SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
SYSCO CORPORATION
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(Name of Registrant as Specified in Its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
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Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
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[COMPANY LOGO]
SYSCO CORPORATION
1390 Enclave Parkway
Houston, Texas 77077-2099
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held November 7, 2003
To the Stockholders of Sysco Corporation:
The Annual Meeting of Stockholders of Sysco Corporation, a Delaware
corporation, will be held on Friday, November 7, 2003 at 10:00 a.m. at The Omni
Houston Hotel located at Four Riverway, Houston, Texas 77056, for the following
purposes:
1. To elect five directors;
2. To approve the adoption of an amendment to SYSCO's Restated
Certificate of Incorporation to increase the number of shares of
common stock that SYSCO will have the authority to issue to two
billion (2,000,000,000);
3. To approve the 2003 Stock Incentive Plan;
4. To consider one shareholder proposal; and
5. 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 9, 2003
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'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
Richard J. Schnieders
Chairman of the Board and
Chief Executive Officer
September 26, 2003
SYSCO CORPORATION
1390 ENCLAVE PARKWAY
HOUSTON, TEXAS 77077-2099
PROXY STATEMENT
2003 ANNUAL MEETING OF STOCKHOLDERS
September 26, 2003
INFORMATION ABOUT ATTENDING THE ANNUAL MEETING
Our Annual Meeting will be held on Friday, November 7, 2003, at 10:00 a.m.
at The Omni Houston Hotel located at Four Riverway, Houston, Texas 77056.
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 26, 2003.
WHO CAN VOTE
You can vote at the Annual Meeting if you owned shares at the close of
business on September 9, 2003. You are entitled to one vote for each share you
owned on that date on each matter presented at the Annual Meeting.
On September 9, 2003, there were 648,520,955 shares of common stock
outstanding. We do not know of any person or group who owned more than 5% of our
common stock as of this date. All of our directors, director nominees and
executive officers (26 persons) owned an aggregate of 3,067,870 shares, which
was less than 1% of our outstanding stock as of September 9, 2003. We expect
that these individuals will vote their shares in favor of electing the five
nominees named below, for amending SYSCO's Restated Certificate of
Incorporation, for approving the 2003 Stock Incentive Plan, and against the
shareholder proposal.
HOW TO VOTE
You may vote your shares as follows:
o in person at the Annual Meeting;
o by telephone (see the enclosed proxy card for instructions);
o by Internet (see the enclosed proxy card for instructions); or
o 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 whether your shares should be voted for or against the amendment
to SYSCO's Restated Certificate of Incorporation, for or against the 2003 Stock
Incentive Plan and for or against the shareholder proposal.
If you sign and return your proxy card without indicating your voting
instructions, your shares will be voted FOR the election of the five nominees
for director, FOR the amendment to SYSCO's Restated Certificate of
Incorporation, FOR the 2003 Stock Incentive Plan, and AGAINST the shareholder
proposal.
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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
You may revoke or change your proxy at any time before it is exercised by:
o delivering written notice of revocation to SYSCO's Corporate Secretary
in time for him to receive it before the Annual Meeting;
o voting again by telephone, Internet or mail; or
o voting in person at the Annual Meeting.
The last vote that we receive from you will be the vote that is counted.
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. A broker non-vote occurs when a broker votes
on some matter on the proxy card but not on others because the broker does not
have the authority to do so.
VOTES NECESSARY FOR ACTION TO BE TAKEN
Five 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 II and the
nominee in Class III with the most votes will be elected. The affirmative vote
of a majority of all shares outstanding is required to approve the amendment to
SYSCO's Restated Certificate of Incorporation and the affirmative vote of a
majority of all of the votes cast is required to approve the 2003 Stock
Incentive Plan and the shareholder proposal. Abstentions will have no effect on
the election of directors, but will be counted as votes "against" the other
proposals. Broker non-votes will be counted as votes against the proposal to
amend the Restated Certificate of Incorporation and will have no effect on the
election of directors or on any other proposal.
WHO WILL COUNT VOTES
We will select one or more Inspectors of Election who will determine the
number of shares of voting stock outstanding, the voting power of each, the
number of shares represented at the Annual Meeting, the existence of a quorum
and whether or not proxies are valid and effective.
The Inspectors of Election will determine any challenges and questions
arising in connection with the right to vote and will count all votes cast for
and against and any abstentions with respect to all proposals and will determine
the results of each vote.
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.
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We have retained MacKenzie Partners, Inc. to help us solicit proxies from
these entities and certain individual stockholders, in writing or by telephone,
at an estimated fee of $[10,000] plus reimbursement for their expenses.
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 at www.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's Annual Meeting are ready for
distribution, those who have accepted electronic receipt will receive e-mail
notice of their Control 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
We do not know of any other 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
A copy of our 2003 Annual Report to Shareholders is being mailed with this
proxy statement. We will furnish a copy of our Annual Report on Form 10-K for
fiscal 2003, 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 at
www.sysco.com.
ELECTION OF DIRECTORS
ITEM NO. 1 ON THE PROXY CARD
The Board of Directors currently consists of 11 members divided into three
classes of four, four and three directors, respectively. 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. On December 31, 2002, Mr.
Charles H. Cotros retired from the company and resigned from the Board.
Effective January 1, 2003, John K. Stubblefield, Jr. was appointed to fill the
vacancy created by Mr. Cotros' resignation. In addition, in September 2003, the
size of the board was increased to 12 and Joseph A. Hafner, Jr. was nominated to
stand for election as a Class III director to fill the vacancy created by such
increase. If elected, his term will expire in 2006. As a result of the increase
in size, the classes of directors have been reconstituted to consist of four
members each. In order to achieve this balance, Mr. Stubblefield, who is
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currently serving as a Class II director, has been nominated for election for a
one-year term as a Class III director, after which he will stand for reelection
for a three-year term as a Class III director.
The Board of Directors has nominated the following four persons for
election as directors in Class II to serve for three-year terms or until their
successors are elected and qualified:
o Jonathan Golden
o Joseph A. Hafner, Jr.
o Thomas E. Lankford
o Richard J. Schnieders
The Board of Directors has also nominated the following person for election
as a director in Class III to serve for a one-year term or until his successor
is elected and qualified:
o John K. Stubblefield, Jr.
All of the nominees, other than Mr. Hafner, 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 2003 Annual Meeting:
Jonathan Golden, 66, 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., 58, is chief executive officer of Riviana Foods,
Inc., a position he has held since 1984. He is also a director of Riviana. Upon
his election to SYSCO's Board, Mr. Hafner will be appointed as a member of the
Audit Committee.
Thomas E. Lankford, 56, 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, 55, 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.
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John K. Stubblefield, Jr., 57, has served as a director of SYSCO since
January 2003. Mr. Stubblefield is Executive Vice President, Finance &
Administration, of SYSCO, a position he has held since January 2000. He served
as Senior Vice President, Finance & 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 1994 and was named
Senior Vice President in 1993. He served as Vice President of Finance of
Nobel/SYSCO Food Services Company from 1986 to 1992 and as Controller of SYSCO's
Houston subsidiary from 1984 until 1986. Mr. Stubblefield is a member of the
Employee Benefits Committee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED ABOVE.
The following Class III directors are serving terms that expire in 2004:
Colin G. Campbell, 67, 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 Audit Committee and the Executive Committee. Mr. Campbell
has been selected to preside at executive sessions of the non-management
directors during fiscal 2004.
Frank H. Richardson, 70, has served as a director of SYSCO since 1993. Mr.
Richardson served as President and Chief Executive Officer of Shell Oil Company
until his retirement in 1993. He is a Trustee of the Baylor College of Medicine.
Mr. Richardson is Chairman of the Finance Committee and is also a member of the
Audit Committee, Corporate Governance and Nominating Committee and the Executive
Committee.
Jackie M. Ward, 65, has served as a director of SYSCO since September 2001.
Ms. Ward is an Outside Managing Director of Intec Telecom Systems PLC. In 1968,
Ms. Ward founded, and later served as Chairman, President and Chief Executive
Officer of, Computer Generation Incorporated, which was acquired by Intec
Telecom in December 2000. Ms. Ward is also a director of Bank of America,
Equifax Inc., Flowers Foods, Inc., Matria Healthcare, Inc, PRG-Schultz
International, Inc., Sanmina-SCI Corporation and Anthem, Inc. Ms. Ward is a
member of the Audit Committee and the Corporate Governance and Nominating
Committee.
The following Class I directors are serving terms that expire in 2005:
Judith B. Craven, M.D., 57, 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 Board of Regents. Dr. Craven is a
member of the Corporate Governance and Nominating Committee and the Finance
Committee.
Richard G. Merrill, 72, 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 Committee and is also a member of the Audit Committee and Executive
Committee.
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Phyllis S. Sewell, 72, 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, 63, 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 also served as Chairman and Chief
Executive Officer of Crestar Financial Corporation, a bank holding company, from
1986 until 1999. Mr. Tilghman is also 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.
Unless otherwise noted, the persons named above have been engaged in the
principal occupations shown for the past five years or longer.
DIRECTOR COMPENSATION
Fees
We pay non-employee directors $60,000 per year plus reimbursement of
expenses for all services as a director, including committee participation or
special assignments. In addition to the annual retainer, non-employee directors
receive the following fees for attendance at meetings:
o 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;
o 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
o For special board meetings, all non-employee directors who attend in
person or who participate by telephone will receive $1,000.
Non-employee directors may defer all or a portion of their annual retainer
and meeting attendance fees. Non-employee directors may choose from a variety of
investment options with respect to amounts deferred. Such deferred amounts will
be credited with investment gains or losses until the non-employee director's
retirement from the Board or until the occurrence of certain other events. Dr.
Craven, Mr. Golden, Mr. Merrill, Mrs. Sewell and Ms. Ward elected to defer some
or all of their annual compensation for 2003.
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 the plan were adopted by the Board in September 2001 and approved
by our stockholders at the 2001 Annual Meeting. Under this 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. The size of individual grants and vesting terms will
be set by the Board at the time of grant. In September 2002, we granted options
to purchase an aggregate of 56,000 shares under this plan to seven non-employee
directors, and in November 2002, we granted options to purchase 8,000 shares
under the plan to one non-employee director. These options vest ratably over a
five-year period and expire ten years after the date of grant. 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.
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Additionally, this plan 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. Merrill,
Mr. Richardson, Mrs. Sewell, Mr. Tilghman and Ms. Ward made this election during
fiscal 2003.
No other compensation was paid for director services during the fiscal year
ended June 28, 2003.
BOARD MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors held six meetings during fiscal 2003 and all
directors attended 75% or more of the aggregate of:
o the total number of meetings of the Board of Directors, and
o the total number of meetings held by all committees of the Board on
which he or she served during fiscal 2003.
The following directors serve on the committees indicated:
COMPENSATION AND CORPORATE GOVERNANCE
AUDIT STOCK OPTION AND NOMINATING
NAME COMMITTEE COMMITTEE COMMITTEE
---- --------- --------- ---------
Colin G. Campbell X X*
Judith B. Craven X
Richard G. Merrill X X *
Frank H. Richardson X X
Phyllis S. Sewell X X
Richard G. Tilghman X* X
Jackie M. Ward X X
----------------------
* Chairman of the Committee
The Audit Committee held nine meetings during fiscal 2003. The function of
the Audit Committee is to review and report to the Board with respect to 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 five meetings during
fiscal 2003. The function of the Compensation and Stock Option Committee is to
determine the annual compensation of the Chief Executive Officer, to consider
the annual compensation of directors and other executive officers, to oversee
the administration of SYSCO's Management Incentive Plan, Stock Incentive Plans
and other executive benefit plans, and to provide guidance in the area of
certain employee benefits.
The Corporate Governance and Nominating Committee held six meetings during
fiscal 2003. 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, Chief Operating
Officer and members of the Board and its committees, 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's governing documents.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Campbell, Dr. Craven, Mr. Merrill, Mr. Richardson, Mrs. Sewell, Mr.
Tilghman and Ms. Ward each served on the Compensation and Stock Option Committee
at some time during fiscal 2003. During fiscal 2003, 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's board of directors, and none had any
relationship with the company requiring disclosure under Item 404 of Regulation
S-K. In addition, none of the members of the committee are former employees of
SYSCO or any of its subsidiaries.
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 were fair and reasonable in view of
the level and extent of services rendered.
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE GUIDELINES
In fiscal 2003, the Board of Directors 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. The
guidelines are reviewed from time to time in response to changing regulatory
requirements and best practices and are revised accordingly. The full text of
the guidelines can be found on our website at www.sysco.com under the "Corporate
Governance" caption.
CODE OF BUSINESS CONDUCT
All of our officers, employees and directors 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 or moral and ethical
behavior. Our Code of Business Conduct covers all areas of professional conduct,
including customer relationships, 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 by using SYSCO's ethics hotline. The Code includes an
anti-retaliation statement. The full text of the Code of Business Conduct is
published on our website at www.sysco.com under the "Corporate Governance"
caption.
PRESIDING DIRECTOR; COMMUNICATING WITH THE BOARD
The non-management directors meet in executive session without members of
management present at every regular board meeting. Colin G. Campbell, chairman
of the Corporate Governance and Nominating Committee, has been selected to
preside at these executive sessions during fiscal 2004. Interested parties may
communicate with Mr. Campbell and other non-management members of the board by
confidential email. The email address is accessible in the corporate governance
section of SYSCO's website under the caption "Contact the Board."
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.
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Additionally, all members of the Audit Committee, Compensation and Stock Option
Committee and Corporate Governance and Nominating Committee are required to be
independent.
Under the proposed 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 auditor.
The Board of Directors has determined that a majority of its members is
independent under the proposed NYSE standards. It also determined that each
member of the Audit Committee, Compensation and Stock Option Committee and
Corporate Governance and Nominating Committee was independent. In making its
independence determination, the Board noted that Mr. Campbell serves as an
officer of a private foundation that is related to a SYSCO customer. The Board
determined that such business relationship is not material and does not impair
Mr. Campbell's independence. In reaching its conclusion, the Board noted that
sales by SYSCO to this organization did not exceed 2% of the consolidated gross
revenues of such organization or SYSCO. Furthermore, in connection with Mr.
Hafner's nomination for election at the annual meeting, the Board considered the
fact that he is an officer and shareholder (7.1%) of a company that is a
supplier to SYSCO. In this case as well, the Board concluded that such business
relationship is not material and would not impair Mr. Hafner's independence
because sales by this supplier to SYSCO did not exceed 2% of the consolidated
gross revenues of such organization or SYSCO.
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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
-------------------------------- ------------------------------------------ ---------------------------- -------------
Executive Vice President, Merchandising 2000 54
Larry J. Accardi * Services and Multi-Unit Sales and
President, Specialty Distribution 2002
-------------------------------- ------------------------------------------ ---------------------------- -------------
Kenneth J. Carrig Senior Vice President, Administration 1999 46
-------------------------------- ------------------------------------------ ---------------------------- -------------
James C. Graham Senior Vice President, Foodservice 2000 53
Operations
-------------------------------- ------------------------------------------ ---------------------------- -------------
William Holden Senior Vice President, Foodservice 2003 58
Operations
-------------------------------- ------------------------------------------ ---------------------------- -------------
James E. Lankford Senior Vice President, Foodservice 2000 50
Operations
-------------------------------- ------------------------------------------ ---------------------------- -------------
Thomas E. Lankford * President and Chief Operating Officer 2003 56
-------------------------------- ------------------------------------------ ---------------------------- -------------
Gregory K. Marshall Senior Vice President, SYSCO, and 1984 56
Chairman and CEO, The SYGMA Network, Inc.
-------------------------------- ------------------------------------------ ---------------------------- -------------
Michael C. Nichols Vice President, General Counsel and 1999 51
Corporate Secretary 2002
-------------------------------- ------------------------------------------ ---------------------------- -------------
Larry G. Pulliam Senior Vice President, Merchandising 2002 47
Services
-------------------------------- ------------------------------------------ ---------------------------- -------------
Diane D. Sanders Vice President and Treasurer 1994 54
-------------------------------- ------------------------------------------ ---------------------------- -------------
Richard J. Schnieders * Chairman and Chief Executive Officer 2003 55
-------------------------------- ------------------------------------------ ---------------------------- -------------
Stephen F. Smith Senior Vice President, Foodservice 2002 53
Operations
-------------------------------- ------------------------------------------ ---------------------------- -------------
Bruce L. Soltis Senior Vice President, Foodservice 2002 58
Operations
-------------------------------- ------------------------------------------ ---------------------------- -------------
Kenneth F. Spitler * Executive Vice President, Foodservice 2003 54
Operations
-------------------------------- ------------------------------------------ ---------------------------- -------------
John K. Stubblefield, Jr. * Executive Vice President, Finance & 2000 57
Administration
-------------------------------- ------------------------------------------ ---------------------------- -------------
James D. Wickus Senior Vice President, Foodservice 1995 61
Operations
-------------------------------- ------------------------------------------ ---------------------------- -------------
---------------------
* Named Executive Officer
11
STOCK OWNERSHIP
The following table sets forth certain information with respect to the
beneficial ownership of Company common stock, as of September 9, 2003, 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 SHARES OF
COMMON STOCK COMMON STOCK
OWNED BY UNDERLYING
SHARES OF SPOUSES, PRESENTLY TOTAL SHARES OF PERCENT OF
COMMON STOCK CHILDREN AND EXERCISABLE COMMON STOCK OUTSTANDING
OWNED DIRECTLY TRUSTS OPTIONS BENEFICIALLY OWNED SHARES
Larry J. Accardi............. 159,718 0 207,200 366,918 *
Colin G. Campbell............ 11,732 2,000 44,800 58,532 *
Charles H. Cotros............ 308,549 0 199,716 508,265 *
Judith B. Craven............. 29,604 0 12,800 42,404 *
Jonathan Golden ............. 27,134 18,500 60,800 106,434 *
Joseph A. Hafner, Jr. ....... 0 0 0 0 --
Thomas E. Lankford........... 427,736 62,989 247,000 737,725 *
Richard G. Merrill........... 37,464 0 52,800 90,264 *
Frank H. Richardson.......... 46,334 0 60,800 107,134 *
Richard J. Schnieders........ 222,883 61,604 218,000 502,487 *
Phyllis S. Sewell............ 27,356 0 52,800 80,156 *
Kenneth F. Spitler........... 122,228 190 152,174 274,592 *
John K. Stubblefield, Jr..... 80,895 0 203,088 283,983 *
Richard G. Tilghman.......... 6,950 1,950 1,600 10,500 *
Jackie M. Ward............... 9,062 0 4,800 13,862 *
All Directors, Director
Nominees and Executive
Officers as a Group
(26 Persons) ................ 3,067,870 (1) 199,495 (2) 2,671,038 (3) 5,938,403 (1)(2)(3) *
_____________________
(*) Less than 1% of outstanding shares.
(1) Includes an aggregate of 1,550,225 shares directly owned by the current
executive officers other than the Named Executive Officers.
(2) Includes an aggregate of 52,262 shares owned by the spouses and/or
dependent children of current executive officers other than the Named
Executive Officers.
(3) Includes an aggregate of 1,152,660 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.
12
SECTION 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 2003, all of our executive
officers and directors complied with the Section 16(a) requirements, with the
following exceptions:
o the executive officers listed on page 11 (other than Mr. Holden who
was not subject to the requirements of Section 16 at the time) and Mr.
Cotros each inadvertently filed a late Form 4 with respect to options
granted on September 12, 2002 that were not delivered until October
2002. The Forms 4 reporting these grants were filed on September 20,
2002.
o Messrs. Campbell, Golden, Merrill and Richardson, Dr. Craven, Mrs.
Sewell and Ms. Ward each inadvertently filed a late Form 4 with
respect to options granted on September 13, 2002 that were not
delivered until October 2002. The Forms 4 reporting these grants were
filed on September 20, 2002.
o Messrs. Campbell, Golden, Merrill and Richardson, Dr. Craven, Mrs.
Sewell and Ms. Ward each inadvertently filed a late Form 4 with
respect to shares issued in lieu of retainer fees in January 2003. The
stock certificates were dated December 31, 2002, as required by the
Non-Employee Director Stock Plan, but were not delivered until January
14, 2003. The Forms 4 reporting these shares were filed on January 14,
2003.
o James Lankford inadvertently filed a late Form 4 with respect to the
exercise of an option on November 7, 2002. The Form 4 was filed on
November 12, 2002.
o Larry Pulliam filed an amended Form 3 to report the ownership of
shares in a brokerage DRIP account that were not included in his
original Form 3 filed on April 10, 2002. The amended Form 3 was filed
on June 19, 2003.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information regarding equity
compensation plans as of June 28, 2003.
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE EXERCISE FUTURE ISSUANCE UNDER
PLAN CATEGORY ISSUED UPON EXERCISE OF PRICE OF OUTSTANDING EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND (EXCLUDING SECURITIES
WARRANTS AND RIGHTS RIGHTS REFLECTED IN COLUMN (A))
(A) (B) (C)
EQUITY COMPENSATION PLANS 57,766,505 (1) $24.79 38,807,389 (2)
APPROVED BY SECURITY HOLDERS
EQUITY COMPENSATION PLANS NOT -0- -0- -0-
APPROVED BY SECURITY HOLDERS
TOTAL 57,766,505 (1) $24.79 38,807,389 (2)
---------------------------
(1) Does not include 332,468 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 $12.31. Also
does not include options to purchase approximately 13,242,846 shares of common
stock granted in September 2003 under our 2000 Stock Incentive Plan at a
13
weighted average price per share of $31.75 and options to purchase 64,000 shares
of common stock granted in September 2003 under the Non-Employee Directors Stock
Plan at a weighted average exercise price per share of $32.30.
(2) Includes 10,067,901 shares issuable pursuant to our Employees' Stock
Purchase Plan, 335,870 shares issuable pursuant to our Non-Employee Directors
Stock Plan, 6,287,757 shares that may be issued as incentive compensation under
our 2000 Management Incentive Plan, and up to 10,000,000 shares of common stock
we purchased in the open market or in private transactions that may be issued
pursuant to our 2000 Stock Incentive Plan. Up to 11,045,825 shares may be issued
as restricted or other stock awards under the 2000 Stock Incentive Plan. Does
not reflect the issuance of options to purchase approximately 13,242,846 shares
of common stock in September 2003 pursuant to our 2000 Stock Incentive Plan, the
issuance of options to purchase 64,000 shares of common stock in September 2003
pursuant to our Non-Employee Directors Stock Plan, the issuance of 940,943
shares in August 2003 pursuant to the 2000 Management Incentive Plan or the
issuance of 456,277 shares in July 2003 pursuant to the 1974 Employees' Stock
Purchase Plan.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
This report documents the components of SYSCO's compensation programs for
its executive officers and describes the basis on which fiscal 2003 compensation
determinations were made with respect to the executive officers of SYSCO,
including Mr. Cotros, who served as the Chief Executive Officer during the
portion of fiscal 2003 that ended on December 31, 2002, and Mr. Schnieders, who
served as Chief Executive Officer during the portion of fiscal 2003 that began
on January 1, 2003. All fiscal 2003 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's performance.
Specifically, the Committee has tied the level of SYSCO's executive compensation
to increases in SYSCO's earnings per share and return on shareholders' equity.
We have accomplished this through the following means:
o A "pay-for-performance" orientation, with respect to compensation
other than base salary, based upon SYSCO performance for corporate
officers (other than senior vice presidents, foodservice operations)
and a combination of operating company and SYSCO performance for
corporate senior vice presidents, foodservice operations and operating
company senior management;
o Base salaries generally at or below the 25th percentile of the range
of base salaries payable to corporate officers of certain surveyed
industrial corporations who have job content and/or responsibilities
comparable to those of SYSCO's corporate officers;
o Potentially significant annual incentive bonuses under SYSCO's
management incentive plan;
o The issuance of stock options; and
o Customary benefits, including a supplemental executive retirement
plan.
The factors and criteria upon which the determination of the fiscal 2003
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's senior vice presidents, foodservice
operations.
14
In fiscal 2003, Mr. Schnieders earned a total compensation package equal to
$4,494,964. This amount included (a) salary of $800,000; (b) base bonus of
$2,184,500 (40% of which was paid in restricted stock, 20% of which was
deferred, and 40% of which was paid in cash); (c) additional restricted matching
shares valued at $436,900; (d) additional cash of $167,114 to cover the tax
effect of the additional matching shares received; (e) a deferred match of
$218,450; and (f) 100,000 options with a Black-Scholes grant date present value
of $688,000. Further information regarding these components is included below as
well as in the tables that follow.
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 25
due to the differing size, management responsibilities and organizational
structures of those corporations relative to SYSCO. We last reviewed base
salaries for the executive officers on November 8, 2002, and made adjustments in
compensation effective January 1, 2003. At that time, Mr. Schnieders' annual
base salary was increased approximately 13% from $750,000 to $850,000 in
anticipation of his promotion to CEO. Mr. Cotros' annual base salary was not
changed subsequent to January 1, 2002 and remained at $1,000,000 until his
retirement. It has been our consistent practice to maintain the Chief Executive
Officer'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's Chief Executive Officer.
Annual Incentive Compensation
Management Incentive Bonus
SYSCO provides annual incentive compensation to all executive officers
through the SYSCO Corporation Management Incentive Plan (the "MIP").
Participants in the MIP include all of SYSCO's corporate officers, including the
executive officers, and the presidents and executive vice presidents of SYSCO'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 the following fiscal year.
For executive officers, incentive bonuses earned in fiscal 2003 and paid in
fiscal 2004 were calculated under the MIP in two parts. The first part was based
on the overall performance of SYSCO and was based upon the interplay between the
percentage increase in earnings per share and the return on shareholders'
equity. The MIP utilized a matrix based on these two factors to determine award
levels, resulting in an award of 161% of base salary to each executive officer
participating in this portion of the MIP. The second portion of the fiscal 2003
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's operating companies, which was the case during fiscal
2003, resulting in an award of 96% 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 of their supervised operations and the aggregate return on
15
capital of their supervised operations, adjusted in certain instances for
operating companies that are involved in SYSCO's facility expansion ("fold-out")
program.
For fiscal 2003, Mr. Schnieders earned a total base bonus of $2,184,500. Of
this amount, $1,368,500 was based on earnings per share and return on
shareholders' equity, and $816,000 was based on the number of operating
companies achieving a target return on capital. Mr. Cotros was not eligible to
receive an MIP bonus for fiscal 2003, but, in connection with his retirement, he
received a cash payment of $1,341,060 for his continuing service as chief
executive officer during the first six months of fiscal 2003.
Stock Election and Matching Grant
In order to encourage significant equity ownership in SYSCO by its
executive officers, the 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.
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:
o the value of such matching shares received by the participant (based
on the closing price of such shares on the last trading day of the
fiscal year), and
o the effective tax rate applicable to SYSCO.
Mr. Schnieders elected to receive 40% of his fiscal 2003 base bonus in
SYSCO common stock. In connection with this election, Mr. Schnieders received
29,570 shares valued at $873,794 in lieu of cash and a matching grant of 14,785
shares valued at $436,900. He also received a cash payment of $167,114 to offset
the tax effect of the matching grant.
Deferred Compensation Election
MIP participants may defer up to 40% of their annual incentive bonus
(without considering any election to receive a portion of the bonus in stock)
under the Executive Deferred Compensation Plan ("EDCP"). MIP participants may
also elect to defer all or a portion of their salary under the EDCP. Amounts
deferred under the EDCP are generally payable upon death, disability, retirement
or termination pursuant to distribution elections made under the EDCP. Subject
to certain limitations contained in the EDCP, participants may elect to withdraw
their vested deferred account balances, less a 10% penalty, prior to a regular
distribution event.
For deferrals of up to 20% of the annual incentive bonus, the EDCP provides
for SYSCO to credit the participant's deferred compensation account in an amount
equal to 50% of the amount deferred. This matching payment vests upon the
earliest to occur of:
o the 10th anniversary of the date the matching payment is made;
o the participant's reaching age 60;
o the death or permanent disability of the participant; or
o a change in control of SYSCO.
16
Mr. Schnieders deferred 20% of his fiscal 2003 base bonus ($436,900) and
received a matching payment of $218,450.
Stock Option Plan
The Committee administers the 2000 Stock Incentive Plan. In general, it is
the practice of the Committee to consider issuing options under the plan only
when participants in the MIP are entitled to receive an annual incentive bonus.
In other words, option grants generally are considered only in years when SYSCO
achieves certain earnings per share and return on shareholders' equity targets.
It is the current intention of the Committee to continue this practice, although
it is not required by the terms of the plan. The Committee has not historically
considered the current number of outstanding options held by an individual when
making its grant decisions. Although the plan authorizes the grant of a variety
of awards such as restricted shares and stock appreciation rights, no awards
other than stock options have been granted under the plan to date.
During fiscal 2003, SYSCO granted options to purchase an aggregate of
13,650,211 shares of its common stock to approximately 4,265 employees,
including Charles Cotros and the 16 executive officers named on page 11, under
the 2000 Stock Incentive Plan. Of the total options granted in fiscal 2003, an
aggregate of 942,000 options were granted to executive officers at a weighted
average exercise price of $30.57 per share. The options granted to executive
officers in fiscal 2003 vest 20% per year at the end of each fiscal year ending
after the date of grant. Also included in the total number of options granted in
fiscal 2003 are options to purchase an aggregate of 2,311,000 shares granted to
2,267 non-executive employees based on years of service. These options vest
ratably over a five-year period and have a ten-year term. The plan provides that
in the event of a change in control, all outstanding options would vest and
become fully exercisable.
During fiscal 2003, Mr. Cotros and Mr. Schnieders each received option
grants to purchase 100,000 shares at an exercise price of $30.57 per share.
These options each have a Black-Scholes grant date present value of $688,000.
Other Benefits
Executive officers also participate in SYSCO's regular employee benefit
programs, which include a pension plan, a retirement savings plan, group medical
and dental coverage, group life insurance and other group benefit plans. Further
details with respect to SYSCO's qualified pension plan are provided on page 23
and 24.
In addition, MIP participants are provided with a Supplemental Executive
Retirement Plan (the "SERP") which is designed, generally, to provide annual
payments equal to 50% of a qualified participant's final average annual
compensation, in combination with all SYSCO and other qualified retirement plan
benefits and social security payments available to the participant upon
retirement. In the event of a change in control prior to a regular distribution
event, accrued SERP benefits will become fully vested and participants may elect
to receive such benefits in a lump sum less a 10% penalty.
Lastly, MIP participants are eligible to participate in the Equity Deferral
Plan ("EDP") pursuant to which the gain on the exercise of certain non-qualified
stock options may be deferred. Amounts deferred under the EDP are vested at all
times and are paid out in shares of SYSCO stock upon such participant's death,
disability, retirement or termination pursuant to distribution elections made
under the EDP. In the event of a change in control prior to a regular
distribution event, a participant may elect to receive his or her equity
deferral account balance in a lump sum less a 10% penalty.
17
Split-Dollar Life Insurance Plan
In September 1999, the Committee designated Mr. Cotros as a participant
under a split-dollar life insurance plan adopted in February 1999. This
split-dollar plan arrangement was provided in lieu of certain accrued and future
benefits under the EDCP and the SERP. Prior to fiscal 2003, SYSCO paid premiums
on the life insurance policies purchased for the benefit of Mr. Cotros pursuant
to the split-dollar life insurance arrangement and retained a collateral
interest in those policies equal to the amount of premiums paid by SYSCO. The
present value cost of the life insurance purchased under the split-dollar life
insurance arrangement by SYSCO did not exceed the net present value of the
projected after tax cost of the benefits waived under the Executive Deferred
Compensation Plan and SERP. In January 2003, the split-dollar arrangement with
Mr. Cotros was terminated and the benefits previously waived thereunder were
reinstated in full. In connection with the termination of his split-dollar
agreement, Mr. Cotros reimbursed the Company for the cost of prior premiums paid
less the cash surrender value of the life insurance policies.
Income Deduction Limitations
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally sets a limit of $1 million on the amount of compensation
(other than certain "performance-based" compensation that complies with the
requirements of Section 162(m)) that SYSCO can deduct for federal income tax
purposes in any given year with respect to the compensation of each of the Named
Executive Officers. The Board and the Committee have determined, after reviewing
the effect of Section 162(m), that our policy will be to structure the
performance-based compensation arrangements for such Named Executive Officers to
satisfy Section 162(m)'s conditions for deductibility, to the extent feasible
and taking into account all relevant considerations.
COMPENSATION AND STOCK OPTION COMMITTEE
Richard G. Merrill, Chairman
Phyllis S. Sewell
Richard G. Tilghman
Jackie M. Ward
18
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to each person who
served as Chief Executive Officer during the fiscal year ended June 28, 2003 and
the other four most highly compensated executive officers of SYSCO and its
subsidiaries employed at the end of fiscal 2003 whose total annual salary and
bonus exceeded $100,000 for the fiscal year ended June 28, 2003 (the "Named
Executive Officers"):
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($)(1)(3) (#)(4) ($)(5)
--------------------------- ---- --- ------ ------------ --------- ------ ------------
Charles H. Cotros *................ 2003 $500,000 $1,341,060 -- -- 100,000 $74,074
2002 960,000 1,508,596 -- $1,337,999 115,000 864,665
2001 885,000 1,515,500 -- 1,344,115 34,000 732,328
Richard J. Schnieders *............. 2003 $800,000 $1,477,824 -- $1,310,690 100,000 $295,605
Chairman and Chief Executive 2002 705,000 1,131,453 -- 1,003,493 115,000 210,531
Officer 2001 630,000 1,087,204 -- 964,259 34,000 173,957
Thomas E. Lankford ................. 2003 $562,500 $1,043,182 -- $925,181 75,000 $226,965
President and Chief Operating 2002 500,000 792,023 -- 702,439 90,000 160,386
Officer 2001 450,000 782,478 -- 693,954 28,000 130,371
John K. Stubblefield, Jr. .......... 2003 $497,500 $904,076 -- $801,839 75,000 $211,337
Executive Vice President, Finance 2002 450,000 716,600 -- 635,533 90,000 150,846
and Administration 2001 400,000 700,097 -- 620,921 28,000 119,241
Larry J. Accardi ................... 2003 $487,500 $869,314 -- $770,989 75,000 $156,696
Executive Vice President, 2002 450,000 716,600 -- 635,533 90,000 119,540
Merchandising Services and 2001 400,000 700,097 -- 620,921 28,000 106,494
Multi-Unit Sales and President,
Specialty Distribution
Kenneth F. Spitler ................. 2003 $475,000 $869,314 -- $770,989 75,000 $175,242
Executive Vice President, 2002 400,000 541,395 -- 480,134 65,000 107,868
Foodservice Operations 2001 357,500 561,019 -- 497,551 24,000 89,081
______________
* Mr. Cotros retired as Chairman and Chief Executive Officer on December 31,
2002. Mr. Schnieders became Chairman and Chief Executive Officer on January 1,
2003.
(1) The amount reported in the "Bonus" column for Mr. Cotros in 2003 relates to
a payment made upon his retirement for his performance during the first six
months of the fiscal year. This payment was not made pursuant to the
Management Incentive Plan. All other amounts reported in the Bonus column
relate to bonuses under the Management Incentive Plan.
Pursuant to the Management Incentive Plan and Executive Deferred
Compensation Plan, each of the Named Executive Officers is eligible to
voluntarily elect to receive up to 40% of his bonus in restricted stock and
to defer up to 40% (calculated prior to any election to receive stock).
These elections, if made, entitle the participant to receive additional
stock and cash pursuant to the match features of these plans as follows:
(a) one additional share for each two shares elected to be received in lieu
of cash, (b) additional cash to offset the tax effect of matching shares
received in lieu of cash, and (c), for deferrals of up to 20%, a credit to
19
the participant's deferred compensation account in an amount equal to 50%
of the amount deferred. Bonuses earned for the fiscal year are paid the
following year, other than amounts deferred. The terms of these plans are
described in more detail in the Report of the Compensation and Stock Option
Committee beginning on page 14.
The amounts reported in the "Bonus" column include amounts paid in cash and
amounts deferred by each of the Named Executive Officers. The "Bonus"
column also includes cash received for the tax effect of any additional
shares received pursuant to the match feature of the Management Incentive
Plan. The cash and deferred portions of the bonus earned by each Named
Executive Officer (other than Mr. Cotros) in fiscal 2003 are set forth
below:
--------------- -------------------------- --------------- ------------------ ------------------------
Name Cash Portion of Base Cash Tax Deferred Amount Bonus Column Amount
Bonus Effect
--------------- -------------------------- --------------- ------------------ ------------------------
Schnieders $873,810 $167,114 $436,900 $1,477,824
--------------- -------------------------- --------------- ------------------ ------------------------
Lankford 308,419 117,963 616,800 1,043,182
--------------- -------------------------- --------------- ------------------ ------------------------
Stubblefield 267,281 102,235 534,560 904,076
--------------- -------------------------- --------------- ------------------ ------------------------
Accardi 514,011 98,303 257,000 869,314
--------------- -------------------------- --------------- ------------------ ------------------------
Spitler 514,011 98,303 257,000 869,314
--------------- -------------------------- --------------- ------------------ ------------------------
The value of any shares elected to be received in lieu of cash and any
matching shares is included in the Restricted Stock Award column and
additional information about such shares is included in footnote 3 below.
Any amounts credited pursuant to the deferred match feature of the EDCP are
included in the "All Other Compensation" column and described in footnote 5
below.
(2) Does not include perquisites and other personal benefits because they did
not exceed for any individual $50,000 in the aggregate.
(3) Each of the Named Executive Officers elected to receive a portion of his
bonus in shares of restricted common stock pursuant to the Management
Incentive Plan. Pursuant to the Management Incentive Plan, the Company made
a matching grant of one additional share for each two shares received
pursuant to such election. The number of elected shares and matched shares
is set forth below. The amount presented is determined by multiplying the
number of shares earned during the fiscal year by the closing price of our
common stock on the New York Stock Exchange on the last trading day of the
applicable fiscal year.
The number of restricted shares earned by the Named Executive Officers in
fiscal 2003 and issued in fiscal 2004 was as follows:
o Mr. Cotros - none;
o Mr. Schnieders - 44,355 shares (29,570 elected shares and 14,785 match
shares);
o Mr. Lankford - 31,309 shares (20,872 elected shares and 10,437 match
shares);
o Mr. Stubblefield - 27,135 shares (18,090 elected shares and 9,045
match shares);
o Mr. Accardi - 26,091 shares (17,394 elected shares and 8,697 match
shares); and
o Mr. Spitler - 26,091 shares (17,394 elected shares and 8,697 match
shares).
The aggregate number and dollar amount (computed using the closing price of
our common stock on June 27, 2003 ($29.55)) of all restricted shares held
as of the last day of fiscal 2003 by the Named Executive Officers were as
follows:
o Mr. Cotros - none (restrictions lapsed upon retirement);
o Mr. Schnieders - 72,382 shares at $2,138,888;
o Mr. Lankford - 51,366 shares at $1,517,865;
o Mr. Stubblefield - 46,218 shares at $1,365,742;
20
o Mr. Accardi - 46,218 shares at $1,365,742; and
o Mr. Spitler - 35,965 shares at $1,062,766.
The restricted shares are not transferable by the recipient for two years
following receipt and are subject to certain repurchase rights on the part
of SYSCO in the event of termination of employment other than by normal
retirement or disability. 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 2003, 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:
o 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;
o the amount we paid for term life insurance coverage for each
individual;
o the actuarially-calculated value of the benefit of premiums we paid on
split-dollar life insurance policies for Mr. Cotros (see page 18 for a
discussion of SYSCO's split-dollar life insurance arrangements);
o the amount we paid for 401(k) Plan matching contributions during the
fiscal year; and
o above-market interest on deferred compensation account balances as of
the end of each fiscal year (above-market interest is the amount by
which the rate of interest on deferred account balances at the end of
the fiscal year exceeds 120% of the applicable federal long-term rate
on a compounded basis).
----------------- ---------- ------------ ----------- --------------- --------------- --------------- ---------------
FISCAL DEFERRED TERM LIFE SPLIT 401(K) ABOVE-MARKET ALL OTHER
NAME YEAR MATCH INSURANCE DOLLAR CONTRIBUTIONS INTEREST COMPENSATION
TOTAL
----------------- ---------- ------------ ----------- --------------- --------------- --------------- ---------------
Cotros 2003 n/a $418 n/a n/a $73,656 $74,074
2002 $223,000 731 $554,256 n/a 86,678 864,665
2001 224,020 1,030 485,345 n/a 21,933 732,328
Schnieders 2003 218,450 835 n/a $3,750 72,570 295,605
2002 167,250 731 n/a 1,700 40,850 210,531
2001 160,710 1,030 n/a 1,700 10,517 173,957
Lankford 2003 154,200 835 n/a 3,938 67,992 226,965
2002 117,075 696 n/a 2,550 40,065 160,386
2001 115,663 893 n/a 2,550 11,265 130,371
Stubblefield 2003 133,640 797 n/a 5,500 71,400 211,337
2002 105,925 626 n/a 5,100 39,195 150,846
2001 103,488 807 n/a 5,100 9,846 119,241
Accardi 2003 128,500 800 n/a n/a 27,396 156,696
2002 105,925 626 n/a n/a 12,989 119,540
2001 103,488 661 n/a n/a 2,345 106,494
Spitler 2003 128,500 766 n/a 5,500 40,476 175,242
2002 80,026 810 n/a 6,600 20,432 107,868
2001 82,928 882 n/a n/a 5,271 89,081
----------------- ---------- ------------ ----------- --------------- --------------- --------------- ---------------
21
STOCK OPTION GRANTS
The following table provides information regarding stock option grants
during the last fiscal year to the Named Executive Officers. We have never
granted any stock appreciation rights to executive officers under any of our
stock plans.
OPTION GRANTS IN FISCAL 2003
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL OPTIONS GRANT
UNDERLYING GRANTED TO EXERCISE OR DATE
OPTIONS GRANTED EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME (#)(1) FISCAL 2003 ($/SHARE) DATE VALUE ($)(2)
---- ---------------- ----------- --------- ---- ------------
Cotros............. 100,000 0.73 $30.57 09/11/2012 $688,000
Schnieders......... 100,000 0.73 30.57 09/11/2012 688,000
Lankford........... 75,000 0.55 30.57 09/11/2012 516,000
Stubblefield....... 75,000 0.55 30.57 09/11/2012 516,000
Accardi............ 75,000 0.55 30.57 09/11/2012 516,000
Spitler............ 75,000 0.55 30.57 09/11/2012 516,000
________________________
(1) The options granted to the Named Executive Officers during fiscal 2003 vest
20% at the end of each fiscal year beginning with the fiscal year ended
June 28, 2003.
(2) We determined the hypothetical grant date present value for the options of
$6.88 per share using a modified Black-Scholes pricing model. In applying
the model, we assumed a volatility of 25%, a 2.7% risk-free rate of return,
a dividend yield at the date of grant of 1.45%, and a 5-year option term.
We did not assume any option exercises or risk of forfeiture during the
5-year term. If used, such assumptions could have reduced the reported
grant date value. The actual value, if any, an executive may realize upon
exercise of options will depend on the excess of the stock price over the
exercise price on the date the option is exercised. Consequently, there is
no assurance that the value realized would be at or near the value
estimated by the modified Black-Scholes model.
STOCK OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides information with respect to aggregate option
exercises in the last fiscal year and fiscal year-end option values for the
Named Executive Officers.
AGGREGATED OPTION EXERCISES IN FISCAL 2003 AND
FISCAL YEAR-END OPTION VALUES
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE JUNE 28, 2003 (#) JUNE 28, 2003 ($)(2)
ACQUIRED ON REALIZED ---------------------------- ------------------------------
NAME EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------ ----------- ------------- ----------- -------------
Cotros............. 6,142 $93,719 199,716 140,000 $2,000,582 $105,600
Schnieders......... -- -- 218,000 155,000 2,681,290 132,000
Lankford........... -- -- 247,000 120,000 3,761,393 105,600
Stubblefield....... -- -- 203,088 120,000 2,814,474 105,600
Accardi............ -- -- 207,200 120,000 2,936,716 105,600
Spitler............ -- -- 152,174 105,000 2,058,082 79,200
--------------------
(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 June 27, 2003
and the exercise price.
22
RETIREMENT PLAN
We have a defined benefit retirement plan that was most recently amended
and restated with an effective date of January 1, 1997 to comply with statutory
changes required by various laws. The amended and restated plan also
incorporated certain discretionary changes in plan provisions effective May 15,
1998 and April 1, 2000. In addition to benefits accrued to date, which are set
forth below, each Named Executive Officer will accrue benefits in the future in
accordance with the table below:
PENSION PLAN TABLE (1)(2)(3)
YEARS OF CREDITED SERVICE
CAREER AVERAGE COMPENSATION EARNED -------------------------
ON AND AFTER JUNE 29, 2002(4) 10 15 20 25 30 35
----------------------------- -- -- -- -- -- --
$ 100,000.................................. $ 15,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500
150,000.................................. 22,500 33,750 45,000 56,250 67,500 78,750
200,000.................................. 30,000 45,000 60,000 75,000 90,000 105,000
250,000.................................. 37,500 56,250 75,000 93,750 112,500 131,250
________________________
(1) Assumes the annual benefit is payable for five years certain and life
thereafter and that retirement age is 65. Pension plan benefits are not
subject to deduction by social security or any other offsets.
(2) Current law and regulations limit retirement benefits to $158,016 for
calendar 2003 if they are payable for five years certain and life
thereafter (assuming retirement age of 65). This limitation applies to
total retirement benefits under the Retirement Plan as determined by adding
benefits accrued with respect to periods of employment with SYSCO both
before and after June 28, 2003. The Pension Plan Table does not reflect
this limitation.
(3) In addition, all MIP participants, including the Named Executive Officers,
are provided with a Supplemental Executive Retirement Plan which is
designed, generally, to provide annual payments equal to 50% of the
participant's final average annual compensation, in combination with all
SYSCO and other qualified retirement plan benefits and social security
payments available to the participant upon retirement.
(4) Compensation for benefit calculation purposes is limited by law to $200,000
for calendar 2003 and later years subject to statutory increases and
cost-of-living adjustments in future years. Pay limitations are not taken
into account in the Pension Plan Table.
To the extent included in W-2 income, all amounts shown in the Summary
Compensation Table, other than deferred bonus and those amounts reported in the
"All Other Compensation" column, are utilized to compute career average
compensation subject to the pay limitations noted in footnote (4).
The Retirement Plan provides for an annual benefit payable monthly for five
years certain and life thereafter, equal to:
o the normal retirement benefit which accrued under the prior plan as of
July 2, 1989, plus
o an amount equal to 1 1/2% of the participant's aggregate career
compensation earned on and after July 2, 1989.
In the event of a participant's death before his or her normal retirement
age (age 65) or the commencement of a benefit, if earlier, and if the
participant has five or more years of credited service, a death benefit is
payable in an amount equal to the value of the pension accrued by the deceased
participant prior to his or her death or earlier termination of employment.
23
The Named Executive Officers have accrued the following benefits and
credited benefit service as of June 28, 2003:
o Mr. Cotros - $96,762 and 26.42 years (as of December 31, 2002);
o Mr. Schnieders - $46,201 and 21 years;
o Mr. Lankford - $48,789 and 22 years;
o Mr. Stubblefield - $34,447 and 14 years;
o Mr. Accardi - $49,838 and 27 years; and
o Mr. Spitler - $40,357 and 16 years.
The Named Executive Officers also have anticipated future service to age 65
as follows:
o Mr. Cotros - Mr. Cotros retired as of December 31, 2002 at age 65;
o Mr. Schnieders - 10 years;
o Mr. Lankford - 9 years;
o Mr. Stubblefield - 8 years;
o Mr. Accardi - 10 years; and
o Mr. Spitler - 11 years.
24
STOCK PERFORMANCE GRAPH
The following stock performance graph compares the performance of SYSCO's
common stock to the S&P 500 Index and to a peer group for SYSCO's last five
fiscal years. The members of the peer group are Fleming Companies, Inc., Nash
Finch Company, Supervalu, Inc. and Performance Food Group Company.
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&P Consumer Staples (Food
Distributors)" index maintained by Standard & Poor's Corporation that consists
of SYSCO and Supervalu, Inc. because it 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'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 1998, and that all dividends were reinvested. Performance data for SYSCO,
the S&P 500 Index and for each member of the peer group is provided as of the
last trading day of each of our last five fiscal years.
FIVE YEAR PERFORMANCE GRAPH
[GRAPH OMITTED]
-------------------------------------------------------------------------------------------------------------
COMPANY NAME/INDEX JUNE 26, 1998 JULY 2, 1999 JUNE 30, 2000 JUNE 29, 2001 JUNE 28, 2002 JUNE 27, 2003
-------------------------------------------------------------------------------------------------------------
SYSCO 100.00 122.76 169.73 221.15 224.31 247.03
-------------------------------------------------------------------------------------------------------------
S&P 500 INDEX 100.00 122.76 131.66 112.13 91.96 92.19
-------------------------------------------------------------------------------------------------------------
PEER GROUP 100.00 107.40 91.92 126.46 137.76 115.77
-------------------------------------------------------------------------------------------------------------
25
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 Appendix A. During fiscal
2003, the Audit Committee was composed of five directors: Mr. Campbell, Mr.
Merrill, Mr. Richardson, Mr. Tilghman (Chairman) and Ms. Ward. Each member of
the Audit Committee is financially literate and each member is independent as
defined in the New York Stock Exchange's current and proposed listing standards
and Section 10A(m)(3) of the Securities Exchange Act of 1934. The Audit
Committee held nine meetings during fiscal 2003. If elected by the stockholders
in November, Joseph A. Hafner, Jr. will be appointed as a member of the audit
committee. The Board has determined that Mr. Hafner is independent as defined
above and that he meets the definition of an audit committee financial expert as
promulgated by the Securities and Exchange Commission.
The function of the Audit Committee is to review 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 nonaudit services to be performed, the fees to be paid to the
independent public accountants, the performance of the independent public
accountants and the Company's accounting practices and policies.
The Audit Committee has met and held discussions with management and the
independent public accountants. Management represented to the Audit Committee
that SYSCO's consolidated financial statements were prepared in accordance with
generally accepted accounting principles, and the Audit Committee has reviewed
and discussed the audited consolidated financial statements with management and
the independent public accountants. The Audit Committee also discussed with the
independent public accountants the matters required to be discussed by Statement
on Auditing Standards No. 61. SYSCO's independent public accountants provided to
the Audit Committee the written disclosures and the letter required by the
Independence Standards Board's Standard No. 1, and the Audit Committee discussed
with the independent public accountant that firm's independence.
Based on the Audit Committee's discussion with management and the
independent public accountants and the Audit Committee's review of the
representations of management and the report of the independent public
accountants, the Audit Committee recommended that the Board of Directors include
the audited consolidated financial statements in SYSCO's Annual Report on Form
10-K for the year ended June 28, 2003 filed with the Securities and Exchange
Commission.
AUDIT COMMITTEE
Richard G. Tilghman, Chairman
Colin G. Campbell
Richard G. Merrill
Frank H. Richardson
Jackie M. Ward
FEES PAID TO INDEPENDENT PUBLIC ACCOUNTANTS IN FISCAL 2002 AND 2003
During fiscal 2003, SYSCO incurred the following fees for services
performed by Ernst & Young LLP:
Fiscal 2003 Fiscal 2002 *
Audit Fees $1,854,162 $950,000
Audit Related Fees (1) 322,400 82,680
Tax Fees (2) 2,828,000 185,190
All Other Fees -- --
________________
26
* In addition to the fees paid to Ernst & Young, we paid audit fees of
$897,000 and other fees of $3,870,144 to Arthur Andersen LLP for work done
during fiscal 2002 prior to their dismissal on March 27, 2002.
(1) Audit related fees in fiscal 2003 included $202,400 related to due
diligence and accounting consultation with respect to acquisitions and
$120,000 related to assistance with preparation for the implementation of
Section 404 of the Sarbanes-Oxley Act of 2002. Audit related fees in fiscal
2002 were incurred primarily in connection with a comfort letter issued in
connection with a debt offering.
(2) Tax services in fiscal 2003 included $1,997,200 related to the tax
compliance outsourcing arrangement with the company's independent auditor,
$157,400 in tax consulting and $673,400 in other tax compliance assistance
and state and local tax compliance work. Tax services in fiscal 2002
related to tax compliance outsourcing.
PROPOSAL TO AMEND THE RESTATED CERTIFICATE OF INCORPORATION
ITEM NO. 2 ON THE PROXY CARD
The Board of Directors has proposed a resolution amending Article Fourth,
Section A, of our Restated Certificate of Incorporation to increase the total
number of shares of common stock which we have authority to issue from one
billion (1,000,000,000) shares to two billion (2,000,000,000) shares, $1.00 par
value. The Board of Directors has unanimously approved the amendment.
The authorized shares of common stock were last increased by the
stockholders at the 1999 annual meeting when the number of shares was increased
from 500,000,000 shares to 1,000,000,000 shares. We currently have 1,500,000
authorized shares of Preferred Stock, 450,000 of which have been designated as
"Series A Junior Participating Preferred Stock." No shares of Preferred Stock
are currently outstanding. As of September 9, 2003, of the 1,000,000,000 shares
of common stock which we are authorized to issue, 648,520,955 were issued and
outstanding (excluding 116,653,945 shares which were held by SYSCO as treasury
stock) and an aggregate of 91,927,477 shares were reserved for issuance under
existing benefit plans and in connection with certain completed acquisitions.
The Board believes that the amendment is necessary to ensure that we will
have sufficient authorized shares available to meet our ongoing business needs
and to take advantage of future corporate opportunities. There are no present
plans to issue any of the proposed additional authorized shares of common stock.
Further stockholder authorization would not be necessary prior to any such
issuance, except for certain situations where stockholder approval may be
required under the New York Stock Exchange rules or Delaware law.
Under our Restated Certificate of Incorporation, holders of stock are not
entitled to preemptive rights.
The affirmative vote of a majority of the outstanding shares of common
stock entitled to vote is required to adopt the proposed amendment. If this
proposal is adopted, Article Fourth, Section A, will read as follows:
"FOURTH: A. The total number of shares of stock which the corporation shall
have authority to issue is Two Billion One Million Five Hundred Thousand
(2,001,500,000) shares, consisting of One Million Five Hundred Thousand
(1,500,000) shares of Preferred Stock with a par value of One Dollar
($1.00) each, and Two Billion (2,000,000,000) shares of Common Stock with a
par value of One Dollar ($1.00) each. The corporation may issue fractional
shares of stock, which will be entitled to proportionate dividends, voting
and liquidation rights."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO
OUR RESTATED CERTIFICATE OF INCORPORATION.
27
PROPOSAL TO APPROVE THE 2003 STOCK INCENTIVE PLAN
ITEM NO. 3 ON THE PROXY CARD
On September 12, 2003, the Board of Directors adopted the 2003 Stock
Incentive Plan, subject to stockholder approval. If approved by the stockholders
at the annual meeting, the 2003 Stock Incentive Plan will become effective on
November 7, 2003 and will replace the 2000 Stock Incentive Plan. Upon the
effective date of the 2003 Stock Incentive Plan, all outstanding options under
the 2000 Stock Incentive Plan will remain outstanding but no further grants will
be made under the 2000 Stock Incentive Plan. As of September 9, 2003, there were
options outstanding under the 2000 Stock Incentive Plan to purchase
approximately 42 million shares of Common Stock.
Under applicable New York Stock Exchange rules, the Company is required to
obtain stockholder approval of the 2003 Stock Incentive Plan. In addition,
stockholder approval of the 2003 Stock Incentive Plan is also necessary to allow
the Company to grant incentive stock options to employees under Section 422 of
the Code and, with respect to certain compensation paid to the Named Executive
Officers under the Plan, to allow such compensation to be deductible under an
exception to the limitations of Section 162(m) of the Code.
The following summary of the material terms of the 2003 Stock Incentive
Plan does not purport to be complete and is qualified in its entirety by the
terms of the 2003 Stock Incentive Plan, a copy of which is attached as Appendix
B hereto. THE BOARD OF DIRECTORS RECOMMENDS THAT THE 2003 STOCK INCENTIVE PLAN
BE APPROVED.
PURPOSE OF THE 2003 STOCK INCENTIVE PLAN
The purpose of the 2003 Stock Incentive Plan is to promote the interests of
the Company and its stockholders by providing officers, directors and other
employees of the Company and its subsidiaries with appropriate incentives and
rewards to encourage them to enter into and remain in the employ of the Company
and to acquire a proprietary interest in the long-term success of the Company,
thereby aligning their interests more closely to the interests of the Company's
stockholders. To achieve that purpose, the 2003 Stock Incentive Plan permits the
grant of options to purchase Common Stock (the "Options"), stock appreciation
rights with respect to Common Stock ("SARs"), shares of Common Stock subject to
restriction and forfeiture to the Company based upon continuing employment
and/or attainment of designated performance goals (the "Restricted Shares"),
rights to receive shares contingent on the achievement of performance or other
objectives during a specified period (the "Performance Shares"), and units
representing the right to receive shares of Common Stock in the future (the
"Stock Units") (collectively such Options, SARs, Restricted Shares, Performance
Shares and Stock Units are referred to as "Awards").
ADMINISTRATION OF THE 2003 STOCK INCENTIVE PLAN
Unless otherwise determined by the Board, the Compensation and Stock Option
Committee will administer the 2003 Stock Incentive Plan. The Committee is
composed of "non-employee directors" within the meaning of the Exchange Act,
"outside directors" within the meaning of Section 162(m) of the Code and
"independent directors" within the meaning of current and proposed NYSE listing
standards.
The Committee will have the power in its discretion to grant Awards under
the 2003 Stock Incentive Plan, to select the individuals to whom Awards are
granted, to determine the terms thereof, to interpret the provisions of the 2003
Stock Incentive Plan and to otherwise administer the plan. Except as prohibited
by applicable law or stock exchange rules, the Committee may, from time to time,
delegate all or any of its responsibilities and powers under the Plan,
including, without limitation, the power to designate participants and determine
the amount, timing and term of Awards under the Plan. Such delegation may be
made to any person or persons, including, without limitation, any executive
officer of the Company. Whenever used herein and in the Plan, "Committee" shall
mean the Compensation and Stock Option Committee and its designee or designees,
to the extent there shall be any. The Committee does not currently intend to
28
delegate any of its authority with respect to individuals who are not Company
employees or who are subject to Section 16 of the Securities Exchange Act of
1934, as amended (the "Exchange Act") or Section 162(m) of the Code. All Awards
will be evidenced by a written document in such form as is determined by the
Committee, which the Committee may, but need not, require that the grantee sign.
SHARES SUBJECT TO THE 2003 STOCK INCENTIVE PLAN
The maximum number of shares of Common Stock that may be delivered during
the term of the 2003 Stock Incentive Plan under all Awards shall be equal to the
sum of (i) 25 million shares, (ii) any shares of Common Stock which are subject
to options issued under the 2000 Stock Incentive Plan or the 1991 Stock Option
Plan to the extent that those options are forfeited, expire, or are canceled
without delivery of shares of Common Stock after November 7, 2003 (approximately
56 million shares were subject to outstanding awards under these prior plans as
of September 9, 2003); (iii) any shares of Common Stock that have not been
issued and are not subject to outstanding awards under the 2000 Stock Incentive
Plan on November 7, 2003 (approximately 21 million shares as of September 9,
2003), (iv) to the extent authorized by the Board, up to 10 million shares
reacquired by the Company in the open market or in private transactions after
November 7, 2003, and (iv) up to five million shares of stock tendered by
participants in connection with the exercise of Options granted under the 2003
Stock Incentive Plan or any prior plan. The maximum number of shares of Common
Stock available for delivery under the Plan shall not be reduced for shares
subject to plans assumed by the Company in an acquisition of an interest in
another company.
The following additional maximums are imposed under the 2003 Stock
Incentive Plan: (i) Subject to the overall maximum number of shares of Common
Stock that may be issued pursuant to the Plan, the maximum aggregate number of
shares of Common Stock that may be issued pursuant to options intended to be
Incentive Stock Options and/or in the form of Restricted Shares, Performance
Shares or Stock Units is [118] million shares; (ii) the maximum number of shares
that may be covered by any Option or SAR Award granted to any one individual
during any fiscal year is 250,000; and (iii) no more than 100,000 shares of
stock may be subject to Stock Unit, Restricted Stock and Performance Share
Awards that are intended to be "performance-based" compensation (as that term is
used for purposes of Code Section 162(m)) granted to any one individual during
any one fiscal year (regardless of when such shares are deliverable).
Subject to any required action by the stockholders, if the outstanding
shares of Common Stock are changed into or exchanged for a different number or
kind of shares or other securities of the Company by reason of any
recapitalization, reclassification, stock split, stock dividend, combination,
subdivision or similar transaction then, subject to any required action by the
stockholders of the Company, the number and kind of shares of Company stock
available under the Plan or subject to any limit or maximum under the Plan shall
automatically be proportionately adjusted, with no action required on the part
of the Committee or otherwise. Subject to any required action by the
stockholders, the number of shares covered by each outstanding Award and the
price per share in each such Award may, at the discretion of the Committee, be
proportionally adjusted for any increase or decrease in the number of issued
shares of the Company resulting from a recapitalization, reclassification, stock
split, stock dividend, combination, subdivision or similar transaction or any
other increase or decrease in the number of shares effected without receipt of
consideration by the Company.
If the Company merges or consolidates with another corporation, whether or
not the Company is a surviving corporation, or if the Company is liquidated or
sells or otherwise disposes of substantially all of its assets while unexercised
Options or other Awards remain outstanding under this Plan, (A) subject to the
provisions of clause (C) below, after the effective date of the merger,
consolidation, liquidation, sale or other disposition, as the case may be, each
holder of an outstanding Option or other Award shall be entitled, upon exercise
of that Option or Award or in place of it, as the case may be, to receive, at
the option of the Committee and in lieu of shares of Stock, (i) the number and
class or classes of shares of Stock or other securities or property to which the
holder would have been entitled if, immediately prior to the merger,
29
consolidation, liquidation, sale or other disposition, the holder had been the
holder of record of a number of shares of Stock equal to the number of shares of
Stock as to which that Option may be exercised or are subject to the Award, or
(ii) shares of stock of the company that is the surviving corporation in such
merger, consolidation, liquidation, sale or other disposition having a value, as
of the date of payment as determined by the Committee in its sole discretion,
equal to the value of the shares of Stock or other securities or property
otherwise payable under subsection (i) above; (B) if Options or other Awards
have not already become exercisable under the Change in Control provisions of
the Plan, the Board of Directors may waive any limitations set forth in or
imposed pursuant to the Plan so that all Options or other Awards, from and after
a date prior to the effective date of that merger, consolidation, liquidation,
sale or other disposition, as the case may be, specified by the Board of
Directors, shall be exercisable in full; and (C) all outstanding Options or SARs
may be cancelled by the Board of Directors as of the effective date of any
merger, consolidation, liquidation, sale or other disposition provided that any
optionee or SAR holder shall have the right immediately prior to such event to
exercise his or her Option or SAR to the extent such optionee or holder is
otherwise able to do so in accordance with the Plan or his individual Option or
SAR agreement; provided, further, that any such cancellation shall be contingent
upon the payment to the affected Participants of an amount equal to (i) in the
case of any out-of-the-money Option or SAR, cash, property or a combination
thereof having an aggregate value equal to the value of such Option or SAR, as
determined by the Committee or the Board of Directors, as applicable, in its
sole discretion, and (ii) in the case of an in-the-money Option or SAR, cash,
property or a combination thereof having an aggregate value equal to the excess
of the value of the per-share amount of consideration paid pursuant to the
merger, consolidation, liquidation, sale or other disposition, as the case may
be, giving rise to such cancellation, over the exercise price of such Option or
SAR multiplied by the number of shares of Stock subject to the Option or SAR.
ELIGIBILITY AND PARTICIPATION
With respect to Incentive Stock Options ("ISOs"), eligibility to
participate in the 2003 Stock Incentive Plan is limited to employees of the
Company and its subsidiaries. With respect to Awards other than ISOs,
eligibility to participate in the 2003 Stock Incentive Plan shall be limited to
any employee, consultant or director of the Company and its subsidiaries.
Currently, approximately 47,400 employees and non-employee directors of the
Company and its subsidiaries are within the class eligible for selection to
participate in the 2003 Stock Incentive Plan.
OPTIONS AND SARS
The Committee may grant Incentive Stock Options ("ISOs") and Non-Qualified
Options ("NQOs") to eligible employees, and may grant NQOs to employees,
directors and consultants. SARs may be granted to employees, directors and
consultants. The Committee will have complete discretion, subject to the terms
of the 2003 Stock Incentive Plan, to determine the persons to whom Options
and/or SARs will be awarded, the time or times of grant, and the other terms and
conditions of the Award. SARs may be awarded either in tandem with Options or on
a stand-alone basis.
OPTION AND SAR EXERCISE PRICE AND VESTING
The Committee will determine the exercise price with respect to each Option
at the time of grant. The exercise price applicable to an Option shall also
apply in determining the base price per share for any tandem SAR granted with
respect to the Option. At the time of grant of a nontandem SAR, the Committee
will specify the base price per share to be used in determining the amount of
cash or number of shares of Common Stock paid upon the exercise of the SAR.
Neither the Option exercise price per share of Common Stock nor the base price
of any SAR will be less than 100% of the fair market value per share of the
Common Stock underlying the Award on the date of grant, and no Option or SAR may
be repriced in violation of the repricing limitations discussed in "Amendments
30
and Terminations" below. The Committee may determine at the time of grant and
any time thereafter the terms under which Options and SARs shall vest and become
exercisable.
SPECIAL LIMITATIONS ON ISOS
No ISO may be granted to an employee who owns at the time of the grant
stock representing more than 10% of the total combined voting power of all
classes of stock of the Company or its subsidiaries (a "10% Stockholder") unless
the exercise price for each share of Common Stock subject to such ISO is at
least 110% of the fair market value per share of the Common Stock on the date of
grant and such ISO award is not exercisable more than five years after its date
of grant. In addition, if the total fair market value of shares of Common Stock
subject to ISOs which are exercisable for the first time by an employee in a
given calendar year exceeds $100,000, valued as of the grant date of the ISO,
the Options for shares of Common Stock in excess of $100,000 for that year will
be treated as NQOs
EXERCISE OF OPTIONS AND SARS
Options and SARs shall be exercisable in accordance with such terms and
conditions and during such periods as may be established by the Committee.
Notice of exercise must be accompanied by payment equal to the applicable Option
exercise price plus all withholding taxes due, such amount to be paid in cash or
by tendering, either by actual delivery of shares or by attestation, shares of
Common Stock that are acceptable to the Committee and have been held by the
participant for at least six months, such shares to be valued at fair market
value as of the day the shares are tendered, or in any combination thereof, as
determined by the Committee. To the extent permitted by applicable law, a
participant may elect to pay the exercise price through the contemporaneous sale
by a third party broker of shares of Common Stock acquired upon exercise
yielding net sales proceeds equal to the exercise price and any withholding tax
due and the remission of those sale proceeds to the Company.
Upon surrender of an SAR, the employee will be entitled to receive cash,
shares of Common Stock or a combination thereof, as determined by the Committee,
having an aggregate fair market value equal to (a) the excess of (i) the fair
market value of one share of Common Stock as of the date on which the SAR is
exercised over (ii) the base price of the shares covered by the SAR; multiplied
by (b) the number of shares of Common Stock covered by the SAR, or the portion
thereof being exercised. Any fractional shares resulting from the exercise of an
SAR will be paid in cash.
TRANSFERABILITY OF OPTIONS AND SARS
Except as otherwise provided by the Committee, Options and SARs may not be
transferred except by will or applicable laws of descent and distribution.
TERMINATION OF OPTIONS AND SARS
Options and SARs shall be exercisable during such periods as may be
established by the Committee; provided, however, that upon the death of an
employee or non-employee director while engaged by the Company or its
subsidiaries, Options and SARs, to the extent then exercisable, shall remain
exercisable by the executors or administrators of his or her estate for up to
one year following the date of death. In no event, however, may any Option or
SAR be exercised more than ten years from the date of grant, and an ISO that is
held by a 10% Stockholder may not be exercised more than five years from the
date of grant. To the extent not exercised by the applicable deadline, the
Option or SAR will terminate.
RESTRICTED SHARES
The Committee may award Restricted Shares to employees, directors and
consultants. Restricted Shares granted may not be sold, transferred, pledged or
otherwise encumbered or disposed of, and will not vest, during the restricted
period established by the Committee. To the extent provided by the Committee at
the time of grant, Restricted Shares also may not be sold, transferred, pledged
or otherwise encumbered, and will not vest, until the satisfaction of specified
31
performance objectives ("Performance Goals"). The Committee may determine at the
time of grant whether dividends declared with respect to Restricted Shares will
be paid to the grantee or credited to an account for the grantee until the
underlying shares vest. Dividends deferred will be paid to the grantee when the
Restricted Shares vest or will be forfeited if the rights to the Restricted
Shares lapse.
Performance Goals, if any, will be determined by the Committee and may be
based on any one or more of the following factors: return on capital or increase
in pretax earnings of the Company and/or one or more divisions and/or
subsidiaries, return on stockholders' equity of the Company, increase in
earnings per share of the Company, sales of the Company and/or one or more
divisions and/or subsidiaries, pretax earnings of the Company and/or one or more
divisions and/or subsidiaries, net earnings of the Company and/or one or more
divisions and/or subsidiaries, control of operating and/or non-operating
expenses of the Company and/or one or more divisions and/or subsidiaries,
margins of the Company and/or one or more divisions and/or subsidiaries, market
price of the Company's securities and other objectively measurable factors
directly tied to the performance of the Company and/or one or more divisions
and/or subsidiaries.
STOCK UNITS
The Committee may award Stock Units to employees, directors and
consultants. Stock Units will have a specified formula value and will vest based
on the attainment of designated Performance Goals over a specified performance
period.
Such formula value may, but need not be, denominated in or based on the
value of a designated number of shares of Common Stock. Stock Units will be
credited to an account established and maintained for the employee. The
Committee will determine performance periods and Performance Goals in connection
with each grant of Stock Units. Payment with respect to vested Stock Units may
be made in cash, shares of Common Stock, or any combination thereof, as
determined by the Committee. Except as the Committee may provide at the time of
grant, holders of Stock Units will not have the rights of a stockholder, such as
the right to vote the shares or receive dividends and other distributions. Stock
Units may not be transferred in any manner and will lapse if the designated
Performance Goals are not attained within the applicable performance period.
DIVIDEND EQUIVALENT RIGHTS
In conjunction with any Award (including an Option or SAR) that is payable
in shares of Common Stock, the Committee may provide in the applicable Award
agreement for "dividend equivalent rights." Dividend equivalent rights will
entitle the grantee to receive in cash or shares, as determined by the
Committee, upon exercise of the Award or at such other time as the Committee
specifies, an additional amount based on the dividends that would have been
received on the underlying shares had they been issued at the time of grant.
FORFEITURE
Notwithstanding any other provision of the 2003 Stock Incentive Plan and
except as discussed under "Change in Control" below, if the Committee finds by a
majority vote that with respect to a Plan participant who was an employee or
consultant of the Company or its subsidiary at any time that an Award is
outstanding: (i) the participant, before or after termination of his or her
employment or consulting relationship with the Company or a subsidiary
("Employer") for any reason, (a) committed fraud, embezzlement, theft, a felony,
or proven dishonesty in the course of his employment or other engagement and
that such act damaged the Employer, or (b) disclosed trade secrets of the
Employer, or (ii) the participant, before or after termination of his employment
or consulting relationship for any reason, participated, engaged in or had a
financial or other interest (whether as an employee, officer, director,
consultant, contractor, stockholder, owner, or otherwise) in any commercial
endeavor in the United States which is competitive with the business of the
32
Employer in violation of the SYSCO Code of Business Conduct as in effect on the
date of such participation or other engagement or in such a manner that would
have violated the Code of Business Conduct had the participant been employed by
the Employer at the time of the activity in question, then any outstanding
Awards which have not been exercised if Options or SARs, or vested if not
Options or SARs, will be forfeited. The decision of the Committee as to the
nature of a participant's conduct, the damage done to the Employer and the
extent of the participant's competitive activity will be final. No decision of
the Committee, however, will affect the finality of the discharge of the
participant by the Employer in any manner.
CHANGE IN CONTROL
In the event of a Change in Control (as defined below), all Awards
outstanding on the date immediately preceding such Change in Control, including
Awards subject to Performance Goals that have not yet been met, will become
fully vested, free of restriction and exercisable unless otherwise expressly
provided in the applicable Award agreement. In the event that the employment of
a Participant who is an employee of the Company or a Subsidiary is terminated by
the Company other than for cause, as defined below, during the 24-month period
following a Change in Control, as defined below, all of such Participant's
outstanding Options and SARs may thereafter be exercised by the Participant, to
the extent that such Options and SARs were exercisable as of the date of such
termination of employment, for (x) a period of 24 months from such date of
termination or (y) until expiration of the stated term of such Option or SAR,
whichever period is the shorter. The forfeiture provisions relating to
competition as described in the immediately preceding paragraph shall not apply
to any Participant who incurs a termination of employment pursuant to this
Change in Control provision. For purposes of these provisions, the term "cause"
shall mean "cause" as defined in the participant's Award Agreement or written
employment, consulting or other agreement with the Company or a subsidiary, or
if not defined in any such agreement, "cause" shall mean conviction of the
participant for a felony, dishonesty while performing his employment duties, or
participant's willful or deliberate failure to perform his or her duties in any
material respect.
The term "Change in Control" means any of the following:
(i) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (A) the then-outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (B) the combined voting
power of the then-outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that, for purposes of this definition, the
following acquisitions shall not constitute a Change in Control: (1) any
acquisition directly from the Company, (2) any acquisition by the Company, (3)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any affiliated company or (4) any acquisition by
any corporation; pursuant to a transaction that complies with the criteria set
forth in (iii)(A), (B) and (C) below;
(ii) The occurrence of the following: Individuals who, as of ______, 2003,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to ______, 2003 whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board;
33
(iii) Consummation of a reorganization, merger, statutory share exchange or
consolidation or similar corporate transaction involving the Company or any of
its subsidiaries, a sale or other disposition of all or substantially all of the
assets of the Company, or the acquisition of assets or stock of another entity
by the Company or any of its subsidiaries (each, a "Business Combination"), in
each case unless, following such Business Combination, (A) all or substantially
all of the individuals and entities that were the beneficial owners of the
Outstanding Company Common Stock and the Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of the then-outstanding shares of common stock and the
combined voting power of the then-outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation that, as a result of such transaction, owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership
immediately prior to such Business Combination of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities, as the case may be, (B) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then-outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then-outstanding voting securities of such
corporation, except to the extent that such ownership existed prior to the
Business Combination, and (C) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement or of the action of the Board providing for such Business Combination;
or
(iv) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
TAX WITHHOLDING
All distributions under the 2003 Stock Incentive Plan are subject to
withholding of all applicable taxes, and the Committee may condition the
delivery of any shares or other benefits under the Plan on satisfaction of the
applicable withholding obligations. The Committee, in its discretion, and
subject to such requirements as the Committee may impose prior to the occurrence
of such withholding, may permit such withholding obligations to be satisfied
through cash payment by the participant, through the surrender of shares of
Common Stock which the participant already owns, or through the surrender of
shares of Common Stock to which the participant is otherwise entitled under the
Stock Incentive Plan, but only to the extent of the minimum amount required to
be withheld under applicable law.
TERM OF THE 2003 STOCK INCENTIVE PLAN
Unless earlier terminated by the Board of Directors, the 2003 Stock
Incentive Plan will terminate on November 7, 2013. No award may be granted under
the Plan subsequent to that date.
AMENDMENT AND TERMINATION
The Board may, at any time, amend or terminate the 2003 Stock Incentive
Plan, except that the following actions may not be taken without shareholder
approval: (i) any increase in the number of shares that may be issued under the
Plan (except by certain adjustments provided for under the Plan); (ii) any
change in the class of persons eligible to receive ISOs under the Plan; (iii)
any change in the requirements of the Plan regarding the Exercise Price; (iv)
any repricing of any Option or SAR issued under the Plan by (A) lowering the
exercise price of that Option or SAR or (B) canceling that Option or SAR and
subsequently granting a new Option or SAR with a lower exercise price, or any
other Award, to the extent that such cancellation, replacement or grant would
fall within the definition of "repriced" contained in Item 402(i) of Regulation
S-K promulgated under the Securities Act of 1933, such definition to be applied
34
to grants to all persons, not only "named executive officers" as that term is
defined in Item 402(a)(3) of Regulation S-K; or (v) any other amendment to the
Plan that would require approval of the Company's shareholders under applicable
law, regulation or rule.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion addresses certain anticipated federal income tax
consequences to recipients of awards made under the 2003 Stock Incentive Plan
and to the Company. It is based on the Code and interpretations thereof as in
effect on the date of this proxy statement.
Summary of Current Federal Income Tax Rates for Individuals
As a result of changes made by the Job and Growth Tax Relief Reconciliation
Act of 2003 (the "2003 Tax Act"), for tax years 2003 through 2010, ordinary
income of individuals, such as compensation income, will be taxed at a top
marginal rate of 35%. In addition, for capital assets sold on or after May 6,
2003 and before 2009, the maximum long-term capital gains rate for individuals
will be 15%. The 2003 Tax Act also reduces to 15% the maximum federal income tax
rate for qualifying dividends received by individuals for tax years 2003 through
2008.
Options
Grant of Options. There will be no federal income tax consequences to the
grantee of an Option or the Company upon the grant of either an ISO or an NQO
under the 2003 Stock Incentive Plan.
Exercise of NQOs. Upon the exercise of an NQO, the grantee generally will
recognize ordinary compensation income, subject to withholding and employment
taxes, in an amount equal to: (a) the fair market value, on the date of
exercise, of the acquired shares of Common Stock, less (b) the exercise price
paid for those shares. Subject to Section 162(m) of the Code (which limits to $1
million deductions for certain compensation payable to Named Executive Officers)
and the Company satisfying applicable reporting requirements, the Company will
be entitled to a tax deduction in the same amount. Gains or losses recognized by
the grantee upon a subsequent disposition of the shares will be treated as
long-term capital gain or loss if the shares are held for more than a year from
the date of exercise. Such gains or losses will be short-term gains or losses if
the shares are held for one year or less. For purposes of computing gain or
loss, the grantee's basis in the shares received will be the exercise price paid
for the shares plus the amount of income, if any, recognized upon exercise of
the Option.
Exercise of ISOs. Upon the exercise of an ISO, the grantee will recognize
no immediate taxable income for regular income tax purposes, provided the
grantee was continuously employed by the Company or a subsidiary from the date
of grant through the date 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).
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, and the grantee
will have ordinary compensation income, and the Company will have a
corresponding deduction, at the time of such disposition. The amount of ordinary
35
income and deduction generally will be equal to the lesser of: (a) the fair
market value of the shares of Common Stock on the date of exercise minus the
exercise price; or (b) the amount realized upon disposition of the Common Stock
minus the exercise price. If the amount realized on disposition exceeds the
value of the shares on the date of exercise, that additional amount will be
taxable as capital gain. To be entitled to a deduction as a result of a
Disqualifying Disposition, the Company must satisfy applicable reporting
requirements. In addition, for Disqualifying Dispositions by Named Executive
Officers, the Company's deduction is subject to the limits of Section 162(m) of
the Code.
Stock Appreciation Rights
There will be no federal income tax consequences to either the grantee or
the Company upon the grant of an SAR. However, the grantee generally will
recognize ordinary compensation income upon the exercise of an SAR in an amount
equal to the aggregate amount of cash and the fair market value of any shares of
Common Stock received upon exercise. Subject to Section 162(m) of the Code and
the Company satisfying applicable reporting requirements, the Company will be
entitled to a deduction equal to the amount included in the grantee's taxable
income as a result of the exercise of the SAR. Any shares of Common Stock
received by the grantee upon exercise of a SAR will have a tax basis equal to
their fair market value on the date of exercise. Upon a subsequent sale of those
shares, any gain or loss realized will be capital gain or loss, long- term or
short-term, depending upon whether the shares were held for more than one year
from the date of exercise.
Restricted Shares
Unless a grantee who receives an Award of Restricted Stock makes an
election under Section 83(b) of the Code as described below, there will be no
federal income tax consequences to either the grantee or the Company upon the
grant of the Restricted Shares until expiration of the restricted period and the
satisfaction of any Performance Goals or other conditions applicable to the
Restricted Shares. At that time, the grantee generally will recognize ordinary
income equal to the then fair market value of the shares of Common Stock and,
subject to Section 162(m) of the Code and the Company satisfying applicable
reporting requirements, the Company will be entitled to a corresponding
deduction. In general, any dividends paid to the grantee while the restrictions
or other conditions applicable to the Restricted Shares apply will be taxable
compensation income to the grantee, and the Company will be entitled to a
corresponding deduction with respect to such dividends.
If the grantee makes an election under Section 83(b) of the Code with
respect to the Restricted Shares (a "Section 83(b) Election"), the grantee will
recognize ordinary income equal to the fair market value of the Restricted
Shares as of the date of grant and the Company generally will be entitled to a
corresponding deduction. In addition, cash dividends paid to the grantee would
be taxable at a current maximum rate of 15% applicable to dividend income. The
Company would not be entitled to a deduction with respect to any dividends paid
to the grantee if a Section 83(b) Election is made with respect to the
Restricted Shares.
Upon a subsequent sale of Restricted Shares, any gain or loss realized by
the grantee will be capital gain or loss, long-term or short-term, depending
upon whether the Restricted Shares were held for more than one year from the
date of grant if a Section 83(b) Election is made or, if no Section 83(b)
Election is made, more than one year from the date of vesting. The basis of the
Restricted Shares sold for purposes of calculating gain or loss will be the fair
market value of those shares at the time of grant if a Section 83(b) Election is
made or at the time of vesting if a Section 83(b) Election is not made.
Stock Units
There will be no federal income tax consequences to the grantee or the
Company upon the grant of Stock Units. Grantees generally will recognize
ordinary income, taxable as compensation, at the time payment for the Stock
Units is received in an amount equal to the aggregate amount of cash and the
fair market value of any shares of Common Stock received. Subject to Section
36
162(m) of the Code and the Company satisfying applicable reporting requirements,
the Company will be entitled to a deduction equal to the amount included in the
grantee's income at that time.
Section 162(m) Limitation
In general, Section 162(m) of the Code limits to $1 million the federal
income tax deductions that may be claimed in any fiscal year with respect to
compensation payable to each of the Named Executive Officers of the Company.
This limit does not apply to certain performance-based compensation paid under a
plan that meets the requirements of Section 162(m) the Code and the regulations
promulgated thereunder. The Company believes that the Options and SARs to be
granted under the 2003 Stock Incentive Plan will qualify for the
performance-based compensation exception to the Section 162(m) limitations
because the compensation is based solely on an increase in value of the stock
after the date of the Award. Deductions attributable to Restricted Shares and
Stock Units may also qualify for this exception provided the compensation is
contingent on attaining one or more Performance Goals.
Golden Parachute Tax
If an Award is accelerated as a result of a Change in Control, all or a
portion of the value of the Award at that time may be a "parachute payment" for
certain employees of the Company under the Code's provisions relating to excess
parachute payments. These provisions generally provide that if parachute
payments equal or exceed three times an Award holder's average W-2 compensation
for the five tax years preceding the year of the Change in Control, the Company
will not be permitted to claim its deduction, and the recipient will be subject
to a 20% excise tax, with respect to that portion of the parachute payments in
excess of such historical average compensation. The parachute payment provisions
of the Code generally apply to employees or other individuals who perform
services for the Company if, within the 12-month period preceding the Change in
Control, the individual is an officer of the Company, a shareholder owning more
than 1% of the stock of the Company, or a member of the group consisting of the
lesser of the highest paid 1% of the employees of the Company or the highest
paid 250 employees of the Company.
The discussion set forth above is intended only as a summary and does not
purport to be a complete enumeration or analysis of all potential tax effects
relevant to recipients of awards under the 2003 Stock Incentive Plan. We have
not undertaken to discuss the tax treatment of awards under the plan in
connection with a merger, consolidation or similar transaction. Such treatment
will depend on the terms of the transaction and the method of dealing with the
awards in connection therewith.
CERTAIN INTERESTS OF DIRECTORS
In considering the recommendation of the Board of Directors with respect to
the 2003 Stock Incentive Plan, stockholders should be aware that members of the
Board of Directors have certain interests that may present them with conflicts
of interest in connection with the proposal to approve the 2003 Stock Incentive
Plan.
As discussed above, directors will be eligible for the grant of Awards
under the 2003 Stock Incentive Plan. Nevertheless, the Board of Directors
believes that approval of the 2003 Stock Incentive Plan will advance the
interests of the Company and its stockholders by encouraging officers, employees
and directors to make significant contributions to the long-term success of the
Company.
37
NEW PLAN BENEFITS
The following table indicates the number of shares of common stock that
would be received in fiscal 2004 under the 2003 Stock Incentive Plan and the
estimated dollar value thereof assuming that awards are made commensurate with
those made in fiscal 2003:
Number of Shares
Name and Position Underlying Grants Dollar Value (1)
----------------- ------------------ ----------------
Charles H. Cotros, CEO 100,000 $688,000
Richard J. Schnieders, CEO 100,000 688,000
Thomas E. Lankford, Pres & COO 75,000 516,000
John K. Stubblefield, Jr., EVP 75,000 516,000
Larry J. Accardi, EVP 75,000 516,000
Kenneth F. Spitler, EVP 75,000 516,000
Executive officers as a group, including the
Named Executive Officers 942,000 6,480,960
Non-employee directors as a group 0 0
All non-executive officers and other employees
as a group 12,708,211 87,432,492
Total 13,650,211 93,913,452
_________________
(1) Assumes a value of $6.88 per option share which is the same as the
hypothetical grant value determined for options granted in fiscal 2003 to
the Named Executive Officers. See note (2) to the chart "Option Grants in
Fiscal 2003."
If this proposal is not approved, the 2000 Stock Incentive Plan will remain
in effect. This proposal will not affect options or other awards already granted
under the 2000 Stock Incentive Plan.
REQUIRED VOTE
The affirmative vote of a majority of votes cast is required to approve
this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
OF THE 2003 STOCK INCENTIVE PLAN.
38
SHAREHOLDER PROPOSAL
ITEM NO. 4 ON THE PROXY CARD
The following proposal was submitted by stockholders who have given notice
that they intend to present for action at the Annual Meeting the resolution
described below. Pursuant to Rule 14a-8(l)(1) promulgated under the Securities
Exchange Act of 1934, the Company will provide the name, address and number of
Company securities held by the proponents of this proposal promptly upon receipt
of a written or oral request.
"RESOLVED: Shareholders request that our Board review the Company's
policies for food products containing genetically engineered (GE)
ingredients and report to shareholders by March 2004. This report,
developed at reasonable cost and omitting proprietary information, will
identify the risks, financial costs (including opportunity costs) and
benefits, and environmental impacts of the continued use of GE-ingredients
in food products sold or manufactured by the company.
For the past three years, several SYSCO institutional investors have
presented concerns regarding GE to the company's attention.
While our Company agreed to form a task force to study issues surrounding
GE food vis-a-vis SYSCO's operations, shareholders are not aware of any
substantive report on this issue. We urge that this report:
1) Identify the scope of the Company's products that are derived from or
contain GE ingredients;
2) Outline a contingency plan for sourcing non-GE ingredients should
circumstances so require.
We believe that in undertaking this review, SYSCO addresses issues of
financial, legal and reputation risk, competitive advantage and brand name
loyalty in the marketplace.
SUPPORTING STATEMENT:
o Fearing that pollen from corn not approved for human consumption may
have spread to nearby fields of ordinary corn, the U.S. Department of
Agriculture requested that 155 acres of Iowa corn be uprooted and
incinerated (9/2002); 500,000 bushels of soybeans in Nebraska were
quarantined due to contamination by small amounts of a test
pharmaceutical/industrial crop (11/2002).
o The National Academy of Sciences report (8/2002) Animal Biotechnology:
Science-Based Concerns cautions that the current regulatory system is
inadequate to address "potential hazards, particularly in the
environmental area." (p. 14)
o Biotechnology companies are encouraged - BUT NOT REQUIRED - to submit
safety-testing data to the FDA for its review. According to the Center
for Science in the Public Interest (1/2003), the FDA lacks both the
authority and the information to adequately evaluate the safety of GE
foods.
o FDA does not assure the safety of GE products; it is the developer's
responsibility to assure that the food is safe.
o In December 2002, StarLink corn, which is not approved for human
consumption, was detected in a U.S. corn shipment to Japan. StarLink
was first discovered to have contaminated U.S. corn supplies in
September 2000, triggering a recall of 300 products. These instances
illustrate the problem controlling GE crops and the sudden and costly
impact on products and markets.
End of GMO Proposal
39
SYSCO's response:
As the leader in the foodservice distribution industry, we recognize the
importance of food safety, not only with respect to the well being of consumers,
but also as it relates to the success and reputation of our Company. The
proponents request that we undertake to review and report on the Company's
policies with respect to genetically engineered food. However, based on the
content of a previous proposal submitted by several of the proponents and on
conversations with representatives of the proponents, we believe that the
ultimate goal of proponents is the removal of all genetically engineered
ingredients from the products we sell. Our management and the Board of Directors
believe that the proposal set forth above should be rejected.
We take every step that is mandated, as well as many more that exceed
government requirements, to verify the safety of the foods we distribute and
that they are developed and processed in accordance with all government
regulations. This also includes our SYSCO Brand products, which are developed
and monitored by our staff of approximately 180 quality assurance professionals.
These individuals are in the fields, on the production lines and in contact with
our suppliers, and they represent a commitment to food safety that is
unsurpassed in the foodservice industry. We believe that the Food and Drug
Administration ("FDA") and other regulatory authorities who are charged with
protecting the health and safety of the public and the environment are
appropriately qualified to make judgments about the labeling and sale of food
products. We take our lead from national food-safety and regulatory authorities,
and we support their efforts to take all steps necessary, based on sound
scientific principles, to assure that any new food technology is safe for
consumers and the environment. SYSCO complies, and will continue to comply, with
all applicable government regulations.
Preparing the report requested by the proponents would require the Company
to first determine which genetic modifications constitute "genetic engineering"
and which do not - a difficult determination because almost all produce grown
for human consumption has been genetically modified to some extent. In a 2000
interview in FDA Consumer magazine, FDA Commissioner Jane E. Henney, M.D.,
pointed out, "When most people talk about bioengineered foods, they are
referring to crops produced by utilizing the modern techniques of biotechnology.
But really, if you think about it, all crops have been genetically modified
through traditional plant breeding for more than a hundred years."
Further, we understand that the use of genetic engineering with respect to
certain raw materials such as corn and soybeans is widespread. We also
understand that current agricultural storage and transportation methods make it
extremely difficult to effectively segregate modified crops from unmodified
crops. This means that any information available from growers or manufacturers
would not necessarily be consistent or accurate. As a result and given the
difficulty of differentiating genetically modified ingredients from their
unmodified counterparts with current test techniques, we believe that the report
requested by the proponents cannot be prepared at a reasonable cost or with any
significant degree of accuracy.
Current federal regulations allow for the sale of products using approved
genetically modified foods. We believe that the proponents of this resolution
should address their demands to the governmental entities overseeing food safety
rather than to a single distributor that does not have food manufacturing
facilities. In addition, the use of biotechnology in foods offers the promise of
benefiting society in several ways, including the reduction of the use of
pesticides, the creation of more nutritious foods, and the possibility of
finding new ways to help feed the world. We believe that the FDA and the
Environmental Protection Agency are in the best position to evaluate and make
decisions about the safety of biotechnology-derived food ingredients, while we
continue to focus on providing our customers with high-quality food products.
Moreover, in a May 2002 report to the U.S. Congress, the U.S. General
Accounting Office ("GAO") stated that "[genetically modified] foods pose the
same types of inherent risks to human health as conventional foods..." The GAO's
report also stated:
40
While some GM foods have contained allergens, toxins, and antinutrients,
the levels have been comparable to those foods' conventional counterparts.
In evaluating GM foods, scientists perform a regimen of tests.
Biotechnology experts whom we contacted agree that this regimen of tests is
adequate in assessing the safety of GM foods.
The text of this report is available at http://www.gao.gov/new.items/d02566.pdf.
The FDA continues to review the safety of foods, including those derived
through biotechnology. SYSCO is committed to using only safe and approved
ingredients in its products and all of our products comply with national food
laws and labeling regulations. In view of SYSCO's alignment with the current
policies of U.S. regulatory bodies on this matter, it would be inappropriate and
costly for SYSCO to undertake the report requested by the proponents.
The Company will continue to develop and revise plans as required to
address business and food safety issues as they arise. These issues are critical
to the Company's business. However, the publication of the Company's business
plans as requested would compromise its efforts and business. The proposed
report would require the Company (i) to make public confidential and proprietary
business information regarding its products and business plans; and (ii) to make
highly speculative scientific and environmental judgments about issues which the
Company is not in a position to evaluate independently. Such a report would not
advance consumer safety, but it would jeopardize the business interests of the
Company and its stockholders as a result of the publication of confidential
business plans, proprietary information and speculative scientific and
environmental judgment.
The Company opposes this proposal on the basis that it would require
significant cost and business risks without the prospect of advancing food
safety. The Company does emphasize that it is committed to the use of only those
ingredients that meet its high quality and safety standards and will continue to
support the efforts of regulatory authorities to take whatever steps are
necessary to assure that any new food technology is safe for consumers and the
environment. The Company's stockholders and consumers can count on its
compliance with all such regulations. Particularly in light of the scientific
and regulatory attention being given to the use of genetically modified
ingredients, the Company believes that preparation and publication of the report
requested in this proposal would not constitute an effective use of the
Company's assets.
The affirmative vote of a majority of votes cast is required to approve
this proposal. A similar proposal was presented to SYSCO stockholders in 2002.
That proposal was soundly defeated, receiving less than a 6% favorable vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE PROPOSAL ON
GENETICALLY ENGINEERED FOOD.
INDEPENDENT PUBLIC ACCOUNTANTS
On March 27, 2002, the company dismissed Arthur Andersen LLP as its
principal accountant and engaged Ernst & Young LLP as its principal accountant.
The decision to change principal accountants was recommended by the Audit
Committee and was approved by the Board of Directors. The Company had not
consulted with E&Y on any matter during fiscal 2000 or 2001 or prior to their
engagement in fiscal 2002.
Andersen's reports on the consolidated financial statements of the Company
for fiscal 2000 and 2001 did not contain an adverse opinion or a disclaimer of
opinion, nor were such reports qualified or modified as to uncertainty, audit
scope, or accounting principles. During fiscal 2000 and 2001, there have been no
disagreements with Andersen on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which, if not
resolved to the satisfaction of Andersen, would have caused it to make reference
41
to the subject matter in connection with its reports on the Company's
consolidated financial statements for such years, nor have there been any
reportable events as listed in Item 304(a)(1)(v) of Regulation S-K.
Ernst & Young LLP has served as the Company's independent public
accountants providing auditing, financial and tax services since their
engagement in fiscal 2002, and will continue to provide such services during
fiscal 2004. We expect that representatives of Ernst & Young LLP will be present
at the Annual Meeting and will have the opportunity to make a statement if they
desire to do so. They will also be available to respond to appropriate
questions.
STOCKHOLDER PROPOSALS
PRESENTING BUSINESS
If you want to present a proposal under Rule 14a-8 of the Exchange Act at
our 2004 Annual Meeting of Stockholders, send the proposal in time for us to
receive it by May 29, 2004. If the date of our 2004 Annual Meeting is
subsequently changed by more than 30 days from the date of this year's Annual
Meeting, we will inform you of the change and the date by which we must receive
proposals. If you want to present business at our 2004 Annual Meeting outside of
the shareholder proposal rules of Rule 14a-8 of the Exchange Act, the Secretary
must receive notice of your proposal by August 9, 2004, but not before June 30,
2004 and you must be a stockholder of record on the date notice to stockholders
is mailed and on the record date for determining stockholders entitled to notice
of the meeting and to vote.
NOMINATING DIRECTORS FOR ELECTION
The Corporate Governance and Nominating Committee will consider any
director nominees you recommend in writing for the 2004 Annual Meeting if the
Secretary receives notice by August 9, 2004, but not before June 30, 2004 and
you are a stockholder of record on the date notice to stockholders is mailed and
on the record date for determining stockholders entitled to notice of the
meeting and to vote.
Your notice must include the following information for each person you are
nominating for election as a director:
o the name, age, business address and residence address of the person;
o the principal occupation or employment of the person;
o the class or series and number of shares of SYSCO capital stock which
the person owns beneficially or of record; and
o any other information relating to the person that must be disclosed in
a proxy statement or other filings required to be made in connection
with solicitations of proxies for election of directors under Section
14 of the Exchange Act and its rules and regulations.
In addition, your notice must include the following information about
yourself:
o your name and record address;
o the class or series and number of shares of capital stock of SYSCO
that you own beneficially or of record;
o a description of all arrangements or understandings between you and
each proposed nominee and any other person or persons, including their
names, pursuant to which the nomination(s) are to be made;
o a representation that you intend to appear in person or by proxy at
the meeting to nominate the person or persons named in your notice;
and
42
o 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 in accordance
with the procedures set forth above.
If the date of next year's Annual Meeting is advanced by more than 30 days
prior to or delayed by more than 60 days after the date of this year's Annual
Meeting, we will inform you of the change and we must receive your director
nominee notices by the latest of 90 days before the Annual Meeting, 10 days
after we mail the notice of the changed date of the Annual Meeting or 10 days
after we publicly disclose the changed date of the Annual Meeting.
43
APPENDIX A
SYSCO CORPORATION
AUDIT COMMITTEE CHARTER
ORGANIZATION
The Board of Directors of SYSCO Corporation shall establish an Audit Committee.
The Audit Committee shall have a minimum of three members and be composed
entirely of directors who are independent of the management of SYSCO, are free
of any relationship that, in the affirmative opinion of the Board, would
interfere with their exercise of independent judgment as a Committee member, who
are financially literate, and who otherwise meet the NYSE's definition of
"independent" and the definition of "independence" contained in Section
10A(m)(3) of the Securities Exchange Act of 1934, as amended. At least one
member of the Committee shall be a "financial expert" as such term is defined in
rules to be promulgated by the Securities and Exchange Commission. Committee
members cannot serve on the audit committees of more than two other companies.
STATEMENT OF POLICY
The Audit Committee shall provide assistance to the directors in fulfilling
their responsibilities to shareholders, potential shareholders, and the
investment community with respect to corporate accounting, reporting practices,
and quality and integrity of the financial reports of SYSCO. In the performance
of its responsibilities, the Audit Committee must maintain free and open means
of communication among the directors, the independent auditors, SYSCO's internal
audit department ("Operations Review"), and executive and financial management.
The Audit Committee shall have full access, without restriction, to all
information which it believes, in the members' judgment, is required to fulfill
its responsibilities. The independent auditors are accountable to the Board of
Directors and the Audit Committee as shareholder representatives.
In executing its responsibilities, the Audit Committee's policies and procedures
should be flexible in order to best react to changing conditions, and to insure
that the accounting and reporting practices of SYSCO meet or exceed all
applicable legal and regulatory requirements. In carrying out its
responsibilities, the Audit Committee shall meet at least four times annually.
RESPONSIBILITY WITH RESPECT TO INDEPENDENT AUDITORS
With respect to the Company's independent auditors, the Committee shall:
o Select and oversee the independent auditors who shall audit the
consolidated financial statements of SYSCO Corporation and its
divisions and subsidiaries; with sole power of dismissal.
o Approve fee arrangements with the independent auditors for audit and
non-audit services and annually review fees paid to the firm.
o Review the experience and qualifications of the senior members of the
independent auditor's team.
o Pre-approve the retention of the independent auditors for any audit
(including comfort letters and statutory audits) or non-audit service.
o Review and discuss with the independent auditors and with management,
the annual audited financial statements and management's discussion
and analysis contained in the annual report to shareholders and Form
10-K prior to release to the public or filing with the appropriate
agencies.
44
o Review and discuss with the independent auditors and with management,
the earnings press releases prior to release to the public.
o Require that the independent auditors conduct an SAS 71 Interim
Financial Review before the Company files its Form 10-Q.
o Meet with the independent auditors at the conclusion of the audit to
review the results. Discuss the independent auditors' evaluation of
SYSCO's financial, accounting, and auditing personnel, the level of
cooperation that the independent auditors received during the course
of the audit, accounting adjustments, significant auditing or
accounting issues and any management or internal control letters
issued or proposed to be issued.
o Review and discuss with management and 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.
o Obtain and review at least annually a written report from the
independent auditors describing their internal quality control
procedures; any material issues raised by the most recent internal
quality control review, or peer review, of them, or by any inquiry or
investigation by governmental or professional authorities, within the
preceding five years, respecting one or more independent audits
carried out by them and any steps taken to deal with any such issues;
all relationships between the independent auditor and the Company.
After reviewing this report, the Committee should evaluate the
independent auditor's qualifications, performance and independence and
present its conclusions to the full Board.
o Obtain and review at least annually a written report from the
independent auditors describing all critical accounting policies and
practices to be used by SYSCO; all alternative treatments of financial
information within generally accepted accounting principles that have
been discussed with SYSCO management; ramifications of the use of such
alternative disclosures and treatments, and the treatments preferred
by the independent auditors; and other material written communications
between the independent auditors and management, such as any
management letter or schedule of unadjusted differences.
o Require the independent auditors to provide a formal written statement
that delineates all relationships between the independent auditor and
SYSCO. The Committee will ensure, through communicating with the
independent auditor, that no relationship or services will impact the
auditor's independence or objectivity.
RESPONSIBILITY WITH RESPECT TO OTHER MATTERS
With respect to other matters, the Committee shall:
o Meet separately, at least quarterly with Operations Review, with the
independent auditors, and with management.
o Review at least annually, with the independent auditors, Operations
Review, and executive and financial management the adequacy and
effectiveness of SYSCO's accounting and financial controls and
practices. Discuss significant major financial risks and exposures and
steps management has taken to monitor and control such exposures.
Request recommendations for improvement of such controls, including
identified areas where new or more detailed controls or procedures are
45
desirable. Particular emphasis should be given to the adequacy of such
controls to expose any payments, transactions, or procedures that
might be deemed illegal or otherwise improper.
o Meet with the independent auditors and executive and financial
management to review the scope of the proposed audit for the ensuing
fiscal year including the audit procedures to be employed.
o Review the adoption, application and disclosure of the Company's
critical accounting policies and any changes thereto.
o Review periodically SYSCO's Code of Business Conduct, including the
results of the review by Operations Review of compliance with the
Code, particularly with regard to the functioning of the ethics
committees at SYSCO and its subsidiaries.
o Review SYSCO's Operations Review function including its performance,
independence and authority, its proposed audit plans and scope for the
ensuing year, and the coordination of such plans with the independent
auditors.
o Receive prior to each meeting as appropriate, from the Operations
Review function and the independent auditors, reports summarizing the
findings of completed internal reviews, and a progress report of
accomplished versus planned activities. Any deviations from planned
activities should be adequately explained.
o Review and approve the Committee's report required by the SEC to be
included in the Company's annual Proxy Statement.
o Review and approve significant related party transactions.
o Determine that the disclosures and content of the financial statements
are satisfactory for submission to the shareholders and for filing
with the Securities and Exchange Commission. Such determination will
be made through discussions with independent auditors and executive
and financial management.
o Establish procedures for the receipt, retention and treatment of
complaints received by SYSCO regarding accounting, internal accounting
controls or auditing matters, and the confidential, anonymous
submission by employees of concerns regarding questionable accounting
or auditing matters.
o Review public reports and articles brought to the Committee's
attention by the auditors or management in which SYSCO accounting
practices are mentioned.
o Review the quality and sufficiency of the accounting and financial
resources required to meet the financial and reporting objectives as
determined by the Committee. Review the succession planning process
for the accounting and financial areas.
o 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.
o Review all allegations brought to the Committee's attention,
regardless of source, of inappropriate or improper accounting
practices.
o Investigate any matter brought to its attention within the scope of
its duties. The Committee shall have the power to retain outside
counsel and/or advisors, including a public accounting firm other than
the current independent auditor, if, in its judgment, that is
46
appropriate and shall have appropriate funding to compensate such
advisors.
o Discuss financial information and earnings guidance provided to
analysts and rating agencies.
o Submit the minutes of all meetings of the Committee to, or orally
report the matters discussed at each committee meeting with, the Board
of Directors.
o Establish a standard of conduct concerning relationships of
management, the Committee, and individual Board members, with the
independent auditors and review those relationships on an annual
basis.
o Evaluate annually the performance of the Audit Committee.
o Review and assess the adequacy of this Charter annually and recommend
any changes to the Board for approval.
47
APPENDIX B
SYSCO CORPORATION
2003 STOCK INCENTIVE PLAN
SECTION 1
GENERAL
1.1 Purpose. The SYSCO Corporation 2003 Stock Incentive Plan (the "Plan")
has been established by SYSCO Corporation (the "Company") to (i) attract and
retain persons eligible to participate in the Plan; (ii) motivate 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 shareholders
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 8(i), including the growth in value of the Company's equity
and enhancement of long-term shareholder return. Pursuant to the Plan,
Participants may receive Options, SARs, or Other Stock Awards, each as defined
herein (collectively referred to as "Awards.")
1.2 Participation. Subject to the terms and conditions of the Plan, the
Committee (as defined in Section 6) shall determine and designate, from time to
time, from among the Eligible Grantees, as defined in Section 8(g) (including
transferees of Eligible Grantees to the extent the transfer is permitted by the
Plan and the applicable Award Agreement), those persons who will be granted one
or more Awards under the Plan, and thereby become "Participants" in the Plan. In
the discretion of the Committee, a Participant may be granted any Award
permitted under the provisions of the Plan, and more than one Award may be
granted to a Participant. Awards may be granted as alternatives to or
replacement of awards outstanding under the Plan, or any other plan or
arrangement of the Company or a Subsidiary (including a plan or arrangement of a
business or entity, all or a portion of which is acquired by the Company or a
Subsidiary).
1.3 Operation, Administration, and Definitions. The operation and
administration of the Plan, including the Awards made under the Plan, shall be
subject to the provisions of Section 4 (relating to operation and
administration). Capitalized terms in the Plan shall be defined as set forth in
the Plan (including the definition provisions of Section 8 of the Plan).
SECTION 2
OPTIONS AND SARS
2.1 Definitions.
(a) The grant of an "Option" entitles the Participant to purchase shares of
Stock at an Exercise Price established by the Committee. Options granted under
this Section 2 may either be Incentive Stock Options ("ISOs") or Non-Qualified
Options ("NQOs"), as determined in the discretion of the Committee. An "ISO" is
an Option that is intended to satisfy the requirements applicable to an
"incentive stock option" described in section 422(b) of the Internal Revenue
Code of 1986, as amended (the "Code"). An "NQO" is an Option that is not
intended to be an "incentive stock option" as that term is described in section
422(b) of the Code.
(b) A stock appreciation right (an "SAR") entitles the Participant to
receive, in cash or Stock (as determined in accordance with subsection 2.5),
value equal to (or otherwise based on) the excess of: (a) the Fair Market Value
(as defined in Section 8) of a specified number of shares of Stock at the time
of exercise; over (b) an Exercise Price established by the Committee.
48
2.2 Exercise Price. The Exercise Price of each Option and SAR granted under
this Section 2 shall be established by the Committee or shall be determined by a
method established by the Committee at the time the Option or SAR is granted;
provided, however, that the Exercise Price shall not be less than 100% of the
Fair Market Value of a share of Stock on the date of grant of the Award and no
Option or SAR may be repriced in violation of Section 7 below.
2.3 Exercise. An Option and an SAR shall be exercisable in accordance with
such terms and conditions and during such periods as may be established by the
Committee; provided, however, that if a Participant shall die while in the
employ of the Company or a Subsidiary and shall not have fully exercised an
Option or SAR, to the extent that the Participant's right to exercise such
Option or SAR had accrued pursuant to this Section 2 of the Plan at the time of
his death and had not previously been exercised, the Option or SAR may be
exercised (subject to the condition that no Option or SAR shall be exercisable
after the expiration of ten years from the date it is granted, or beyond its
original term) at any time within one (1) year after the Participant's death, by
the executors or administrators of the Participant's estate or by any person or
persons who shall have acquired the Option or SAR directly from the Participant
by bequest or inheritance.
2.4 Payment of Option Exercise Price. The payment of the Exercise Price of
an Option granted under this Section 2 shall be subject to the following:
(a) Subject to the following provisions of this subsection 2.4, the full
Exercise Price for shares of Stock purchased upon the exercise of any Option
shall be paid at the time of such exercise (except that, in the case of an
exercise arrangement approved by the Committee and described in paragraph
2.4(c), payment may be made as soon as practicable 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 Award. Shares of Stock delivered pursuant to the exercise
of an Option or SAR shall be subject to such conditions, restrictions and
contingencies as the Committee may establish in the applicable Award Agreement.
Settlement of SARs may be made in shares of Stock (valued at their Fair Market
Value at the time of exercise), in cash, or in a combination thereof, as
determined in the discretion of the Committee. 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 or an SAR as the
Committee determines to be desirable.
SECTION 3
OTHER STOCK AWARDS
3.1 Definitions. The term "Other Stock Awards" means any of the following:
(a) A "Stock Unit" Award is the grant of a right to receive shares of Stock
in the future.
49
(b) A "Performance Share" Award is a grant of a right to receive shares of
Stock or Stock Units which is contingent on the achievement of performance or
other objectives during a specified period.
(c) A "Restricted Stock" Award is a grant of shares of Stock, and a
"Restricted Stock Unit" Award is the grant of a right to receive shares of Stock
in the future, with such shares of Stock or right to future delivery of such
shares of Stock subject to a risk of forfeiture or other restrictions that will
lapse upon the achievement of one or more goals relating to completion of
service by the Participant, or achievement of performance or other objectives,
as determined by the Committee.
3.2 Restrictions on Stock Awards. Each Stock Unit Award, Restricted Stock
Award, Restricted Stock Unit Award and Performance Share Award shall be subject
to the following:
(a) Any such Award shall be subject to such conditions, restrictions and
contingencies as the Committee shall determine.
(b) The Committee may designate whether any such Awards being granted to
any Participant are intended to be "performance-based compensation" as that term
is used in Section 162(m) of the Code. Any such Awards designated as intended to
be "performance-based compensation" shall be conditioned on the achievement of
one or more Performance Measures. The Performance Measures that may be used by
the Committee for such Awards shall be based on any one or more of the
following, as selected by the Committee: return on capital or increase in pretax
earnings of the Company and/or one or more divisions and/or subsidiaries, return
on stockholders' equity of the Company, increase in earnings per share of the
Company, sales of the Company and/or one or more divisions and/or subsidiaries,
pretax earnings of the Company and/or one or more divisions and/or subsidiaries,
net earnings of the Company and/or one or more divisions and/or subsidiaries,
control of operating and/or non-operating expenses of the Company and/or one or
more divisions and/or subsidiaries, margins of the Company and/or one or more
divisions and/or subsidiaries, market price of the Company's securities and
other objectively measurable factors directly tied to the performance of the
Company and/or one or more divisions and/or subsidiaries. For Awards intended to
be "performance-based compensation," the grant of the Awards and the
establishment of the Performance Measures shall be made during the period
required under Code Section 162(m).
SECTION 4
OPERATION AND ADMINISTRATION
4.1 Effective Date; Duration. The Plan shall be effective as of the date of
its approval by the stockholders of the Company (the "Effective Date"). The Plan
shall have a duration of ten years from the Effective Date; provided that in the
event of Plan termination, the Plan shall remain in effect as long as any Awards
under it are outstanding; provided further, however, that no Award may be
granted under the Plan on a date that is more than ten years from the Effective
Date.
4.2 Awards Subject to Plan. Awards granted under the Plan shall be subject
to the following:
(a) Subject to the following provisions of this subsection 4.2, the maximum
number of shares of Stock that may be delivered to Participants and their
beneficiaries under the Plan shall be equal to the sum of: (i) 25 million shares
of Stock; (ii) any shares of Stock available for future awards under the
Company's 2000 Stock Incentive Plan (the "2000 Plan") as of the Effective Date;
(iii) any shares of Stock that are represented by awards granted under the
Company's 1991 Stock Option Plan or the 2000 Plan as of the Effective Date
(together, the "Prior Plans") which are forfeited, expire or are canceled
without delivery of shares of Stock; (iv) up to 10 million shares of Stock, to
the extent authorized by the Board, which are reacquired by the Company in the
open market or in private transactions after the Effective Date; and (v) up to 5
million shares of stock tendered by Participants in connection with the exercise
of Options granted under the Plan or either of the Prior Plans.
50
(b) To the extent any shares of Stock covered by an Award are not delivered
to a Participant or beneficiary because the Award is forfeited or canceled, or
the shares of Stock are not delivered because the Award is settled in cash or
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 4.2(d) and 4.2(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 4.2(a) of the Plan, the aggregate maximum
number of shares of Stock that may be issued (A) pursuant to Options intended to
be ISOs and (B) in conjunction with Other Stock Awards granted pursuant to
Section 3 shall be [118,000,000];
(ii) The maximum number of shares of Stock that may be covered by Awards
granted to any one individual pursuant to Section 2 (relating to Options and
SARs) shall be 250,000 during any fiscal year; and
(iii) No more than 100,000 shares of Stock may be subject to Stock Unit
Awards, Restricted Stock Awards, Restricted Stock Unit Awards and Performance
Share Awards that are intended to be "performance-based compensation" (as that
term is used for purposes of Code Section 162(m)) granted to any one individual
during any one fiscal-year period (regardless of when such shares are
deliverable).
(d) If the outstanding shares of Stock are changed into or exchanged for a
different number or kind of shares or other securities of the Company by reason
of any recapitalization, reclassification, stock split, stock dividend,
combination, subdivision or similar transaction (each, a "Corporate
Transaction") then, subject to any required action by the stockholders of the
Company, the number and kind of shares of Company stock available under the Plan
or subject to any limit or maximum hereunder shall automatically be
proportionately adjusted, with no action required on the part of the Committee
or otherwise. Subject to any required action by the stockholders, the number of
shares covered by each outstanding Award, and the price per share in each such
Award, may, at the discretion of the Committee, be proportionately adjusted for
any increase or decrease in the number of issued shares of the Company resulting
from a Corporate Transaction or any other increase or decrease in the number of
such shares effected without receipt of consideration by the Company.
Notwithstanding the foregoing, no fractional shares shall be issued or made
subject to an Option, SAR or Stock Award in making the foregoing adjustments.
All adjustments made by the Committee under this Section shall be final,
conclusive and binding upon the holders of Options, SARS and Stock Awards.
(e) If the Company merges or consolidates with another corporation, whether
or not the Company is a surviving corporation, or if the Company is liquidated
or sells or otherwise disposes of substantially all of its assets while
unexercised Options or other Awards remain outstanding under this Plan, (A)
subject to the provisions of clause (C) below, after the effective date of the
merger, consolidation, liquidation, sale or other disposition, as the case may
be, each holder of an outstanding Option or other Award shall be entitled, upon
exercise of that Option or Award or in place of it, as the case may be, to
receive, at the option of the Committee and in lieu of shares of Stock, (i) the
number and class or classes of shares of Stock or other securities or property
to which the holder would have been entitled if, immediately prior to the
merger, consolidation, liquidation, sale or other disposition, the holder had
been the holder of record of a number of shares of Stock equal to the number of
shares of Stock as to which that Option may be exercised or are subject to the
Award or (ii) shares of stock of the company that is the surviving corporation
in such merger, consolidation, liquidation, sale or other disposition having a
value, as of the date of payment under subjection 4.2(e)(i) as determined by the
51
Committee in its sole discretion, equal to the value of the shares of Stock or
other securities or property otherwise payable under subsection 4.2(e)(i); (B)
if Options or other Awards have not already become exercisable under Section 5
hereof, the Board of Directors may waive any limitations set forth in or imposed
pursuant to this Plan so that all Options or other Awards, from and after a date
prior to the effective date of that merger, consolidation, liquidation, sale or
other disposition, as the case may be, specified by the Board of Directors,
shall be exercisable in full; and (C) all outstanding Options or SARs may be
cancelled by the Board of Directors as of the effective date of any merger,
consolidation, liquidation, sale or other disposition provided that any optionee
or SAR holder shall have the right immediately prior to such event to exercise
his or her Option or SAR to the extent such optionee or holder is otherwise able
to do so in accordance with this Plan (including Section 5 hereof) or his
individual Option or SAR agreement; provided, further, that any such
cancellation pursuant to this Section 4.2(e) shall be contingent upon the
payment to the affected Participants of an amount equal to (i) in the case of
any out-of-the-money Option or SAR, cash, property or a combination thereof
having an aggregate value equal to the value of such Option or SAR, as
determined by the Committee or the Board of Directors, as applicable, in its
sole discretion, and (ii) in the case of an in-the-money Option or SAR, cash,
property or a combination thereof having an aggregate value equal to the excess
of the value of the per-share amount of consideration paid pursuant to the
merger, consolidation, liquidation, sale or other disposition, as the case may
be, giving rise to such cancellation, over the exercise price of such Option or
SAR multiplied by the number of shares of Stock subject to the Option or SAR.
(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 4.2(e) shall be made by the Board
or Committee, as the case may be, whose determination in that respect shall be
final, binding and conclusive, regardless of whether or not any such adjustment
shall have the result of causing an ISO to cease to qualify as an ISO.
(h) Except as hereinbefore expressly provided in this Section 4, a
Participant shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class or the payment of any stock dividend or any
other increase or decrease in the number of shares of stock of any class or by
reason of any dissolution, liquidation, merger, or consolidation or spin-off of
assets or stock of another corporation, and any issue by the Company of shares
of stock of any class, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Stock subject to
an Award, unless the Committee shall otherwise determine.
(i) The grant of any Award pursuant to this Plan shall not affect in any
way the right or power of the Company (A) to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, (B) to merge or consolidate, (C) to dissolve, liquidate or sell, or
transfer all or any part of its business or assets or (D) to issue any bonds,
debentures, preferred or other preference stock ahead of or affecting the Stock.
If any action described in the preceding sentence results in a fractional share
for any Participant under any Award hereunder, such fraction shall be completely
disregarded and the Participant shall only be entitled to the whole number of
shares resulting from such adjustment.
4.3 General Restrictions. Delivery of shares of Stock or other amounts
under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company shall have
no liability to deliver any shares of Stock under the Plan or make any other
distribution of benefits under the Plan unless such delivery or distribution
52
would comply with all applicable laws (including, without limitation, the
requirements of the Securities Act of 1933), and the applicable requirements of
any securities exchange or similar entity.
(b) To the extent that the Plan provides for issuance of stock certificates
to reflect the issuance of shares of Stock, the issuance may be effected on a
non-certificated basis, to the extent not prohibited by applicable law or the
applicable rules of any stock exchange.
4.4 Tax Withholding. All distributions under the Plan are subject to
withholding of all applicable taxes, and the Committee may condition the
delivery of any shares or other benefits under the Plan on satisfaction of the
applicable withholding obligations. The Committee, in its discretion, and
subject to such requirements as the Committee may impose prior to the occurrence
of such withholding, may permit such withholding obligations to be satisfied
through cash payment by the Participant, through the surrender of shares of
Stock which the Participant already owns, or through the surrender of shares of
Stock to which the Participant is otherwise entitled under the Plan, but only to
the extent of the minimum amount required to be withheld under applicable law.
4.5 Use of Shares. Subject to the overall limitation on the number of
shares of Stock that may be delivered under the Plan, the Committee may use
available shares of Stock as the form of payment for compensation, grants or
rights earned or due under any other compensation plans or arrangements of the
Company or a Subsidiary, including the plans and arrangements of the Company or
a Subsidiary assumed in business combinations.
4.6 Dividends and Dividend Equivalents. An Award (including without
limitation an Option or SAR Award) may provide the Participant with the right to
receive dividend payments or dividend equivalent payments with respect to Stock
subject to the Award (both before and after the Stock subject to the Award 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.
4.7 Payments. Awards may be settled through cash payments, the delivery of
shares of Stock, the granting of replacement Awards, or any combination thereof
as the Committee shall determine. Any Award settlement, including payment
deferrals, may be subject to such conditions, restrictions and contingencies as
the Committee shall determine. The Committee may permit or require the deferral
of any Award payment, subject to such rules and procedures as it may establish,
which may include provisions for the payment or crediting of interest, or
dividend equivalents, including converting such credits into deferred Stock
equivalents. Each Subsidiary shall be liable for payment of cash due under the
Plan with respect to any Participant to the extent that such benefits are
attributable to the services rendered for that Subsidiary by the Participant.
Any disputes relating to liability of a Subsidiary for cash payments shall be
resolved by the Committee.
4.8 Transferability. Except as otherwise provided by the Committee, Awards
under the Plan are not transferable except as designated by the Participant by
will or by the laws of descent and distribution.
4.9 Form and Time of Elections. Unless otherwise specified herein, each
election required or permitted to be made by any Participant or other person
entitled to benefits under the Plan, and any permitted modification, or
revocation thereof, shall be in writing filed with the Committee at such times,
in such form, and subject to such restrictions and limitations, not inconsistent
with the terms of the Plan, as the Committee shall require.
4.10 Agreement With Company. An Award under the Plan shall be subject to
such terms and conditions, not inconsistent with the Plan, as the Committee
shall, in its sole discretion, prescribe. The terms and conditions of any Award
to any Participant shall be reflected in such form of written document as is
53
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 document is referred to in the Plan as
an "Award Agreement" regardless of whether any Participant signature is
required.
4.11 Action by Company or Subsidiary. Any action required or permitted to
be taken by the Company or any Subsidiary shall be by resolution of its board of
directors, or by action of one or more members of the board (including a
committee of the board) who are duly authorized to act for the board, or (except
to the extent prohibited by applicable law or applicable rules of any stock
exchange) by a duly authorized officer of such company.
4.12 Gender and Number. Where the context admits, words in any gender shall
include any other gender, words in the singular shall include the plural and the
plural shall include the singular.
4.13 Limitation of Implied Rights.
(a) Neither a Participant nor any other person shall, by reason of
participation in the Plan, acquire any right in or title to any assets, funds or
property of the Company or any Subsidiary whatsoever, including, without
limitation, any specific funds, assets, or other property which the Company or
any Subsidiary, in its sole discretion, may set aside in anticipation of a
liability under the Plan. A Participant shall have only a contractual right to
the Stock or amounts, if any, payable under the Plan, unsecured by any assets of
the Company or any Subsidiary, and nothing contained in the Plan shall
constitute a guarantee that the assets of the Company or any Subsidiary shall be
sufficient to pay any benefits to any person.
(b) The Plan does not constitute a contract of employment, and selection as
a Participant will not give any participating employee the right to be retained
in the employ of the Company or any Subsidiary, nor any right or claim to any
benefit under the Plan, unless such right or claim has specifically accrued
under the terms of the Plan. Except as otherwise provided in the Plan, no Award
under the Plan shall confer upon the holder thereof any rights as a shareholder
of the Company prior to the date on which the individual fulfills all conditions
for receipt of such rights.
4.14 Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and shall be signed, made or presented by
the proper party or parties.
4.15 Forfeiture. Notwithstanding any other provision of this Plan, except
as provided in Section 4.16 below, if the Committee finds by a majority vote
that, with respect to a Participant who was an employee or consultant of the
Company or a Subsidiary at any time that an Award hereunder is outstanding: (i)
the Participant, before or after termination of his or her employment or
consulting relationship with the Company or a Subsidiary (as used in this
Section 4, an "Employer") for any reason, (a) committed fraud, embezzlement,
theft, a felony, or proven dishonesty in the course of his employment or other
engagement by Employer, and by such act damaged Employer, or (b) disclosed trade
secrets of Employer; or (ii) the Participant, before or after termination of his
employment or consulting relationship with Employer for any reason,
participated, engaged or had a financial or other interest (whether as an
employee, officer, director, consultant, contractor, shareholder, owner, or
otherwise) in any commercial endeavor in the United States competitive with the
business of Employer (a) in violation of the SYSCO Corporation Code of Business
Conduct, as in effect on the date of such participation or other engagement, or
(b) in such a manner that would have violated the Code of Business Conduct had
Participant been employed by Employer at the time of the activity in question,
then any outstanding Awards which, in the case of Options or SARs, have not been
exercised and, in the case of Awards other than Options or SARs, have not
54
vested, will be forfeited. The decision of the Committee as to the nature of a
Participant's conduct, the damage done to Employer and the extent of the
Participant's competitive activity will be final. No decision of the Committee,
however, will affect the finality of the discharge of the Participant by
Employer in any manner.
4.16 Termination of Employment Following Change in Control. In the event
that the employment of a Participant who is an employee of the Company or a
Subsidiary is terminated by the Company other than for Cause, as defined in
Section 8(d), during the 24-month period following a Change in Control, as
defined in Section 8(e), all of such Participant's outstanding Options and SARs
may thereafter be exercised by the Participant, to the extent that such Options
and SARs were exercisable as of the date of such termination of employment, for
(x) a period of 24 months from such date of termination or (y) until expiration
of the stated term of such Option or SAR, whichever period is the shorter. The
provisions of clause (ii) of Section 4.15 of the Plan shall not apply to any
Participant who incurs a termination of employment pursuant to this Section
4.16, with respect to activity after such termination of employment.
SECTION 5
CHANGE IN CONTROL
Subject to the provisions of paragraph 4.2(d) (relating to the adjustment
of shares), and except as otherwise provided in the Plan or the Award Agreement
reflecting the applicable Award, upon the occurrence of a Change in Control as
defined in Section 8(e):
(a) All outstanding Options (regardless of whether in tandem with SARs)
shall become fully exercisable.
(b) All outstanding SARs (regardless of whether in tandem with Options)
shall become fully exercisable.
(c) All Stock Units, Restricted Stock, Restricted Stock Units, and
Performance Shares shall become fully vested.
SECTION 6
COMMITTEE
6.1 Administration. The authority to control and manage the operation and
administration of the Plan shall be vested in a committee (the "Committee") in
accordance with this Section 6. The Committee shall be selected by the Board,
and shall consist solely of two or more members of the Board who are nonemployee
directors within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934, as amended, and are outside directors within the meaning of Code Section
162(m). If the Committee does not exist, or for any other reason determined by
the Board, the Board may take any action under the Plan that would otherwise be
the responsibility of the Committee. Unless otherwise determined by the Board,
SYSCO's Compensation and Stock Option Committee shall be designated as the
"Committee" hereunder.
6.2 Powers of Committee. The Committee's administration of the Plan shall
be subject to the following:
(a) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to select from among the Eligible Grantees those
persons who shall receive Awards, to determine the time or times of receipt, to
determine the types of Awards and the number of shares covered by the Awards, to
establish the terms, conditions, performance criteria, restrictions, and other
provisions of such Awards, and (subject to the restrictions imposed by Section
7) to cancel or suspend Awards.
55
(b) To the extent that the Committee determines that the restrictions
imposed by the Plan preclude the achievement of the material purposes of the
Awards in jurisdictions outside the United States, the Committee will have the
authority and discretion to modify those restrictions as the Committee
determines to be necessary or appropriate to conform to applicable requirements
or practices of jurisdictions outside of the United States.
(c) The Committee will have the authority and discretion to interpret the
Plan, to establish, amend, and rescind any rules and regulations relating to the
Plan, to determine the terms and provisions of any Award Agreement made pursuant
to the Plan, and to make all other determinations that may be necessary or
advisable for the administration of the Plan.
(d) Any interpretation of the Plan by the Committee and any decision made
by it under the Plan is final and binding on all persons.
(e) In controlling and managing the operation and administration of the
Plan, the Committee shall take action in a manner that conforms to the
certificate of incorporation and by-laws of the Company, and applicable state
corporate law.
6.3 Delegation by Committee. Except to the extent prohibited by applicable
law or the applicable rules of a stock exchange, the Committee may allocate all
or any portion of its responsibilities and powers to any one or more of its
members and may delegate all or any part of its responsibilities and powers
hereunder, including without limitation, the power to designate Participants
hereunder and determine the amount, timing and terms of Awards hereunder, to any
person or persons selected by it, including without limitation, any executive
officer of the Company. Any such allocation or delegation may be revoked by the
Committee at any time.
6.4 Information to be Furnished to Committee. The Company and Subsidiaries
shall furnish the Committee with such data and information as it determines may
be required for it to discharge its duties. The records of the Company and
Subsidiaries as to an employee's or Participant's employment, termination of
employment, leave of absence, reemployment and compensation shall be conclusive
unless the Committee determines such records to be incorrect. Participants and
other persons entitled to benefits under the Plan must furnish the Committee
such evidence, data or information as the Committee considers desirable to carry
out the terms of the Plan.
SECTION 7
AMENDMENT AND TERMINATION
(a) The Plan may be terminated or amended by the Board of Directors at any
time, except that the following actions may not be taken without shareholder
approval:
(i) any increase in the number of shares that may be issued under the Plan
(except by certain adjustments provided for under the Plan);
(ii) any change in the class of persons eligible to receive ISOs under the
Plan;
(iii) any change in the requirements of Section 2.2 hereof regarding the
Exercise Price;
(iv) any repricing of any Option or SAR issued under the Plan by (A)
lowering the exercise price of that Option or SAR or (B) canceling that Option
or SAR and subsequently granting a new Option or SAR with a lower exercise
price, or any other Award, to the extent that such cancellation, replacement or
grant would fall within the definition of "repriced" contained in Item 402(i) of
Regulation S-K promulgated under the Securities Act of 1933, such definition to
56
be applied to grants to all persons, not only "named executive officers" as that
term is defined in Item 402(a)(3) of Regulation S-K; or
(v) any other amendment to the Plan that would require approval of the
Company's shareholders under applicable law, regulation or rule.
Notwithstanding any of the foregoing, adjustments pursuant to paragraph 4.2(d)
shall not be subject to the foregoing limitations of this Section 7.
(b) Options may not be granted under the Plan after the date of termination
of the Plan, but Options granted prior to that date shall continue to be
exercisable according to their terms.
SECTION 8
DEFINED TERMS
In addition to the other definitions contained herein, the following
definitions shall apply:
(a) Affiliated Company. The term "Affiliated Company" means any company
controlled by, controlling or under common control with the Company.
(b) Award. The term "Award" shall mean any award or benefit granted under
the Plan, including, without limitation, the grant of Options, SARs, Stock Unit
Awards, Restricted Stock Awards, Restricted Stock Unit Awards and Performance
Share Awards.
(c) Board. The term "Board" shall mean the Board of Directors of the
Company.
(d) Cause. The term "Cause" means, unless otherwise provided by the
Committee, (1) "Cause" as defined in any Individual Agreement, as defined below,
to which the Participant is a party, or (2) if there is no such Individual
Agreement or if it does not define Cause: (A) conviction of the Participant for
committing a felony under federal law or the law of the state in which such
action occurred, (B) dishonesty in the course of fulfilling the Participant's
employment duties or (C) willful and deliberate failure on the part of the
Participant to perform the Participant's employment duties in any material
respect. The Committee shall, unless otherwise provided in an Individual
Agreement with a Participant, have the sole discretion to determine whether
"Cause" exists, and its determination shall be final.
(e) Change in Control. The term "Change in Control" shall mean:
(i) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (A) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that, for purposes of this Section 8(e), the following
acquisitions shall not constitute a Change in Control: (1) any acquisition
directly from the Company, (2) any acquisition by the Company, (3) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Affiliated Company or (4) any acquisition by
any corporation; pursuant to a transaction that complies with Sections
8(e)(iii)(A), 8(e)(iii)(B) and 8(e)(iii)(C);
(ii) The occurrence of the following: Individuals who, as of ______, 2003,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to ______, 2003 whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
57
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board;
(iii) Consummation of a reorganization, merger, statutory share exchange or
consolidation or similar corporate transaction involving the Company or any of
its subsidiaries, a sale or other disposition of all or substantially all of the
assets of the Company, or the acquisition of assets or stock of another entity
by the Company or any of its subsidiaries (each, a "Business Combination"), in
each case unless, following such Business Combination, (A) all or substantially
all of the individuals and entities that were the beneficial owners of the
Outstanding Company Common Stock and the Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of the then-outstanding shares of common stock and the
combined voting power of the then-outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation that, as a result of such transaction, owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership
immediately prior to such Business Combination of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities, as the case may be, (B) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then-outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then-outstanding voting securities of such
corporation, except to the extent that such ownership existed prior to the
Business Combination, and (C) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement or of the action of the Board providing for such Business Combination;
or
(iv) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
(f) Code. The term "Code" means the Internal Revenue Code of 1986, as
amended. A reference to any provision of the Code shall include reference to any
successor provision of the Code.
(g) Eligible Grantee. With respect to Awards other than ISOs, the term
"Eligible Grantee" shall mean any employee, consultant or director of the
Company or a Subsidiary. With respect to ISOs, the term "Eligible Grantee" shall
mean any employee of the Company or a Subsidiary. An Award may be granted to an
employee, in connection with hiring, retention or otherwise, prior to the date
the employee first performs services for the Company or the Subsidiaries,
provided that such Award shall not become vested prior to the date the employee
first performs such services.
(h) Fair Market Value. For purposes of determining the "Fair Market Value"
of a share of Stock as of any date, then the "Fair Market Value" as of that date
shall be the closing sale price of the Stock on that date on the New York Stock
Exchange or if the date of determination is not a business day, on the first
business day prior to the date of determination.
(i) Individual Agreement. "Individual Agreement" means a written
employment, consulting or similar agreement between a Participant and the
Company or one of its Subsidiaries or a written Award grant agreement under the
Plan.
(j) Subsidiaries. The term "Subsidiary" means any present or future
subsidiary corporation of the Company within the meaning of Section 424(f) of
the Code, and any present or future business venture designated by the Committee
58
in which the Company has a significant interest, as determined in the discretion
of the Committee.
(k) Stock. The term "Stock" shall mean shares of common stock of the
Company.
SECTION 9
GOVERNING LAW
This Plan shall be governed by, and construed in accordance with, the laws
of the State of Texas, except to the extent that the General Corporation Law of
the State of Delaware shall be applicable.
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[OUTSIDE BACK COVER]
[Recycled Paper Bug] SYSCO-PS-03
60
ELECTION TO OBTAIN FUTURE MATERIALS
OF SYSCO CORPORATION
ELECTRONICALLY INSTEAD OF BY MAIL
SYSCO stockholders may elect to receive future materials through the
Internet instead of by mail. SYSCO is offering this service to provide added
convenience to its stockholders and to reduce printing and mailing costs.
To take advantage of this option, stockholders must subscribe to one of the
various commercial services that offer access to the Internet. Costs normally
associated with electronic access, such as usage and telephone charges, will be
borne by the stockholder.
To elect this option, go to www.econsent.com/syy. You will be asked to
enter the nine-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'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 to
www.econsent.com/syy.
You may access the SYSCO Corporation annual report and proxy statement at:
www.sysco.com
PROXY
SYSCO CORPORATION
Proxy for the Annual Meeting of Stockholders
November 7, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Richard J. Schnieders and
Thomas E. Lankford, and each of them jointly and severally, proxies, with full
power of substitution, to vote all shares of common stock which the undersigned
is entitled to vote at the Annual Meeting of Stockholders of Sysco Corporation
to be held on Friday, November 7, 2003 at 10:00 a.m., at The Omni Houston Hotel,
Four Riverway, Houston, Texas 77056, or any adjournment thereof.
The undersigned acknowledges receipt of the notice of annual meeting and
proxy statement, each dated September 26, 2003, grants authority to any of said
proxies, or their substitutes, to act in the absence of others, with all the
powers which the undersigned would possess if personally present at such
meeting, and hereby ratifies and confirms all that said proxies, or their
substitutes, may lawfully do in the undersigned's name, place and stead. The
undersigned instructs said proxies, or any of them, to vote as set forth on the
reverse side.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
61
SYSCO CORPORATION
1390 Enclave Parkway
Houston, Texas 77077
Your vote is important. Please vote immediately.
VOTE BY INTERNET VOTE BY TELEPHONE
Log on to the Internet and go to Call toll free 1-877-PRX-VOTE
http://www/eproxyvote.com/syy. (1-877-779-8683)
If you vote over the Internet or by telephone, please do not mail your card.
Proxies voted by Telephone or Internet must be received by
11:59 P.M. EST - November 6, 2003
Please Mark
[X] Votes As In
This Example
The Board of Directors recommends a vote "FOR" Proposals 1, 2. Approval of Amendment to Restated Certificate of
2 and 3. Incorporation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
1. Election of four directors in Class II
NOMINEES: (01) Jonathan Golden, (02) Joseph A. Hafner, 3. Approval of the 2003 Stock Incentive Plan
Jr., (03) Thomas E.Lankford and (04) Richard J. Schnieders [ ] FOR [ ] AGAINST [ ] ABSTAIN
and
Election of one director in Class III
NOMINEE: (01) John K. Stubblefield, Jr.
FOR [ ] WITHHELD [ ] The Board of Directors recommends a vote "AGAINST" Proposal
ALL FROM ALL 4.
NOMINEES NOMINEES
4. Shareholder Proposal on Genetically Engineered Food
[ ]--------------------------------- Products
For all nominees except as noted above. [ ] 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
and 3 and "AGAINST" Proposal 4, 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 [ ]
CHANGE AND NOTE AT LEFT
Please sign, date and return promptly. No postage required if this proxy is
returned in the enclosed envelope and mailed in the United States. Please sign
as name appears on this card. Joint owners should each sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title.
If signer is a corporation, please sign with the full corporation name by
authorized officer or officers.
Signature:___________________________ Date:_______________________________
Signature:___________________________ Date:_______________________________
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