Subsidiaries for payment of any benefits under the Plan. The
right of a Participant to receive payment under the Plan shall be an unsecured
claim against the general assets of the Company or its Subsidiaries, and neither
the Participant nor any other person shall have any rights in or against any
specific assets of the Company or its Subsidiaries. The Company and its
Subsidiaries may establish a reserve of assets to provide funds for payments
under the Plan.
10.5 No Contract of Employment. The existence of this Plan, as in effect
at any time or from time to time, or any grant of Performance Units under the
Plan shall not be deemed to constitute a contract of employment between the
Company, or its Subsidiaries, and any employee or Participant, nor shall it
constitute a right to remain in the employ of the Company or its Subsidiaries.
10.6 No Right to Participate. Except as provided in Articles III and IV,
no Participant or other employee shall at any time have a right to be selected
for participation in the Plan, despite having previously participated in an
incentive or bonus plan of the Company or its Subsidiaries.
10.7 Facilitation of Payments. Notwithstanding anything else in this Plan
to the contrary, in the event that a payment is due to an employee, or former
employee (or a beneficiary thereof), under this Plan and the recipient is a
minor, mentally incompetent, or otherwise incapacitated, such payment shall be
made to the recipient's legal representative, or guardian. If there is no such
legal representative, or guardian, the Committee, in its sole discretion, may
direct that payment be made to any person the Committee, in its sole discretion,
believes, by reason of a family relationship, or otherwise, will apply. Upon
such payment, for the benefit of the recipient, the Company and each of its
Subsidiaries shall be fully discharged of all obligations therefor.
10.8 Addresses; Missing Recipients. A recipient of any payment under this
Plan who is not a current employee of the Company, or its Subsidiaries, shall
have the obligation to inform the Company of his or her current address, or
other location to which payments are to be sent. Neither the Company nor its
Subsidiaries shall have any liability to such recipient, or any other person,
for any failure of such recipient, or person, to receive any payment if it sends
such payment to the address provided by such recipient by first class mail,
postage paid, or other comparable delivery method. Notwithstanding anything else
in this Plan to the contrary, if a recipient of any payment cannot be located
within 120 days following the date on which such payment is due after reasonable
efforts by the Company or its Subsidiaries, such payments and all future
payments owing to such recipient shall be forfeited without notice to such
recipient. If, within two years (or such longer period as the Committee, in its
sole discretion, may determine) after the date as of which payment was forfeited
(or, if later, is first due), the recipient, by written notice to the Company,
requests that such payment and all future payments owing to such recipient be
reinstated and provides satisfactory proof of their identity, such payments
thereof.
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shall be promptly reinstated. To the extent the due date of any reinstated
payment occurred prior to such reinstatement, such payment shall be made to the
recipient (without any interest from its original due date) within 90 days after
such reinstatement.
10.9 Governing Law. The laws of the State of Delaware (excluding its
principles relating to conflicts of laws) shall govern the Plan.
10.10 Successors. All obligations of the Company and its Subsidiaries
under the Plan shall be binding upon and inure to the benefit of any successor
to the Company or such Subsidiary, whether the existence of such successor is
the result of a direct or indirect purchase, merger, consolidation, or
otherwise.
10.11 Third Parties. Nothing expressed or implied in this Plan is intended
or may be construed to give any person other than eligible Participants any
rights or remedies under this Plan.
10.12 Headings. Section and other headings contained in this Plan are for
reference purposes only, and are not intended to describe, interpret, define, or
limit the scope, extent or intent of the provisions of the Plan.
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SYSCO-PS-04
 | SYSCO-PS-05 |
ELECTION TO OBTAIN FUTURE MATERIALS
OF SYSCO CORPORATION
ELECTRONICALLY INSTEAD OF BY MAIL
OF SYSCO CORPORATION
ELECTRONICALLY INSTEAD OF BY MAIL
SYSCO stockholders may elect to receive future materials through the Internet instead of by mail. SYSCO is offering this service to provide added convenience to its stockholders and to reduce printing and mailing costs.
To take advantage of this option, stockholders must subscribe to one of the various commercial services that offer access to the Internet. Costs normally associated with electronic access, such as usage and telephone charges, will be borne by the stockholder.
To elect this option, go towww.econsent.com/syy.syy. You will be asked to enter the eleven-digit Account Number located in the second group of numbers appearing beneath the perforation line on the reverse side. Stockholders who elect this option will be notified each year by e-mail how to access the proxy materials and how to vote their shares on the Internet.
If you consent to receive the Company'sCompany’s future materials electronically, your consent will remain in effect unless it is withdrawn. You may withdraw your consent by contacting our Transfer Agent at 1-800-730-4001 or go towww.econsent.com/syy.
syy.
You may access the SYSCO Corporation annual report and proxy statement at:
www.sysco.com
PROXY
SYSCO CORPORATION
Proxy for the Annual Meeting of Stockholders
November12, 2004
11, 2005
November
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Richard J. Schnieders and Thomas E. Lankford,John K. Stubblefield, Jr., and each of them jointly and severally, proxies, with full power of substitution, to vote all shares of common stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders of Sysco Corporation to be held on Friday, November 12, 200411, 2005 at 10:00 a.m., at The Omni HoustonHoustonian Hotel, Four Riverway,111 North Post Oak Lane, Houston, Texas 77056,77024, or any adjournment thereof.
The undersigned acknowledges receipt of the notice of annual meeting and proxy statement, each dated September 27, 2004,October 3, 2005, grants authority to any of said proxies, or their substitutes, to act in the absence of others, with all the powers which the undersigned would possess if personally present at such meeting, and hereby ratifies and confirms all that said proxies, or their substitutes, may lawfully do in the undersigned'sundersigned’s name, place and stead. The undersigned instructs said proxies, or any of them, to vote as set forth on the reverse side.
(CONTINUED
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
SYSCO CORPORATION
c/oEquiServe Trust Company, N.A.
Computershare
P.O. Box 8694
Edison, NJ 08818-8694
c/o
P.O. Box 8694
Edison, NJ 08818-8694
Your vote is important. Please vote immediately.
| Vote by Internet | Vote by Telephone | |
| Log on to the Internet and go to | Call toll free 1-877-PRX-VOTE (1-877-779-8683) | |
| http://www.eproxyvote.com/syy |
If you vote over the Internet or by telephone, please do not mail your card.
Proxies voted by Telephone or Internet must be received by
11:59 P.M. EST-— November 11, 2004
Please Mark
[X] Votes As In
This Example
10, 2005
Proxies voted by Telephone or Internet must be received by
11:59 P.M. EST
| Please Mark | ||
| x | Votes As In | |
| This Example |
The Board of Directors recommends a vote “FOR” Proposal 1.
| 1. | Election of four directors in Class | |||
| NOMINEES: (01) | ||||
| FOR | WITHHELD | |||
| ALL | FROM ALL | |||
| NOMINEES | NOMINEES | |||
| o | ||||
| For all nominees except as noted above. | ||||
The Board of Directors recommends a vote “FOR” Proposals 2, 3, 4 and 5.
2. Approval of Ratification of Appointment of Ernst & Young LLP as the Company’s Independent Accountants for Fiscal 2006.
o FOR | o AGAINST | o ABSTAIN |
3. Approval of the 2005 Management Incentive Plan.
o FOR | o AGAINST | o ABSTAIN |
4. Approval of the payment of compensation to certain executive officers under the 2000 Management Incentive Plan pursuant to Section 162(m) of the Internal Revenue Code.
o FOR | o AGAINST | o ABSTAIN |
5. Approval of the 2005 Non-Employee Directors Stock Plan
o FOR | o AGAINST | o ABSTAIN |
All proxies signed and returned will be voted in accordance with your instructions. Those with no choice indicated will be voted “FOR” Proposals 2, the Company's policies for food products containing
3 and 4 genetically engineered ingredients and report to
shareholders within six months.
2. Approval of Ratification of Appointment of Ernst & [ ] FOR [ ] AGAINST [ ] ABSTAIN
Young LLP as the Company's Independent Accountants for
Fiscal 2005.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
ALL PROXIES SIGNED AND RETURNED WILL BE VOTED IN ACCORDANCE WITH YOUR
INSTRUCTIONS. THOSE WITH NO CHOICE INDICATED WILL BE VOTED "FOR" PROPOSALS 1, 2, 3, AND 4 AND "AGAINST" PROPOSALand 5, AND IN THE DISCRETION OF THE PROXY HOLDER ON
ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENT
OR POSTPONEMENT OF THE ANNUAL MEETING.
and in the discretion of the proxy holder on any other matter that may properly come before the meeting and any adjournment or postponement of the Annual Meeting.
MARK HERE FOR ADDRESS [ ]
o
CHANGE AND NOTE AT LEFT
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Please sign, date and return promptly. No postage required if this proxy is returned in the enclosed envelope and mailed in the United States. Please sign as name appears on this card. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title. If signer is a corporation, please sign with the full corporation name by authorized officer or officers.
Signature:________________________ Date:_______________________________
Signature:________________________ Date:_______________________________
| Signature: | Date: | |||||
| Signature: | Date: | |||||
APPENDIX A
SYSCO CORPORATION
2000 MANAGEMENT INCENTIVE PLAN
2000 MANAGEMENT INCENTIVE PLAN
This Sysco Corporation 2000 Management Incentive Plan (the “Plan”) was adopted by unanimous action of the Plan Compensation Committee (as hereinafter defined) of Sysco Corporation (the “Company”) on May 9, 2000, and by the Board of Directors of the Company (the “Board of Directors”) on May 10, 2000.
1. Statement of Principle
The purpose of the Plan is to reward (i) certain key management personnel for outstanding performance in the management of the divisions or subsidiaries (as hereinafter defined) of the Company and (ii) certain corporate personnel for managing the operations of the Company as a whole and/or managing the operations of certain Subsidiaries (as hereinafter defined). For purposes of the Plan, the term “Subsidiary” means (a) any corporation which is a member of a “controlled group of corporations” which includes the Company, as defined in Code Section 414(b), (b) any trade or business under “common control” with the Company, as defined in Code Section 414(c), (c) any organization which is a member of an “affiliated service group” which includes the Company, as defined in Code Section 414(m), (d) any other entity required to be aggregated with the Company pursuant to Code Section 414(o), and (e) any other organization or employment location designated as a “Subsidiary” by resolution of the Board of Directors. Except as otherwise provided in Section 8 hereof, the total number of shares of Sysco Common Stock, $1.00 par value (“Common Stock”), which may be awarded pursuant to the Plan shall not exceed four million shares. All references to periods in the Plan are to fiscal periods unless otherwise specifically noted. Nothing in the Plan shall be deemed to affect incentive bonuses paid or to be paid to participants under any predecessor management incentive plan for fiscal years prior to the Company’s 2001 fiscal year.
2. Plan Compensation Committee
The Board of Directors has established a committee (the “Plan Compensation Committee”) which is charged with structuring, proposing the implementation of, and implementing the terms and conditions of, the Plan. The Plan Compensation Committee shall, at all times, consist of two or more directors of the Company. The Plan Compensation Committee shall have the authority to adopt, alter and repeal such rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of the Plan and any award issued under the Plan (and any agreements relating thereto) including without limitation the manner of determining financial and accounting concepts discussed in the Plan; to otherwise supervise the administration of the Plan; and, except as to the application of the Plan to Senior Executive Participants (as defined in Section 3 below), to delegate such authority provided to it hereunder as it may deem necessary or appropriate to the Chairman of the Board, Chief Executive Officer, President, Chief Operating Officer and any Executive Vice President, and any of them individually. All decisions made by the Plan Compensation Committee pursuant to the provisions of the Plan shall be made in the Plan Compensation Committee’s sole discretion and shall be final and binding on all persons, including the Company and Participants (hereinafter defined). Each director while a member of the Plan Compensation Committee shall (i) meet the definition of “disinterested person” contained in Rule 16b-3 promulgated pursuant to Section 16 of the Securities Exchange Act of 1934, as amended, and (ii) be an “outside director,” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), any regulations interpreting Section 162(m) of the Code, or any other applicable administrative or judicial pronouncements pertaining thereto.
3. Participants
The participants in the Plan for a fiscal year shall be designated by the Plan Compensation Committee from the persons who are employed by any Subsidiary or the Company, in the following capacities (Subsidiary Participants, Corporate Participants, Designated Participants and Senior Executive Participants are referred to collectively as “Participants” or individually as a “Participant”):
| Subsidiary Participants- Persons who serve as an officer of a Subsidiary. | |||
| Corporate Participants- Persons who serve as an officer of the Company who are also employees of the Company or a Subsidiary. | |||
| Designated Participants- Persons other than Corporate Participants or Subsidiary Participants who are employed by a Subsidiary or by the corporate office of the Company who are designated by the Plan Compensation Committee from time to time. | |||
| Senior Executive Participants- Persons who are “covered employees” of the Company within the meaning of Code Section 162(m) and Treasury Regulation 1.162-27(c)(2) (or any successor statute or regulation section, or any administrative interpretation thereof) (the “Executive Compensation Provisions”) during a fiscal year of the Company and who have been designated by the Plan Compensation Committee as Corporate, Subsidiary or Designated Participants in the Plan for such fiscal year. If a Participant isboth a Senior Executive Participant and a Corporate, Subsidiary or Designated Participant during a fiscal year as a result of the application of the Executive Compensation Provisions, he or she shall be considered a Senior Executive Participant, andnot a Corporate, Subsidiary or Designated Participant, during such fiscal year, and shall be subject to any and all restrictions applicable to Senior Executive Participants hereunder during such fiscal year. |
To the extent possible, the Plan Compensation Committee shall designate Participants in the Plan prior to the commencement of the fiscal year in which such designated Participants will be entitled to a bonus under the Plan, or as soon as practicable during the fiscal year in which a person first becomes eligible to be a Participant. Once designated as a Participant, the Plan Compensation Committee can remove an employee as a Participant with or without cause at any time and the Participant shall not be entitled to any bonus under the Plan for the year in which he or she is removed regardless of when during such year he or she is removed.
4. Method of Operation
The bonus which a Participant can earn is based (i) on the performance of the Company as a whole and (ii) (A) (as to Subsidiary Participants and possibly Designated Participants) either the performance of the Subsidiary which employs such Participant or the performance of the Subsidiary designated by the Plan Compensation Committee as the Subsidiary by reference to which the bonus is to be determined and (B) (as to Corporate and possibly Designated Participants), the performance of a select group of Subsidiaries, subject to the discretion of the Plan Compensation Committee to formulate a different bonus structure as to any Participant, other than Senior Executive Participants. The bonus is calculated with respect to an entire fiscal year and, if earned, shall be paid in accordance with Section 6 hereof.
(A) Subsidiary Participants and Certain Senior Executive Participants.
With respect to each Subsidiary Participant and each Senior Executive Participant who would be a Subsidiary Participant but for the application of the Executive Compensation Provisions, a portion of the bonus may depend upon the return on capital and/or increase in pretax earnings of the Subsidiary employing such Participant; a portion of the bonus may depend upon the return on stockholder’s equity and increase in earnings per share of the Company as a whole; and a portion of the bonus may depend upon any one or more of the following performance factors: (i) sales of the Company and/or one or more Subsidiaries, (ii) pretax earnings of the Company, (iii) net earnings of the Company and/or one or more Subsidiaries, (iv) control of operating and/or nonoperating expenses of the Company and/or one or more Subsidiaries, (v) margins of the Company and/or one or more Subsidiaries, (vi) market price of the Company’s securities, and (vii) other objectively measurable factors directly tied to the performance of the Company and/or one or more Subsidiaries. The relative weights of the factors considered and the percentages of the total bonus comprised by the portion of the bonus determined with respect to the Subsidiary employing the Participant or the Subsidiary designated by the Plan Compensation Committee as the Subsidiary by reference to which the
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Bonus is to be determined and the portion of the bonus determined with respect to the Company shall be determined by the Plan Compensation Committee in its sole discretion. Notwithstanding the foregoing, the Plan Compensation Committee may alter the bonus formula with respect to any such Participant by changing the performance targets as determined in the sole discretion of the Committee; provided, however, the Committee cannot change the performance targets after the first ninety (90) days of the fiscal year with respect to Senior Executive Participants.
In addition to the bonus calculated in accordance with the first paragraph of Section 4(A) above, a Subsidiary Participant may also be entitled to an additional bonus (“Additional Bonus”) if awarded by the Plan Compensation Committee in its sole discretion. The Additional Bonus may be established by the Plan Compensation Committee at one or more times during such fiscal year or within ninety (90) days following the end of such fiscal year based on such criteria as the Plan Compensation Committee may develop in its sole discretion.
(B) Corporate Participants and Certain Senior Executive Participants.
With respect to a Corporate Participant or Senior Executive Participant who would be a Corporate Participant but for the application of the Executive Compensation Provisions and subject to the further adjustments and additions provided for in the Plan, a portion of the bonus may depend upon the return on stockholder’s equity and increase in earnings per share of the Company; a portion of the bonus may depend upon the return on capital of one or more of the Subsidiaries and/or the increase in pretax earnings of one or more of the Subsidiaries; and a portion of the bonus may depend upon any one or more of the following performance factors: (i) sales of the Company and/or one or more Subsidiaries, (ii) pretax earnings of the Company, (iii) net earnings of the Company and/or one or more Subsidiaries, (iv) control of operating and/or nonoperating expenses of the Company and/or one or more Subsidiaries, (v) margins of the Company and/or one or more Subsidiaries, (vi) market price of the Company’s securities, and (vii) other objectively measurable factors directly tied to the performance of the Company and/or one or more Subsidiaries. The relative weights of the factors considered and the percentage of the total bonus comprised by the portion of the bonus determined with respect to the Subsidiaries of the Company and the portion determined with respect to the Company shall be determined by the Plan Compensation Committee in its sole discretion. Notwithstanding the foregoing, the Plan Compensation Committee may alter the bonus formula with respect to any such Participant by changing the performance targets as determined in the sole discretion of the Committee; provided, however, the Committee cannot change the performance targets after the first ninety (90) days of the fiscal year with respect to Senior Executive Participants.
(C) Designated Participants.
The Plan Compensation Committee may formulate a bonus structure for each Designated Participant which is based on performance factors determined by the Plan Compensation Committee in its sole discretion. The bonus structure for any Designated Participant may be similar to or may vary materially from the bonus structure for Corporate Participants or Subsidiary Participants.
(D) General Rules Regarding Bonus Calculation.
In determining whether or not the results of operations of a Subsidiary or Subsidiaries or the Company for a given fiscal year result in a bonus, generally accepted accounting principles shall be applied on a basis consistent with prior periods, and such determination shall be based on the calculations made by the Company and binding on each Participant. Except as provided in Section 10 as to Senior Executive Participants, there is no limit to the bonus that can be obtained. Prior to payment of the bonus to Senior Executive Participants, the Plan Compensation Committee shall certify that the performance goals and other material terms of the Plan have been achieved with respect to the Senior Executive Participants.
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5. No Employment Arrangements Implied
Nothing herein shall imply any right of employment for a Participant and if a Participant is terminated, voluntarily or involuntarily, with or without cause, prior to the end of a given fiscal year, such Participant shall not be entitled to any bonus for such fiscal year regardless of whether or not such bonus had been or would have been earned in whole or in part, but any unpaid bonus earned with respect to a prior fiscal year shall not be affected.
6. Payment
Within ninety (90) days following the end of each fiscal year, the Company shall determine the amount of any bonus earned by each Participant pursuant to the provisions of Section 4 above. Such bonus shall be payable in cash unless the Participant has given notice to the Plan Compensation Committee within ninety (90) days after the commencement of such fiscal year that such Participant has elected the option provided in Section 6(A) below. The amount of any bonus that a Participant is entitled to receive for a fiscal year shall be determined as of the last day of such fiscal year and each Participant shall be deemed to have constructively received his or her bonus (including the value of the shares of stock if he or she elects to receive a portion of his or her bonus in stock) as of the last day of such fiscal year notwithstanding the fact that it may be paid or delivered to him or her thereafter.
(A) Each Participant shall be entitled to receive, in increments of 5%, up to 40% of his or her bonus in shares of Common Stock (with the exact percent fixed by the Participant) with such shares to be valued at the closing price of the Common Stock on the primary securities exchange on which such stock is traded on the last trading day of such fiscal year. Such election shall be made no later than ninety (90) days after the beginning of the fiscal year in respect of which the bonus is to be calculated and once made shall be irrevocable for such fiscal year. If the Participant elects to receive such shares, the Participant shall receive as additional compensation an additional number of shares of Common Stock equal to 50% of the number of shares received by reason of this election (the “Additional Shares”),plus the Additional Cash Bonus (as defined in Section 6(B) below). For example, if a Participant earns a $10,000 bonus and the Common Stock is selling at $50 per share, and the Participant elects to receive 40% of the bonus in the form of Common Stock in a timely manner, the Participant would receive $6,000plus 120 shares of Common Stock (80 shares pursuant to his or her election, plus 40 Additional Shares),plus the Additional Cash Bonus (as defined in Section 6(B) below).
(B) If a Participant elects to receive Common Stock in accordance with Section 6(A) above, he or she shall also receive, as an additional bonus pursuant to the Plan, a cash amount equal to the value of the Additional Shares (which shall be the aggregate closing price of the Additional Shares on the last trading day of such fiscal year),multiplied by the effective tax rate applicable to the Company for the fiscal year for which the bonus is calculated, as described in the “Summary of Accounting Policies” section of the Company’s annual report to the Securities and Exchange Commission on Form 10-K for such fiscal year (the “Additional Cash Bonus”).
7. Recapitalization of Company
In the event of a recapitalization of the Company or its merger into or consolidation with another corporation occurring during the fiscal year, a Participant shall be entitled to receive such securities which he or she would have been entitled to receive had he or she been a shareholder of the Company holding shares pursuant to the Plan at the time of such recapitalization, merger or consolidation. In the event of a stock split, stock dividend or combination of shares with respect to the Common Stock of the Company after the determination of the number of shares to which a Participant is entitled but before delivery of such shares to the Participant, then the number of shares that such Participant shall be entitled to receive shall be proportionately adjusted.
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8. Investment Representation and Restrictions on the Stock and Right of Repurchase by the Company
(A) The shares to be issued to a Participant may be unregistered, at the option of the Company, and in such event the Participant shall execute an investment letter in form satisfactory to the Company, which letter shall contain an agreement that the Participant will not sell, transfer, give or otherwise convey any of such shares for a period of two years from the date on which such shares were issued to the Participant, except in the event of the Participant’s death or termination of employment due to disability or retirement under normal Company benefit plans, but then only in accordance with the requirements of the Securities Act of 1933, as amended, and the rules and regulations thereunder, and the shares shall bear a legend reflecting the investment representation and the unregistered status of the shares.
(B) If the shares to be issued to a Participant are registered pursuant to the registration provisions of the Securities Act of 1933, as amended, then the Participant shall enter into an agreement at the time of issuance of such shares that the Participant will not sell, transfer, give or otherwise convey any of such shares for a period of two years from the date on which such shares were issued to the Participant, except in the event of death or termination of employment due to disability or retirement under the normal Company benefit plans, and such shares shall bear a legend reflecting the terms of such restriction.
(C) If a Participant’s employment is terminated at any time within the first twelve month period following the issuance of shares for any reason, with or without cause, other than the Participant’s death or termination of employment due to disability or retirement under normal Company benefit plans, then upon demand of the Company made in writing within thirty (30) days from the date of termination, such Participant will sell to the Company all of the stock issued to the Participant within the twelve months preceding the date of termination at a purchase price equal to the lower of the then market price of the stock as hereinafter determined or the price at which the stock was valued for purposes of issuing it pursuant to the Plan. If a Participant’s employment is terminated after one year but before two years from the date on which any shares of Common Stock were issued to Participant pursuant to the Plan, on the demand of the Company made in writing within thirty (30) days from the date of termination, such Participant will sell to the Company, in addition to the shares he or she may be required to sell under the preceding sentence, 50% of the stock issued to the Participant within twenty-four months but more than twelve months preceding the date of termination at a purchase price equal to the lower of the then market price of the stock as hereinafter determined, or the price at which the stock was valued for purposes of issuing it pursuant to the Plan. The market price of the Common Stock shall be deemed to be the closing price of such stock on the primary securities exchange on which such stock is traded on the date of termination; and if such stock did not trade on such date, then on the next day on which it does trade. The shares of Common Stock issued under the Plan shall bear a legend reflecting these restrictions.
9. Amendments and Termination
The Plan may be amended at any time by the Board of Directors and any such amendment shall be effective as of commencement of the fiscal year during which the Plan is amended, regardless of the date of the amendment, unless otherwise stated by the Board of Directors. The Plan may be terminated at any time by the Board of Directors and termination will be effective as of the commencement of the fiscal year in which such action to terminate the Plan is taken.
10. Overall Limitation upon Payments under Plan to Senior Executive Participants
Notwithstanding any other provision in the Plan to the contrary, in no event shall any Senior Executive Participant be entitled to a bonus amount for any fiscal year (which bonus amount shall include, if applicable, the value of the Additional Shares (as defined in Section 6(A) above, and the Additional Cash Bonus (as defined in Section 6(B) above)) in excess of one percent (1%) of the Company’s earnings before income taxes as publicly disclosed in the “Consolidated Results of Operations” section of the Company’s annual report to the Securities and Exchange Commission on Form 10-K for such fiscal year.
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APPENDIX B
[date]
PERSONAL AND CONFIDENTIAL
[Name]
[Street Address]
[City, State Zip]
[Street Address]
[City, State Zip]
RE: Fiscal 2006 Bonus
Dear[Grantee]:
In recognition of your long-term commitment to Sysco Corporation (“SYSCO”) and its customers and of your expected future contributions to our corporate financial objectives, you have been granted an opportunity to earn a performance bonus for fiscal year 2006 under theSYSCO Corporation 2000 Management Incentive Plan(the “Plan”). You will not receive any bonus unless SYSCO achieves an Increase in Earnings Per Share of at least ___% (“Target A”) and achieves a Return on Stockholders’ Equity of at least ___% (“Target B”). If Target A and Target B have been met, then subject to the further adjustments and additions provided for elsewhere in the Plan and this Agreement, a portion of your bonus (“Part A”) will depend upon the results of the Operations of SYSCO as shown on Table A attached hereto, and the balance of your bonus (“Part B”) will depend on the number of Subsidiaries obtaining or exceeding ___% Return on Capital (“Target C”).
Part A Bonus Calculation
Part A of any bonus you may earn will be equal to the product of:
(i) 70% of your annual base salary in effect at the fiscal year end (“Base Salary”); and
(ii) the appropriate percentage shown on Table A which coincides with the appropriate Increase in Earnings per Share and Return on Stockholder’s Equity for SYSCO as a whole.
Part B Bonus Calculation
Subject to the further adjustments and additions provided for in this Agreement, Part B of any bonus you may earn will be calculated by determining the number of Subsidiaries of SYSCO that have attained or exceeded Target C. If a minimum of 15 Subsidiaries have obtained or exceeded Target C, and all Subsidiaries which have obtained or exceeded Target C employ at least 50% or more of the aggregate of the Total Capital of all Subsidiaries, then you will be entitled to receive an additional bonus equal to:
(i) 9% of your Base Salary for the first 15 Subsidiaries which obtain or exceed such a Return on Capital; plus
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(ii) an additional 11/2% of your Base Salary for each additional Subsidiary which obtains or exceeds Target C.
By way of example, if 23 Subsidiaries (which, in the aggregate, employ 51% of the Total Capital of all Subsidiaries) obtain or exceed Target C, you will receive a bonus equal to the product of (i) your Salary Percentage and (ii) 21% of your Base Salary (9% for the performance of the first 15 Subsidiaries in the group, and 12% for the performance of the additional eight Subsidiaries in the group).
Maximum Bonus Amounts
Although Table A has only been calculated to 370%, the “grid” shall be deemed to continue to increase in the same ratios as set forth. However, notwithstanding the foregoing and any other provision in this Agreement to the contrary, your bonus amount for fiscal 2006 (including, if applicable, the value of any Additional Shares and Additional Cash Bonus) cannot exceed 1% of SYSCO’s earnings before income taxes as publicly disclosed in the “Consolidated Results of Operations” section of SYSCO’s annual report to the Securities and Exchange Commission on Form 10-K for fiscal year 2006.
General Rules Regarding Bonus Calculation
In determining whether or not the results of operations of a Subsidiary or SYSCO result in a bonus, SYSCO’s accounting practice and generally accepted accounting principles shall be applied on a basis consistent with prior periods, and such determination shall be based on the calculations made by SYSCO, approved by the Compensation and Stock Option Committee of SYSCO’s Board of Directors (“Plan Compensation Committee”) and binding on you.
Tax Law Changes
If the Internal Revenue Code is amended during the fiscal year and, as a result of such amendment(s), the effective tax rate applicable to the earnings of SYSCO (as described in the “Summary of Accounting Policies” section of SYSCO’s annual report to the Securities and Exchange Commission on Form 10-K) changes during the year, the calculation of the net after-tax earnings per share of SYSCO for fiscal 2006 shall be made as if such rate change had not occurred during 2006.
Payment
Within 90 days following the end of each fiscal year, SYSCO shall determine and the Plan Compensation Committee shall approve the amount of any bonus earned by you under this Agreement. Such bonus shall be payable in the manner, at the times and in the amounts provided in the Plan.
Definitions
The capitalized terms in this document have the meaning ascribed to them in the Glossary attached hereto. Any capitalized terms not included in the Glossary have the meanings ascribed to them in the Plan.
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Additional Documents
Enclosed for your review are copies of the Plan document and other explanatory materials. All of the enclosed documents are important legal documents that should be reviewed carefully and kept in a safe place. Please complete the enclosed forms as soon as possible, and return them to Connie Brooks.
Thank you for your hard work and service. Your efforts, which are an integral part of SYSCO’s growth and progress, are deeply appreciated. If you should have any questions about your bonus opportunity or the Plan, please contact Mike Nichols.
| Sincerely, | ||||
| Richard J. Schnieders | ||||
| Chairman, CEO and President | ||||
| Enclosures cc: | ||
| Accepted and Agreed: | ||
| Name | ||
| Date |
GLOSSARY
1.Total Capital — for any Subsidiary, the sum of the following components:
(a) Stockholders’ equity — the average of the amounts outstanding for such Subsidiary at the end of each quarter for which the computation is being made (quarterly average basis).
(b) Long-term debt — the average of the long-term portion of debt of such Subsidiary outstanding at the end of each quarter for which the computation is being made (quarterly average basis).
(c) Intercompany borrowings — the average of the amount outstanding at the end of each day during the period for which the computation is being made (daily average basis).
(d) Average patronage dividend receivable — the average of the amount outstanding at the end of each period for which the computation is being made (monthly average basis).
(e) Adjustments — amounts allocated to capital with respect to (i) fixed rate intercompany loans, (ii) capitalized leases, and (iii) below market plant and equipment costs.
2.Return on Capital — the Return on Capital for any Subsidiary is expressed as a percentage and is computed by dividing the Subsidiary’s pretax earnings (the calculation of which does not include gain on the sale of fixed assets and intercompany interest income and is subject to adjustment to include taxes that would have been included but for the timing of any tax deferrals so that results are consistent with fiscal 2005) by the Subsidiary’s Total Capital.
3.Return on Stockholders’ Equity — expressed as a percentage and computed by dividing the Company’s net after-tax earnings for fiscal 2006 by the Company’s average stockholders’ equity at the end of each quarter during the year.
4.Increase in Earnings Per Share — expressed as a percentage increase of the net after-tax earnings per share for fiscal 2006 over the net after-tax earnings per share for fiscal 2005.
5.Quarterly Averages — In determining the average amount outstanding of stockholders’ equity, long-term debt and adjustments above, and the quarterly average stockholders’ equity, such averages shall be determined by dividing five (5) into the sum of the amounts outstanding of the relevant category at the end of each of the four quarters of the fiscal year plus the amount outstanding of the relevant category at the beginning of the fiscal year.
Capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Plan.
TABLE A
| PERCENTAGE INCREASE IN EARNINGS PER SHARE: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Return on | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity: | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 20 | 24 | 28 | 45 | 50 | 55 | 60 | 65 | 70 | 75 | 80 | 85 | 90 | 100 | 110 | 120 | 130 | 140 | 150 | 160 | 170 | 180 | 190 | 200 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 27 | 31 | 35 | 55 | 60 | 65 | 70 | 75 | 80 | 85 | 90 | 95 | 100 | 110 | 120 | 130 | 140 | 150 | 160 | 170 | 180 | 190 | 200 | 210 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 34 | 38 | 42 | 65 | 70 | 75 | 80 | 85 | 90 | 95 | 100 | 105 | 110 | 120 | 130 | 140 | 150 | 160 | 170 | 180 | 190 | 200 | 210 | 220 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 41 | 45 | 49 | 75 | 80 | 85 | 90 | 95 | 100 | 105 | 110 | 115 | 120 | 130 | 140 | 150 | 160 | 170 | 180 | 190 | 200 | 210 | 220 | 230 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 48 | 52 | 56 | 85 | 90 | 95 | 100 | 105 | 110 | 115 | 120 | 125 | 130 | 140 | 150 | 160 | 170 | 180 | 190 | 200 | 210 | 220 | 230 | 240 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 55 | 59 | 63 | 95 | 100 | 105 | 110 | 115 | 120 | 125 | 130 | 135 | 140 | 150 | 160 | 170 | 180 | 190 | 200 | 210 | 220 | 230 | 240 | 250 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 62 | 66 | 70 | 105 | 110 | 115 | 120 | 125 | 130 | 135 | 140 | 145 | 150 | 160 | 170 | 180 | 190 | 200 | 210 | 220 | 230 | 240 | 250 | 260 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 69 | 73 | 77 | 115 | 120 | 125 | 130 | 135 | 140 | 145 | 150 | 155 | 160 | 170 | 180 | 190 | 200 | 210 | 220 | 230 | 240 | 250 | 260 | 270 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 76 | 80 | 84 | 125 | 130 | 135 | 140 | 145 | 150 | 155 | 160 | 165 | 170 | 180 | 190 | 200 | 210 | 220 | 230 | 240 | 250 | 260 | 270 | 280 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 83 | 87 | 91 | 135 | 140 | 145 | 150 | 155 | 160 | 165 | 170 | 175 | 180 | 190 | 200 | 210 | 220 | 230 | 240 | 250 | 260 | 270 | 280 | 290 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 90 | 94 | 98 | 145 | 150 | 155 | 160 | 165 | 170 | 175 | 180 | 185 | 190 | 200 | 210 | 220 | 230 | 240 | 250 | 260 | 270 | 280 | 290 | 300 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 97 | 101 | 105 | 155 | 160 | 165 | 170 | 175 | 180 | 185 | 190 | 195 | 200 | 210 | 220 | 230 | 240 | 250 | 260 | 270 | 280 | 290 | 300 | 310 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 104 | 108 | 112 | 165 | 170 | 175 | 180 | 185 | 190 | 195 | 200 | 205 | 210 | 220 | 230 | 240 | 250 | 260 | 270 | 280 | 290 | 300 | 310 | 320 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 111 | 115 | 119 | 175 | 180 | 185 | 190 | 195 | 200 | 205 | 210 | 215 | 220 | 230 | 240 | 250 | 260 | 270 | 280 | 290 | 300 | 310 | 320 | 330 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 118 | 122 | 126 | 185 | 190 | 195 | 200 | 205 | 210 | 215 | 220 | 225 | 230 | 240 | 250 | 260 | 270 | 280 | 290 | 300 | 310 | 320 | 330 | 340 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 125 | 129 | 133 | 195 | 200 | 205 | 210 | 215 | 220 | 225 | 230 | 235 | 240 | 250 | 260 | 270 | 280 | 290 | 300 | 310 | 320 | 330 | 340 | 350 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 132 | 136 | 140 | 205 | 210 | 215 | 220 | 225 | 230 | 235 | 240 | 245 | 250 | 260 | 270 | 280 | 290 | 300 | 310 | 320 | 330 | 340 | 350 | 360 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 139 | 143 | 147 | 215 | 220 | 225 | 230 | 235 | 240 | 245 | 250 | 255 | 260 | 270 | 280 | 290 | 300 | 310 | 320 | 330 | 340 | 350 | 360 | 370 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
APPENDIX C
[date]
PERSONAL AND CONFIDENTIAL
[Name]
[Street Address]
[City, State Zip]
[Street Address]
[City, State Zip]
RE: Fiscal 2006 Bonus
Dear[Grantee]:
In recognition of your long-term commitment to Sysco Corporation (“SYSCO”) and its customers and of your expected future contributions to our corporate financial objectives, you have been granted an opportunity to earn a performance bonus for fiscal year 2006 under theSYSCO Corporation 2000 Management Incentive Plan(the “Plan”).
You will not receive any bonus unless SYSCO achieves an Increase in Earnings Per Share of at least ___% (“Target A”) and achieves a Return on Stockholders’ Equity of at least ___% (“Target B”). If Target A and Target B have been met, then subject to the further adjustments and additions provided for elsewhere in the Plan and this Agreement, a portion of your bonus (“Part A”) will depend upon the results of the Operations of SYSCO as shown on Table A attached hereto, and the balance of your bonus (“Part B”) will depend on the aggregate performance of the Subsidiaries that you supervise (the “Supervised Operations”).
Part A Bonus Calculation
Part A of any bonus you may earn will be equal to the product of:
(i) 35% of your annual base salary in effect at the fiscal year end (“Base Salary”); and
(ii) the appropriate percentage shown on Table A which coincides with the appropriate Increase in Earnings per Share and Return on Stockholder’s Equity for SYSCO as a whole.
Part B Bonus Calculation
In calculating Part B of your bonus, the financial results of the Supervised Operations will be aggregated, and the Supervised Operations will be considered a single Subsidiary which has achieved such aggregated financial results. Part B of any bonus you may earn will be equal to the product of:
(i) the sum of:
| a. | 70% of the appropriate percentage shown on Table B which coincides for the Supervised Operations with the appropriate level of Return on Capital and Increase in Operating Pretax Earnings; and |
[date]
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| b. | 30% of the appropriate percentage shown on Table B which coincides for the Supervised Operations with the appropriate level of Return on Capital and Increase in Pretax Earnings; and |
(ii) 70% of your Base Salary.
Maximum Bonus Amounts
Although Tables A and B have only been calculated to 370% and 172%, respectively, the “grids” shall be deemed to continue to increase in the same ratios as set forth. However, notwithstanding the foregoing and any other provision in this Agreement to the contrary, your bonus amount for fiscal 2006 (including, if applicable, the value of any Additional Shares and Additional Cash Bonus) cannot exceed 1% of SYSCO’s earnings before income taxes as publicly disclosed in the “Consolidated Results of Operations” section of SYSCO’s annual report to the Securities and Exchange Commission on Form 10-K for fiscal year 2006.
General Rules Regarding Bonus Calculation
In determining whether or not the results of operations of the Supervised Operations or SYSCO result in a bonus, SYSCO’s accounting practice and generally accepted accounting principles shall be applied on a basis consistent with prior periods, and such determination shall be based on the calculations made by SYSCO, approved by the Compensation and Stock Option Committee of SYSCO’s Board of Directors (“Plan Compensation Committee”) and binding on you.
Tax Law Changes
If the Internal Revenue Code is amended during the fiscal year and, as a result of such amendment(s), the effective tax rate applicable to the earnings of SYSCO (as described in the “Summary of Accounting Policies” section of SYSCO’s annual report to the Securities and Exchange Commission on Form 10-K) changes during the year, the calculation of the net after-tax earnings per share of SYSCO for fiscal 2006 shall be made as if such rate change had not occurred during 2006.
Payment
Within 90 days following the end of each fiscal year, SYSCO shall determine and the Plan Compensation Committee shall approve the amount of any bonus earned by you under this Agreement. Such bonus shall be payable in the manner, at the times and in the amounts provided in the Plan.
Definitions
The capitalized terms in this document have the meaning ascribed to them in the Glossary attached hereto. Any capitalized terms not included in the Glossary have the meanings ascribed to them in the Plan.
Additional Documents
Enclosed for your review are copies of the Plan document and other explanatory materials. All of the enclosed documents are important legal documents that should be reviewed carefully and kept in a safe place. Please complete the enclosed forms as soon as possible, and return them to Connie Brooks.
[date]
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Thank you for your hard work and service. Your efforts, which are an integral part of SYSCO’s growth and progress, are deeply appreciated. If you should have any questions about your bonus opportunity or the Plan, please contact Mike Nichols.
Sincerely,
Richard J. Schnieders
Chairman, CEO and President
Enclosures
cc: [ ]
cc: [ ]
Accepted and Agreed:
Name
Date
GLOSSARY
1. Total Capital — for any Subsidiary, the sum of the following components:
(a) Stockholders’ equity — the average of the amounts outstanding for such Subsidiary at the end of each quarter for which the computation is being made (quarterly average basis).
(b) Long-term debt — the average of the long-term portion of debt of such Subsidiary outstanding at the end of each quarter for which the computation is being made (quarterly average basis).
(c) Intercompany borrowings — the average of the amount outstanding at the end of each day during the period for which the computation is being made (daily average basis).
(d) Average patronage dividend receivable — the average of the amount outstanding at the end of each period for which the computation is being made (monthly average basis).
(e) Adjustments — amounts allocated to capital with respect to (i) fixed rate intercompany loans, (ii) capitalized leases, and (iii) below market plant and equipment costs.
2. Return on Capital — the Return on Capital for any Subsidiary is expressed as a percentage and is computed by dividing the Subsidiary’s pretax earnings (the calculation of which does not include gain on the sale of fixed assets and intercompany interest income and is subject to adjustment to include taxes that would have been included but for the timing of any tax deferrals so that results are consistent with fiscal 2005) by the Subsidiary’s Total Capital.
3. Return on Stockholders’ Equity — expressed as a percentage and computed by dividing the Company’s net after-tax earnings for fiscal 2006 by the Company’s average stockholders’ equity at the end of each quarter during the year.
4. Increase in Earnings Per Share — expressed as a percentage increase of the net after-tax earnings per share for fiscal 2006 over the net after-tax earnings per share for fiscal 2005.
5. Increase in Pretax Earnings — the Increase in Pretax Earnings is expressed as a percentage increase of the Supervised Operations’ pretax earnings for fiscal 2006 (the calculation of which does not include gain on the sale of fixed assets [discretionary provision removed]) compared to the greater of (a) the Supervised Operations’ actual pretax earnings for fiscal 2005 or (b) those pretax earnings which would have been required to have been earned by the Supervised Operations in fiscal 2005 in order to have obtained Target C.
6. Increase in Operating Pretax Earnings — the Increase in Operating Pretax Earnings is expressed as a percentage increase of the Supervised Operations’ operating pretax earnings for fiscal 2006 (the calculation of which does not include gain on the sale of fixed assets[discretionary provision removed]) compared to the Supervised Operations’ operating pretax earnings for fiscal 2005.
7. Quarterly Averages — In determining the average amount outstanding of stockholders’ equity, long-term debt and adjustments above, and the quarterly average stockholders’ equity, such averages shall be determined by dividing five (5) into the sum of the amounts outstanding of the relevant category at the end of each of the four quarters of the fiscal year plus the amount outstanding of the relevant category at the beginning of the fiscal year.
Capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Plan.
TABLE A
PERFORMANCE OF SYSCO AS A WHOLE
| Return | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| on | PERCENTAGE INCREASE IN EARNINGS PER SHARE: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| __% | __% | __% | __% | __% | __% | __% | __% | __% | __% | __% | __% | __% | __% | __% | __% | __% | __% | __% | __% | __% | __% | __% | __% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 20 | 24 | 28 | 45 | 50 | 55 | 60 | 65 | 70 | 75 | 80 | 85 | 90 | 100 | 110 | 120 | 130 | 140 | 150 | 160 | 170 | 180 | 190 | 200 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 27 | 31 | 35 | 55 | 60 | 65 | 70 | 75 | 80 | 85 | 90 | 95 | 100 | 110 | 120 | 130 | 140 | 150 | 160 | 170 | 180 | 190 | 200 | 210 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 34 | 38 | 42 | 65 | 70 | 75 | 80 | 85 | 90 | 95 | 100 | 105 | 110 | 120 | 130 | 140 | 150 | 160 | 170 | 180 | 190 | 200 | 210 | 220 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 41 | 45 | 49 | 75 | 80 | 85 | 90 | 95 | 100 | 105 | 110 | 115 | 120 | 130 | 140 | 150 | 160 | 170 | 180 | 190 | 200 | 210 | 220 | 230 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 48 | 52 | 56 | 85 | 90 | 95 | 100 | 105 | 110 | 115 | 120 | 125 | 130 | 140 | 150 | 160 | 170 | 180 | 190 | 200 | 210 | 220 | 230 | 240 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 55 | 59 | 63 | 95 | 100 | 105 | 110 | 115 | 120 | 125 | 130 | 135 | 140 | 150 | 160 | 170 | 180 | 190 | 200 | 210 | 220 | 230 | 240 | 250 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 62 | 66 | 70 | 105 | 110 | 115 | 120 | 125 | 130 | 135 | 140 | 145 | 150 | 160 | 170 | 180 | 190 | 200 | 210 | 220 | 230 | 240 | 250 | 260 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 69 | 73 | 77 | 115 | 120 | 125 | 130 | 135 | 140 | 145 | 150 | 155 | 160 | 170 | 180 | 190 | 200 | 210 | 220 | 230 | 240 | 250 | 260 | 270 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 76 | 80 | 84 | 125 | 130 | 135 | 140 | 145 | 150 | 155 | 160 | 165 | 170 | 180 | 190 | 200 | 210 | 220 | 230 | 240 | 250 | 260 | 270 | 280 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 83 | 87 | 91 | 135 | 140 | 145 | 150 | 155 | 160 | 165 | 170 | 175 | 180 | 190 | 200 | 210 | 220 | 230 | 240 | 250 | 260 | 270 | 280 | 290 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 90 | 94 | 98 | 145 | 150 | 155 | 160 | 165 | 170 | 175 | 180 | 185 | 190 | 200 | 210 | 220 | 230 | 240 | 250 | 260 | 270 | 280 | 290 | 300 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 97 | 101 | 105 | 155 | 160 | 165 | 170 | 175 | 180 | 185 | 190 | 195 | 200 | 210 | 220 | 230 | 240 | 250 | 260 | 270 | 280 | 290 | 300 | 310 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 104 | 108 | 112 | 165 | 170 | 175 | 180 | 185 | 190 | 195 | 200 | 205 | 210 | 220 | 230 | 240 | 250 | 260 | 270 | 280 | 290 | 300 | 310 | 320 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 111 | 115 | 119 | 175 | 180 | 185 | 190 | 195 | 200 | 205 | 210 | 215 | 220 | 230 | 240 | 250 | 260 | 270 | 280 | 290 | 300 | 310 | 320 | 330 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 118 | 122 | 126 | 185 | 190 | 195 | 200 | 205 | 210 | 215 | 220 | 225 | 230 | 240 | 250 | 260 | 270 | 280 | 290 | 300 | 310 | 320 | 330 | 340 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 125 | 129 | 133 | 195 | 200 | 205 | 210 | 215 | 220 | 225 | 230 | 235 | 240 | 250 | 260 | 270 | 280 | 290 | 300 | 310 | 320 | 330 | 340 | 350 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 132 | 136 | 140 | 205 | 210 | 215 | 220 | 225 | 230 | 235 | 240 | 245 | 250 | 260 | 270 | 280 | 290 | 300 | 310 | 320 | 330 | 340 | 350 | 360 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
___% | 139 | 143 | 147 | 215 | 220 | 225 | 230 | 235 | 240 | 245 | 250 | 255 | 260 | 270 | 280 | 290 | 300 | 310 | 320 | 330 | 340 | 350 | 360 | 370 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TABLE B
PERFORMANCE OF SUPERVISED OPERATIONS
| PERCENT | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RETURN | PERCENTAGE INCREASE IN OPERATING PRETAX EARNINGS AND PRETAX EARNINGS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ON | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CAPITAL | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 10 | 12 | 15 | 20 | 30 | 32 | 35 | 37 | 40 | 42 | 45 | 47 | 50 | 52 | 55 | 57 | 60 | 61 | 63 | 65 | 67 | 70 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 15 | 17 | 20 | 25 | 40 | 42 | 45 | 47 | 50 | 52 | 55 | 57 | 60 | 62 | 65 | 67 | 70 | 71 | 73 | 75 | 77 | 80 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 20 | 22 | 25 | 30 | 50 | 52 | 55 | 57 | 60 | 62 | 65 | 67 | 70 | 72 | 75 | 77 | 80 | 81 | 83 | 85 | 87 | 90 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 25 | 27 | 30 | 35 | 60 | 62 | 65 | 67 | 70 | 72 | 75 | 77 | 80 | 82 | 85 | 87 | 90 | 91 | 93 | 95 | 97 | 100 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 30 | 32 | 35 | 45 | 70 | 72 | 75 | 77 | 80 | 82 | 85 | 87 | 90 | 92 | 95 | 97 | 100 | 101 | 102 | 103 | 104 | 105 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 35 | 37 | 40 | 50 | 80 | 82 | 85 | 87 | 90 | 92 | 95 | 97 | 100 | 101 | 102 | 103 | 105 | 106 | 107 | 108 | 109 | 110 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 40 | 42 | 45 | 55 | 90 | 92 | 95 | 97 | 100 | 101 | 102 | 103 | 105 | 106 | 107 | 108 | 110 | 111 | 112 | 113 | 114 | 115 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 45 | 47 | 50 | 65 | 100 | 101 | 102 | 103 | 105 | 106 | 107 | 108 | 110 | 111 | 112 | 113 | 115 | 116 | 117 | 118 | 119 | 120 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 50 | 52 | 55 | 70 | 105 | 106 | 107 | 108 | 110 | 111 | 112 | 113 | 115 | 116 | 117 | 118 | 120 | 121 | 122 | 123 | 124 | 125 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 52 | 55 | 60 | 75 | 110 | 111 | 112 | 113 | 115 | 116 | 117 | 118 | 120 | 121 | 122 | 123 | 125 | 126 | 127 | 128 | 129 | 130 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 52 | 60 | 65 | 80 | 115 | 116 | 117 | 118 | 120 | 121 | 122 | 123 | 125 | 126 | 127 | 128 | 130 | 131 | 132 | 133 | 134 | 135 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 54 | 62 | 70 | 85 | 120 | 121 | 122 | 123 | 125 | 126 | 127 | 128 | 130 | 131 | 132 | 133 | 135 | 136 | 137 | 138 | 139 | 140 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 54 | 62 | 70 | 85 | 125 | 126 | 127 | 128 | 130 | 131 | 132 | 133 | 135 | 136 | 137 | 138 | 140 | 141 | 142 | 143 | 144 | 145 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 56 | 64 | 75 | 90 | 130 | 131 | 132 | 133 | 135 | 136 | 137 | 138 | 140 | 141 | 142 | 143 | 145 | 146 | 147 | 148 | 149 | 150 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TABLE B, Continued
| PERCENT | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RETURN | PERCENTAGE INCREASE IN OPERATING PRETAX EARNINGS AND PRETAX EARNINGS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ON | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CAPITAL | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ___% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 71 | 73 | 75 | 77 | 80 | 81 | 83 | 85 | 87 | 90 | 91 | 93 | 95 | 97 | 100 | 101 | 102 | 103 | 104 | 105 | 106 | 107 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 81 | 83 | 85 | 87 | 90 | 91 | 93 | 95 | 97 | 100 | 101 | 102 | 103 | 104 | 105 | 106 | 107 | 108 | 109 | 110 | 111 | 112 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 91 | 93 | 95 | 97 | 100 | 101 | 102 | 103 | 104 | 105 | 106 | 107 | 108 | 109 | 110 | 111 | 112 | 113 | 114 | 115 | 116 | 117 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 101 | 102 | 103 | 104 | 105 | 106 | 107 | 108 | 109 | 110 | 111 | 112 | 113 | 114 | 115 | 116 | 117 | 118 | 119 | 120 | 121 | 122 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 106 | 107 | 108 | 109 | 110 | 111 | 112 | 113 | 114 | 115 | 116 | 117 | 118 | 119 | 120 | 121 | 122 | 123 | 124 | 125 | 126 | 127 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 111 | 112 | 113 | 114 | 115 | 116 | 117 | 118 | 119 | 120 | 121 | 122 | 123 | 124 | 125 | 126 | 127 | 128 | 129 | 130 | 131 | 132 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 116 | 117 | 118 | 119 | 120 | 121 | 122 | 123 | 124 | 125 | 126 | 127 | 128 | 129 | 130 | 131 | 132 | 133 | 134 | 135 | 136 | 137 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 121 | 122 | 123 | 124 | 125 | 126 | 127 | 128 | 129 | 130 | 131 | 132 | 133 | 134 | 135 | 136 | 137 | 138 | 139 | 140 | 141 | 142 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 126 | 127 | 128 | 129 | 130 | 131 | 132 | 133 | 134 | 135 | 136 | 137 | 138 | 139 | 140 | 141 | 142 | 143 | 144 | 145 | 146 | 147 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 131 | 132 | 133 | 134 | 135 | 136 | 137 | 138 | 139 | 140 | 141 | 142 | 143 | 144 | 145 | 146 | 147 | 148 | 149 | 150 | 151 | 152 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 136 | 137 | 138 | 139 | 140 | 141 | 142 | 143 | 144 | 145 | 146 | 147 | 148 | 149 | 150 | 151 | 152 | 153 | 154 | 155 | 156 | 157 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 141 | 142 | 143 | 144 | 145 | 146 | 147 | 148 | 149 | 150 | 151 | 152 | 153 | 154 | 155 | 156 | 157 | 158 | 159 | 160 | 161 | 162 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 146 | 147 | 148 | 149 | 150 | 151 | 152 | 153 | 154 | 155 | 156 | 157 | 158 | 159 | 160 | 161 | 162 | 163 | 164 | 165 | 166 | 167 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ___% | 151 | 152 | 153 | 154 | 155 | 156 | 157 | 158 | 159 | 160 | 161 | 162 | 163 | 164 | 165 | 166 | 167 | 168 | 169 | 170 | 171 | 172 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||