10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	OR
[    ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended		Commission File Number
August 31, 2003		0-18859
	SONIC CORP.
	(Exact Name of Registrant as Specified in Its Charter)
Delaware		73-1371046
(State of Incorporation)		(I.R.S. Employer Identification No.)
	300 Johnny Bench Drive
	Oklahoma City, Oklahoma	73104
	(Address of Principal Executive Offices)	(Zip Code)

Registrant's Telephone Number, Including Area Code: (405) 225-5000

        Securities Registered Pursuant to Section 12(b) of the Exchange Act:

None

Securities Registered Pursuant to Section 12(g) of the Exchange Act:

Common Stock, Par Value $.01
Rights to Purchase Series A Junior Preferred Stock, Par Value $.01

        Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for the shorter period that the Registrant has had to file the reports), and (2) has been subject to the filing requirements for the past 90 days. YES X . No     .

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. YES X . NO     .

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.) YES X . NO     .

        As of October 31, 2003, the aggregate market value of the 37,412,342 shares of common stock of the Company held by non-affiliates of the Company equaled approximately $1.04 billion, based on the closing sales price for the common stock as reported for that date. As of October 31, 2003, the Registrant had 39,289,863 shares of common stock issued and outstanding (excluding 9,963,930 shares of common stock held as treasury stock).

Documents Incorporated by Reference

        Part III of this report incorporates by reference certain portions of the definitive proxy statement which the Registrant will file with the Securities and Exchange Commission in connection with the Company’s annual meeting of stockholders following the fiscal year ended August 31, 2003.

FORM 10-K OF SONIC CORP.

TABLE OF CONTENTS

PART I
Item 1.	Business	1
Item 2.	Properties	9
Item 3.	Legal Proceedings	10
Item 4.	Submission of Matters to a Vote of Security Holders	10
Item 4A.	Executive Officers of the Company	10

PART II
Item 5.	Market for the Company's Common Stock and Related Stockholder Matters	11
Item 6.	Selected Financial Data	12
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 8.	Financial Statements and Supplementary Data	22
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	22
Item 9A.	Controls and Procedures	22

PART III
Item 10.	Directors and Executive Officers of the Company	22
Item 11.	Executive Compensation	22
Item 12.	Security Ownership of Certain Beneficial Owners and Management	23
Item 13.	Certain Relationships and Related Transactions	23
Item 14.	Principal Accounting Fees and Services	23

PART IV
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	23

FORM
10-K

SONIC CORP.

PART I

Item 1. Business

General

        Sonic Corp. (the “Company”) operates and franchises the largest chain of drive-in restaurants in the United States. As of August 31, 2003, the Company had 2,706 restaurants in operation, consisting of 497 Company-owned restaurants and 2,209 franchised restaurants, principally in the southern two-thirds of the United States. At a typical Sonic restaurant, a customer drives into one of 24 to 36 covered drive-in spaces, orders through an intercom speaker system, and has the food delivered by a carhop within an average of four minutes. Most Sonic restaurants also include a drive-through lane and many include patio seating.

        The Company has two operating subsidiaries, Sonic Industries Inc. and Sonic Restaurants, Inc. Sonic Industries Inc. serves as the franchisor of the Sonic restaurant chain, as well as the administrative services center for the Company. Sonic Restaurants, Inc. develops and operates the Company-owned restaurants. References to “Sonic,” the “Company,” “we,” “us,” and “our” in this report are references to Sonic Corp. and its subsidiaries and predecessors, unless the context indicates otherwise.

        Our objective is to maintain our position as, or to become, a leading operator in terms of the number of quick-service restaurants within each of our core and developing markets. We have developed and are implementing a strategy designed to build the Sonic brand and to continue to achieve high levels of customer satisfaction and repeat business. The key elements of that strategy are: (1) a unique drive-in concept focusing on a menu of quality made-to-order food products including several signature items; (2) a commitment to customer service featuring the quick delivery of food by carhops; (3) the expansion of Company-owned and franchised restaurants within Sonic’s core and developing markets; (4) an owner/operator philosophy, in which managers have an equity interest in their restaurant, thereby providing an incentive for managers to operate restaurants profitably and efficiently; and (5) a commitment to strong franchisee relationships.

        The Sonic drive-in restaurant chain was begun in the early 1950’s by Sonic’s predecessors. Sonic Corp. was incorporated in the State of Delaware in 1990 in connection with its 1991 public offering of common stock. Our principal executive offices are located at 300 Johnny Bench Drive, Oklahoma City, Oklahoma 73104. Our telephone number is (405) 225-5000.

Menu

        Sonic restaurants feature Sonic signature items, such as made-to-order sandwiches and hamburgers, extra-long cheese coneys, hand-battered onion rings, tater tots, specialty soft drinks including cherry limeades and slushes, and frozen desserts. In addition, our restaurants offer certain other items during limited-time promotions.

        Sonic began offering a breakfast menu in certain test markets in October 1999. The breakfast menu is currently offered in all Sonic restaurants. Items on the breakfast menu include sausage, ham, or bacon with egg and cheese Toaster_® sandwiches, sausage and egg burritos, and specialty breakfast drinks. Sonic restaurants are open beginning no later than 7 a.m. and serve the full menu all day.

Restaurant Locations

        As of August 31, 2003, Sonic owned or franchised 2,706 drive-in restaurants, which are located in 30 states, principally in the southern two-thirds of the United States, and in Mexico. We identify markets based on television viewing areas and further classify markets as either core or developing. We define our core television markets as those markets where the penetration of Sonic restaurants (as measured by population per restaurant, advertising levels, and share of restaurant spending) has reached a certain level of market maturity established by management. All other television markets where restaurants are located are referred to as developing markets. A market may be located where it extends into more than one state. Our core markets contain approximately 72% of all Sonic restaurants as of August 31, 2003. Developing markets are located in the states indicated below and Mexico. Many states have both core markets and developing markets. We have five restaurants in Mexico and one development agreement providing for four additional restaurants to be opened in Mexico in the next three years. The following table sets forth the number of Company-owned and franchised restaurants by core and developing markets as of August 31, 2003:

	Core Markets			Developing Markets			State Total
States	Company	Franchise	Total	Company	Franchise	Total
Alabama	13	8	21	15	57	72	93
Arizona					75	75	75
Arkansas	25	139	164				164
California					17	17	17
Colorado		2	2	7	51	58	60
Florida				17	36	53	53
Georgia	3	5	8	4	71	75	83
Idaho					10	10	10
Illinois		8	8		18	18	26
Indiana					21	21	21
Iowa					11	11	11
Kansas	35	92	127				127
Kentucky		23	23		36	36	59
Louisiana	18	115	133				133
Mississippi		102	102		7	7	109
Missouri	30	115	145	11	22	33	178
Nebraska				4	16	20	20
Nevada					15	15	15
New Mexico		68	68				68
North Carolina					69	69	69
Ohio					5	5	5
Oklahoma	69	166	235				235
Oregon					1	1	1
South Carolina					58	58	58
Tennessee	30	157	187	10		10	197
Texas	182	572	754				754
Utah				6	19	25	25
Virginia				18	14	32	32
West Virginia					1	1	1
Wyoming					2	2	2
Mexico					5	5	5
Total	405	1,572	1,977	92	637	729	2,706

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Expansion

        During fiscal year 2003, we opened 35 Company-owned restaurants and our franchisees opened 159 restaurants. During fiscal year 2004, we anticipate approximately 200 new Sonic restaurant openings, including 165 to 170 restaurant openings by our franchisees. That expansion plan involves the opening of new restaurants by franchisees under existing area development agreements, single-store development by existing franchisees, and development by new franchisees. We believe that our existing core and developing markets offer a significant growth opportunity for both Company-owned and franchised restaurant expansion. The ability of Sonic and its franchisees to open the anticipated number of Sonic drive-in restaurants during fiscal year 2004 necessarily will depend on various factors. Those factors include (among others) the availability of suitable sites, the negotiation of acceptable lease or purchase terms for new locations, local permitting and regulatory compliance, the financial resources of Sonic and its franchisees, and the general economic and business conditions to be faced in fiscal year 2004.

        Our expansion strategy for Company-owned restaurants involves two principal components: (1) the building-out of existing core markets and (2) the further penetration of current developing markets. The Company is always in the process of identifying new developing markets for the opening of both Company-owned and franchised restaurants. In addition, we may consider the acquisition of other similar concepts for conversion to Sonic restaurants.

Restaurant Design and Construction

        The typical Sonic drive-in restaurant consists of a kitchen housed in a one-story building flanked by two canopy-covered rows of 24 to 36 parking spaces, with each space having its own intercom speaker system and menu board. In addition, since 1995, we have incorporated a drive-through service and patio seating area in most new restaurants. A few Sonic restaurants provide an indoor seating area and a few restaurants are located in non-traditional areas such as shopping mall food courts and convenience stores.

Marketing

        We have designed our marketing program to differentiate Sonic drive-in restaurants from our competitors by emphasizing five key areas of customer satisfaction: (1) wide variety of distinctive made-to-order menu items, (2) the personal manner of service by carhops, (3) speed of service, (4) quality, and (5) value. The marketing plan includes promotions for use throughout the Sonic chain. We support those promotions with television, radio commercials, point-of-sale materials, and other media as appropriate. Those promotions generally center on products which highlight signature menu items of Sonic drive-in restaurants.

        Each year Sonic (with involvement of the Sonic Franchise Advisory Council) develops a marketing plan. Funding for our marketing plan has three components: (1) the Sonic Advertising Fund, (2) the Sonic Marketing Fund, and (3) local advertising expenditures. The Sonic Advertising Fund is a national media production fund that we administer. The franchisee must contribute 0.375% to 0.75%, depending on the type of license agreement, of the franchisee’s gross revenues to the Sonic Advertising Fund. Once a sufficient number of Sonic restaurants have been opened in a market, we require the formation of advertising cooperatives among restaurant owners to pool and direct advertising expenditures in local markets. The franchisee must spend 1.125% to 3.25%, depending on the type of license agreement, of gross revenues on local advertising, either directly (if the advertising cooperative for the franchisee’s market is not yet formed) or through participation in the local advertising cooperative. The members of each local advertising cooperative may elect and frequently do elect to require the cooperative’s member drive-ins to contribute more than the minimum percentage of gross revenues to the advertising cooperative’s funds. For fiscal year 2003, franchisees participating in cooperatives contributed an average of 3.94% of gross revenues to Sonic advertising cooperatives. As of August 31, 2003, 2,604 Sonic restaurants (96% of the chain) participated in advertising cooperatives. The System Marketing Fund complements local advertising efforts in attracting customers to Sonic restaurants by promoting the message of the Sonic brand to an expanded audience. The primary focus of the System Marketing Fund is to purchase advertising on national cable and broadcast networks and other national media and sponsorship opportunities. The System Marketing Fund is funded by 1.0% (0.5% prior to September 1, 2003) of each franchisee’s gross revenues, which amount is either redistributed from the local advertising

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cooperatives to the System Marketing Fund or, if no advertising cooperative has been formed, is paid directly to the System Marketing Fund by the franchisee with a corresponding deduction in the amount the franchisee is required to spend on local advertising.

        The total amount spent on media (principally television) exceeded $100 million for fiscal year 2003 and we expect media expenditures to exceed $110 million for fiscal year 2004.

Purchasing

        We negotiate with suppliers for our primary food products (hamburger patties, dairy products, chicken products, hot dogs, french fries, tater tots, cooking oil, fountain syrup, and other items) and packaging supplies to ensure adequate quantities of food and supplies and to obtain competitive prices. We seek competitive bids from suppliers on many of our food products. We approve suppliers of those products and require them to adhere to product specifications that we establish. Suppliers manufacture several key products for Sonic under private label and sell them to authorized distributors for resale to Company-owned and franchised restaurants.

        We require our Company-owned and franchised restaurants to purchase from approved distribution centers. By purchasing as a group, we have achieved cost savings, improved food quality and consistency, and helped decrease the volatility of food and supply costs for Sonic restaurants. For fiscal year 2003, the average cost of food and packaging for a Sonic restaurant, as reported to us by our Company-owned and franchised restaurants, equaled approximately 27.8% of net revenues. We believe that negotiating and purchasing food as a system has allowed Sonic restaurants to avoid menu price increases that otherwise might have occurred.

Food Safety and Quality Assurance

        To ensure the consistent delivery of safe, high-quality food, we created a food safety and quality assurance program. Sonic’s food safety program promotes the quality and safety of all products and procedures utilized by all Sonic restaurants, and provides certain requirements that must be adhered to by all suppliers, distributors, and restaurants. We also have a comprehensive, restaurant-based food safety program called Sonic Safe. Sonic Safe is a risk-based system that utilizes Hazard Analysis & Critical Control Points (HACCP) principles for managing food safety and quality. Our food safety system includes employee training, supplier product testing, drive-in food safety auditing by independent third parties, and other detailed components that monitor the safety and quality of Sonic’s products and procedures at every stage of the food preparation and production cycle. Employee training in food safety is covered under our Sonic restaurant training program, referred to as the STAR Training Program. This program includes specific training information and requirements for every station in the restaurant. We also provide training in ServSafe, the most recognized food safety training certification in the restaurant industry.

General Operations

        Management Information Systems. We utilize point-of-sale equipment in each of our Company-owned and franchised restaurants. Certain financial and other information is polled on a daily basis from most Company-owned restaurants. We are developing software and hardware enhancements to our management information systems to facilitate communication and the exchange of information among the corporate office and Company-owned and franchised restaurants.

        Reporting. The license agreement requires all Sonic restaurants to submit a profit and loss statement on or before the 20^th of each month. All Company-owned stores and approximately 931 or 42% of franchise stores submit their data electronically. We expect to add more stores to electronic reporting which will reduce resources needed for manual processing of store level data.

        Hours of Operation. Sonic restaurants typically operate seven days a week. All Sonic restaurants participate in the breakfast program and are typically open from 7:00 a.m. to 11:00 p.m.

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Company Operations

        Restaurant Personnel. A typical Company-owned restaurant is operated by a manager, two to four assistant managers, and approximately 25 hourly employees, many of whom work part-time. The manager has responsibility for the day-to-day operations of the restaurant. Each supervisor has the responsibility of overseeing an average of four to seven Company-owned restaurants. We employ 14 directors of operations who oversee an average of five to six supervisors within their respective regions and report to either a regional vice president or a vice president. The Company has three regional vice presidents and three vice presidents. Sonic employs a senior vice president of operations based in Oklahoma City who oversees the operations of all Company-owned restaurants.

        Ownership Program. The Sonic restaurant philosophy stresses an ownership relationship with supervisors and managers. As part of the ownership program, either a limited liability company or a general partnership is formed to own and operate each individual Company-owned restaurant. We own a majority interest, typically at least 60%, in each of these limited liability companies and partnerships. Generally, the supervisors and managers own a minority interest in the limited liability company or partnership. Supervisors and managers are not employees of Sonic or of the limited liability companies or partnerships in which they have an ownership interest. As owners, they share in the profits and are responsible for their share of any losses incurred by their restaurant. We believe that our ownership structure provides a substantial incentive for restaurant supervisors and managers to operate their restaurants profitably and efficiently.

        Sonic records the interests of supervisors and managers as “minority interest in earnings of restaurants” under costs and expenses on its financial statements. We estimate that the average percentage interest of a supervisor was 16% and the average percentage interest of a manager in a restaurant was 18% in fiscal year 2003. Each restaurant distributes its available cash flow to its supervisors and managers and to Sonic on a monthly basis pursuant to the terms of the operating agreement or partnership agreement for that restaurant. Sonic has the right, but not the obligation, to purchase the minority interest of the supervisor or manager in the restaurant. The amounts of the buy-in and the buy-out are based on the restaurant’s sales during the preceding 12 months and approximate the fair market value of a minority interest in that restaurant.

        Each restaurant usually purchases equipment with funds borrowed from Sonic at competitive rates. In most cases, Sonic alone owns or leases the land and building and guarantees any third-party lease entered into for the site.

         Company-owned Restaurant Data. The following table provides certain financial information relating to Company-owned restaurants and the number of Company-owned restaurants opened and closed during the past five fiscal years.

	2003			2002			2001			2000			1999
Average Sales per Company-owned
Restaurant (in thousands)	$	799		$	791		$	772		$	747		$	702
Number of Company-owned Restaurants:
Total Open at Beginning of Year		452			393			312			296			292
Newly-Opened and Re-Opened		35			40			34			24			37
Purchased from Franchisees*		52			25			50			2			4
Sold to Franchisees*		(41	)		(5	)		(2	)		(6	)		(36	)
Closed		(1	)		(1	)		(1	)		(4	)		(1	)
Total Open at Year End		497			452			393			312			296

        *The relatively large number of stores sold to franchisees in fiscal years 1999 and 2003 and purchased from franchisees in fiscal years 2001, 2002 and 2003 represent transactions where a majority of restaurants in a certain market were sold to or purchased from a multi-unit franchisee group. In all such instances where we purchased restaurants, the selling multi-unit franchisee groups continued to own and operate multiple franchised Sonic restaurants.

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Franchise Program

        General. As of August 31, 2003, we had 2,209 franchised restaurants operating in 30 states and Mexico. A large number of successful multi-unit franchisee groups have developed during the Sonic system’s 50 years of operation. Those franchisees continue to develop new restaurants in their franchise territories either through area development agreements or single site development. Our franchisees opened 159 restaurants during fiscal year 2003 and we expect our franchisees to open approximately 165 to 170 Sonic restaurants in fiscal 2004. We consider our franchisees a vital part of our continued growth and believe our relationship with our franchisees is good.

        Franchise Agreements. Each Sonic restaurant, including each Company-owned restaurant, operates under a franchise agreement that provides for payments to Sonic of an initial franchise fee and a royalty fee based on a graduated percentage of the gross revenues of the restaurant. Our current license agreement provides for a franchise fee of $30,000 and an ascending royalty rate beginning at 1% of gross revenues and increasing to 5% as the level of gross revenues increases. Approximately 96% of all Sonic restaurants opening in fiscal year 2004 are expected to open under the current license agreement. Pursuant to the terms of existing area development agreements, the remaining 4% of all Sonic restaurants opening in fiscal year 2004 will open under a former version of the license agreement, which provides for a franchise fee of $15,000 or $30,000 and an ascending royalty rate beginning at 1% of gross revenues and increasing to 4% or 5% as the level of gross revenues increases. All license agreements to be issued to restaurants opening in fiscal year 2004 provide for a term of 20 years, with one 10-year renewal option. We have the right to terminate any franchise agreement for a variety of reasons, including a franchisee’s failure to make payments when due or failure to adhere to our policies and standards. Many state franchise laws affect our ability to terminate or refuse to renew a franchise.

        As of August 31, 2003, 36.3% of all Sonic restaurants were subject to the 1% to 5% graduated royalty rate, 10.5% were subject to the 1% to 4% graduated royalty rate, and 53.2% were subject to a former version of the license agreement (which is no longer being issued) providing for a 1% to 3% graduated royalty rate. For fiscal year 2003, Sonic’s average royalty rate equaled 3.34%. Beginning in fiscal year 2004 and continuing through fiscal year 2010, a total of 188 franchised restaurants currently operating under the license agreement providing for the 1% to 3% graduated royalty will have their royalty rates increase to the 1% to 4% graduated royalty rate. The license agreements for the remaining 29 restaurants which are subject to the 1% to 3% graduated royalty rate will expire beginning in fiscal year 2004 and continuing through fiscal year 2010. Restaurants currently operating under those expiring license agreements will either cease operations or renew their licenses pursuant to the terms of the then current license agreement. We expect that such automatic increase of royalty rates under certain existing license agreements and the renewals of the other expiring license agreements will contribute to an increase in our royalty revenues.

        Area Development Agreements. We use area development agreements to facilitate the planned expansion of the Sonic drive-in restaurant chain through multiple unit development. While many existing franchisees continue to expand on a single restaurant basis, approximately 74% of the new franchised restaurants opened during fiscal year 2003 occurred as a result of then-existing area development agreements. Each area development agreement gives a developer the exclusive right to construct, own and operate Sonic restaurants within a defined area. In exchange, each developer agrees to open a minimum number of Sonic restaurants in the area within a prescribed time period. If the developer does not meet the minimum opening requirements, we have the right to terminate the area development agreement and grant a new area development agreement to other franchisees for the area previously covered by the terminated area development agreement.

        During fiscal year 2003, we entered into 41 new area development agreements calling for the opening of 147 Sonic drive-in restaurants during the next four years. As of August 31, 2003, we had a total of 149 area development agreements in effect, calling for the development of 607 additional Sonic restaurants during the next five years, with 159 of those restaurants contemplated to open during fiscal year 2004. We cannot give any assurance that our franchisees will achieve that number of new restaurants for fiscal year 2004 or during the next five years. Of the 152 restaurants scheduled to open during fiscal year 2003 under area development agreements in place at the beginning of that fiscal year, 113 or 74% opened during the period.

        Our realization of the expected benefits under various existing and future area development agreements currently depends and will continue to depend upon the ability of the developers to open the minimum number of

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restaurants within the time periods required by the agreements. The financial resources of the developers, as well as their experience in managing quick-service restaurant franchises, represent critical factors in the success of area development agreements. Although we grant area development agreements only to those developers whom we believe possess those qualities, we cannot give any assurances that the future performance by developers will result in the opening of the minimum number of restaurants contemplated by the area development agreements or reach the compliance rate we have previously experienced.

        Franchised Restaurant Development. We assist each franchisee in selecting sites and developing restaurants. Each franchisee has responsibility for selecting the franchisee’s restaurant location, but must obtain our approval of each restaurant design and each location based on accessibility and visibility of the site and targeted demographic factors, including population density, income, age and traffic. We provide our franchisees with the physical specifications for the typical Sonic drive-in restaurants.

        Franchisee Financing. Other than the agreements described below, we do not generally provide financing to franchisees or guarantee loans to franchisees made by third parties.

        We have an agreement with GE Capital Franchise Finance Corporation (“GEC”), pursuant to which GEC made loans to existing Sonic franchisees who met certain underwriting criteria set by GEC. Under the terms of the agreement with GEC, Sonic provided a guaranty of 10% of the outstanding balance of a loan from GEC to the Sonic franchisee. The portions of loans made by GEC to Sonic franchisees that are guaranteed by the Company total $5.0 million as of August 31, 2003. We ceased guaranteeing new loans made under the program during fiscal year 2003 and have not been required to make any payments under our agreement with GEC.

        Franchisee Training. Each franchisee must have at least one individual working full time at the Sonic drive-in restaurant who has completed the Sonic Management Development Program before opening or operating the Sonic drive-in restaurant. The program consists of 12 weeks of on-the-job training and one week of classroom development. The program emphasizes food safety, quality food preparation, quick service, cleanliness of restaurants, management techniques and consistency of service. Furthermore, our management teams receive training in ServSafe, the most recognized food safety training certification in the restaurant industry.

        Franchisee Support. In addition to training, advertising and food purchasing as a system, and marketing programs, we provide various other services to our franchisees. Those services include: (1) assistance with quality control through area field representatives, to ensure that each franchisee consistently delivers high quality food and service; (2) support of new franchisees with guidance and training in the opening of their first three Sonic restaurants; (3) assistance in selecting sites for new restaurants using demographic data and studies of traffic patterns; (4) and one-stop shopping for all equipment needed to open a new restaurant through N. Wasserstrom & Sons, Inc. in Columbus, Ohio, and Concept Services, Inc. in Austin, Texas. Our field services organization consists of 15 field service consultants, 12 field marketing representatives, four regional marketing directors, four new franchise consultants, four regional vice presidents, all with responsibility for defined geographic areas, and a director and vice president of new franchise services. The field service consultants provide operational services and support for our franchisees, while the field marketing representatives assist the franchisees with the development of cooperative and local market promotional activities. New franchise consultants support the successful integration of new franchisees into the Sonic system from training through the first months following the opening of each of the franchisee’s first three Sonic restaurants. We also have six real estate directors who assist the franchisees with the identification of trade areas for new restaurants and the franchisees’ selection of sites for their restaurants, subject to Sonic’s final approval of those sites. Four field training consultants provide a variety of other services to franchisees.

        Franchise Operations. Sonic’s franchisees operate all restaurants in accordance with uniform operating standards and specifications. These standards pertain to the quality and preparation of menu items, selection of menu items, maintenance and cleanliness of premises, and employee responsibilities. We develop all standards and specifications with input from franchisees, and they are applied on a system-wide basis. Each franchisee has full discretion to determine the prices charged to its customers.

        Franchise Advisory Council. We have established a Franchise Advisory Council which provides advice, counsel, and input to Sonic on important issues impacting the business, such as marketing and promotions, operations, purchasing, building design, human resources, technology, and new products. The Franchise Advisory Council

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currently consists of 18 members selected by Sonic. Currently we have six executive committee members who are selected at large. The remaining 12 members are regional members who represent four defined regions of the country and serve three-year terms. We have developed nine Franchise Advisory Council task groups comprised of 40 total members who serve two-year terms and lend support on individual key priorities.

        Franchised Restaurant Data. The following table provides certain financial information relating to franchised restaurants and the number of franchised restaurants opened, purchased from or sold to Sonic, and closed during Sonic’s last five fiscal years.

	2003			2002			2001			2000			1999
Average Sales Per Franchised
Restaurant (in thousands)	$	929		$	935		$	899		$	872		$	842
Number of Franchised Restaurants:
Total Open at Beginning of Year		2,081			1,966			1,863			1,715			1,555
New Restaurants		159			142			157			150			139
Sold to the Company*		(52	)		(25	)		(50	)		(2	)		(4	)
Purchased from the Company*		41			5			2			6			36
Closed and Terminated,
Net of Re-openings		(20	)		(7	)		(6	)		(6	)		(11	)
Total Open at Year End		2,209			2,081			1,966			1,863			1,715

        * The relatively large number of stores purchased from Sonic in fiscal years 1999 and 2003 and sold to Sonic in fiscal years 2001, 2002 and 2003 represent transactions where a majority of restaurants in a certain market were sold to or purchased from a multi-unit franchisee group. In all such instances where Sonic purchased restaurants, the selling multi-unit franchisee groups continued to own and operate multiple franchised Sonic restaurants.

Competition

        We compete in the quick-service restaurant industry, a highly competitive industry in terms of price, service, restaurant location, and food quality, and an industry often affected by changes in consumer trends, economic conditions, demographics, traffic patterns, and concerns about the nutritional content of quick-service foods. We compete on the basis of speed and quality of service, method of food preparation (made-to-order), food quality and variety, signature food items, and monthly promotions. The quality of service, featuring Sonic carhops, constitutes one of our primary marketable points of difference with the competition. There are many well-established competitors with substantially greater financial and other resources. These competitors include a large number of national, regional and local food services, including quick service restaurants and casual dining restaurants. A significant change in pricing or other marketing strategies by one or more of those competitors could have an adverse impact on Sonic’s sales, earnings, and growth. In selling franchises, we also compete with many franchisors of fast-food and other restaurants and other business opportunities.

Seasonality

        Our results during Sonic’s second fiscal quarter (the months of December, January and February) generally are lower than other quarters because of the climate of the locations of a number of Company-owned and franchised restaurants.

Employees

        As of August 31, 2003, we had 288 full-time corporate employees. This number does not include the approximately 15,000 full-time and part-time employees employed by separate partnerships and limited liability companies that operate our Company-owned restaurants or the supervisors or managers of the Company-owned restaurants who own a minority interest in the separate partnerships or limited liability companies.

        None of our employees is subject to a collective bargaining agreement. We believe that we have good labor relations with our employees.

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Trademarks and Service Marks

        Sonic owns numerous trademarks and service marks. We have registered many of those marks, including the “Sonic” logo and trademark, with the United States Patent and Trademark Office. We believe that our trademarks and service marks have significant value and play an important role in our marketing efforts.

Government Regulations

        We must comply with regulations adopted by the Federal Trade Commission (the “FTC”) and with several state laws that regulate the offer and sale of franchises. We also must comply with a number of state laws that regulate certain substantive aspects of the franchisor-franchisee relationship. The FTC’s Trade Regulation Rule on Franchising (the “FTC Rule”) requires that we furnish prospective franchisees with a franchise offering circular containing information prescribed by the FTC Rule.

        State laws that regulate the franchisor-franchisee relationship presently exist in a substantial number of states. Those laws regulate the franchise relationship, for example, by requiring the franchisor to deal with its franchisees in good faith, by prohibiting interference with the right of free association among franchisees, by regulating discrimination among franchisees with regard to charges, royalties, or fees, and by restricting the development of other restaurants within certain prescribed distances from existing franchised restaurants. Those laws also restrict a franchisor’s rights with regard to the termination of a franchise agreement (for example, by requiring “good cause” to exist as a basis for the termination), by requiring the franchisor to give advance notice and the opportunity to cure the default to the franchisee, and by requiring the franchisor to repurchase the franchisee’s inventory or provide other compensation upon termination. To date, those laws have not precluded us from seeking franchisees in any given area and have not had a significant effect on our operations.

        Each Sonic restaurant must comply with regulations adopted by federal agencies and with licensing and other regulations enforced by state and local health, sanitation, safety, fire, and other departments. Difficulties or failures in obtaining the required licenses or approvals can delay and sometimes prevent the opening of a new restaurant.

        Sonic restaurants must comply with federal and state environmental regulations, but those regulations have not had a material effect on their operations. More stringent and varied requirements of local governmental bodies with respect to zoning, land use, and environmental factors can delay and sometimes prevent development of new restaurants in particular locations.

        Sonic and its franchisees must comply with laws and regulations governing labor and employment issues, such as minimum wages, overtime, and other working conditions. Many of the food service personnel in Sonic restaurants receive compensation at rates related to the federal minimum wage and, accordingly, increases in the minimum wage will increase labor costs at those locations.

Available Information

        We maintain an internet website with the address of http://www.sonicdrivein.com. Copies of the Company’s reports filed with, or furnished to, the Securities and Exchange Commission on Forms 10-K, 10-Q, and 8-K and any amendments to such reports are available for viewing and copying at such internet website, free of charge, as soon as reasonably practicable after filing such material with, or furnishing it to, the Securities and Exchange Commission.

Item 2. Properties

        Of the 497 Company-owned restaurants operating as of August 31, 2003, we operated 219 of them on property leased from third parties and 278 of them on property we owned. The leases expire on dates ranging from 2004 to 2023, with the majority of the leases providing for renewal options. All leases provide for specified monthly rental payments, and some of the leases call for additional rentals based on sales volume. All leases require Sonic to maintain the property and pay the cost of insurance and taxes.

9

        We moved our corporate headquarters to a new building in the Bricktown district of downtown Oklahoma City in November 2003 and have entered into a 15 year lease to occupy approximately 78,000 square feet in the new building. The lease expires in November 2018 and has two five-year renewal options. Formerly our corporate headquarters were located at 101 Park Avenue where we leased 68,568 square feet of office space. This lease expires on November 30, 2003. We also lease 10,000 square feet of warehouse space in Oklahoma City. The lease for the warehouse space expires in December 2003.

Item 3. Legal Proceedings

        Sonic is involved in various legal proceedings and has certain unresolved claims pending. The ultimate liability, if any, for the aggregate amounts claimed cannot be determined at this time. Management believes that all claims currently pending are either adequately covered by insurance or would not have a material adverse effect on our business or financial condition.

Item 4. Submission of Matters to a Vote of Security Holders

        Sonic did not submit any matter during the fourth quarter of the Company’s last fiscal year to a vote of Sonic’s stockholders, through the solicitation of proxies or otherwise.

Item 4A. Executive Officers of the Company

Identification of Executive Officers

        The following table identifies the executive officers of the Company.

Name	Age	Position	Officer Since
J. Clifford Hudson	49	Chairman of the Board of Directors and Chief Executive Officer	June 1985
Pattye L. Moore	45	President and Director	June 1992
Ronald L. Matlock	52	Senior Vice President, General Counsel and Secretary	April 1996
W. Scott McLain	41	Senior Vice President and Chief Financial Officer	April 1996
Michael A. Perry	45	Senior Vice President of Operations of Sonic Restaurants, Inc.	August 2003
Stephen C. Vaughan	37	Vice President of Planning and Analysis and Treasurer	January 1996
Terry D. Harryman	38	Controller	January 1999

Business Experience

        The following sets forth the business experience of the executive officers of the Company for at least the past five years.

        J. Clifford Hudson has served as the Company’s Chairman of the Board since January 2000 and has been Chief Executive Officer of the Company since April 1995. Mr. Hudson has served in various executive offices with the Company since 1985, including President from 1994 to 2000. He has served as a Director of the Company since 1993. Mr. Hudson served as Chairman of the Board of Securities Investor Protection Corporation, the federally-chartered organization which serves as the insurer of customer accounts with brokerage firms, from 1994 to 2001.

        Pattye L. Moore has served as President of the Company since January 2002 and a Director of the Company since January 2001. Ms. Moore served as the Company’s Executive Vice President from January 2000 until January 2002. Ms. Moore served as Senior Vice President of Marketing and Brand Development of the Company from August 1996 until January 2000. From August 1995 until August 1996, Ms. Moore served as Senior Vice President of

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Marketing and Brand Development for Sonic Industries Inc. and served as Vice President of Marketing of Sonic Industries Inc. from June 1992 to August 1995. Ms. Moore serves as a director of ONEOK, Inc., a publicly-held company engaged in several aspects of the energy business.

        Ronald L. Matlock has served as the Company’s Senior Vice President, General Counsel and Secretary since January 2000. Mr. Matlock served as the Company’s Vice President, General Counsel and Secretary from April 1996 until January 2000. Mr. Matlock has also served as a director of Sonic Restaurants, Inc. and as a director of Sonic Industries Inc. since April 1996. Prior to joining Sonic, Mr. Matlock practiced law from January 1995 to April 1996 with the Matlock Law Firm in Oklahoma City, Oklahoma, concentrating in corporate, securities and franchise law.

        W. Scott McLain has served as the Company’s Senior Vice President and Chief Financial Officer since January 2000. Mr. McLain served as the Company’s Vice President of Finance and Chief Financial Officer from August 1997 until January 2000. From August 1997 until August 1999 he also served as the Company’s Treasurer. From April 1996 to August 1997, he served as the Company’s Vice President of Finance and Treasurer. From August 1993 until joining Sonic, Mr. McLain served as Treasurer of Stevens International, Inc. in Fort Worth, Texas. From April 1991 to August 1993, Mr. McLain served as a Manager at Price Waterhouse in Dallas, Texas.

        Michael A. Perry has served as Senior Vice President of Operations and Director of Sonic Restaurants, Inc. since August 2003. Mr. Perry served as Vice President of Franchise Services of Sonic Industries Inc. from September 1998 until August 2003. He also served as the Vice President of Operations Services of Sonic Restaurants, Inc. from March 1998 until August 1998. From October 1994 until joining Sonic in 1998, Mr. Perry was a Region Vice President for Au Bon Pain Co., Inc. in Chicago, Illinois. From February 1993 until October 1994, Mr. Perry served as a Senior Director of Operations for Taco Bell Corp., Division of Pepsico, in Elmhurst, Illinois.

        Stephen C. Vaughan has served as the Company’s Vice President of Planning and Analysis since January 1999 and has served as Treasurer since November 2001. He also served as a Vice President of Sonic from August 1997 until January 1999, and as its Controller from January 1996 until January 1999.

        Terry D. Harryman has served as the Company’s Controller since January 1999. From October 1996 until January 1999, Mr. Harryman served as the Company’s Director of Tax. From January 1998 until January 1999, Mr. Harryman also served as the Company’s Assistant Treasurer. Mr. Harryman served as Assistant Treasurer of Sonic Industries Inc. and Sonic Restaurants, Inc. from October 1996 until January 2002.

PART II

Item 5. Market for the Company’s Common Stock and Related Stockholder Matters

Market Information

        The Company’s common stock trades on the Nasdaq National Market (“Nasdaq”) under the symbol “SONC.” The following table sets forth the high and low closing bids for the Company’s common stock during each fiscal quarter within the two most recent fiscal years as reported on Nasdaq. Share amounts set forth below and elsewhere in this report have been adjusted to reflect the results of the February 2002 three-for-two stock split.

Quarter Ended	High		Low		Quarter Ended	High		Low
November 30, 2002	$	25.020	$	20.880	November 30, 2001	$	23.493	$	17.513
February 28, 2003	$	23.520	$	19.660	February 28, 2002	$	25.280	$	25.090
May 31, 2003	$	27.980	$	21.030	May 31, 2002	$	30.210	$	24.950
August 31, 2003	$	26.770	$	23.200	August 31, 2002	$	31.940	$	23.400

Stockholders

        As of November 1, 2003, the Company had 489 record holders of its common stock.

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Dividends

        The Company did not pay any cash dividends on its common stock during its two most recent fiscal years and does not intend to pay any dividends in the foreseeable future.

Securities

        The following table sets forth information about the Company’s equity compensation plans as of August 31, 2003.

Equity Compensation Plan Information

	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Plan category	(a)	(b)	(c)
Equity compensation plans
approved by
security holders	3,966,056	$ 14.90	1,859,023
Equity compensation plans
not approved by
security holders	-0-	-0-	-0-

Item 6. Selected Financial Data

        The following table sets forth selected financial data regarding the Company’s financial condition and operating results. One should read the following information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” below, and the Company’s Consolidated Financial Statements included elsewhere in this report.

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Selected Financial Data
(In thousands, except per share data)

	Year ended August 31,
	2003			2002			2001			2000			1999
Income Statement Data:
Company-owned restaurant sales	$	371,518		$	330,707		$	267,463		$	224,880		$	210,419
Franchised restaurants:
Franchise royalties		66,431			61,392			54,220			47,595			40,859
Franchise fees		4,674			4,020			4,408			3,717			3,468
Other		4,017			4,043			4,547			3,864			2,861
Total revenues		446,640			400,162			330,638			280,056			257,607
Cost of restaurant sales		277,366			242,193			195,338			163,570			155,521
Selling, general and administrative		35,426			33,444			30,602			27,894			25,543
Depreciation and amortization		29,223			26,078			23,855			20,287			18,464
Minority interest in earnings of restaurants		14,398			14,864			12,444			10,173			8,623
Provision for impairment of long-lived assets		727			1,261			792			951			1,519
Total expenses		357,140			317,840			263,031			222,875			209,670
Income from operations		89,500			82,322			67,607			57,181			47,937
Net interest expense		6,216			6,319			5,525			5,186			4,278
Income before income taxes	$	83,284		$	76,003		$	62,082		$	51,995		$	43,659
Net income	$	52,261		$	47,692		$	38,956		$	32,627		$	27,396
Income per share (1):
Basic	$	1.34		$	1.19		$	0.98		$	0.81		$	0.65
Diluted	$	1.29		$	1.13		$	0.93		$	0.78		$	0.63
Weighted average shares used in
calculation (1):
Basic		38,977			40,156			39,849			40,396			42,409
Diluted		40,606			42,207			41,732			41,945			43,800
Balance Sheet Data:
Working capital (deficit)	$	(3,157	)	$	(12,942	)	$	(3,335	)	$	(6,371	)	$	(7,743	)
Property, equipment and capital leases, net		345,551			305,286			273,198			222,318			207,890
Total assets		486,119			405,356			358,000			278,371			256,677
Obligations under capital leases (including current portion)		27,929			12,938			13,688			7,299			8,048
Long-term debt (including current portion)		139,587			109,375			109,168			83,881			72,400
Stockholders' equity		265,398			230,670			200,719			155,263			149,755

    (1)        Adjusted for a 3-for-2 stock split in 2002 and 2000

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

        This annual report contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements represent our expectations or belief concerning future events, including the following: any statements regarding future sales or expenses, any statements regarding the continuation of historical trends, and any statements regarding the sufficiency of our working capital and cash generated from operating and financing activities for our future liquidity and capital resources needs. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements. We caution that those statements are further qualified by important economic and competitive factors that could cause actual results to differ materially from those in the forward-looking statements, including, without limitation, risks of the restaurant industry, including risks of food-borne illness, a highly competitive industry and the impact of changes in consumer spending patterns, consumer tastes, local, regional and national economic conditions, weather, demographic trends, traffic patterns, employee availability and cost increases. In addition, the opening and success of new restaurants will depend on various factors, including the availability of suitable sites for new restaurants, the negotiation of acceptable lease or purchase terms for new locations, permitting and regulatory compliance, our ability to manage the anticipated expansion and hire and train personnel, the financial viability of our franchisees, particularly multi-unit operators, and general economic and business conditions. Accordingly, such forward-looking statements do not purport to be predictions of future events or circumstances and may not be realized.

Results of Operations

        Sonic derives its revenues primarily from Company-owned restaurant sales and royalty payments from franchisees. We also receive revenues from initial franchise fees, area development fees, and the selling and leasing of signs and, in limited circumstances, real estate. In addition, Sonic owns and receives income from a minority interest in a few franchised restaurants. Costs of Company-owned restaurant sales and minority interest in earnings of restaurants relate directly to Company-owned restaurant sales. Other expenses, such as depreciation, amortization, and general and administrative expenses, relate to both Company-owned restaurant operations, as well as our franchising operations. Our revenues and expenses are directly affected by the number and sales volumes of Company-owned restaurants. Our revenues and, to a lesser extent, expenses are also affected by the number and sales volumes of franchised restaurants. Initial franchise fees and franchise royalties are directly affected by the number of franchised restaurant openings.

        The following table sets forth the percentage relationship to total revenues, unless otherwise indicated, of certain items included in Sonic’s statements of income. The table also sets forth certain restaurant data for the periods indicated.

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Percentage Results of Operations and Restaurant Data
($ in thousands)

	Year ended August 31,
	2003			2002			2001
INCOME STATEMENT DATA:
Revenues:
Company-owned restaurant sales		83.2	%		82.7	%		80.9	%
Franchised restaurants:
Franchise royalties		14.9			15.3			16.4
Franchise fees		1.0			1.0			1.3
Other		0.9			1.0			1.4
		100.0	%		100.0	%		100.0	%
Costs and expenses:
Company-owned restaurants (1)		74.7	%		73.2	%		73.0	%
Selling, general and administrative		7.9			8.4			9.3
Depreciation and amortization		6.5			6.5			7.2
Minority interest in earnings of restaurants (1)		3.9			4.5			4.7
Provision for impairment of long-lived assets		0.2			0.3			0.2
Income from operations		20.0			20.6			20.4
Net interest expense		1.4			1.6			1.7
Net income		11.7			11.9			11.8
RESTAURANT OPERATING DATA:
Restaurant count (2):
Company-owned restaurants		497			452			393
Franchised restaurants		2,209			2,081			1,966
Total restaurants		2,706			2,533			2,359
System-wide restaurants (3):
Core markets		1,977			1,888			1,801
Developing markets		729			645			558
All markets		2,706			2,533			2,359
System-wide sales (3)	$	2,360,360		$	2,205,269		$	1,971,477
Percentage increase (4)		7.0	%		11.9	%		10.8	%
Average sales per restaurant:
Company-owned	$	799		$	791		$	772
Franchise		929			935			899
System-wide (3):
Core markets		947			939			902
Developing makets		802			819			801
All markets		907			906			874
Change in comparable restaurant sales (5):
Company-owned		0.0	%		1.7	%		1.8	%
Franchise		-0.1			3.2			1.8
System-wide (3):
Core markets		1.1			4.3			2.8
Developing markets		-5.1			-2.3			-2.0
All markets		-0.3			3.0			1.8

(1) As a percentage of Company-owned restaurant sales.

(2) Number of restaurants open at end of year.

(3) System-wide restaurant count and sales include both Company-owned and franchise information. Management believes that system-wide information is useful in analyzing the growth of the brand as well as the Company’s revenues since franchisees pay royalties based on a percentage of sales.

(4) Represents percentage increase from the comparable period in the prior year.

(5) Represents percentage change for stores open since the beginning of fiscal year 2002 for Company-owned restaurants and stores open for a minimum of one year for franchise restaurants and system-wide restaurants.

15

        Comparison of Fiscal Year 2003 to Fiscal Year 2002. Total revenues increased 11.6% to $446.6 million during fiscal year 2003 from $400.2 million during fiscal year 2002. Company-owned restaurant sales increased 12.3% to $371.5 million during fiscal year 2003 from $330.7 million during fiscal year 2002. Of the $40.8 million net increase, $41.1 million was due to the net addition of 104 Company-owned restaurants since the beginning of fiscal year 2002, ($53.6 million from the addition of 75 newly constructed restaurants and 77 acquired restaurants since the beginning of fiscal year 2002 less $12.5 million from 48 stores sold or closed during the same period). The increase in Company-owned restaurant sales from the net addition of restaurants was partially offset by slight sales decreases in the amount of $0.3 million by stores open the full reporting periods of fiscal years 2003 and 2002.

        Franchise royalties increased 8.2% to $66.4 million during fiscal year 2003, compared to $61.4 million during fiscal year 2002. Of the $5.0 million increase, approximately $3.9 million was attributable to an increase in the number of franchise restaurants operating in fiscal year 2003 compared to fiscal year 2002. The balance of the increase resulted from an increase in the effective royalty rate from 3.27% in fiscal year 2002 to 3.34% in fiscal year 2003 as substantially all of the new stores opened under the newest license agreement, which has a higher average royalty rate. In addition, each of our license agreements contains an ascending royalty rate feature that allows the royalty rate to increase as sales volumes increase. Franchise fees increased 16.3% to $4.7 million as 159 franchise drive-ins opened during fiscal year 2003 as compared to 142 during fiscal year 2002.

        We expect total revenues to grow during fiscal year 2004 by approximately 13% to 15% based on targeted same-store sales growth of 1% to 3% as well as the addition of approximately 190 to 200 new drive-ins (25 to 30 Company-owned and 165 to 170 franchised locations). We anticipate that the continued benefit of the ascending royalty rate and new franchise store openings will result in $6.0 to $7.0 million in incremental franchise income (royalties and fees) in fiscal year 2004. In addition, substantially all new drive-ins will open under our newest form of license agreement which contains a higher average royalty rate and initial opening fee.

        Restaurant cost of operations, as a percentage of Company-owned restaurant sales, was 74.7% during fiscal year 2003 compared to 73.2% during fiscal year 2002. Food and packaging costs, as a percentage of Company-owned restaurant sales remained flat at 26.0% of Company-owned restaurant sales as a result of a generally favorable commodity environment including lower unit level costs for several items including beef and dairy costs. The decrease in unit level costs was offset by a slight increase in discounting from standard menu prices during the year. Payroll and employee benefits, as a percentage of Company-owned restaurant sales, increased 86 basis points to 29.6% of sales as a result of an increased investment in store level labor and higher worker’s compensation and health insurance costs. We continued to invest in management infrastructure at the store level as we rolled out breakfast to the remaining 50% of our stores in fiscal year 2003. We believe that this investment will not only help breakfast be successful but will also lay an important foundation for growing our average unit volumes over time. Other operating expenses, as a percentage of Company-owned restaurant sales, increased 52 basis points primarily as a result of the lack of growth in average store volumes, an increase in the rate of advertising contributions in preparation for the breakfast rollout and rent expense related to the acquisition of franchise drive-ins where the franchisee retained the real estate. Minority interest in earnings of restaurants decreased, as a percentage of Company-owned restaurant sales, to 3.9% during fiscal year 2003, compared to 4.5% during fiscal year 2002 as a result of the decline in our restaurant-level margins. Most of the managers and supervisors of Company-owned restaurants own a minority interest in the restaurants, and a substantial portion of their compensation flows through the minority interest in earnings of restaurants.

        Looking forward, we expect restaurant cost of operations, as a percentage of Company-owned restaurant sales, to increase in the range of 50 basis points as a result of the increased investment in store-level operations for the first half of fiscal year 2004 and upward pressure on food costs notably dairy and beef costs. We continue to look for ways to strengthen our partnership program which may include greater ownership for store-level partners. However, since we expect store-level margins to decrease in fiscal year 2004, minority interest in earnings of restaurants is expected to remain flat or decline as a percentage of Company-owned restaurant sales.

        Selling, general and administrative expenses decreased, as a percentage of total revenues, to 7.9% during fiscal year 2003, compared with 8.4% during fiscal year 2002 as a result of the leverage of operating at higher sales volumes. We expect selling, general and administrative expenses to grow in the range of 8% to 10% in fiscal year

16

2004 while continuing to decline as a percentage of total revenues. We anticipate that a significant portion of our future revenue growth will be attributable to Company-owned restaurants. Company-owned restaurants require a lower level of selling, general and administrative expenses, as a percentage of revenues, than our franchising operations since most expenses of Company-owned restaurant operations are reflected in restaurant cost of operations and minority interest in restaurant operations.

        Depreciation and amortization expense increased 12.1% to $29.2 million during fiscal year 2003 compared to $26.1 million in fiscal year 2002, while remaining flat as a percentage of total revenue. The increase in depreciation resulted primarily from new drive-in development and store acquisitions in the third fiscal quarter of 2003. Looking forward, we expect depreciation to grow by approximately 10% for fiscal year 2004, including a higher rate of growth in the first half of the year as a result of restaurants acquired in the San Antonio market. See Note 1 of the Notes to Consolidated Financial Statements for additional information regarding the San Antonio acquisition.

        During fiscal year 2002, two drive-ins in developing markets became impaired under the guidelines of FAS 121 — “Accounting for the Impairment of Long-Lived Assets” and estimates were revised on two stores which were previously impaired under FAS 121. As a result, a provision for impairment of long-lived assets of $1.3 million was recorded for the drive-ins’ carrying cost in excess of its estimated fair value. We adopted FAS 144 — “Accounting for the Impairment or Disposal of Long-Lived Assets,” which superceded FAS 121, effective at the beginning of fiscal year 2003. During fiscal year 2003, two drive-ins became impaired under the guidelines of FAS 144, which resulted in a provision for impairment of $0.7 million to reduce the drive-ins’ carrying cost to estimated fair value. We continue to perform quarterly analyses of certain underperforming restaurants. It is reasonably possible that the estimate of future cash flows associated with these restaurants may change in the near future resulting in the need to write-down assets associated with one or more of these restaurants to fair value.

        Income from operations increased 8.7% to $89.5 million during fiscal year 2003 from $82.3 million during fiscal year 2002, due primarily to the growth in revenues and other matters discussed above.

        Net interest expense in fiscal year 2003 declined 1.6% to $6.2 million from $6.3 million in fiscal year 2002. The year-over-year decline in short-term interest rates combined with the refinancing of $20.0 million in senior notes more than offset the effect of the increase in amounts outstanding under the line of credit resulting from additional borrowings to fund share repurchases of $26.5 million and capital expenditures of $90.0 million, including $35.6 million for acquisitions. Going forward, we expect interest expense to continue to decline, particularly in the latter part of fiscal year 2004, depending on the level of share repurchases and acquisition activity

        Provision for income taxes reflects an effective federal and state tax rate of 37.25% for fiscal year 2003 and 2002. Net income increased 9.6% to $52.3 million during fiscal year 2003 from $47.7 million in fiscal year 2002. Diluted earnings per share increased to $1.29 per share during fiscal year 2003, compared to $1.13 per share during fiscal year 2002, for an increase of 14.2%.

        Comparison of Fiscal Year 2002 to Fiscal Year 2001. Total revenues increased 21.0% to $400.2 million during fiscal year 2002 from $330.6 million in fiscal year 2001. Company-owned restaurant sales increased 23.6% to $330.7 million during fiscal year 2002 from $267.5 million in fiscal year 2001. Of the $63.2 million increase, $58.9 million was due to the net addition of 140 Company-owned restaurants since the beginning of fiscal year 2001 ($61.4 million from the addition of 74 newly constructed restaurants and 75 acquired restaurants since the beginning of fiscal year 2001, less $2.5 million from nine stores sold or closed during the same period). Average sales increases of approximately 1.7% by stores open the full reporting periods of fiscal year 2002 and 2001 accounted for $4.3 million of the increase.

        Franchise royalties increased 13.2% to $61.4 million during fiscal year 2002, compared to $54.2 million in fiscal year 2001. Of the $7.2 million increase, approximately $3.9 million was attributable to franchise same-store sales growth of 3.2% combined with an increase in the effective royalty rate from 3.18% in fiscal year 2001 to 3.27% in fiscal year 2002. Each of our license agreements contains an ascending royalty rate feature whereby the royalty rate increases as sales volumes increase. The balance of the increase resulted from an increase in the number of franchise restaurants operating in fiscal year 2002 compared to fiscal year 2001. Franchise fees decreased 8.8% as 142 franchise drive-ins opened during fiscal year 2002 as compared to 157 in fiscal year 2001. However, the

17

average franchise fee increased as a greater percentage of stores opened under the newest form of license agreement, which has a higher franchise fee and royalty rate.

        Restaurant cost of operations, as a percentage of Company-owned restaurant sales, was 73.2% during fiscal year 2002 compared to 73.0% in fiscal year 2001. Food and packaging costs, as a percentage of Company-owned restaurant sales, remained flat as lower than expected beef costs and a moderation in dairy costs were offset by slightly increased discounting from standard menu prices. Payroll and employee benefits, as a percentage of Company-owned restaurant sales, increased 40 basis points as a result of an increase in average wage rates, increased investment in store-level labor as a part of the our commitment to outstanding customer service, and an increase in training and store-level management for the rollout of the breakfast program to a significant number of restaurants. Other operating expenses, as a percentage of Company-owned restaurant sales, decreased 13 basis points primarily as a result of the leverage of higher sales volumes and improvements in utility costs. Minority interest in earnings of restaurants decreased, as a percentage of Company-owned restaurant sales, to 4.5% during fiscal year 2002, compared to 4.7% in fiscal year 2001 as a result of the decline in overall restaurant-level margins.

        Selling, general and administrative expenses decreased, as a percentage of total revenues, to 8.4% during fiscal year 2002, compared with 9.3% in fiscal year 2001 as a result of the leverage of operating at higher sales volumes. Depreciation and amortization expense increased 9.3% to $26.1 million during fiscal year 2002 compared to 17.6% in fiscal year 2001 while declining as a percentage of revenue to 6.5% as compared to 7.2% the prior year. The increase in depreciation resulted primarily from new drive-in development and store acquisitions in the third fiscal quarter of 2002. The Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” effective September 1, 2001 which resulted in a reduction in amortization expense of $2.2 million during fiscal year 2002 as compared to fiscal year 2001, excluding any related tax effects.

        During fiscal year 2002, two drive-ins in developing markets became impaired under the guidelines of FAS 121 — “Accounting for the Impairment of Long-Lived Assets,” and estimates were revised on three stores which were previously impaired under FAS 121. As a result, a provision for impairment of long-lived assets of $1.3 million was recorded for the drive-ins’ carrying cost in excess of their estimated fair value. During fiscal year 2001, two drive-ins became impaired under FAS 121 resulting in an impairment of $0.8 million.

        Income from operations increased 21.8% to $82.3 million during fiscal year 2002 from $67.6 million in fiscal year 2001 due primarily to the growth in revenues and other matters discussed above.

        Net interest expense during fiscal year 2002 increased 14.4% to $6.3 million from $5.5 million in fiscal year 2001. This increase was the result of additional borrowings to fund share repurchases of $26.0 million and capital expenditures of $71.1 million, including $20.5 million for acquisitions.

        Provision for income taxes reflects an effective federal and state tax rate of 37.25% for fiscal year 2002 and 2001. Net income increased 22.4% to $47.7 million in fiscal year 2002 compared to $39.0 million in fiscal year 2001. Diluted earnings per share increased to $1.13 per share during fiscal year 2002, compared to $0.93 per share in fiscal year 2001, for an increase of 21.5%.

Liquidity and Sources of Capital

        Net cash provided by operating activities increased $6.7 million or 8.1% in fiscal year 2003 as compared to the same period in fiscal year 2002, primarily as the result of the increase in operating profit before depreciation and amortization, partially offset by the gain on disposition of assets and the provision for deferred income taxes.

        We opened 35 newly-constructed restaurants and acquired a net of 11 existing restaurants from franchisees in fiscal year 2002. We funded total capital additions for fiscal year 2003 of $90.0 million, which included the cost of newly-opened restaurants, new equipment for existing restaurants, retrofits of existing restaurants, restaurants under construction, acquired restaurants, and other capital expenditures, from cash generated by operating activities and through borrowings under our line of credit. During fiscal year 2003, we purchased the real estate for 22 of the 87 newly-constructed and acquired restaurants. We expect to own the land and building for most of our future newly-constructed restaurants.

18

        We repurchased approximately 1.2 million shares of common stock under our stock repurchase program during fiscal year 2003 at an aggregate cost of $26.5 million. Our Board of Directors expanded the stock repurchase program in August 2003, increasing the funds authorized for the repurchase of the Company’s common stock to $50.0 million and extended the term of the program to December 31, 2004. As of August 31, 2003, our total cash balance of $13.2 million reflected the impact of the cash generated from operating activities, borrowing activity, and capital expenditures mentioned above.

        We had an agreement with a group of banks which provided the Company with an $80.0 million line of credit expiring in July of 2004. On April 23, 2003, we amended the bank line of credit agreement to increase the maximum borrowing commitment from $80.0 to $125.0 million and extend the maturity of the agreement by two years to July 2006. The Company refinanced $20.0 million of long-term debt, which matured on April 1, 2003, under its senior unsecured notes with amounts available under its line of credit. We plan to use the line of credit to finance the opening of newly-constructed restaurants, acquisitions of existing restaurants, purchases of the Company’s common stock and for other general corporate purposes. As of August 31, 2003, our outstanding borrowings under the line of credit were $79.3 million, at an effective borrowing rate of 2.8%, as well as $0.7 million in outstanding letters of credit. The amount available under the line of credit as of August 31, 2003, was $45.0 million. See Note 9 of the Notes to Consolidated Financial Statements for additional information regarding the Company’s long-term debt.

        We plan capital expenditures of $50.0 million in fiscal year 2004, excluding potential acquisitions and share repurchases. These capital expenditures primarily relate to the development of additional Company-owned restaurants, stall additions, relocations of older restaurants, store equipment upgrades, and enhancements to existing financial and operating information systems. We expect to fund these capital expenditures through borrowings under our existing line of credit and cash flow from operations. We expect to generate free cash flow (which we define as net income plus depreciation and amortization less capital expenditures, other than franchise acquisitions and share repurchases) of $40 million to $45 million during fiscal 2004. The Company has long-term debt maturing in fiscal years 2004, 2005 and 2006 of $0.1 million, $34.6 million and $83.9 million, respectively. We expect to refinance amounts maturing in 2005 under the senior secured notes with our line of credit and plan to extend the line of credit maturing in 2006 under existing renewal options and to increase the amount available as needed. We believe that existing cash and funds generated from operations, as well as borrowings under the line of credit, will meet the Company’s needs for the foreseeable future.

         We entered into an agreement with certain franchisees during fiscal year 2003, which provides them with the option to sell 50 restaurants to us anytime during the period commencing January 1, 2004 and ending June 30, 2005. We estimate that the cost of the acquisition, if it were to occur, would be in the range of $31 to $37 million and anticipate that the acquisition would be funded through operating cash flows and borrowings under the Company’s existing line of credit.

Contractual Obligations and Commitments

        In the normal course of business, Sonic enters into purchase contracts, lease agreements and borrowing arrangements. Our commitments and obligations as of August 31, 2003, are summarized in the following table:

	Payments Due by Period
	(In Thousands)
Contractual Obligations	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 Years
Long-Term Debt	$	139,587	$	82	$	118,555	$	8,186	$	12,764
Capital Leases		44,533		3,711		7,022		6,555		27,245
Operating Leases		114,982		9,081		18,116		17,612		70,173
Vendor Purchase Agreements		44,632		44,632		—		—		—
Total	$	343,734	$	57,506	$	143,693	$	32,353	$	110,182

19

Impact of Inflation

        Though increases in labor, food or other operating costs could adversely affect our operations, we do not believe that inflation has had a material effect on income during the past several years.

Seasonality

        We do not expect seasonality to affect operations in a materially adverse manner. Our results during our second fiscal quarter (the months of December, January and February) generally are lower than other quarters because of the climate of the locations of a number of Company-owned and franchised restaurants.

Critical Accounting Policies and Estimates 

        The Consolidated Financial Statements and Notes to Consolidated Financial Statements contain information that is pertinent to management’s discussion and analysis. The preparation of financial statements in conformity with generally accepted accounting principles requires management to use its judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. These assumptions and estimates could have a material effect on the Company’s Financial Statements. We evaluate our assumptions and estimates on an ongoing basis based on historical experience and various other factors that are believed to be relevant under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

        We annually review our financial reporting and disclosure practices and accounting policies to ensure that our financial reporting and disclosures provide accurate and transparent information relative to the current economic and business environment. We believe that of our significant accounting policies (see Note 1 of Notes to Consolidated Financial Statements), the following policies involve a higher degree of risk, judgment and/or complexity.

        Impairment of Long-Lived Assets. We review each restaurant for impairment when events or circumstances indicate it might be impaired. We test for impairment using historical cash flows and other relevant facts and circumstances as the primary basis for our estimates of future cash flows. This process requires the use of estimates and assumptions, which are subject to a high degree of judgment. In addition, at least annually we assess the recoverability of goodwill and other intangible assets related to our brand and restaurants. These impairment tests require us to estimate fair values of our brand and our restaurants by making assumptions regarding future cash flows and other factors. If these assumptions change in the future, we may be required to record impairment charges for these assets.

        Ownership Program/Allowance for Uncollectible Notes and Accounts Receivable. Our restaurant philosophy stresses an ownership relationship with supervisors and drive-in managers. Most supervisors and managers of Company-owned restaurants own an equity interest in the restaurant, which is financed by the Company. These notes are typically financed for a term of five years, bear interest at market rates, and are secured by the partner’s equity interest. We evaluate whether the partner notes are collectible and make estimates of bad debts based on the restaurant’s financial performance and collection history with individual partners. If an individual restaurant’s performance declines, the probability of default by the partners is increased. Supervisors and managers are not employees of Sonic or of the restaurant in which they have an ownership interest.

        The investments made by managers and supervisors in each partnership or limited liability company are accounted for as minority interests in the financial statements. The ownership agreements contain provisions, which give Sonic the right, but not the obligation, to purchase the minority interest of the supervisor or manager in a restaurant. The amount of the investment made by a partner and the amount of the buy-out are based on a number of factors, primarily upon the restaurant’s financial performance for the preceding 12 months, and are intended to approximate the fair value of a minority interest in the restaurant. Such payments are accounted for under the purchase method of accounting.

        We collect royalties from franchisees and provide for estimated losses for receivables that are not likely to be collected. General allowances for uncollectible receivables are estimated based on historical trends. Although we

20

have a good relationship with our franchisees and collection rates are currently high, if average sales or the financial health of franchisees were to deteriorate, we may have to increase reserves against collection of franchise revenues.

        Contingency Reserves. From time to time, we are involved in various legal proceedings and have certain unresolved claims pending involving taxing authorities, franchisees, suppliers, employees and competitors. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as estimate potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each issue. In addition, our estimate of probable losses may change in the future due to new developments or changes in approach such as a change in settlement strategy in dealing with these matters. We believe that all claims currently pending are either adequately covered by insurance or would not have a material adverse effect on the Company’s business or financial condition.

        Advertising. Under our license agreements, each drive-in, either Company-owned or franchise, must contribute a minimum percentage of revenues to a national media production fund (Sonic Advertising Fund) and spend an additional minimum percentage of gross revenues on local advertising, either directly or through Company-required participation in advertising cooperatives. A portion of the local advertising contributions is redistributed to a System Marketing Fund, which purchases advertising on national cable and broadcast networks and other national media and sponsorship opportunities. (See further description under Item 1, Marketing.)

        As stated in the terms of existing license agreements, these funds do not constitute assets of the Company and the Company acts with limited agency in the administration of these funds. Accordingly, neither the revenues and expenses nor the assets and liabilities of the advertising cooperatives, the Sonic Advertising Fund, or the System Marketing Fund are included in the Company’s consolidated financial statements. However, all advertising contributions by Company-owned restaurants are recorded as an expense in the Company’s financial statements.

        Revenue Recognition Related to Franchise Fees and Royalties. Initial franchise fees are nonrefundable and are recognized in income when all material services or conditions relating to the sale of the franchise have been substantially performed or satisfied by the Company. Area development fees are nonrefundable and are recognized in income on a pro-rata basis when the conditions for revenue recognition under the individual development agreements are met. Both initial franchise fees and area development fees are generally recognized upon the opening of a franchise drive-in or upon termination of the agreement between the Company and the franchisee.

        Our franchisees are required under the provisions of the license agreements to pay the Company royalties each month based on a percentage of actual net royalty sales. However, the royalty payments and supporting financial statements are not due until the 20^th of the following month. As a result, we accrue royalty revenue in the month earned based on estimates of franchise store sales. These estimates are based on actual sales at Company-owned stores and projections of average unit volume growth at franchise stores.

        Income Taxes. We provide for income taxes based on our estimate of federal and state tax liability. In making this estimate, we consider the impact of legislative and judicial developments. As these developments evolve, we will update our estimate which could result in an adjustment to the tax rate.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

        We are exposed to market risk from changes in interest rates on debt and notes receivable, as well as changes in commodity prices.

        Our exposure to interest rate risk currently consists of our Senior Notes, outstanding line of credit, and notes receivable. The Senior Notes bear interest at fixed rates which average 6.8%. The aggregate balance outstanding under the Senior Notes as of August 31, 2003 was $60.0 million. Should interest rates increase or decrease, the estimated fair value of these notes would decrease or increase, respectively. As of August 31, 2003, the estimated fair value of the Senior Notes exceeded the carrying amount by approximately $2.8 million. The line of credit bears interest at a rate benchmarked to U.S. and European short-term interest rates. The balance outstanding under the line of credit was $79.3 million as of August 31, 2003. We have made certain loans to the supervisors and managers who own a minority interest in our Company-owned restaurants and franchisees totaling $13.3 million as of August 31, 2003. The interest rates on these notes are generally between 8.5% and 10.5%. We believe the fair market value of these notes

21

approximates their carrying amount. The impact on our results of operations of a one percent interest rate change on the outstanding balances under the line of credit as of the end of fiscal year 2003 would be approximately $0.6 million.

        The Company and its franchisees purchase certain commodities such as beef, potatoes, chicken and dairy products. These commodities are generally purchased based upon market prices established with vendors. These purchase arrangements may contain contractual features that limit the price paid by establishing price floors or caps; however, we have not made any long-term commitments to purchase any minimum quantities under these arrangements. We do not use financial instruments to hedge commodity prices because these purchase agreements help control the ultimate cost and any commodity price fluctuations are generally short term in nature.

        This market risk discussion contains forward-looking statements. Actual results may differ materially from this discussion based upon general market conditions and changes in financial markets.

Item 8. Financial Statements and Supplementary Data

        The Company has included the financial statements and supplementary financial information required by this item immediately following Part IV of this report and hereby incorporates by reference the relevant portions of those statements and information into this Item 8.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        No disagreements between the Company and its accountants have occurred within the 24-month period prior to the date of the Company’s most recent financial statements.

Item 9A. Controls and Procedures

        As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-14 under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

PART III

Item 10. Directors and Executive Officers of the Company

        We have adopted a code of ethics that applies to our chief executive officer, chief financial officer, treasurer and controller.  Sonic has posted a copy of the code on its internet website at the internet address: http://www.sonicdrivein.com.  Copies of the code may be obtained free of charge from the Company’s website at the above internet address.

        Information regarding Sonic’s executive officers is set forth under Item 4A of Part I of this report. The other information required by this item is incorporated by reference from the definitive proxy statement which Sonic must file with the Securities and Exchange Commission in connection with Sonic’s annual meeting of stockholders to be held January 21, 2004 (the “Proxy Statement”) under the captions “Election of Directors” and “Section 16 Compliance.”

Item 11. Executive Compensation

        The information required by this item is incorporated by reference from the Proxy Statement under the caption “Executive Compensation.”

22

Item 12. Security Ownership of Certain Beneficial Owners and Management

        The information required by this item is incorporated by reference from the Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management.”

Item 13. Certain Relationships and Related Transactions

        The information required by this item is incorporated by reference from the Proxy Statement under the caption “Certain Relationships and Related Transactions.”

Item 14. Principal Accounting Fees and Services

        The information required by this item is incorporated by reference from the Proxy Statement under the caption “Report of the Audit Committee.”

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

Financial Statements

        The following consolidated financial statements of the Company appear immediately following this Item 15:

	Pages
Report of Independent Auditors	F-1
Consolidated Balance Sheets at August 31, 2003 and 2002	F-2
Consolidated Statements of Income for each of the three years
in the period ended August 31, 2003	F-4
Consolidated Statements of Stockholders’ Equity for each of the three years
in the period ended August 31, 200	F-5
Consolidated Statements of Cash Flows for each of the three years
in the period ended August 31, 2002	F-6
Notes to Consolidated Financial Statements	F-8

Financial Statement Schedules

        The Company has included the following schedule immediately following this Item 15:

	Page
Schedule II-Valuation and Qualifying Accounts	F-31

        The Company has omitted all other schedules because the conditions requiring their filing do not exist or because the required information appears in Sonic’s Consolidated Financial Statements, including the notes to those statements.

Exhibits

        The Company has filed the exhibits listed below with this report. The Company has marked all employment contracts and compensatory plans or arrangements with an asterisk (*).

3.01. Certificate of Incorporation of the Company, which the Company hereby incorporates by reference from Exhibit 3.1 to the Company’s Form S-1 Registration Statement No. 33-37158.

23

3.02. Bylaws of the Company, which the Company hereby incorporate by reference from Exhibit 3.2 to the Company’s Form S-1 Registration Statement No. 33-37158.

3.03. Certificate of Designations of Series A Junior Preferred Stock, which the Company hereby incorporates by reference from Exhibit 99.1 to the Company’s Form 8-K filed on June 17, 1997.

3.04. Rights Agreement, which the Company hereby incorporates by reference from Exhibit 99.1 to Sonic’s Form 8-K filed on June 17, 1997.

3.05. Certificate of Amendment of Certificate of Incorporation of the Company, March 4, 1996, which the Company hereby incorporates by reference from Exhibit 3.05 to the Company’s Form 10-K for the fiscal year ended August 31, 2000.

3.06. Certificate of Amendment of Certificate of Incorporation of the Company, January 22, 2002, which the Company hereby incorporates by reference from Exhibit 3.06 to the Company’s Form 10-K for the fiscal year ended August 31, 2002.

4.01. Specimen Certificate for Common Stock, which the Company hereby incorporates by reference from Exhibit 4.01 to the Company’s Form 10-K for the fiscal year ended August 31, 1999.

4.02. Specimen Certificate for Rights, which the Company hereby incorporates by reference from Exhibit 99.1 to the Company’s Form 8-K filed on June 17, 1997.

10.01. Form of Sonic Industries Inc. License Agreement (the Number 4 License Agreement), which the Company hereby incorporates by reference from Exhibit 10.1 to the Company’s Form S-1 Registration Statement No. 33-37158.

10.02. Form of Sonic Industries Inc. License Agreement (the Number 5 License Agreement), which the Company hereby incorporates by reference from Exhibit 10.2 to the Company’s Form S-1 Registration Statement No. 33-37158.

10.03. Form of Sonic Industries Inc. License Agreement (the Number 4.2 License Agreement and Number 5.1 License Agreement), which the Company hereby incorporates by reference from Exhibit 10.03 to Sonic’s Form 10-K for the fiscal year ended August 31, 1994.

10.04. Form of Sonic Industries Inc. License Agreement (the Number 6 License Agreement), which the Company hereby incorporates by reference from Exhibit 10.04 to the Company’s Form 10-K for the fiscal year ended August 31, 1994.

10.05. Form of Sonic Industries Inc. License Agreement (the Number 6A License Agreement), which the Company hereby incorporates by reference from Exhibit 10.05 to the Company’s Form 10-K for the fiscal year ended August 31, 1998.

10.06. Form of Sonic Industries Inc. License Agreement (the Number 5.2 License Agreement), which the Company hereby incorporates by reference from Exhibit 10.06 to the Company’s Form 10-K for the fiscal year ended August 31, 1998.

10.07. Form of Sonic Industries Inc. Area Development Agreement, which the Company hereby incorporates by reference from Exhibit 10.05 to the Company’s Form 10-K for the fiscal year ended August 31, 1995.

10.08. Form of Sonic Industries Inc. Sign Lease Agreement, which the Company hereby incorporates by reference from Exhibit 10.4 to the Company’s Form S-1 Registration Statement No. 33-37158.

10.09. Form of General Partnership Agreement, Limited Liability Company Operating Agreement and Master Agreement.

24

10.10. 1991 Sonic Corp. Stock Option Plan, which the Company hereby incorporates by reference from Exhibit 10.5 to the Company’s Form S-1 Registration Statement No. 33-37158.^*

10.11. 1991 Sonic Corp. Stock Purchase Plan, which the Company hereby incorporates by reference from Exhibit 10.6 to the Company’s Form S-1 Registration Statement No. 33-37158.^*

10.12. 1991 Sonic Corp. Directors’ Stock Option Plan, which the Company hereby incorporates by reference from Exhibit 10.08 to the Company’s Form 10-K for the fiscal year ended August 31, 1991.^*

10.13. Sonic Corp. Savings and Profit Sharing Plan, which the Company hereby incorporates by reference from Exhibit 10.8 to the Company’s Form S-1 Registration Statement No. 33-37158.^*

10.14. Net Revenue Incentive Plan, which the Company hereby incorporates by reference from Exhibit 10.19 to the Company’s Form S-1 Registration Statement No. 33-37158.^*

10.15. Form of Indemnification Agreement for Directors, which the Company hereby incorporates by reference from Exhibit 10.7 to the Company’s Form S-1 Registration Statement No. 33-37158.^*

10.16. Form of Indemnification Agreement for Officers, which the Company hereby incorporates by reference from Exhibit 10.14 to the Company’s Form 10-K for the fiscal year ended August 31, 1995.^*

10.17. Sonic Corp. 1995 Stock Incentive Plan, which the Company hereby incorporates by reference from Exhibit 10.15 to the Company’s Form 10-K for the fiscal year ended August 31, 1996.^*

10.18 Employment Agreement with J. Clifford Hudson dated August 20, 1996, which the Company hereby incorporates by reference from Exhibit 10.18 to the Company’s Form 10-K for the fiscal year ended August 31, 2002.^*

10.19. Employment Agreement with Pattye L. Moore dated August 20, 1996, which the Company hereby incorporates by reference from Exhibit 10.19 to the Company’s Form 10-K for the fiscal year ended August 31, 2002.^*

10.20. Employment Agreement with Ronald L. Matlock dated August 20, 1996, which the Company hereby incorporates by reference from Exhibit 10.20 to the Company’s Form 10-K for the fiscal year ended August 31, 2002.^*

10.21. Employment Agreement with W. Scott McLain dated January 27, 1998, which the Company hereby incorporates by reference from Exhibit 10.21 to the Company’s Form 10-K for the fiscal year ended August 31, 2002.^*

10.22. Employment Agreement with Michael A. Perry dated August 20, 2003.^*

10.23. Employment Agreement with Stephen C. Vaughan dated August 20, 1996, which the Company hereby incorporates by reference from Exhibit 10.23 to the Company’s Form 10-K for the fiscal year ended August 31, 2002.^*

10.24. Employment Agreement with Terry D. Harryman dated January 19, 2000, which the Company hereby incorporates by reference from Exhibit 10.24 to the Company’s Form 10-K for the fiscal year ended August 31, 2002.^*

10.25. Loan Agreement with Texas Commerce Bank National Association dated July 31, 1995, which the Company hereby incorporates by reference from Exhibit 10.26 to the Company’s Form 10-K for the fiscal year ended August 31, 1995.

10.26. First Amendment to Loan Agreement with Texas Commerce Bank National Association, which the Company hereby incorporates by reference from Exhibit 10.18 to the Company’s Form 10-K for the fiscal year ended August 31, 1996.

10.27. Second Amendment to Loan Agreement with Texas Commerce Bank National Association, which the Company hereby incorporates by reference from Exhibit 10.19 to the Company’s Form 10-K for the fiscal year ended August 31, 1996.

25

10.28. Third Amendment to Loan Agreement with Texas Commerce Bank National Association, which the Company hereby incorporates by reference from Exhibit 10.01 to the Company’s Form 10-Q for the fiscal quarter ended May 31, 1997.

10.29. Fourth Amendment to the Loan Agreement with Chase Bank of Texas, N.A. (formerly known as Texas Commerce Bank National Association), which the Company hereby incorporates by reference from Exhibit 10.21 to the Company’s 10-Q for the fiscal quarter ended May 31, 1998.

10.30. Fifth Amendment to the Loan Agreement with Chase Bank of Texas, N.A. (formerly known as Texas Commerce Bank National Association), which the Company hereby incorporates by reference from Exhibit 10.22 to the Company’s 10-Q for the fiscal quarter ended May 31, 1998.

10.31. Sixth Amendment to the Loan Agreement with Chase Bank of Texas, N.A. (formerly known as Texas Commerce Bank National Association), which the Company hereby incorporates by reference from Exhibit 10.25 to the Company’s Form 10-K for the fiscal year ended August 31, 1999.

10.32. Seventh Amendment to the Loan Agreement with Chase Bank of Texas, N.A. (formerly known as Texas Commerce Bank National Association), which the Company hereby incorporates by reference from Exhibit 10.29 to the Company’s Form 10-K for the fiscal year ended August 31, 2000.

10.33. Eighth Amendment to the Loan Agreement with Bank of America, N.A. (as successor agent to The Chase Manhattan Bank, formerly known as Chase Bank of Texas, N.A.), which the Company hereby incorporates by reference from Exhibit 10.27 to the Company’s Form 10-K for the fiscal year ended August 31, 2001.

10.34 Ninth Amendment to the Loan Agreement with Bank of America, N.A., which the Company hereby incorporates by reference from Exhibit 10.28 to the Company’s Form 10-K for the fiscal year ended August 31, 2001.

10.35. Note Purchase Agreement dated April 1, 1998, which the Company hereby incorporates by reference from Exhibit 10.23 to the Company’s 10-Q for the fiscal quarter ended May 31, 1998.

10.36. Form of 6.652% Senior Notes, Series A, due April 1, 2003, which the Company hereby incorporates by reference from Exhibit 10.24 to the Company’s 10-Q for the fiscal quarter ended May 31, 1998.

10.37. Form of 6.759% Senior Notes, Series B, due April 1, 2003, which the Company hereby incorporates by reference from Exhibit 10.24 to the Company’s 10-Q for the fiscal quarter ended May 31, 1998.

10.38. 2001 Sonic Corp. Stock Option Plan, which the Company hereby incorporates by reference from Exhibit No. 10.32 to the Company’s Form 10-K for the fiscal year ended August 31, 2001.

10.39. 2001 Sonic Corp. Directors’ Stock Option Plan, which the Company hereby incorporates by reference from Exhibit No. 10.33 to the Company’s Form 10-K for the fiscal year ended August 31, 2001.

10.40. Note Purchase Agreement dated August 10, 2001, which the Company hereby incorporates by reference from Exhibit No. 10.34 to the Company’s Form 10-K for the fiscal year ended August 31, 2001.

10.41. Form of 6.58% Senior Notes, Series A, due August 10, 2008, which the Company hereby incorporates by reference from Exhibit No. 10.35 to the Company’s Form 10-K for the fiscal year ended August 31, 2001.

10.42. Form of 6.87% Senior Notes, Series B, due August 10, 2011, which the Company hereby incorporates by reference from Exhibit No. 10.36 to the Company’s Form 10-K for the fiscal year ended August 31, 2001.

21.01. Subsidiaries of the Company, which the Company hereby incorporates by reference from Exhibit No. 21.01 to the Company’s Form 10-K for the fiscal year ended August 31, 2001.

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23.1 Consent of Independent Auditors.

99.1 Certification of Chief Executive Officer pursuant to S.E.C. Rule 13a-14.

99.2 Certification of Chief Financial Officer pursuant to S.E.C. Rule 13a-14.

99.3 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

99.4 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

Reports on Form 8-K

        The Company filed a report on Form 8-K on June 23, 2003, reporting its press release announcing results for the Company’s third fiscal quarter.

27

Report of Independent Auditors

The Board of Directors and Stockholders
Sonic Corp.

We have audited the accompanying consolidated balance sheets of Sonic Corp. as of August 31, 2003 and 2002, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended August 31, 2003. Our audits also included the financial statement schedule listed in Item 15. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sonic Corp. at August 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended August 31, 2003, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

	ERNST & YOUNG LLP
Oklahoma City, Oklahoma October 13, 2003

F-1

Sonic Corp.

Consolidated Balance Sheets

	August 31,
	2003		2002
		(In Thousands)
Assets
Current assets:
Cash and cash equivalents	$	13,210	$	8,951
Accounts and notes receivable, net		16,990		13,755
Net investment in direct financing leases		943		802
Inventories		2,713		2,274
Deferred income taxes		1,210		481
Prepaid expenses		1,964		3,710
Total current assets		37,030		29,973
Notes receivable, net		9,650		8,529
Net investment in direct financing leases		6,823		7,137
Property, equipment and capital leases, net		345,551		305,286
Goodwill, net		78,962		46,826
Trademarks, trade names and other intangibles, net		6,481		6,755
Other assets, net		1,622		850
Total assets	$	486,119	$	405,356

F-2

Sonic Corp.

Consolidated Balance Sheets (continued)

	August 31,
	2003			2002
		(In Thousands)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	6,939		$	6,799
Deposits from franchisees		2,060			1,015
Accrued liabilities		29,614			34,029
Long-term debt and obligations under capital leases due within one year		1,574			1,072
Total current liabilities		40,187			42,915
Obligations under capital leases due after one year		26,437			11,991
Long-term debt due after one year		139,505			109,250
Other noncurrent liabilities		7,863			5,807
Deferred income taxes		6,729			4,723
Commitments and contingencies (Notes 6, 7, 14, and 15)
Stockholders' equity:
Preferred stock, par value $.01; 1,000,000 shares authorized; none outstanding		—			—
Common stock, par value $.01; 100,000,000 shares authorized; shares issued
49,180,560 in 2003 and 48,477,652 in 2002		492			485
Paid-in capital		95,546			86,563
Retained earnings		288,387			236,126
		384,425			323,174
Treasury stock, at cost; 9,963,932 shares in 2003 and 8,736,701 shares in
2002		(119,027	)		(92,504	)
Total stockholders' equity		265,398			230,670
Total liabilities and stockholders' equity	$	486,119		$	405,356

See accompanying notes.

F-3

Sonic Corp.

Consolidated Statements of Income

	Year ended August 31,
	2003			2002			2001
	(In Thousands, Except Per Share Data)
Revenues:
Company-owned restaurant sales	$	371,518		$	330,707		$	267,463
Franchised restaurants:
Franchise royalties		66,431			61,392			54,220
Franchise fees		4,674			4,020			4,408
Other		4,017			4,043			4,547
		446,640			400,162			330,638
Costs and expenses:
Company-owned restaurants:
Food and packaging		96,568			85,838			69,609
Payroll and other employee benefits		110,009			95,085			75,822
Other operating expenses		70,789			61,270			49,907
		277,366			242,193			195,338
Selling, general and administrative		35,426			33,444			30,602
Depreciation and amortization		29,223			26,078			23,855
Minority interest in earnings of restaurants		14,398			14,864			12,444
Provision for impairment of long-lived assets and other		727			1,261			792
		357,140			317,840			263,031
Income from operations		89,500			82,322			67,607
Interest expense		7,464			7,406			6,628
Interest income		(1,248	)		(1,087	)		(1,103	)
Net interest expense		6,216			6,319			5,525
Income before income taxes		83,284			76,003			62,082
Provision for income taxes		31,023			28,311			23,126
Net income	$	52,261		$	47,692		$	38,956
Basic income per share	$	1.34		$	1.19		$	.98
Diluted income per share	$	1.29		$	1.13		$	.93

See accompanying notes.

F-4

Sonic Corp.

Consolidated Statements of Stockholders’ Equity

	Common Stock									Treasury Stock
	Shares		Amount		Paid-in Capital			Retained Earnings		Shares		Amount
	(In Thousands)
Balance at August 31, 2000		31,325	$	313	$	69,786		$	149,478		4,953	$	(64,314	)
Exercise of common stock options		589		6		5,827			—		—		—
Tax benefit related to exercise of
employee stock options		—		—		2,814			—		—		—
Purchase of treasury stock		—		—		—			—		76		(2,147	)
Net income		—		—		—			38,956		—		—
Balance at August 31, 2001		31,914		319		78,427			188,434		5,029		(66,461	)
Exercise of common stock options		512		5		4,823			—		—		—
Tax benefit related to exercise of
employee stock options		—		—		3,474			—		—		—
Purchase of treasury stock		—		—		—			—		1,033		(26,043	)
Three-for-two stock split		16,052		161		(161	)		—		2,675		—
Net income		—		—		—			47,692		—		—
Balance at August 31, 2002		48,478		485		86,563			236,126		8,737		(92,504	)
Exercise of common stock options		703		7		5,671			—		—		—
Tax benefit related to exercise of
employee stock options		—		—		3,312			—		—		—
Purchase of treasury stock		—		—		—			—		1,227		(26,523	)
Net income		—		—		—			52,261		—		—
Balance at August 31, 2003		49,181	$	492	$	95,546		$	288,387		9,964	$	(119,027	)

See accompanying notes.

F-5

Sonic Corp.

Consolidated Statements of Cash Flows

	Year ended August 31,
	2003			2002			2001
	(In Thousands)
Cash flows from operating activities
Net income	$	52,261		$	47,692		$	38,956
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation		28,542			25,531			21,186
Amortization		681			547			2,669
Gains on dispositions of assets		(1,149	)		(179	)		(936	)
Amortization of franchise and development fees		(4,675	)		(4,020	)		(4,408	)
Franchise and development fees collected		4,791			4,116			4,702
Provision (benefit) for deferred income taxes		1,277			2,895			(1,471	)
Provision for impairment of long-lived assets		727			1,261			792
Tax benefit related to exercise of employee stock options		3,312			3,474			2,814
Other		(141	)		380			212
(Increase) decrease in operating assets:
Accounts and notes receivable		(3,291	)		(1,152	)		(1,228	)
Inventories and prepaid expenses		1,666			(2,530	)		(308	)
Increase (decrease) in operating liabilities:
Accounts payable		1,098			(1,235	)		590
Accrued and other liabilities		5,112			6,703			2,129
Total adjustments		37,950			35,791			26,743
Net cash provided by operating activities		90,211			83,483			65,699
Cash flows from investing activities
Purchases of property and equipment		(54,417	)		(50,572	)		(61,499	)
Acquisition of businesses, net of cash received		(35,557	)		(20,505	)		(29,120	)
Investments in direct financing leases		(654	)		(893	)		(862	)
Collections on direct financing leases		1,074			810			850
Proceeds from dispositions of assets		9,151			4,072			2,911
Increase in intangibles and other assets		(4,395	)		(1,234	)		(2,183	)
Net cash used in investing activities		(84,798	)		(68,322	)		(89,903	)

(Continued on following page)

F-6

Sonic Corp.

Consolidated Statements of Cash Flows (continued)

	Year ended August 31,
	2003			2002			2001
	(In Thousands)
Cash flows from financing activities
Proceeds from long-term borrowings	$	171,523		$	115,275		$	238,685
Payments on long-term debt		(141,310	)		(115,083	)		(213,929	)
Purchases of treasury stock		(35,252	)		(17,137	)		(1,843	)
Payments on capital lease obligations		(1,793	)		(887	)		(744	)
Exercises of stock options		5,678			4,651			5,529
Net cash provided by (used in) financing activities		(1,154	)		(13,181	)		27,698
Net increase in cash and cash equivalents		4,259			1,980			3,494
Cash and cash equivalents at beginning of the year		8,951			6,971			3,477
Cash and cash equivalents at end of the year	$	13,210		$	8,951		$	6,971
Supplemental cash flow information
Cash paid during the year for:
Interest (net of amounts capitalized of $481, $433 and
$732, respectively)	$	7,996		$	7,641		$	6,339
Income taxes (net of refunds)		24,002			19,190			22,203
Additions to capital lease obligations		16,783			137			7,346
Accounts and notes receivable and decrease in capital lease
obligations from property and equipment sales		1,352			1,650			945
Obligation to acquire treasury stock		—			8,729			—
Stock options exercised by stock swap		904			177			304

See accompanying notes.

F-7

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2003, 2002 and 2001

(In Thousands, Except Share Data)

1. Summary of Significant Accounting Policies

Operations

Sonic Corp. (the “Company”) operates and franchises a chain of quick-service drive-in restaurants in the United States. It derives its revenues primarily from Company-owned restaurant sales and royalty fees from franchisees. The Company also leases signs and real estate, and owns a minority interest in several franchised restaurants. The Company grants credit to its operating partners and its franchisees, all of whom are in the restaurant business. Substantially all of the notes receivable and direct financing leases are collateralized by real estate or equipment.

From time to time, the Company purchases existing franchised restaurants with proven track records in core markets from franchisees and other minority investors as a means to deploy excess cash generated from operating activities and provide a foundation for future earnings growth. On April 1, 2001, the Company acquired 35 existing franchised restaurants located in the Tulsa, Oklahoma market from a franchisee and other minority investors. The acquisitions were accounted for under the purchase method of accounting, with the results of operations of these restaurants included with that of the Company’s commencing April 1, 2001. The Company’s cash acquisition cost, prior to post-closing adjustments, of approximately $21.9 million consisted of the drive-ins’ operating assets ($0.2 million), equipment ($4.4 million) and goodwill ($17.3 million, which is expected to be fully deductible for tax purposes). The Company also entered into long-term real estate leases on each of these drive-in restaurants, which have future minimum rental payments aggregating $1.8 million annually over the next 15 years ($5.1 million of which was recorded as capital leases related to the buildings). The Company funded this acquisition through operating cash flows and borrowings under its existing $80.0 million bank line of credit.

On April 1, 2002, the Company acquired 23 existing franchised restaurants located in the Wichita, Kansas market from a franchisee and other minority investors. The acquisitions were accounted for under the purchase method of accounting, with the results of operations of these restaurants included with that of the Company’s commencing April 1, 2002. The Company’s cash acquisition cost, prior to post-closing adjustments, of approximately $19.4 million consisted of real estate ($10.7 million), equipment ($1.7 million) and goodwill ($7.0 million, which is expected to be fully deductible for tax purposes). The Company funded this acquisition through operating cash flows and borrowings under its existing $80.0 million bank line of credit.

On May 1, 2003, the Company acquired 51 existing restaurants located in the San Antonio, Texas market from its franchisees for cash consideration of approximately $34.6 million, prior to post closing adjustments. The acquisitions were accounted for under the purchase method of accounting. The Company also entered into long-term lease agreements on each of the acquired restaurants, which have future minimum rental payments aggregating $3.5 million annually. The following condensed balance sheet reflects the amount assigned to each major asset and liability category as of the acquisition date:

As of May 1, 2003
Current assets	$	322
Property and equipment		7,250
Goodwill		26,995
Total assets acquired	$	34,567

F-8

The Company did not assume any liabilities in connection with the acquisition and expects the amount assigned to goodwill to be fully deductible for tax purposes. The results of operations of these restaurants were included with that of the Company’s commencing May 1, 2003. If the acquisition had been completed as of the beginning of fiscal year 2002, pro forma revenues, net income and basic and diluted earnings per share would have been as follows for the years ending August 31:

	2003		2002
Revenues	$	475,052	$	446,838
Net income	$	53,235	$	50,115
Net income per share:
Basic	$	1.37	$	1.25
Diluted	$	1.31	$	1.19

The Company completed the sale of 41 Company-owned restaurants to franchisees during fiscal year 2003, the majority of which were located in developing markets. A total of eight restaurants were sold in January 2003, eight were sold in April 2003, 15 were sold in May 2003, and the balance were sold at various times during fiscal year 2003. The Company recognized a net gain of $1.6 million in other revenues resulting from the dispositions of these restaurants.

Principles of Consolidation

The accompanying financial statements include the accounts of the Company, its wholly-owned subsidiaries and its majority-owned, Company-operated restaurants, organized as general partnerships and limited liability companies. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported and contingent assets and liabilities disclosed in the financial statements and accompanying notes. Actual results may differ from those estimates, and such differences may be material to the financial statements.

Inventories

Inventories consist principally of food and supplies which are carried at the lower of cost (first-in, first-out basis) or market.

Property, Equipment and Capital Leases

Property and equipment are recorded at cost, and leased assets under capital leases are recorded at the present value of future minimum lease payments. Depreciation of property and equipment and capital leases are computed by the straight-line method over the estimated useful lives or initial terms of the leases, respectively, and are combined for presentation in the financial statements.

F-9

Accounting for Long-Lived Assets

The Company reviews long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. Assets are grouped and evaluated for impairment at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets, which generally represents the individual restaurant. The Company’s primary test for an indicator of potential impairment is operating losses. If an indication of impairment is determined to be present, the Company estimates the future cash flows expected to be generated from the use of the asset and its eventual disposal. If the sum of undiscounted future cash flows is less than the carrying amount of the asset, an impairment loss is recognized. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The fair value of the asset is measured by calculating the present value of estimated future cash flows using a discount rate equivalent to the rate of return the Company expects to achieve from its investment in newly-constructed restaurants.

Assets held for disposal are carried at the lower of depreciated cost or fair value less cost to sell. Fair values are estimated based upon appraisals or independent assessments of the assets’ estimated sales values. During the period in which assets are being held for disposal, depreciation and amortization of such assets are not recognized.

In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 requires that an impairment loss be recognized only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and that the measurement of any impairment loss be the difference between the carrying amount and the fair value of the asset. The Company adopted the Statement effective September 1, 2002, which did not result in a material impact on its consolidated financial position or results of operation.

Goodwill and Other Intangible Assets

The Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” effective September 1, 2001. Statement No. 142 eliminates the amortization for goodwill and other intangible assets with indefinite lives. Intangible assets with lives restricted by contractual, legal, or other means will continue to be amortized over their useful lives. Goodwill and other intangible assets not subject to amortization are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. SFAS No. 142 requires a two-step process for testing impairment. First, the fair value of each reporting unit is compared to its carrying value to determine whether an indication of impairment exists. If an impairment is indicated, then the fair value of the reporting unit’s goodwill is determined by allocating the unit’s fair value to its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The amount of impairment for goodwill and other intangible assets is measured as the excess of its carrying value over its fair value. No such impairment losses were recorded upon the initial adoption of SFAS No. 142. Prior to the adoption of SFAS No. 142, goodwill was being amortized on a straight-line basis over periods not exceeding 40 years.

The Company’s intangible assets subject to amortization under SFAS No. 142 consist primarily of acquired franchise agreements, franchise fees, and other intangibles. Amortization expense is calculated using the straight-line method over the expected period of benefit, not exceeding 15 years. The Company’s trademarks and trade names were

F-10

deemed to have indefinite useful lives and are not subject to amortization. See Note 5 for additional disclosures related to goodwill and other intangibles.

Franchise Fees and Royalties

Initial franchise fees are nonrefundable and are recognized in income when all material services or conditions relating to the sale of the franchise have been substantially performed or satisfied by the Company. Area development fees are nonrefundable and are recognized in income on a pro rata basis when the conditions for revenue recognition under the individual development agreements are met. Both initial franchise fees and area development fees are generally recognized upon the opening of a franchise drive-in or upon termination of the agreement between the Company and the franchisee.

The Company’s franchisees are required under the provisions of the license agreements to pay the Company royalties each month based on a percentage of actual net royalty sales. However, the royalty payments and supporting financial statements are not due until the 20^th of the following month. As a result, the Company accrues royalty revenue in the month earned based on estimates of franchise store sales. These estimates are based on actual sales at Company-owned stores and projections of average unit volume growth at franchise stores.

Advertising Costs

Costs incurred in connection with advertising and promotion of the Company’s products are expensed as incurred. Such costs amounted to $19,665, $16,544, and $13,283 for fiscal years 2003, 2002 and 2001, respectively.

Under the Company’s license agreements, each drive-in, either Company-owned or franchise, must contribute a minimum percentage of revenues to a national media production fund (Sonic Advertising Fund) and spend an additional minimum percentage of gross revenues on local advertising, either directly or through Company-required participation in advertising cooperatives. A portion of the local advertising contributions is redistributed to a System Marketing Fund, which purchases advertising on national cable and broadcast networks and other national media and sponsorship opportunities. As stated in the terms of existing license agreements, these funds do not constitute assets of the Company and the Company acts with limited agency in the administration of these funds. Accordingly, neither the revenues and expenses nor the assets and liabilities of the advertising cooperatives, the Sonic Advertising Fund, or the System Marketing Fund are included in the Company’s consolidated financial statements. However, all advertising contributions by Company-owned restaurants are recorded as expense on the Company’s financial statements.

Cash Equivalents

Cash equivalents consist of highly liquid investments with a maturity of three months or less from date of purchase.

Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations in accounting for its stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, “Accounting for Stock-Based

F-11

Compensation,”requires the use of option valuation models that were not developed for use in valuing such stock options. Under APB 25, because the exercise price of the Company’s stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.

Pro forma information regarding net income and net income per share is required by Statement 123, which also requires that the information be determined as if the Company has accounted for its stock options granted subsequent to August 31, 1995 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:

Year of Grant	Risk-Free Interest Rate			Expected Dividend Yield			Expected Volatility			Expected Life (years)
2003		3.2	%		0.0	%		46.3	%		5.7
2002		4.4			0.0			46.3			5.3
2001		5.0			0.0			48.5			5.2

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation:

	2003			2002			2001
Net income, as reported	$	52,261		$	47,692		$	38,956
Less stock-based compensation expense using the fair value
method, net of related tax effects		(4,460	)		(3,828	)		(3,094	)
Pro forma net income	$	47,801		$	43,864		$	35,862
Net income per share:
Basic:
As reported	$	1.34		$	1.19		$	.98
Pro forma	$	1.23		$	1.09		$	.90
Diluted:
As reported	$	1.29		$	1.13		$	.93
Pro forma	$	1.18		$	1.04		$	.86

F-12

Ownership Program

The Company’s restaurant philosophy stresses an ownership relationship with supervisors and drive-in managers. Most supervisors and managers of Company-owned restaurants own an equity interest in the restaurant, which is financed by the Company. These notes are typically financed for a term of five years, bear interest at market rates, and are secured by the partner’s equity interest. The Company evaluates whether the partner notes are collectible and makes estimates of bad debts based on the restaurant’s financial performance and collection history with individual partners. If an individual restaurant’s performance declines, the probability of default by the partners is increased. Supervisors and managers are not employees of Sonic or of the restaurant in which they have an ownership interest.

The investments made by managers and supervisors in each partnership or limited liability company are accounted for as minority interests in the financial statements. The ownership agreements contain provisions, which give Sonic the right, but not the obligation, to purchase the minority interest of the supervisor or manager in a restaurant. The amount of the investment made by a partner and the amount of the buy-out are based on a number of factors, primarily upon the restaurant’s financial performance for the preceding 12 months, and is intended to approximate the fair value of a minority interest in the restaurant. Such payments are accounted for under the purchase method of accounting.

New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51,” (“FIN 46”). FIN 46 requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Previously, entities were generally consolidated by an enterprise when a controlling financial interest through ownership of a majority voting interest in the entity was obtained.

In October 2003, the FASB issued Staff Position No. 46-6, “Effective Date of FASB Interpretation No. 46, Consolidation of Variable Interest Entities,” (“FSP FIN 46-6”) in which the FASB agreed to defer, for public companies, the required effective dates to implement FIN 46 for interests held in a variable interest entity (“VIE”) or potential VIE that was created before February 1, 2003. As a result of FSP FIN 46-6, a public entity need not apply the provisions of FIN 46 to an interest held in a VIE or potential VIE until the end of the first interim or annual period ending after December 15, 2003, if the VIE was created before February 1, 2003 and the public entity has not issued financial statements reporting that VIE in accordance with FIN 46, other than in the disclosures required by FIN 46. FIN 46 may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year restated. The Company will adopt this Interpretation effective February 29, 2004.

The FASB is currently proposing modifications and issuing FASB Staff Positions (“FSPs”) that change and clarify FIN 46. These modifications and FSPs, when finalized, could impact the Company’s analysis of the applicability of FIN 46 to entities that are franchisees of the Company. The Company typically has no equity ownership interests in its franchisees and has not consolidated any of these entities in the Company’s financial statements. The Company is

F-13

currently evaluating the effect of the Interpretation on the accounting for its relationship with certain franchisees and will continue to monitor developments regarding FIN 46 as they occur.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation which includes the prospective method, modified prospective method and retroactive restatement method. SFAS No. 148 also amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Adoption of the annual disclosure and voluntary transition requirements of SFAS No. 148 is required for annual financial statements issued for fiscal years ending after December 15, 2002. Pursuant to the provisions of SFAS No. 123, the Company has elected to continue using the intrinsic value method of accounting for its stock-based employee compensation plans in accordance with APB 25. See “Stock-Based Compensation” in Note 1 for a further discussion.

2. Net Income Per Share

The following table sets forth the computation of basic and diluted earnings per share for the years ended August 31:

	2003		2002		2001
Numerator:
Net income	$	52,261	$	47,692	$	38,956
Denominator:
Weighted average shares outstanding - basic		38,976,686		40,155,522		39,848,519
Effect of dilutive employee stock options		1,629,779		2,051,227		1,883,269
Weighted average shares - diluted		40,606,465		42,206,749		41,731,788
Net income per share - basic	$	1.34	$	1.19	$	.98
Net income per share - diluted	$	1.29	$	1.13	$	.93
Anti-dilutive employee stock options excluded		622,516		104,806		14,630

See Note 12 for information regarding shares available for grant under the 2001 Sonic Corp. Stock Option Plan and the 2001 Sonic Corp. Directors' Stock Option Plan.

F-14

3. Impairment of Long-Lived Assets

As of August 31, 2003 and 2002, the Company had identified certain underperforming restaurants whose operating results indicated that certain assets of these restaurants might be impaired. The buildings and improvements of these restaurants had combined carrying amounts of $2,786 and $1,990 respectively. During fiscal years 2003 and 2002, the Company performed quarterly analyses of these and other restaurants which had incurred operating losses. As a result of these analyses, the Company determined that certain restaurants with then-existing carrying amounts of $1,214 and $1,139, respectively, were impaired and wrote them down by $727 and $970, respectively, to their fair values. In addition, estimates were revised on three stores which were previously impaired under FAS 121 resulting in additional provisions totaling $291 in fiscal year 2002. Management’s estimate of undiscounted future cash flows indicates that the remaining carrying amounts as of August 31, 2003 are expected to be recovered. However, it is reasonably possible that the estimate of cash flows may change in the near future resulting in the need to write-down one or more of the identified assets to fair value.

4. Accounts and Notes Receivable

Accounts and notes receivable consist of the following at August 31, 2003 and 2002:

	2003		2002
Royalties and other trade receivables	$	8,052	$	7,701
Notes receivable—current		3,061		2,290
Other		6,410		5,252
		17,523		15,243
Less allowance for doubtful accounts and notes rec		533		1,488
	$	16,990	$	13,755
Notes receivable--noncurrent	$	10,274	$	9,034
Less allowance for doubtful notes receivable		624		505
	$	9,650	$	8,529

The Company collects royalties from franchisees and provides for estimated losses for receivables that are not likely to be collected. General allowances for uncollectible receivables are estimated based on historical trends.

Most supervisors and managers of Company-owned restaurants own an equity interest in the restaurant, which is financed by the Company. These notes are typically financed for a term of five years, bear interest at market rates, and are secured by the partner’s equity interest. The Company evaluates whether the partner notes are collectible and makes estimates of bad debts based on the restaurant’s financial performance and collection history with individual partners.

As of August 31, 2003 and 2002, notes receivable from one franchisee totaled $3,370 and $3,420 respectively. The underlying restaurant assets collateralize these notes.

F-15

5. Goodwill, Intangibles and Other Assets

The gross carrying amount of franchise agreements, franchise fees and other intangibles subject to amortization was $2,399 and $2,749 at August 31, 2003 and 2002, respectively. Accumulated amortization related to these intangible assets was $1,962 and $2,038 at August 31, 2003 and 2002, respectively. The carrying amount of trademarks and trade names not subject to amortization was $6,044 at August 31, 2003 and 2002.

The following tables disclose what reported net income would have been for fiscal years ending August 31, 2003 and 2002 exclusive of amortization expense (including any related tax effects) recognized in those periods related to goodwill and intangible assets that are no longer being amortized. Similarly adjusted per-share amounts have also been presented.

	2003		2002		2001
Reported net income	$	52,261	$	47,692	$	38,956
Add back: Goodwill amortization		—		—		1,266
Add back: Trademarks and trade names amortization		—		—		139
Adjusted net income	$	52,261	$	47,692	$	40,361
Net income per share - basic:
Reported net income	$	1.34	$	1.19	$	.98
Goodwill amortization		—		—		.03
Trademarks and trade names amortization		—		—		—
Adjusted net income	$	1.34	$	1.19	$	1.01
Net income per share - diluted:
Reported net income	$	1.29	$	1.13	$	.93
Goodwill amortization		—		—		.03
Trademarks and trade names amortization		—		—		—
Adjusted net income	$	1.29	$	1.13	$	.96

Aggregate amortization expense related to intangible assets was $420 and $319 in fiscal years 2003 and 2002, respectively. Estimated amortization expense for the next five fiscal years beginning with fiscal year 2004 is as follows:

For the year ending August 31, 2004	$278
For the year ending August 31, 2005	$202
For the year ending August 31, 2006	$193
For the year ending August 31, 2007	$209
For the year ending August 31, 2008	$190

F-16

The changes in the carrying amount of goodwill for fiscal years ending August 31, 2003 and 2002 were as follows:

	2003			2002
Balance as of September 1,	$	46,826		$	38,850
Goodwill acquired during the year		32,391			8,174
Impairment losses		—			—
Goodwill disposed of related to the sale of restaurants		(255	)		(198	)
Balance as of August 31,	$	78,962		$	46,826

6. Leases

Description of Leasing Arrangements

The Company’s leasing operations consist principally of leasing certain land, buildings and equipment (including signs) and subleasing certain buildings to franchise operators. The land and building portions of these leases are classified as operating leases and expire over the next 15 years. The equipment portions of these leases are classified principally as direct financing leases and expire principally over the next 10 years. These leases include provisions for contingent rentals which may be received on the basis of a percentage of sales in excess of stipulated amounts. Income is not recognized on contingent rentals until sales exceed the stipulated amounts. Some leases contain escalation clauses over the lives of the leases. Most of the leases contain one to four renewal options at the end of the initial term for periods of five years. These options enable the Company to retain use of properties in desirable operating areas.

Certain Company-owned restaurants lease land and buildings from third parties. These leases, which expire over the next 18 years, include provisions for contingent rentals which may be paid on the basis of a percentage of sales in excess of stipulated amounts. The land portions of these leases are classified as operating leases and the buildings portions are classified as capital leases.

Direct Financing Leases

Components of net investment in direct financing leases are as follows at August 31, 2003 and 2002:

	2003		2002
Minimum lease payments receivable	$	11,625	$	12,390
Less unearned income		3,859		4,451
Net investment in direct financing leases		7,766		7,939
Less amount due within one year		943		802
Amount due after one year	$	6,823	$	7,137

Initial direct costs incurred in the negotiations and consummations of direct financing lease transactions have not been material. Accordingly, no portion of unearned income has been recognized to offset those costs.

F-17

Future minimum rental payments receivable as of August 31, 2003 are as follows:

	Operating		Direct Financing
Year ending August 31:
2004	$	751	$	1,967
2005		823		1,942
2006		840		1,930
2007		842		1,866
2008		863		1,706
Thereafter		6,312		2,214
		10,431		11,625
Less unearned income		—		3,859
	$	10,431	$	7,766

Capital Leases

Components of obligations under capital leases are as follows at August 31, 2003 and 2002:

	2003		2002
Total minimum lease payments	$	44,533	$	21,393
Less amount representing interest averaging 13.9% in 2003 and 9.4% in 2002		16,604		8,455
Present value of net minimum lease payments		27,929		12,938
Less amount due within one year		1,492		947
Amount due after one year	$	26,437	$	11,991

F-18

Maturities of these obligations under capital leases and future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of August 31, 2003 are as follows:

	Operating		Capital
Year ending August 31:
2004	$	9,081	$	3,711
2005		9,053		3,556
2006		9,063		3,466
2007		8,905		3,340
2008		8,707		3,215
Thereafter		70,173		27,245
		114,982		44,533
Less amount representing interest		—		16,604
	$	114,982	$	27,929

Total rent expense for all operating leases and capital leases consists of the following for the years ended August 31:

	2003			2002			2001
Operating leases:
Minimum rentals	$	8,118		$	6,574		$	5,012
Contingent rentals		232			145			147
Sublease rentals		(321	)		(407	)		(414	)
Capital leases:
Contingent rentals		658			684			412
	$	8,687		$	6,996		$	5,157

The aggregate future minimum rentals receivable under noncancelable subleases of operating leases as of August 31, 2003 was $3,245.

F-19

7.  Property, Equipment and Capital Leases

Property, equipment and capital leases consist of the following at August 31, 2003 and 2002:

	Estimated Useful Life		2003		2002
Home office:
Land and leasehold improvements		Life of lease	$	3,762	$	1,697
Computer and other equipment		2 - 5 yrs		25,972		24,662
Restaurants, including those leased to others:
Land				105,883		94,148
Buildings		15 - 25 yrs		185,747		168,055
Equipment		5 - 7 yrs		114,170		101,788
Property and equipment, at cost				435,534		390,350
Less accumulated depreciation				115,933		96,107
Property and equipment, net				319,601		294,243
Leased restaurant buildings and equipment under capital leases,
including those held for sublease		Life of lease		31,943		16,449
Less accumulated amortization				5,993		5,406
Capital leases, net				25,950		11,043
Property, equipment and capital leases, net			$	345,551	$	305,286

Land, buildings and equipment with a carrying amount of $50,138 at August 31, 2003 were leased under operating leases to franchisees or other parties. The accumulated depreciation related to these buildings and equipment was $7,295 at August 31, 2003. As of August 31, 2003, the Company had restaurants under construction with costs to complete which aggregated $6,218.

F-20

8. Accrued Liabilities

Accrued liabilities consist of the following at August 31, 2003 and 2002:

	2003		2002
Wages and other employee benefits	$	3,881	$	5,003
Taxes, other than income taxes		10,107		7,752
Income taxes payable		7,472		5,061
Accrued interest		1,086		1,618
Obligation to acquire treasury stock		—		8,729
Other		7,068		5,866
	$	29,614	$	34,029

9.  Long-Term Debt

Long-term debt consists of the following at August 31, 2003 and 2002:

	2003		2002
Senior unsecured notes (A)	$	30,000	$	50,000
Borrowings under line of credit (B)		79,340		29,000
Senior unsecured notes (C)		30,000		30,000
Other		247		375
		139,587		109,375
Less long-term debt due within one year		82		125
Long-term debt due after one year	$	139,505	$	109,250

(A) The Company has $30,000 of senior unsecured Series B notes maturing in April 2005. Interest is payable semi-annually and accrues at 6.76%. The related agreement requires, among other things, the Company to maintain equity of a specified amount, maintain ratios of debt to total capital and fixed charge coverage and limits additional borrowings. With its line of credit, the Company refinanced the $20,000 of Series A notes that matured in 2003.

F-21

(B) The Company has an agreement with a group of banks which provides for a $125,000 line of credit, including a $2,000 sub-limit for letters of credit, expiring in July 2006. The agreement allows for annual renewal options, subject to approval by the banks. The Company plans to use the line of credit to finance the opening of newly-constructed restaurants, acquisitions of existing restaurants, purchases of the Company’s common stock, retirement of senior notes and for general corporate purposes. Borrowings under the line of credit are unsecured and bear interest at a specified bank’s prime rate or, at the Company’s option, LIBOR plus 0.50% to 1.25%. In addition, the Company pays an annual commitment fee ranging from .125% to .25% on the unused portion of the line of credit. As of August 31, 2003, the Company’s effective borrowing rate was 2.8%. As of August 31, 2003 there were $676 in letters of credit outstanding under the line of credit. The agreement requires, among other things, the Company to maintain equity of a specified amount, maintain ratios of debt to EBITDA and fixed charge coverage and limits additional borrowings and acquisitions of businesses.

(C) The Company has $30,000 of senior unsecured notes with $5,000 of Series A notes maturing in August 2008 and $25,000 of Series B notes maturing in August 2011. Interest is payable semi-annually and accrues at 6.58% for the Series A notes and 6.87% for the Series B notes. Required annual prepayments amount to $1,000 from August 2004 to August 2007 on the Series A notes and $3,571 from August 2005 to August 2010 on the Series B notes. The related agreement requires, among other things, the Company to maintain equity of a specified amount, and maintain ratios of debt to equity and fixed charge coverage.

Maturities of long-term debt for each of the five years after August 31, 2003 are $82 in 2004, $34,625 in 2005, $83,930 in 2006, $4,592 in 2007, and $3,594 in 2008 and $12,764 thereafter.

10.  Other Noncurrent Liabilities

Other noncurrent liabilities consist of the following at August 31, 2003 and 2002:

	2003		2002
Minority interest in consolidated restaurants	$	4,117	$	2,836
Deferred area development fees		1,147		1,162
Other		2,599		1,809
	$	7,863	$	5,807

F-22

11.  Income Taxes

The components of the provision for income taxes consists of the following for the years ended August 31:

	2003		2002		2001
Current:
Federal	$	27,126	$	23,690	$	22,696
State		2,620		1,726		1,901
		29,746		25,416		24,597
Deferred:
Federal		1,110		2,517		(1,279	)
State		167		378		(192	)
		1,277		2,895		(1,471	)
Provision for income taxes	$	31,023	$	28,311	$	23,126

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate due to the following for the years ended August 31:

	2003		2002		2001
Amount computed by applying a tax rate of 35%	$	29,149	$	26,601	$	21,729
State income taxes (net of federal income tax benefit)		1,812		1,368		1,110
Other		62		342		287
Provision for income taxes	$	31,023	$	28,311	$	23,126

F-23

Deferred tax assets and liabilities consist of the following at August 31, 2003 and 2002:

	2003			2002
Current deferred tax assets (liabilities):
Allowance for doubtful accounts and notes receivable	$	314		$	116
Property, equipment and capital leases		326			162
Accrued litigation costs		93			206
Deferred income from affiliate technology fund		479			—
Other		(2	)		(3	)
Current deferred tax assets, net	$	1,210		$	481
Noncurrent deferred tax assets (liabilities):
Net investment in direct financing leases including differences related to
capitalization and amortization	$	(2,569	)	$	(2,426	)
Investment in partnerships, including differences in capitalization and
depreciation related to direct financing leases and different year ends for
financial and tax reporting purposes		(4,862	)		(3,008	)
State net operating losses		3,112			2,567
Property, equipment and capital leases		(1,301	)		(936	)
Allowance for doubtful accounts and notes receivable		238			194
Deferred income from affiliated franchise fees		1,083			897
Accrued liabilities		331			223
Intangibles and other assets		152			45
Other		199			288
		(3,617	)		(2,156	)
Valuation allowance		(3,112	)		(2,567	)
Noncurrent deferred tax liabilities, net	$	(6,729	)	$	(4,723	)
Deferred tax assets and (liabilities):
Deferred tax assets (net of valuation allowance)	$	3,215		$	1,987
Deferred tax liabilities		(8,734	)		(6,229	)
Net deferred tax liabilities	$	(5,519	)	$	(4,242	)

State net operating loss carryforwards expire generally beginning in 2010. Management does not believe the Company will be able to realize the state net operating loss carryforwards and therefore has provided a valuation allowance as of August 31, 2003 and 2002.

F-24

12. Stockholders’ Equity

On November 14, 2000, the Company’s board of directors authorized a three-for-two stock split in the form of a stock dividend. A total of 15,662,417 shares of common stock were issued on November 30, 2000 in connection with the split. The stated par value of each share was not changed from $.01. An aggregate amount equal to the par value of the common stock issued of $104 was reclassified from paid-in capital to common stock.

On January 17, 2002, the Company’s board of directors authorized a three-for-two stock split in the form of a stock dividend. A total of 16,051,750 shares of common stock were issued on February 8, 2002 in connection with the split, and an aggregate amount equal to the par value of the common stock issued of $161 was reclassified from paid-in capital to common stock. In addition, shareholders approved an increase in common stock authorized from 40,000,000 to 100,000,000 shares. The stated par value of each share was not changed from $.01.

All references in the accompanying consolidated financial statements to weighted average numbers of shares outstanding, per share amounts and Stock Purchase Plan and Stock Options share data have been adjusted to reflect the stock splits on a retroactive basis.

Stock Purchase Plan

The Company has an employee stock purchase plan for all full-time regular employees. Employees are eligible to purchase shares of common stock each year through a payroll deduction not in excess of the lesser of 10% of compensation or $25. The aggregate amount of stock that employees may purchase under this plan is limited to 506,250 shares. The purchase price will be between 85% and 100% of the stock’s fair market value and will be determined by the Company’s board of directors.

Stock Options

In January 2001 the stockholders of the Company adopted the 2001 Sonic Corp. Stock Option Plan (the “2001 Employee Plan”) and the 2001 Sonic Corp. Directors’ Stock Option Plan (the “2001 Directors’ Plan”). (The 2001 Employee Plan and the 2001 Directors’ Plan are referred to collectively as the “2001 Plans.”) The 2001 Plans were adopted to replace the 1991 Sonic Corp. Stock Option Plan and the 1991 Sonic Corp. Directors’ Stock Option Plan (collectively, the “1991 Plans”), because the 1991 Plans were expiring after ten years as required by the Internal Revenue Code. Options previously granted under the 1991 Plans continue to be outstanding after the adoption of the 2001 Plans and are exercisable in accordance with the original terms of the applicable 1991 Plan.

Under the 2001 Employee Plan, the Company is authorized to grant options to purchase up to 2,700,000 shares of the Company’s common stock to employees of the Company and its subsidiaries. Under the 2001 Directors’ Plan, the Company is authorized to grant options to purchase up to 450,000 shares of the Company’s common stock to the Company’s outside directors. At August 31, 2003, 1,139,023 shares were available for grant under the 2001 Employee Plan and 315,000 shares were available for grant under the 2001 Director’s Plan. The exercise price of the options to be granted is equal to the fair market value of the Company’s common stock on the date of grant. Unless otherwise provided by the Company’s Stock Plan Committee, options under both plans become exercisable ratably over a three-year period or immediately upon change in control of the Company, as defined by the plans. All options expire at the earlier of 30 days after termination of employment or ten years after the date of grant.

F-25

A summary of the Company’s stock option activity (adjusted for the stock splits), and related information was as follows for the years ended August 31:

	2003					2002					2001
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding – beginning of year		4,183,197		$	12.33		4,418,910		$	10.00		4,666,239		$	8.24
Granted		585,701			26.36		538,853			27.35		825,720			17.13
Exercised		(702,908	)		8.08		(606,641	)		7.95		(883,769	)		6.60
Forfeited		(99,934	)		22.48		(167,925	)		14.95		(189,280	)		13.62
Outstanding – end of year		3,966,056		$	14.90		4,183,197		$	12.33		4,418,910		$	10.00
Exercisable at end of year		2,861,796		$	11.04		2,986,886		$	8.85		2,917,661		$	7.41
Weighted average fair value of
options granted during the year	$	12.45				$	12.94				$	8.45

A summary of the Company’s options was as follows as of August 31, 2003:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number of Options		Weighted Average Remaining Contractual Life (Yrs.)		Weighted Average Exercise Price		Number of Options		Weighted Average Exercise Price
$4.35 to $5.70		945,458		2.65	$	5.22		945,458	$	5.22
$6.52 to $12.85		967,458		5.40		10.54		967,458		10.54
$12.89 to $16.57		884,453		6.84		15.04		713,585		14.70
$20.46 to $27.20		843,979		9.18		25.04		126,815		22.11
$29.31 to $29.31		324,708		8.67		29.31		108,480		29.31
$4.35 to $29.31		3,966,056		6.14	$	14.90		2,861,796	$	11.04

Stockholder Rights Plan

The Company has a stockholder rights plan which is designed to deter coercive takeover tactics and to prevent a potential acquirer from gaining control of the Company without offering a fair price to all of the Company’s stockholders.

F-26

The plan provided for the issuance of one common stock purchase right for each outstanding share of the Company’s common stock. Each right initially entitles stockholders to buy one unit of a share of preferred stock for $85. The rights will be exercisable only if a person or group acquires beneficial ownership of 15% or more of the Company’s common stock or commences a tender or exchange offer upon consummation of which such person or group would beneficially own 15% or more of the Company’s common stock. At August 31, 2003, 50,000 shares of preferred stock have been reserved for issuance upon exercise of these rights.

If any person becomes the beneficial owner of 15% or more of the Company’s common stock, other than pursuant to a tender or exchange offer for all outstanding shares of the Company approved by a majority of the independent directors not affiliated with a 15%-or-more stockholder, then each right not owned by a 15%-or-more stockholder or related parties will then entitle its holder to purchase, at the right’s then current exercise price, shares of the Company’s common stock having a value of twice the right’s then current exercise price. In addition, if, after any person has become a 15%-or-more stockholder, the Company is involved in a merger or other business combination transaction with another person in which the Company does not survive or in which its common stock is changed or exchanged, or sells 50% or more of its assets or earning power to another person, each right will entitle its holder to purchase, at the right’s then current exercise price, shares of common stock of such other person having a value of twice the right’s then current exercise price. Unless a triggering event occurs, the rights will not trade separately from the common stock.

The Company will generally be entitled to redeem the rights at $0.01 per right at any time until 10 days (subject to extension) following a public announcement that a 15% position has been acquired. The rights expire on June 16, 2007.

13. Net Revenue Incentive Plan

The Company has a Net Revenue Incentive Plan (the “Incentive Plan”), as amended, which applies to certain members of management and is at all times discretionary with the Company’s board of directors. If certain predetermined earnings goals are met, the Incentive Plan provides that a predetermined percentage of the employee’s salary may be paid in the form of a bonus. The Company recognized as expense incentive bonuses of $2,038, $2,264, and $1,876 during fiscal years 2003, 2002 and 2001, respectively.

14.  Employment Agreements

The Company has employment contracts with its Chairman and Chief Executive Officer and several members of its senior management. These contracts provide for use of Company automobiles or related allowances, medical, life and disability insurance, annual base salaries, as well as an incentive bonus. These contracts also contain provisions for payments in the event of the termination of employment and provide for payments aggregating $6,614 at August 31, 2003 due to loss of employment in the event of a change in control (as defined in the contracts).

15.  Contingencies

The Company is involved in various legal proceedings and has certain unresolved claims pending. The Company’s ultimate liability, if any, for the aggregate amounts claimed cannot be determined at this time. Management believes

F-27

that all claims currently pending are either adequately covered by insurance or would not have a material adverse effect on the Company’s business or financial condition.

The Company has an agreement with GE Capital Franchise Finance Corporation (“GEC”), pursuant to which GEC made loans to existing Sonic franchisees who met certain underwriting criteria set by GEC. Under the terms of the agreement with GEC, the Company provided a guarantee of 10% of the outstanding balance of loans from GEC to the Sonic franchisees, limited to a maximum amount of $5.0 million. As of August 31, 2003, the total amount guaranteed under the GEC agreement was $5.0 million. The Company ceased guaranteeing new loans under the program during fiscal year 2002 and has not been required to make any payments under its agreement with GEC. Existing loans under guarantee will expire through 2012. In the event of default by a franchisee, the Company has the option to fulfill the franchisee’s obligations under the note or to become the note holder, which would provide an avenue of recourse with the franchisee under the notes.

The Company has obligations under various lease agreements with third party lessors related to the real estate for Company-owned stores that were sold to franchisees. Under these agreements, the Company remains secondarily liable for the lease payments for which it was responsible as the original lessee. As of August 31, 2003, the amount remaining under the guaranteed lease obligations totaled $1.7 million.

The Company has not recorded a liability for its obligations under the guarantees and none of the notes or leases related to the guarantees were in default as of August 31, 2003.

The Company entered into an agreement with certain franchisees during fiscal year 2003, which provides the franchisees with the option to sell 50 restaurants to the Company anytime during the period commencing January 1, 2004 and ending June 30, 2005. The Company estimates that the cost of the acquisition, if it were to occur, would be in the range of $31 to $37 million and anticipates that the acquisition would be funded through operating cash flows and borrowings under its existing line of credit.

F-28

16. Selected Quarterly Financial Data (Unaudited)

	First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Full Year
	2003		2002		2003		2002		2003		2002		2003		2002		2003		2002
Income statement data:
Company-owned restaurant sales	$	81,574	$	71,721	$	74,828	$	67,355	$	102,214	$	92,280	$	112,902	$	99,351	$	371,518	$	330,707
Other		17,011		15,608		15,524		14,221		20,391		19,011		22,196		20,615		75,122		69,455
Total revenues		98,585		87,329		90,352		81,576		122,605		111,291		135,098		119,966		446,640		400,162
Company-owned restaurants operating expenses		62,298		54,022		58,511		51,835		73,336		64,972		83,221		71,364		277,366		242,193
Selling, general and administrative		8,222		7,658		8,418		7,786		9,483		8,729		9,303		9,271		35,426		33,444
Other		9,548		8,853		9,111		9,119		12,581		12,321		13,108		11,910		44,348		42,203
Total expenses		80,068		70,533		76,040		68,740		95,400		86,022		105,632		92,545		357,140		317,840
Income from operations		18,517		16,796		14,312		12,836		27,205		25,269		29,466		27,421		89,500		82,322
Interest expense, net		1,559		1,569		1,600		1,517		1,441		1,536		1,616		1,697		6,216		6,319
Income before income taxes		16,958		15,227		12,712		11,319		25,764		23,733		27,850		25,724		83,284		76,003
Provision for income taxes		6,317		5,672		4,735		4,216		9,597		8,841		10,374		9,582		31,023		28,311
Net income	$	10,641	$	9,555	$	7,977	$	7,103	$	16,167	$	14,892	$	17,476	$	16,142	$	52,261	$	47,692
Net income per share:
Basic	$	.27	$	.24	$	.21	$	.18	$	.41	$	.37	$	.45	$	.40	$	1.34	$	1.19
Diluted	$	.26	$	.23	$	.20	$	.17	$	.40	$	.35	$	.43	$	.38	$	1.29	$	1.13
Weighted average shares outstanding:
Basic		39,216		39,990		38,689		40,022		38,833		40,298		39,169		40,312		38,977		40,156
Diluted		40,971		41,920		40,296		42,126		40,531		42,430		40,627		42,351		40,606		42,207

F-29

17. Fair Values of Financial Instruments

The following discussion of fair values is not indicative of the overall fair value of the Company’s consolidated balance sheet since the provisions of SFAS No. 107, “Disclosures About Fair Value of Financial Instruments,” do not apply to all assets, including intangibles.

The following methods and assumptions were used by the Company in estimating its fair values of financial instruments:

Cash and cash equivalents—Carrying value approximates fair value due to the short duration to maturity.

Notes receivable—For variable rate loans with no significant change in credit risk since the loan origination, fair values approximate carrying amounts. Fair values for fixed rate loans are estimated using discounted cash flow analysis, using interest rates which would currently be offered for loans with similar terms to borrowers of similar credit quality and/or the same remaining maturities.

As of August 31, 2003 and 2002, carrying values approximate their estimated fair values.

Borrowed funds—Fair values for fixed rate borrowings are estimated using a discounted cash flow analysis that applies interest rates currently being offered on borrowings of similar amounts and terms to those currently outstanding. Carrying values for variable rate borrowings approximate their fair values.

The carrying amounts, including accrued interest, and estimated fair values of the Company’s fixed rate borrowings at August 31, 2003 were $60,959 and $63,803, respectively, and at August 31, 2002 were $81,513 and $85,697, respectively.

F-30

Sonic Corp.

Schedule II – Valuation and Qualifying Accounts

Description	Balance at Beginning of Year		Additions Charged to Costs and Expenses		Amounts Written Off Against the Allowance		(Transfer) Recoveries		Balance at End of Year
	(In Thousands)
Allowance for doubtful accounts
and notes receivable
Year ended:
August 31, 2003	$	1,993	$	177	$	1,013	$	—	$	1,157
August 31, 2002		1,267		999		273		—		1,993
August 31, 2001		712		767		212		—		1,267
Accrued carrying costs for restaurant
closings and disposals
Year ended:
August 31, 2003	$	946	$	145	$	317	$	—	$	774
August 31, 2002		675		793		522		—		946
August 31, 2001		818		88		231		—		675

F-31

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company has caused the undersigned, duly-authorized, to sign this report on its behalf on this 25th day of November, 2003.

Sonic Corp.
By:	/s/ J. Clifford Hudson    J. Clifford Hudson Chairman and Chief Executive Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the undersigned have signed this report on behalf of the Company, in the capacities and as of the dates indicated.

Signature	Title	Date
/s/J. Clifford Hudson  J. Clifford Hudson, Principal Executive Officer	Chairman of the Board of Directors and Chief Executive Officer	November 25, 2003
/s/W. Scott McLain W. Scott McLain, Principal Financial Officer	Senior Vice President and Chief Financial Officer	November 25, 2003
/s/Terry D. Harryman Terry D. Harryman, Principal Accounting Officer	Controller	November 25, 2003
/s/Pattye L. Moore Pattye L. Moore	President and Director	November 25, 2003
/s/Margaret M. Blair Margaret M. Blair	Director	November 25, 2003
/s/Leonard Lieberman Leonard Lieberman	Director	November 25, 2003
/s/Federico F. Peña Federico F. Peña	Director	November 25, 2003
/s/H.E. Rainbolt H.E. Rainbolt	Director	November 25, 2003
/s/Frank E. Richardson Frank E. Richardson	Director	November 25, 2003
/s/Robert M. Rosenberg Robert M. Rosenberg	Director	November 25, 2003
/s/E. Dean Werries E. Dean Werries	Director	November 25, 2003

EXHIBIT INDEX

Exhibit Number and Description

10.09.	Form of General Partnership Agreement, Limited Liability Company Operating Agreement and Master Agreement
10.22.	Employment Agreement with Michael A. Perry dated August 20, 2003
23.01.	Consent of Independent Auditors
99.1.	Certification of Chief Executive Officer pursuant to S.E.C. Rule 13a-14
99.2.	Certification of Chief Financial Officer pursuant to S.E.C. Rule 13a-14
99.3.	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
99.4.	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

EX-10

Exhibit 10.09

GENERAL PARTNERSHIP AGREEMENT
OF
SDI OF __________________, __________________ PARTNERSHIP

CIF #____

        Sonic Restaurants, Inc. (the “Managing Partner”), an Oklahoma corporation having its principal place of business in Oklahoma, and Sonic Industries Inc. (“SII”), an Oklahoma corporation having its principal place of business in Oklahoma, hereby enter into this General Partnership Agreement (this “Agreement”) as of the ____day of ________, 20__.

Article 1: The Partnership

    1.01.        Formation and Name. The Managing Partner and SII hereby form a partnership (the “Partnership”) to develop, own, operate and maintain the Sonic Drive-in (the “Drive-in”) located at __________, __________, _________; generally, to have the authority to engage in any and all general business activities related to the foregoing purpose or in any way incidental to the foregoing purpose; and to do all things necessary or appropriate for the operation of the Partnership’s business. The name of the Partnership is the name referred to in the title of this Agreement, and all business of the Partnership shall be conducted under this name.

    1.02.        Term. The Partnership shall terminate on the date on which the Partnership has sold its last assets and concluded its affairs.

    1.03.        Principal Place of Business. The Partnership shall have its principal place of business at 101 Park Avenue, Oklahoma City, Oklahoma 73102, or at any other location the Managing Partner may determine, effective upon notice to the other Partners of the Partnership.

    1.04.        Registered Agent. The Managing Partner shall serve as the registered agent of the Partnership.

Article 2: Definitions

        Unless the context of their use in this Agreement requires otherwise, the following words and phrases shall have the following meanings when used in initially-capitalized form in this Agreement:

    2.01.        Affiliate. The word “Affiliate” means any person or entity that directly or indirectly controls, is controlled by, or is under common control with another entity. The word “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the

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management and policies of an entity, whether through the ownership of voting securities, by contract, or otherwise.

    2.02.        Capital Account. The phrase “Capital Account” means the account established for each party to this Agreement to which the Partnership shall credit the party’s contributions and share of profits and to which the Partnership shall charge the party’s distributions and share of losses. If the Partnership makes any distribution of property other than cash, it shall make the distribution at the property’s fair market value, as reasonably determined by the Managing Partner. The Partnership also shall credit or charge the accounts with any non-taxable income and any costs or losses which the parties cannot capitalize or deduct for federal income tax purposes.

    2.03.        Code. The word “Code” means the Internal Revenue Code of 1986, as amended.

    2.04.        Fiscal Year. The phrase “Fiscal Year” means the annual period ending on August 31 of each year.

    2.05.        License Agreement. The phrase "License Agreement" has the meaning stated in Article 7 of this

    2.06.        Managing Partner. The word “Managing Partner” means Sonic Restaurants, Inc., an Oklahoma corporation, and its successors.

    2.07.        Partner. The word “Partner” means each party to this Agreement.

    2.08.        Net Cash Flow. The phrase “Net Cash Flow” means, with respect to any accounting period, the amount (if any) by which the Proceeds (including any proceeds received from fire and casualty insurance to the extent not used to rebuild or replace the property involved) exceed the sum of the following items: (a) all principal and interest payments on mortgages and other indebtedness of the Partnership and all other sums the Partnership paid to lenders; (b) all cash expenditures (including expenditures for capital improvements) incurred by the Partnership; and (c) any cash reserves which the Managing Partner deems reasonably necessary for the proper operation of the Partnership, including (without limitation) the payment of workers’ compensation insurance, multi-peril insurance, and property taxes.

    2.09.        Ownership Interest. The phrase “Ownership Interest” means the percentage of interest owned by each Partner in the Partnership.

    2.10.        Proceeds. The word “Proceeds” means all cash receipts and funds the Partnership receives from any source and, also, shall include any cash reserves which the Partnership previously set aside and which the Managing Partner no longer deems reasonably necessary for the proper operation of the Partnership.

    2.11.        Regulations. The word “Regulations” means any temporary or final Treasury Regulation promulgated with regard to the Code.

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    2.12.        Supervising Partner. The Phrase “Supervising Partner” has the meaning stated in Article 6.

    2.13.        Working Partner. The phrase “Working Partner” has the meaning stated in Article 6.

Article 3: Capital Contributions

    3.01.        Ownership Interest. The parties shall have the following Ownership Interest in the Partnership:

Partner	Percentage
Managing Partner	99	%
SII	1	%

    3.02.        Additional Capital Contributions. The Partnership will have the right to require each of the Partners to make additional capital contributions to the Partnership from time to time in an amount sufficient to offset all or part of any Partnership losses. Any additional capital contributions required will be calculated in proportion to each Partner’s Ownership Interest in the Partnership. Additional Capital contributions to the Partnership must be made within thirty (30) days after notice by the Partnership to the Partner. The Managing Partner, at its discretion, may agree to finance a portion or all of any additional capital contribution for any Partner. In such an event, the Partner for whom the capital call is being financed must execute a promissory note in favor of the Managing Partner and return it to the Managing Partner within 10 days of receiving it. If no promissory note has been executed and returned to the Managing Partner, then any unpaid capital contribution of any Partner shall bear interest at the rate of 10.5% per year, from the date of notice of the capital call until paid. The Managing Partner may offset any Partnership distribution or other monies due to the obligor Partner for any unpaid capital contribution (including accrued interest).

    3.03.        Special Provisions. The following special provisions apply to the Capital Accounts of the Partners:

    (a)        Upon the transfer of all or part of an interest in the Partnership, the Partnership shall carry over the Capital Account of the transferring Partner in accordance with Regulation Section 1.704(b)(2)(iv). However, if the transfer of an interest in the Partnership causes a termination of the Partnership under Code Section 708(b)(1)(B), the Partnership shall adjust the Capital Account that carries over to the transferee Partner in accordance with Regulation Section 1.704(b) in connection with the constructive liquidation of the Partnership under Regulation 1.708-1. In addition, the Partnership shall treat the constructive reformation of the Partnership, for purposes of Section 1.704(b), as the formation of a new entity, and the Partnership shall determine and maintain the Capital Accounts of the Partners of the new entity accordingly.

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    (b)        The Partners intend for the provisions of this Agreement relating to the maintenance of Capital Accounts to comply with Code Section 704(b) and all applicable Regulations as interpreted and applied in a manner consistent with Code Section 704(b) and the Regulations.

    (c)        If the Managing Partner determines it is prudent to modify the manner in which the Partnership computes the Capital Accounts, or any debits or credits to the Capital Accounts, in order to comply with the Regulations, the Managing Partner may make the modification as long as it likely will not have a material effect on the amounts distributable to any Partner upon the dissolution of the Partnership. The Managing Partner also may make any adjustments necessary or appropriate to maintain equality between the Capital Accounts of the Partners and the amount of capital reflected on the Partnership’s balance sheet, as computed for book purposes, in accordance with Regulation Section 1.704(b)(2)(iv)(q), and the Managing Partner may make any appropriate modifications if unanticipated events might otherwise cause this Agreement not to comply with Regulation Section 1.704(b).

    3.03.        Interest and Return of Capital Contributions. The Partnership shall not pay interest on the capital contributions or Capital Account of any Partner. Prior to the termination of the Partnership, no Partner shall have the right to demand the return of the Partner’s capital contribution unless the Partnership has paid all of its liabilities (except liabilities to the Partners as a result of their contributions) or the Partnership will have after the return sufficient assets with which to pay those liabilities. In addition, all of the Partners must have consented to the return. No Partner shall have the right to demand and receive property other than cash in return for the Partner’s capital contribution.

    3.04.        Loans. The Managing Partner and its Affiliates may loan money to the Partnership and shall have the right to charge interest on those loans and to take security interests in any assets acquired with the proceeds of those loans. Loans by a Partner to the Partnership shall not constitute capital contributions.

Article 4: Distributions and Profits and Losses

    4.01.        Profits and Losses. All Partners shall share in the cash distributions and profits and losses of the Partnership in proportion to their Ownership Interest in the Partnership. The Partnership shall have the right to require each of the Partners to make additional capital contributions to the Partnership from time to time in an amount sufficient to offset all or part of any Partnership losses or unfunded capital expenditures, or to maintain adequate working capital.

    4.02.        Distributions. From time to time, not less than monthly, the Partnership will distribute the Partnership’s Net Cash Flow to the Partners in accordance with their percentage of Ownership Interest in the Partnership. The Partnership shall distribute its funds to the Partners only upon approval of a majority in interest of the Partners.

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Article 5: Tax Allocations

    5.01.        Allocations. The Partnership shall allocate each item of Partnership income, gain, loss, deduction and credit for each Fiscal Year to the Partners according to their percentage of Ownership Interest in the Partnership, with the exception of goodwill amortization, which shall be allocated entirely to the Managing Partner. If a Partner’s Ownership Interest varies during a taxable year because of the contribution of additional capital to the Partnership or because of the transfer of a Partner’s interest, the Partnership shall allocate the profits and losses among the applicable Partners for each taxable year in proportion to the Ownership interest in the Partnership each Partner held during the taxable year in accordance with Code Section 706, using any convention permitted by law and selected by the Managing Partner. The Partnership shall allocate each item of income, gain, loss, deduction or credit with regard to property contributed to the Partnership by a Partner in a manner which takes into account any difference between the basis of the property to the Partnership and its fair market value at the time of the contribution in accordance with Code Section 704(c) and the Regulations solely for income tax purposes and not for purposes of maintaining the Capital Accounts of the Partners. The Managing Partner shall have the sole discretion to choose among alternatives, if any, set forth in the Regulations for handling the foregoing difference. The Managing Partner also shall have the authority to make special allocations of tax items required under Subchapter K of the Code and the Regulations.

    5.02.        Method of Accounting, Elections, and Tax Audits. The Partnership shall adopt the accrual method of accounting and may make other income tax elections as determined by the Managing Partner. The Partnership shall not make any election excluding it from the application of the provisions of Subchapter K of the Internal Revenue Code of 1986, as amended. The Partnership shall bear all costs of responding to audits by the Internal Revenue Service and of protesting or contesting adjustments by or on behalf of the Partnership.

Article 6: Additional Partners

    6.01.        Designation of Supervising Partner and Working Partner. The Managing Partner may make available for transfer to a Supervising Partner and/or Working Partner up to 49% of the total Ownership Interest in the Partnership out of the Managing Partner’s Ownership Interest in the Partnership without the consent of any other Partner. However, if any such transfer would result in the Managing Partner owning less than 51% of the total Ownership Interest in the Partnership, such transfer shall be null and void to the extent such transfer would reduce the Managing Partner’s Ownership Interest in the Partnership to less than 51%. Any Supervising Partner or Working Partner who receives the interest shall pay the Managing Partner a purchase price for the interest in an amount determined by the Managing Partner, in its sole discretion.

    6.02.        Duties of the Supervising Partner. The Supervising Partner manages the Drive-in, subject to the advice and recommendations of the Managing Partner. The Supervising Partner will provide complete management and staffing for the Drive-in and have responsibility for the day-to-day operations of the Drive-in, including (without limitation) the hiring and firing of personnel, the required accounting for the operations of the Drive-in, and the adherence to all applicable policies

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of Sonic Industries Inc. The Supervising Partner shall comply with all obligations and duties of the Managing Partner under the License Agreement.

    6.03.        Duties of the Working Partner. The Working Partner will work as the general manager of the Drive-in full time and have authority and responsibility for the day-to-day operations of the Drive-in, subject to the supervision of the Supervising Partner.

    6.04.        Compensation. The Partnership may pay the Supervising Partner and/or Working Partner a monthly guaranteed payment (in an amount determined by the Managing Partner) from Partnership funds. The Partnership shall treat any such guaranteed payment as an expense of the Partnership and the Partnership shall pay the amount whether or not the Partnership operates at a profit. The Partnership shall not pay any other compensation to the Supervising Partner or Working Partner except as provided by Article 4 of this Agreement.

    6.05.        Limitations on Authority of Supervising Partner and Working Partner. Without the prior, written consent of the Managing Partner, neither the Supervising Partner nor the Working Partner shall (a) borrow any money on behalf of the Partnership, (b) enter into any contract which would commit the Partnership to pay more than $5,000 during any period of time, or (c) compromise any claim on behalf of the Partnership in excess of $5,000.

Article 7: Conduct of Activities

    7.01.        Compliance and Agreement with Terms of License Agreement. All Partners will take all necessary and appropriate actions to have the Partnership comply with the terms and conditions of the license agreement with SII for the Drive-in now in existence and as later amended, renewed, converted or substituted (the “License Agreement”). In addition, the Supervising Partner and the Working Partner agree to become personally bound by and hereby agree to the terms and provisions of the License Agreement relating to the safeguarding of confidential information and any covenants not to compete provided for therein.

    7.02.        Authority of the Managing Partner. The Managing Partner has full and final control over all of the activities of the Partnership and has the authority to do all things deemed necessary or desirable by it in the conduct of the business of the Partnership. If the Managing Partner serves as the licensee under the License Agreement for the Drive-in, the Partnership shall reimburse the Managing Partner for all royalty payments, advertising fees, and other payments the Managing Partner has the obligation to pay to SII as the licensee for the Drive-in. The Partnership will treat that reimbursement as an expense of the Partnership and shall pay the amounts to the Managing Partner whether or not the Partnership operates at a profit. The Partnership will not pay any other compensation to the Managing Partner except as provided by Article 4 of this Agreement.

    7.03.        Designation, Authority and Compensation of Tax Matters Partner. The parties hereby designate the Managing Partner as the tax matters partner pursuant to Section 6231 of the Internal Revenue Code of 1986, as amended. The Partnership shall reimburse the tax matters partner for its expenses incurred in representing the Partnership in any administrative or judicial

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proceeding relating to the tax treatment of Partnership items. Additionally, if the tax matters partner institutes a proceeding in any United States District Court or Court of Claims and, therefore, has to deposit an amount equal to the proposed increase in tax liability if the Partnership were to treat the items on its return consistent with the asserted adjustment, the Partnership shall advance that amount to the tax matters partner. If the court finds the tax matters partner liable as a Partner of the Partnership for any additional tax as a result of the adjustment to Partnership items, the tax matters partner shall repay the Partnership an amount equal to its liability, without interest, for any funds advanced for the payment of the tax finally determined as due.

    7.04.        Partnership Funds. The Partnership may arrange to have the Managing Partner or its Affiliates collect the Partnership’s daily receipts, deposit those receipts into a collective account, and pay the Partnership’s expenses and distributions from that account. The Supervising Partner and the Working Partner waive any right to receive interest on any positive cash balances held by the Managing Partner or its Affiliates in the foregoing collective account from time to time.

    7.05.        Partition. The parties expressly waive any partition rights they may have under any applicable partnership law.

Article 8: Termination of Ownership Interest

    8.01.        Right to Purchase Supervising Partner’s Ownership Interests. The Managing Partner shall have the right to purchase any or all of the Supervising Partner’s Ownership Interest upon 30 days’ written notice pursuant to the terms and provisions of the agreement, if any, between the Managing Partner and the Supervising Partner. In the absence of any such agreement, the Managing Partner shall have the right to purchase any or all of the Supervising Partner’s Ownership Interest upon 10 days’ written notice. The Managing Partner shall pay the Supervising Partner for the interest purchased by corporate check within sixty (60) days after the end of the applicable notice period, and the Managing Partner shall have the right to offset any amounts due the Partnership or the Managing Partner from the Supervising Partner.

    8.02.        Right to Purchase Working Partner’s Ownership Interest. The Managing Partner shall have the right to purchase any or all of the Working Partner’s Ownership Interest upon 10 days’ written notice pursuant to the terms and provisions of the agreement, if any, between the Managing Partner and the Working Partner. The Managing Partner shall pay the Working Partner for the interest purchased by corporate check within sixty (60) days after the end of the applicable notice period, and the Managing Partner shall have the right to offset any amounts due the Partnership or the ManagingPartner from the Working Partner.

    8.03.        Automatic Termination of Ownership Interest. In the event of a sale or transfer of substantially all of the assets of the Partnership, the respective Ownership Interests of the Supervising Partner and the Working Partner will automatically terminate immediately prior to such sale or transfer, and any provisions in this Agreement or any other agreement between the

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Managing Partner and any Partner requiring written notice prior to termination of that Partner’s Ownership Interest will not apply.

    8.04.        Calculation of Purchase Price. The purchase price paid by the Managing Partner to a Supervising Partner or a Working Partner for their respective Ownership Interest will be calculated as set forth in the agreement, if any, between the Managing Partner and the Partner. In the absence of such agreement, the purchase price for the Partner’s Ownership Interest will equal the original purchase price of the interest.

Article 9: Transfer of Ownership Interests

        No Partner, except the Managing Partner, may transfer and/or assign, in whole or in part, his or her Ownership Interest, except to or with the consent of the Managing Partner. For purposes of this Agreement transfer shall mean sale, exchange, assignment, alienation, dispositon, gift, pledge, hypothecation, encumbrance, or grant of security interest in the Ownership Interest. No transferee of an Ownership Interest in the Partnership will become a substituted Partner until the transferee first agrees in writing to the terms of this Agreement. Each Partner hereby consents to the admission to the Partnership of any transferee complying with the provisions of this Article as a substituted Partner. No transfer of an Ownership Interest, including the transfer of less than all of the transferor’s rights under this Agreement, or the transfer of Ownership Interest to more than one party, shall relieve the transferor of any responsibility for the transferor’s proportionate share of any expenses, obligations and liabilities under this Agreement with regard to the Ownership Interest transferred, whether arising prior or subsequent to the transfer, nor shall any transfer require an accounting by the Partnership between the transferor and transferee (or transferees). Until the transferee has become a substituted Partner, the Partnership shall continue to account only to the person to whom it was furnishing notices prior to that time pursuant to this Agreement, and that party shall continue to exercise all of the rights applicable to the entire Ownership Interest owned by the transferor.

Article 10: Other Rights of the Partners

    10.01.        Outside Activities. Each Partner and its Affiliates may have business interests and engage in business activities in addition to those relating to the Partnership, as long as the business interests or activities do not violate the provisions of this Agreement. Each of the parties may engage in whatever other activities the party chooses. Nothing in this Agreement prevents the parties to this Agreement or their Affiliates from engaging in any other activities, individually, jointly with others, or as a part of any other limited liability Partnership, limited or general partnership, joint venture, or entity. Nothing in this Agreement requires the parties to this Agreement or their Affiliates to permit the Partnership or any Partner of the Partnership to participate in their outside activities or to present to the Partnership or any Partner of the Partnership any particular investment opportunity which comes to their attention even if the opportunity meets the investment objectives of the Partnership or any Partner of the Partnership.

    10.02.        Indemnification. The Partnership shall indemnify and hold the Managing Partner harmless from and against any and all liabilities, claims, causes of action, damages, losses, costs

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and expenses, including (without limitation) legal and accounting fees, incurred by the Managing Partner in connection with its services as the Managing Partner of the Partnership as long as its conduct did not constitute (1) a breach of the Managing Partner’s duty of loyalty to the Partnership or its Partners, (2) acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of the law, or (3) a transaction from which the Managing Partner derived an improper personal benefit.

    10.03.        Liability. In carrying out its duties under this Agreement, the Managing Partner shall not bear liability to the Partnership or any Partner for monetary damages for its breach of any duty to the Partnership or its Partners except for acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of the law.

    10.04.        General Release and Covenant Not to Sue. The Supervising Partner and the Working Partner hereby release Sonic Corp., its subsidiaries, and the officers, directors, employees and agents of Sonic Corp. and its subsidiaries from any and all claims and causes of action, known or unknown, which may exist in favor of the Supervising Partner or the Working Partner. In addition, the Supervising Partner and the Working Partner covenant that they will not file or pursue any legal action or complaint against any of the foregoing entities or persons with regard to any of the foregoing claims or causes of action released pursuant to this section.

    10.05.        Resolution of Disputes. The following provisions apply to any controversy between the other Partners of the Partnership and the Managing Partner (including any director, officer, employee, agent or Affiliate of the Managing Partner) and relating (1) to this Agreement (including any claim that any part of this Agreement is invalid, illegal or otherwise void or voidable), or (2) to the parties’ business activities with the Managing Partner, whether or not related to the Partnership.

    (a)        Arbitration. The parties shall resolve the controversy by final and binding arbitration in accordance with the Rules for Commercial Arbitration (the “Rules”) of the American Arbitration Association in effect at the time of the execution of this Agreement and pursuant to the following additional provisions:

    (1)        The Federal Arbitration Act (the “Federal Act”), as supplemented by the Oklahoma Arbitration Act (the “Oklahoma Act”) to the extent not inconsistent with the Federal Act, shall apply to the arbitration.

    (2)        The parties shall select a sole arbitrator within 10 days after the filing of a demand and submission in accordance with the Rules. If the parties fail to agree on a sole arbitrator within that 10-day period or fail to agree to an extension of that period, the arbitration shall take place before a sole arbitrator selected in accordance with the Rules.

    (3)        The arbitration shall take place in Oklahoma City, Oklahoma, and the arbitrator shall issue any award at the place of

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arbitration. The arbitrator may conduct hearings and meetings at any other place agreeable to the parties or, upon the motion of a party, determined by the arbitrator as necessary to obtain significant testimony or evidence.

    (4)        The arbitrator shall have the power to authorize all forms of discovery (including depositions, interrogatories and document production) upon the showing of (a) a specific need for the discovery, (b) that the discovery likely will lead to material evidence needed to resolve the controversy, and (c) that the scope, timing and cost of the discovery is not excessive.

    (5)        The arbitrator shall not have the power to alter, modify, amend, add to, or subtract from any term or provision of this Agreement; nor rule upon or grant any extension, renewal or continuance of this Agreement; nor award damages or other remedies expressly prohibited by this Agreement; nor grant interim injunctive relief prior to the award.

    (6)        The prevailing party shall have the right to enter the award of the arbitrator in any court having jurisdiction over one or more of the parties or their assets. The parties specifically waive any right they may have to apply to any court for relief from the provisions of this Agreement or from any decision of the arbitrator made prior to the award.

    (b)        Attorneys’ Fees and Costs. The prevailing party to the arbitration shall have the right to an award of its reasonable attorneys’ fees and costs incurred after the filing of the demand and submission. If the Managing Partner prevails, the award shall include an amount for that portion of the Managing Partner’s administrative overhead reasonably allocable to the time devoted by the Managing Partner’s in-house legal staff.

Article 11: Duration, Dissolution and Winding Up

    11.01.        Dissolution. The Partnership shall be dissolved upon the occurrence of any of the following events:

(a) The occurrence of a Final Terminating Event (as defined below);

(b) The adjudication of bankruptcy or insolvency of the Managing Partner, or the institution of proceedings for the liquidation of the Managing Partner by arrangement or composition with its creditors, or the dissolution of the Managing Partner (except as a part of a corporate merger or reorganization);

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(c) The death, resignation, judicial determination of incompetency, or bankruptcy of any other partner, in which event the Managing Partner shall have the right either to purchase the interest of the applicable Partner or to terminate and liquidate the Partnership’s assets; or

(d) The occurrence of any other event which results in the dissolution of the Partnership under the applicable law.

        Except upon the occurrence of a Final Terminating Event, the Partnership or any successor partnership shall not terminate, but shall continue as a successor partnership under all of the terms of this Agreement. The successor partnership shall succeed to all of the assets and liabilities of the Partnership. As used throughout this Agreement, the word “Partnership” shall include any successor partnership.

    11.02.        Dissolution and Winding Up. Upon the occurrence of a Final Terminating Event, the Managing Partner shall wind up the affairs of the Partnership and shall make a final accounting. As used in this Agreement, the phrase “Final Terminating Event” shall mean (a) the expiration of the fixed term of the Partnership or (b) the giving of notice to the Partners by the Managing Partner of its election to terminate and wind up the affairs of the Partnership. Promptly upon the occurrence of a Final Terminating Event, the Partnership shall sell or convert to cash or cash-equivalent assets (which may include negotiable promissory notes, installment sales contracts, or similar instruments) all non-cash assets of the Partnership. The Partnership shall apply the assets first to the payment of all Partnership liabilities or to the setting up of reserves or escrow accounts for existing liabilities. The Partnership shall allocate all items of income, gain, loss, deduction and credit among the parties in accordance with this Agreement and shall distribute all assets available for distribution to all parties in the ratio of the positive balances in their Capital Accounts.

Article 12: General Provisions

    12.01.        Notice. All notices, requests, demands, and other communications made hereunder must be in writing and will be deemed to have been given, if delivered personally or sent by facsimile or registered or certified mail, return receipt requested, postage and charges prepaid, addressed as follows: if to the Partnership or the Managing Partner at the address listed in Article 1 as the principal place of business; if to a Supervising Partner or Working Partner, at the address listed in the respective Partner’s agreement with the Managing Partner. All notices run from the date the party delivers the notice to the other party or three business days after the party places the notice in the mail or with the delivery service. Each party may change the party’s address by giving written notice to the other parties.

    12.02.        Entire Agreement. Except for the written assignment and assumption agreement entered into between the Managing Partner and any Working Partner or any Supervising Partner this Agreement constitutes the entire agreement of the parties with regard to the subject matter of this Agreement and replaces and supersedes all other written and oral agreements and statements of the parties relating to the subject matter of this Agreement.

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    12.03.        Governing Law. Notwithstanding the place where the parties execute this Agreement, the internal laws of Oklahoma shall govern the construction of the terms and the application of the provisions of this Agreement.

    12.04.        Headings. The headings used in this Agreement appear strictly for the parties’ convenience in identifying the provisions of this Agreement and shall not affect the construction or interpretation of the provisions of this Agreement.

    12.05.        Binding Effect. This Agreement binds and inures to the benefit of the parties and their respective successors, legal representatives, heirs and permitted assigns.

    12.06.        Amendments. No amendments to this Agreement shall become effective unless agreed to in writing by the Partners whose Ownership Interests equal a majority of the outstanding Ownership Interests. However, any amendment which changes the amount of a Partner’s Ownership Interest in the Partnership shall require the written consent of that Partner.

    12.07.        Waiver. The failure of a party to insist in any one or more instances on the performance of any term or condition of this Agreement shall not operate as a waiver of any future performance of that term or condition.

    12.08.        Interpretation. The use of the masculine, feminine, or neuter genders in this Agreement, when appropriate, shall include the masculine, feminine or neuter gender, and the use of the singular, when appropriate, shall include the plural, and vice versa.

    12.09.        Severability. If a court of competent jurisdiction holds any provision of this Agreement invalid or ineffective with respect to any person or circumstance, the holding shall not affect the remainder of this Agreement or the application of this Agreement to any other person or circumstance. If a court of competent jurisdiction holds any provision of this Agreement too broad to allow enforcement of the provision to its full extent, the court shall have the power and authority to enforce the provision to the maximum extent permitted by law and may modify the scope of the provision accordingly pursuant to an order of the court.

        In witness of their agreement, the parties have executed this Agreement as of the day and year first set forth above.

Managing Partner:	Sonic Restaurants, Inc.
	By:	(Vice) President
SII:	Sonic Industries, Inc.
	By:	(Vice) President

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OPERATING AGREEMENT
OF
SDI OF __________________, __________________, L.L.C.

        Sonic Restaurants, Inc. (the “Manager”), an Oklahoma corporation having its principal place of business in Oklahoma, and Sonic Industries Inc. (“SII”), an Oklahoma corporation having its principal place of business in Oklahoma, hereby enter into this Operating Agreement (this “Agreement”) as of the ____ day of __________, 200_.

Article I: Formation of Limited Liability Company

    1.01.        Formation and Name. The Manager and SII hereby form a limited liability company, designated SDI of __________, __________, L.L.C. (the “Company”), pursuant to the Oklahoma Limited Liability Company Act (the “Act”), to develop, own, operate and maintain the Sonic Drive-in (the “Drive-in”) located at __________, __________, _________; generally, to have the authority to engage in any and all general business activities related to the foregoing purpose or in any way incidental to the foregoing purpose; and to do all things necessary or appropriate for the operation of the Company’s business, including (without limitation) the acts specified in Section 2003 of the Act.

    1.02.        Term. The term of the Company shall commence on the filing of its articles of organization with the Oklahoma Secretary of State and shall terminate on the date on which the Company has sold its last assets and concluded its affairs, unless sooner terminated as provided in this Agreement.

    1.03.        Principal Place of Business. The Company shall have its principal place of business at 101 Park Avenue, Oklahoma City, Oklahoma 73102, or at any other location the Manager may determine, effective upon notice to the other Members of the Company.

    1.04.        Registered Agent. The Manager shall serve as the registered agent of the Company.

Article II: Definitions

        Unless the context of their use in this Agreement requires otherwise, the following words and phrases shall have the following meanings when used in initially-capitalized form in this Agreement:

    2.01.        Affiliate. The word “Affiliate” means any person or entity that directly or indirectly controls, is controlled by, or is under common control with another entity. The word “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities, by contract, or otherwise.

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    2.02.        Capital Account. The phrase “Capital Account” means the account established for each party to this Agreement to which the Company shall credit the party’s contributions and share of profits and to which the Company shall charge the party’s distributions and share of losses. If the Company makes any distribution of property other than cash, it shall make the distribution at the property’s fair market value, as reasonably determined by the Manager. The Company also shall credit or charge the accounts with any non-taxable income and any costs or losses which the parties cannot capitalize or deduct for federal income tax purposes.

    2.03.        Code. The word “Code” means the Internal Revenue Code of 1986, as amended.

    2.04.        Fiscal Year. The phrase “Fiscal Year” means the annual period ending on August 31 of each year.

    2.05.        License Agreement. The phrase "License Agreement" has the meaning stated in Article VI of this

    2.06.        Manager. The word “Manager” means Sonic Restaurants, Inc., an Oklahoma corporation, and its successors.

    2.07.        Member. The word “Member” means each party to this Agreement.

    2.08.        Net Cash Flow. The phrase “Net Cash Flow” means, with respect to any accounting period, the amount (if any) by which the Proceeds (including any proceeds received from fire and casualty insurance to the extent not used to rebuild or replace the property involved) exceed the sum of the following items: (a) all principal and interest payments on mortgages and other indebtedness of the Company and all other sums the Company paid to lenders; (b) all cash expenditures (including expenditures for capital improvements) incurred by the Company; and (c) any cash reserves which the Manager deems reasonably necessary for the proper operation of the Company, including (without limitation) the payment of workers’ compensation insurance, multi-peril insurance, and property taxes.

    2.09.        Ownership Interests. The phrase ” Ownership Interests” means the percentage interests of the Members in the Company.

    2.10.        Proceeds. The word “Proceeds” means all cash receipts and funds the Company receives from any source and, also, includes any cash reserves which the Company previously set aside and which the Manager no longer deems reasonably necessary for the proper operation of the Company.

    2.11.        Regulations. The word “Regulations” means any temporary or final Treasury Regulation promulgated with regard to the Code.

    2.12.        Supervisor. The word “Supervisor” has the meaning stated in Article VI.

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    2.13.        Working Manager. The phrase “Working Manager” has the meaning stated in Article VI.

Article III: Capital Contributions

    3.01.        Ownership Interests. The parties shall have the following Ownership Interests in the Company:

Member	Percentage
Manager	99	%
SII	1	%

        The Company will have the right to require each of the Members to make additional capital contributions to the Company from time to time in an amount sufficient to offset all or part of any Company losses. Any additional capital contributions required will be calculated in proportion to each Member’s Ownership Interest in the Company. Capital contributions to the Company must be made within thirty (30) days after notice by the Company to the Members. The Manager, at its discretion, may agree to finance a portion or all of any additional capital contribution for any Member. In such an event, the Member for whom the capital call is being financed must execute a promissory note in favor of the Manager and return it to the Manager within 10 days of receiving it. If no promissory note has been executed and returned to the Manager, then any unpaid capital contribution of any Member shall bear interest at the rate of 10.5% per year, until paid. The Manager may offset any Company distribution or other monies due to the obligor Member for any unpaid capital contribution (including accrued interest).

    3.02.        Special Provisions. The following special provisions apply to the Capital Accounts of the Members:

    (a)        Upon the transfer of all or part of an interest in the Company, the Company will carry over the Capital Account of the transferring Member in accordance with Regulation Section 1.704(b)(2)(iv). However, if the transfer of an interest in the Company causes a termination of the Company under Code Section 708(b)(1)(B), the Company will adjust the Capital Account that carries over to the transferee Member in accordance with Regulation Section 1.704(b) in connection with the constructive liquidation of the Company under Regulation 1.708-1. In addition, the Company will treat the constructive reformation of the Company, for purposes of Section 1.704(b), as the formation of a new entity, and the Company will determine and maintain the Capital Accounts of the Members of the new entity accordingly.

    (b)        The Members intend for the provisions of this Agreement relating to the maintenance of Capital Accounts to comply with Code Section 704(b) and all applicable Regulations as interpreted and applied in a manner consistent with Code Section 704(b) and the Regulations.

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    (c)        If the Manager determines it is prudent to modify the manner in which the Company computes the Capital Accounts, or any debits or credits to the Capital Accounts, in order to comply with the Regulations, the Manager may make the modification as long as it likely will not have a material effect on the amounts distributable to any Member upon the dissolution of the Company. The Manager also may make any adjustments necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of capital reflected on the Company’s balance sheet, as computed for book purposes, in accordance with Regulation Section 1.704(b)(2)(iv)(q), and the Manager may make any appropriate modifications if unanticipated events might otherwise cause this Agreement not to comply with Regulation Section 1.704(b).

    3.03.        Interest and Return of Capital Contributions. The Company will not pay interest on the capital contributions or Capital Account of any Member. Prior to the termination of the Company, no Member will have the right to demand the return of the Member’s capital contribution unless the Company has paid all of its liabilities (except liabilities to the Members as a result of their contributions) or the Company will have after the return sufficient assets with which to pay those liabilities. In addition, all of the Members must have consented to the return. No Member will have the right to demand and receive property other than cash in return for the Member’s capital contribution.

    3.04.        Loans. The Manager and its Affiliates may loan money to the Company and have the right to charge interest on those loans and to take security interests in any assets acquired with the proceeds of those loans. Loans by a Member to the Company will not constitute capital contributions.

Article IV: Distributions

        From time to time, not less than monthly, the Company will distribute the Company’s Net Cash Flow to the Members in accordance with their percentage of Ownership Interests in the Company.

Article V: Tax Allocations

    5.01.        Allocations. The Company will allocate each item of Company income, gain, loss, deduction and credit for each Fiscal Year to the Members according to their Ownership Interests in the Company, with the exception of goodwill amortization, which will be allocated entirely to the Manager. If a Member’s Ownership Interest varies during a taxable year because of the contribution of additional capital to the Company or because of the transfer of a Member’s interest, the Company will allocate the profits and losses among the applicable Members for each taxable year in proportion to the Ownership Interest in the Company each Member held during the taxable year in accordance with Code Section 706, using any convention permitted by law and selected by the Manager. The Company will allocate each item of income, gain, loss, deduction or credit with regard to property contributed to the Company by a Member in a manner which takes into account

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any difference between the basis of the property to the Company and its fair market value at the time of the contribution in accordance with Code Section 704(c) and the Regulations solely for income tax purposes and not for purposes of maintaining the Capital Accounts of the Members. The Manager has the sole discretion to choose among alternatives, if any, set forth in the Regulations for handling the foregoing difference. The Manager also has the authority to make special allocations of tax items required under Subchapter K of the Code and the Regulations.

    5.02.        Method of Accounting, Elections, and Tax Audits. The Company will adopt the accrual method of accounting and may make other income tax elections as determined by the Manager. The Company will not make any election excluding it from the application of the provisions of Subchapter K of the Internal Revenue Code of 1986, as amended. The Company will bear all costs of responding to audits by the Internal Revenue Service and of protesting or contesting adjustments by or on behalf of the Company.

Article VI: Conduct of Activities

    6.01.        Compliance and Agreement with Terms of License Agreement. The Manager, SII, Supervisor and Working Manager will take all necessary and appropriate actions to have the Company comply with the terms and conditions of the license agreement with Sonic Industries Inc. for the Drive-in now in existence and as later amended, renewed, converted or substituted (the “License Agreement”). In addition, the Supervisor and the Working Manager agree to become personally bound by and hereby agree to the terms and provisions of the License Agreement relating to the safeguarding of confidential information and any covenants not to compete provided for therein.

    6.02.        Authority of the Manager. The Manager has full and final control over all of the activities of the Company and has the authority to do all things deemed necessary or desirable by it in the conduct of the business of the Company, including (without limitation) the actions specified in Section 2003 of the Act. If the Manager serves as the licensee under the License Agreement for the Drive-in, the Company shall reimburse the Manager for all royalty payments, advertising fees, and other payments the Manager has the obligation to pay to Sonic Industries Inc. as the licensee for the Drive-in. The Company will treat that reimbursement as an expense of the Company and pay the amounts to the Manager whether or not the Company operates at a profit. The Company will not pay any other compensation to the Manager except as provided by Article IV of this Agreement.

    6.03(a).        Designation of the Supervisor. The Manager may make available for transfer to a Supervisor up to 49% of the total Ownership Interests in the Company out of the Manager’s Ownership Interest without the consent of any other Member. However, if any such transfer would result in the Manager owning less than 51% of the total Ownership Interests in the Company, such transfer shall be null and void to the extent such transfer would reduce the Manager’s Ownership Interests in the Company to less than 51%. Any Supervisor who receives the interest must pay the Manager a purchase price for the interest in an amount determined by the Manager, in its sole discretion.

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    6.03(b).        Duties and Compensation of the Supervisor. The Supervisor will manage the Drive-in, subject to the advice and recommendations of the Manager. The Supervisor provides complete management and staffing for the Drive-in and has responsibility for the day-to-day operations of the Drive-in, including (without limitation) the hiring and firing of personnel, the required accounting for the operations of the Drive-in, and the adherence to all applicable policies of Sonic Industries Inc. The Supervisor must comply with all obligations and duties of the Manager under the License Agreement. The Company may pay the Supervisor a monthly guaranteed payment (in an amount determined by the Manager) from Company funds. The Company will treat any guaranteed payment to the Supervisor as an expense of the Company and the Company will pay the amount whether or not the Company operates at a profit. The Company shall not pay any other compensation to the Supervisor except as provided by Article IV of this Agreement.

    6.04(a).        Designation of Working Manager. The Manager may make available for transfer to a Working Manager up to 49% of the total Ownership Interests in the Company out of the Manager’s Ownership Interest without the consent of any other Member. However, if any such transfer would result in the Manager owning less than 51% of the total Ownership Interests in the Company, such transfer will be null and void to the extent such transfer would reduce the Manager’s Ownership Interest in the Company to less than 51%. Any Working Manager who receives a Member Interest must pay the Manager a purchase price for the interest in an amount determined by the Manager, in its sole discretion.

    6.04(b).        Duties and Compensation of the Working Manager. The Working Manager will work as the general manager of the Drive-in full time and has the authority and responsibility for the day-to-day operations of the Drive-in, subject to the supervision of the Supervisor. The Company will pay the Working Manager a monthly guaranteed payment (in an amount determined by the Manager) from Company funds. The Company will treat the guaranteed payment of the Working Manager as an expense of the Company and the Company will pay the amount whether or not the Company operates at a profit. The Company shall not pay any other compensation to the Working Manager except as provided by Article IV of this Agreement. The Working Manager shall constitute a Member of the Company but shall not constitute a “manager” of the Company as defined by the Act.

    6.05.        Designation, Authority and Compensation of Tax Matters Partner. The parties hereby designate the Manager as the tax matters partner pursuant to Section 6231 of the Internal Revenue Code of 1986, as amended. The Company shall reimburse the tax matters partner for its expenses incurred in representing the Company in any administrative or judicial proceeding relating to the tax treatment of Company items. Additionally, if the tax matters partner institutes a proceeding in any United States District Court or Court of Claims and, therefore, has to deposit an amount equal to the proposed increase in tax liability if the Company were to treat the items on its return consistent with the asserted adjustment, the Company shall advance that amount to the tax matters partner. If the court finds the tax matters partner liable as a member of the Company for any additional tax as a result of the adjustment to Company items, the tax matters partner shall repay the Company an amount equal to its liability, without interest, for any funds advanced for the payment of the tax finally determined as due.

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    6.06.        Limitations on Authority of Supervisor and Working Manager. Without the prior, written consent of the Manager, neither the Supervisor nor the Working Manager shall (a) borrow any money on behalf of the Company, (b) enter into any contract which would commit the Company to pay more than $5,000 during any period of time, or (c) compromise any claim on behalf of the Company in excess of $5,000.

    6.07.        Company Funds. The Company may arrange to have the Manager or its Affiliates collect the Company’s daily receipts, deposit those receipts into a collective account, and pay the Company’s expenses and distributions from that account. The Supervisor and the Working Manager waive any right to receive interest on any positive cash balances held by the Manager or its Affiliates in the foregoing collective account from time to time.

    6.08.       Restrictions on Powers. Except as otherwise provided in this Agreement or by the Act, a Member does not have the authority or power to bind or act on behalf of the Company or any other Member. A Member does not have the right or power to take any action which would change the Company to a general partnership, change the limited liability of a Member, or affect the status of the Company for federal income tax purposes. Unless authorized by this Agreement, no Member, agent or employee of the Company shall have any power or authority to bind the Company in any way, to pledge its credit, or to render it liable pecuniarily for any purpose.

Article VII: Termination of Ownership Interests

    7.01.        Right to Purchase Supervisor’s Ownership Interests. The Manager has the right to purchase any or all of the Ownership Interests of the Supervisor upon 30 days’written notice pursuant to the terms and provisions of the agreement, if any, between the Manager and the Supervisor. In the absence of any such agreement, the Manager has the right to purchase any or all of the Supervisor’s Ownership Interests upon 10 days’ written notice. The Manager will pay the Supervisor for the interest purchased by corporate check within sixty (60) days after the end of the applicable notice period, and the Manager has the right to offset any amounts due the Company or the Manager from the Supervisor.

    7.02.        Right to Purchase Working Manager’s Ownership Interests. The Manager has the right to purchase any or all of the Ownership Interests of the Working Manager upon 10 days’ written notice pursuant to the terms and provisions of the agreement, if any, between the Manager and the Working Manager. The Manager will pay the Working Manager for the Member Interest purchased by corporate check within sixty (60) days after the end of the applicable notice period, and the Manager has the right to offset any amounts due the Company or the Manager from the Working Manager.

    7.03.        Automatic Termination of Ownership Interests. In the event of a sale or transfer of substantially all of the assets of the Company, the respective Ownership Interests of the Supervisor and the Working Manager will automatically terminate immediately upon such sale or transfer, and any provisions in this Agreement or any other agreement between the Manager and any Member requiring written notice prior to termination of that Member’s Ownership Interest will not apply.

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    7.04.        Calculation of Purchase Price. The purchase price paid by the Manager to a Member for his/her respective Ownership Interests will be calculated as set forth in the agreement, if any, between the Manager and the Member. In the absence of such agreement, the purchase price for the Member’s Ownership Interest will equal the original purchase price of the interest.

Article VIII: Transfer of Ownership Interests

        No Member (except for transfers to or from the Manager, including transfers contemplated under this Agreement) has the authority to sell, transfer or pledge an Ownership Interest, unless made with the consent of the Manager. No transferee of an Ownership Interest in the Company will become a substituted member until the transferee first agrees in writing to the terms of this Agreement. Each Member hereby consents to the admission to the Company of any transferee complying with the provisions of this Article as a substituted member. No transfer of an Ownership Interest, including the transfer of less than all of the transferor’s rights under this Agreement, or the transfer of Ownership Interest to more than one party, shall relieve the transferor of any responsibility for the transferor’s proportionate share of any expenses, obligations and liabilities under this Agreement with regard to the Ownership Interest transferred, whether arising prior or subsequent to the transfer, nor shall any transfer require an accounting by the Company between the transferor and transferee (or transferees). Until the transferee has become a substituted member, the Company shall continue to account only to the person to whom it was furnishing notices prior to that time pursuant to this Agreement, and that party shall continue to exercise all of the rights applicable to the entire Ownership Interest owned by the transferor.

Article IX: Other Rights of the Members

    9.01.        Outside Activities. Each Member and its Affiliates may have business interests and engage in business activities in addition to those relating to the Company, as long as the business interests or activities do not violate the provisions of this Agreement. Each of the parties may engage in whatever other activities the party chooses. Nothing in this Agreement prevents the parties to this Agreement or their Affiliates from engaging in any other activities, individually, jointly with others, or as a part of any other limited liability company, limited or general partnership, joint venture, or entity. Nothing in this Agreement requires the parties to this Agreement or their Affiliates to permit the Company or any Member of the Company to participate in their outside activities or to present to the Company or any Member of the Company any particular investment opportunity which comes to their attention even if the opportunity meets the investment objectives of the Company or any Member of the Company.

    9.02.        Indemnification. The Company will indemnify and hold the Manager harmless from and against any and all liabilities, claims, causes of action, damages, losses, costs and expenses, including (without limitation) legal and accounting fees, incurred by the Manager in connection with its services as the manager of the Company as long as its conduct did not constitute (1) a breach of the Manager’s duty of loyalty to the Company or its Members, (2) acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of the law, or (3) a transaction from which the Manager derived an improper personal benefit.

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    9.03.        Liability. In carrying out its duties under this Agreement, the Manager will not bear liability to the Company or any Member for monetary damages for its breach of any duty to the Company or its Members except for acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of the law.

    9.04.        General Release and Covenant Not to Sue. The Supervisor and the Working Manager hereby release Sonic Corp., its subsidiaries, and the officers, directors, employees and agents of Sonic Corp. and its subsidiaries from any and all claims and causes of action, known or unknown, which may exist in favor of the Supervisor or the Working Manager. In addition, the Supervisor and the Working Manager covenant that the Supervisor and the Working Manager shall not file or pursue any legal action or complaint against any of the foregoing entities or persons with regard to any of the foregoing claims or causes of action released pursuant to this section.

    9.05.        Resolution of Disputes. The following provisions apply to any controversy between the other Members of the Company and the Manager (including any director, officer, employee, agent or Affiliate of the Manager) and relating (1) to this Agreement (including any claim that any part of this Agreement is invalid, illegal or otherwise void or voidable), or (2) to the parties’ business activities with the Manager, whether or not related to the Company.

    (a)        Arbitration. The parties will resolve the controversy by final and binding arbitration in accordance with the Rules for Commercial Arbitration (the “Rules”) of the American Arbitration Association in effect at the time of the execution of this Agreement and pursuant to the following additional provisions:

    (1)        The Federal Arbitration Act (the “Federal Act”), as supplemented by the Oklahoma Arbitration Act (the “Oklahoma Act”) to the extent not inconsistent with the Federal Act, will apply to the arbitration.

    (2)        The parties will select a sole arbitrator within 10 days after the filing of a demand and submission in accordance with the Rules. If the parties fail to agree on a sole arbitrator within that 10-day period or fail to agree to an extension of that period, the arbitration will take place before a sole arbitrator selected in accordance with the Rules.

    (3)        The arbitration will take place in Oklahoma City, Oklahoma, and the arbitrator will issue any award at the place of arbitration. The arbitrator may conduct hearings and meetings at any other place agreeable to the parties or, upon the motion of a party, determined by the arbitrator as necessary to obtain significant testimony or evidence.

    (4)        The arbitrator will have the power to authorize all forms of discovery (including depositions, interrogatories and

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document production) upon the showing of (a) a specific need for the discovery, (b) that the discovery likely will lead to material evidence needed to resolve the controversy, and (c) that the scope, timing and cost of the discovery is not excessive.

    (5)        The arbitrator will not have the power to alter, modify, amend, add to, or subtract from any term or provision of this Agreement; nor rule upon or grant any extension, renewal or continuance of this Agreement; nor award damages or other remedies expressly prohibited by this Agreement; nor grant interim injunctive relief prior to the award.

    (6)        The prevailing party will have the right to enter the award of the arbitrator in any court having jurisdiction over one or more of the parties or their assets. The parties specifically waive any right they may have to apply to any court for relief from the provisions of this Agreement or from any decision of the arbitrator made prior to the award.

    (b)        Attorneys’ Fees and Costs. The prevailing party to the arbitration will have the right to an award of its reasonable attorneys’ fees and costs incurred after the filing of the demand and submission. If the Manager prevails, the award shall include an amount for that portion of the Manager’s administrative overhead reasonably allocable to the time devoted by the Manager’s in-house legal staff.

Article X: Duration, Dissolution and Winding Up

    10.01.        Duration. The Company will continue in existence until the expiration of its term as provided in Article I of this Agreement, unless terminated pursuant to the provisions of this Article. The Company will dissolve upon the occurrence of a Final Terminating Event, upon the adjudication of insolvency of the Manager, upon the institution of proceedings for the liquidation of the Manager by arrangement or composition with its creditors, upon the dissolution of the Manager (except as a part of a corporate merger or reorganization), or upon the occurrence of any event which under the Act causes the dissolution of a limited liability company. Except upon the occurrence of a Final Terminating Event, the Company or any successor limited liability company will not terminate, but will continue as a successor limited liability company under all of the terms of this Agreement. The successor limited liability company will succeed to all of the assets and liabilities of the Company. As used throughout this Agreement, the word “Company” shall include any successor limited liability company.

    10.02.        Dissolution and Winding Up. Upon the occurrence of a Final Terminating Event, the Manager will wind up the affairs of the Company and make a final accounting. As used in this Agreement, the phrase “Final Terminating Event” means (a) the expiration of the fixed term of the Company or (b) the giving of notice to the Members by the Manager of its election to terminate and wind up the affairs of the Company. Promptly upon the occurrence of a Final Terminating Event,

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the Company will sell or convert to cash or cash-equivalent assets (which may include negotiable promissory notes, installment sales contracts, or similar instruments) and all non-cash assets of the Company. The Company will apply the assets first to the payment of all Company liabilities or to the setting up of reserves or escrow accounts for existing liabilities. The Company will allocate all items of income, gain, loss, deduction and credit among the parties in accordance with this Agreement and distribute all assets available for distribution to all parties in the ratio of the positive balances in their Capital Accounts.

    10.03.        Articles of Dissolution. Upon the completion of the distribution of the Company’s assets, the Company will file articles of dissolution as required by the Act or any other state law. Each Member shall take any advisable or proper action necessary to carry out the provisions of this section.

Article XI: Miscellaneous Provisions

    11.01.        Notice. Except as otherwise provided in this Agreement, when this Agreement makes provision for notice of any kind, the sending party shall deliver or address the notice to the other party in person or by certified mail, facsimile or nationally-recognized overnight delivery service at the following:

Company:	101 Park Avenue, Suite 1400
	Oklahoma City, Oklahoma 73102
	Facsimile: (405) 280-7516
Manager:	101 Park Avenue, Suite 1400
	Oklahoma City, Oklahoma 73102
	Facsimile: (405) 280-7516
SII:	101 Park Avenue, Suite 1400
	Oklahoma City, Oklahoma 73102
	Facsimile: (405) 280-7516
Supervisor:	Address set forth in the Supervisor's agreement with the Manager
Working Manager	Address set forth in the Working Manager's agreement with the Manager

        All notices run from the date the party delivers the notice to the other party if service is made in person, by facsimile or by nationally-recognized overnight delivery service; if service is made by certified mail, notice will run three business days after the party places the notice with the United States mail. Each party may change the party’s address by giving written notice to the other parties.

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    11.02.        Entire Agreement. Except for any Assignment and Assumption Agreement entered into between the Manager and any Working Manager, and any Master Agreement and Assignment and Assumption Agreement entered into between the Manager and any Supervisor, this Agreement constitutes the entire agreement of the parties with regard to the subject matter of this Agreement and replaces and supersedes all other written and oral agreements and statements of the parties relating to the subject matter of this Agreement.

    11.03.        Governing Law. Notwithstanding the place where the parties execute this Agreement, the internal laws of Oklahoma shall govern the construction of the terms and the application of the provisions of this Agreement.

    11.04.        Headings. The headings used in this Agreement appear strictly for the parties’ convenience in identifying the provisions of this Agreement and shall not affect the construction or interpretation of the provisions of this Agreement.

    11.05.        Binding Effect. This Agreement binds and inures to the benefit of the parties and their respective successors, legal representatives, heirs and permitted assigns.

    11.06.        Amendments. No amendments to this Agreement shall become effective unless agreed to in writing by the Members whose Ownership Interests equal a majority of the outstanding Ownership Interests. However, any amendment that changes the amount of a Member’s Ownership Interest in the Company requires the written consent of that Member.

    11.07.        Counterparts. The parties may execute this Agreement in counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one and the same instrument.

        In witness of their agreement, the parties have executed this Agreement as of the day and year first set forth above.

Managing Partner:	Sonic Restaurants, Inc.
	By:	(Vice) President
SII:	Sonic Industries, Inc.
	By:	(Vice) President

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MASTER AGREEMENT

        Sonic Restaurants, Inc. ("SRI"), an Oklahoma corporation; and ___ ("____"), a ____ resident, enter into this Master Agreement (this "Agreement") as of the ____ day of _____, 20__.

        W I T N E S S E T H:

        Whereas, SRI owns and operates Sonic drive-in restaurants in a number of states, including ______; and

        Whereas, SRI and ___ intend to enter into certain general partnership agreements and operating agreements for the purpose of operating certain Sonic drive-in restaurants in ______ and other locations; and

        Whereas, SRI and ___ wish to set forth the terms and conditions of the proposed partnership agreements and operating agreements and the contemplated manner in which the respective entities will operate.

        Now, therefore, in consideration of the mutual covenants contained in this Agreement, the parties agree as follows:

    1.        Covered Entities. Simultaneously with the execution of this Agreement, SRI and ___ shall execute an assignment and assumption agreement with SRI for each of the Sonic drive-in restaurants listed on Exhibit A to this Agreement. Thereafter, SRI and ___ may execute additional assignment and assumption agreements for the operation of future Sonic drive-in restaurants as designated by amendment to this Agreement from time to time. The addition of future entities to this Agreement shall take place on the basis of the mutual agreement of SRI and ___. Either party may elect not to enter into an additional partnership agreement, operating agreement or assignment and assumption agreement with the other party in his or its sole and absolute discretion.

    2.        Option to Purchase Additional Ownership Interests. After ___ has served as the supervisor or supervising partner of an entity covered by this Agreement for two complete fiscal years ending August 31, ___ shall have the right to acquire additional supervisor or supervising partner interests in that entity out of SRI’s ownership interests pursuant to the following provisions:

    (a)        ___ may purchase an additional interest only if the entity’s net royalty sales and net income (as defined below) increased during the preceding fiscal year ending August 31.

    (b)        If eligible, ___ shall have the right to purchase up to an additional 2% interest at the end of each consecutive two-year period.

    (c)        To purchase an additional interest, ___ must give SRI written notice of ___‘s election to purchase the interest and specify the amount of the

additional percentage interest being purchased not later than November 30 of each eligible year.

    (d)        ___‘s purchase of any additional interest shall become effective the following January 1, subject to SRI’s receipt of the purchase price for the interest.

    (e)        The purchase price for ___‘s additional interest shall equal, on a percentage point basis, the same amount as the original purchase price for ___‘s original interest in the entity.

    (f)        ___ shall pay the purchase price for the additional interest by delivering a cashier’s check payable to SRI with ___‘s written notice of election to purchase the interest.

    (g)        ___ may not purchase more than a cumulative total of an additional 5% supervisor or supervising partner interest in each entity.

    (h)        ___ may not purchase an additional interest if it would result in SRI owning less than 51% of an entity.

    3.        SRI’s Option to Purchase’s Interests. SRI shall have the right to purchase any or all of ___‘s ownership interest in each entity covered by this Agreement pursuant to the following provisions:

    (a)        SRI shall have the right to purchase any or all of ___‘s interest effective immediately upon 30 days’ written notice to ___.

    (b)        The purchase price for ___‘s interest shall equal an amount determined by multiplying ___‘s percentage interest being purchased times 6.25% of the entity’s net royalty sales for the last 12 full months of operations during the period ending with the second month preceding the date of SRI’s election to purchase ___‘s interest.

    (c)        If the entity has not had 12 full months of operations during the period ending with the second month preceding the date of SRI’s election to purchase ___‘s interest, the purchase price for ___‘s interest shall equal ___‘s original purchase price for the interest being purchased.

    (d)        On ___‘s fifth anniversary as the supervisor or supervising partner of an entity and on each subsequent anniversary of that date, the purchase price for ___‘s ownership interest shall increase through an increase of one percentage point in the applicable percent of the entity’s net royalty sales used in the foregoing calculation.

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    (e)        SRI shall pay ___ for the percentage interest purchased by corporate check within a reasonable time after the end of the 30-day period, and SRI shall have the right to offset any amounts due the entity or SRI from ___.

    4.        Net Royalty Sales and Net Income. The phrase “net royalty sales” shall mean the amount reported as net royalty sales to Sonic Industries Inc. on the profit and loss statements of the entity prepared in the format then being required by Sonic Industries Inc. The phrase “net income” shall mean the amount reported as net income to Sonic Industries Inc. on the profit and loss statements of the entity prepared in the format then being required by Sonic Industries Inc.

    5.        Transfer of Ownership Interest by ___. ___ shall not have the right to transfer, assign or pledge any ownership interest or any other interest in any entity formed with SRI pursuant to the terms of this Agreement without the prior, written consent of SRI.

    6.        Entire Agreement.  This Agreement constitutes the entire agreement between the parties with regard to the subject matter of this Agreement and replaces and supersedes all other written and oral agreements and statements of the parties relating to the subject matter of this Agreement. 

    7.        Waiver. The failure of a party to insist in any one or more instances on the performance of any term or condition of this Agreement shall not operate as a waiver of any future performance of that term or condition.

    8.        Interpretation.  The use of the masculine, feminine, or neuter genders in this Agreement, when appropriate, shall include the masculine, feminine or neuter gender, and the use of the singular, when appropriate, shall include the plural, and vice versa.

    9.        Assignment. No party may assign any of the party’s rights or delegate any of the party’s obligations under this Agreement.

    10.        Headings. The headings used in this Agreement appear strictly for the parties’ convenience in identifying the provisions of this Agreement and shall not affect the construction or interpretation of the provisions of this Agreement.

    11.        Binding Effect. This Agreement binds and inures to the benefit of the parties and their respective successors, legal representatives, heirs and permitted assigns.

    12.        Amendments.  No amendment to this Agreement shall become binding unless in writing and signed by all of the parties to this Agreement.

    13.        Time. Time constitutes an essential part of each and every part of this Agreement.

    14.        Notice. Except as otherwise provided in this Agreement, when this Agreement makes provision for notice or concurrence of any kind, the sending party shall deliver or address

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the notice to the other party by certified mail, telecopy, or nationally-recognized overnight delivery service to the following address or telecopy number:

SRI:	101 Park Avenue
	Oklahoma City, Oklahoma 73102
	(405) 280-7627
____:	________________________
	________________________
	(____) ____-______

    15.        Governing Law. Notwithstanding the place where the parties execute this Agreement, the internal laws of Oklahoma shall govern the construction of the terms and the application of the provisions of this Agreement. The federal and state courts in Oklahoma County, Oklahoma, shall constitute the proper venue and forum for any action arising out of or in any way related to this Agreement. Each party to this Agreement hereby consents to any those court’s exercise of personal jurisdiction over the party in that type of action and expressly waives all objections that the party otherwise might have to that exercise of personal jurisdiction.

    16.        Severability. If a court of competent jurisdiction holds any provision of this Agreement invalid or ineffective with respect to any person or circumstance, the holding shall not affect the remainder of this Agreement or the application of this Agreement to any other person or circumstance. If a court of competent jurisdiction holds any provision of this Agreement too broad to allow enforcement of the provision to its full extent, the court shall have the power and authority to enforce the provision to the maximum extent permitted by law and may modify the scope of the provision accordingly pursuant to an order of the court.

        In witness of their agreement, the parties have executed this Agreement on the day and year first above written.

SRI:	Sonic Restaurants, Inc.
	By:	(Vice) President
		Date:________________
____:
		SSN:______
		Date:________________

EXHIBIT A

SDI of _ (# )

EX-10

Exhibit 10.22

EMPLOYMENT AGREEMENT

        This Agreement is entered into effective as of the 20th day of August, 2003, by and between Sonic Restaurants, Inc., (the "Corporation"), an Oklahoma corporation, and Michael A. Perry (the "Employee").

RECITALS

        Whereas, Employee has been elected a Senior Vice President of the Corporation and is an integral part of the Corporation’s management;

        Whereas, Employee previously served as a Vice President of Sonic Industries Inc.;

        Whereas, the Employee and the Corporation acknowledge that Sonic Industries Inc. and Employee previously entered into an Employment Agreement dated April 30, 1998, which is hereby canceled and superseded in its entirety by this Agreement;

        Whereas, the Corporation’s Board of Directors (the “Board”) has determined that it is appropriate to reinforce and encourage the continued attention and dedication of certain key members of the Corporation’s management, including Employee, to their assigned duties without distraction and potentially disturbing circumstances arising from the possibility of a Change in Control (herein defined) of Sonic Corp., the parent of the Corporation;

        Whereas, the Corporation desires to continue the services of Employee, whose experience, knowledge and abilities with respect to the business and affairs of the Corporation are extremely valuable to the Corporation;

        Whereas, the Board of Directors of Sonic Corp. on the 20th day of August, 2003, ratified and approved this Agreement; and

        Whereas, the parties hereto desire to enter into this Agreement setting forth the terms and conditions of the continued employment relationship of the Corporation and Employee.

        Now, therefore, it is agreed as follows:

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ARTICLE I
Term of Employment

        1.1 Term of Employment. The Corporation shall employ Employee for a period of one year from the date hereof (the "Initial Term").

        1.2 Extension of Initial Term. Upon each annual anniversary date of this Agreement, this Agreement shall be extended automatically for successive terms of one year each, unless either the Corporation or the Employee gives contrary written notice to the other not later than the annual anniversary date.

        1.3 Termination of Agreement and Employment. The Corporation may terminate this Agreement and the Employee’s employment at any time effective upon written notice to the Employee. The Corporation, in its sole discretion, may terminate this Agreement without terminating the employment of the Employee. The Employee may terminate this Agreement and the Employee’s employment only after at least 30 days’ written notice to the Corporation, unless otherwise agreed by the Corporation.

ARTICLE II
Duties of the Employee

        Employee shall serve as the Senior Vice President of the Corporation. Employee shall do and perform all services, acts, or things necessary or advisable to manage and conduct the business of the Corporation consistent with such position subject to such policies and procedures as may be established by the Board.

ARTICLE III
Compensation

        3.1 Salary. For Employee’s services to the Corporation as the Senior Vice President, Employee shall be paid a salary at the annual rate of $230,000 (herein referred to as “Salary”), payable in twenty-four equal installments on the fifteenth and last day of each month. On the first day of each calendar year during the term of this Agreement with the Corporation, Employee shall be eligible for an increase in Salary based on an evaluation of Employee’s performance during the past year with the Corporation. During the term of this Agreement, the Salary of the Employee shall not be decreased at any time from the Salary then in effect unless agreed to in writing by the Employee.

        3.2 Bonus. The Employee shall be entitled to participate in an equitable manner with other officers of the Corporation in discretionary cash bonuses as authorized by the Board.

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ARTICLE IV
Employee Benefits

        4.1 Use of Automobile. The Corporation shall provide Employee with either the use of an automobile for business and personal use or a cash car allowance in accordance with the established company car policy of the Corporation. The Corporation shall pay all expenses of operating, maintaining and repairing the automobile and shall procure and maintain automobile liability insurance in respect thereof, with such coverage insuring each Employee for bodily injury and property damage.

        4.2 Medical, Life and Disability Insurance Benefits. The Corporation shall provide Employee with medical, life and disability insurance benefits in accordance with the established benefit policies of the Corporation.

        4.3 Working Facilities. Employee shall be provided adequate office space, secretarial assistance, and such other facilities and services suitable to Employee’s position and adequate for the performance of Employee’s duties.

        4.4 Business Expenses. Employee shall be authorized to incur reasonable expenses for promoting the business of the Corporation, including expenses for entertainment, travel, and similar items. The Corporation shall reimburse Employee for all such expenses upon the presentation by Employee, from time to time, of an itemized account of such expenditures.

        4.5 Vacations. Employee shall be entitled to an annual paid vacation commensurate with the Corporation’s established vacation policy for officers. The timing of paid vacations shall be scheduled in a reasonable manner by the Employee.

        4.6 Disability. Upon disability (as defined herein) of the Employee, the Employee shall be entitled to receive an amount equal to 50% of Employee’s Salary (in addition to any disability insurance benefits received pursuant to Section 4.2 herein), such amount being paid semi-monthly in twelve equal installments.

        4.7 Term Life Insurance. The Corporation shall purchase term life insurance on the life of the Employee having a face value of four times the Employee’s Salary (to be changed as salary adjustments are made) or the face value of life insurance that can be purchased based upon the Employee’s health history with the Corporation paying the standard premium rate for term insurance under its then current insurance program at the Employee’s age and assuming good health, whichever amount is lesser; provided further that, such insurance can be obtained by the Corporation in a manner which meets the requirements for deductibility by the Corporation under Section 79 of the Internal Revenue Code of 1986, or as hereafter amended.

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        4.8 Compensation Defined. Compensation shall be defined as all monetary compensation and all benefits described in Articles III and IV hereunder (as adjusted during the term hereof).

ARTICLE V
Termination

        5.1 Death. Employee's employment hereunder shall be terminated upon the Employee's death.

        5.2 Disability. The Corporation may terminate Employee’s employment hereunder in the event Employee is disabled and such disability continues for more than 180 days. Disability shall be defined as the inability of Employee to render the services required of him, with or without a reasonable accommodation, under this Agreement as a result of physical or mental incapacity.

        5.3 Cause.

    (a)       The Corporation may terminate Employee’s employment hereunder for cause. For the purpose of this Agreement, “Cause” shall mean (i) the willful and intentional failure by Employee to substantially perform Employee’s duties hereunder, other than any failure resulting from Employee’s incapacity due to physical or mental incapacity, or (ii) commission by Employee, in connection with Employee’s employment by the Corporation, of an illegal act or any act (though not illegal) which is not in the ordinary course of the Employee’s responsibilities and exposes the Corporation to a significant level of undue liability. For purposes of this paragraph, no act or failure to act on Employee’s part shall be considered to have met either of the preceding tests unless done or omitted to be done by Employee without a reasonable belief that Employee’s action or omission was in the best interest of the Corporation.

    (b)       Notwithstanding the foregoing, Employee shall not be deemed to have been terminated for cause unless such action is ratified by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting held within 30 days of such termination (after reasonable notice to Employee and an opportunity for Employee to be heard by members of the Board) confirming that Employee was guilty of the conduct set forth in this Section 5.3. Ratification by the board will be effective as of the original date of termination of Employee.

        5.4 Compensation Upon Termination for Cause or Upon Resignation By Employee. Except as otherwise set forth in Section 5.7 hereof, if Employee’s employment shall be terminated for Cause or if Employee shall resign Employee’s position with the Corporation, the Corporation shall pay Employee’s Compensation only through the last day of Employee’s employment by the Corporation. The Corporation shall then have no further obligation to Employee under this Agreement. If the Board, pursuant to Section 5.3(b), votes to classify Employee’s termination as “not for cause,” then Employee shall be compensated pursuant to Section 5.5 below.

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        5.5 Compensation Upon Termination Other Than For Cause Or Disability. Except as otherwise set forth in Section 5.7 hereof, if the Company shall terminate Employee’s employment other than for Cause or Disability, the Company shall continue to be obligated to pay Employee’s Salary for a period of one year, beginning on the date of termination, but shall not be obligated to provide any other benefits described in Articles III and IV hereof, except to the extent required by law.

        5.6 Compensation Upon Non-Renewal of Agreement. Except as otherwise set forth in Section 5.7 hereof, if the Company shall give notice to Employee in accordance with Section 1.2 hereof that this Agreement will not be renewed but Employee’s employment is not terminated, the Company shall continue to be obligated to pay Employee’s Compensation for a period of one year beginning on the date notice of non-renewal is given.

        5.7 Termination of Employee or Resignation by Employee for Good Reason. If at any time within the first twelve months subsequent to a Change in Control, the Employee’s employment with the Corporation is terminated other than as provided for in Section 5.1, 5.2 or 5.3 hereof, or the Corporation violates any provision of this Agreement or Employee shall resign Employee’s employment for Good Reason (as defined herein), the Corporation shall be obligated to pay to Employee a lump sum payment upon the effective date of such termination or resignation or breach (as determined in Employee’s sole discretion), in an amount equal to two times the Employee’s compensation payable under paragraph 5.5 above, but in no event to exceed an amount equal to $1.00 less than three (3) times the mean average annual compensation paid to Employee by the Corporation and any of its subsidiaries during the five calendar years ending before the date on which the Change in Control occurred (or if Employee was not employed for that entire five year period, then the mean average annual compensation paid to employee during such shorter period, with the Employee’s compensation annualized for any calendar year during which the employee was not employed for the entire calendar year); provided, however, that if the lump-sum severance payment under this Section 5.7, either alone or together with any other payments or compensation which Employee has a right to receive from the Corporation, would constitute a “parachute payment” (as defined in Section 280G (or any equivalent term defined in any successor or equivalent provision) of the Internal Revenue Code of 1986, as amended (the “Code”)), then such lump-sum severance payment shall be reduced to the largest amount as will result in no portion of the lump-sum severance payment under this Section 5.7 being subject to the excise tax imposed by Section 4999 (or any successor or equivalent provision) of the Code. For the purpose of this Section 5.7, the Employee’s annual compensation from the Corporation and its subsidiaries for a given year shall equal Employee’s compensation as reflected on Employee’s Form W-2 for that year (unless the Employee was not employed for the entire calendar year, in which case Employee’s Form W-2 compensation for such year shall be annualized). The determination of any reduction in lump-sum severance payment under this Section 5.7 pursuant to the foregoing provision shall be conclusive and binding on the Corporation. Notwithstanding any other provision of this Section

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5.7, Employee may elect to have the lump sum severance payment hereunder paid in equal monthly installments over a period not to exceed 12 consecutive months.

        “Good Reason” shall mean any of the following which occur during the term of this Agreement without Employee’s express written consent:

              In the Event of a Change in Control:

    (a)        the assignment to Employee of duties inconsistent with Employee’s position, office, duties, responsibilities and status with the Corporation immediately prior to a Change in Control; or, a change in Employee’s titles or offices as in effect immediately prior to a Change in Control; or, any removal of Employee from or any failure to reelect Employee to any such position or office, except in connection with the termination of Employee’s employment by the Corporation for Disability or Cause or as a result of Employee’s death or by Employee other than for Good Reason as set forth in this Section 5.7(a); or

    (b)        a reduction by the Corporation in Employee’s Salary as in effect as of the date of this Agreement or as the same may be increased from time-to-time during the term of this Agreement or the Corporation’s failure to increase (within twelve months of the Employee’s last increase in Salary) Employee’s Salary after a Change in Control in an amount which at least equals, on a percentage basis, the highest percentage increase in salary for all officers of the Corporation or any parent or affiliated company effected in the preceding twelve months; or

    (c)        the failure of the Corporation to provide Employee with the same fringe benefits (including, without limitation, life insurance plans, medical or disability plans, retirement plans, incentive plans, stock option plans, stock purchase plans, stock ownership plans, or bonus plans) that were provided to Employee immediately prior to the Change in Control, or with a package of fringe benefits that, if one or more of such benefits varies from those in effect immediately prior to such Change in Control, is in Employee’s sole judgment substantially comparable in all material respects to such fringe benefits taken as a whole; or

    (d)        relocation of the Corporation’s principal executive offices to a location outside of Oklahoma City, Oklahoma, or Employee’s relocation to any place other than the location at which Employee performed Employee’s duties prior to a Change in Control, except for required travel by Employee on the Corporation’s business to an extent substantially consistent with Employee’s business travel obligations at the time of the Change in Control; or

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    (e)        any failure by the Corporation to provide Employee with the same number of paid vacation days to which Employee is entitled at the time of the Change in Control; or

    (f)        the failure of a successor to the Corporation to assume the obligation of this Agreement as set forth in Section 7.1 herein.

        5.8. Change in Control. For the purposes of this Agreement, the phrase “change in control” shall mean any of the following events:

    (a)        Any consolidation or merger of Sonic Corp. in which Sonic Corp. is not the continuing or surviving corporation or pursuant to which shares of Sonic Corp.‘s capital stock would convert into cash, securities or other property, other than a merger of Sonic Corp. in which the holders of Sonic Corp.‘s capital stock immediately prior to the merger have the same proportionate ownership of capital stock of the surviving corporation immediately after the merger;

    (b)        Any sale, lease, exchange or other transfer (whether in one transaction or a series of related transactions) of all or substantially all of the assets of Sonic Corp.;

    (c)        The stockholders of Sonic Corp. approve any plan or proposal for the liquidation or dissolution of Sonic Corp.;

    (d)        Any person (as used in Section 13(d) and 14(d)(2) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) becomes the beneficial owner (within the meaning of Rule 13D-3 under the Exchange Act) of 50% or more of Sonic Corp.‘s outstanding capital stock;

    (e)        During any period of two consecutive years, individuals who at the beginning of that period constitute the entire Board of Directors of Sonic Corp. cease for any reason to constitute a majority of the Board of Directors unless the election or the nomination for election by Sonic Corp.‘s stockholders of each new director received the approval of the Board of Directors by a vote of at least two-thirds of the directors then and still in office and who served as directors at the beginning of the period; or

    (f)        Sonic Corp. becomes a subsidiary of any other corporation.

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ARTICLE VI
Obligation to Mitigate Damages; No Effect
on Other Contractual Rights

        6.1 Mitigation. The Employee shall not have any obligation to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise. However, all payments required under the terms of this Agreement shall cease 30 days after the acceptance by the Employee of employment by another employer; provided that, this limitation shall not apply to payments due under paragraph 5.7, above.

        6.2 Other Contractual Rights. The provisions of this Agreement, and any payment provided for hereunder shall not reduce any amount otherwise payable, or in any way diminish Employee’s existing rights, or rights which would accrue solely as a result of passage of time under any employee benefit plan or other contract, plan or arrangement of which Employee is a beneficiary or in which Employee participates.

ARTICLE VII
Successors to the Corporation

        7.1 Assumption. The Corporation will require any successor or assignee (whether direct or indirect, by purchase, merger, consolidation or otherwise) of all or substantially all of the business and/or assets of the Corporation, by agreement in form and substance reasonably satisfactory to Employee, to expressly, absolutely and unconditionally assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession or assignment had taken place. Any failure by the Corporation to obtain such agreement prior to the effectiveness of any such succession or assignment shall be a material breach of this Agreement.

        7.2 Employee’s Successors and Assigns. This Agreement shall inure to the benefit of and be enforceable by Employee’s personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amounts are still payable to Employee hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee’s devisee, legatee or other designee or, if there is no such designee, to Employee’s estate.

ARTICLE VIII
Restrictions on Employee

        8.1 Confidential Information. During the term of the Employee’s employment and for a period of twelve months thereafter, the Employee shall not divulge or make accessible to any party any Confidential Information, as defined below, of Sonic Corp. or any of its subsidiaries, except to

8

the extent authorized in writing by the Corporation or otherwise required by law. The phrase “Confidential Information” shall mean the unique, proprietary and confidential information of the Sonic Corp. and its subsidiaries, consisting of: (1) confidential financial information regarding Sonic Corp. or its subsidiaries, (2) confidential recipes for food products; (3) confidential and copyrighted plans and specifications for interior and exterior signs, designs, layouts and color schemes; (4) confidential methods, techniques, formats, systems, specifications, procedures, information, trade secrets, sales and marketing programs; (5) knowledge and experience regarding the operation and franchising of Sonic drive-in restaurants; (6) the identities and locations of Sonic’s franchisees, Sonic drive-in restaurants, and suppliers to Sonic’s franchisees and drive-in restaurants; (7) knowledge, financial information, and other information regarding the development of franchised and company-store restaurants; (8) knowledge, financial information, and other information regarding potential acquisitions and dispositions; and (9) any other confidential business information of Sonic Corp. or any of its subsidiaries. The Employee shall give the Corporation written notice of any circumstances in which Employee has actual notice of any access, possession or use of the Confidential Information not authorized by this Agreement.

        8.2 Restrictive Covenant. During the term of Employee’s employment, the Employee shall not engage in or have any interest, directly or indirectly, in any business competing with the business being conducted by Sonic Corp. or any of its subsidiaries, without the Corporation’s prior written consent. For the six month period immediately following the termination of Employee’s employment, the Employee shall not engage in or have any interest, directly or indirectly, in any fast food restaurant business that has a menu similar to that of a Sonic drive-in restaurant (such as hamburgers, hot dogs, onion rings and similar items customarily sold by Sonic drive-in restaurants), or which has an appearance similar to that of a Sonic drive-in restaurant (such as color pattern, use of canopies, use of speakers and menu housings for ordering food, or other items that are customarily used by a Sonic drive-in restaurant), and which operates such restaurants within a three mile radius of any Sonic drive-in restaurant.

ARTICLE IX
Miscellaneous

        9.1 Indemnification. To the full extent permitted by law, the Board shall authorize the payment of expenses incurred by or shall satisfy judgments or fines rendered or levied against Employee in any action brought by a third-party against Employee (whether or not the Corporation is joined as a party defendant) to impose any liability or penalty on Employee for any act alleged to have been committed by Employee while employed by the Corporation unless Employee was acting with gross negligence or willful misconduct. Payments authorized hereunder shall include amounts paid and expenses incurred in settling any such action or threatened action.

        9.2 Resolution of Disputes. The following provisions shall apply to any controversy between the Employee and Sonic Corp. and its subsidiaries and the Employee (including any

9

director, officer, employee, agent or affiliate of Sonic Corp. and its subsidiaries) whether or not relating to this Agreement.

    (a)       Arbitration. The parties shall resolve all controversies by final and binding arbitration in accordance with the Rules for Commercial Arbitration (the “Rules”) of the American Arbitration Association in effect at the time of the execution of this Agreement and pursuant to the following additional provisions:

    (1)       Applicable Law. The Federal Arbitration Act (the “Federal Act”), as supplemented by the Oklahoma Arbitration Act (to the extent not inconsistent with the Federal Act), shall apply to the arbitration and all procedural matters relating to the arbitration.

    (2)       Selection of Arbitrators. The parties shall select one arbitrator within 10 days after the filing of a demand and submission in accordance with the Rules. If the parties fail to agree on an arbitrator within that 10-day period or fail to agree to an extension of that period, the arbitration shall take place before an arbitrator selected in accordance with the Rules.

    (3)       Location of Arbitration. The arbitration shall take place in Oklahoma City, Oklahoma, and the arbitrator shall issue any award at the place of arbitration. The arbitrator may conduct hearings and meetings at any other place agreeable to the parties or, upon the motion of a party, determined by the arbitrator as necessary to obtain significant testimony or evidence.

    (4)       Discovery. The arbitrator shall have the power to authorize all forms of discovery (including depositions, interrogatories and document production) upon the showing of (a) a specific need for the discovery, (b) that the discovery likely will lead to material evidence needed to resolve the controversy, and (c) that the scope, timing and cost of the discovery is not excessive.

    (5)       Authority of Arbitrator. The arbitrator shall not have the power (a) to alter, modify, amend, add to, or subtract from any term or provision of this Agreement; (b) to rule upon or grant any extension, renewal or continuance of this Agreement; or (c) to grant interim injunctive relief prior to the award.

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    (6)       Enforcement of Award. The prevailing party shall have the right to enter the award of the arbitrator in any court having jurisdiction over one or more of the parties or their assets. The parties specifically waive any right they may have to apply to any court for relief from the provisions of this Agreement or from any decision of the arbitrator made prior to the award.

    (b)        Attorneys’ Fees and Costs. The prevailing party to the arbitration shall have the right to an award of its reasonable attorneys’ fees and costs (including the cost of the arbitrator) incurred after the filing of the demand and submission. If the Corporation or any of its subsidiaries prevails, the award shall include an amount for that portion of the administrative overhead reasonably allocable to the time devoted by the in-house legal staff of Sonic Corp. or any subsidiary.

    (c)        Excluded Controversies. At the election of the Corporation or its subsidiaries, the provisions of this Section 9.2 shall not apply to any controversies relating to the enforcement of the covenant not to compete or the use and protection of the trademarks, service marks, trade names, copyrights, patents, confidential information and trade secrets of Sonic Corp. or its subsidiaries, including (without limitation) the right of the Corporation or its subsidiaries to apply to any court of competent jurisdiction for appropriate injunctive relief for the infringement of the rights of Sonic Corp. or its subsidiaries.

    (d)        Other Rights. The provisions of this Section 9.2 shall not prevent the Corporation, its subsidiaries, or the Employee from exercising any of their rights under this agreement, any other agreement, or under the common law, including (without limitation) the right to terminate any agreement between the parties or to end or change the party’s legal relationship.

        9.3 Entire Agreement. This Agreement constitutes the entire agreement of the parties with regard to the subject matter of this Agreement and replaces and supersedes all other written and oral agreements and statements of the parties relating to the subject matter of this Agreement.

        9.4 Notices. Any notices required or permitted to be given under this Agreement shall be sufficient if in writing and sent by mail to Employee’s residence, in the case of Employee, or to its principal office, in the case of the Corporation.

        9.5 Waiver of Breach. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by any party.

        9.6 Amendment. No amendment or modification of this Agreement shall be deemed effective unless or until executed in writing by the parties hereto.

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        9.7 Validity. This Agreement, having been executed and delivered in the State of Oklahoma, its validity, interpretation, performance and enforcement will be governed by the laws of that state.

        9.8 Section Headings. Section and other headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

        9.9 Counterpart Execution. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument.

        9.10 Exclusivity. Specific arrangements referred to in this Agreement are not intended to exclude Employee’s participation in any other benefits available to executive personnel generally or to preclude other compensation or benefits as may be authorized by the Board from time to time.

        9.11 Partial Invalidity. If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions shall nevertheless continue in full force without being impaired or invalidated in any way.

        In witness whereof, the Corporation has caused this Agreement to be executed and its seal affixed hereto by its officers thereunto duly authorized; and the Employee has executed this Agreement, as of the day and year first above written.

The Corporation:
	By:	/s/ W.Scott McLain
		W.Scott McLain, Vice President
Attest:
/s/ Ronald L. Matlock
Ronald L. Matlock, Secretary
The Employee:		/s/ Michael A. Perry
		Michael A. Perry

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EX-23

Exhibit 23.01

Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-26359) pertaining to the Sonic Corp. Savings and Profit Sharing Plan, the Registration Statement (Form S-8 No. 333-64890) pertaining to the 1991 Sonic Corp. Stock Option Plan, 2001 Sonic Corp. Stock Option Plan and 2001 Sonic Corp. Directors’ Stock Option Plan, the Registration Statements (Forms S-8 No. 333-09373, No. 33-40989 and No. 33-78576) pertaining to the 1991 Sonic Corp. Stock Option Plan, the Registration Statement (Form S-8 No. 33-40988) pertaining to the 1991 Sonic Corp. Stock Purchase Plan, the Registration Statement (Form S-8 No. 33-40987) pertaining to the 1991 Sonic Corp. Directors’ Stock Option Plan and the Registration Statement (Form S-3 No. 33-95716) for the registration of 1,420,000 shares of its common stock, and the related Prospectuses of our report dated October 13, 2003, with respect to the consolidated financial statements and schedule of Sonic Corp. included in the Annual Report (Form 10-K) for the year ended August 31, 2003.

	ERNST & YOUNG LLP
Oklahoma City, Oklahoma November 20, 2003

EX-99

Exhibit 99.1

CERTIFICATION

        I, J. Clifford Hudson, certify that:

1.         I have reviewed this annual report on Form 10-K of Sonic Corp.;

2.         Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.         Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.         The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)         designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)         evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

c)         disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in this case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.         The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)         all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)         any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

Date: November 25, 2003
	/s/ J. Clifford Hudson
	J. Clifford Hudson
	Chief Executive Officer

EX-99

Exhibit 99.2

CERTIFICATION

        I, W. Scott McLain, certify that:

1.         I have reviewed this annual report on Form 10-K of Sonic Corp.;

2.         Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.         Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.         The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)         designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)         evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

c)         disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in this case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.         The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)         all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)         any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

Date: November 25, 2003
	/s/ W. Scott McLain
	W. Scott McLain
	Chief Financial Officer

EX-99

Exhibit 99.3

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350

                The undersigned hereby certifies that to his knowledge the quarterly report of Sonic Corp. (the “Company”) filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly represents, in all material respects, the financial condition and results of operations of the Company.

Date: November 25, 2003
	/s/ J. Clifford Hudson
	J. Clifford Hudson
	Chief Executive Officer

EX-99

Exhibit 99.4

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350

                The undersigned hereby certifies that to his knowledge the quarterly report of Sonic Corp. (the “Company”) filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly represents, in all material respects, the financial condition and results of operations of the Company.

Date: November 25, 2003
	/s/ W. Scott McLain
	W. Scott McLain
	Chief Financial Officer